AMCOR PLC Management's Discussion and Analysis should be read in conjunction with the Financial Statements and Notes to Condensed Consolidated Financial Statements.
Summary of Financial Results
Three Months Ended December 31, Six Months Ended December 31,
($ in millions,
except per share
amounts) 2019 2018 2019 2018
Net sales $ 3,043.1 100.0 % $ 2,285.4 100.0 % $
6,183.8 100.0 %
Gross profit 617.3 20.3 % 453.0 19.8 % 1,164.0 18.8 % 844.6 18.6 % Operating expenses: Selling, general, and administrative expenses (308.3 ) (10.1 %) (205.3 ) (9.0 %) (680.2 ) (11.0 %) (403.6 ) (8.9 %) Research and development expenses (23.5 ) (0.8 %) (17.3 ) (0.8 %) (49.4 ) (0.8 %) (31.5 ) (0.7 %) Restructuring and related expenses (24.1 ) (0.8 %) (39.9 ) (1.7 %) (41.7 ) (0.7 %) (52.4 ) (1.2 %) Other income, net 10.9 0.4 % 31.0 1.4 %
20.2 0.3 % 41.9 0.9 %
Operating income 272.3 8.9 % 221.5 9.7 % 412.9 6.7 % 399.0 8.8 %
Interest income 6.3 0.2 % 5.2 0.2 % 13.0 0.2 % 8.1 0.2 % Interest expense (52.3 ) (1.7 %) (52.1 ) (2.3 %) (112.0 ) (1.8 %) (108.4 ) (2.4 %) Other non-operating income (loss), net 4.4 0.1 % 5.7 0.2 % 12.0 0.2 % 3.1 0.1 % Income from continuing operations before income taxes and equity in income (loss) of affiliated companies 230.7 7.6 % 180.3 7.9 % 325.9 5.3 % 301.8 6.6 % Income tax expense (45.1 ) (1.5 %) (31.1 ) (1.4 %) (66.9 ) (1.1 %) (52.8 ) (1.2 %) Equity in income (loss) of affiliated companies 2.2 0.1 % (8.6 ) (0.4 %) 4.5 0.1 % (6.9 ) (0.2 %) Income from continuing operations 187.8 6.2 % 140.6 6.2 % 263.5 4.3 % 242.1 5.3 % Income (loss) from discontinued operations - - % - - % (7.7 ) (0.1 %) - - % Net income$ 187.8 6.2 %$ 140.6 6.2 %$ 255.8 4.1 %$ 242.1 5.3 % Net (income) loss attributable to non-controlling interests (2.2 ) (0.1 %) (2.0 ) (0.1 %)
(4.2 ) (0.1 %) (5.1 ) (0.1 %)
Net income attributable to Amcor plc$ 185.6 6.1 %$ 138.6 6.1 %$ 251.6 4.1 %$ 237.0 5.2 % 34
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Overview
Amcor is a global packaging company with total sales of approximately$9.5 billion in fiscal year 2019. We employ approximately 50,000 people across approximately 250 sites in more than 40 countries, and are a leader in developing and producing a broad range of packaging products including flexible and rigid packaging, specialty cartons and closures. In fiscal year 2019, the majority of sales were made to the defensive food, beverage, pharmaceutical, medical device home and personal care, and other consumer goods end markets.
Significant Items Affecting the Periods Presented
The Acquisition of
OnJune 11, 2019 , we completed the acquisition of 100% of the outstanding shares ofBemis Company, Inc ("Bemis"), a global manufacturer of flexible packaging products based inthe United States , for the purchase price of$5.2 billion in an all-stock transaction. In connection with the Bemis transaction, we assumed$1.4 billion of debt. 2019 Bemis Integration Plan In connection with the acquisition of Bemis, the Company initiated restructuring activities in the fourth quarter of 2019 aimed at integrating and optimizing the combined organization. As previously announced, the Company continues to target realizing approximately$180 million of pre-tax synergies driven by procurement, supply chain, and general and administrative savings by the end of fiscal year 2022. The Company's total Plan pre-tax integration costs are expected to be approximately$200 million . The total Plan costs include$165 million of restructuring and related expenses and$35 million of general integration expenses. The restructuring and related expenses are comprised of approximately$100 million in employee related expenses,$30 million in fixed asset related expenses,$15 million in other restructuring and$20 million in restructuring-related expenses. The Company estimates that approximately$150 million of the$200 million total integration costs will result in cash expenditures, of which$115 million relate to restructuring and related expenditures. Cash payments for the six months endedDecember 31, 2019 were$44.7 million , of which$23.6 million were payments related to restructuring and related expenditures. Cash payments of approximately$50 million to$60 million are expected for the balance of the fiscal year with$40 million to$50 million representing payments for restructuring and related expenses. The 2019 Bemis Integration Plan relates to the Flexibles segment and Corporate and is expected to be completed by the end of fiscal year 2022. Restructuring related costs are directly attributable to restructuring activities; however, they do not qualify for special accounting treatment as exit or disposal activities. General integration costs are not linked to restructuring. The Company believes the disclosure of restructuring related costs provides more information on the total cost of our 2019 Bemis Integration Plan. The restructuring related costs relate primarily to the closure of facilities and include costs to replace graphics, train new employees on relocated equipment and anticipated loss on sale of closed facilities.
2018 Rigid Packaging Restructuring Plan
OnAugust 21, 2018 , the Company announced a restructuring plan inAmcor Rigid Packaging ("2018 Rigid Packaging Restructuring Plan") aimed at reducing structural costs and optimizing the footprint. The Plan includes the closures of manufacturing facilities and headcount reductions to achieve manufacturing footprint optimization and productivity improvements as well as overhead cost reductions. The Company's total Plan pre-tax restructuring costs are expected to be approximately$95 million with the main component being the cost to exit manufacturing facilities and employee related costs. The Company estimates that approximately$65 million of the$95 million total costs will result in cash expenditures. Cash payments for the six months endedDecember 31, 2019 were$6.5 million , with approximately$10 million to$15 million expected during the remainder of the fiscal year. The Plan is expected to be materially completed during this fiscal year.
For more information about our restructuring plans, refer to Note 5, "Restructuring Plans" of "Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements".
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--------------------------------------------------------------------------------High Inflation 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 Argentinean subsidiaries with a functional currency of the Argentine Peso at the functional currency of the parent, which is theU.S. dollar. Highly inflationary accounting in the three months endedDecember 31, 2019 and 2018 resulted in a negative impact of$3.1 million and$9.6 million , respectively, and$18.5 million and$19.0 million in the six months endedDecember 31, 2019 and 2018, respectively, in foreign currency transaction losses that was reflected on the unaudited condensed consolidated statement of income. 36
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