AMCOR PLC Management's Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of this Annual Report on Form 10-K. Two Year Review of Results (in millions) 2022 2021 Net sales$ 14,544 100.0 %$ 12,861 100.0 % Cost of sales (11,724) (80.6) (10,129) (78.8) Gross profit 2,820 19.4 2,732 21.2 Operating expenses: Selling, general, and administrative expenses (1,284) (8.8) (1,292) (10.0) Research and development expenses (96) (0.7) (100) (0.8) Restructuring, impairment, and related expenses, net (234) (1.6) (94) (0.7) Other income, net 33 0.2 75 0.6 Operating income 1,239 8.5 1,321 10.3 Interest income 24 0.2 14 0.1 Interest expense (159) (1.1) (153) (1.2) Other non-operating income, net 11 0.1 11 0.1
Income from continuing operations before income taxes and equity in income/(loss) of affiliated companies
1,115 7.7 1,193 9.3
Income tax expense (300) (2.1) (261) (2.0)
Equity in income/(loss) of affiliated companies, net - - 19 0.1
of tax
Net income $ 815 5.6 % $ 951 7.4 %
Net income attributable to non-controlling interests (10) (0.1) (12) (0.1)
Net income attributable to Amcor plc $ 805 5.5 % $ 939 7.3 %
28--------------------------------------------------------------------------------
Overview
Amcor is a global leader in developing and producing responsible packaging for food, beverage, pharmaceutical, medical, home and personal-care, and other products. We work with leading companies around the world to protect their products and the people who rely on them, differentiate brands, and improve supply chains through a range of flexible and rigid packaging, specialty cartons, closures, and services. We are focused on making packaging that is increasingly light-weighted, recyclable and reusable, and made using an increasing amount of recycled content. During fiscal year 2022, Amcor generated$14.5 billion in sales from operations that spanned 221 locations in over 40 countries.
Significant Items Affecting the Periods Presented
Impact of COVID-19
We continue to monitor the impact of the ongoing 2019 Novel Coronavirus
("COVID-19") pandemic on all aspects of our business. The COVID-19 pandemic has
resulted in intermittent regional government restrictions on the movement of
people, goods, and non-essential services resulting in a period of historic
uncertainty and challenges. We remain focused on our commitment to the health
and safety of our employees as our first priority. We expect to continue to
evaluate our response and related precautions until the COVID-19 pandemic has
been fully resolved as a public health crisis.
We have experienced minimal disruptions to our operations to date as we have
largely been deemed as providing essential services. Our facilities have largely
been exempt from government mandated closure orders and while governmental
measures may be modified, we expect that our facilities will remain operational
given the essential products we supply. However, despite our best efforts to
contain the impact in our facilities, it remains possible that significant
disruptions could occur as a result of the pandemic, including temporary
closures of our facilities due to outbreaks of the virus among our workforce or
government mandates.
We continue to believe we are well-positioned to meet the challenges of the
ongoing COVID-19 pandemic. However, we cannot reasonably estimate the duration
and severity of this pandemic or its ultimate impact on the global economy and
our operations and financial results. The ultimate near-term impact of the
pandemic on our business will depend on the extent and nature of any future
disruptions across the supply chain, the implementation of further social
distancing measures and other government-imposed restrictions, as well as the
nature and pace of macroeconomic recovery in key global economies.
Raw Material, Inflation, and Supply Chain Trends
During fiscal year 2022, we experienced persistent supply shortages and price volatility of certain resins and raw materials in both of our reportable segments as a result of market dynamics that first materialized in the second half of fiscal year 2021 and higher rates of regional inflation impacting energy, fuel, and labor costs. The underlying causes for the volatility can be attributed to a variety of factors, including the ongoing impacts of the COVID-19 pandemic resulting in labor shortages and transportation constraints, energy shortages and weather disruptions impacting raw material supply in certain regions. The complex factors driving ongoing market volatility continue and could be further exacerbated by the continuation of theRussia -Ukraine conflict. We intend to continue to work closely with our suppliers and customers, leveraging our global capabilities and expertise to work through supply and other resulting issues.
OnJuly 13, 2021 , ourDurban, South Africa , manufacturing facility was destroyed by fire associated with general civil unrest. The facility employed 350 individuals and no employees were injured as the facility had been closed in advance of the disturbance. In fiscal year 2022, we recorded$45 million in expense before insurance settlements, primarily related to inventory, property, and equipment losses from the fire and other related expenses. We have insurance for the majority of property and other losses resulting from the fire and have received$33 million in insurance settlements in fiscal year 2022.
