Adient plc 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Presentation of Information Adient plc | Form 10-K | 30 Unless the context requires otherwise, references to "Adient plc" or "Adient" refer to Adient plc and its consolidated subsidiaries. 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 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. 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 effects of local and national economic, credit and capital market conditions (including the persistence of high interest rates, vehicle affordability and volatile currency exchange rates) on the global economy, automotive vehicle production levels, mix and schedules, as well as the concentration of exposure to certain automotive manufacturers, shifts in market shares among vehicles, vehicle segments or away from vehicles on which Adient has significant content, changes in consumer demand, risks associated with Adient’s joint ventures, volatile energy markets, Adient’s ability and timing of customer recoveries for increased input costs, the availability of raw materials and component products (including components required by Adient’s customers for the manufacture of vehicles), geopolitical uncertainties such as the Ukraine and Middle East conflicts and the impact on the regional and global economies and additional pressure on supply chain and vehicle production, uncertainties in U.S. administrative policy regarding trade agreements, tariffs and other international trade relations, the ability of Adient to effectively launch new business at forecast and profitable levels, work stoppages, including due to strikes, supply chain disruptions and similar events, wage inflationary pressures due to labor shortages and new labor negotiations, the ability of Adient to execute its restructuring plans and achieve the desired benefit, the ability of Adient to meet debt service requirements and, terms of future financing, the impact of global tax reform legislation, global climate change and related emphasis on sustainability matters by various stakeholders, and the ability of Adient to achieve its sustainability-related goals, cancellation of or changes to commercial arrangements, and the ability of Adient to identify, recruit and retain key leadership. Factors that might cause differences include, but are not limited to, those discussed in Part 1, Item 1A of this Form 10-K under the heading "Risk Factors," which are incorporated herein by reference. All information presented herein is based on 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. Overview Adient is a global leader in the automotive seating supply industry and maintains relationships with the largest global automotive original equipment manufacturers, or OEMs. Adient's proprietary 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 29 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 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, the 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 Adient plc | Form 10-K | 31 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 Adient, along with the automotive industry, continues to experience lower than expected vehicle production due to softening consumer demand, uncertainties surrounding the global adoption of electric vehicles and delayed vehicle launches in Americas along with persistent operational and market-driven headwinds in EMEA. 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. As a result of macroeconomic factors impacting Adient and the automotive industry, a heightened risk of impairment exists for the EMEA reporting unit as the difference between its fair value and carrying value is less than 10% as of September 30, 2024. The decrease in EMEA’s fair value is driven by lower forecasted vehicle volumes from weakening consumer demand, slower consumer adoption of electric vehicles, overcapacity in the industry resulting in pricing pressure, intensifying competition from Chinese imports and lower exports to China from EMEA as domestic brands expand in China. As a result of the heightened risk of impairment, Adient will continuously assess the changing macroeconomic conditions in EMEA including the outlook for consumer demand for vehicles and other factors impacting the region, along with the need for further restructuring actions, all of which impact Adient’s ability to achieve its projected long-term operating performance. Refer to Note 6, “Goodwill and Other Intangible Assets,” of the notes to the consolidated financial statements for additional information. 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 2024, global light vehicle production increased 1.5%, driven by improved production volumes predominately in China. The current operating environment varies by region, being impacted by weakening consumer demand due to new vehicle affordability and high interest rates along with slower electric vehicle adoption rates. Light vehicle production levels by geographic region are provided below: Light Vehicle Production (units in millions) 2024 Change 2023 Change 2022 Global 89.4 1.5 % 88.1 8.0 % 81.6 North America 15.6 0.6 % 15.5 9.9 % 14.1 South America 2.8 -6.7 % 3.0 7.1 % 2.8 Europe 16.2 -2.4 % 16.6 15.3 % 14.4 Other EMEA 1.3 18.2 % 1.1 -8.3 % 1.2 China 29.5 7.7 % 27.4 2.6 % 26.7 Asia, excluding China 24.0 -2.0 % 24.5 9.4 % 22.4 Source: S&P Global, October 2024 Financial Results Summary Significant aspects of Adient's financial results for fiscal 2024 include the following: • Adient recorded net sales of $14,688 million for fiscal 2024, representing a decrease of $707 million when compared to fiscal 2023. The decrease in net sales is attributable to Adient's lower overall production volumes in all regions, the unfavorable impact of foreign currencies, and unfavorable material economics recoveries, partially offset by favorable net pricing adjustments. • Gross profit was $928 million, or 6.3% of net sales for fiscal 2024 compared to $1,033 million, or 6.7% of net sales for fiscal 2023. Profitability, including gross profit as a percentage of net sales, was lower due to lower production volumes in all regions, the unfavorable impact of foreign currencies, unfavorable operating performance in EMEA, unfavorable Adient plc | Form 10-K | 32 material economics, net of recoveries and non-recurring net benefits largely associated with insurance recoveries in fiscal 2023, partially offset by favorable operating performance in Americas and Asia. • Equity income was $90 million for fiscal 2024, which compares to equity income of $84 million for fiscal 2023. The increase is primarily attributable to favorable operating performance at partially-owned affiliates, partially offset by the impact of the KEIPER supply agreement modifications executed in fiscal 2023 and the unfavorable impact of foreign currencies. • Net income attributable to Adient was $18 million for fiscal 2024, compared to an income of $205 million for fiscal 2023. The lower net income in