Adient plc 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Presentation of Information Unless the context requires otherwise, references to "Adient plc" or "Adient" refer to Adient plc and its consolidated subsidiaries for periods subsequent to its separation from Johnson Controls International plc ("the former Parent") on October 31, 2016. 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. 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 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 Adient plc | Form 10-K | 29 statements", within the meaning of the Private Securities Litigation Reform Act of 1995. In this Form 10-K, statements regarding Adient's future financial position, sales, costs, earnings, cash flows, other measures of results of operations, capital expenditures or debt levels and plans, objectives, outlook, targets, guidance or goals are forward-looking statements. Words such as "future," "may," "will," "would," "could," "can," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "predict," "project" or "plan" or terms of similar meaning are also generally intended to identify forward-looking statements. 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 Ukraine conflict and COVID lockdowns in China and their impact on regional and global economies and additional pressure on supply chains and vehicle production, 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, work stoppages, including due to supply chain disruptions and similar events, energy and commodity availability and prices, the Company’s ability and timing of customer recoveries for increased input costs, the availability of raw materials and component products (including components required by our customers for the manufacture of vehicles (i.e., semiconductors)), whether deleveraging activities may yield additional value for shareholders at all or on the same or different terms as those described herein, the ability of Adient to execute its turnaround plan, 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, the ability of Adient to achieve its ESG-related goals, 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. Additional information regarding these and other risks related to Adient’s business that could cause actual results to differ materially from what is contained in the forward-looking statements is included in the section entitled "Risk Factors," contained in Item Part I, Item 1A of the which are incorporated herein by reference. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this Form 10-K. All information presented herein is based on the Adient's fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to Adient's fiscal years ended in September and the associated quarters, months and periods of those fiscal years. The forward-looking statements included in this Form 10-K are made only as of the date of this report, unless otherwise specified, and, except as required by law, Adient assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this Form 10-K. Separation from the former Parent On October 31, 2016, Adient became an independent company as a result of the separation of the automotive seating and interiors business from Johnson Controls. Adient was incorporated under the laws of Ireland in fiscal 2016 for the purpose of holding these businesses. Adient's ordinary shares began trading "regular-way" under the ticker symbol "ADNT" on the New York Stock Exchange on October 31, 2016. Upon becoming an independent company, the capital structure of Adient consisted of 500 million authorized ordinary shares and 100 million authorized preferred shares (par value of $0.001 per ordinary and preferred share). The number of Adient ordinary shares issued on October 31, 2016 was 93,671,810. Overview Adient is a global leader in the automotive seating supply industry with relationships with the largest global auto manufacturers. Adient's technologies extend into virtually every area of automotive seating solutions, including complete seating systems, frames, mechanisms, foam, head restraints, armrests and trim covers. Adient is an independent seat supplier with global scale and the capability to design, develop, engineer, manufacture and deliver complete seat systems and components in every major automotive producing region in the world. Adient 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 more than 200 wholly- and majority-owned manufacturing or assembly facilities, with operations in 31 countries. Additionally, Adient has partially-owned affiliates in China, Asia, Europe and North America. Through its global footprint and vertical integration, Adient leverages its capabilities to drive growth in the automotive seating industry. Adient plc | Form 10-K | 30 Adient manages its business on a geographic basis and operates in the following three reportable segments for financial reporting purposes: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East and Africa ("EMEA") and 3) Asia Pacific/China ("Asia"). Adient evaluates the performance of its reportable segments using an adjusted EBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, 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. 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. Refer to Note 17, "Segment Information," of the notes to the consolidated financial statements for additional information on Adient's reportable segments. Factors Affecting Adient’s Operating Environment The global automotive industry has continued to experience unprecedented supply chain and other disruptions over the past year related to semiconductor chip shortages, hostilities in Ukraine and localized COVID-19 lockdowns in China. 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 rising input costs and potential shortages related to energy (particularly in EMEA as a result of the conflict in Ukraine), freight and commodities as well as facing an environment of unfavorable foreign currency exchange and rising interest rates. In addition, Adient, along with the automotive industry, has experienced and continues to face wage inflationary pressures as a result of constrained labor availability, particularly in certain jurisdictions in EMEA. COVID-19 and related variants and sub-variants, also continues to be present throughout the world, including in all global and regional markets served by Adient. The elevated COVID-19 rates in China led to lockdowns at various times during fiscal 2022, negatively impacting the automotive production levels in that region, along with creating further supply chain disruptions. As a result of these disruptions, new vehicle sales continue to be significantly lower than historical and previously projected pre-pandemic sales levels. Adient believes that its current financial resources will be sufficient to fund the Company's liquidity requirements for at least the next twelve months. 