What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-11-23 compared with 2020-11-30 · 186 added, 267 removed, 404 unchanged (53% of the section changed)

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References in this Annual Report on Form 10-K to the "separation" refer to the legal separation and transfer of the former Parent's automotive seating and interiors business to Adient on October 31, 2016.

The information presented herein are based on management’s perspective of Adient’s results of operations.

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Forward-Looking Statements

Adient has made statements in this section and other parts of this Annual Report on Form 10-K ("Form 10-K") that are forward-looking and, therefore, are subject to risks and uncertainties.

Adient has made statements in this section and other parts of this Annual Report on Form 10-K ("Form 10-K") that are management’s perspective of forward-looking information and, therefore, are subject to risks and uncertainties.

All statements in this Form 10-K other than statements of historical fact are statements that are, or could be, deemed "forward-looking statements", within the meaning of the Private Securities Litigation Reform Act of 1995.

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Adient cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, 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:

the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on Adient and its customers, suppliers, joint venture partners and other parties, the impact of tax reform legislation through the Tax Cuts and Jobs Act and/ or under a new U.S.

presidential administration, uncertainties in U.S.

administrative policy regarding trade agreements, tariffs and other international trade relations including as may be impacted by the change in U.S.

presidential administration, the ability of Adient to execute its turnaround plan, the ability of Adient to effectively launch new business at forecast and profitable levels, the ability of Adient to identify, recruit and retain key leadership, the ability of Adient to meet debt service requirements, the 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 and cancellation of or changes to commercial arrangements.

whether recently completed strategic transactions in China and deleveraging activities may yield additional value for shareholders at all or on the same or different terms as those described herein, the timing, benefits and outcomes of the strategic transactions in China and / or the activities relating to our capital structure, the effects of local and national economic, credit and capital market conditions on the economy in general, and other risks and uncertainties, the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on Adient and its customers, suppliers, joint venture partners and other parties, the ability of Adient to execute its turnaround plan, work stoppages, including due to supply chain disruptions and similar events, energy and commodity (particularly steel) prices, the availability of raw materials (including petrochemicals) and component products (including components required by our customers for the manufacture of vehicles (i.e., semiconductor chips)), automotive vehicle production levels, mix and schedules, as well as our concentration of exposure to certain automotive manufacturers, the ability of Adient to effectively launch new business at forecast and profitable levels, the ability of Adient to meet debt service requirements, the terms of future financing, the impact of tax reform legislation, uncertainties in U.S.

administrative policy regarding trade agreements, tariffs and other international trade relations, general economic and business conditions, the strength of the U.S.

or other economies, shifts in market shares among vehicles, vehicle segments or away from vehicles on which Adient has significant content, changes in consumer demand, global climate change and related emphasis on ESG matters by various stakeholders, currency exchange rates and cancellation of or changes to commercial arrangements, and the ability of Adient to identify, recruit and retain key leadership.

Potential investors and others should consider these factors in evaluating the forward-looking statements and should not place undue reliance on such statements.

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The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this Form 10-K.

All information presented herein is based on the

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Adient's fiscal calendar.

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.

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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 operates in 202 wholly- and majority-owned manufacturing or assembly facilities, with operations in 32 countries.

Adient operates in 208 wholly- and

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majority-owned manufacturing or assembly facilities, with operations in 33 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.

Through its global footprint and vertical integration, Adient leverages its capabilities to drive growth in the automotive seating industry.

Adient manages its business on a geographic basis and operates in the following three reportable segments for financial reporting purposes:

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Refer to Note 18, "Segment Information," of the notes to the consolidated financial statements for additional information on Adient's reportable segments.

Recent Developments Regarding COVID-19

The impact of the novel strain of the coronavirus identified in late 2019 (“COVID-19”) continues to be present throughout the world, including in all global and regional markets served by Adient.

Governmental authorities have implemented numerous measures attempting to contain and mitigate the effects of COVID-19, including travel bans and restrictions, quarantines, social distancing orders, shelter in place orders and shutdowns of non-essential activities.

Adient's manufacturing facilities are located in areas that have been affected by the pandemic.

Adient's China facilities (including both consolidated and non-consolidated joint ventures) were effectively shut down during the lunar New Year festival (at the end of January) and did not return to operations until the end of March 2020.

Currently, all of Adient's plants in China are operating and all of its customer plants in China have re-opened.

Beginning in late March 2020, Adient experienced the shutdown of effectively all of its facilities in the Americas and European regions coinciding with the shutdown of its customer facilities in those regions.

Adient also experienced the shutdown of approximately 50% of its plants in Asia (outside China) during late March and early April.

During May and June, production started to resume in all regions concurrent with Adient's customers resuming operations and continued to ramp up through Adient’s fiscal fourth quarter.

As of September 30, 2020, virtually all of Adient's plants had resumed production, but with production rates well below pre-pandemic levels.

Supply Chain Disruptions and Inflationary Pressures

The global automotive industry continues to experience widespread supply chain disruptions primarily related to semiconductor chip shortages.

Although Adient’s seating products are not highly dependent on semiconductor chips, Adient is directly impacted by the lower production levels at the OEM’s as a result of these supply disruptions.

These disruptions have led to unplanned downtime at Adient’s production facilities, often with very little warning, which results in operating inefficiencies and limits Adient’s ability to adequately mitigate such inefficiencies.

The automotive industry has also experienced a period of sustained price increases for commodities, primarily related to steel, and to a lesser extent petrochemicals.

Shipping costs have also sharply increased throughout the fiscal year.

These commodity and shipping cost increases may continue into the future as demand increases and supply may remain constrained, which has resulted in, and may continue to result in, increased costs for Adient that may not be, or may only be partially, offset.

Adient is also closely monitoring labor availability and wage inflationary pressures, both internally and at key vendors, to assess any impact labor shortages and wage inflation might have on Adient’s ability to perform its obligations.

Although Adient has developed and implemented strategies to mitigate the impact of higher raw material, commodity and shipping costs, these strategies (which include targeted SG&A savings through hiring freezes, delayed merit increases, suspended 401(k) matches in the U.S.

and RSU replacement awards in lieu of salary for certain executives of Adient), together with commercial negotiations with Adient's customers and suppliers, are only expected to offset a portion of the adverse impact.

Refer to the consolidated results of operations and segment analysis discussion below for additional information on the impacts of these items on Adient's results.

Also refer to Item 1A.

Risk Factors section for additional information.

On-Going Impact of COVID-19

The impact of COVID-19, and related mutations, continues to be present throughout the world, including in all global and regional markets served by Adient.

Although vaccines have been introduced that are expected to have the result of reducing the effect of COVID-19 and COVID-19 started to wane in certain geographic areas, governmental authorities continue to implement numerous measures attempting to contain and mitigate the effects of COVID-19, including travel bans and restrictions, quarantines, social distancing orders, shelter in place orders and shutdowns of non-essential activities.

Adient's manufacturing facilities are located in areas that continue to be affected by the pandemic.

As previously disclosed, beginning at the end of January 2020 and continuing through June 2020, Adient experienced the shutdown of its facilities in all geographic regions (Asia, Americas and EMEA) at various points in time.

Production finally started to resume in all regions and continued to ramp up through Adient’s fiscal fourth quarter, and as of December 31, 2020, virtually all of Adient's plants had resumed production.

Although the global automotive industry experienced increased demand for new vehicles as Adient emerged from the global shutdowns in late fiscal year 2020 and early fiscal year 2021, it is possible that, in the event of the resurgence of COVID-19, the global automotive industry will experience significantly lower demand for new vehicle sales over the long-term as a result of the global economic slowdown caused by the COVID-19 pandemic because new vehicle sales are highly dependent on strong consumer confidence and low unemployment.

As a result, new vehicle sales could be significantly lower than historical and previously projected pre-pandemic sales levels.

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It is likely that the global automotive industry will experience significantly lower demand for new vehicle sales as a result of the global economic slowdown caused by the COVID-19 pandemic because new vehicle sales are highly dependent on strong consumer confidence and low unemployment.

Until consumers regain confidence in the markets and unemployment returns to lower levels, new vehicle sales will likely be significantly lower than historical and previously projected pre-pandemic sales levels.

Adient has been actively monitoring the global outbreak and spread of COVID-19 and taking steps to mitigate the potential risks to the Company posed by its spread and related circumstances and impacts.

Adient continues to assess and update its business continuity plans in the context of this pandemic, including analyzing constraints at its suppliers.

Throughout fiscal year 2020 and 2021 and into fiscal year 2022, Adient continues to actively monitor the threat and impacts of COVID-19.

Adient has taken, and continues to take, steps to mitigate the potential risks to the Company posed by COVID-19 and its impacts.

In addition, Adient continues to assess and update its business continuity plans in the context of this pandemic, including analyzing constraints at its customers and suppliers, particularly components and labor-related shortages, respectively.

Adient has taken precautions to help keep its workforce healthy and safe, including establishing a Global Response Team, implementing strict travel restrictions, enforcing rigorous hygiene protocols, increasing sanitization efforts at all facilities, enacting visitor restrictions, social distancing, face covering expectations, and temperature and health screenings and implementing remote working arrangements for the vast majority of Adient's employees who work outside the plants.

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employees outside the plants, reduced/delayed capex spending to coincide with the resumption of production and effectively eliminating all discretionary spending.

The actions to reduce and defer compensation were global initiatives and included 20% salary reductions in the U.S.

beginning on March 23, 2020 (with up to 10% incremental reductions and deferrals taking effect on April 13, 2020) and running until June 30, 2020, salary reductions of up to 20% for certain employees in many of the countries outside of the U.S., CEO salary reduction and deferral until July 15, 2020, and a 20% Board fee reduction.

Effective July 1, 2020, Adient offered certain employees, including Adient’s executive officers, restricted stock unit (RSU) awards in lieu of 10-30% of salary and other compensatory benefits that are being foregone by each recipient from the time period beginning July 1, 2020 through June 30, 2021.