fiscal 2024 is primarily attributable to lower overall production volumes, higher restructuring and impairment costs, unfavorable material economics, net of recoveries, higher income tax expense, the unfavorable impact of foreign currencies and prior year non-recurring net benefits largely associated with insurance recoveries, partially offset by favorable net operating performance, lower Selling, general and administrative expenses (“SG&A”) mainly driven by lower incentive compensation expense and lower net engineering and other administrative spending, higher equity income and lower income attributable to noncontrolling interests. Consolidated Results of Operations Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Net sales $ 14,688 (5)% $ 15,395 9% $ 14,121 Cost of sales 13,760 (4)% 14,362 8% 13,314 Gross profit 928 (10)% 1,033 28% 807 Selling, general and administrative expenses 507 (8)% 554 (7)% 598 Restructuring and impairment costs 168 >100% 40 60% 25 Equity income 90 7% 84 12% 75 Earnings before interest and income taxes 343 (34)% 523 >100% 259 Net financing charges 189 (3)% 195 (9)% 215 Other pension expense (income) 21 (36)% 33 >100% (10) Income before income taxes 133 (55)% 295 >100% 54 Income tax provision 32 >100% — >(100)% 94 Net income (loss) 101 (66)% 295 >100% (40) Income attributable to noncontrolling interests 83 (8)% 90 13% 80 Net income (loss) attributable to Adient $ 18 (91)% $ 205 >100% $ (120) Net Sales Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Net sales $ 14,688 (5)% $ 15,395 9% $ 14,121 Net sales decreased by $707 million, or 5%, during fiscal 2024 as compared to fiscal 2023 due to lower overall production volumes in all regions that are resulting from softening consumer demand and weaker product mix in EMEA along with slower than expected product launches and production disruptions at certain customers in the Americas including the impact of the United Auto Workers ("UAW") strike during the first fiscal quarter ($697 million), unfavorable material economics recoveries ($93 million) and the unfavorable impact of foreign currencies ($16 million), partially offset by net favorable pricing adjustments ($99 million). Adient plc | Form 10-K | 33 Net sales increased by $1,274 million, or 9%, in fiscal 2023 as compared to fiscal 2022 due to higher overall production volumes in all operating segments ($1,558 million) and net favorable pricing adjustments ($141 million), partially offset by the unfavorable impact of foreign currencies ($301 million) and unfavorable material economics recoveries ($124 million). Refer to the segment analysis below for a discussion of segment net sales. Cost of Sales / Gross Profit Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Cost of sales $ 13,760 (4)% $ 14,362 8% $ 13,314 Gross profit 928 (10)% 1,033 28% 807 % of sales 6.3 % 6.7 % 5.7 % Cost of sales decreased by $602 million, or 4%, and gross profit decreased by $105 million, or 10%, during fiscal 2024 as compared to fiscal 2023. The year over year decrease in cost of sales was primarily due to lower production volumes ($522 million), favorable material economics ($79 million), favorable operating performance driven by lower freight costs ($25 million), favorable supplier pricing adjustments ($20 million), the favorable impact of the KEIPER supply agreement modifications ($8 million) and lower depreciation expense ($2 million), partially offset by non-recurring net benefits largely associated with insurance recoveries in fiscal 2023 ($29 million), the unfavorable impact of foreign currencies ($18 million), and higher restructuring related charges ($5 million). Gross profit for fiscal 2024 was unfavorably impacted by lower production volumes, non-recurring net benefits largely associated with insurance recoveries in fiscal 2023, unfavorable material economics, net of recoveries and the unfavorable impact of foreign currencies, partially offset by favorable operating performance. Cost of sales increased by $1,048 million, or 8%, and gross profit increased by $226 million in fiscal 2023 as compared to fiscal 2022. The year-over-year increase in cost of sales was due to higher production volumes ($1,312 million), increased utilities and labor costs along with operating inefficiencies associated with supply chain issues ($104 million), and the impact of fiscal 2022 gains associated with retrospective recoveries of Brazil indirect tax credits ($29 million), partially offset by the favorable impact of foreign currencies ($282 million), favorable supplier pricing ($69 million), non-recurring fiscal 2023 net benefits largely associated with insurance recoveries ($29 million), the favorable impact of the KEIPER supply agreement modifications ($11 million), and lower depreciation expense ($6 million). Gross profit was favorably impacted by higher overall production volumes, net favorable pricing adjustments, and non-recurring net benefits largely associated with insurance recoveries, partially offset by higher utilities and labor costs, and unfavorable net material economics. Refer to the segment analysis below for a discussion of segment profitability. Selling, General and Administrative Expenses Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Selling, general and administrative expenses $ 507 (8)% $ 554 (7)% $ 598 % of sales 3.5 % 3.6 % 4.2 % SG&A for fiscal 2024 decreased by $47 million, or 8%, as compared to fiscal 2023. The year over year decrease in SG&A was primarily due to lower compensation expense including performance-based incentive compensation costs and other compensation related austerity measures ($32 million), lower net engineering and other administrative spending ($16 million), lower depreciation and amortization expense ($6 million), the favorable impact of foreign currencies ($2 million) and lower transaction costs ($2 million), partially offset by a one-time loss on business divestiture ($8 million) and other non-recurring items ($3 million). SG&A in fiscal 2023 decreased by $44 million, or 7%, as compared to fiscal 2022. The-year-over year decrease in SG&A is attributable to the favorable impact of foreign currencies ($12 million), one-time gain on sale of a restructured facility ($10 million), lower transaction costs ($5 million), non-recurring unfavorable fiscal 2022 costs ($17 million), lower overall Adient plc | Form 10-K | 34 engineering and other administrative spending ($15 million), and lower depreciation and amortization expense ($4 million), partially offset by higher compensation expense including stock-based and performance-based incentive compensation costs due in part to the non-recurrence of fiscal 2022 austerity measures ($19 million). Refer to the segment analysis below for a discussion of segment profitability. Restructuring and Impairment Costs Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Restructuring and impairment costs $ 168 >100% $ 40 60% $ 25 Restructuring and impairment costs were higher by $128 million during fiscal 2024 