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. Global Automotive Industry Adient conducts its business globally in the automotive industry, which is highly competitive and sensitive to economic, political and social factors in the various regions. During fiscal 2021, automotive production across the globe declined due to the economic slow down resulting from the COVID-19 pandemic and the widespread supply chain disruptions primarily due to semiconductor chip shortages. During fiscal 2022, global light vehicle production increased 2.4% year-over-year despite on-going supply chain disruptions and despite the impact of the Russia/Ukraine conflict on production volumes in Europe in 2022. Unplanned production stoppages by customers continue to negatively impact Adient’s results through operating inefficiencies and other surcharges. These and other challenges will continue to exist in Adient’s operating environment in fiscal 2023. Light vehicle production levels by geographic region are provided below: Light Vehicle Production (units in millions) 2022 Change 2021 Change 2020 Global 81.4 2.4 % 79.5 7.6 % 73.9 North America 14.1 3.7 % 13.6 4.6 % 13.0 South America 2.8 3.7 % 2.7 17.4 % 2.3 Europe 15.5 -10.4 % 17.3 4.2 % 16.6 China 26.7 7.2 % 24.9 7.8 % 23.1 Asia, excluding China, and Other 22.3 6.2 % 21.0 11.1 % 18.9 Source: IHS Automotive, October 2022 Adient plc | Form 10-K | 31 Financial Results Summary Significant aspects of Adient's financial results for fiscal 2022 are summarized below. Adient's financial results for fiscal 2021 include the strategic transactions in China which 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 $14,121 million for fiscal 2022, representing an increase of $441 million when compared to fiscal 2021. The increase in net sales is attributable to higher overall production volumes in the Americas, operational footprint changes primarily related to the consolidation of CQADNT in China and favorable material economics recoveries, partially offset by the unfavorable impact of foreign currencies, unplanned operational interruptions and production stoppages primarily resulting from on-going supply chain disruptions, the impact of the Russia/Ukraine conflict particularly on European volumes, and the impact of localized COVID-19 lockdowns in China. • Gross profit was $807 million, or 5.7% of net sales for fiscal 2022 compared to $826 million, or 6.0% of net sales for fiscal 2021. Profitability, including gross profit as a percentage of net sales, was lower due to the impact of foreign currencies, higher input costs, and inefficiencies caused by unplanned production stoppages, partially offset by operational footprint changes primarily related to the consolidation of CQADNT in China. • Equity income was $75 million for fiscal 2022, which compares to equity income of $1,484 million for fiscal 2021. The decrease is primarily attributable to one-time gains resulting from the prior year divestitures of Adient's interests in certain China joint ventures (YFAS, SJA and others) as well as the acquisition of controlling interest in CQADNT, the impact of KEIPER supply agreement modifications, and current year non-cash impairment charges recorded on certain of Adient's investments in non-consolidated affiliates in South Africa and China. • Net loss attributable to Adient was $120 million for fiscal 2022, compared to an income of $1,108 million for fiscal 2021. The net loss in fiscal 2022 is primarily attributable to operational inefficiencies resulting from supply chain disruptions including higher freight cost, overall higher input costs, lower overall production volumes in EMEA, and lower equity income resulting from prior year divestitures of certain affiliates in China, partially offset by the favorable impact of operational footprint changes primarily related to the consolidation of CQADNT in China, favorable material economics recoveries, lower net financing charges and lower income tax expense. Adient plc | Form 10-K | 32 Consolidated Results of Operations Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Net sales $ 14,121 3% $ 13,680 8% $ 12,670 Cost of sales 13,314 4% 12,854 6% 12,078 Gross profit 807 (2)% 826 40% 592 Selling, general and administrative expenses 598 11% 537 (4)% 558 Loss on business divestitures - net — n/a 26 100% 13 Restructuring and impairment costs 25 19% 21 (91)% 238 Equity income (loss) 75 (95)% 1,484 >100% 22 Earnings (loss) before interest and income taxes 259 (85)% 1,726 >100% (195) Net financing charges 215 (31)% 311 41% 220 Other pension expense (income) (10) 58% (24) >(100%) 14 Income (loss) before income taxes 54 (96)% 1,439 >100% (429) Income tax provision (benefit) 94 (62)% 249 >100% 57 Net income (loss) (40) >(100%) 1,190 >100% (486) Income (loss) attributable to noncontrolling interests 80 (2)% 82 34% 61 Net income (loss) attributable to Adient $ (120) >(100%) $ 1,108 >100% $ (547) Net Sales Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Net sales $ 14,121 3% $ 13,680 8% $ 12,670 Net sales increased by $441 million, or 3%, in fiscal 2022 primarily due to operational footprint changes primarily related to the consolidation of CQADNT in China ($620 million), favorable material economics recoveries ($312 million), and higher overall production volumes despite certain unplanned production stoppages resulting from semiconductor chip shortages and other supply chain disruptions, and despite the impact of the Russia/Ukraine conflict on EMEA production volumes and localized COVID-19 lockdowns in China ($90 million), partially offset by the unfavorable impact of foreign currencies ($568 million) and lower levels of commercial settlements ($13 million). Net sales increased by $1,010 million, or 8%, in fiscal 2021 primarily due to the significant operational interruptions related to COVID-19 which resulted in lower sales volumes across all regions in fiscal 2020 and despite 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 fiscal 2020 divestitures primarily related to RECARO and fabrics businesses ($156 million). Refer to the segment analysis below for a discussion of segment net sales. Cost of Sales / Gross Profit Adient plc | Form 10-K | 33 Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Cost of sales $ 13,314 4% $ 12,854 6% $ 12,078 Gross profit 807 (2)% 826 40% 592 % of sales 5.7 % 6.0 % 4.7 % Cost of sales increased by $460 million, or 4%, and gross profit decreased by $19 million in fiscal 2022 as compared to fiscal 2021. The year-over-year increase in cost of sales was due primarily to operational footprint changes related to the consolidation of CQADNT in China ($527 million), higher input costs including higher energy cost in EMEA as a result of the Russia/Ukraine conflict ($327 million), higher overall production volumes ($136 million), operational inefficiencies resulting from unplanned production stoppages including higher freight ($74 million), net impact of gains associated with retrospective recoveries of Brazil indirect tax credits ($5 million), and higher depreciation and amortization expense ($6 million), partially offset by the favorable impact of foreign currencies ($542 million), and favorable supplier pricing including the impact of a modified pricing agreement with KEIPER ($71 million). Gross profit was unfavorably impacted by foreign currencies, higher input costs, and inefficiencies caused by unplanned production stoppages, partially offset by operational footprint changes primarily related to the consolidation of CQADNT in China. 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 non-recurring favorable benefits related to actions taken in fiscal 2020 to reduce the impact of COVID-19 ($36 million), partially offset by the impact of divestitures in fiscal 2020 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, and inefficiencies caused by unplanned production stoppages and certain incentive compensation costs that were not expected to recur. Refer to the segment analysis below for a discussion of segment profitability. Selling, General and Administrative Expenses Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Selling, general and administrative expenses $ 598 11% $ 537 (4)% $ 558 % of sales 4.2 % 3.9 % 4.4 % Selling, general and administrative expenses (SG&A) in fiscal 2022 increased by $61 million as compared to fiscal 2021. The year-over-year increase in SG&A is attributable to higher overall engineering and other administrative spending in the current year ($36 million), the impact of the prior year acquisitions and consolidations of CQADNT and LFADNT ($35 million), the impact of a non-recurring contract related settlement with a customer ($14 million), higher depreciation expense ($7 million), and higher amortization expense attributable to the acquired intangible assets ($7 million). These were offset by lower compensation expense including stock-based and performance-based incentive compensation costs ($12 million), the favorable impact of foreign currencies ($17 million), and lower transaction costs ($11 million). 