The RSU awards will vest in two tranches, with one half of the awards vesting six months from the grant date, and the remaining half vesting one year from the grant date.

In addition to the significant measures taken to reduce and contain costs, Adient took actions to provide additional liquidity, primarily including the draw down on its ABL revolving credit facility of $825 million at the end of March 2020 and the issuance of $600 million of senior secured notes due 2025 on April 20, 2020.

Adient's ability to borrow against the ABL revolving credit facility is limited to its borrowing base, which consists primarily of accounts receivable, inventory and certain cash account balances at certain Adient subsidiaries.

Such working capital account balances decreased, as expected, during the third quarter of fiscal 2020 as a result of the production shutdown but subsequently increased, as expected, during the fourth quarter of fiscal 2020 as a result of the resumption of production.

Adient repaid $825 million of the ABL revolving credit facility during the third and fourth quarters of fiscal 2020 and maintains $739 million of availability under the ABL revolving credit facility as of September 30, 2021.

The recent automotive production shutdown across most of the world has also significantly impacted Adient’s daily working capital.

The automotive production shutdown in fiscal 2020 also significantly impacted Adient’s daily working capital.

During the third quarter of fiscal 2020, Adient experienced significantly lower trade working capital balances (accounts receivable, inventory and accounts payable) due to the shutdown of production in the early part of the third quarter and resumption of production only toward the latter part of the quarter.

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The resumption of production in the fourth quarter of fiscal 2020 had a favorable impact to trade working capital as Adient returned to a more stabilized production run rate.

Adient closed on the sale of its YFAI joint venture investment (as part of the broader Yanfeng transaction announced on January 31, 2020 and as modified on June 24, 2020), providing additional liquidity of approximately $329 million.

Adient also closed on the sale of its fabrics business, providing additional liquidity of approximately $170 million.

Adient has also pursued, wherever it qualifies, governmental assistance during this time.

For example, Adient has been deferring the employer portion of FICA until fiscal 2021 or beyond and deferring VAT payments.

Adient has also pursued, wherever it qualifies, governmental assistance.

For example, Adient deferred the employer portion of FICA until fiscal 2021 or beyond and deferred VAT payments.

Adient is seeking to take advantage of all such assistance to either defer payments to government authorities or to receive cash to help defray operating costs.

Adient cannot guarantee that it will continue to qualify for, or receive any of, the assistance that it is pursuing.

Finally, Adient’s Chinese joint ventures paid dividends to Adient during the fiscal year ending September 30, 2020 of approximately $273 million.

Adient, however, cannot guarantee the collection of annual cash dividends from its non-consolidated joint ventures.

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The spread of COVID-19 and the measures taken to restrain the spread of the virus have had, and will continue to have, a material negative impact on Adient's financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak.

Adient cannot assure that the assumptions used to estimate its liquidity requirements will be correct because it has never previously experienced such a widespread cessation of its operations as it experienced in the third quarter of fiscal 2020.

In addition, the magnitude, duration, speed and potential resurgence of the global pandemic is uncertain.

Consequently, the impact on Adient's business, financial condition or longer-term financial or operational results are uncertain.

Based on the actions it has taken and the assumptions regarding the impact of COVID-19, Adient believes that its current financial resources will be sufficient to fund the company's liquidity requirements for at least the next twelve months.

The spread of COVID-19 and the measures taken to restrain the spread of the virus have had, and may continue to have, a material negative impact on Adient's financial results and liquidity, and such negative impact may continue well beyond the containment of COVID-19 through the results of widespread use of the vaccine or otherwise.

In addition, the magnitude, duration, speed and potential resurgence or surges of the global pandemic are all uncertain.

Consequently, the impact of the pandemic and its myriad of effects on Adient's business, financial condition or longer-term financial or operational results remain uncertain.

Based on the actions it has taken and its current assumptions regarding the impact of COVID-19, Adient believes that its current financial resources will be sufficient to fund the company's liquidity requirements for at least the next twelve months.

Global Automotive Industry

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During fiscal 2020, automotive production across the globe declined due to the economic slow down resulting from the COVID-19 pandemic.

During fiscal 2021, automotive production at the beginning of the year was higher in all regions, but experienced a slow down in the second half of the fiscal year due to the widespread supply chain disruptions impacting the global automotive industry.

Light vehicle production levels by geographic region are provided below:

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Light Vehicle Production

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Financial Results Summary

Significant aspects of Adient's financial results for fiscal 2020 include the following:

• Adient recorded net sales of $12,670 million for fiscal 2020, representing a decrease of $3,856 million when compared to fiscal 2019.

The decrease in net sales is primarily due to the significant operational interruptions related to COVID-19 starting in the second quarter of fiscal 2020 which resulted in lower sales volumes across all regions, unfavorable foreign currency impact ($217 million), and the impact of divestitures primarily related to RECARO ($115 million).

Significant aspects of Adient's financial results for fiscal 2021 include the items discussed below.

The recently completed transactions in China had a significant impact on the fiscal 2021 financial results.

Refer to Note 3, “Acquisitions and Divestitures,” in Part II, Item 8 of this Form 10-K for more information on these transactions.

• Adient recorded net sales of $13,680 million for fiscal 2021, representing an increase of $1,010 million when compared to fiscal 2020.

The increase in net sales is attributable to prior year operational interruptions due to COVID-19, the favorable impact of foreign currencies and favorable material economics recoveries, partially offset by current year temporary operational interruptions and production stoppages primarily resulting from semiconductor chip shortages, and prior year divestitures primarily consisting of the fabrics businesses, and unfavorable commercial settlements.

• Gross profit was $826 million, or 6.0% of net sales for fiscal 2021 compared to $592 million, or 4.7% of net sales for fiscal 2020.

Profitability, including gross profit as a percentage of net sales, was lower primarily due to the lower sales volume resulting from the COVID-19 impact, partially offset by the impact of business performance improvements including lower launch inefficiencies, and reductions in operational waste and freight along with favorable commercial settlements and net pricing adjustments.

Profitability, including gross profit as a percentage of net sales, was higher due to higher current year volumes primarily resulting from prior year operational interruptions due to COVID-19, current year operational improvements, a one-time gain associated with retrospective recoveries of Brazil indirect tax credits, the favorable impact of foreign currencies, and favorable commercial settlements, partially offset by temporary operational inefficiencies and premium freight caused by unplanned production stoppages resulting from semiconductor chip shortages, and unfavorable impacts of material economics, net of recoveries.

• Equity income was $1,484 million for fiscal 2021, which compares to equity income of $22 million for fiscal 2020.

The significantly lower level of equity income during fiscal 2020 was primarily attributable to the $231 million non-cash impairment charge related to Adient's YFAI investment recorded in conjunction with the Yanfeng transaction and the impact from the planned divestiture of YFAI ($26 million).

• Net loss attributable to Adient was $547 million for fiscal 2020, compared to a loss of $491 million for fiscal 2019.

The increased net loss attributable to Adient is primarily due to the impact of having significantly lower volumes due to COVID-19 along with a one-time non-cash impairment charge of $231 million on Adient's YFAI investment, a $25 million loss on the sale of the RECARO business and deconsolidation of Adient Aerospace, and overall higher net financing costs, partially offset by operating improvements and lower administrative costs and one-time charges in the prior year related to impairment in the seat structures and mechanism business of $66 million and income tax charges to establish valuation allowances of $297 million.

The significant increase is primarily attributable to a $1,181 million current year gain recognized upon sales of certain of Adient’s equity interests in China as part of the 2021 Yanfeng Transaction and $33 million current year gain on the sale of SJA, favorable impact of foreign currencies, a $231 million prior year non-cash impairment of the YFAI investment as part of the 2020 Yanfeng transaction, and operational performance improvements primarily at Adient's affiliates in China.

Excluding the impacts of current year transactional gains and prior year impairments, equity income increased by $17 million.

• Net income attributable to Adient was $1,108 million for fiscal 2021, compared to a loss of $547 million for fiscal 2020.

The increased net income attributable to Adient is due to $1,214 million of one-time gains from sales of certain of Adient’s equity interests in China, higher current year volumes primarily resulting from prior year operational interruptions due to COVID-19, current year operational improvements, lower restructuring charges, a one-time gain associated with retrospective recoveries of Brazil indirect tax credits, and a $231 million prior year non-cash impairment of the YFAI investment, partially offset by operational inefficiencies and premium freight caused by unplanned production stoppages resulting from semiconductor and petrochemical shortages, higher net financing charges, and higher income tax expense primarily resulting from the withholding taxes paid in association with the 2021 Yanfeng Transaction.

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Selling, general and administrative expenses 537 (4)% 558 (17)% 671

Loss on business divestitures - net 13 n/a — n/a —

Loss on business divestitures - net 26 100% 13 n/a —

Restructuring and impairment costs 21 (91)% 238 35% 176

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Net sales $ 13,680 8% $ 12,670 (23)% $ 16,526

Net sales decreased by $3,856 million, or 23%, in fiscal 2020 primarily due to the significant operational interruptions related to COVID-19 starting in the second quarter of fiscal 2020 which resulted in lower sales volumes across all regions, unfavorable foreign currency impact ($217 million), and the impact of divestitures primarily related to RECARO ($115 million), partially offset by favorable commercial settlements and net pricing adjustments, including material economics, net of recoveries.

Net sales increased by $1,010 million, or 8%, in fiscal 2021 primarily due to the prior year significant operational interruptions related to COVID-19 starting in the second quarter of fiscal 2020 which resulted in lower sales volumes across all regions and despite current year certain unplanned temporary production stoppages primarily resulting from semiconductor and petrochemical shortages ($786 million), favorable foreign currency impact ($273 million), favorable material economics recoveries ($83 million), and favorable commercial settlements and net pricing adjustments, partially offset by the impact of divestitures primarily related to RECARO and fabrics businesses ($156 million).

Refer to the segment analysis below for a discussion of segment net sales.

