Leases

12 Months Ended

Sep. 30, 2020

8. Leases

Adient adopted Accounting Standards Codification Topic 842, Leases (ASC 842), and all the related amendments using the modified retrospective method, without adjusting the comparative financial information, on October 1, 2019. As a result, financial information for reporting periods beginning on or after October 1, 2019 are presented in accordance with ASC 842. Upon adoption, Adient recognized right-of-use (ROU) assets of $380 million and corresponding lease liabilities of $384 million on October 1, 2019. The adoption date ROU asset balance was adjusted by $4 million, reflecting impairment of ROU assets for certain real estate leases (within the North America and Europe asset groups) of which the Company determined the carrying value of the initial operating lease ROU asset exceeded its fair value. The adjustment was recorded as an increase to the opening accumulated deficits. The adoption of ASC 842 did not have any significant impact on the consolidated statement of income or cash flows.

Adient's lease portfolio consists of operating leases for real estate including production facilities, warehouses and administrative offices, equipment such as forklifts and computer servers and laptops, and fleet vehicles. The Company has elected not to record leases with an initial term of 12 months or less on its consolidated statement of financial position.

A lease liability and corresponding ROU asset are recognized based on the present value of lease payments. To determine the present value of lease payments, the Company uses its incremental borrowing rate as of lease commencement. The incremental borrowing rate (IBR) is defined as the rate Adient would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Adient primarily derives its IBR from its debt portfolio, adjusted for collateralization, lease term and jurisdictional factors. Adient's finance leases are not significant and are not included in the following disclosures.

The components of lease costs for the year ended September 30, 2020 were as follows:


(in millions)	Year Ended September 30, 2020
Operating lease cost	$	125
Short-term lease cost	24

Total lease cost	$	149

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


(in millions)		September 30, 2020
Operating lease right-of-use assets	Other noncurrent assets	$	334

Operating lease liabilities - current	Other current liabilities	$	95
Operating lease liabilities - noncurrent	Other noncurrent liabilities	244
		$	339

Maturities of operating lease liabilities and minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year as of September 30, 2020 were as follows:


Fiscal years (in millions)	Operating Leases
2021	$	112
2022	82
2023	65
2024	47
2025	37
Thereafter	65
Total lease payments	408
Less: imputed interest	(69)
Present value of lease liabilities	$	339

Future minimum operating lease payments accounted for under ASC 840 at September 30, 2019 were as follows:


Fiscal years (in millions)	Operating Leases
2020	$	119
2021	91
2022	64
2023	51
2024	40
After 2024	94
Total minimum lease payments	$	459

Supplemental cash flow information related to leases was as follows:


(in millions)	Year Ended September 30, 2020
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (non-cash activity)	$	79

Operating cash flows:
Cash paid for amounts included in the measurement of lease liabilities	$	125

The weighted average remaining lease term for Adient's operating leases as of September 30, 2020 was 5 years. The weighted average discount rate for Adient's operating leases as of September 30, 2020 was 5.9%.

Leases