due to restructuring actions taken primarily in EMEA in response to the macroeconomic factors occurring in the European automotive market causing reduced production volumes and to ensure Adient maintains a competitive cost structure by reducing labor costs and increasing efficiencies. Adient also recorded a $9 million impairment on its Adient Aerospace investment in fiscal 2024 contributing to the increase year over year. Adient continues to monitor and assess market conditions within the automotive industry in each of its regions, with particular focus on EMEA in the near term, and will consider taking further restructuring action as needed to stay competitive and to position Adient to serve the needs of its customers. Restructuring and impairment costs were higher by $15 million in fiscal 2023 as compared to fiscal 2022 due primarily to higher levels of restructuring actions taken in EMEA. The restructuring actions related to cost reduction initiatives and consisted primarily of workforce reductions. Refer to Note 15, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements and the discussion under Liquidity and Capital Resources below for additional information related to Adient's restructuring plans. Equity Income Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Equity income $ 90 7% $ 84 12% $ 75 Equity income was $90 million for fiscal 2024, compared to $84 million for fiscal 2023. The increase is primarily attributable to favorable production volumes and operating performance at partially-owned affiliates ($17 million) and the non-recurrence of prior year non-cash impairment charges recorded on certain of Adient's investments in non-consolidated affiliates ($3 million), partially offset by the impact of the KEIPER supply agreement modifications executed in fiscal 2023 ($8 million), and the unfavorable impact of foreign currencies ($5 million). Equity income was $84 million in fiscal 2023 compared to $75 million in fiscal 2022. The increase is primarily attributable to higher production volumes and favorable operating performance at Adient's partially-owned affiliates ($28 million), one-time gain on divestiture of investment at an affiliate ($4 million), and lower non-cash impairment charges recorded on certain of Adient's investments in non-consolidated affiliates ($2 million), partially offset by the impact of the KEIPER supply agreement modifications ($17 million), the unfavorable impact of foreign currencies ($7 million), and restructuring-related activities at certain affiliates ($1 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. Adient plc | Form 10-K | 35 Net Financing Charges Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Net financing charges $ 189 (3)% $ 195 (9)% $ 215 Net financing charges decreased by $6 million during fiscal 2024 as compared to fiscal 2023 due primarily to premiums paid and deferred financing cost write offs associated with repurchasing of debt during fiscal 2023. Net financing charges decreased by $20 million in fiscal 2023 as compared to fiscal 2022 due to higher premiums paid to tender outstanding debt and higher accelerated expensing of deferred financing costs during fiscal 2022. 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) 2024 Change 2023 Change 2022 Other pension expense (income) $ 21 (36)% $ 33 >100% $ (10) Other pension expense (income) consists of mark-to-market, curtailment and settlement adjustments, and non-service components of net periodic pension costs of Adient's retirement plans. Other pension expense was lower by $16 million in fiscal 2024 as compared to fiscal 2023 due primarily to a $13 million current year mark-to-market loss (compared to a $19 million loss in fiscal 2023) and an $8 million prior year curtailment loss primarily associated with employee termination benefit plans in the Americas segment. The higher fiscal 2023 expense compared to fiscal 2022 is due primarily to a $19 million fiscal 2023 mark-to-market loss (compared to a $8 million gain in fiscal 2022), an $8 million curtailment loss primarily associated with employee termination benefit plans in the Americas segment, and higher pension interest expense. 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) 2024 Change 2023 Change 2022 Income tax provision $ 32 >100% $ — >(100)% $ 94 The fiscal 2024 income tax expense of $32 million was higher than the Irish statutory rate of 12.5% primarily due to the inability to record a tax benefit for losses in jurisdictions with valuation allowances, the repatriation of foreign earnings, $17 million of tax expense related to foreign exchange remeasurements of tax balances primarily in Mexico and tax expense from the establishment of valuation allowances at certain subsidiaries, partially offset by tax benefits from the release of uncertain tax positions due to audit closures and from the release of valuation allowances at certain subsidiaries. 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. Given current earnings and anticipated future earnings at certain subsidiaries, Adient believes that there is a possibility that sufficient positive evidence may become available that would allow the release of all, or a portion of, valuation allowances at certain subsidiaries within the next twelve months. A release of valuation allowances, if any, would result in the recognition of certain deferred tax assets which could generate a material income tax benefit for the period in which such release is recorded. Adient plc | Form 10-K | 36 As a result of Adient's fiscal 2024 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 would be realizable and recorded an income tax benefit of $14 million in China, $8 million in Mexico, $7 million in France, and $6 million in Japan to release valuation allowances. In addition, Adient determined it was necessary to establish valuation allowances on certain deferred tax assets in Poland and Mexico, recording tax expense of $14 million and $5 million, respectively. 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. The fiscal 2023 income tax expense of $0 million was lower than the Irish statutory rate of 12.5% primarily due to the release of valuation allowances in Mexico, partially offset by the inability to recognize a tax benefit for losses in jurisdictions with valuation allowances, the repatriation of foreign earnings, and foreign tax rate differentials. As a result of Adient's fiscal 2023 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 Mexico would be realizable and recorded an income tax benefit of $114 million to release valuation allowances. In addition, Adient determined it was necessary to release valuation allowances and establish valuation allowances in other jurisdictions that did not have a material impact on Adient’s financial statements. 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. 