Net sales decreased by $913 million, or 5%, in fiscal 2019 primarily due to the unfavorable impact of foreign currency ($508 million) and lower volumes in EMEA and Asia ($576 million), partially offset by higher volumes in the Americas ($163 million).

Refer to the segment analysis below for a discussion of segment net sales.

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% of sales 6.0 % 4.7 % 4.8 %

Cost of sales decreased by $3,647 million, or 23%, and gross profit decreased by $209 million, or 26%, in fiscal 2020.

Cost of sales were lower primarily due to the decrease in sales volumes as a result of the COVID-19 impact along with overall business performance improvements, the favorable impact of foreign currency ($195 million), and the impact of divestitures primarily related to RECARO ($97 million).

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and reductions in operational waste and freight along with favorable commercial settlements and net pricing adjustments.

Cost of sales increased by $776 million, or 6% and gross profit increased by $234 million, or 40%, in fiscal 2021 as compared to fiscal 2020.

The cost of sales year-over-year increase is primarily attributable to higher sales volumes in all regions ($507 million), the unfavorable impact of foreign currencies ($258 million), higher commodity costs ($150 million), temporary operational inefficiencies including premium freight and unplanned production stoppages resulting from semiconductor and petrochemical shortages and to a lesser extent COVID-19 related costs ($165 million) and prior year non-recurring favorable benefits related to actions taken as described in the On-Going Impact of COVID-19 section above ($36 million), partially offset by the impact of prior year divestitures primarily consisting of the RECARO and fabrics businesses ($120 million), overall operational performance improvements ($106 million), favorable material margins ($76 million), and a one-time gain associated with retrospective recoveries of Brazil indirect tax credits ($38 million).

The increase in gross profit was due to higher overall volumes, the favorable impact of foreign currencies, operational performance improvements, the favorable commercial settlements and net pricing adjustments, including material economics, and the one-time gain in Brazil, partially offset by higher commodity costs, inefficiencies caused by unplanned production stoppages and certain prior year incentive compensation costs and to a lesser extent other benefits that were not expected to recur.

Refer to the segment analysis below for a discussion of segment profitability.

Cost of sales decreased by $810 million, or 5%, and gross profit decreased by $103 million, or 11%, in fiscal 2019.

Cost of sales were lower due to favorable foreign currency ($467 million), a reduction in depreciation expense due to long-lived asset impairments taken at the end of the prior year ($98 million), prior year Becoming Adient costs ($46 million) and by the impact of current year decreases in production volumes, partially offset by continued business performance issues related to launch inefficiencies within the Americas and EMEA segments particularly during the first half of fiscal 2019.

These ongoing performance issues, along with lower volumes and the net unfavorable impact of foreign currency, also resulted in a year-over-year decline of gross profit as a percentage of net sales.

Cost of sales decreased by $3,647 million, or 23%, and gross profit decreased by $209 million, or 26%, in fiscal 2020 as compared to fiscal 2019.

Gross profit was lower as a result of the negative impact of lower sales volume due to the COVID-19 impact, partially offset by the impact of business performance improvements including lower launch inefficiencies, and reductions in operational waste and freight along with favorable commercial settlements and net pricing adjustments.

Refer to the segment analysis below for a discussion of segment profitability.

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Selling, general and administrative expenses (SG&A) decreased by $21 million, or 4% in fiscal 2021 as compared to fiscal 2020.

SG&A was favorably impacted by lower overall administrative and engineering spending of $88 million, including lower levels of certain compensation and discretionary spending which are not expected to recur as part of the annual SG&A run rate, prior year Adient Aerospace and RECARO costs of $39 million, lower share based compensation expense of $5 million and the favorable impact of foreign currency ($5 million), partially offset by higher transaction costs in the current year related to the Yanfeng transaction and sale of the fabrics business of $12 million.

Refer to the segment analysis below for a discussion of segment profitability.

Selling, general and administrative expenses (SG&A) decreased by $59 million in fiscal 2019.

SG&A was favorably impacted by lower engineering costs ($54 million), the favorable impact of foreign currency ($20 million), lower depreciation expense ($17 million), prior year Becoming Adient costs ($16 million), lower stock-based compensation ($14 million), and overall reduced costs resulting from restructuring actions, partially offset by reestablishing certain discretionary spending, primarily incentive compensation, in the current year.

SG&A was favorably impacted by lower overall engineering and other administrative spending ($41 million), and prior year RECARO and fabrics administrative costs ($30 million), partially offset by higher stock-based compensation costs ($21 million), prior year non-recurring favorable benefits related to actions taken as described in the On-Going Impact of COVID -19 section above ($4 million), the unfavorable impact of foreign currencies ($21 million), and higher transaction costs ($4 million).

Selling, general and administrative expenses (SG&A) decreased by $113 million, or 17%, in fiscal 2020 as compared to fiscal 2019.

SG&A was favorably impacted by lower overall administrative and engineering spending ($88 million), including lower levels of certain compensation and discretionary spending which are not expected to recur as part of the annual SG&A run rate, prior year Adient Aerospace and RECARO costs ($39 million), lower share based compensation expense ($5 million) and the favorable impact of foreign currency ($5 million), partially offset by higher transaction costs in the current year related to the Yanfeng transaction and sale of the fabrics business ($12 million).

Refer to the segment analysis below for a discussion of segment profitability.

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Restructuring and impairment costs $ 21 (91)% $ 238 35% $ 176

Restructuring and impairment charges increased by $62 million in fiscal 2020 due primarily to higher levels of restructuring actions taken in fiscal 2020 after the industry experienced significant volume decreases resulting from the COVID-19 impact, $53 million of one-time non-cash impairment charges of long-lived assets in China and other assets held for sale, partially offset by one-time non-cash impairment charges in the prior year related to the seat structures and mechanisms business ($66 million).

Restructuring and impairment charges decreased by $1 billion in fiscal 2019 as compared to fiscal 2018.

The fiscal 2018 charge primarily relates to a $787 million long-lived asset impairment charge and a $299 million goodwill impairment associated with the seat structure and mechanism operations, along with a $49 million assets held for sale impairment charge and $46 million of net restructuring charges.

The fiscal 2019 charges primarily relate to a $66 million long-lived asset impairment charge associated with the seat structure and mechanism operations, $18 million of impairment charges on assets held for sale and $92 million of net restructuring charges.

Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for information related to the assets held for sale.

Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for information related to the non-cash impairment charges of long-lived assets in fiscal 2020 and the goodwill

Restructuring and impairment costs were lower by $217 million in fiscal 2021 as compared to fiscal 2020 due primarily to higher levels of restructuring actions taken in fiscal 2020 after the industry experienced significant volume decreases resulting from the COVID-19 impact, and $53 million of one-time non-cash impairment charges in the prior year of long-lived assets in China and other assets held for sale.

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impairment charge recorded in fiscal 2018.

Restructuring and impairment charges increased by $62 million in fiscal 2020 as compared to fiscal 2019 due primarily to higher levels of restructuring actions taken in fiscal 2020 after the industry experienced significant volume decreases resulting from the COVID-19 impact, and $53 million of one-time non-cash impairment charges of long-lived assets in China and other assets held for sale, partially offset by one-time non-cash impairment charges in the prior year related to the seat structures and mechanisms business ($66 million).

Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for information related to the assets held for sale.

Refer to Note 15, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for information related to Adient's restructuring plans.

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Equity income was $1,484 million for fiscal 2021, compared to $22 million for fiscal 2020.

The decrease during fiscal 2020 was due primarily to the $231 million non-cash impairment charge recorded in fiscal 2020 of the YFAI investment as part of the Yanfeng transaction, and the impact from the planned divestiture of YFAI of $26 million, partially offset by higher income at certain China seating affiliates that included $10 million of benefits from tax credits at various China affiliates that are not expected to recur.

Equity income was $275 million for fiscal 2019, compared to a loss of $13 million for fiscal 2018.

The increase during fiscal 2019 was due primarily to $366 million prior year charges related to YFAI ($358 million impairment of the YFAI investment and $8 million related to U.S.

tax reform legislation), partially offset by the unfavorable impact of foreign currency ($19 million) and lower income at non-consolidated affiliates in Asia driven by lower production volumes in China.

The significant increase during fiscal 2021 was due primarily to a one-time gain associated with the 2021 Yanfeng Transaction ($1,181 million), one-time gain associated with the sale of Adient's interest in SJA ($33 million), a prior year non-cash impairment charge related to Adient's YFAI investment divestiture ($231 million), a one-time gain on previously held interest at YFAS in an affiliate during the first quarter of fiscal 2021 ($5 million), favorable impact of foreign currencies ($19 million), and prior year lower production volumes within Adient's China affiliates due to the impact of COVID-19 primarily during the second quarter of fiscal 2020 despite the current year operational interruptions and temporary production stoppages resulting from semiconductor chip shortages ($27 million).

These were partially offset by the impact of prior year divestitures of YFAI and the fabrics business as well as current year divestiture of SJA ($30 million), and prior year tax benefits at various China affiliates that are not expected to recur ($10 million).

As a result of the 2021 Yanfeng Transaction, equity income associated with the equity interests sold by Adient and, therefore will not recur, equaled $155 million, including the equity income associated with the entities which Adient acquired controlling interests.

Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for more information.

Equity income was $22 million for fiscal 2020, compared to $275 million for fiscal 2019.

The decrease during fiscal 2020 was due primarily to the non-cash impairment charge recorded in fiscal 2020 of the YFAI investment as part of the 2020 Yanfeng Transaction ($231 million), and the impact from the planned divestiture of YFAI ($26 million), partially offset by higher income at certain China seating affiliates that included $10 million of benefits from tax credits at various China affiliates that are not expected to recur.

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Net Financing Charge

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Net financing charges $ 311 41% $ 220 21% $ 182

Net financing charges increased in fiscal 2020 as a result of higher levels of outstanding debt and to higher average interest rates in the current year, partially offset by $3 million of net gain resulting from the partial extinguishment of debt.