Russia-Ukraine Conflict
Russia's invasion ofUkraine that began inFebruary 2022 continues as of the date of the filing of this annual report. In advance of the invasion, we proactively suspended operations at our small manufacturing site inUkraine . We also operate three manufacturing facilities inRussia . In the fourth quarter of fiscal year 2022, after a thorough review of our strategic options, we committed to sell our Russian operations, which resulted in a non-cash$90 million impairment charge. 29 -------------------------------------------------------------------------------- Since our decision inMarch 2022 to scale back our Russian operations, we have remained committed to continuing to support our Russian andUkraine employees and customers. We are proactively taking steps to mitigate the financial impact of exiting our Russian operations, including adjusting our European footprint to reallocate and consolidate volumes fromRussia andUkraine to leverage utilization and deliver enhanced efficiencies across Central andWestern Europe , as well as taking actions to restructure our regional cost base. In addition to the$90 million in impairment charges on assets held for sale, we incurred$48 million in other impairment charges given the expectation that certain assets not held for sale in the conflict region will not be recoverable, and$62 million in restructuring and other costs in the fourth quarter of fiscal year 2022 related to theRussia -Ukraine conflict. We expect approximately$30 million in additional restructuring and other costs in fiscal year 2023 related to our exit decision. For further information, refer to Note 4, "Restructuring, Impairment, and Related Expenses, net," Note 6, "Held for Sale and Discontinued Operations," and Note 7, "Restructuring" of "Part II, Item 8, Notes to Consolidated Financial Statements." 2019 Bemis Integration Plan
In connection with the acquisition of
The 2019 Bemis Integration Plan was completed byJune 30, 2022 , with final pre-tax integration cost amounting to$253 million . The total 2019 Bemis Integration Plan cost includes$213 million of restructuring and related expenses, net, and$40 million of general integration expenses. The net cash expenditures for the plan, including disposal proceeds, are$170 million , of which$40 million relates to general integration expenses. As part of this Plan, we have incurred$144 million in employee related expenses,$36 million in fixed asset related expenses,$39 million in other restructuring and$45 million in restructuring related expenses, partially offset by a gain on disposal of a business of$51 million . In fiscal year 2022, the Plan resulted in net cash outflows of$49 million of which$47 million were payments related to restructuring and related expenditures. The remaining cash outflow will be primarily incurred in fiscal year 2023.
2018 Rigid Packaging Restructuring Plan
OnAugust 21, 2018 , we announced a restructuring plan inAmcor Rigid Packaging ("2018 Rigid Packaging Restructuring Plan") aimed at reducing structural costs and optimizing the footprint. The Plan included the closures of manufacturing facilities and headcount reductions to achieve manufacturing footprint optimization and productivity improvements, as well as overhead cost reductions. The 2018 Rigid Packaging Restructuring Plan was completed byJune 30, 2021 with total pre-tax restructuring costs of$121 million , of which$78 million resulted in cash expenditures, with the main component being the cost to exit manufacturing facilities and employee related costs.
For more information about our restructuring plans, refer to Note 7, "Restructuring."
We sold our equity method investment in AMVIG onSeptember 30, 2020 , realizing a net gain of$15 million , which was recorded in equity in income/(loss) of affiliated companies, net of tax in the consolidated statements of income. Prior to the sale and due to impairment indicators being present for the year endedJune 30, 2020 , we performed impairment tests by comparing the carrying value of our investment in AMVIG to the fair value of the investment, which was determined based on AMVIG's quoted share price. We recorded an impairment charge of$26 million in fiscal year 2020, as the fair value of the investment was below its carrying value. Refer to Note 8, "Equity Method and Other Investments."
Highly Inflationary Accounting
We have subsidiaries inArgentina that historically had a functional currency of the Argentine Peso. As ofJune 30, 2018 , the Argentine economy was designated as highly inflationary for accounting purposes. Accordingly, beginningJuly 1, 2018 , we began reporting the financial results of our Argentine subsidiaries with a functional currency of theU.S. dollar. The transition to highly inflationary accounting resulted in a negative impact on monetary balances of$16 million ,$19 million , and$28 million that was reflected in the consolidated statements of income for the fiscal years endedJune 30, 2022 , 2021, and 2020, respectively. 30 --------------------------------------------------------------------------------
Results of Operations
The following is a discussion and analysis of changes in the results of operations for fiscal year 2022 compared to fiscal year 2021. A discussion and analysis regarding our results of operations for fiscal year 2021 compared to fiscal year 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 , filed with theSEC onAugust 24, 2021 and incorporated by reference.
Consolidated Results of Operations
($ in millions, except per share data) 2022 2021
Net sales $ 14,544 $ 12,861
Operating income 1,239 1,321
Operating income as a percentage of net sales 8.5 % 10.3 %
Net income attributable to Amcor plc $ 805 $ 939
Diluted Earnings Per Share $ 0.529 $ 0.602
Net sales increased by $1,683 million , or by 13.1%, in fiscal year 2022,
compared to fiscal year 2021. Excluding the impact of disposed and ceased
operations of $87 million , or (0.7%), negative currency impacts of $249 million ,
or (1.9%), and pass-through of raw material costs of $1,530 million , or 11.9%,
the increase in net sales for the fiscal year 2022 was $490 million or 3.8%,
driven by marginally favorable volumes of 0.4% and favorable price/mix of 3.4%.
Net income attributable to Amcor plc decreased by $134 million , or by 14.3%,
in fiscal year 2022, compared to fiscal year 2021, mainly as a result of
increased restructuring, impairment, and related expenses, net of $140 million ,
largely due to costs related to the Russia -Ukraine conflict, and higher tax
charges of $39 million , offset by increased gross profit of $88 million .
Diluted earnings per share ("Diluted EPS") decreased by $0.073 , or by 12.1%,
in fiscal year 2022, compared to fiscal year 2021, with net income attributable
to ordinary shareholders decreasing by 14.3% and the diluted weighted-average
number of shares outstanding decreasing by 2.6%. The decrease in the diluted
weighted-average number of shares outstanding was due to repurchase of shares
under announced share buyback programs.
Segment Results of Operations
Flexibles Segment
The Flexibles reportable segment develops and supplies flexible packaging globally.