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 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) 2024 Change 2023 Change 2022 Income attributable to noncontrolling interests $ 83 (8)% $ 90 13% $ 80 The decrease in income attributable to noncontrolling interests during fiscal 2024 compared to fiscal 2023 is attributable to lower production volumes associated with new program launches at certain affiliates, which is partially offset by a $5 million adjustment to increase income attributable to noncontrolling interests recorded in fiscal 2024 but related to fiscal 2023. The $10 million increase in income attributable to noncontrolling interests in fiscal 2023 as compared to fiscal 2022 is primarily attributable to higher production volumes at affiliates in various jurisdictions. Adient plc | Form 10-K | 37 Net Income (Loss) Attributable to Adient Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Net income (loss) attributable to Adient $ 18 (91)% $ 205 >100% $ (120) Net income attributable to Adient was $18 million for fiscal 2024, compared to an income of $205 million for fiscal 2023. The lower net income in fiscal 2024 is primarily attributable to lower overall production volumes, higher restructuring and impairment costs, unfavorable material economics, net of recoveries, higher income tax expense, the unfavorable impact of foreign currencies and prior year non-recurring net benefits largely associated with insurance recoveries, partially offset by favorable net operating performance, lower SG&A expenses mainly driven by lower incentive compensation expense and lower net engineering and other administrative spending, higher equity income and lower income attributable to noncontrolling interests. Net income attributable to Adient was $205 million in fiscal 2023, compared to $120 million of net loss attributable to Adient in fiscal 2022. The higher net income in fiscal 2023 is primarily attributable to higher overall production volumes, favorable pricing and operating performance, one-time insurance recoveries, one-time income tax benefit related to the release of certain tax valuation allowances, lower SG&A expenses, lower net financing charges, and higher equity income, partially offset by unfavorable material economics, higher other pension expense, higher restructuring cost, higher income attributable to noncontrolling interests, and the unfavorable impact of foreign currencies. Comprehensive Income (Loss) Attributable to Adient Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Comprehensive income (loss) attributable to Adient $ 167 (20)% $ 208 >100% $ (338) Comprehensive income attributable to Adient was $167 million in fiscal 2024 compared to $208 million of comprehensive income in fiscal 2023. The decrease of $41 million is due primarily to lower net income ($194 million), higher realized and unrealized losses on derivatives ($53 million) and higher comprehensive income attributable to noncontrolling interests ($15 million), partially offset by the favorable impact of foreign currency translation adjustments ($221 million). Comprehensive income attributable to Adient was $208 million in fiscal 2023 compared to $338 million of comprehensive loss in fiscal 2022. The increase of $546 million is due primarily to higher net income ($335 million), the favorable impact of foreign currency translation adjustments ($233 million) and the impact of realized and unrealized gains on derivatives ($21 million), partially offset by higher comprehensive income attributable to noncontrolling interests ($42 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) EMEA and 3) 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. Also, certain corporate-related costs are not allocated to the segments. The reportable segments are consistent with how management views the markets served by Adient and reflect the financial information that is reviewed by its chief operating decision maker. Adient plc | Form 10-K | 38 The following table summarizes net sales and adjusted EBITDA by reportable segment for fiscal 2024, 2023 and 2022: (in millions) Americas EMEA Asia Corporate/Eliminations Consolidated Fiscal 2024 Net sales $ 6,763 $ 5,029 $ 2,989 $ (93) $ 14,688 Adjusted EBITDA $ 375 $ 155 $ 439 $ (89) $ 880 Fiscal 2023 Net sales $ 7,220 $ 5,195 $ 3,085 $ (105) $ 15,395 Adjusted EBITDA $ 336 $ 232 $ 464 $ (94) $ 938 Fiscal 2022 Net sales $ 6,557 $ 4,764 $ 2,926 $ (126) $ 14,121 Adjusted EBITDA $ 242 $ 138 $ 383 $ (88) $ 675 The following is a reconciliation of Adient's reportable segments' adjusted EBITDA to income before income taxes: Year Ended September 30, (in millions) 2024 2023 2022 Adjusted EBITDA Americas $ 375 $ 336 $ 242 EMEA 155 232 138 Asia 439 464 383 Subtotal 969 1,032 763 Corporate-related costs (1) (89) (94) (88) Restructuring and impairment costs (2) (168) (40) (25) Purchase accounting amortization (3) (48) (52) (54) Restructuring related activities (4) — 2 (6) Loss on disposal transactions (5) (7) (6) — Depreciation (285) (290) (298) Equity based compensation (31) (34) (29) Other items (6) 2 5 (4) Earnings before interest and income taxes 343 523 259 Net financing charges (189) (195) (215) Other pension income (expense) (21) (33) 10 Income before income taxes $ 133 $ 295 $ 54 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 probable and reasonably estimable and one-time asset impairments. During fiscal 2024, an impairment charge of $9 million related to Adient’s investment in Adient Aerospace was recorded. 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. 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. Adient plc | Form 10-K | 39 (4) Reflects restructuring-related charges for costs that are recorded as incurred or as earned and other non-recurring impacts that are directly attributable to restructuring activities. Fiscal 2024 and 2023 also each include a non-recurring $10 million gain on the sale of two restructured facilities in Americas. (5) Fiscal 2024 reflects an $8 million loss on sale of 51% of Adient's interest in LFADNT (as described in Note 3, "Acquisitions and Divestitures," of the notes to consolidated financial statements), partially offset by a $1 million gain on sale of a nonconsolidated partially-owned affiliate. Fiscal 2023 reflects $3 million and $3 million of non-cash impairment related to certain of Adient's investments in nonconsolidated partially-owned affiliates in Asia and EMEA, respectively, (6) Fiscal 2024 reflects a $3 million non-recurring gain on a contract related settlement and $1 million of indirect tax recoveries in Brazil, partially offset by $1 million of transaction costs and a $1 million one-time divestiture related impact at an affiliate. Fiscal 2023 reflects $4 million of one-time divestiture gain at an affiliate and $4 million of a gain associated with the retrospective recovery of indirect tax credits in Brazil, partially offset by $3 million of transaction costs. 