In fiscal 2019, a one-time charge of $13 million related to deferred financing fees associated with Adient's previous debt arrangements along with higher levels of outstanding debt and higher average interest rates resulted in higher net financing charges in 2019 compared to 2018.

Net financing charges increased in fiscal 2021 as compared to fiscal 2020 primarily as a result of premium and related transaction costs paid on the repurchase of debt ($50 million), a write off of the associated deferred financing costs ($20 million), a derivative loss associated with the 2021 Yanfeng Transaction ($30 million), and higher levels of outstanding debt and higher average interest rates during the current fiscal year.

Net financing charges increased in fiscal 2020 as a result of higher levels of outstanding debt and to higher average interest rates in fiscal 2020, partially offset by $3 million of net gain resulting from the partial extinguishment of debt.

Refer to Note 9, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for information related to the components of Adient's net financing charges.

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Other pension expense (income) consists of mark-to-market adjustments of Adient's retirement plans and non-service components of Adient's net periodic pension costs.

A pension mark-to-market gain ($15 million) occurred in fiscal 2021 compared to the $22 million mark-to-market charge in fiscal 2020.

The decrease in pension expense in fiscal 2020 is due to the lower level of pension mark-to-market impact (a $22 million charge in fiscal 2020 compared to a $49 million charge in fiscal 2019), partially offset by a $2 million pension settlement expense related to the settlement of two plans in the United States.

The change in pension expense in fiscal 2019 as compared to fiscal 2018 is due to the unfavorable impact of pension mark-to-market ($49 million charge in fiscal 2019 compared to $24 million of income in fiscal 2018) and a $15 million favorable impact from a plan termination in fiscal 2018.

Refer to Note 14, "Retirement Plans," of the notes to the consolidated financial statements for information related to the components of Adient's net periodic pension costs.

Adient plc | Form 10-K | 34

Income Tax Provision

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Income tax provision (benefit) $ 249 >100% $ 57 (86)% $ 410

The fiscal 2020 income tax expense of $57 million was higher than the Irish statutory rate of 12.5% primarily due to the inability to recognize a tax benefit for losses in jurisdictions with valuation allowances, the repatriation of foreign earnings, and changes in uncertain tax positions, partially offset by the tax benefits related to the impairment and sale of Adient’s YFAI investment, sale of Adient’s automotive fabrics manufacturing business, and impairment charges recorded in the Asia segment.

The fiscal 2021 income tax expense of $249 million was higher than the Irish statutory rate of 12.5% primarily due to the inability to recognize a tax benefit for losses in jurisdictions with valuation allowances, the establishment of valuation allowances in certain jurisdictions, and the repatriation of foreign earnings, partially offset by tax benefits from audit settlements, the write-off of deferred tax liabilities related to withholding taxes, and withholding taxes on the 2021 Yanfeng Transaction at a rate lower than the Irish statutory rate of 12.5%.

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.

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Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.

As a result of Adient's fiscal 2020 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined it was more likely than not that deferred tax assets in certain jurisdictions would not be realized.

These valuation allowances did not have a material impact on the consolidated financial statements.

As a result of Adient's fiscal 2021 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined it was more likely than not that certain deferred tax assets in the Czech Republic, Korea, Mexico, and other jurisdictions would not be realized and recorded income tax expense of $5 million, $5 million, $8 million, and $4 million, respectively, to establish valuation allowances.

Adient continues to record valuation allowances on certain deferred tax assets in Germany, Hungary, Luxembourg, Mexico, Poland, Spain, the United Kingdom, the U.S.

and other jurisdictions as it remains more likely than not that they will not be realized.

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These valuation allowances did not have a material impact on the consolidated financial statements.

The fiscal 2019 income tax expense of $410 million was higher than the Irish statutory rate of 12.5% primarily due to the recognition of valuation allowances in Luxembourg, Poland, and the United Kingdom, repatriation of foreign earnings, changes in uncertain tax positions, and the impact of recognizing no tax benefit for losses in jurisdictions with valuation allowances.

As a result of Adient's 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 external debt refinancing, the related incremental net financing costs, and the restructuring of the internal financing which occurred in the third quarter of fiscal 2019 and including the long-lived asset impairment recorded in the second quarter of fiscal 2019), Adient determined it was more likely than not that deferred tax assets in Luxembourg (Q3), the United Kingdom (Q3) and certain Poland entities (Q2) would not be realized and recorded income tax expense of $229 million, $25 million and $43 million, respectively, to establish valuation allowances.

The fiscal 2018 income tax expense of $480 million was higher than the Irish statutory rate of 12.5% primarily due to the charge to recognize the impact of U.S.

tax reform legislation, repatriation of foreign earnings, and changes in uncertain tax positions and valuation allowances, partially offset by benefits from global tax planning, notional interest deductions, foreign tax rate differentials, and impairment deductions.

As a result of Adient's fiscal 2018 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence (including the seat structure and mechanism operations long-lived asset impairment recorded in the fourth quarter of fiscal 2018), Adient determined that it was more likely than not that deferred tax assets within the following jurisdictions would not be realized and recorded net valuation allowances as income tax expense in the fourth quarter of fiscal 2018:

Belgium ($12 million), Canada ($6 million), Germany ($175 million), Hungary ($14 million), Mexico ($117 million), Poland ($8 million), Romania ($9 million), and the U.S.

($281 million).

Germany, Hungary, Mexico, Poland, Romania, and the U.S.

cumulative loss positions were all adversely impacted by the seat structure and mechanism operations performance issues and resulting long-lived asset impairment.

In addition, as a result of Adient's fiscal 2018 analysis, Adient determined that it was more likely than not that deferred tax assets within Brazil would be realized.

Therefore, Adient released $76 million of valuation allowance as an income tax benefit in the fourth quarter of fiscal 2018.

On December 22, 2017, the U.S.

Tax Cuts and Jobs Act (the “Act”) was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions.

As a fiscal year taxpayer, Adient was not subject to the majority of the provisions until fiscal year 2019, however the statutory tax rate reduction was effective January 1, 2018.

The Act reduced the U.S.

corporate tax rate from 35% to 21%.

Adient’s fiscal 2018 income tax expense reflects the

Adient plc | Form 10-K | 35

benefit from the reduced rate of 24.5% resulting from the application of Internal Revenue Code, Section 15 which provides for a proration of the newly enacted rate during that fiscal year.

This benefit was offset by a non-cash tax expense of $106 million related to the remeasurement of Adient’s net deferred tax assets at the lower statutory rate, a non-cash estimated tax expense of $100 million related to recording a valuation allowance to reflect the reduced benefit Adient expects to realize as a result of being subject to the Base Erosion and Anti-avoidance Tax ("BEAT"), and tax expense of $4 million related to the transition tax imposed on previously untaxed earnings and profits.

During the first quarter of fiscal 2019, Adient completed its accounting for the Act BEAT valuation allowance resulting in no change to the $100 million income tax impact estimated in fiscal 2018.

Adient is subject to income taxes in Ireland, the U.S.

and other non-U.S.

jurisdictions.

Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities.

In the ordinary course of Adient's business, there are many transactions and calculations where the ultimate tax determination is uncertain.

Adient's income tax returns for various fiscal years remain under audit by the respective tax authorities.

Although the outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities.

Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.

Adient does not generally provide for additional income taxes which would become payable upon repatriation of undistributed earnings of wholly owned foreign subsidiaries.

Adient's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax efficient.

Income Attributable to Noncontrolling Interests

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Income attributable to noncontrolling interests $ 82 34% $ 61 (27)% $ 83

The increase in income attributable to noncontrolling interests for fiscal 2021 is attributable to higher income resulting from higher volumes in the current year, attributable primarily to the impact of the COVID-19 pandemic at certain Seating affiliates in varying jurisdictions during the prior year.

The decrease in income attributable to noncontrolling interests for fiscal 2020 is primarily attributable to lower income resulting from lower volumes, as a result of the COVID-19 impact at certain Seating affiliates in varying jurisdictions during fiscal 2020 as compared to fiscal 2019.

The decrease in income attributable to noncontrolling interests for fiscal 2019 is primarily attributable to higher levels of spending at Adient Aerospace, partially offset by higher income at certain other affiliates.

Net Income (Loss) Attributable to Adient

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Net income (loss) attributable to Adient $ 1,108 >100% $ (547) (11)% $ (491)

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Net income attributable to Adient was $1,108 million for fiscal 2021, compared to a loss of $547 million for fiscal 2020.

The increased net income attributable Adient is due to $1,214 million of one-time gains from sales of certain of Adient’s equity interests in China, higher current year volumes primarily resulting from prior year operational interruptions due to COVID-19, current year operational improvements, lower restructuring charges, a one-time gain associated with retrospective recoveries of Brazil indirect tax credits, and a $231 million prior year non-cash impairment of the YFAI investment, partially offset by operational inefficiencies and premium freight caused by unplanned production stoppages resulting from semiconductor and petrochemical shortages, higher net financing charges, and higher income tax expense primarily resulting from the withholding taxes paid in association with the 2021 Yanfeng Transaction.

Net loss attributable to Adient was $547 million for fiscal 2020, compared to a loss of $491 million for fiscal 2019.

The increased net loss attributable to Adient is primarily due to the impact of having significantly lower volumes due to COVID-19 along with a one-time non-cash impairment charge of $231 million on Adient's YFAI investment, a $25 million loss on the sale of the RECARO business and deconsolidation of Adient Aerospace, higher restructuring costs, and overall higher net financing costs, partially offset by operating improvements and lower administrative costs and one-time charges in the prior year related to impairment in the seat structures and mechanism business of $66 million and income tax charges to establish valuation allowances of $297 million.

Net loss attributable to Adient was $491 million for fiscal 2019, compared to a loss of $1,685 million in fiscal 2018.