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 engineering and other administrative spending ($41 million), and RECARO and fabrics administrative costs in fiscal 2020 ($30 million), partially offset by higher stock-based compensation costs ($21 million), non-recurring favorable benefits in fiscal 2020 related to actions taken to reduce the impact of COVID-19 ($4 million), the unfavorable impact of foreign currencies ($21 million), and higher transaction costs ($4 million). Adient plc | Form 10-K | 34 Refer to the segment analysis below for a discussion of segment profitability. Restructuring and Impairment Costs Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Restructuring and impairment costs $ 25 19% $ 21 (91)% $ 238 Restructuring and impairment charges increased by $4 million in fiscal 2022 as compared to fiscal 2021 due primarily to one-time non-cash impairment charges related to the withdrawal from and sale of Adient’s operations in Russia and other assets held for sale in EMEA. 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 of long-lived assets in China and other assets held for sale in fiscal 2020. Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for information related to Adient’s withdrawal from and sale of operations in Russia and assets held for sale. Equity Income Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Equity income (loss) $ 75 (95)% $ 1,484 >100% $ 22 Equity income was $75 million in fiscal 2022 compared to $1,484 million in fiscal 2021. The decrease is primarily attributable to the significant prior year gains on divestitures of Adient's interests in certain China joint ventures (YFAS, SJA and others) as well as the prior year acquisition of controlling interest in CQADNT and resulting lower equity in the current year ($1,376 million), current year non-cash impairment charges recorded on certain of Adient's investments in non-consolidated affiliates in South Africa and China ($10 million), the impact of KEIPER supply agreement modifications ($17 million), the unfavorable impact of foreign currencies ($3 million), higher restructuring charges primarily at Adient's affiliates in China ($5 million), and current year operational interruptions and production stoppages resulting from supply chain disruptions and localized COVID-19 lockdowns in China ($1 million), partially offset by lower purchase accounting amortization ($3 million). Refer to Note 3, "Acquisitions and Divestitures," and Note 18, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated financial statements for more information. Equity income was $1,484 million for fiscal 2021, compared to $22 million for fiscal 2020. The significantly higher equity income in fiscal 2021 was due primarily to the one-time gain associated with the 2021 Yanfeng Transaction and the sale of Adient's interest in SJA, a fiscal 2020 non-cash impairment charge related to Adient's YFAI investment divestiture ($231 million), favorable impact of foreign currencies ($19 million), and lower production volumes within Adient's China affiliates due to the impact of COVID-19 lockdowns during fiscal 2020 ($27 million). Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for more information. Adient plc | Form 10-K | 35 Net Financing Charges Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Net financing charges $ 215 (31)% $ 311 41% $ 220 Net financing charges decreased in fiscal 2022 as compared to fiscal 2021 as a result of lower levels of outstanding debt, higher amounts of premiums paid to tender outstanding debt and higher levels of accelerated expense of deferred financing costs in the prior year associated with the pay-down of debt. Net financing charges increased in fiscal 2021 as compared to fiscal 2020 primarily as a result of premiums paid on the repurchase of debt ($50 million), an accelerated expense 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 fiscal 2021. 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. Other Pension Expense (Income) Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Other pension expense (income) $ (10) 58% $ (24) >(100%) $ 14 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. The lower fiscal 2022 (income) is due primarily to a lower pension mark-to-market gain ($8 million) and a lower expected return on plan assets ($4 million). The decrease in pension expense in fiscal 2021 as compared to fiscal 2020 was due to the favorable impact of pension mark-to-market (a $15 million gain in fiscal 2021 compared to a $22 million charge in fiscal 2020). 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. Income Tax Provision Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Income tax provision (benefit) $ 94 (62)% $ 249 >100% $ 57 The fiscal 2022 income tax expense of $94 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 related to the release of valuation allowances in certain jurisdictions. Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. All of the factors that Adient considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involve significant judgment. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary. As a result of Adient's fiscal 2022 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 Canada, Japan, and other jurisdictions would not be realized and recorded income tax expense of $12 million, $3 million and $3 million, respectively, to establish valuation allowances. Additionally, Adient determined it was more likely than not that deferred tax assets in the Czech Republic and other jurisdictions would be realizable and recorded income tax benefit of $11 million and $2 million, respectively, to release valuation allowances. Adient continues to record valuation Adient plc | Form 10-K | 36 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. 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%. 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. 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. 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. 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 Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Income attributable to noncontrolling interests $ 80 (2)% $ 82 34% $ 61 The $2 million decrease in income attributable to noncontrolling interests for fiscal 2022 is attributable to lower income due to operational inefficiencies resulting from unplanned production stoppages including higher freight at certain Seating joint ventures in varying jurisdictions during the current year. The increase in income attributable to noncontrolling interests for fiscal 2021 is attributable to higher income resulting from higher volumes in fiscal 2021, attributable primarily to the impact of the COVID-19 pandemic at certain Seating affiliates in varying jurisdictions during fiscal 2020. Net Income (Loss) Attributable to Adient Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Net income (loss) attributable to Adient $ (120) >(100%) $ 1,108 >100% $ (547) Adient plc | Form 10-K | 37 Net loss attributable to Adient was $120 million for fiscal 2022, compared to net income attributable to Adient of $1,108 million for fiscal 2021. The current year net loss attributable to Adient is primarily due to lower equity income attributable to prior year one-time gains on divestitures of Adient's interests in certain China joint ventures as described above, current year operational inefficiencies resulting from unplanned production stoppages including higher freight and other supply chain disruptions, the impact of the Russia/Ukraine conflict on EMEA production volumes and higher energy costs, the impact of localized COVID-19 lockdowns in China, and higher overall engineering and other administrative spending, partially offset by the favorable impact of operational footprint changes primarily related to the consolidation of CQADNT in China, favorable material economics recoveries, lower net financing charges, and lower income tax expense. 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, fiscal 2021 operational improvements, lower restructuring charges, a one-time gain associated with retrospective recoveries of Brazil indirect tax credits, and a $231 million non-cash impairment of the YFAI investment in fiscal 2020, 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. Comprehensive Income Attributable to Adient Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Comprehensive income (loss) attributable to Adient $ (338) >(100%) $ 1,146 >100% $ (643) Comprehensive loss attributable to Adient was $338 million for fiscal 2022 compared to comprehensive income attributable to Adient for fiscal 2021 of $1,146 million. The comprehensive loss in fiscal 2022 is attributable to lower net income ($1,230 million), the unfavorable impact in foreign currency translation adjustments resulting from overall strengthening of U.S. dollar against virtually all other currencies ($266 million), less favorable impact in realized and unrealized losses on derivatives ($20 million), partially offset by the decrease in comprehensive income attributable to noncontrolling interests ($32 million). 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). Segment Analysis Adient manages its business on a geographic basis and operates in the following three reportable segments for financial reporting purposes: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia"). Adient evaluates the performance of its reportable segments using an adjusted EBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, 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, Adient plc | Form 10-K | 38 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. Year Ended September 30, (in millions) 2022 2021 2020 Net Sales Americas $ 6,557 $ 6,164 $ 5,889 EMEA 4,764 5,564 5,148 Asia 2,926 2,123 1,822 Eliminations (126) (171) (189) Total net sales $ 14,121 $ 13,680 $ 12,670 Year Ended September 30, (in millions) 2022 2021 2020 Adjusted EBITDA Americas $ 242 $ 232 $ 228 EMEA 138 277 101 Asia 383 486 424 Corporate-related costs (1) (88) (78) (80) Restructuring and impairment costs (2) (25) (21) (238) Purchase accounting amortization (3) (54) (50) (40) Restructuring related charges (4) (6) (9) (20) Loss on business divestitures - net (5) — (26) (13) Gain on sale / (impairment) of nonconsolidated partially-owned affiliates (6) (10) 1,214 (231) Depreciation (298) (285) (295) Stock based compensation (29) (36) (15) Other items (7) 6 22 (16) Earnings (loss) before interest and income taxes 259 1,726 (195) Net financing charges (215) (311) (220) Other pension income (expense) 10 24 (14) Income (loss) before income taxes $ 54 $ 1,439 $ (429) Notes: (1) Corporate-related costs not allocated to the segments include executive office, communications, corporate development, legal and corporate finance. (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. During fiscal 2022, an impairment charge of $4 million related to the withdrawal from and sale of its operations in Russia, and a held-for-sale impairment charge of $6 million were recorded in EMEA. Included in restructuring charges in fiscal 2021 is $10 million of held for sale and other non-cash impairment charges in EMEA. Included in restructuring charges in fiscal 2020 is a non-cash pre-tax impairment related to intangible assets of $24 million, held for sale asset impairments of $21 million, $8 million of other long-lived asset impairments, all within Asia, and $175 million of charges in EMEA which primarily related to workforce reductions. Refer to Note 15, "Restructuring and Impairment Costs," 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. (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. Adient plc | Form 10-K | 39 (5) Fiscal 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 Asia. Fiscal 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) Fiscal 2022 includes $3 million and $7 million of non-cash impairments of certain of Adient's investments in nonconsolidated partially-owned affiliates in Asia and EMEA, respectively. Fiscal 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. Fiscal 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) Fiscal 2022 reflects $8 million of transaction costs, a one-time gain of $32 million associated with the retrospective recovery of indirect tax credits in Brazil, a $14 million charge related to a non-recurring contract related settlement, $1 million of allowance for doubtful accounts resulting from the withdrawal from and sale of operations in Russia, and $2 million of loss on finalization of asset sale in Turkey. Fiscal 2021 reflects a one-time gain of $38 million associated with the retrospective recovery of indirect tax credits in Brazil (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. Fiscal 2020 includes $15 million of transaction costs and $1 million of tax adjustments at YFAI. Americas Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Net sales $ 6,557 6% $ 6,164 5% $ 5,889 Adjusted EBITDA $ 242 4% $ 232 2% $ 228 Net sales increased in fiscal 2022 by $393 million as a result of higher production volumes despite certain unplanned production stoppages primarily resulting from semiconductor chip shortages and other supply chain disruptions ($278 million), the favorable impact of material economics recoveries ($179 million), and the favorable impact of foreign currencies ($2 million), partially offset by the impact of unfavorable commercial settlements and net pricing adjustments ($45 million) and the impact of operational footprint changes ($21 million). Adjusted EBITDA increased in fiscal 2022 by $10 million due to operational performance improvements ($62 million), lower administrative and engineering expense ($20 million), the favorable impact of KEIPER supply agreement modifications ($14 million), higher current year production volumes ($12 million), the favorable impact of foreign currencies ($8 million), and higher equity income ($3 million), partially offset by higher freight costs ($55 million), lower levels of commercial settlements and net pricing adjustments ($34 million), unfavorable material economics, net of recoveries ($15 million), and the impact of operational footprint changes ($5 million). Net sales increased during fiscal 2021 by $275 million as a result of operational interruptions in fiscal 2020 due to COVID-19 and despite certain unplanned temporary production stoppages primarily resulting from semiconductor and petrochemical shortages in fiscal 2021 ($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 divestiture of RECARO ($10 million) in fiscal 2020. Adjusted EBITDA increased during fiscal 2021 by $4 million due primarily to higher volumes 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 fiscal 2020 resulting from semiconductor and petrochemical shortages and to a lesser extent COVID-19 related costs ($104 million), higher administrative expense primarily related to certain fiscal 2020 benefits related costs that were not expected to recur, net of efficiency improvements ($44 million), the unfavorable material economics, net of recoveries ($46 million), and lower equity income ($3 million). Adient plc | Form 10-K | 40 EMEA Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Net sales $ 4,764 (14)% $ 5,564 8% $ 5,148 Adjusted EBITDA $ 138 (50)% $ 277 >100% $ 101 Net sales decreased in fiscal 2022 by $800 million primarily as a result of operational interruptions due to certain unplanned production stoppages resulting from semiconductor chip shortages and other supply chain disruptions along with the negative impact of the Russia/Ukraine conflict on EMEA production volumes ($362 million), the unfavorable impact of foreign currency ($466 million), the impact of operational footprint changes ($129 million), partially offset by the favorable impact of material economics recoveries ($115 million), and favorable impact of commercial settlements and net pricing adjustments ($42 million). Adjusted EBITDA decreased in fiscal 2022 by $139 million due primarily to lower current year production volumes as explained above ($88 million), increased utilities, labor and freight costs along with other operating inefficiencies associated with lower volumes ($71 million), the impact of operational footprint changes ($27 million), the unfavorable impact of foreign currencies ($20 million), and higher administrative and engineering expense ($1 million), partially offset by favorable commercial settlements and net pricing adjustments ($66 million), and favorable material economics, net of recoveries ($2 million). Net sales increased during fiscal 2021 by $416 million as a result of operational interruptions in fiscal 2020 due to COVID-19 and despite certain unplanned temporary production stoppages in fiscal 2021 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 the fiscal 2020 divestitures primarily consisting of the RECARO and fabrics businesses ($144 million). Adjusted EBITDA increased during fiscal 2021 by $176 million due primarily to higher volumes as explained above ($110 million), 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 fiscal 2021 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 certain fiscal 2020 benefits that were not expected to recur ($18 million), and the impact of the fiscal 2020 divestitures primarily consisting of the RECARO and fabrics businesses ($4 million). Asia Year Ended September 30, (in millions) 2022 Change 2021 Change 2020 Net sales $ 2,926 38% $ 2,123 17% $ 1,822 Adjusted EBITDA $ 383 (21)% $ 486 15% $ 424 Net sales increased in fiscal 2022 by $803 million due to the impact of operational footprint changes in China primarily related to the consolidation of CQADNT ($770 million), favorable volume and mix ($153 million), and the favorable impact of material economics recoveries ($18 million), partially offset by the unfavorable impact of foreign currencies ($128 million), and unfavorable impact of commercial settlements and net pricing adjustments ($10 million). Adjusted EBITDA decreased in fiscal 2022 by $103 million due primarily to operational footprint changes including the impact of the 2021 Yanfeng Transaction ($75 million), operating inefficiencies including freight and labor economics, and launch timing ($27 million), lower equity income due to the impact of KEIPER supply agreement modifications ($17 million), the unfavorable impact of foreign currencies ($15 million), higher administrative and engineering expense ($6 million), lower equity income due to lower volumes primarily at Adient's affiliates in China attributable to the COVID-19 lockdowns ($4 Adient plc | Form 10-K | 41 million), and the unfavorable impact of material economics, net of recoveries ($2 million), partially offset by favorable volume and mix despite the impact of localized COVID-19 lockdowns in China during the second quarter of fiscal 2022 ($30 million), and favorable commercial settlements and net pricing adjustments which includes $9 million of a non-recurring settlement in China ($13 million). Net sales increased during fiscal 2021 by $301 million due to higher production volumes across the region, which was primarily a result of operational interruptions due to COVID-19 in fiscal 2020 and despite certain unplanned temporary production stoppages in fiscal 2021 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 fiscal 2020 divestiture of RECARO ($14 million). Adjusted EBITDA increased during fiscal 2021 by $62 million due primarily to higher volumes as explained above ($50 million), higher equity income as a result of the operational interruptions at Adient's China affiliates due to COVID-19 in fiscal 2020 ($34 million), operational performance improvements ($33 million), lower administrative and engineering expense ($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 the divestiture of SJA ($9 million), the impact of fiscal 2020 divestitures of YFAI ($18 million) and RECARO ($5 million), tax benefits at various affiliates in fiscal 2020 that were not expected to recur ($10 million), higher administrative expense due in part to fiscal 2020 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). Liquidity and Capital Resources Adient's primary liquidity needs are to fund general business requirements, including working capital, capital expenditures, restructuring costs and debt service requirements. Adient's principal sources of liquidity are cash flows from operating activities, the revolving credit facility and other debt issuances, and existing cash balances. Adient actively manages its working capital and associated cash requirements and continually seeks more effective uses of cash. Adient also recently announced a share repurchase authorization (up to $600 million) with no expiration date, wherein Adient expects to take a measured approach as to the timing and amount of share repurchases as part of its assessment of the most effective use of cash. 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. 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 allowed for additional voluntary debt pay down in fiscal 2022 and 2021. Following the first quarter of fiscal 2019 dividend payout, Adient suspended future dividends. Indebtedness Adient US LLC ("Adient US"), a wholly owned subsidiary of Adient, together with certain of Adient's other subsidiaries, maintains an asset-based revolving credit facility (the “ABL Credit Facility”), which provides for a revolving line of credit up to $1,250 million, including a North American subfacility of up to $950 million and a European subfacility of up to $300 million, subject to borrowing base capacity and certain other restrictions, including a minimum fixed charge coverage ratio. The ABL Credit Facility was set to mature on May 6, 2024, subject to a springing maturity date 91 days earlier if certain amounts remain outstanding at that time under the Term Loan B Agreement (defined below). Adient will pay a commitment fee of 0.25% to 0.375% on the unused portion of the commitments under the asset-based revolving credit facility based on average global availability. Letters of credit are limited to the lesser of (x) $150 million and (y) the aggregate unused amount of commitments under the ABL Credit Facility then in effect. Subject to certain conditions, the ABL Credit Facility may be expanded by up to $250 million in additional commitments. Loans under the ABL Credit Facility may be denominated, at the option of Adient, in U.S. dollars, Euros, Pounds Sterling or Swedish Kroner. The ABL Credit Agreement is secured on a first-priority lien on all accounts receivable, inventory and bank accounts (and funds on deposit therein) and a second-priority lien on all of the tangible and intangible assets of certain Adient subsidiaries. On November 24, 2021, Adient entered into an amendment to its ABL Credit Facility (the “2021 ABL Amendment”) to amend certain terms and provisions, including to (i) change the interest rate benchmark rates applicable under the ABL Credit Facility for borrowings denominated in euro, Swedish krona and pounds sterling to EURIBOR, STIBOR, and SONIA, in each case subject to certain adjustments, and (ii) update the provisions in our ABL Credit Facility by which U.S. dollar LIBOR will eventually be replaced with SOFR or another interest rate benchmark, in each case, to reflect the most recent standards and practices used in the industry. Interest is payable on the ABL Credit Facility at a fluctuating rate of interest determined by reference to LIBOR, in the case of amounts outstanding in Adient plc | Form 10-K | 42 dollars, EURIBOR, in the case of amounts outstanding in euros, STIBOR, in the case of amounts outstanding in Swedish krona and SONIA, in the case of amounts outstanding in pounds sterling, in each case, plus an applicable margin of 1.50% to 2.00%. On November 2, 2022, Adient entered into an amendment to its ABL Credit Facility (the “2022 ABL Amendment”) to amend certain terms and provisions, including to (i) extend its maturity date to November 2, 2027 (subject to certain springing maturity provisions), (ii) replace LIBOR with Term SOFR as the benchmark rate of interest for U.S. dollar borrowings thereunder and (iii) provide flexibility for future amendments to the ABL Credit Facility to incorporate certain sustainability-based pricing provisions. Other key terms and conditions of the facility remain unchanged. As of September 30, 2022, Adient had not drawn down on the ABL Credit Facility and had availability under this facility of $899 million (net of $13 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, as amended in fiscal 2021, (the “Term Loan B Agreement”) that provides for a $1.0 billion senior secured term loan facility. 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 April 8, 2028. Interest on the Term Loan B Agreement accrues at the Eurodollar rate plus an applicable margin equal to 3.25%. 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 paid $7 million related to the fiscal 2021 amendment along with expensing $8 million of previously deferred financing costs to net financing charges. 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 were set to mature on May 15, 2026 and bore 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. During fiscal 2021, Adient repurchased the full amount of the outstanding balance of the Senior First Lien Notes at a premium of $50 million plus $21 million of accrued and unpaid interest. As a result, $12 million of previously deferred financing costs were expensed to net financing charges. The ABL Credit Facility and Term Loan B Agreement 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: create certain liens and enter into sale and lease-back transactions; create, assume, incur or guarantee certain indebtedness; pay dividends or make other distributions on, or repurchase or redeem, Adient’s capital stock or certain other debt; make other restricted payments; and consolidate or merge with, or convey, transfer or lease all or substantially all of Adient’s and its restricted subsidiaries’ assets, to another person. These covenants are subject to a number of other limitations and exceptions set forth in the agreements. The agreements also provide for customary events of default, including, but not limited to, cross-default clauses with other debt arrangements, failure to pay principal and interest, failure to comply with covenants, agreements or conditions, and certain events of bankruptcy or insolvency involving Adient and its significant subsidiaries. Adient Global Holdings Ltd. (“AGH”), a wholly-owned subsidiary of Adient, previously maintained $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, resulting in a remaining balance of $797 million as of September 30, 2020. Adient further redeemed $2 million of the notes during fiscal 2021, resulting in a remaining balance of $795 million as of September 30, 2022 and 2021. AGH also previously maintained €1.0 billion aggregate principal amount of 3.50% unsecured notes due 2024. In fiscal 2022, Adient repurchased €177 million ($198 million) of the 3.50% unsecured notes due 2024 at a premium of €3 million ($4 million) plus €3 million ($3 million) of accrued and unpaid interest, and expensed €1 million ($1 million) of previously deferred financing costs to net financing charges. As of September 30, 2022, the remaining balance of this debt was €823 million ($809 million). Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, previously maintained €135 million ($156 million) in an unsecured term loan from the European Investment Bank (“EIB”) due in 2022. The loan bore interest at the 6-month EURIBOR rate plus 158 basis points. During fiscal 2021, Adient repaid $36 million of the EIB loan, triggered in part by the redemption of debt and the sale of the fabrics business in the prior year. Adient fully repaid the remaining balance of the EIB loan in May 2022 upon its maturity. On April 20, 2020, Adient US issued $600 million (net proceeds of $591 million) aggregate principal amount of 9.00% Senior First Lien Notes due 2025. These notes were set to 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 was due on April 15 and October 15 each year, beginning on October 15, 2020. These notes contained covenants that were usual and customary, similar to the covenants as described above. Adient incurred $10 million of debt issuance cost associated with this new debt in fiscal 2020. In fiscal 2022, Adient Adient plc | Form 10-K | 43 repurchased the full $600 million of 9.00% Senior First Lien Notes due 2025 at a premium of $34 million plus $19 million of accrued and unpaid interest, and expensed $7 million of previously deferred financing costs to net financing charges. Sources of Cash Flows Year Ended September 30, (in millions) 2022 2021 2020 Cash provided (used) by operating activities $ 274 $ 260 $ 246 Cash provided (used) by investing activities 484 347 166 Cash provided (used) by financing activities (1,273) (770) 393 Capital expenditures (227) (260) (326) Cash flows from operating activities Fiscal 2022 compared to Fiscal 2021: The increase in operating cash flows is primarily due to favorable changes of trade working capital, specifically lower levels of inventory and restructuring spending, and higher levels of accounts payable, partially offset by higher levels of accounts receivable (net of $137 million of favorable impact from accounts receivable factoring programs). Operating cash flows were also positively impacted by lower interest payments, but were negatively impacted by lapsed non-income related tax deferral programs and lower levels of dividends from nonconsolidated partially-owned affiliates. See the working capital section below for further information on changes in working capital. Fiscal 2021 compared to Fiscal 2020: 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. Cash flows from investing activities Fiscal 2022 compared to Fiscal 2021: The increase in cash provided by investing activities is primarily attributable to the $652 million of proceeds received related to the 2021 Yanfeng Transaction, the $46 million in proceeds received from the sale of the assets in Turkey, and the collection of $41 million of deferred proceeds from the sale of Adient's interest in YFAI as part of the 2020 Yanfeng Transaction and lower capital expenditures, partially offset by the $30 million settlement of the derivative contracts related to the cash proceeds of the 2021 Yanfeng Transaction. Refer to Note 3, “Acquisitions and Divestitures,” and Note 10, “Derivative Instruments and Hedging Activities,” of the notes to the consolidated financial statements for additional information. Fiscal 2021 compared to Fiscal 2020: 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. Cash flows from financing activities Fiscal 2022 compared to Fiscal 2021: The increase in cash used by financing activities is attributable to the repayment of long-term debt, including premiums paid, of $987 million, amounts paid to acquire the noncontrolling interest of CQADNT ($153 million), along with higher dividend payments to noncontrolling interests primarily in connection with the acquisition of CQANDT. Refer to Note 9, “Debt and Financing Arrangements,” and Note 3, “Acquisitions and Divestitures,” of the notes to the consolidated financial statements for additional information. Fiscal 2021 compared to Fiscal 2020: 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. Capital expenditures Fiscal 2022 compared to Fiscal 2021: Capital expenditures decreased year-over-year based on timing of program spend on product launches and continued tightening of overall spending. Adient plc | Form 10-K | 44 Fiscal 2021 compared to Fiscal 2020: 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. Working capital (in millions) September 30, 2022 September 30, 2021 Current assets $ 4,163 $ 5,086 Current liabilities 3,501 3,511 Working capital $ 662 $ 1,575 The decrease in working capital of $913 million is primarily attributable to lower cash and cash equivalents as a result of the repayment of long-term debt during the current year, and lower other current assets balances due to the settlement of all outstanding balances related to the 2021 Yanfeng Transaction. Off-Balance Sheet Arrangements Adient enters into supply chain financing programs in domestic and certain foreign jurisdictions to either sell or discount accounts receivable without recourse to third-party institutions. Sales or discounts of accounts receivable are reflected as a reduction of accounts receivable on the consolidated statements of financial position and the proceeds are included in cash flows from operating activities in the consolidated statements of cash flows. As of September 30, 2022 and 2021, $269 million and $132 million have been funded under these programs, respectively. Contractual Obligations A summary of Adient's significant contractual obligations as of September 30, 2022: (in millions) Total 2023 2024-2025 2026-2027 Beyond 2028 Long-term debt $ 2,593 $ 11 $ 829 $ 815 $ 938 Interest on long-term debt 562 130 231 164 37 Operating leases 310 90 113 52 55 Purchase obligations (1) 369 198 8 52 111 Pension contributions 118 14 19 22 63 Total contractual cash obligations $ 3,952 $ 443 $ 1,200 $ 1,105 $ 1,204 (1) Primarily consists of commitments for production materials and other supply items, as well as $92 million of committed capital expenditures. Effects of Inflation and Changing Prices 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 over time have been moderate. The automotive industry has recently experienced a period of significant volatility in commodity and other input costs, including steel, petrochemical, freight energy and labor costs. This price volatility may continue into the future as demand increases and/or supply remains constrained. Price volatility has resulted in an overall increase of input costs for Adient that may not be, or may only be partially, offset through customer negotiations. During fiscal 2023, commodity prices and availability could fluctuate throughout the year and significantly affect Adient's results of operations. Critical Accounting Estimates and Policies Adient prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). This requires management to make estimates and assumptions that affect reported amounts Adient plc | Form 10-K | 45 and related disclosures. 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. Revenue Recognition Adient records revenue when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price or fee is fixed or determinable and collectability is reasonably assured. Adient delivers products and records revenue pursuant to commercial agreements with its customers generally in the form of an approved purchase order, including the effects of contractual customer price productivity. Adient does negotiate discrete price changes with its customers, which are generally the result of unique commercial issues between Adient and its customers. Adient records amounts associated with discrete price changes as a reduction to revenue when specific facts and circumstances indicate that a price reduction is probable and the amounts are reasonably estimable. 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. Impairment of Goodwill, Other Long-lived Assets and Investments in Partially Owned Affiliates Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. Adient reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. Adient performs impairment reviews for its reporting units, which have been determined to be Adient's reportable segments, using a fair value method based on management's judgments and assumptions or third-party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, Adient uses the income approach in which discounted cash flow analyses are used to derive estimates of fair value of each reporting unit. Multiples of earnings based on the average of historical, published multiples of earnings of comparable entities with similar operations and economic characteristics are also used in developing estimated fair values. 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." These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows and appropriate discount rates (based on weighted average cost of capital ranging from 17.5% – 21.0% at September 30, 2022) 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 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 the COVID-19 pandemic, supply-chain disruptions, higher commodity, shipping and energy costs, and the Russia/Ukraine conflict 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. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. Adient is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. As a result of the tests, there was no goodwill impairment recorded during the fourth quarter of fiscal 2022. Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for additional information. Adient reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Adient conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, "Impairment or Disposal of Long-Lived Assets." ASC 360-10-15 requires Adient to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. Intangible assets with definite lives continue to be amortized over their estimated useful lives and are subject to impairment testing as part of their asset group if events or changes in circumstances indicate that the asset might be impaired. A considerable amount of management judgment and assumptions are required in performing the impairment tests. No triggering events were identified during fiscal 2022 and 2021. 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 Adient plc | Form 10-K | 46 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. 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. These methods are consistent with the methods Adient employed in prior periods to value other long-lived assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consist of expected future operating margins and cash flows, estimated production volumes, weighted average cost of capital rates (13.0%), estimated salable values and third-party appraisal techniques such as market comparables. To the extent that profitability on current or future programs decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of long-lived assets could occur in the future. Adient monitors its investments in partially-owned affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If Adient determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. During the second quarter of fiscal 2022, Adient entered into agreements, whereby Adient would sell its interests in two joint ventures in China held directly by Adient, each of which represented 25% of their total issued and outstanding equity interests, for $3 million. As a result, Adient concluded that indicators of other-than-temporary impairment were present related to the investments in these joint ventures, and recorded a non-cash impairment charge of $3 million. Also during the second quarter of fiscal 2022, Adient concluded that indicators of other-than-temporary impairment were present related to a partially-owned affiliate in South Africa as the Company pursued a sale of a portion of its interest in the joint venture and recorded a non-cash impairment charge of $6 million. During fiscal 2020, Adient entered into an agreement to, among other things, transfer all of the issued and outstanding equity interest in YFAI held, directly or indirectly, by Adient, which represented 30% of YFAI’s total issued and outstanding equity interest, to Yanfeng Automotive Trim Systems Company Ltd. for $369 million, of which $309 million was paid at closing and $60 million was subsequently paid in fiscal 2021 and 2022. This transaction closed during the fourth quarter of fiscal 2020. Adient concluded that indicators of other-than-temporary impairment were present in certain quarters during fiscal 2020 related to the investment in YFAI and recorded a total of $231 million non-cash impairment of Adient’s YFAI investment within equity income. The impairments were determined based on combining the fair value of consideration received for all transactions contemplated within the Master Agreement, including an estimated fair value of the YFAS joint venture extension, and allocating the total consideration received to the individual transactions based on relative fair values. Adient estimated the fair value of the individual transactions using both an income approach and market approach. The inputs utilized in the fair value analyses of the transactions are classified as level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consisted of expected future operating margins and cash flows of YFAI, estimated production volumes, estimated dividend payments from YFAS over the extension period, estimated terminal values of YFAS, market comparables, weighted-average costs of capital (YFAI - 15.0%, YFAS - 10.5%), and noncontrolling interest discounts. Refer to Note 3, “Acquisitions and Divestitures,” and Note 18, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated financial statements for additional information. Employee Benefit Plans Adient provides a range of pension benefits to its employees and retired employees. These benefits are Adient's direct obligation and have been recorded within Adient's consolidated financial statements. Plan assets and obligations are measured annually, or more frequently if there is a remeasurement event, based on Adient's measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates as of that date. Adient reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate. Adient utilizes a mark-to-market approach for recognizing pension benefit expenses, including measuring the market related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event. U.S. GAAP requires that companies recognize in the statement of financial position a liability for defined benefit pension and postretirement plans that are underfunded or unfunded, or an asset for defined benefit pension and postretirement plans that are overfunded. U.S. GAAP also requires that companies measure the benefit obligations and fair value of plan assets that determine a benefit plan's funded status as of the date of the employer's fiscal year end. Adient considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, Adient uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the Adient plc | Form 10-K | 47 expected timing of benefit payments. For the U.S. pension plans, Adient uses a discount rate provided by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension, Adient consistently uses the relevant country specific benchmark indices for determining the various discount rates. Adient's discount rate on U.S. pension plans was 5.51% and 3.06% at September 30, 2022 and 2021, respectively. Adient's weighted average discount rate on non-U.S. plans was 4.98% and 1.71% at September 30, 2022 and 2021, respectively. In estimating the expected return on plan assets, Adient considers the historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of the active management of the plans' invested assets. Reflecting the relatively long-term nature of the plans' obligations, approximately 60% of the plans' assets are invested in fixed income securities and 15% in equity securities, with the remainder primarily invested in alternative investments. For fiscal years 2022 and 2021, Adient's expected long-term return on U.S. pension plan assets used to determine net periodic benefit cost was 5.75% and 5.75% respectively. The actual rate of return on U.S. pension plans was below 5.75% in fiscal 2022 and was below 5.75% in fiscal 2021. For fiscal years 2022 and 2021, Adient's weighted average expected long-term return on non-U.S. pension plan assets was 3.20% and 3.68%, respectively. The actual rate of return on non-U.S. pension plans was below 3.20% in fiscal 2022 and was above 3.68% in fiscal 2021. For fiscal 2023, Adient estimates the long-term rate of return will approximate 6.75% and 4.53% for U.S. pension and non-U.S. pension plans, respectively. Any differences between actual investment results and the expected long-term asset returns will be reflected in net periodic benefit costs in the fourth quarter of each fiscal year. If Adient's actual returns on plan assets are less than Adient's expectations, additional contributions may be required. In fiscal 2022, total Adient contributions to the defined benefit pension plans were $16 million. Adient expects to contribute at least $14 million in cash to its defined benefit pension plans in fiscal 2023. Based on information provided by its independent actuaries and other relevant sources, Adient believes that the assumptions used are reasonable; however, changes in these assumptions could impact Adient's financial position, results of operations or cash flows. The following table illustrates estimated increases (decreases) in projected benefit obligation (PBO) and net periodic benefit cost excluding changes in mark-to-market adjustments (NPBC) as of September 30, 2022 and for fiscal 2022 assuming a decrease of 100 basis points in the discount rate and expected return on plan assets. Pension Benefits U.S. Plans Non-U.S. Plans (in millions) Change in PBO Change in NPBC Change in PBO Change in NPBC 100 basis point decrease in discount rate $ 1 $ — $ 46 $ (4) 100 basis point decrease in expected return on plan assets N/A — N/A 4 Refer to Note 14, "Retirement Plans," of the notes to consolidated financial statements for more information on Adient's pension plans. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Adient records a valuation allowance that primarily represents operating and other loss carryforwards for which realization is uncertain. Management judgment is required in determining Adient's provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against Adient's net deferred tax assets. Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary. Adient plc | Form 10-K | 48 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. Refer to Note 16, "Income Taxes," of the notes to consolidated financial statements for Adient's income tax disclosures. Restructuring Costs Adient accrues costs in connection with its restructuring actions. These accruals include estimates primarily related to employee headcount, local statutory benefits, and other employee termination costs. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified. Refer to Note 15, “Restructuring and Impairment Costs,” of the notes to consolidated financial statements for more information. During fiscal 2022, Adient committed to a restructuring plan ("2022 Plan") of $25 million that was offset by $10 million of prior year underspend. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions in EMEA and Americas. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2022 restructuring plan will reduce annual operating costs by approximately $20 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 20% will result in net savings. The restructuring actions are expected to be substantially completed by fiscal 2024. 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, $23 million related to the EMEA segment, $3 million related to the Americas segment, and $1 million related to the Asia segment. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions and lease contract terminations. 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 20%-30% will result in net savings. The restructuring actions are expected to be substantially completed in fiscal 2023. During fiscal 2020, Adient committed to a restructuring plan ("2020 Plan") of $205 million. 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. Also recorded in fiscal 2020 is $20 million of underspend related to prior year plan reserves. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2020 restructuring plan will reduce annual operating costs by approximately $180 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 35%-40% will result in net savings. The restructuring actions are expected to be substantially completed by fiscal 2024. New Accounting Pronouncements See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," of the notes to consolidated financial statements for a discussion of new accounting pronouncements. Adient plc | Form 10-K | 49