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, $8 million of transaction costs, a $14 million charge related to a non-recurring contract related settlement, $1 million of accounts receivable allowances resulting from the withdrawal from and sale of operations in Russia, and $2 million of loss on finalization of asset sale in Turkey, partially offset by a gain of $32 million associated with the retrospective recovery of indirect tax credits in Brazil. Americas Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Net sales $ 6,763 (6)% $ 7,220 10% $ 6,557 Adjusted EBITDA $ 375 12% $ 336 39% $ 242 Net sales decreased in fiscal 2024 by $457 million primarily due to lower current year production volumes resulting from weakening consumer demand, slower than expected product launches and the UAW strike-related disruptions during the first quarter of fiscal 2024 at certain customers ($470 million), unfavorable material economics recoveries ($55 million) and the unfavorable impact of foreign currencies ($21 million), partially offset by net favorable pricing adjustments ($89 million). Adjusted EBITDA increased in fiscal 2024 by $39 million due to net favorable pricing adjustments and operational improvements including lower freight costs and the impact of the KEIPER supply agreement modifications ($145 million) and lower SG&A expenses driven by lower compensation expense, including lower performance based compensation costs and other compensation related austerity measures, along with improved engineering recoveries ($48 million), partially offset by lower current year production volumes ($89 million, including the UAW strike-related impact during the first quarter of fiscal 2024 of $25 million), the unfavorable impact of foreign currencies ($27 million), unfavorable material economics, net of recoveries ($25 million) and non-recurring net benefits largely associated with insurance recoveries in fiscal 2023 ($13 million). Net sales increased in fiscal 2023 by $663 million primarily as a result of higher production volumes ($669 million) and favorable net pricing adjustments ($73 million), partially offset by the unfavorable impact of material economics recoveries ($79 million). Adjusted EBITDA increased in fiscal 2023 by $94 million due to higher production volumes ($93 million), net material margin improvements including the impact of the KEIPER supply agreement modifications ($79 million), non-recurring net benefits associated with insurance recoveries ($13 million), and higher equity income ($1 million), partially offset by higher labor, utility and launch costs ($58 million), unfavorable material economics, net of recoveries ($17 million), higher administrative and engineering expense due in part to the non-recurrence of fiscal 2022 austerity measures ($8 million), and the unfavorable impact of foreign currencies ($9 million). Adient plc | Form 10-K | 40 EMEA Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Net sales $ 5,029 (3)% $ 5,195 9% $ 4,764 Adjusted EBITDA $ 155 (33)% $ 232 68% $ 138 Net sales decreased in fiscal 2024 by $166 million primarily due to lower production volumes resulting from weakening consumer demand for new vehicles and product mix ($212 million), unfavorable material economics recoveries ($36 million) and net unfavorable pricing adjustments ($9 million), partially offset by the favorable impact of foreign currencies ($91 million). Adjusted EBITDA decreased in fiscal 2024 by $77 million due to lower production volumes ($48 million), higher operating costs associated with lower levels of customer orders, which were often reduced with little warning, leading to unplanned downtime and operating inefficiencies ($21 million), non-recurring net benefits largely associated with insurance recoveries in fiscal 2023 ($17 million) and the non-recurrence of prior year gains on sale of assets ($6 million), partially offset by the favorable impact of foreign currencies ($5 million), increased equity income ($4 million), favorable material economics, net of recoveries ($4 million) and lower administrative and engineering expense ($2 million). Net sales increased in fiscal 2023 by $431 million primarily as a result of higher production volumes ($511 million), and net favorable pricing adjustments ($87 million), partially offset by the unfavorable impact of foreign currency ($124 million) and the unfavorable impact of material economics recoveries ($43 million). Adjusted EBITDA increased in fiscal 2023 by $94 million due primarily to net material margin improvements ($117 million), higher production volumes ($81 million), non-recurring net benefits associated with insurance recoveries ($17 million), the favorable impact of foreign currencies ($22 million), higher equity income ($4 million), and lower administrative and engineering expense ($6 million), partially offset by unfavorable material economics, net of recoveries ($111 million) and higher input costs including freight, labor and utilities ($42 million). Refer to the “Factors Affecting Adient’s Operating Environment” included above in Item 7 within the Management’s Discussion and Analysis section for more information. Asia Year Ended September 30, (in millions) 2024 Change 2023 Change 2022 Net sales $ 2,989 (3)% $ 3,085 5% $ 2,926 Adjusted EBITDA $ 439 (5)% $ 464 21% $ 383 Net sales decreased in fiscal 2024 by $96 million due to the unfavorable impact of foreign currencies ($85 million), lower production volumes due primarily to program changeovers, program launches and lower volumes on foreign OEM platforms in China ($29 million) and unfavorable material economics recoveries ($2 million), partially offset by net favorable pricing adjustments ($20 million). Adjusted EBITDA decreased in fiscal 2024 by $25 million due to lower current year production volumes and unfavorable product mix ($38 million), the unfavorable impact of foreign currencies ($19 million) and higher administrative and engineering expense ($6 million), partially offset by net favorable pricing adjustments and improved labor efficiencies ($30 million), favorable material economics, net of recoveries ($6 million) and higher equity income which includes the unfavorable impact of the KEIPER supply agreement modifications ($2 million). Net sales increased in fiscal 2023 by $159 million due to higher production volumes and mix ($360 million), partially offset by the unfavorable impact of foreign currencies ($180 million), net unfavorable pricing adjustments ($19 million), and the unfavorable impact of material economics recoveries ($2 million). Adient plc | Form 10-K | 41 Adjusted EBITDA increased in 2023 by $81 million due primarily to favorable volume and mix ($72 million), net material margin improvements including the impact of the KEIPER supply agreement modifications and including certain favorable pricing adjustments in China that are non-recurring ($25 million), higher equity income at partially-owned affiliates ($13 million), favorable operating performance ($17 million), and favorable impact of material economics, net of recoveries ($4 million), partially offset by the unfavorable impact of foreign currencies ($26 million), the impact of the KEIPER supply agreement modifications on equity income ($18 million), and higher administrative and engineering expense ($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. During fiscal 2023, Adient announced a share repurchase authorization (up to $600 million) with no expiration date, wherein Adient has taken and will continue 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. Following the first quarter of fiscal 2019 dividend payout, Adient suspended future dividends. Adient believes that its current financial resources will be sufficient to fund its liquidity requirements for at least the next twelve months. 