The decrease in net loss is primarily attributable to $881 million of net-of-tax impairment charges related to the seat structure and mechanism operations recorded in fiscal 2018 ($602 million related to long-lived assets and $279 million related to goodwill), $330 million net-of-tax charges related to YFAI ($322 million impairment of the YFAI investment and $8 million related to U.S.

tax reform legislation) recorded in fiscal 2018, lower levels of income tax expense to establish valuation allowances in fiscal 2019 as compared to fiscal 2018, and the $210 million charge in fiscal 2018 for the U.S.

tax reform legislation, partially offset by the unfavorable impact of pension mark-to-market (a $49 million charge in fiscal 2019 compared to a $24 million benefit in fiscal 2018) and the unfavorable impact of foreign currency ($40 million).

Comprehensive Income Attributable to Adient

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Comprehensive income (loss) attributable to Adient $ 1,146 >100% $ (643) (22)% $ (529)

Comprehensive income attributable to Adient was $1,146 million for fiscal 2021 compared to a comprehensive loss attributable to Adient of $643 million for fiscal 2020.

The increased level of comprehensive income attributable to Adient in fiscal 2021 is primarily due to higher net income ($1,676 million), the favorable change in foreign currency translation adjustments ($85 million) and favorable change in realized and unrealized gains (losses) on derivatives ($40 million), partially offset by the increase in comprehensive income attributable to noncontrolling interests ($13 million).

Comprehensive loss attributable to Adient was $643 million for fiscal 2020 compared to comprehensive loss attributable to Adient for fiscal 2019 of $529 million.

This increased level of comprehensive loss attributable to Adient in fiscal 2020 is primarily due to the unfavorable impact of higher levels of net loss ($56 million), the unfavorable impact in foreign currency transaction adjustments resulting from overall weakening of emerging market currencies, partially offset by the strengthening of the Chinese yuan ($34 million), and the unfavorable impact in realized and unrealized losses on derivatives ($19 million), partially offset by the decrease in comprehensive income attributable to noncontrolling interests ($15 million).

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Comprehensive loss attributable to Adient was $529 million for fiscal 2019 compared to comprehensive loss attributable to Adient for fiscal 2018 of $1,819 million.

This decrease was primarily due to lower net loss attributable to Adient ($1,194 million) and the favorable impact of foreign currency ($82 million).

The year-over-year favorable foreign currency impact was primarily driven by the strengthening of the U.S.

dollar against the Indian rupee, Turkish lira and Brazilian real, partially offset by the strengthening of the Mexican peso against the U.S.

Segment Analysis

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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, restructuring and impairment costs, restructuring related-costs, net mark-to-market adjustments on pension and postretirement plans, transaction gains/losses, purchase accounting amortization, depreciation, stock-based compensation and other non-recurring items ("Adjusted EBITDA").

Also, certain corporate-related costs are not allocated to the segments.

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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.

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Total net sales $ 13,680 $ 12,670 $ 16,526

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September 30,

6 unchanged sentences

(78) (80) (97)

Becoming Adient costs (2)

Restructuring and impairment costs (2)

5 unchanged sentences

Loss on business divestitures - net (5)

Impairment of nonconsolidated partially owned affiliate (7)

Gain on sale / (impairment) of nonconsolidated partially-owned affiliates (6)

1,214 (231) —

Depreciation (285) (295) (278)

(295) (278) (393)

Stock based compensation (36) (15) (20)

(15) (20) (37)

Other items (7)

(16) (9) (55)

Earnings (loss) before interest and income taxes 1,726 (195) 229

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

(2) Reflects incremental expenses associated with becoming an independent company.

(2) Reflects restructuring charges for costs that are directly attributable to restructuring activities and meet the definition of restructuring under ASC 420 and non-recurring impairment charges.

Included in restructuring charges in fiscal 2021 is a $9 million held for sale non-cash impairment charge in EMEA, and a $1 million non-cash pre-tax impairment charge related to long-lived assets in EMEA.

Included in restructuring charges in fiscal 2020 is a non-cash pre-tax impairment related to China intangible assets of $24 million, held for sale asset impairments of $21 million, and $8 million of other long-lived asset impairments.

Included in restructuring charges in fiscal 2019 is a $66 million non-cash pre-tax impairment charge related to long-lived assets ($11 million in the Americas and $55 million in EMEA) and an $18 million non-cash impairment charge related to assets held for sale ($6 million in the Americas and $12 million in Asia).

Included in restructuring charges in fiscal 2018 is a non-cash pre-tax impairment charge of $1,086 million in the seat structure and mechanism operations ($787 million related to long-lived assets and $299 million related to goodwill), and a $49 million non-cash impairment charge related to assets held for sale.

Refer to Note 5, "Property, Plant and Equipment," Note 6, "Goodwill and Other Intangible Assets," Note 15, "Restructuring and Impairment Costs," and Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for more information.

Refer to Note 6, "Goodwill and Other Intangible Assets," Note 15, "Restructuring and Impairment Costs," and Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for more information.

(3) Reflects amortization of intangible assets including those related to partially owned affiliates recorded within equity income.

(5) Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420 along with restructuring costs at partially owned affiliates recorded within equity income.

(6) Reflects $21 million loss of sale of RECARO and $4 million loss on deconsolidation of Aerospace, partially offset by a $12 million gain on completion of the Yanfeng transaction.

(7) Reflects non-cash impairment charges related to Adient's YFAI investment balance, which has been recorded within the equity income line in the consolidated statements of income.

The fiscal 2020 impairment was recorded in conjunction with the Yanfeng transaction.

(8) For the year ended September 30, 2018, depreciation excludes $7 million, which is included in restructuring related charges discussed above.

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(9) For the year ended September 30, 2018, stock based compensation excludes $10 million which is included in Becoming Adient costs discussed above.

(10) The year ended September 30, 2020 primarily includes $15 million of transaction costs and $1 million of tax adjustments at YFAI.

The year ended September 30, 2019 primarily includes $4 million of integration costs associated with the acquisition of Futuris, $3 million of transaction costs and $2 million of tax adjustments at YFAI.

The year ended September 30, 2018 primarily includes $22 million of integration costs associated with the acquisition of Futuris, $11 million of non-recurring consulting fees related to the seat structure and mechanism operations, an $8 million charge related to the impact of the U.S.

tax reform at YFAI and $8 million of prior period adjustments.

(4) Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420 along with restructuring costs at partially owned affiliates recorded within equity income.

(5) The year ended September 30, 2021 includes a $21 million loss associated with certain aspects of the 2021 Yanfeng Transaction and a $5 million loss on sale of non-core assets in China.

The year ended September 30, 2020 includes a $21 million loss of sale of RECARO and $4 million loss on deconsolidation of Aerospace, partially offset by a $12 million gain on completion of the 2020 Yanfeng Transaction.

(6) The year ended September 30, 2021 includes a gain associated with the 2021 Yanfeng Transaction of $1,181 million and a gain of $33 million on the sale of Adient's interest in SJA.

The year ended September 30, 2020 includes non-cash impairment charges related to Adient's YFAI investment balance recorded in conjunction with the 2020 Yanfeng Transaction.

All of these impacts have been recorded within the equity income line in the consolidated statements of income.

(7) The year ended September 30, 2021 reflects a one-time gain of $38 million associated with the retrospective recovery of indirect tax credits in Brazil resulting from a favorable court ruling (of which $36 million relates to recoveries covering the past 20 years and is adjusted out of Americas' segment results), a $5 million gain on previously held interest at YFAS in an affiliate, and $19 million of transaction costs.

The year ended September 30, 2020 includes $15 million of transaction costs and $1 million of tax adjustments at YFAI.

The year ended September 30, 2019 includes $4 million of integration costs associated with the acquisition of Futuris, $3 million of transaction costs and $2 million of tax adjustments at YFAI.

September 30,

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Adjusted EBITDA $ 232 2% $ 228 9% $ 210

Net sales increased during fiscal 2021 by $275 million as a result of prior year operational interruptions due to COVID-19 and despite certain unplanned temporary production stoppages in the current year primarily resulting from semiconductor and petrochemical shortages ($262 million), favorable commercial settlements and net pricing adjustments ($33 million), and the favorable impact of material economics recoveries ($24 million), partially offset by the unfavorable impact of foreign currencies ($34 million), and the impact of the prior year divestiture of RECARO ($10 million).

Adjusted EBITDA increased during fiscal 2021 by $4 million due primarily to higher current year volumes as explained above and product mix ($120 million), operational performance improvements ($3 million), the favorable impact of foreign currencies ($8 million), and favorable commercial settlements and net pricing adjustments ($70 million), partially offset by operational inefficiencies including premium freight and unplanned temporary production stoppages in the current year resulting from semiconductor and petrochemical shortages and to a lesser extent COVID-19 related costs ($104 million), higher administrative expense primarily related to certain prior year benefits related costs that were not expected to recur, net of current year efficiency improvements ($44 million), the unfavorable material economics, net of recoveries ($46 million), and lower equity income ($3 million).

Net sales decreased during fiscal 2020 by $1,896 million due to lower production volumes ($1,787 million) resulting primarily from the operational shutdowns during fiscal 2020 as a result of the COVID-19 pandemic as well as $55 million attributable to the GM labor strike during the first quarter of fiscal 2020 and the impact of Adient specific launches, along with the unfavorable impact of foreign currency ($75 million), the unfavorable impact of material economics ($21 million), and the unfavorable impact of the RECARO divestiture ($39 million), partially offset by the favorable impact of commercial settlements and net pricing adjustments ($26 million).

Adjusted EBITDA increased during fiscal 2020 by $18 million due to the impact of operational performance improvements ($104 million), lower administrative and engineering expense ($100 million) including lower levels of certain compensation and discretionary spending which are not expected to recur as part of the annual run rate, the favorable impact of Adient Aerospace deconsolidation and RECARO divestiture ($25 million), the favorable impact of commercial settlements and net pricing adjustments ($55 million) and favorable material economics, net of recoveries ($15 million), partially offset by lower production volumes ($274 million), lower equity income ($2 million), and the unfavorable impact of foreign currency ($5 million).