($ in millions) 2022 2021 Net sales including intersegment sales$ 11,151 $ 10,040 Adjusted EBIT from continuing operations 1,517 1,427 Adjusted EBIT from continuing operations as a percentage of net sales 13.6 % 14.2 % Net sales including intersegment sales increased by$1,111 million , or by 11.1%, in fiscal year 2022, compared to fiscal year 2021. Excluding the impact of disposed and ceased operations of$87 million , or (0.8%), negative currency impacts of$248 million , or (2.5%), and pass-through of raw material costs of$1,091 million , or 10.9%, the increase in net sales including intersegment sales for fiscal year 2022 was$355 million , or 3.5%, driven by favorable price/mix. Adjusted earnings before interest and tax from continuing operations ("Adjusted EBIT") increased by$90 million , or by 6.3% in fiscal year 2022, compared to fiscal year 2021. Excluding the impact of disposed and ceased operations of$4 million , or (0.2%) and negative currency impacts of$31 million , or 2.3%, the increase in Adjusted EBIT for fiscal year 2022 was$125 million , or 8.8%, driven by favorable price/mix of 8.0%, plant cost improvements of 2.4% and favorable volumes of 0.8%, partially offset by unfavorable selling, general, and administrative ("SG&A") and other cost impacts of (2.4%). 31 --------------------------------------------------------------------------------
Rigid Packaging Segment
The Rigid Packaging reportable segment manufactures rigid packaging containers and related products. ($ in millions) 2022 2021 Net sales$ 3,393 $ 2,823 Adjusted EBIT from continuing operations 289 299 Adjusted EBIT from continuing operations as a percentage of net sales 8.5 % 10.6 % Net sales increased by$570 million , or by 20.2%, in fiscal year 2022, compared to fiscal year 2021. Excluding positive currency impacts of$1 million , and pass-through of raw material costs of$439 million , or 15.6%, the increase in net sales including intersegment sales for the fiscal year 2022 was$132 million , or 4.7%, driven by favorable volumes of 2.8% and favorable price/mix of 1.9%. Adjusted EBIT decreased by$10 million , or by 3.3%, in fiscal year 2022, compared to fiscal year 2021. With minor impacts from currency impacts, the decrease in Adjusted EBIT for fiscal year 2022 was$10 million , or 3.5%, driven by favorable price/mix of 20.5%, favorable volumes of 9.2%, unfavorable plant costs of (30.0%), and unfavorable selling, general, and administrative ("SG&A"), and other cost impacts of (3.2%). Consolidated Gross Profit ($ in millions) 2022 2021 Gross profit$ 2,820 $ 2,732 Gross profit as a percentage of net sales 19.4 % 21.2 % Gross profit increased by$88 million , or by 3.2%, in fiscal year 2022, compared to fiscal year 2021. The increase was primarily driven by the increase in net sales of 13.1% referred to above. Gross profit as a percentage of sales decreased to 19.4% for the fiscal year 2022, primarily due to the impact on the calculation from the pass through of higher raw material costs during the period.
Consolidated Selling, General, and Administrative ("SG&A") Expenses
($ in millions) 2022 2021
SG&A expenses $ (1,284) $ (1,292)
SG&A expenses as a percentage of net sales (8.8) % (10.0) %
SG&A decreased by
Consolidated Restructuring, Impairment, and Related Expenses, Net
($ in millions) 2022 2021 Restructuring, impairment, and related expenses, net $
(234)
(1.6) % (0.7) %
Restructuring, impairment, and related costs increased by $140 million , or by
148.9%, in fiscal year 2022, compared to fiscal year 2021. The increase was
primarily driven by the non-recurrence of a gain on disposal of a non-core
European hospital supplies business of $52 million in fiscal year 2021, and
charges related to the Russia -Ukraine conflict in fiscal year 2022, offset by
the completion of the Rigid Packaging Restructuring Plan in June 2021 .
Consolidated Other Income, Net
($ in millions) 2022 2021
Other income, net $ 33 $ 75
Other income, net, as a percentage of net sales 0.2 % 0.6 %
32-------------------------------------------------------------------------------- Other income, net decreased by$42 million , or by 56.0% , in fiscal year 2022, compared to fiscal year 2021, mainly due to the non-reoccurrence of credits related to a favorableBrazil Supreme Court ruling onBrazil indirect tax in fiscal year 2021.
Consolidated Interest Income
($ in millions) 2022 2021
Interest income $ 24 $ 14
Interest income as a percentage of net sales 0.2 % 0.1 %
Interest income increased by $10 million , or by 71.4%, in fiscal year 2022,
compared to fiscal year 2021, mainly driven by yield improvements on Euro
denominated commercial paper and improved rates on cash balances held by the
Group.
Consolidated Interest Expense
($ in millions) 2022 2021
Interest expense $ (159) Interest expense as a percentage of net sales (1.1) %
(1.2) %
Interest expense increased by
Consolidated Income Tax Expense
($ in millions) 2022 2021
Income tax expense $ (300) $ (261)
Effective tax rate 26.9 % 21.9 %
Income tax expense increased by $39 million , or by 14.9%, in fiscal year 2022,
compared to fiscal year 2021. The increase was predominantly attributable to an
increase in tax provisions for uncertain tax positions.
33
--------------------------------------------------------------------------------Presentation of Non-GAAP Information
This Annual Report on Form 10-K refers to non-GAAP financial measures:
adjusted earnings before interest and taxes ("Adjusted EBIT"), adjusted net
income, and net debt. Such measures have not been prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). These non-GAAP financial measures adjust for factors that are unusual or
unpredictable. These measures exclude the impact of significant tax reforms,
certain amounts related to the effect of changes in currency exchange rates,
acquisitions, and restructuring, including employee-related costs, equipment
relocation costs, accelerated depreciation, and the write-down of equipment.
These measures also exclude gains or losses on sales of significant property and
divestitures, significant property and other impairments, net of insurance
recovery, certain litigation matters, significant pension settlements,
impairments in goodwill and equity method investments, and certain
acquisition-related expenses, including transaction expenses, due diligence
expenses, professional and legal fees, purchase accounting adjustments for
inventory, order backlog, intangible amortization, changes in the fair value of
deferred acquisition payments, and impacts related to the Russia -Ukraine
conflict.