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, as amended in November 2022, is set to mature on November 2, 2027, subject to certain springing maturity provisions. Adient paid $7 million in debt issuance costs for the amended ABL Credit Facility and 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 Krona. It also provides flexibility for future amendments to the ABL Facility to incorporate certain sustainability-based pricing provisions. 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. Interest is payable on the ABL Credit Facility at a fluctuating rate of interest determined by reference to Term Secured Overnight Financing Rate (“SOFR”), in the case of amounts outstanding in Dollars, Euro Interbank Offered Rate (“EURIBOR”), in the case of amounts outstanding in Euros, Stockholm Interbank Offered Rate (“STIBOR”), in the case of amounts outstanding in Swedish Krona and Sterling Over Night Indexed Average (“SONIA”), in the case of amounts outstanding in Pounds Sterling, in each case, plus an applicable margin of 1.50% to 2.00%. As of September 30, 2024, Adient had not drawn down on the ABL Credit Facility and had availability under this facility of approximately $779 million (net of $11 million of letters of credit). In addition, Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, maintains a senior secured term loan facility (the “Term Loan B Agreement”) that had an outstanding balance of $632 million as of September 30, 2024. During fiscal 2023, Adient prepaid $350 million of the Term Loan B Agreement principal, and wrote off $2 million of previously deferred financing costs to net financing charges. During fiscal 2024, the Term Loan B Agreement was amended to reduce the applicable margin from 3.25% to 2.75% and extend final maturity to January 31, 2031 (which maturity was previously April 8, 2028). Adient incurred $5 million of costs associated with the modification, of which $4 million was recorded as deferred financing costs. 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. 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. 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 Adient plc | Form 10-K | 42 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. During fiscal 2023, Adient Global Holdings Ltd. (“AGH”), a wholly-owned subsidiary of Adient, issued (i) $500 million (net proceeds of $494 million) in aggregate principal amount of 7% senior secured notes due 2028 and (ii) $500 million (net proceeds of $494 million) in aggregate principal amount of 8.250% senior unsecured notes due 2031. Interest on both of these notes are paid on April 15 and October 15 each year, beginning on October 15, 2023. These notes contain covenants that are usual and customary. The total net proceeds of $988 million along with cash on hand were used primarily to redeem $350 million of the senior secured term loan facility under the Term Loan B Agreement as described above, and repurchase €700 million ($743 million) of the 3.50% unsecured notes due 2024 as described below. Adient paid $16 million in debt issuance costs for these new debt issuances. AGH also maintains 4.875% USD-denominated unsecured notes due 2026. The aggregate principal amount of these notes was $795 million as of September 30, 2024 and 2023. AGH also paid the remaining balance of its 3.50% Euro denominated unsecured notes of €123 million ($132 million) in August 2024 upon final maturity. During fiscal 2023, Adient repurchased €700 million ($743 million) of the 3.50% unsecured notes due 2024 at a premium of €7 million ($7 million) plus €3 million ($3 million) of accrued and unpaid interest, and expensed €2 million ($2 million) of previously deferred financing costs to net financing charges. During fiscal 2022, Adient repurchased the entirety of its $600 million, 9.00% Senior First Lien Notes due 2025 at a premium of $34 million plus $19 million of accrued interest. Sources of Cash Flows Year Ended September 30, (in millions) 2024 2023 2022 Cash provided (used) by operating activities $ 543 $ 667 $ 274 Cash provided (used) by investing activities (253) (229) 484 Cash provided (used) by financing activities (502) (271) (1,273) Capital expenditures (266) (252) (227) Cash flows from operating activities Fiscal 2024 compared to Fiscal 2023: The decrease in cash flows from operating activities is primarily due to lower profitability driven by lower production volumes in fiscal 2024 along with unfavorable changes to working capital year over year. Fiscal 2023 compared to Fiscal 2022: The increase in cash flows from operating activities is primarily due to the higher net income attributable to Adient in fiscal 2023 and favorable overall changes to working capital year-over-year due to lower levels of inventory and higher levels of current liabilities. See the working capital section below for further information on changes in working capital. Cash flows from investing activities Fiscal 2024 compared to Fiscal 2023: The increase in cash used by investing activities is primarily attributable to higher capital expenditures as further explained below and by lower levels of proceeds from asset sales. Fiscal 2023 compared to Fiscal 2022: The increase in cash used by investing activities is primarily related to the non-recurrence of the fiscal 2022 cash inflows associated with business divestitures including the $651 million of proceeds received related to the 2021 Yanfeng Transaction (as defined and described in Form 10-K for the fiscal year ended September 30, 2021), $46 million in proceeds received from the sale of the assets in Turkey, and the collection of $41 million of deferred proceeds related to the 2020 Yanfeng Transaction (as defined and described in Form 10-K for the fiscal year ended September 30, 2021). Adient plc | Form 10-K | 43 Cash flows from financing activities Fiscal 2024 compared to Fiscal 2023: The increase in cash used by financing activities is attributable to $275 million common stock repurchases transacted in fiscal 2024 ($65 million in fiscal 2023) and the repayment of the €123 million ($132 million) unsecured notes, partially offset by the non-recurrence of prior year debt refinancing activities. Refer to Note 9, "Debt and Financing Arrangements," and Note 13, "Equity and Noncontrolling Interests," of the notes to the consolidated financial statements for additional