Net sales increased during fiscal 2019 by $121 million due to higher production volumes primarily in the U.S.

and Mexico ($163 million) and net favorable pricing ($7 million), partially offset by the unfavorable impact of foreign currency ($49 million).

Adjusted EBITDA decreased during fiscal 2019 by $92 million due to higher administrative and engineering expenses primarily due to higher levels of spending at Adient Aerospace and to reestablishing certain discretionary spending, including incentive compensation ($48 million), increased freight (resulting from higher rates;

despite lower premium freight) and operational performance issues ($30 million), unfavorable product mix ($19 million) and the unfavorable impact of net material and pricing adjustments ($3 million), partially offset by favorable material economics, net of recoveries ($8 million).

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September 30,

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Adjusted EBITDA $ 277 >100% $ 101 (37)% $ 161

Net sales increased during fiscal 2021 by $416 million as a result of prior year operational interruptions due to COVID-19 and despite certain unplanned temporary production stoppages in the current year primarily resulting from semiconductor and petrochemical shortages ($254 million), the favorable impact of foreign currency ($234 million), the favorable impact of commercial settlements and net pricing adjustments ($22 million), and the favorable impact of material economics recoveries ($50 million), partially offset by the impact of prior year divestitures primarily consisting of the RECARO and fabrics businesses ($144 million).

Adjusted EBITDA increased during fiscal 2021 by $176 million due primarily to higher current year volumes as explained above ($110 million), current year operational performance improvements ($61 million), lower administrative and engineering expense related to efficiencies and the impact of certain launch delays ($50 million), favorable commercial settlements and net pricing adjustments ($51 million) and higher equity income ($1 million), partially offset by operational inefficiencies as a result of unplanned temporary production stoppages in the current year stemming from semiconductor shortages and to a lesser extent COVID-19 related costs ($55 million), unfavorable net commodity pricing adjustments ($11 million), unfavorable impact of foreign currencies ($9 million), higher administrative and engineering expense due to prior year benefits that were not expected to recur ($18 million), and the impact of prior year divestitures primarily consisting of the RECARO and fabrics businesses ($4 million).

Net sales decreased during fiscal 2020 by $1,527 million due to lower production volumes ($1,353 million) resulting primarily from the operational shutdowns during fiscal 2020 as a result of the COVID-19 pandemic along with the unfavorable impact of foreign currency ($137 million), the unfavorable impact of the RECARO divestiture ($39 million) and the unfavorable impact of material economics ($14 million), partially offset by favorable commercial settlements and net pricing adjustments ($16 million).

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Adjusted EBITDA decreased during fiscal 2020 by $60 million due to lower volumes ($243 million), the unfavorable impact of foreign currency ($12 million), unfavorable material economics, net of recovery ($10 million), and lower equity income ($3 million), partially offset by operational performance improvements ($91 million), lower administrative and engineering expense ($56 million) including lower levels of certain compensation and discretionary spending which are not expected to recur as part of the annual run rate, favorable net material and pricing adjustments ($57 million), and the favorable impact of divestitures primarily related to RECARO ($4 million).

Net sales decreased during fiscal 2019 by $761 million due to the unfavorable impact of foreign currency ($425 million), lower production volumes in all significant countries within EMEA ($314 million) and unfavorable net pricing, including material economics recoveries ($22 million).

Adjusted EBITDA decreased during fiscal 2019 by $203 million due to increased freight (resulting from higher rates;

despite lower premium freight) and operational performance issues ($120 million), lower volumes and product mix ($45 million), the unfavorable impact of foreign currency ($30 million) and higher administrative and engineering expenses primarily due to reestablishing certain discretionary spending, primarily incentive compensation, in the current year ($10 million), partially offset by favorable material economics, net of recoveries ($1 million) and higher equity income ($1 million).

September 30,

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Adjusted EBITDA $ 486 15% $ 424 (17)% $ 513

Net sales decreased during the fiscal 2020 by $515 million due to lower production volumes ($474 million) primarily resulting from the operational shutdowns in China and in other Asia countries as a result of the COVID-19 pandemic, the unfavorable impact of the RECARO divestiture ($37 million), the unfavorable impact of foreign currency ($13 million), and the unfavorable impact of material economics ($3 million), partially offset by the favorable impact of commercial settlements and net pricing adjustments ($12 million).

Net sales increased during fiscal 2021 by $301 million due to higher production volumes across the region, which was primarily a result of prior year operational interruptions due to COVID-19 and despite certain unplanned temporary production stoppages in the current year primarily resulting from semiconductor shortages ($263 million), the favorable impact of foreign currencies ($74 million), and the favorable impact of material economics recoveries ($9 million), partially offset by the impact of unfavorable commercial settlements and net pricing adjustments ($31 million), and the impact of the prior year divestiture of RECARO ($14 million).

Adjusted EBITDA increased during fiscal 2021 by $62 million due primarily to higher current year volumes as explained above ($50 million), higher equity income as a result of the prior year operational interruptions at Adient's China affiliates due to COVID-19 ($34 million), operational performance improvements ($33 million), lower administrative and engineering expense

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($3 million), and the favorable impact of foreign currencies ($29 million), partially offset by the unfavorable impact of material economics, net of recoveries ($9 million), unfavorable commercial settlements and net pricing adjustments ($21 million), the impact of current year divestiture of SJA ($9 million), the impact of prior year divestiture of YFAI ($18 million) and RECARO ($5 million), prior year tax benefits at various affiliates that were not expected to recur ($10 million), higher administrative expense due in part to prior year benefits that were not expected to recur ($9 million), and operational inefficiencies including premium freight and unplanned temporary production stoppages resulting from semiconductor shortages and to a lesser extent COVID-19 related costs ($6 million).

Net sales decreased during the fiscal 2020 by $515 million due to lower production volumes ($474 million) primarily resulting from the operational shutdowns in China and in other Asia countries in fiscal 2020 as a result of the COVID-19 pandemic, the unfavorable impact of the RECARO divestiture ($37 million), the unfavorable impact of foreign currency ($13 million), and the unfavorable impact of material economics ($3 million), partially offset by the favorable impact of commercial settlements and net pricing adjustments ($12 million).

Adjusted EBITDA decreased during fiscal 2020 by $89 million due to the impact of lower production volumes ($73 million), the unfavorable impact of the planned YFAI divestiture ($26 million), unfavorable material economics, net of recoveries ($3 million), the unfavorable impact of foreign currency ($12 million), the unfavorable impact of the RECARO divestiture ($9 million), and higher administrative and engineering costs ($2 million), partially offset by operational performance improvements ($8 million), higher equity income from China seating affiliates that included $10 million of benefits from tax credits at various China affiliates that are not expected to recur ($16 million), and favorable net material and pricing adjustments ($12 million).

Net sales decreased during fiscal 2019 by $322 million due to lower production volumes ($262 million) across the region, the unfavorable impact of foreign currency ($53 million) and unfavorable net pricing adjustments, including material economic recoveries ($7 million).

Adjusted EBITDA decreased during fiscal 2019 by $112 million due to lower equity income caused primarily by the slowdown in Chinese auto production ($77 million), lower volumes and product mix ($36 million), the unfavorable impact of foreign currency ($16 million) and operational performance issues ($16 million), partially offset by the favorable impact of net materials and pricing adjustments ($22 million), lower administration and engineering costs ($10 million), and favorable material economics, net of recoveries ($1 million).

Liquidity and Capital Resources

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Working capital is highly influenced by the timing of cash flows associated with sales and purchases, and therefore can be difficult to manage at times.

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See below and refer to Note 9, "Debt and Financing Arrangements," of the notes to consolidated financial statements for discussion of financing arrangements.

Refer to Note 3, "Acquisitions and Divestitures," for more information on strategic transactions that have provided significant liquidity that will allow for additional voluntary debt pay down in fiscal 2022.

Following the first quarter of fiscal 2019 dividend payout, Adient has suspended future dividends.

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As of September 30, 2021, Adient had not drawn down on the ABL Credit Facility and had availability under this facility of $739 million (net of $59 million of letters of credit).

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

The Term Loan B Agreement amortizes in equal quarterly installments at a rate of 1.00% per annum of the original principal amount thereof, with the remaining balance due at final maturity on May 6, 2024.

Interest on the Term Loan B Agreement accrues at the Eurodollar rate plus an applicable margin equal to 4.25% (with one 0.25% step down based on achievement of a specific secured net leverage level starting with the fiscal quarter ending December 31, 2019).

In addition, Adient US and Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, maintain a term loan credit agreement (the “Term Loan B Agreement”) that initially provided for a 5-year $800 million senior secured term loan facility that was fully drawn on closing.

The Term Loan B Agreement amortizes in equal quarterly installments at a rate of 1.00% per annum of the original principal amount thereof, with the remaining balance originally due at final maturity on May 6, 2024.

Interest on the Term Loan B Agreement accrues at the Eurodollar rate plus an applicable margin originally 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

Adient plc | Form 10-K | 43

December 31, 2019).

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

Adient US is also a party to an indenture relating to the issuance of $800 million aggregate principal amount of Senior First Lien Notes.

The notes mature on May 15, 2026 and bear interest at a rate of 7.00% per annum.

Interest on these notes is payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2019.

In April 2021, Adient amended the Term Loan B Agreement ("Amended Agreement") which, among other changes (i) extended the maturity date for loans outstanding to April 8, 2028, (ii) reduced the interest rate margin applicable thereunder by 0.75% to 3.50%, in the case of Eurodollar Rate loans, and 2.50% (in the case of Base Rate loans) (in each case, with one 0.25% step down based on achievement of a specified first lien secured net leverage level starting with the fiscal quarter ending December 31, 2021) and (iii) made certain other negative covenant and mandatory prepayment changes in connection therewith.

The amendment also established incremental term loans in an aggregate principal amount of $214 million resulting in total loans outstanding under the Amended Agreement of $1.0 billion.

Adient paid $7 million related to the Amended Agreement and wrote off $8 million of previously deferred financing costs as a result of the debt extinguishment during the third quarter of fiscal 2021.

