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Derivative Instruments and Hedging Activities | 3 Months Ended
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Dec. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities |
9. Derivative Instruments and Hedging Activities
Adient selectively uses derivative instruments to reduce Adient's market risk associated with changes in foreign currency. Under Adient's policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized to manage Adient's risk is included in the following paragraphs. In addition, refer to Note 10, "Fair Value Measurements," of the notes to consolidated financial statements for information related to the fair value measurements and valuation methods utilized by Adient for each derivative type. Adient has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. Adient primarily uses foreign currency exchange contracts to hedge certain foreign exchange rate exposures. Adient hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures. Gains and losses on derivative contracts offset gains and losses on underlying foreign currency exposures. These contracts have been designated as cash flow hedges under ASC 815, "Derivatives and Hedging," and the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income (AOCI) and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. All contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at December 31, 2023 and September 30, 2023, respectively. The €123 million ($136 million) aggregate principal amount of 3.50% euro-denominated unsecured notes due 2024 was previously designated as a net investment hedge to selectively hedge portions of Adient's net investment in Europe. The currency effects of Adient's euro-denominated bonds were reflected in the AOCI account within shareholders' equity attributable to Adient where they offset gains and losses recorded on Adient's net investment in Europe. During the first quarter of fiscal 2024, Adient de-designated these notes as a net investment hedge concurrent with entering into a foreign exchange forward contract designated as a fair value hedge of the principal balance on the 3.50% notes. The impact of foreign currency changes on the notes and the contract are recorded in net financing charges until payment of the notes and maturity of the foreign exchange forward contract in August 2024. In January 2024, Adient entered into a ¥685 million ($96 million) foreign exchange forward contract to selectively hedge portions of its net investment in China. The contract is set to mature in October 2024. The following table presents the location and fair values of derivative instruments and other amounts used in hedging activities included in Adient's consolidated statements of financial position:
|  | Derivatives and Hedging Activities Designated as Hedging Instruments under ASC 815 |  | Derivatives and Hedging Activities Not Designated as Hedging Instruments under ASC 815
(in millions) |  | December 31, 2023 |  | September 30, 2023 |  | December 31, 2023 |  | September 30, 2023
Other current assets |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | $ | 38 |  |  | $ | 30 |  |  | $ | 5 |  |  | $ | 4 |
Other noncurrent assets |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | 1 |  |  | — |  |  | — |  |  | — |
Total assets |  | $ | 39 |  |  | $ | 30 |  |  | $ | 5 |  |  | $ | 4 |
Other current liabilities |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | $ | 4 |  |  | $ | 8 |  |  | $ | — |  |  | $ | — |
Other noncurrent liabilities |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | 1 |  |  | 6 |  |  | — |  |  | — |
Long-term debt |  |  |  |  |  |  |  |
Foreign currency denominated debt |  | — |  |  | 130 |  |  | — |  |  | — |
Total liabilities |  | $ | 5 |  |  | $ | 144 |  |  | $ | — |  |  | $ | — |
Adient enters into International Swaps and Derivatives Associations (ISDA) master netting agreements with counterparties that permit the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event. Adient has not elected to offset the fair value positions of the derivative contracts recorded in the consolidated statements of financial position. Collateral is generally not required of Adient or the counterparties under the master netting agreements. As of December 31, 2023 and September 30, 2023, no cash collateral was received or pledged under the master netting agreements. The gross and net amounts of derivative instruments and other amounts used in hedging activities are as follows:
|  | Assets |  | Liabilities
(in millions) |  | December 31, 2023 |  | September 30, 2023 |  | December 31, 2023 |  | September 30, 2023
Gross amount recognized |  | $ | 44 |  |  | $ | 34 |  |  | $ | 5 |  |  | $ | 144 |
Gross amount eligible for offsetting |  | (5) |  |  | (12) |  |  | (5) |  |  | (12) |
Net amount |  | $ | 39 |  |  | $ | 22 |  |  | $ | — |  |  | $ | 132 |
The following table presents the effective portion of pretax gains (losses) recorded in other comprehensive income related to cash flow hedges:
|  | Three Months Ended December 31, |  |
(in millions) |  | 2023 |  | 2022 |  |  |  |
Foreign currency exchange derivatives |  | $ | 26 |  |  | $ | 32 |  |  |  |  |
The following table presents the location and amount of the effective portion of pretax gains (losses) on cash flow hedges reclassified from AOCI into Adient's consolidated statements of income:
(in millions) |  |  |  | Three Months Ended December 31, |  |
|  | 2023 |  | 2022 |  |  |  |
Foreign currency exchange derivatives |  | Cost of sales |  | $ | 15 |  |  | $ | 7 |  |  |  |  |
During the next twelve months, $29 million of pretax gains on cash flow hedges are expected to be reclassified from AOCI into Adient's consolidated statements of income. The following table presents the location and amount of pretax gains (losses) on fair value hedge activity in Adient's consolidated statements of income:
(in millions) |  |  |  | Three Months Ended December 31, |  |
|  | 2023 |  | 2022 |  |  |  |
Foreign currency exchange derivatives |  | Net financing charges |  | $ | 6 |  |  | $ | — |  |  |  |  |
The following table presents the location and amount of pretax gains (losses) on derivatives not designated as hedging instruments recognized in Adient's consolidated statements of income:
(in millions) |  |  |  | Three Months Ended December 31, |  |
|  | 2023 |  | 2022 |  |  |  |
Foreign currency exchange derivatives |  | Cost of sales |  | $ | 1 |  |  | $ | 3 |  |  |  |  |
Foreign currency exchange derivatives |  | Net financing charges |  | 9 |  |  | 9 |  |  |  |  |
Total |  |  |  | $ | 10 |  |  | $ | 12 |  |  |  |  |
Adient had no outstanding net investment hedges during the three months ended December 31, 2023. The effective portion of pretax gains (losses) recorded in currency translation adjustment (CTA) within other comprehensive income related to net investment hedges was $(69) million for the three months ended December 31, 2022. For the three months ended December 31, 2023 and 2022, no gains or losses were reclassified from CTA into income for Adient's outstanding net investment hedges. For the three months ended December 31, 2023 and 2022, no ineffectiveness was recognized in the consolidated statements of income resulting from cash flow hedges.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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