information. Fiscal 2023 compared to Fiscal 2022: The decrease in cash used by financing activities is attributable to fiscal 2022 financing activities. This includes repayment of long-term debt of $744 million (including $34 million of premiums), amounts paid to acquire the noncontrolling interest of Chongqing Adient Automotive Components Co., Ltd. ($153 million), and higher dividend payments to noncontrolling interests. These are partially offset by fiscal 2023 debt refinancing activities totaling $102 million and common stock repurchases of $65 million. Capital expenditures Fiscal 2024 compared to Fiscal 2023: Higher capital expenditures in fiscal 2024 were due primarily to timing of program spend on product launches in EMEA. Fiscal 2023 compared to Fiscal 2022: A $25 million increase in capital expenditures is primarily associated with new program launches particularly in EMEA and Asia, and additional investments in continuous improvement initiatives in all regions. Working capital (in millions) September 30, 2024 September 30, 2023 Current assets $ 4,086 $ 4,316 Current liabilities 3,678 3,738 Working capital $ 408 $ 578 Working capital decreased by $170 million as of September 30, 2024 primarily due to a decrease in cash as a result of the share repurchase activity and debt pay downs in fiscal 2024, a decrease in inventories due to focused management of inventory levels and an increase in the restructuring reserves as a result of the EMEA restructuring actions taken in fiscal 2024, partially offset by decreases in accrued compensation and benefits. Off-Balance Sheet Arrangements Adient enters into supply chain financing programs in certain domestic and 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 both September 30, 2024 and September 30, 2023, $170 million was funded under these programs. Adient also has a program with an external financial institution under which Adient's suppliers can sell their receivables from Adient to the financial institution at their sole discretion. Adient is not a party to the agreements between the participating suppliers and the financial institution. Adient's obligation under the program is to pay the original amounts of supplier invoices to the financial institution on the original invoice dates. No fees are paid and no assets are pledged by Adient. The payment terms for trade payables can range from 45 days to 120 days depending on types of services and goods being purchased. The payment terms for molds, dies and other tools that are acquired as part of pre-production activities are in general longer, and are normally dependent on the terms which Adient has agreed with its customers. As of September 30, 2024, and September 30, 2023, Adient's liabilities related to this program were $76 million and $50 million, respectively. Cash flows related to the program are all presented within operating activities in Adient's consolidated statements of cash flows. Adient plc | Form 10-K | 44 Contractual Obligations A summary of Adient's significant contractual obligations as of September 30, 2024: (in millions) Total 2025 2026-2027 2028-2029 Beyond 2030 Long-term debt $ 2,432 $ 8 $ 810 $ 512 $ 1,102 Interest on long-term debt 815 164 289 215 147 Operating leases 291 91 110 43 47 Purchase obligations (1) 426 257 22 66 81 Pension contributions 83 9 18 14 42 Total contractual cash obligations $ 4,047 $ 529 $ 1,249 $ 850 $ 1,419 (1) Primarily consists of commitments for production materials and other supply items, as well as $74 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 is 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 2025, 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 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 provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, an awarded program does not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Revenue is recognized at a point in time when Adient transfers control of the product to the customer. Contracts with customers may provide for annual price reductions over the production life of the awarded program. Transaction prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors, some of which are considered as variable consideration and must be estimated. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments. In pursuit of new program awards, Adient at times agrees to make upfront payments to customers. Each time such a payment is made, Adient evaluates its nature, the underlying economics, legal and compliance ramifications, and other relevant factors and circumstances. These payments are deemed to be consideration payable to customers and are generally recognized as a reduction to revenue once mutually agreed. Certain upfront payments, however, are capitalized as other current and noncurrent assets if they are determined to be incremental, attributable only to the specific new program being awarded, and recoverable. As products under the new program are sold to the customer, the capitalized amount is amortized and recognized as a reduction to revenue over the term of the program, typically between three and seven years. Adient assesses recoverability of the capitalized amounts on an on-going basis. Any amounts that are concluded to be no longer recoverable are immediately Adient plc | Form 10-K | 45 recognized as a reduction to revenue. Refer to Note 1, "Organization 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 15.5% to 18.5% at September 30, 2024) 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 considered the impact of the various issues causing uncertainty in the automotive industry such as weaker vehicle demand impacted by new vehicle affordability and a high interest rate environment, slower global adoption of electric vehicles by consumers, volatile commodity pricing, and persistent inflationary pressures. Specifically in the EMEA region, where Adient recorded significant restructuring charges during fiscal 2024, a heightened risk of impairment exists as the difference between its fair value and carrying value is less than 10%. The EMEA reporting unit maintains $341 million of goodwill at September 30, 2024. The decrease in EMEA’s fair value is driven by lower forecasted vehicle volumes from weakening consumer demand, slower consumer adoption of electric vehicles, overcapacity in the industry resulting in pricing pressure, intensifying competition from Chinese imports and lower exports to China from EMEA as domestic brands expand in China. No goodwill impairment was recorded in fiscal 2024; however, if further degradation in the economic conditions in the EMEA region occur or if significantly higher levels of restructuring actions are needed in the region, the EMEA reporting unit may incur significant impairment of goodwill and other long-lived assets. Adient generally assumes operating margins in future years will normalize over time as it is believed that this is consistent with a market participant view. Had Adient assumed future operating