Adient US was also a party to an indenture relating to the issuance of $800 million aggregate principal amount of Senior First Lien Notes.

The notes originally mature on May 15, 2026 and bear interest at a rate of 7.00% per annum.

Interest on these notes was payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2019.

During the second quarter of fiscal 2021, Adient repurchased $640 million of the outstanding balance of the Senior First Lien Notes at a price of 107% of the principal plus $17 million of accrued and unpaid interest.

As a result, $9 million of previously deferred financing costs was written off to net financing charges.

During the third quarter of fiscal 2021, Adient redeemed the $160 million of remaining balance of the Senior First Lien Notes at a price of 103% of the principal plus $4 million of accrued and unpaid interest, and wrote off $3 million of previously deferred financing costs as a result of the debt extinguishment.

The ABL Credit Facility, Term Loan B Agreement and the Senior First Lien Notes due 2026 contain covenants that are usual and customary for facilities and debt instruments of this type and that, among other things, restrict the ability of Adient and its restricted subsidiaries to:

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(“AGH”), a wholly-owned subsidiary of Adient, maintains $900 million aggregate principal amount of 4.875% USD-denominated unsecured notes due 2026.

During the fourth quarter of fiscal 2020, Adient redeemed $103 million of face value of these notes at face value, resulting in a remaining balance of $797 million as of September 30, 2020.

During the fourth quarter of fiscal 2020, Adient redeemed $103 million of face value of these notes, resulting in a remaining balance of $797 million as of September 30, 2020.

Adient recorded a gain of $3 million associated with this partial redemption.

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The loan bears interest at the 6-month EURIBOR rate plus 158 basis points.

Adient amended the EIB loan agreement as of June 30, 2020 to increase the net leverage ratio to 6.75x from 5.25x at June 30, 2020.

The net leverage ratio requirements of 5.25x at September 30, 2020 and future step downs to 4.50x by the second quarter of fiscal 2021 were not adjusted.

Adient is compliant with the net leverage ratio at September 30, 2020.

However, due to the rise in COVID-19 infections across Europe and the Americas and the potential disruption to vehicle

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production that might occur at its customers, there is uncertainty whether compliance with this net leverage ratio over the next 12 months is achievable, which could require Adient to either obtain another amendment or waiver or to pay down the EIB loan.

As a result, Adient has classified this debt as short term debt at September 30, 2020.

Adient is compliant with the net leverage ratio at September 30, 2021 and expects to be compliant for the remainder of the term.

During the first quarter of fiscal 2021, Adient repaid $16 million of the EIB loan, triggered in part by the redemption of debt in the prior year.

Adient repaid $20 million of the EIB loan in May 2021, triggered by the prior year sale of the fabrics business.

On April 20, 2020, Adient US offered $600 million (net proceeds of $591 million) aggregate principal amount of 9.00% Senior First Lien Notes due 2025.

These notes will mature on April 15, 2025, provided that if Adient Global Holdings Ltd (“AGH”) has not refinanced (or otherwise redeemed) in whole its outstanding 3.50% unsecured notes due 2024 or any refinancing indebtedness thereof that matures earlier than 91 days prior to the maturity date of the Senior First Lien Notes due 2025 on or prior to May 15, 2024, these notes will mature on May 15, 2024.

Interest on these notes will be paid on April 15 and October 15 each year, beginning on October 15, 2020.

These notes will mature on April 15, 2025, provided that if AGH has not refinanced (or otherwise redeemed) in whole its outstanding 3.50% unsecured notes due 2024 or any refinancing indebtedness thereof that matures earlier than 91 days prior to the maturity date of the Senior First Lien Notes due 2025 on or prior to May 15, 2024, these notes will mature on May 15, 2024.

Interest on these notes is due on April 15 and October 15 each year, beginning on October 15, 2020.

These notes contain covenants that are usual and customary, similar to the covenants on the Senior First Lien Notes due 2026 as described above.

Adient incurred $10 million of debt issuance cost associated with this new debt in fiscal 2020.

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Sources of Cash Flows

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Fiscal 2021 compared to Fiscal 2020:

The decrease in operating cash flows is due primarily to lower levels of operating profits, partially offset by lower levels of trade working capital, specifically lower levels of accounts receivable, inventory and accounts payable.

See the working capital section below for further information on changes in working capital.

The increase in cash flows from operating activities is primarily due to higher levels of operating profits, partially offset by unfavorable changes to working capital year-over-year driven by higher levels of inventory, higher levels of restructuring amounts paid and higher levels of interest paid in the current year.

Fiscal 2020 compared to Fiscal 2019:

The decrease in operating cash flows is due primarily to lower levels of operating profits and overall higher levels of working capital, specifically lower levels of accounts payable partially offset by higher levels of accrued incentive compensation and lower levels of accounts receivables.

See the working capital section below for further information on changes in working capital.

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Fiscal 2021 compared to Fiscal 2020:

The increase in cash provided by investing activities is primarily due to lower levels of capital expenditures in the current year as well as $329 million of proceeds from the Yanfeng transaction and $170 million of net proceeds from the sale of the fabrics business, partially offset by lower proceeds from the sale of assets as compared to the prior year and a $37 million cash outflow as a result of the deconsolidation of the Adient Aerospace joint venture.

The increase in cash provided by investing activities is due to higher levels of proceeds received from business divestitures (primarily $715 million from the 2021 Yanfeng Transaction and $53 million from the sale of SJA) and lower levels of capital expenditures, partially offset by business acquisitions in the current year.

Fiscal 2020 compared to Fiscal 2019:

The decrease in cash used by investing activities is primarily due to lower levels of capital expenditures in the current year, higher proceeds from sales of assets including the Detroit, Michigan properties and remaining airplane for approximately $35 million and proceeds in fiscal 2019 from the settlement of a cross-currency interest rate swap.

Cash flows from financing activities

Fiscal 2021 compared to Fiscal 2020:

The increase in cash from financing activities is primarily attributable to the issuance of $600 million of debt in fiscal 2020 along with lower repayments of long-term debt.

The significant increase in cash used by financing activities is primarily due to the repayment of long-term debt, including premium paid, of $895 million, the prior year draw down of the ABL revolver of $179 million, and the $600 million of proceeds from the issuance of 9.00% Senior Notes in April 2020, partially offset by the $214 million incremental borrowing in the third quarter of fiscal 2021 under the amended Term Loan B Agreement.

Fiscal 2020 compared to Fiscal 2019:

The increase in cash from financing activities is primarily attributable to the new debt arrangement entered into during fiscal 2019, higher levels of dividends paid in the prior year and the current year contribution of $28 million by Adient's JV partner as part of the formation of a consolidated joint venture.

The increase in cash from financing activities is primarily attributable to the issuance of $600 million of debt in fiscal 2020 along with lower repayments of long-term debt.

Capital expenditures

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Fiscal 2021 compared to Fiscal 2020:

The decrease in capital expenditures was primarily related to decreased year over year spending based on timing of program spend on product launches and tightening controls around overall spending.

Capital expenditures decreased year over year based on timing of program spend on product launches including certain launch delays in EMEA and tightening controls around overall spending.

Fiscal 2020 compared to Fiscal 2019:

Capital expenditures decreased year over year based on timing of program spend on product launches and tightening controls around overall spending.

The decrease in capital expenditures was primarily related to decreased year over year spending based on timing of program spend on product launches and tightening controls around overall spending.

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Working capital

(in millions) September 30,

2020 September 30, 2019

(in millions) September 30, 2021 September 30, 2020

Current assets $ 5,086 $ 4,482

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Working capital $ 1,575 $ 663

The increase in working capital of $382 million is primarily attributable to higher levels of cash on hand, partially offset by lower levels of trade working capital accounts including lower levels of accounts receivable, inventory and accounts payable.

Adient also maintains a higher level of accrued restructuring and current lease liabilities at September 30, 2020 offsetting the impact to working capital of higher levels of cash on hand.

The increase in working capital of $912 million is primarily attributable to higher levels of inventory and other current assets (of which $643 million is attributable to the receivable related to the 2021 Yanfeng Transaction), lower levels of restructuring reserve, and other current liabilities, partially offset by lower levels of accounts receivable.

Off-Balance Sheet Arrangements

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Purchase obligations (1)

178 178 — — —

Pension contributions 131 16 21 25 69

Total contractual cash obligations $ 5,143 $ 634 $ 1,674 $ 1,708 $ 1,127

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Quarterly Financial Information (unaudited)

The following tables present Adient's unaudited quarterly results of operations for each of the eight fiscal quarters in the period ended September 30, 2020.

The following tables should be read in conjunction with Adient's audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Adient has prepared the information below on a basis consistent with its audited consolidated financial statements and has included all adjustments, consisting of normal recurring adjustments, which, in the opinion of Adient's management, are necessary to fairly state its operating results for the quarters presented.

Adient's historical unaudited quarterly results of operations are not necessarily indicative of results for any future quarter or for a full year.

In particular, the third quarter of fiscal 2020 was significantly impacted by the COVID-19 pandemic.

See the Recent Developments Regarding COVID-19 section within Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on the impact of COVID-19.

Statement of Operations (dollars in millions) First

Quarter Third

Quarter Fourth

Net sales $ 3,936 $ 3,511 $ 1,626 $ 3,597

Cost of sales 3,673 3,274 1,779 3,352

Net income (loss) (142) 2 (331) (15)

Income attributable to noncontrolling interests 25 21 (6) 21

Net income (loss) attributable to Adient (167) (19) (325) (36)

Earnings per share (1)

Basic $ (1.78) $ (0.20) $ (3.46) $ (0.38)

Diluted $ (1.78) $ (0.20) $ (3.46) $ (0.38)

Statement of Operations (dollars in millions) First

Quarter Second

Quarter Third

Quarter Fourth

Net sales $ 4,158 $ 4,228 $ 4,219 $ 3,921

Cost of sales 3,978 4,031 4,008 3,708

Net income (loss) 11 (126) (308) 15

Income attributable to noncontrolling interests 28 23 13 19

Net income (loss) attributable to Adient (17) (149) (321) (4)

Earnings per share (1)

Basic $ (0.18) $ (1.59) $ (3.43) $ (0.04)

Diluted $ (0.18) $ (1.59) $ (3.43) $ (0.04)

(1) Basic and diluted earnings per share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

(1) Includes $67 million of committed capital expenditures.