This adjusted information should not be construed as an alternative to results
determined in accordance with U.S. GAAP. We use the non-GAAP measures to
evaluate operating performance and believe that these non-GAAP measures are
useful to enable investors and other external parties to perform comparisons of
our current and historical performance.
A reconciliation of reported net income attributable to
Years ended June 30,
($ in millions) 2022 2021 2020
Net income attributable to Amcor plc, as reported $ 805 $ 939 $ 612
Add: Net income attributable to non-controlling interests 10 12 4
Add: (Income)/loss from discontinued operations, net of tax
- - 8
Income from continuing operations 815 951 624
Add: Income tax expense 300 261 187
Add: Interest expense 159 153 207
Less: Interest income (24) (14) (22)
EBIT from continuing operations 1,250 1,351 996
Add: Material restructuring programs (1) 37 88 106
Add: Impairments in equity method investments (2) - - 26
Add: Material acquisition costs and other (3) 4 7 145
Add: Amortization of acquired intangible assets from business combinations (4)
163 165 191
Add: Impact of hyperinflation (5) 16 19 28
Add: Pension settlements (6) 8 - 5
Add/(Less): Net (gain)/loss on disposals (7) 10 (9) -
Add: Property and other losses, net (8) 13 - -
Add: Russia-Ukraine conflict impacts (9) 200 - -
Adjusted EBIT from continuing operations 1,701 1,621 1,497
Less: Income tax expense (300) (261) (187)
Less: Adjustments to income tax expense (10) (32) (51) (89)
Less: Interest expense (159) (153) (207)
Add: Interest income 24 14 22Less: Material restructuring programs attributable to non-controlling interests
- - (4)
Less: Net income attributable to non-controlling interests (10) (12) (4)
Adjusted net income from continuing operations $ 1,224 (1)Material restructuring programs includes restructuring and related expenses for the 2019 Bemis Integration Plan for fiscal year 2022 and 2018 Rigid Packaging Restructuring Plan and the 2019 Bemis Integration Plan for fiscal years 2021 and 2020. Refer to Note 7, "Restructuring," for more information about our restructuring activities.
34
--------------------------------------------------------------------------------
(2)Impairments in equity method investments include the impairment charges
related to other-than-temporary impairments related to the investment in AMVIG.
During the fiscal year 2021, we sold our interest in AMVIG. Refer to Note 8,
"Equity Method and Other Investments," for more information about our equity
method investments.
(3)Includes costs associated with the Bemis transaction. Fiscal year 2021
includes a $19 million benefit related to Brazil indirect taxes resulting from a
May 2021 Brazil Supreme Court decision. During fiscal year 2020, material
acquisition costs and other includes $58 million amortization of Bemis
acquisition related inventory fair value step-up and $88 million of Bemis
transaction related costs and integration costs not qualifying as exit costs,
including certain advisory, legal, audit, and audit related fees.
(4)Amortization of acquired intangible assets from business combinations
includes amortization expenses related to all acquired intangible assets from
past acquisitions, including $26 million of sales backlog amortization for the
fiscal year 2020 from the Bemis acquisition.
(5)Impact of hyperinflation includes the adverse impact of highly inflationary
accounting for subsidiaries in Argentina where the functional currency was the
Argentine Peso.
(6)Pension settlements in fiscal year 2022 relate to the purchases of group
annuity contracts and transfer of pension plan assets and related benefit
obligations. Refer to Note 13, "Pension and Other Post-Retirement Plans," for
more information. For fiscal year 2020, impact of pension settlements includes
the amount of actuarial losses recognized in the consolidated statements of
income related to the settlement of certain defined benefit plans, not including
related tax effects.
(7)Net (gain)/loss on disposals includes an expense of $10 million from the
disposal of non-core assets for fiscal year 2022. Refer to Note 11, "Fair Value
Measurements," for more information. Fiscal year 2021 includes the gain realized
upon the disposal of AMVIG and the loss upon disposal of other non-core
businesses not part of material restructuring programs. Refer to Note 8, "Equity
Method and Other Investments," for further information on the disposal of AMVIG
and Note 5, "Divestitures," for more information about our other disposals.
(8)Property and other losses, net includes property and related business losses
primarily associated with the destruction of our Durban, South Africa facility
during general civil unrest in July 2021 , net of insurance recovery.
(9)Russia -Ukraine conflict impacts include $138 million of impairment charges,
$57 million of restructuring and related expenses, and $5 million of other
expenses for fiscal year 2022. Refer to Note 4,"Restructuring, Impairment, and
Related Expenses, Net," and Note 7, "Restructuring," for further information.
(10)Net tax impact on items (1) through (9) above.
Reconciliation of Net Debt
A reconciliation of total debt to net debt atJune 30, 2022 and 2021 is as follows: ($ in millions) June 30, 2022 June 30, 2021
Current portion of long-term debt $ 14 $ 5
Short-term debt 136 98
Long-term debt, less current portion 6,340 6,186
Total debt 6,490 6,289
Less cash and cash equivalents 775 850
Net debt $ 5,715 $ 5,439
35--------------------------------------------------------------------------------
Supplemental Guarantor Information
•4.000% Guaranteed Senior Notes due 2025 ofAmcor Flexibles North America, Inc. •3.100% Guaranteed Senior Notes due 2026 ofAmcor Flexibles North America, Inc. •3.625% Guaranteed Senior Notes due 2026 ofAmcor Flexibles North America, Inc. •4.500% Guaranteed Senior Notes due 2028 ofAmcor Flexibles North America, Inc. •2.630% Guaranteed Senior Notes due 2030 ofAmcor Flexibles North America, Inc. •2.690% Guaranteed Senior Notes due 2031 ofAmcor Flexibles North America, Inc. •1.125% Guaranteed Senior Notes due 2027 ofAmcor UK Finance plc The six notes issued byAmcor Flexibles North America, Inc. are guaranteed by its parent entityAmcor plc and the subsidiary guarantorsAmcor Pty Ltd ,Amcor Finance (USA), Inc. , andAmcor UK Finance plc . The note issued byAmcor UK Finance plc is guaranteed by its parent entity,Amcor plc and the subsidiary guarantorsAmcor Pty Ltd ,Amcor Flexibles North America, Inc. , andAmcor Finance (USA), Inc. OnJune 30, 2022 ,Amcor Finance (USA), Inc. andAmcor Flexibles North America, Inc. entered into supplemental indentures governingAmcor Finance (USA), Inc.'s 3.625% Guaranteed Senior Notes due 2026 and 4.500% Guaranteed Senior Notes due 2028 relating to the substitution ofAmcor Flexibles North America, Inc. forAmcor Finance (USA), Inc. and the assumption byAmcor Flexibles North America, Inc. of the covenants ofAmcor Finance (USA), Inc in the indenture and the securities. BothAmcor Finance (USA), Inc. andAmcor Flexibles North America, Inc. remain as guarantors of the 3.625% Guaranteed Senior Notes due 2026 and 4.500% Guaranteed Senior Notes due 2028. All guarantors fully, unconditionally, and irrevocably guarantee, on a joint and several basis, to each holder of the notes, the due and punctual payment of the principal of, and any premium and interest on, such note and all other amounts payable, when and as the same shall become due and payable, whether at stated maturity, by declaration of acceleration, call for redemption or otherwise, in accordance with the terms of the notes and related indenture. The obligations of the applicable guarantors under their guarantees will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, or similar laws) under applicable law. The guarantees will be unsecured and unsubordinated obligations of the guarantors and will rank equally with all existing and future unsecured and unsubordinated debt of each guarantor. None of our other subsidiaries guarantee such notes. The issuers and guarantors conduct large parts of their operations through other subsidiaries ofAmcor plc .Amcor Flexibles North America, Inc. is incorporated inMissouri inthe United States ,Amcor UK Finance plc is incorporated inEngland andWales, United Kingdom , and the guarantors are incorporated under the laws of Jersey,Australia ,the United States , andEngland andWales and, therefore, insolvency proceedings with respect to the issuers and guarantors could proceed under, and be governed by, among others, Jersey, Australian,United States , or English insolvency law, as the case may be, if either issuer or any guarantor defaults on its obligations under the applicable Notes or Guarantees, respectively. Set forth below is the summarized financial information of the combinedObligor Group made up ofAmcor plc (as parent guarantor),Amcor Flexibles North America, Inc. andAmcor UK Finance plc (as subsidiary issuers of the notes and guarantors of each other's notes), andAmcor Finance (USA), Inc. andAmcor Pty Ltd (as the remaining subsidiary guarantors). 36 --------------------------------------------------------------------------------
Basis of Preparation
The following summarized financial information is presented for the parent,
issuer, and guarantor subsidiaries ("Obligor Group ") on a combined basis after
elimination of intercompany transactions between entities in the combined group
and amounts related to investments in any subsidiary that is a non-guarantor.
This information is not intended to present the financial position or results
of operations of the combined group of companies in accordance with
Statement of Income for Obligor Group
(in millions)
For the year ended June 30, 2022
Net sales - external $ 1,092
Net sales - to subsidiaries outside the Obligor Group 11
Total net sales $ 1,103
Gross profit 190
Net income (1) $ 399
Net income attributable to non-controlling interests -
Net income attributable to Obligor Group $ 399 (1)Includes
Balance Sheet for Obligor Group
(in millions)
As of June 30, 2022
Assets
Current assets - external $ 1,254
Current assets - due from subsidiaries outside the
83
Total current assets 1,337
Non-current assets - external
1,396
Non-current assets - due from subsidiaries outside the Obligor
Group 10,978
Total non-current assets 12,374
Total assets $ 13,711
Liabilities
Current liabilities - external $ 2,014
Current liabilities - due to subsidiaries outside the
23
Total current liabilities 2,037
Non-current liabilities - external
6,456
Non-current liabilities - due to subsidiaries outside the
11,255
Total non-current liabilities 17,711
Total liabilities $ 19,748
37--------------------------------------------------------------------------------
Liquidity and Capital Resources
We finance our business primarily through cash flows provided by operating
activities, borrowings from banks, and proceeds from issuances of debt and
equity. We periodically review our capital structure and liquidity position in
light of market conditions, expected future cash flows, potential funding
requirements for debt refinancing, capital expenditures and acquisitions, the
cost of capital, sensitivity analyses reflecting downside scenarios, the impact
on our financial metrics and credit ratings, and our ease of access to funding
sources.
The COVID-19 pandemic and geopolitical tensions have not materially impacted
our liquidity position, current and expected cash flows from operating
activities, or available cash. We believe that our cash flows provided by
operating activities, together with borrowings available under our credit
facilities and access to the commercial paper market, backstopped by our bank
debt facilities, will continue to provide sufficient liquidity to fund our
operations, capital expenditures, and other commitments, including dividends and
purchases of our ordinary shares and CHESS Depositary Instruments under
authorized share repurchase programs, into the foreseeable future.
Overview
Year Ended June 30,
($ in millions) 2022 2021
Net cash provided by operating activities $ 1,526 $ 1,461
Net cash (used in)/provided by investing activities (527) (233)
Net cash used in financing activities (891) (1,179)
Cash Flow Overview
Net Cash Provided by Operating Activities
Net cash inflows provided by operating activities increased by$65 million , or by 4%, in fiscal year 2022, compared to fiscal year 2021. This increase was primarily due to higher net income, adjusted for non-cash items, in fiscal year 2022, partially offset by working capital outflows compared with fiscal year 2021. The variance in "Other, net" within net cash inflows provided by operating activities is primarily attributed to the timing of tax payments between periods.
Net cash outflows from investing activities increased by$294 million , or by 126%, in fiscal year 2022, compared to fiscal year 2021. This increase was primarily due to higher disposal proceeds from the disposal of AMVIG, the European hospital supplies business and other non-core businesses in fiscal year 2021 and higher capital expenditures in fiscal year 2022. Capital expenditures were$527 million for fiscal year 2022, an increase of$59 million compared to$468 million for fiscal year 2021. The increase in capital expenditures was primarily due to the increased capital spending in the Flexibles segment.
Net cash flows used in financing activities decreased by$288 million , or by 24%, in fiscal year 2022, compared to fiscal year 2021. This decrease is primarily due to higher cash net debt drawdowns compared with fiscal year 2021, partially offset by higher share buybacks and on-market purchases of own shares in fiscal year 2022. Net Debt We borrow from financial institutions and debt investors in the form of bank overdrafts, bank loans, corporate bonds, unsecured notes, and commercial paper. We have a mixture of fixed and floating interest rates and use interest rate swaps to provide further flexibility in managing the interest cost of borrowings. Short-term debt consists of bank debt with a duration of less than 12 months and bank overdrafts which are classified as current due to the short-term nature of the borrowings, except where we have the ability and intent to refinance and as such extend the debt beyond 12 months. The current portion of long-term debt consists of debt amounts repayable within a year after the balance sheet date. 38 -------------------------------------------------------------------------------- Our primary bank debt facilities and notes are unsecured and subject to negative pledge arrangements limiting the amount of secured indebtedness we can incur to 10.0% of our total tangible assets, subject to some exceptions and variations by facility. In addition, the covenants of the bank debt facilities require us to maintain a leverage ratio not higher than 3.9 times. The negative pledge arrangements and the financial covenants are defined in the related debt agreements. As ofJune 30, 2022 , we were in compliance with all applicable covenants under our bank debt facilities.
Our net debt as of
Available Financing As ofJune 30, 2022 , we had undrawn credit facilities available in the amount of$1.4 billion . Our senior facilities are available to fund working capital, growth capital expenditures, and refinancing obligations and are provided to us by two bank syndicates. These facilities mature inApril 2025 andApril 2027 , respectively, and the revolving tranches have two 12-month options available to management to extend the maturity date. As ofJune 30, 2022 , the revolving senior bank debt facilities had an aggregate limit of$3.8 billion , of which$2.4 billion had been drawn (inclusive of amounts drawn under commercial paper programs reducing the overall balance of available senior facilities). OnApril 26, 2022 , we terminated the previously existing senior bank debt facilities, and simultaneously, we entered into new three- and five-year syndicated facility agreements providing an aggregate limit of$3.8 billion . Subject to certain conditions, we can request the total commitment level under each agreement to be increased by up to$500 million . For further information, refer to Note 14, "Debt."
On
On
OnJuly 15, 2021 , we redeemedU.S. dollar notes with a principal amount of$400 million that had a contractual maturity ofOctober 15, 2021 and carried an interest rate of 4.50%. Dividend Payments
In fiscal years 2022, 2021, and 2020, we paid
Credit Rating
Our capital structure and financial practices have earned us investment grade credit ratings from two internationally recognized credit rating agencies. These investment grade credit ratings are important to our ability to issue debt at favorable rates of interest, for various terms, and from a diverse range of markets that are highly liquid, including European andU.S. debt capital markets and from global financial institutions.
Share Repurchases
OnAugust 17, 2021 , our Board of Directors approved a$400 million buyback of ordinary shares and CHESS Depositary Instruments ("CDIs"). In addition, onFebruary 1, 2022 , our Board of Directors approved an additional$200 million buyback of ordinary shares and CDIs. During the fiscal year endedJune 30, 2022 , we repurchased approximately$600 million , excluding transaction costs, or 49 million shares. The shares repurchased were canceled upon repurchase. Additionally, onAugust 17, 2022 , our Board of Directors approved a further$400 million buyback of ordinary shares and/or CDIs in the next twelve months. We had cash outflows of$143 million ,$8 million , and$67 million for the purchase of our shares in the open market during fiscal years 2022, 2021, and 2020, respectively, as treasury shares to satisfy the vesting and exercises of share-based compensation awards. As ofJune 30, 2022 , 2021, and 2020, we held treasury shares at cost of$18 million ,$29 million , and$67 million , representing 2 million, 3 million, and 7 million shares, respectively. 39 --------------------------------------------------------------------------------
Material Cash Requirements
Amcor's material cash requirements for future periods from known contractual obligations are included below. We expect to fund these cash requirements primarily through cash flows provided by operating activities, borrowings from banks, and proceeds from issuances of debt and equity. These amounts reflect material cash requirements for which we are contractually committed. •Debt obligations: Refer to Note 14, "Debt" of the notes to consolidated financial statements for additional information about our debt obligations and the related timing of these expected payments. •Interest payments: Refer to Note 14, "Debt" of the notes to consolidated financial statements for additional information about our interest payments and the related timing of the expected payments. •Operating and finance leases: Refer to Note 15, "Leases" of the notes to consolidated financial statements for information about our lease obligations and the related timing of the expected payments. •Employee benefit plan obligations: Refer to Note 13, "Pension and Other Post-Retirement Plans" of the notes to consolidated financial statements for additional information about our employee benefit plan obligations and the related timing of the expected payments. •Capital expenditures: As ofJune 30, 2022 , we have$223 million in committed capital expenditures for the fiscal year 2023. •Other purchase obligations: Amcor has other purchase obligations, including commitments to purchase a specified minimum amount of goods, inclusive of raw materials, utilities, and other. These obligations are legally binding and non-cancellable. Where we are unable to determine the periods in which these obligations could be payable under these contracts, we present the cash requirement in the earliest period in which the minimum obligation could be payable. The estimated future cash outlays are approximately$1.6 billion ,$550 million ,$500 million ,$300 million , and$100 million in fiscal years 2023, 2024, 2025, 2026, and 2027, respectively.
Off-Balance Sheet Arrangements
Other than as described under "Material Cash Requirements" as of
Liquidity Risk and Outlook Liquidity risk arises from the possibility that we might encounter difficulty in settling our debts or otherwise meeting our obligations related to financial liabilities. We manage liquidity risk centrally and such management involves maintaining available funding and ensuring that we have access to an adequate amount of committed credit facilities. Due to the dynamic nature of our business, the aim is to maintain flexibility within our funding structure through the use of bank overdrafts, bank loans, corporate bonds, unsecured notes, and commercial paper. The following guidelines are used to manage our liquidity risk: •maintaining minimum undrawn committed liquidity of at least$200 million that can be drawn at short notice; •regularly performing a comprehensive analysis of all cash inflows and outflows in relation to operational, investing, and financing activities; •generally using tradable instruments only in highly liquid markets; •maintaining a senior credit investment grade rating with a reputable independent rating agency; •managing credit risk related to financial assets; •monitoring the duration of long-term debt; •only investing surplus cash with major financial institutions; and •to the extent practicable, spreading the maturity dates of long-term debt facilities. In the fourth quarter of fiscal year 2022, we terminated our 3-, 4-, and 5-year syndicated facility agreements. The three facility agreements collectively provided$3.8 billion of credit facilities. On the same day, we entered into three- and five-year syndicated facility agreements that each provide a revolving credit facility of$1.9 billion ,$3.8 billion in total. The facilities are unsecured and have contractual maturities inApril 2025 andApril 2027 , respectively. The agreements include customary terms and conditions for a syndicated facility of this nature, and the revolving tranches have two 12-month options available to management to extend the maturity date. As ofJune 30, 2022 and 2021, an aggregate principal amount of$2.4 billion and$1.8 billion , respectively, was drawn under commercial paper programs. However, such programs are backstopped by committed bank syndicated loan facilities with maturities inApril 2025 ($1.9 billion ), andApril 2027 ($1.9 billion ), with an option to extend, under which we had$1.4 billion in unused capacity remaining as ofJune 30, 2022 . 40 -------------------------------------------------------------------------------- We expect long-term future funding needs to primarily relate to refinancing and servicing our outstanding financial liabilities maturing as outlined above and to finance our capital expenditure and payments for acquisitions that may be completed. We expect to continue to fund our long-term business needs on the same basis as in the past, i.e., partially through the cash flow provided by operating activities available to the business and management of the capital of the business, in particular through issuance of commercial paper and debt securities on a regular basis. We decide on discretionary growth capital expenditures and acquisitions individually based on, among other factors, the return on investment after related financing costs and the payback period of required upfront cash investments in light of our mid-term liquidity planning covering a period of four years post the current fiscal year. Our long-term access to liquidity depends on both our results of operations and on the availability of funding in financial markets. 41 --------------------------------------------------------------------------------
Critical Accounting Estimates and Judgments
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to retirement benefits, intangible assets, goodwill, and expected future performance of operations. Our estimates and judgments are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following are critical accounting estimates used in the preparation of our consolidated financial statements.
•the calculation of annual pension costs and related assets and liabilities; •valuation of intangible assets and goodwill; •calculation of deferred taxes and uncertain tax positions; and •valuation of assets and liabilities held for sale.
Pension Costs
Approximately 90% of our principal defined benefit plans are closed to new entrants and future accruals. The accounting for defined benefit pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet. A substantial portion of our pension amounts relates to our defined benefit plans inthe United States ,Switzerland , and theUnited Kingdom . Net periodic pension cost recorded in fiscal year 2022 was$12 million , compared to pension cost of$15 million in fiscal year 2021 and$10 million in fiscal year 2020. We expect net periodic pension cost before the effect of income taxes for fiscal year 2023 to be approximately$9 million . For our sponsored plans, the relevant accounting guidance requires that management make certain assumptions relating to the long-term rate of return on plan assets, discount rates used to determine the present value of future obligations and expenses, salary inflation rates, mortality rates, and other assumptions. We believe that the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions, and contracted benefit changes. The selection of assumptions is based on historical trends and known economic and market conditions at the time of valuation, as well as independent studies of trends performed by our actuaries. However, actual results may differ substantially from the estimates that were based on the critical assumptions. The amount by which the fair value of plan assets differs from the projected benefit obligation of a pension plan must be recorded on the consolidated balance sheets as an asset, in the case of an overfunded plan, or as a liability, in the case of an underfunded plan. The gains or losses and prior service costs or credits that arise but are not recognized as components of pension cost are recorded as a component of other comprehensive income/(loss). Pension plan liabilities are revalued annually, or when an event occurs that requires remeasurement, based on updated assumptions and information about the individuals covered by the plan. Accumulated actuarial gains and losses in excess of a 10 percent corridor and the prior service cost are amortized on a straight-line basis from the date recognized over the average remaining service period of active participants or over the average life expectancy for plans with significant inactive participants. The service costs related to defined benefits are included in operating income. The other components of net benefit cost are presented in the consolidated statements of income separately from the service cost component and outside operating income. We review annually the discount rate used to calculate the present value of pension plan liabilities. The discount rate used at each measurement date is set based on a high-quality corporate bond yield curve, derived based on bond universe information sourced from reputable third-party indexes, data providers, and rating agencies. In countries where there is no deep market in corporate bonds, we have used a government bond approach to set the discount rate. Additionally, the expected long-term rate of return on plan assets is derived for each benefit plan by considering the expected future long-term return assumption for each individual asset class. A single long-term return assumption is then derived for each plan based upon the plan's target asset allocation. 42
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Pension Assumptions Sensitivity Analysis
The following chart depicts the sensitivity of estimated fiscal year 2023 pension expense to incremental changes in the discount rate and the expected long-term rate of return on assets.
Total Increase Total Increase
(Decrease) to Pension (Decrease) to Pension
Expense from Current Expense from Current
Assumption Assumption
Discount Rate (in $ millions) Rate of Return on Plan Assets (in $ millions)
+25 basis points 1 +25 basis points (3)
3.80 percent (current 4.42 percent (current
assumption) - assumption) -
-25 basis points (1) -25 basis points 3
Intangible Assets and
Goodwill represents the excess of the aggregate purchase price over the fair value of net assets acquired, including intangible assets.Goodwill is not amortized but is instead tested annually or when events and circumstances indicate an impairment may have occurred. Our reporting units each contain goodwill that is assessed for potential impairment. All goodwill is assigned to a reporting unit, which is defined as an operating segment, at the time of each acquisition based on the relative fair value of the reporting unit. We have six reporting units, of which five are included in our Flexibles Segment. The other reporting unit that is also a reportable segment isRigid Packaging .Goodwill for our reporting units is reviewed for impairment annually in the fourth quarter of each year or whenever events and circumstances indicate an impairment may have occurred during the year. When the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit, adjusted for any tax benefits, limited to the amount of the carrying value of goodwill. In performing our impairment analysis, we may elect to first assess qualitative factors to determine whether a quantitative test is necessary. If we determine that a quantitative test is necessary, or elect to perform a quantitative test instead of the qualitative test, we derive an estimate of fair values for each of our reporting units using income approaches. The most significant assumptions used in the determination of the estimated fair value of the reporting units are revenue growth, projected operating income growth, terminal values, and discount rates. Our estimates associated with the goodwill impairment tests are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value amounts, including projected future cash flows. Judgment is used in assessing whether goodwill should be tested more frequently for impairment than annually. Factors such as a significant decrease in expected net earnings, adverse equity market conditions, and other external events, such as the COVID-19 pandemic and theRussia -Ukraine conflict, may result in the need for more frequent assessments. Intangible assets consist primarily of purchased customer relationships, technology, trademarks, and software and are amortized using the straight-line method over their estimated useful lives, which range from one to 20 years. We review these intangible assets for impairment as changes in circumstances or the occurrence of events suggest that the remaining value is not recoverable. The test for impairment requires us to make estimates about fair value, most of which are based on projected future cash flows and discount rates. These estimates and projections require judgments as to future events, conditions, and amounts of future cash flows.
Deferred Taxes and Uncertain Tax Positions
We deal with uncertainties and judgments in the application of complex tax
regulations in a multitude of jurisdictions. The determination of uncertain tax
positions is based on an evaluation of whether the weight of available evidence
indicates that it is more likely than not that the position taken or expected to
be taken in the tax return will be sustained on tax audit, including resolution
of related appeals or litigation processes, if any. The recognized tax benefits
are measured as the largest benefit of having a more likely than not likelihood
of being sustained upon settlement. Significant estimates are required in
determining such uncertain tax positions and related income tax expense and
benefit. Additionally, we are also required to assess the likelihood of
recovering deferred tax assets against future sources of taxable income which
might result in the need for a valuation allowance on deferred tax assets,
including operating loss, capital loss, and tax credit carryforwards if we do
not reach
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the more likely than not threshold based on all available evidence. Significant
judgments and estimates, including expected future performance of operations and
taxable earnings and the feasibility of tax planning strategies, are required in
determining the need for and amount of valuation allowances for deferred tax
assets. If actual results differ from these estimates or there are future
changes to tax laws or statutory tax rates, we may need to adjust valuation
allowances or tax liabilities, which could have a material impact on our
consolidated financial position and results of operations.
Valuation of Assets and Liabilities Held for Sale
Disposal groups held for sale are assessed for impairment by comparing their fair values less cost to sell to their carrying values. The fair values of disposal groups held for sale are estimated using accepted valuation techniques which include earnings multiples, discounted cash flows, and indicative bids. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of sales, expenses, and a variety of other factors. We consider historical experience, guidance received from third parties, and all other information available at the time the estimates are made to derive fair value. However, the fair value that is ultimately realized upon the divestiture of a business may significantly differ from the estimated fair value recognized in our consolidated financial statements, especially for disposal groups located within countries at war.
New Accounting Pronouncements
Refer to Note 3, "New Accounting Guidance" of the notes to consolidated financial statements for information about new accounting pronouncements.
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