margins consistent with those in fiscal 2024, the EMEA reporting unit would have failed the impairment quantitative tests, which may have resulted in material goodwill impairment losses. The current year results are not indicative of future market participant expectations primarily due to the current challenging market conditions as mentioned above. While revenue is not expected to return to historical levels, there are expectations for enhanced profitability and cash flows driven by near-term efficiency actions, strategic review of portfolio and reduction of capital expenditures. Long-term profitability and cash flows will also be impacted by the expiration of underperforming contracts and more profitable business starting in fiscal 2026 along with restructuring benefits taking full effect. Further, the high levels of recent restructurings and the associated significant costs of such actions in the EMEA region are not expected to persist for the long-term at comparable levels. To pass the impairment quantitative test, projected long-term operating margins, utilizing the discounted cash flow method, are expected to average approximately 5.5%-6.5%. Additionally, if further restructuring actions persist beyond what is anticipated or if a hypothetical increase occurred in the discount rate of approximately 100 basis points at September 30, 2024, with all other assumptions unchanged, the carrying value of this reporting unit would likely exceed its fair value, which may have resulted in a material goodwill impairment loss. 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 Adient plc | Form 10-K | 46 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 2024 and 2023. 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. No other-than-temporary impairment indicators were present in fiscal 2024. During fiscal 2023, Adient concluded that indicators of other-than-temporary impairment were present related to two nonconsolidated partially-owned affiliates, and recorded a $6 million ($3 million in Asia and $3 million in EMEA) non-cash impairment as a result. Refer to Note 18, “Nonconsolidated Partially-Owned Affiliates,” of the notes to the consolidated financial statements for additional information. During fiscal 2024, Adient determined that an impairment had occurred with its investment in Adient Aerospace and recorded an impairment charge of $9 million. Refer to Note 15, “Restructuring and Impairment Costs,” 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 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 4.99% and 5.87% at September 30, 2024 and 2023, respectively. Adient's weighted average discount rate on non-U.S. plans was 4.75% and 5.60% at September 30, 2024 and 2023, 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 70% of the plans' assets are invested in fixed income securities and 10% in equity securities, with the remainder primarily invested in alternative investments. For fiscal years 2024 and 2023, Adient's expected long-term return on U.S. pension plan assets used to determine net periodic benefit cost was 6.75% and 6.75% respectively. The actual rate of return on U.S. pension plans was above 6.75% in fiscal 2024 and was above 6.75% in fiscal 2023. For fiscal years 2024 and 2023, Adient's weighted average expected long-term return on non-U.S. pension plan assets was 4.95% and 4.53%, respectively. The actual rate of return on non-U.S. pension plans was above 4.95% in fiscal 2024 and was below 4.53% in fiscal 2023. For fiscal 2025, Adient estimates the long-term rate of return will approximate 6.75% and 4.95% 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. Adient plc | Form 10-K | 47 In fiscal 2024, total Adient contributions to the defined benefit pension plans were $20 million. Adient expects to contribute at least $10 million in cash to its defined benefit pension plans in fiscal 2025. Based on information provided by its independent actuaries and other relevant sources, Adient believes that the assumptions used to measure Adient’s pension obligations 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 and settlement charges (“NPBC”) as of September 30, 2024 and for fiscal 2024 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 $ — $ — $ 42 $ (1) 100 basis point decrease in expected return on plan assets N/A — N/A 2 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 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 Adient plc | Form 10-K | 48 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 2024, Adient committed to a restructuring plan of $169 million that was offset by prior period underspend of $1 million and $9 million cost reimbursement committed by a customer. The fiscal 2024 charges are mostly related to termination benefits in Europe. The 2024 Plan is being implemented in response to the macroeconomic factors occurring in the European automotive market causing reduced production volumes and to ensure Adient maintains a competitive cost structure by reducing operating, administrative and engineering costs, and increasing efficiencies. Restructuring actions associated with these specific plans will primarily occur in fiscal years 2025 and 2026 and are expected to be substantially complete by fiscal year 2027. Adient estimates that upon completion of the restructuring actions, the fiscal 2024 restructuring plan would reduce annual operating costs by approximately $110 million, which was primarily the result of lower costs of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 60% would result in net savings. Restructuring costs are included in restructuring and impairment costs in the consolidated statements of income. During fiscal 2023, Adient committed to a restructuring plan (“2023 Plan”) of $39 million. Adient also recorded additional charges totaling $1 million related to prior year plans. The restructuring actions related to cost reduction initiatives and consist primarily of workforce reductions in EMEA. Adient estimated that upon completion of the restructuring actions, the fiscal 2023 restructuring plan would reduce annual operating costs by approximately $30 million, which was primarily the result of lower costs of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 15% would result in net savings. The restructuring actions are expected to be substantially completed by fiscal 2025. 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 related to cost reduction initiatives and consist primarily of workforce reductions in EMEA and Americas. Adient estimated that upon completion of the restructuring actions, the fiscal 2022 restructuring plan would reduce annual operating costs by approximately $30 million, which was primarily the result of lower costs of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 30% would result in net savings. The restructuring actions were substantially completed by fiscal 2023. New Accounting Pronouncements See Note 1, “Organization 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