Effects of Inflation and Changing Prices

The effects of inflation have not been significant to Adient's results of operations in recent years.

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The effects of inflation have historically not been significant to Adient's results of operations.

Generally, Adient has been able to implement operating efficiencies to sufficiently offset cost increases, which have been moderate.

The automotive industry has recently experienced a period of sustained price increases for commodities such as steel and to a lesser extent petrochemicals, as well as higher freight costs, that may continue in the future as demand increases and supply may remain constrained which has resulted in, and may continue to result in, increased costs for Adient that may not be, or may only be partially, offset.

Critical Accounting Estimates and Policies

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Actual results could differ from those estimates.

The following policies are considered by management to be the most critical in understanding the judgments that are involved in the preparation of Adient's consolidated financial statements and the uncertainties that could impact results of operations, financial position and cash flows.

The following policies are considered by management

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to be the most critical in understanding the judgments that are involved in the preparation of Adient's consolidated financial statements and the uncertainties that could impact results of operations, financial position and cash flows.

Revenue Recognition

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Adient records amounts associated with discrete price changes as an increase to revenue upon execution of a legally enforceable contractual agreement and when collectability is reasonably assured.

Refer to Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," and Note 2, "Revenue Recognition," of the notes to the consolidated financial statements for more information regarding Adient's adoption of ASU No.

2014-09, "Revenue from Contracts with Customers (Topic 606)."

Refer to Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," and Note 2, "Revenue Recognition," of the notes to the consolidated financial statements for more information.

Impairment of Goodwill, Other Long-lived Assets and Investments in Partially Owned Affiliates

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The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape, including estimates of revenue based on production volumes over the foreseeable future and long-term growth rates, and operating margins based on historical trends and future cost containment activities.

The financial projections also considered the impact that COVID-19, operational interruptions due to semiconductor shortages and higher commodity and shipping costs are having on Adient’s current and future operations as well as the impact to new vehicle sales in future years.

A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on the results of the goodwill impairment test and on Adient's results of operations.

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Adient is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value.

As of September 30, 2020, the fair value of each reporting unit exceeded 20% of its respective carrying value.

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, the goodwill allocated to the reporting units could be determined to be impaired which could have a material impact on Adient’s results of operations.

Due to the COVID-19 pandemic and the significant interruption it has caused to Adient’s operations, Adient tested goodwill for impairment for each of its reporting units for the quarter ended March 31, 2020 and also performed its annual goodwill test during the fourth quarter of fiscal 2020 using a fair value method based on management's judgments and assumptions regarding future cash flows.

The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.

Adient estimated the fair value of each of its reporting units using an income approach, which utilized Level 3 unobservable inputs.

These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows, and the appropriate discount rates (based on weighted average cost of capital ranging from 15.0% to 17.5% as of March 31, 2020 and 16.0% to 18.5% as of September 30, 2020) to reflect the risk inherent in the future cash flows and to derive a reasonable enterprise value and related premium.

The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape, including estimates of revenue

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based on production volumes over the foreseeable future and long-term growth rates, and operating margins based on historical trends and future cost containment activities.

The financial projections also considered the impact that COVID-19 is having on Adient’s current and future operations as well as the impact to new vehicle sales in future years.

As a result of the tests, there was no goodwill impairment recorded during the quarter ended March 31, 2020 or during the fourth quarter of fiscal 2020.

As a result of the tests, there was no goodwill impairment recorded during the fourth quarter of fiscal 2021.

Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for additional information.

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During the fourth quarter of fiscal 2020, Adient concluded it had a triggering event requiring assessment of an impairment within a separate China entity and as a result recorded a $5 million pre-tax non-cash impairment in the Asia segment related to long-lived assets due to an overall decline in the forecasted operations within that business.

During the third quarter of fiscal 2020, Adient concluded it had a triggering event requiring assessment of impairment within the Futuris China business and as a result recorded a pre-tax non-cash impairment of $27 million in the Asia segment, which consisted of customer relationship intangible assets of $24 million and other long-lived assets of $3 million, due to an overall decline in forecasted operations within that business.

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overall decline in forecasted operations within that business.

In the second quarter of fiscal 2019, Adient concluded it had triggering events requiring assessment of impairment of long-lived assets in the seat structure and mechanism operations.

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No other long-lived asset impairments were identified in fiscal 2019.

In fiscal 2018, Adient concluded it had triggering events requiring assessment of impairment of long-lived assets in the seat structure and mechanism operations.

As a result, Adient reviewed the long-lived assets for impairment and recorded a $787 million 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 as of September 30, 2018 in support of current programs.

These impairments were measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing appraisal techniques to determine fair values of the impaired assets.

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Adient estimated the fair value of the individual transactions using both an income approach and market approach.

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dividend payments from YFAS over the extension period, estimated terminal values of YFAS, market comparables, weighted-average costs of capital (YFAI - 15.0%, YFAS - 10.5%), and noncontrolling interest discounts.

During fiscal 2018, Adient concluded it had an other-than-temporary decline in value related to its investment in YFAI and recorded a $358 million impairment charge.

The impairment was measured under an income approach utilizing discounted cash flows to derive a fair value of Adient’s investment in YFAI.

Based on the fair value, the carrying value of the investment in YFAI exceeded fair value by $358 million, and as such Adient recorded a non-cash impairment charge within equity income in the consolidated statements of income (loss) for that amount in the fourth quarter of 2018.

The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consist of expected future operating margins and cash flows of YFAI, estimated production volumes, weighted average cost of capital (12.5%) and noncontrolling interest discounts.

The inputs utilized in the fair value analyses of the transactions are classified as level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consisted of expected future operating margins and cash flows of YFAI, estimated production volumes, estimated dividend payments from YFAS over the extension period, estimated terminal values of YFAS, market comparables, weighted-average costs of capital (YFAI - 15.0%, YFAS - 10.5%), and noncontrolling interest discounts.

Refer to Note 3, “Acquisitions and Divestitures,” and Note 19, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated financial statements for additional information.

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For the non-U.S.

pension, Adient consistently uses the relevant country specific benchmark indices for determining the various discount rates.

pension, Adient consistently uses the

Adient plc | Form 10-K | 48

relevant country specific benchmark indices for determining the various discount rates.

Adient's discount rate on U.S.

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The actual rate of return on U.S.

pension plans was below 5.00% in fiscal 2020 and below 5.00% in fiscal 2019.

pension plans was below 5.75% in fiscal 2021 and 2020.

For fiscal years 2021 and 2020, Adient's weighted average expected long-term return on non-U.S.

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however, changes in these assumptions could impact Adient's financial position, results of operations or cash flows.

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Refer to Note 14, "Retirement Plans," of the notes to consolidated financial statements for more information on Adient's pension plans.

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Adient's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax efficient.

On December 22, 2017, the Act was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions.

The Act includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries, which was effective for Adient beginning in fiscal year 2019.

Adient has made a policy election to treat taxes due under the GILTI provision as a current period expense in the reporting period in which the tax is incurred.

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Refer to Note 17, "Income Taxes," of the notes to consolidated financial statements for Adient's income tax disclosures.

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During fiscal 2021, Adient committed to a restructuring plan ("2021 Plan") of $27 million that was offset by $16 million of prior year underspend.

Of the restructuring costs recorded, $20 million relates to the Americas segment, $175 million relates to the EMEA segment and $10 million relates to the Asia segment.

The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions.

Of the restructuring costs recorded, $23 million related to the EMEA segment, $3 million related to the Americas segment, and $1 million relates to the Asia segment.

Adient currently estimates that upon completion of the restructuring actions, the fiscal 2021 restructuring plan will reduce annual operating costs by approximately $23 million, which is primarily the result of lower costs of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 25%-35% will result in net savings.

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 2022.

During fiscal 2020, Adient committed to a restructuring plan ("2020 Plan") of $205 million.

Of the restructuring costs recorded, $81 million relates to the EMEA segment, $16 million relates to the Americas segment and $8 million relates to the Asia segment.

The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions.

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recorded in fiscal 2019 was $16 million of prior year underspend, a $9 million increase to a prior year reserve and $6 million of recoveries from a customer related to previous restructuring charges.

This is the total amount expected to be incurred for this restructuring plan.

Of the restructuring costs recorded, $20 million relates to the Americas segment, $175 million relates to the EMEA segment and $10 million relates to the Asia segment.

The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions.

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The restructuring actions are expected to be substantially completed by fiscal 2024.

In fiscal 2018, Adient committed to a restructuring plan ("2018 Plan") of $71 million that was offset by $25 million of prior year underspend.

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.

In fiscal 2019 there was adjustment to this plan which resulted in additional $9 million of charges.

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.

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%-60% will result in net savings.

Adient partially achieved these savings in fiscal years 2019 and 2020.

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.

During fiscal 2019, Adient committed to a restructuring plan ("2019 Plan") of $105 million.

Of the restructuring costs recorded, $81 million relates to the EMEA segment, $16 million relates to the Americas segment and $8 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 through 2020.

The restructuring actions are expected to be substantially complete in fiscal 2021.

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.

Of the restructuring and impairment costs recorded, $298 million related to the EMEA segment, $32 million related to the Americas segment and $2 million related 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, 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 $145 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 75%-80% will result in net savings.

Adient partially achieved these savings in fiscal years 2016 through 2020.

The restructuring actions are expected to be substantially complete in fiscal 2021.

The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions.

Also recorded in fiscal 2019 was $16 million of prior year underspend, a $9 million increase to a prior year reserve and $6 million of recoveries from a customer related to previous restructuring charges.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis