10-K 1 amcor-2019form10xkxjune302.htm 10-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 2019

Commission File Number 001-36786

AMCOR PLC
(Exact name of Registrant as specified in its charter)

Jersey (Channel Islands)
 
98-1455367
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

83 Tower Road North
Warmley, Bristol BS30 8XP
United Kingdom
(Address of principal executive offices)

Registrant’s telephone number, including area code: +44 117 9753200

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
             Trading Symbol(s)
 
Name of each exchange
on which registered
Ordinary Shares, par value $0.01 per share
 
                   AMCR
 
The New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o




Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ý NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o
 
Accelerated Filer o
Non-Accelerated Filer ý
 
Smaller Reporting Company o
Emerging growth company o
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO ý

The registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and therefore, cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date.

As of August 29, 2019, the Registrant had 1,625,907,855 shares issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required for Part III of this Annual Report on Form 10-K is incorporated by reference to the Amcor plc definitive Proxy Statement for its 2019 Annual Shareholder Meeting, which is intended to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, within 120 days of Amcor plc’s fiscal year end.





Amcor plc
Annual Report on Form 10-K
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Forward-Looking Statements

Unless otherwise indicated, references to "Amcor," the "Company," "we," "our," and "us" in this Annual Report on Form 10-K refer to Amcor plc and its consolidated subsidiaries.     

This Annual Report contains certain estimates, predictions, and other “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identified with words like “believe,” “expect,” “anticipate,” “intend,” “estimate,” “target,” “may,” “will,” “plan,” “project,” “should,” “continue,” “outlook,” “approximately,” “would,” “could,” or the negative thereof or other similar expressions, or discussion of future goals or aspirations, which are predictions of or indicate future events and trends and which do not relate to historical matters. Such statements are based on information available to management as of the time of such statements and relate to, among other things, expectations of the business environment in which we operate, projections of future performance (financial and otherwise), including those of acquired companies, perceived opportunities in the market and statements regarding our strategy and vision. Forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause actual results, performance, or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. Factors that could cause actual results to differ from those expected include, but are not limited to:

•
We are exposed to changes in consumer demand patterns and customer requirements in numerous industries;
•
the loss of key customers, a reduction in their production requirements or consolidation among key customers could have a significant adverse impact on our sales revenue and profitability;
•
significant competition in the industries and regions in which we operate, which could adversely affect our business;
•
the failure to realize the anticipated benefits of the acquisition of Bemis;
•
the failure to successfully integrate the business and operations of Bemis in the expected time frame may adversely affect our future results;
•
we may be unable to expand our current business effectively through either organic growth, including by product innovation, or acquisitions;
•
challenges to or the loss of our intellectual property rights could have an adverse impact on our ability to compete effectively;
•
challenging current and future global economic conditions have had, and may continue to have, a negative impact on our business operations and financial results;
•
our international operations subject us to various risks that could adversely affect our business operations and financial results;
•
price fluctuations or shortages in the availability of raw materials, energy and other inputs could adversely affect our business;
•
we are subject to production, supply and other commercial risks, including counterparty credit risks, which may be exacerbated in times of economic downturn;
•
a failure in our information technology systems could negatively affect our business;
•
if we are unable to attract and retain key personnel, we may be adversely affected;
•
we are subject to costs and liabilities related to current and future environmental and health and safety laws and regulations that could adversely affect our business;
•
we are subject to the risk of labor disputes, which could adversely affect our business;
•
our financing agreements may need to be renegotiated if LIBOR ceases to exist;
•
we are exposed to foreign exchange rate risk;
•
an increase in interest rates could reduce our reported results of operations;
•
a downgrade in our credit rating could increase our borrowing costs and negatively affect our financial condition and results of operations;
•
failure to hedge effectively against adverse fluctuations in interest rates and foreign exchange rates could negatively impact our results of operations;
•
a significant write-down of goodwill and/or other intangible assets would have a material adverse effect on our reported results of operations and net worth;
•
significant demands will be placed on our financial controls and reporting systems as a result of the acquisition of Bemis;
•
if we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock;
•
our insurance policies, including our use of a captive insurance company, may not provide adequate protection against all of the risks we face;

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•
litigation or regulatory developments could adversely affect our business operations and financial performance;
•
changing government regulations in environmental, health, and safety matters may adversely affect our company; and
•
our success is dependent on our ability to develop and successfully introduce new products and to develop, acquire and retain intellectual property rights.


Additional factors that could cause actual results to differ from those expected are discussed in this Annual Report on Form 10-K, including in the sections entitled “Item 1A - Risk Factors” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in Amcor’s subsequent filings with the Securities and Exchange Commission (the “SEC”).    
    
Forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. All forward-looking statements in this Annual Report on Form 10-K are qualified in their entirety by this cautionary statement.



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PART I

Item 1. - Business

The Company

Amcor plc (ARBN 630 385 278) is a holding company incorporated under the name Arctic Jersey Limited as a limited company under the laws of the Bailiwick of Jersey in July, 2018, in order to effect the Company's combination with Bemis Company, Inc. On October 10, 2018, Arctic Jersey Limited was renamed "Amcor plc" and became a public limited company incorporated under the Laws of the Bailiwick of Jersey.

Bemis Company, Inc. Merger

On June 11, 2019, we completed the acquisition of Bemis Company, Inc. ("Bemis"), a global manufacturer of flexible packaging products, pursuant to the definitive merger agreement (the "Agreement") between Amcor Limited and Bemis dated August 6, 2018. Under the terms of the Agreement, Bemis shareholders received 5.1 Amcor shares for each share of Bemis stock and Amcor shareholders received one Amcor CHESS Depositary Instrument ("CDI") for each share of Amcor Limited stock issued and outstanding. Upon completion of the transaction, the Amcor shares were registered with the Securities and Exchange Commission ("SEC") and traded on the New York Stock Exchange ("NYSE") under the symbol "AMCR" and the CDI's representing our shares on the Australian Securities Exchange ("ASX") are traded under the symbol "AMC." In addition, Amcor Limited shares were delisted from the ASX and Bemis shares were delisted from the NYSE.
    
Business Strategy

Strategy

Our strategy consists of three components: a focused portfolio, differentiated capabilities, and our aspiration to be THE leading global packaging company. To fulfill our aspiration, we are determined to win for our customers, employees, shareholders and the environment.

Focused portfolio

Our portfolio of businesses share some important characteristics:

•
a focus on primary packaging for fast-moving consumer goods,
•
good industry structure,
•
attractive relative growth, and
•
multiple paths for us to win from our leadership position, scale and other competitive advantages.

These criteria have led us to the focused portfolio of strong businesses we have today across: flexible and rigid packaging, specialty cartons, and closures.

Differentiated capabilities

'The Amcor Way' describes the capabilities deployed consistently across Amcor that enable us to get leverage across our portfolio: Talent, Commercial Excellence, Operational Leadership, Innovation, and Cash and Capital Discipline.

Shareholder value creation

Through our portfolio of business and differentiated capabilities we generate strong cash flow and redeploy cash to consistently create superior customer value. The defensive nature of our end markets mean that year-to-year volatility should be relatively low, measured on a constant currency basis. Through paying dividends and growing the base business organically in a defensive set of end markets, pursuing acquisitions or returning cash to shareholders, over time value creation has been strong and consistent.



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Segment Information

Accounting Standards Codification ("ASC") 280, "Segment Reporting," establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, the Company has determined it has two reporting segments, Flexibles and Rigid Packaging. The reporting segments produce flexible packaging, rigid packaging, specialty cartons, and closure products, which are sold to customers participating in a range of attractive end use areas throughout Europe, North America, Latin America, Africa and the Asia Pacific regions. Refer to Note 20, "Segments," of the notes to consolidated financial statements for financial information about business segments.

Flexibles Segment

The Flexibles Segment develops and supplies flexible packaging globally. With approximately 43,000 employees at 190 facilities in 38 countries as of June 30, 2019, the Flexibles Segment is one of the world's largest suppliers of plastic, aluminum and fiber based flexible packaging. In fiscal year 2019, Flexibles accounted for approximately 70% of the Company’s consolidated net sales.

Rigid Packaging Segment

The Rigid Packaging Segment is one of the world's largest manufacturers of rigid plastic containers and related products. As of June 30, 2019, the Rigid Packaging Segment employed approximately 6,000 employees at 60 facilities in 12 countries. In fiscal year 2019, Rigid Packaging accounted for approximately 30% of the Company’s consolidated net sales.

Marketing, Distribution, and Competition

Our sales are made through a variety of distribution channels, but primarily through our direct sales force. Sales offices and plants are located throughout Europe, North America, Latin America, Africa and Asia-Pacific regions to provide prompt and economical service to thousands of customers. Our technically trained sales force is supported by product development engineers, design technicians, field service technicians, and a customer service organization.

Sales to PepsiCo, and its subsidiaries, accounted for approximately 11.1%, 11.0% and 11.7% of our sales in fiscal years 2019, 2018 and 2017, respectively. Business arrangements with PepsiCo are aggregated across a number of separate contracts in disparate locations and any change in these business arrangements would typically occur over a period of time.

The major markets in which we sell our products historically have been, and continue to be, highly competitive. Areas of competition include service, innovation, quality, and price. Competitors include Aptar Group, Inc., Ball Corporation, Berry Global, Inc., CCL Industries, Inc., Crown Holdings Incorporated, Graphic Packaging International, Inc., Huhtamaki Oyj, International Paper Company, Mayr-Melnhof Karton AG, Owens-Illinois Inc., Sealed Air Corporation, Silgan Holdings, Inc., Sonoco Products Company, Westrock Company, Winpack, Ltd., and a variety of privately held companies.

We consider ourselves to be a significant participant in the markets in which we serve; however, due to the diversity of our business, our precise competitive position in these markets is not reasonably determinable.

Backlog

Working capital fluctuates throughout the year in relation to business volume and other marketplace conditions. We maintain inventory levels that provide a reasonable balance between obtaining raw materials at favorable prices and maintaining adequate inventory levels to enable us to fulfill our commitment to promptly fill customer orders. Manufacturing backlogs are not a significant factor in the industries in which we operate.

Raw Materials

Polymer resins and films, paper, inks, adhesives, aluminum, and chemicals constitute the major raw materials we use. These are purchased from a variety of global industry sources, and we are not significantly dependent on any one supplier for our raw materials. While temporary industry-wide shortages of raw materials may occur, we expect to continue to successfully manage raw material supplies without significant supply interruptions. Currently, raw materials are readily available but pricing can fluctuate.

Intellectual Property


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We are the owner or licensee of a number of United States and foreign patents and patent applications that relate to certain of our products, manufacturing processes, and equipment. We have a number of trademarks and trademark registrations in the United States and in foreign countries. We also keep certain technology and processes as trade secrets. Our patents, licenses, and trademarks collectively provide a competitive advantage. However, the loss of any single patent or license alone would not have a material adverse effect on our results as a whole or those of our segments.

Environmental Matters and Government Regulation

We believe our commitment to responsible packaging is integral to our success. Responsible packaging protects the product, extends its shelf life and can reduce a significant amount of waste throughout the supply chain.

In January 2018, we became the first global packaging company pledging to develop all of our packaging to be recyclable or reusable by 2025, to significantly increase our use of recycled materials and to work with others to drive greater recycling of packaging around the world. We are uniquely positioned to lead the way in the development of more sustainable or environmentally friendly packaging.

Our operations and the real property we own or lease are subject to broad environmental laws and regulations by multiple jurisdictions. These laws and regulations pertain to the discharge of certain materials into the environment, handling and disposition of waste, and cleanup of contaminated soil and ground water as well as various other protections of the environment. We believe that we are in substantial compliance with applicable environmental laws and regulations based on implementation of our Environmental, Health, and Safety Management System and regular audits of those processes and systems. However, we cannot predict with certainty that we will not in the future incur liability with respect to noncompliance with environmental laws and regulations due to contamination of sites formerly or currently owned or operated by us (including contamination caused by prior owners and operators of such sites) or the off-site disposal of regulated materials, which could be material. In addition, these laws and regulations are constantly changing, and we cannot always anticipate these changes. Refer to Note 19, "Contingencies and Legal Proceedings," of the notes to the consolidated financial statements for information about legal proceedings. For a more detailed description of the various laws and regulations that affect our business, see Item 1A. "Risk Factors".

Employees

As of June 30, 2019, we employed approximately 50,000 people worldwide.

Seasonal Factors

The business of each of the reporting segments is not seasonal to any material extent.

Research and Development

Refer to Note 2, "Significant Accounting Policies," of the notes to consolidated financial statements for research and development expenditures.

Available Information

We are a non-accelerated filer (as defined in Exchange Act Rule 12b-2) and are also an electronic filer. Electronically filed reports (Forms 4, 8-K, 10-K, 10-Q, S-3, S-8, etc.) can be accessed at the SEC's website (http://www.sec.gov) or by calling the SEC’s Office of Investor Education and Advocacy at 1-800-732-0330. Electronically filed and furnished reports can also be accessed through the Investor Relations section of the Company's Internet website (http://www.amcor.com/investors), under "SEC Filings" or by writing to the Company, Attention: Investor Relations, Amcor plc, Level 11, 60 City Road, Southbank, VIC, 3006, Australia. In addition, our Board Committee charters, Corporate Governance Guidelines, and our Code of Conduct & Ethics Policy can be electronically accessed at our website under "Corporate Governance" or, free of charge, by writing directly to the Company, Attention: Corporate Secretary. We will post any amendment to, or waiver from, a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer, and other persons performing similar functions on the Investor Relations section of our website promptly following the date of such amendment or waiver.


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Item 1A. - Risk Factors

The following factors, as well as factors described elsewhere in this Form 10-K, or in other filings by the Company with the Securities and Exchange Commission, could adversely affect the Company's consolidated financial position, results of operations or cash flows. Other factors not presently known to us or that we presently believe are not material could also effect our business operations and financial results.

Strategic Risks

Changes in Consumer Demand — We are exposed to changes in consumer demand patterns and customer requirements in numerous industries.

    Sales of our products and services depend heavily on the volume of sales made by our customers to consumers. Consequently, changes in consumer preferences for products in the industries that we serve or the packaging formats in which such products are delivered, whether as a result of changes in cost, convenience or health, environmental and social concerns and perceptions, may result in a decline in the demand for certain of our products or the obsolescence of some of our existing products. Although we have adopted certain strategies designed to mitigate the impact of declining sales, there is no guarantee that such strategies will be successful or will offset a decline in demand. Furthermore, any new products that we produce may not meet sales or margin expectations due to many factors, including our inability to accurately predict customer demand, end user preferences or movements in industry standards or to develop products that meet consumer demand in a timely and cost-effective manner.

Changing preferences for products and packaging formats may result in increased demand for other products we produce. However, to the extent changing preferences are not offset by demand for new or alternative products, changes to consumer preferences could have an adverse effect on our business, cash flow, financial condition and results of operations.

Key Customers and Customer Consolidation — The loss of key customers, a reduction in their production requirements or consolidation among key customers could have a significant adverse impact on our sales revenue and profitability.

Relationships with our customers are fundamental to our success, particularly given the nature of the packaging industry and the other supply choices available to customers. From time to time, a single customer, depending on the current status and volumes of a number of separate contracts in disparate locations, may account for 10% or more of our revenue. Sales to our largest customer accounted for approximately 11% of our total net sales for fiscal years 2019 and 2018. We did not have any other customer account for more than 10% of net sales in these fiscal periods.

Customer concentration can be even more pronounced within certain business units. Consequently, the loss of any of our key customers or any significant reduction in their production requirements, or an adverse change in the terms of our supply agreements with them, could reduce our sales revenue and net profit.

There can be no guarantee that our key customers will not in the future seek to source some or all of their products or services from competitors, change to alternative forms of packaging, begin manufacturing their packaging products in-house or seek to renew their business with us on terms less favorable than before.

Any loss, change or other adverse event related to our key customer relationships could have an adverse effect on our business, cash flow, financial condition and results of operations, which effect may be material.

In addition, over recent years certain of our customers have acquired companies with similar or complementary product lines. This consolidation has increased the concentration of our business with these customers. Such consolidation may be accompanied by pressure from customers for lower prices, reflecting the increase in the total volume of products purchased or the elimination of a price differential between the acquiring customer and the company acquired. While we have generally been successful at managing customer consolidations, increased pricing pressures from our customers could have a material adverse effect on our results of operations.

Competition — We face significant competition in the industries and regions in which we operate, which could adversely affect our business.

We operate in highly competitive geographies and end use areas, each with varying barriers to entry, industry structures and competitive behavior. We regularly bid for new and continuing business in the industries and regions in which

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we operate and we continue to change in response to consumer demand. We cannot predict with certainty the changes that may affect our competitiveness.

The loss of business from our larger customers, or the renewal of business on less favorable terms, may have a significant impact on our operating results. In addition, our competitors may develop disruptive technology or other technological innovations that could increase their ability to compete for our current or potential customers. No assurance can be given that the actions of established or potential competitors will not have an adverse effect on our ability to implement our plans and on our business, cash flow, financial condition and results of operations.

Synergy Benefits — The failure to realize the anticipated benefits of the acquisition of Bemis.

We anticipate that the transaction will generate estimated pre-tax annual net cost synergies by the end of the third year of approximately $180 million from procurement, manufacturing and general and administrative efficiencies. However, we must successfully integrate our businesses in a manner that permits these anticipated benefits to be realized. If we are not able to successfully achieve this, the anticipated benefits of the transaction may not be realized fully, or at all, or may take longer to realize than expected or involve more costs to do so.

Integration Risk — The failure to successfully integrate the business and operations of Bemis in the expected time frame may adversely affect our future results.

Historically, Amcor Limited and Bemis were independent companies. While we have dedicated teams working on integrating our two operations, there can be no assurance that our businesses will be integrated successfully. It is possible that the integration process could result in the loss of key employees, the loss of customers, the disruption of either or both companies’ ongoing businesses, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in integrating our operations in order to realize the anticipated benefits of the transaction:

•
Combining both businesses in a manner that permits us to achieve the net cost synergies anticipated to result from the transaction, the failure of which would result in the anticipated benefits of the transaction not being realized in the time frame currently anticipated or at all;
•
combining our operations and corporate functions;
•
integrating and unifying the offerings and services available to customers;
•
identifying and eliminating redundant and underperforming functions and assets;
•
harmonizing the companies’ operating practices, employee development and compensation programs, internal control and other policies, procedures and processes;
•
maintaining existing agreements with customers and suppliers and avoiding delays in entering into new agreements with prospective customers and suppliers;
•
addressing possible differences in business backgrounds, corporate cultures and management philosophies;
•
consolidating our administrative and information technology infrastructure;
•
managing the movement of certain positions to different locations; and
•
effecting actions that may be required in connection with obtaining regulatory approvals.

In addition, at times the attention of certain members of our company and resources may be focused on the integration of the business and diverted from day-to-day business operations, which may disrupt our business.

Expanding Our Current Business — We may be unable to expand our current business effectively through either organic growth, including by product innovation, or acquisitions.

Our business strategy includes both organic expansion of our existing operations, particularly through efforts to strengthen and expand relationships with customers in emerging markets, product innovation, and expansion through acquisitions. However, we may not be able to execute our strategy effectively for reasons within and outside our control. Our ability to grow organically may be limited by, among other things, extensive saturation in the locations in which we operate or a change or reduction in our customers’ growth plans due to changing economic conditions, strategic priorities or otherwise. For many of our businesses, organic growth depends on product innovation, new product development and timely responses to changing consumer demands and preferences. Consequently, failure to develop new or improved products in response to changing consumer preferences in a timely manner may hinder our growth potential, affect our competitive position and adversely affect our business and results of operations.


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Additionally, over the past decade, we have pursued growth through acquisitions, including our recent transaction with Bemis Company, Inc. There can be no assurance that we will be able to identify suitable acquisition targets in the right geographic regions in the future and with the right participation strategy, or to complete such acquisitions on acceptable terms or at all. Other companies in the industries and regions in which we operate have similar investment and acquisition strategies to us, resulting in competition for a limited pool of potential acquisition targets. Due in part to that competition, as well as the recent low interest rate environment, which has made debt funding more appealing and accessible, price multiples for potential targets are currently higher than their historical averages. If, as a result of these and other factors, we are unable to identify acquisition targets that meet our investment criteria and close such transactions on acceptable terms, our potential for growth by way of acquisition may be restricted, which could have an adverse effect on achievement of our strategy and the resulting
expected financial benefits.

Intellectual Property — Challenges to or the loss of our intellectual property rights could have an adverse impact on our ability to compete effectively.

Our ability to compete effectively depends, in part, on our ability to protect and maintain the proprietary nature of our owned and licensed intellectual property. We own a number of patents on our products, aspects of our products, methods of use and/or methods of manufacturing, and we own, or have licenses to use, the material trademark and trade name rights used in connection with the packaging, marketing and distribution of our major products. We also rely on trade secrets, know-how and other unpatented proprietary technology. We attempt to protect and restrict access to our intellectual property and proprietary information by relying on the patent, trademark, copyright and trade secret laws of the countries in which we operate, as well as non-disclosure agreements. However, it may be possible for a third party to obtain our information without our authorization, independently develop similar technologies, or breach a non-disclosure agreement entered into with us. Furthermore, many of the countries in which we operate, particularly the emerging markets, do not have intellectual property laws that protect proprietary rights as fully as the laws of the more developed jurisdictions in which we operate, such as the United States and the European Union. The use of our intellectual property by someone else without our authorization could reduce certain of our competitive advantages, cause us to lose sales or otherwise harm our business. The costs associated with protecting our intellectual property rights could also adversely impact our business. Similarly, while we have not received any significant claims from third parties suggesting that we may be infringing on their intellectual property rights, there can be no assurance that we will not receive such claims in the future. If we were held liable for a claim of infringement, we could be required to pay damages, obtain licenses or cease making or selling certain products. Intellectual property litigation, which could result in substantial cost to us and divert the attention of management, may be necessary to protect our trade secrets or proprietary technology or for us to defend against claimed infringement of the rights of others and to determine the scope and validity of others’ proprietary rights. We may not prevail in any such litigation, and if we are unsuccessful, we may not be able to obtain any necessary licenses on reasonable terms or at all. Failure to protect our patents, trademarks and other intellectual property rights could have an adverse effect on our business, cash flow, financial condition and results of operations.

Operational Risks

Global Operations — Challenging current and future global economic conditions have had, and may continue to have, a negative impact on our business operations and financial results.

Demand for our products and services is dependent on consumer demand for our packaging products, including packaged food, beverage, healthcare, personal care, agribusiness, industrial, and other consumer goods. As a result, general economic downturns in our key geographic regions and globally can adversely affect our business operations and financial results. The current global economic challenges, including relatively high levels of unemployment in certain areas in which we operate, low economic growth and difficulties associated with managing rising debt levels and related economic volatility in certain economies, are likely to continue to put pressure on the global economy and our business. In addition, we have recently experienced challenging conditions in parts of South America, where economic conditions have been mixed, and in particular in Argentina, where we have employed highly inflationary accounting for our local subsidiaries.

When challenging economic conditions exist, our customers may delay, decrease or cancel purchases from us, and may also delay payment or fail to pay us altogether. Suppliers may have difficulty filling our orders and distributors may have difficulty getting our products to customers, which may affect our ability to meet customer demands, and result in a loss of business. Weakened global economic conditions may also result in unfavorable changes in our product prices and product mix and lower profit margins. All of these factors could have an adverse effect on our business, cash flow, financial condition and results of operations, which effect may be material.

Political uncertainty may also contribute to the general economic conditions in one or more markets in which we operate. For example, the formal process for the United Kingdom leaving the European Union has resulted in uncertainty

11


regarding the long-term nature of the United Kingdom’s relationship with the European Union, causing significant volatility in global financial markets and altering the conduct of market participants. Political developments such as this could potentially disrupt the markets we serve and the tax jurisdictions in which we operate, and may cause us to lose customers, suppliers and employees, and adversely impact profitability.

International Operations — Our international operations subject us to various risks that could adversely affect our business operations and financial results.

We have operations throughout the world, including facilities located in emerging markets. In fiscal year 2019, approximately 70% of our sales revenue came from developed markets and 30% came from emerging markets. We expect to continue to expand our operations in the future, particularly in the emerging markets.

Management of global operations is extremely complex, particularly given the often substantial differences in the cultural, political and regulatory environments of the countries in which we operate. In addition, many of the countries in which we operate, including Argentina, Brazil, China and India and other emerging markets, have underdeveloped or developing legal, regulatory or political systems, which are subject to dynamic change and civil unrest.

The profitability of our operations may be adversely impacted by, among other things:

•
changes in applicable fiscal or regulatory regimes;
•
changes in, or difficulties in interpreting and complying with, local laws and regulations, including tax, labor, foreign investment and foreign exchange control laws;
•
nullification, modification or renegotiation of, or difficulties or delays in enforcing, contracts with clients or joint venture partners that are subject to local law;
•
reversal of current political, judicial or administrative policies encouraging foreign investment or foreign trade, or relating to the use of local agents, representatives or partners in the relevant jurisdictions; or
•
changes in exchange rates and inflation.

Further, sustained periods of legal, regulatory or political instability in the emerging markets in which we operate could have an adverse effect on our business, cash flow, financial condition and results of operations, which effect may be material.

The international scope of our operations, which includes limited sales of our products to entities located in countries subject to certain economic sanctions administered by the U.S. Office of Foreign Assets Control, the U.S. Department of State, the Australian Department of Foreign Affairs and Trade and other applicable national and supranational organizations (collectively, ‘‘Sanctions’’), and operations in certain countries that are from time to time subject to Sanctions, also requires us to maintain internal processes and control procedures. Failure to do so could result in breach by our employees of various laws and regulations, including those relating to money laundering, corruption, export control, fraud, bribery, insider trading, antitrust, competition and economic sanctions, whether due to a lack of integrity or awareness or otherwise. Any such breach could have an adverse effect on our financial condition and result in reputational damage to our business, which effect may be material.

Raw Materials — Price fluctuations or shortages in the availability of raw materials, energy and other inputs could adversely affect our business.

As a manufacturer of packaging products, our sales and profitability are dependent on the availability and cost of raw materials and labor and other inputs, including energy. All of the raw materials we use are purchased from third parties and our primary inputs include polymer resins and films, aluminum and fiber-based carton board. Prices for these raw materials are subject to substantial fluctuations that are beyond our control due to factors such as changing economic conditions, currency and commodity price fluctuations, resource availability, transportation costs, weather conditions and natural disasters, political unrest and instability, and other factors impacting supply and demand pressures. Increases in costs can have an adverse effect on our business and financial results. Although we seek to mitigate these risks through various strategies, including by entering into contracts with certain customers which permit certain price adjustments to reflect increased raw material costs or by otherwise seeking to increase our prices to offset increases in raw material costs, there is no guarantee that we will be able to anticipate or mitigate commodity and input price movements, there may be delays in adjusting prices to correspond with underlying raw material costs and any failure to anticipate or mitigate against such movements could have an adverse effect on our business, cash flow, financial condition and results of operations, which effect may be material.


12


Supply shortages or disruptions in our supply chains, including as a result of sourcing materials from a single supplier, could affect our ability to obtain timely delivery of raw materials, equipment and other supplies, and in turn, adversely affect our ability to supply products to our customers. Such disruptions could have an adverse effect on our business and financial results.

Commercial Risks — We are subject to production, supply and other commercial risks, including counterparty credit risks, which may be exacerbated in times of economic downturn.

We face a number of commercial risks, including (i) operational disruption, such as mechanical or technology failures, each of which could, in turn, lead to production loss and/or increased costs, (ii) shortages in manufacturing inputs due to the loss of key suppliers and (iii) risks associated with development projects (such as cost overruns and delays). In addition, many of the geographic areas where our production is located and where we conduct business may be affected by natural disasters, including earthquakes, snow storms, hurricanes, forest fires and flooding. Any unplanned plant downtime at any of our facilities would likely result in unabsorbed fixed costs that could negatively impact our results of operations for the period in which it experienced the downtime.

Additionally, the insolvency of, or contractual default by, any of our customers, suppliers and financial institutions, such as banks and insurance providers, may have a significant adverse effect on our operations and financial condition. Such risks are exacerbated in times of economic volatility, either globally or in the geographies and industries in which our customers operate. If a counterparty defaults on a payment obligation to us, we may be unable to collect the amounts owed and some or all of these outstanding amounts may need to be written off. If a counterparty becomes insolvent or is otherwise unable to meet its obligations in connection with a particular project, we may need to find a replacement to fulfill that party’s obligations or, alternatively, fulfill those obligations ourself, which is likely to be more expensive. The occurrence of any of these risks, including any default by our counterparties, could have an adverse effect on our business, cash flow, financial condition and results of operations, which effect may be material and result in a competitive disadvantage.

Information technology — A failure or disruption in our information technology systems could disrupt our operations, compromise customer, employee, vendor and other data and could negatively effect our business.

We rely on the successful and uninterrupted functioning of our information technology and control systems to securely manage operations and various business functions, and on various technologies to process, store and report information about our business, and to interact with customers, vendors and employees around the world. In addition, our information systems increasingly rely on cloud solutions which require different security measures. These measures cover technical changes to our network security, organization and governance changes as well as alignment of third party vendors on market standards. As with all large systems, our information technology systems may be susceptible to damage, disruption, information loss or shutdown due to power outages, failures during the process of upgrading or replacing software, hardware failures, computer viruses, cyber-attacks, catastrophic events, telecommunications failures, user errors, unauthorized access and malicious or accidental destruction or theft of information or functionality.

We also maintain and have access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations and customer controls. Despite our efforts to protect such information, our facilities and systems and those of our customers and third-party service providers may be vulnerable to security breaches, misplaced or lost data and programming and/or user errors that could lead to the compromising of sensitive, confidential or personal data or information. Information system damages, disruptions, shutdowns or compromises could result in production downtimes and operational disruptions, transaction errors, loss of customers and business opportunities, violation of privacy laws and legal liability, regulatory fines, penalties or intervention, negative publicity resulting in reputational damage, reimbursement or compensatory payments and other costs, any of which could have an adverse effect on our business, cash flow, financial condition and results of operations, which affect may be material and result in a competitive disadvantage. Although we attempt to mitigate these risks by employing a number of measures, our systems, networks, products, and services remain potentially vulnerable to advanced and persistent threats.

Attracting and retaining key personnel — If we are unable to attract and retain key personnel, we may be adversely affected.

Our continued success depends, in large part, on our ability to identify, attract, motivate, train and retain qualified personnel in key functions and geographic areas. Losing the services of key employees in any of our operations could make it difficult to meet our objectives. There can be no assurance we will be able to recruit, train, assimilate, motivate and retain employees in the future who actively promote and meet the standards of our culture.


13


Operational hazards — We are subject to costs and liabilities related to current and future environmental and health and safety laws and regulations that could adversely affect our business.

We are required to comply with environmental and health and safety laws, rules and regulations in each of the countries in which we do business. Many of our products come into contact with the food and beverages they package and therefore we are also subject to certain local and international standards related to such products. Compliance with these laws and regulations can require significant expenditure of financial and employee resources.

In addition, changes to such laws, regulations and standards are made or proposed regularly, and some of the proposals, if adopted, might, directly or indirectly, result in a material reduction in the operating results of one or more of our operating units. For instance, an increase in legislation with respect to litter related to plastic packaging or related recycling programs may cause legislators in some countries and regions in which our products are sold to consider banning or limiting certain packaging formats or materials. Additionally, increased regulation of emissions linked to climate change, including greenhouse gas (carbon) emissions and other climate-related regulations, could potentially increase the cost of our operations due to increased costs of compliance (which may not be recoverable through adjustment of prices), increased cost of fossil fuel inputs and increased cost of energy intensive raw material inputs. However, any such changes are uncertain, and we cannot predict the amount of additional capital expenses or operating expenses that would be necessary for compliance.

Federal, state, provincial, foreign and local environmental requirements relating to air, soil and water quality, handling, discharge, storage and disposal of a variety of substances and climate change are also significant factors in our business and changes to such requirements generally result in an increase to our costs of operations. We may be found to have environmental liability for the costs of remediating soil or water that is, or was, contaminated by us or a third party at various facilities we own, used or operate (including facilities that may be acquired by us in the future). Legal proceedings may result in the imposition of fines or penalties, as well as mandated remediation programs, that require substantial, and in some instances, unplanned capital expenditure.

The effects of climate change and greenhouse gas effects may adversely affect our business. A number of governmental bodies have introduced, or are contemplating introducing, regulatory change to address the impacts of climate change, which, where implemented, may have adverse impacts on our operations or financial results.

We have incurred in the past, and may incur in the future, fines, penalties and legal costs relating to environmental matters, and costs relating to the damage of natural resources, lost property values and toxic tort claims. Provisions are raised when it is considered probable that we have some liability. However, because the extent of potential environmental damage, and the extent of our liability for such damage, is usually difficult to assess and may only be ascertained over a long period of time, our actual liability in such cases may end up being substantially higher than the currently provisioned amount. Accordingly, additional charges could be incurred that would have an adverse effect on our operating results and financial position, which may be material.

Labor disputes — We are subject to the risk of labor disputes, which could adversely affect our business.

Although we have not experienced any significant labor disputes in recent years, there can be no assurance that we will not experience labor disputes in the future, including protests and strikes, which could disrupt our business operations and have an adverse effect on our business and results of operation. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain a satisfactory working relationship with our employees in the future.

Financial Risks

LIBOR Indexed Borrowings — Our financing agreements may need to be renegotiated if LIBOR ceases to exist.

A substantial portion of our borrowing capacity bears interest at a variable rate based on the London Interbank Offered Rate ("LIBOR"). In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements, backed by Treasury securities.

Certain of our financing agreements include language to determine a replacement rate for LIBOR, if necessary. However, if LIBOR ceases to exist, we may need to renegotiate some financing agreements extending beyond 2021 that utilize

14


LIBOR as a factor in determining the interest rate. We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate, however, we are not able to predict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such a possible transition to SOFR may be on our business, financial condition, and results of operations.

Exchange Rates — We are exposed to foreign exchange rate risk.

We are subject to foreign exchange rate risk, both transactional and translational, which may negatively affect our financial performance. Transactional foreign exchange exposures result from exchange rate fluctuations, including in respect of the U.S. dollar, the Euro, the Brazilian real, and other currencies in which our costs are denominated, which may affect our business input costs and proceeds from product sales. Translational foreign exchange exposures result from exchange rate fluctuations in the conversion of entity functional currencies to U.S. dollars, consistent with our reporting currency, and may affect the reported value of our assets and liabilities and our income and expenses. In particular, our translational exposure may be impacted by movements in the exchange rate between the Euro and the Brazilian Real against the U.S. dollar. The exchange rate has varied in recent years and is subject to further movement.

Exchange rates between transactional currencies may change rapidly. For instance, the peso, the real, the ruble and the yuan have experienced significant pressures as growth and other concerns have weighed on the Argentine, Brazilian, Russian and Chinese economies, respectively. To the extent currency depreciation continues across our business, we are likely to experience a lag in the timing to pass through U.S. dollar-denominated input costs across our business, which would adversely impact our margins and profitability. As such, we may be exposed to future exchange rate fluctuations, and such fluctuations could have an adverse effect on our reported cash flow, financial condition and results of operations, which effect may be material.

Interest rates — An increase in interest rates could reduce our reported results of operations.

At June 30, 2019, our variable rate borrowings approximated $4.0 billion (which includes $841.0 million fixed rate notes that have been effectively converted to variable rate debt through the use of a fixed to variable interest rate swap). Fluctuations in interest rates can increase borrowing costs and have an adverse impact on results of operations. Accordingly, increases in short-term interest rates will directly impact the amount of interest we pay. For each one percent increase in variable interest rates, our annual interest expense would increase by approximately $40.0 million on the $4.0 billion of variable rate debt outstanding as of June 30, 2019.

Credit rating — A downgrade in our credit rating could increase our borrowing costs and negatively affect our financial condition and results of operations.

In addition to using cash provided by operations, we regularly issue commercial paper to meet our short-term liquidity needs. Our credit ratings are important to our ability to issue commercial paper at favorable rates of interest. A downgrade in our credit rating could increase the cost of borrowing or the fees associated with our bank credit facility, or the credit spread incurred when issuing long-term debt in the capital markets.

Hedging — Failure to hedge effectively against adverse fluctuations in interest rates and foreign exchange rates could negatively impact our results of operations.

We are subject to the risk of rising interest rates associated with borrowing on a floating-rate basis as well as unfavorable fluctuations in foreign exchange rates. Our board of directors has approved a hedging policy to manage the risk of rising interest rates. The level of hedging activity undertaken may change from time to time and we may elect to change our hedging policy at any time. If our hedges are not effective in mitigating our interest rate risk and foreign exchange rate risks, if we are under-hedged or if a hedge provider defaults on our obligations under hedging arrangements, it could have an adverse effect on our business, cash flow, financial condition and results of operations.

Goodwill and other intangible assets — A significant write-down of goodwill and/or other intangible assets would have a material adverse effect on our reported results of operations and net worth.

We review our goodwill balance for impairment at least once a year using the business valuation methods allowed in accordance with current accounting standards. These methods include the use of a weighted-average cost of capital to calculate the present value of the expected future cash flows of our reporting units. Future changes in the cost of capital, expected cash flows, or other factors may cause our goodwill and/or other intangible assets to be impaired, resulting in a non-cash charge against results of operations to write down these assets for the amount of the impairment. In addition, if we make changes in

15


our business strategy or if external conditions adversely affect our business operations, we may be required to record an impairment charge for goodwill or intangibles, which would lead to decreased assets and reduced net operating results. If a significant write down is required, the charge would have a material adverse effect on our reported results of operations and net worth. We have identified the valuation of intangible assets and goodwill as a critical accounting estimate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Judgments—Intangible assets and goodwill” included in Item 7 of this Annual Report on Form 10-K.

Financial Controls and Reporting Systems — Significant demands will be placed on our financial controls and reporting systems as a result of the acquisition of Bemis.

There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with our acquisition of Bemis and significant demands will be placed on our managerial, operational and financial personnel and systems. Our future operating results may be affected by the ability of our officers and key employees to manage changing business conditions and to implement, expand and revise our operational and financial controls and reporting systems in response to the transaction. For example, while Bemis prepared its financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), we have historically prepared our financial statements in accordance with Australian Accounting Standards ("AAS") and the combined company will now prepare financial statements in accordance with U.S. GAAP. The revisions required to consolidate the financial reporting system and to switch reporting systems to U.S. GAAP has placed significant demands on our financial controls and reporting systems.

Furthermore, we are required to comply with different rules and regulations from those that previously applied to us, including the rules and regulations of the SEC, the reporting requirements of the Securities Exchange Act of 1934, the listed rules of the New York Stock Exchange and the application of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). Complying with the applicable rules and regulations has and will result in an increase in legal and financial compliance costs and also has made certain activities more time-consuming and costly.
    
Internal Controls — If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

As a newly listed NYSE public company, we have elected the transition period for compliance with Section 404 of the Sarbanes-Oxley Act. Section 404 requires us to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, during our transition period, we are exempted from compliance with Section 404. We are exempt from Section 404 compliance until we file our second Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Amcor Limited was required to comply with reporting obligations in Australia including the preparation of its financial statements under AAS as adopted by the Australian Accounting Standards Board and other relevant companies law. Amcor Limited was not required to comply with U.S. GAAP. Following the consummation of the Bemis acquisition, we now prepare financial statements in accordance with U.S. GAAP. We identified two material weaknesses in our internal control over financial reporting during the conversion of our historical AAS financial statements to U.S. GAAP. The first material weakness was related to our lack of accounting staff and supervisory personnel with the appropriate level of experience in technical accounting in U.S. GAAP and disclosure and filing requirements of a U.S. domestic registrant. We are currently in the process of remediating this material weakness and have taken numerous steps to address the underlying causes of the material weakness. We have hired additional financial reporting personnel with U.S. GAAP technical accounting and financial reporting experience, aligned our accounting policies and procedures with U.S. GAAP, enhanced our internal review procedures during the financial close process, and begun technical training for accounting and finance personnel.

We also identified a second material weakness arising from deficiencies in the design and operating effectiveness of internal controls over the period end financial reporting process. Specifically, we did not design and maintain effective controls to verify that conflicting duties were appropriately segregated within key IT systems used in the preparation and reporting of financial information.


16


To address the second material weakness, we have commenced a process to (i) identify those internal controls requiring improved documentation of independent review over the completeness and accuracy of financial information under U.S. GAAP, (ii) implement enhanced standards designed to meet the requirements of the Sarbanes-Oxley Act, (iii) review the design of applicable internal controls and assess any required amendments and (iv) increase the training of accounting and finance staff in relevant areas.

We believe that these enhanced resources and processes, including the implementation of new mitigating controls, will effectively remediate the material weaknesses, but the material weaknesses will not be considered remediated until the revised controls operate for a sufficient period of time and we have concluded, through testing, that these controls are designed and operating effectively. If we are not able to comply with the requirements of Section 404 at the end of our transition period, or if we or our registered public accounting firm identify deficiencies in our internal control that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions by regulatory authorities, which would require additional financial and management resources.
    
Insurance — Our insurance policies, including our use of a captive insurance company, may not provide adequate protection against all of the risks we face.

We seek protection from a number of our key operational risk exposures through the purchase of insurance. A significant portion of our insurance is placed in the insurance market with third-party re-insurers. Our policies with such third-party re-insurers cover property damage and business interruption, public and products liability and directors' and officers' liability. Although Amcor believes the coverage provided by such policies is consistent with industry practice, they may not adequately cover certain risks and there is no guarantee that any claims made under such policies will ultimately be paid.

Additionally, Amcor retains a portion of Amcor's insurable risk through a captive insurance company, Amcor Insurances Pte Ltd, which is located in Singapore. Amcor's captive insurance company collects annual premiums from Amcor's business groups, and assumes specific risks relating to property damage, business interruption and liability claims. The captive insurance company may be required to make payment for insurance claims which exceed the captive's reserves, which could have an adverse effect on Amcor's business, cash flow, financial condition and results of operations.

Legal and Compliance Risks

Litigation — Litigation or regulatory developments could adversely affect our business operations and financial performance.

We are, and in the future will likely become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings arising out of the ordinary course of our business. Given our global footprint, we are exposed to more uncertainty regarding the regulatory environment. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is typically uncertain. Additionally, the possible outcomes of, or resolutions to, these proceedings could include adverse judgments or settlements, either of which could require substantial payments. See “Legal Proceedings" included in Item 3 of this Annual Report on Form 10-K.

Environmental, health, and safety regulations — Changing government regulations in environmental, health, and safety matters may adversely affect our company.

Numerous legislative and regulatory initiatives have been passed and anticipated in response to concerns about Greenhouse Gas emissions and climate change. We are a manufacturing entity that utilizes petrochemical-based raw materials to produce many of our products. Increased environmental legislation or regulation could result in higher costs for us in the form of higher raw material cost, as well as energy and freight costs. It is possible that certain materials might cease to be permitted to be used in our processes. We could also incur additional compliance costs for monitoring and reporting emissions and for maintaining permits. Additionally, a sizable portion of our business comes from healthcare packaging and food and beverage packaging, both highly regulated markets. If we fail to comply with these regulatory requirements, our results of operations could be adversely impacted.

Patents and proprietary technology — Our success is dependent on our ability to develop and successfully introduce new products and to develop, acquire and retain intellectual property rights.

Our success depends in large part on our proprietary technology. We rely on intellectual property rights, including patents, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish our proprietary rights. If we are unable to enforce our intellectual property rights, our competitive position may suffer. Our pending

17


patent applications, and our pending trademark registration applications, may not be allowed or competitors may challenge the validity or scope of our patents or trademarks. In addition, our patents, trademarks and other intellectual property rights may not provide us a significant competitive advantage. We may need to spend significant resources monitoring our intellectual property rights. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. Competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and our ability to enforce them may be unavailable or limited in some countries which could make it easier for competitors to capture market share and could result in lost revenues.

Risks Relating to Being a Jersey, Channel Islands Company Listing Ordinary Shares

Our ordinary shares are issued under the laws of Jersey, Channel Islands, which may not provide the level of legal certainty and transparency afforded by incorporation in a U.S. jurisdiction and which differ in some respects to the laws applicable to other U.S. corporations.

We are organized under the laws of Jersey, Channel Islands, a British crown dependency that is an island located off the coast of Normandy, France. Jersey is not a member of the European Union. Jersey, Channel Islands legislation regarding companies is largely based on English corporate law principles. The rights of holders of our ordinary shares are governed by Jersey law, including the Companies (Jersey) Law 1991, as amended, and by the Amcor Articles of Association. These rights differ in some respects from the rights of other shareholders in corporations incorporated in the United States. Further, there can be no assurance that the laws of Jersey, Channel Islands, will not change in the future or that they will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.

U.S. shareholders may not be able to enforce civil liabilities against us.

A significant portion of our assets are located outside of the United States and several of our directors and officers are citizens or residents of jurisdictions outside of the United States. As a result, it may be difficult for investors to effect service within the United States upon those directors and officers, or to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and our directors or officers under the U.S. federal securities laws.

Judgments of U.S. courts may not be directly enforceable outside of the U.S. and the enforcement of judgments of U.S. courts outside of the U.S., including those in Australia and Jersey, may be subject to limitations. Investors may also have difficulties pursuing an original action brought in a court in a jurisdiction outside the U.S., including Australia and Jersey, for liabilities under the securities laws of the U.S. Additionally, our Articles of Association provide that while the Royal Court of Jersey will have non-exclusive jurisdiction over actions brought against us, the Royal Court of Jersey will be the sole and exclusive forum for derivative shareholder actions, actions for breach of fiduciary duty by our directors and officers, actions arising out of Jersey Companies Law or actions asserting a claim against our directors or officers governed by the internal affairs doctrine. The exclusive forum provision would not prevent derivative shareholder actions based on claims arising under U.S. federal securities laws from being raised in a U.S. court and would not prevent a U.S. court from asserting jurisdiction over such claims. However, there is uncertainty whether a U.S. or Jersey court would enforce the exclusive forum provision for actions for breach of fiduciary duty and other claims.



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Item 1B. - Unresolved Staff Comments

None.


Item 2. - Properties

We consider our plants and other physical properties, whether owned or leased, to be suitable, adequate, and of sufficient productive capacity to meet the requirements of our business. The manufacturing plants operate at varying levels of utilization depending on the type of operation and market conditions. Properties utilized by us at June 30, 2019 were as follows:

Flexibles Segment

This segment has 190 manufacturing plants located in 38 countries, of which 129 are owned directly by us or our subsidiaries and 61 are leased from outside parties. Initial building lease terms typically provide for minimum terms in a range of one to 37 years and have one or more renewal options.

Rigid Packaging Segment

This segment has 60 manufacturing plants located in 12 countries, of which 8 are owned directly by us or our subsidiaries and 52 are leased from outside parties. Initial building lease terms typically provide for minimum terms in a range of two to 25 years and have one or more renewal options.

Corporate and General

Our principal executive offices are located in Zurich, Switzerland.


Item 3. - Legal Proceedings

Refer to Note 19, "Contingencies and Legal Proceedings," of the notes to consolidated financial statements for information about legal proceedings.


Item 4. - Mine Safety Disclosures

Not applicable.



19


PART II

Item 5. - Market for Registrant's Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our ordinary shares began trading on the New York Stock Exchange under the symbol AMCR on June 11, 2019 following the consummation of the Bemis acquisition. On June 30, 2019, there were 86,573 registered holders of record of our ordinary shares and CDIs.



20


Item 6. - Selected Financial Data

Five-Year Consolidated Review of Selected Financial Data
 
 
Years ended June 30,
(dollars in millions, except per share amounts)
 
2019 (1)
 
2018
 
2017
 
2016
 
2015
Selected Consolidated Income Statement Data
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
9,458.2

 
$
9,319.1

 
$
9,101.0

 
$
9,421.3

 
$
9,611.8

Operating income
 
791.7

 
993.9

 
916.1

 
589.1

 
1,008.7

Income from continuing operations
 
436.7

 
586.6

 
581.0

 
305.0

 
575.6

Net income attributable to Amcor plc
 
430.2

 
575.2

 
564.0

 
309.3

 
549.7

 
 
 
 
 
 
 
 
 
 
 
Selected Consolidated Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
601.6

 
620.8

 
561.5

 
515.7

 
477.1

Total assets
 
17,165.0

 
9,057.5

 
9,087.0

 
8,531.8

 
8,289.1

Long-term debt (including capital lease obligations)
 
5,314.4

 
3,674.5

 
3,831.6

 
3,754.3

 
2,741.0

Total shareholder' equity
 
5,674.7

 
695.4

 
587.6

 
528.5

 
1,262.9

 
 
 
 
 
 
 
 
 
 
 
Selected Per Share Data
 
 
 
 
 
 
 
 
 
 
Basic earnings per share from continuing operations
 
0.36

 
0.50

 
0.49

 
0.27

 
0.46

Diluted earnings per share from continuing operations
 
0.36

 
0.49

 
0.48

 
0.26

 
0.45

Dividends per share (2)
 
0.58

 
0.45

 
0.42

 
0.40

 
0.40

 
 
 
 
 
 
 
 
 
 
 
Other Operating Data
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
332.2

 
365.0

 
379.3

 
346.7

 
302.9

Depreciation and amortization
 
349.7

 
352.7

 
351.8

 
351.0

 
353.9

(1)
Fiscal year 2019 reflects the results of Amcor plc, including Bemis results since the acquisition date of June 11, 2019. The historical periods solely reflect the results of Amcor Limited.
(2)
Fiscal year 2019 dividends per share include dividends of $0.24 and $0.22 per share declared in October 2018 and April 2019, respectively, along with a pro-rata dividend of $0.12 per share declared in May 2019.  The May 2019 dividend was declared to align the period over which dividends had been paid to Amcor and Bemis shareholders prior to completion of the acquisition.



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Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations

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.


Three Year Review of Results
(dollars in millions, except per share amounts)
 
2019
 
2018
 
2017
Net sales
 
$
9,458.2

 
100.0
 %
 
$
9,319.1

 
100.0
 %
 
$
9,101.0

 
100.0
 %
Cost of Sales
 
(7,659.1
)
 
(81.0
)
 
(7,462.3
)
 
(80.1
)
 
(7,189.2
)
 
(79.0
)
 
 
 
 


 
 
 
 
 
 
 


Gross profit
 
1,799.1

 
19.0

 
1,856.8

 
19.9

 
1,911.8

 
21.0

 
 
 
 


 
 
 


 
 
 


Operating expenses:
 
 
 


 
 
 


 
 
 


Selling, general, and administrative expenses
 
(999.0
)
 
(10.6
)
 
(793.2
)
 
(8.5
)
 
(850.2
)
 
(9.3
)
Research and development expenses
 
(64.0
)
 
(0.7
)
 
(72.7
)
 
(0.8
)
 
(69.1
)
 
(0.8
)
Restructuring and related expenses
 
(130.8
)
 
(1.4
)
 
(40.2
)
 
(0.4
)
 
(143.2
)
 
(1.6
)
Other income, net
 
186.4

 
2.0

 
43.2

 
0.5

 
66.8

 
0.7

 
 
 
 


 
 
 


 
 
 


Operating income
 
791.7

 
8.4

 
993.9

 
10.7

 
916.1

 
10.1

 
 
 
 


 
 
 


 
 
 


Interest income
 
16.8

 
0.2

 
13.1

 
0.1

 
12.2

 
0.1

Interest expense
 
(207.9
)
 
(2.2
)
 
(210.0
)
 
(2.3
)
 
(190.9
)
 
(2.1
)
Other non-operating income (loss), net
 
3.5

 
—

 
(74.1
)
 
(0.8
)
 
(21.6
)
 
(0.2
)
 
 
 
 


 
 
 


 
 
 


Income from continuing operations before income taxes and equity in income (loss) of affiliated companies
 
604.1

 
6.4

 
722.9

 
7.8

 
715.8

 
7.9

 
 
 
 


 
 
 


 
 
 


Income tax expense
 
(171.5
)
 
(1.8
)
 
(118.8
)
 
(1.3
)
 
(148.9
)
 
(1.6
)
Equity in income (loss) of affiliated companies
 
4.1

 
—

 
(17.5
)
 
(0.2
)
 
14.1

 
0.2

 
 
 
 


 
 
 


 
 
 


Income from continuing operations
 
436.7

 
4.6

 
586.6

 
6.3

 
581.0

 
6.4

 
 
 
 


 
 
 


 
 
 


Income (loss) from discontinued operations
 
0.7

 
—

 
—

 
—

 
—

 
—

 
 
 
 


 
 
 


 
 
 


Net income
 
$
437.4

 
4.6
 %
 
$
586.6

 
6.3
 %
 
$
581.0

 
6.4
 %
 
 
 
 


 
 
 


 
 
 


Net (income) loss attributable to non-controlling interests
 
(7.2
)
 
(0.1
)
 
(11.4
)
 
(0.1
)
 
(17.0
)
 
(0.2
)
 
 
 
 


 
 
 


 
 
 


Net income attributable to Amcor plc
 
$
430.2

 
4.5
 %
 
$
575.2

 
6.2
 %
 
$
564.0

 
6.2
 %


22


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 Bemis Company, Inc.

On June 11, 2019, the Company completed the acquisition of 100% of the outstanding shares of Bemis Company, Inc ("Bemis"), a global manufacturer of flexible packaging products based in the 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, we initiated restructuring activities in the fourth quarter of 2019 aimed at integrating and optimizing the combined organization. As previously announced, we continue 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 total cash costs are estimated at $150 million with estimated total pre-tax costs of $200 million. The 2019 Bemis Integration Plan is expected to be completed by the end of fiscal year 2022. There were no cash payments associated with the plan in fiscal year 2019.
    
In the fourth quarter of 2019, we incurred $47.9 million of pre-tax restructuring expenses related to this Plan, primarily related to employee termination costs. Initial actions include the planned closure of three sites. We expect to finalize the major components of the Plan by the end of the second quarter of fiscal year 2020.

Other Restructuring Plans

On August 21, 2018, the Company announced a restructuring program in our Rigid Packaging reporting segment aimed at reducing structural costs and optimizing the footprint ("2018 Rigid Packaging Restructuring Plan"). The program includes the closure of manufacturing facilities and headcount reductions to achieve manufacturing footprint optimization and productivity improvements as well as overhead cost reductions.

The Company's total pre-tax restructuring costs are expected to be approximately $95.0 million with the main component being the cost to exit manufacturing facilities and employee related costs. The total plan cost has been increased by approximately $25.0 million in the fourth quarter due to additional opportunities that have been identified. The Company estimates that approximately $65.0 million of the $95.0 million total costs will result in cash expenditures. Cash payments in the twelve months ended June 30, 2019 were $30.3 million. The 2018 Rigid Packaging Restructuring Plan is expected to be completed in fiscal year 2020.

On June 9, 2016, the Company announced a major initiative ("2016 Flexibles Restructuring Plan") to optimize the cost base and drive earnings growth in the Flexibles segment. This initiative was designed to accelerate the pace of adapting the organization within developed markets through footprint optimization to better align capacity with demand, increase utilization and improve the cost base and streamlining the organization and reducing complexity, particularly in Europe, to enable greater customer focus and speed to market.

As part of the 2016 Flexibles Restructuring Plan, the Company has closed eight manufacturing facilities and reduced headcount at certain facilities. The Company's total pre-tax restructuring costs were approximately $230.8 million, with approximately $166.7 million in employee termination costs, $31.4 million in fixed asset impairment costs and $32.7 million in other costs, which primarily represent the cost to dismantle equipment and terminate existing lease contracts. The Company estimates that approximately $166.2 million of the $230.8 million total costs have resulted in cash expenditures. Cash payments in the twelve months ended June 30, 2019 were $14.4 million. The Plan is substantially completed by the end of the fiscal year ending June 30, 2019.

Impairment in Equity Method Investment


23


Due to impairment indicators present for the years ended June 30, 2019, 2018 and 2017, the Company performed impairment tests by comparing the carrying value of its investment in AMVIG Holdings Limited ("AMVIG") at the end of each period, including interim periods, to the fair value of the investment, which was determined based on AMVIG's quoted share price. The Company recorded impairment charges in fiscal years 2019 and 2018 of $14.0 million and $36.5 million, respectively, as the fair value of the investment was below its carrying value. The Company did not record an impairment charge in 2017 as the fair value of the investment was above its carrying value. Refer to Note 7, "Equity Method Investments" for more information about the Company's equity method investments.

High Inflation Accounting

The Company has subsidiaries in Argentina that historically had a functional currency of the Argentine Peso. As of June 30, 2018, the Argentine economy was designated as highly inflationary for accounting purposes. Accordingly, beginning July 1, 2018, the Company began reporting the financial results of its Argentinean subsidiaries with a functional currency of the Argentine Peso at the functional currency of the parent, which is the U.S. dollar. The transition to highly inflationary accounting resulted in a negative impact of $30.2 million that was reflected on the consolidated statement of income for the year ended June 30, 2019.

Results of Operations

Consolidated Results of Operations
(in millions)
 
2019
 
2018
 
2017
Net sales
 
$
9,458.2

 
$
9,319.1

 
$
9,101.0

Operating income
 
791.7

 
993.9

 
916.1

Operating profit as a percentage of net sales
 
8.4
%

10.7
%

10.1
%
 
 
 
 
 
 
 
Net income attributable to Amcor plc
 
$
430.2

 
$
575.2

 
$
564.0

Diluted EPS
 
$
0.36

 
$
0.49

 
$
0.48


2019 versus 2018

Net sales increased $139.1 million, or 1.5%, to $9.5 billion for the fiscal year 2019, from $9.3 billion for the fiscal year 2018. The impact of currency translation resulted in a decrease of $368.9 million or 4.0%, somewhat offset by Bemis sales for the partial month of June of $215.4 million. The growth in the legacy Amcor net sales revenue excluding currency impact of $292.6m or 3.1% was driven largely by favorable pricing of 2.3%, mainly from passing through higher raw material costs and inflation related costs in both the Flexibles and Rigid Packaging reporting segments and volume/mix impacts of 0.8%.

Net income attributable to Amcor plc decreased by $145.0 million, or 25.2%, to $430.2 million for the fiscal year 2019, from $575.2 million for the fiscal year 2018. Net income for fiscal year 2019 was impacted by material acquisitions and other costs of $143.1 million, Rigid Packaging reporting segment restructuring expense of $64.1 million, highly inflationary accounting impacts of $30.2 million and other non-recurring items. Adjusted net income of $729.5 million excluding these non-recurring items was up 4.6% on a reported basis and 9% after excluding the impact of currency.

Diluted EPS decreased to $0.36 for the fiscal year 2019, from $0.49 for the fiscal year 2018, with net income attributable to ordinary shareholders decreasing 25.2% and the diluted weighted average number of shares outstanding increased 1.9%. EPS was impacted by the after tax impact of the non-recurring items referred to above.

2018 versus 2017

Net sales increased $218.1 million, or 2.4%, to $9.3 billion for the fiscal year 2018, from $9.1 billion for the fiscal year 2017. The impact of currency translation resulted in an increase of $275.1 million, or 3.0%, compared to fiscal year 2017.
The decrease in net sales revenue excluding currency impact $57.0 million, or 0.6%, was driven largely by a 2.1% reduction in volume/mix, mainly in the Rigid Packaging reporting segment, partially offset by favorable pricing of 0.6%, mainly from passing through higher raw material costs in both the Flexibles and Rigid Packaging reporting segments and benefits from acquisitions in the Rigid Packaging reporting segment of 0.6%.


24


Net income attributable to Amcor plc increased by $11.2 million, or 2.0%, to $575.2 million for the fiscal year 2018, from $564.0 million for the fiscal year 2017 as a result of the factors discussed in the preceding paragraph. Currency impacts on translating operating income were positive.

Diluted EPS increased to $0.49 for fiscal year 2018, from $0.48 for fiscal year 2017, with the net income attributable to ordinary shareholders increasing by 2.0% and the diluted weighted average number of shares outstanding decreasing 0.2% year-over-year.

Segment Results of Operations

Flexibles Segment

Our Flexibles reporting segment develops and supplies flexible packaging globally.
(in millions)
 
2019
 
2018
 
2017
Net sales including intersegment sales
 
$
6,566.7

 
$
6,534.6

 
$
6,226.5

Adjusted EBIT
 
817.2

 
801.3

 
791.8

Adjusted EBIT as a percentage of net sales
 
12.4
%
 
12.3
%
 
12.7
%

2019 versus 2018

Net sales including intersegment sales increased $32.1 million, or 0.5%, to $6.6 billion for fiscal year 2019, from $6.5 billion for fiscal year 2018. The impact of currency translation caused a decrease of $319.9 million or 4.9% compared to fiscal year 2018 somewhat offset by Bemis sales for the partial month of June of $215.4 million. The growth in the legacy Amcor net sales revenue excluding currency impact of $136.6m or 2.1% was driven largely by price increases of 1.2%, mainly from passing through higher raw material costs and inflation related costs and volume/mix of 0.9%.

Adjusted earnings before interest and tax ("EBIT") for the fiscal year 2019 increased $15.9 million, or 2.0% to $817.2 million from $801.3 million for the fiscal year 2018. The impact of currency translation resulted in a decrease of $37.9 million or 4.7%, and the Bemis adjusted EBIT since the date of acquisition contributed $25.5 million. The growth in the legacy Amcor adjusted EBIT excluding currency impact of $28.3m or 3.5% was driven largely by cost improvements including restructuring benefits of 2.6%, legacy acquisitions benefits of 1.3% slightly offset by other net impacts of (0.4%).

2018 versus 2017

Net sales including intersegment sales increased $308.1 million, or 4.9%, to $6.5 billion for fiscal year 2018, from $6.2 billion for fiscal year 2017. The impact of currency translation caused an increase of $312.3 million or 5.0% compared to fiscal year 2017. The decrease in sales excluding currency impacts of $4.2 million, or 0.1%, was driven by minor volume/mix impacts of (0.1%) across the reporting segment, with pricing and other factors flat in the year.

Adjusted EBIT increased $9.5, or 1.2%, to $801.3 million for the fiscal year 2018, from $791.8 million for fiscal year 2017.

Rigid Packaging Segment

Our Rigid Packaging reporting segment is one of the world's largest manufacturers of rigid plastic containers and related products.
(in millions)
 
2019
 
2018
 
2017
Net sales including intersegment sales
 
$
2,892.7

 
$
2,787.5

 
$
2,876.7

Adjusted EBIT
 
308.2

 
298.3

 
341.0

Adjusted EBIT as a percentage of net sales
 
10.7
%
 
10.7
%
 
11.9
%

2019 versus 2018

Net sales including intersegment sales increased $105.2 million, or 3.8%, to $2.9 billion for fiscal year 2019, from $2.8 billion for fiscal year 2018. The impact of currency translation caused a decrease of $45.7 million or 1.6% compared to

25


fiscal year 2018. The growth in net sales revenue excluding currency impact of $150.9m or 5.4% was driven largely by price increases of 4.7%, mainly from passing through higher raw material costs and inflation related costs and volume/mix of 0.7%.

Adjusted EBIT for the fiscal year 2019 increased $9.9 million or 3.3% to $308.2 million for the fiscal year 2019 from $298.3 million for the fiscal year 2018. The impact of currency translation resulted in a decrease of $4.5 million or 1.5%. The growth in the adjusted EBIT excluding currency impact of $14.4 million or 4.8% was largely driven by restructuring benefits of 2.6% and volume/mix and other net impacts of 2.2%.

2018 versus 2017

Net sales including intersegment sales decreased by $89.2 million, or 3.1%, to $2.8 billion for fiscal year 2018, from $2.9 billion for fiscal year 2017. The impact of currency translation caused a decrease of $37.2 million, or 1.3%, compared to fiscal year 2017. The decrease in sales excluding currency impacts of $52.0 million, or 1.8%, was driven by reduced volume/mix due to market softness, customer mix and customer inventory actions of (6.4%), partially offset by increased sales from acquisitions of 2.5%, including the Sonoco acquisition, and favorable pricing mainly from passing through higher raw material costs of 2.0%.

Adjusted EBIT decreased $42.7 million, or 12.5%, to $298.3 million for the fiscal year 2018, from $341.0 for the fiscal year 2017.

Consolidated Gross Profit
(in millions)
 
2019
 
2018
 
2017
Gross profit
 
$
1,799.1

 
$
1,856.8

 
$
1,911.8

Gross profit as a percentage of net sales
 
19.0
%
 
19.9
%
 
21.0
%

Gross profit decreased by $57.7 million, or 3.1%, to $1.8 billion for fiscal year 2019, from $1.9 billion for fiscal year 2018. The decrease was primarily driven by unfavorable foreign exchange of $103 million partially offset by increased volumes, timing of raw material price recovery in the Flexibles reporting segment and reduced operating costs in the plants, particularly in the Flexibles reporting segment.

Gross profit decreased by $55.0 million, or 2.9%, to $1.9 billion for fiscal year 2018, from $1.9 billion for fiscal year 2017. The decrease was primarily driven by the impact of reduced volumes, particularly in the Rigid Packaging reporting segment, and the timing of higher raw material price recovery in the Flexibles reporting segment and reduced operating costs.

Consolidated Selling, General and Administrative ("SG&A") Expense
(in millions)
 
2019
 
2018
 
2017
SG&A expenses
 
$
(999.0
)
 
$
(793.2
)
 
$
(850.2
)
SG&A expenses as a percentage of net sales
 
(10.6
)%
 
(8.5
)%
 
(9.3
)%

Sales, general and administrative expenses increased by $205.8 million, or 25.9%, to $999.0 million for fiscal year 2019, from $793.2 million for fiscal year 2018. The increase was largely related to Bemis transaction related costs with some offset from restructuring activity SG&A savings and other group initiatives.

Sales, general and administrative expenses decreased by $57 million, or 6.7%, to $793.2 million for fiscal year 2018, from $850.2 million for fiscal year 2017. The decrease was evident both in the Rigid Packaging reporting segment and the Flexibles reporting segment and primarily driven by year-over-year restructuring and cost saving initiatives.

Consolidated Research and Development ("R&D") Expense
(in millions)
 
2019
 
2018
 
2017
R&D expenses
 
$
(64.0
)
 
$
(72.7
)
 
$
(69.1
)
R&D expenses as a percentage of net sales
 
(0.7
)%
 
(0.8
)%
 
(0.8
)%


26


Research and development costs decreased by $8.7 million, or 12.0%, to $64.0 million for fiscal year 2019, from $72.7 million for fiscal year 2018. The decrease is primarily related to foreign exchange movements and timing of project expenses.

Research and development costs remained relatively stable at $72.7 million for fiscal year 2018 compared to $69.1 million for fiscal year 2017.

Consolidated Restructuring and Related Expense
(in millions)
 
2019
 
2018
 
2017
Restructuring and related expenses
 
$
(130.8
)
 
$
(40.2
)
 
$
(143.2
)
Restructuring and related expenses as a percentage of net sales
 
(1.4
)%
 
(0.4
)%
 
(1.6
)%

Restructuring and related costs increased by $90.6 million to $130.8 million for fiscal year 2019, from $40.2 million for fiscal year 2018. The increase was primarily driven by $64.1 million and $47.9 million of spend related to the 2018 Rigid Packaging Restructuring Plan and 2019 Bemis Integration Plan, respectively.

Restructuring and related costs decreased by $103.0 million, or 71.9%, to $40.2 million for fiscal year 2018, from $143.2 million for fiscal year 2017. The decrease was primarily driven by lower spend on the 2016 Flexibles Restructuring Plan in fiscal year 2018 of $14.4 million compared to $135.4 million in fiscal year 2017 as the restructuring program was winding down.

Consolidated Other Income, Net
(in millions)
 
2019
 
2018
 
2017
Other income, net
 
$
186.4

 
$
43.2

 
$
66.8

Other income, net, as a percentage of net sales
 
2.0
%
 
0.5
%
 
0.7
%

Other income, net increased by $143.2 million to $186.4 million for fiscal year 2019, from $43.2 million for fiscal year 2018. The increase was primarily driven by the gain of $159.1 million in relation to the sale of three Amcor medical packaging facilities in the United States ("U.S. Remedy") related to the Bemis acquisition.

Other income, net decreased by $23.6 million, or 35.3%, to $43.2 million for fiscal year 2018, from $66.8 million for fiscal year 2017. The decrease was primarily driven by the non-recurrence in 2018 of a bargain purchase gain and re-measurement gain on purchase of the remaining 50% of Discma AG in the amount of $22.3 million recognized for fiscal year 2017.

Consolidated Interest Income
(in millions)
 
2019
 
2018
 
2017
Interest income
 
$
16.8

 
$
13.1

 
$
12.2

Interest income as a percentage of net sales
 
0.2
%
 
0.1
%
 
0.1
%

Interest income increased by $3.7 million, or 28.2%, to $16.8 million for fiscal year 2019, from $13.1 million for fiscal year 2018. Increase is primarily attributed to an increase in variable interest rates in fiscal year 2019.

Interest income remained relatively stable at $13.1 million for fiscal year 2018, compared to $12.2 million for fiscal year 2017.

Consolidated Interest Expense
(in millions)
 
2019
 
2018
 
2017
Interest expense
 
$
(207.9
)
 
$
(210.0
)
 
$
(190.9
)
Interest expense as a percentage of net sales
 
(2.2
)%
 
(2.3
)%
 
(2.1
)%

Interest expense remained relatively stable at $207.9 million for fiscal year 2019 compared to $210.0 million for fiscal year 2018.

27



Interest expense increased by $19.1 million, or 10.0%, to $210.0 million for fiscal year 2018, from $190.9 million for fiscal year 2017. The increase was primarily driven by the increase in the average U.S. dollar LIBOR rate on U.S. floating dollar denominated debt.

Consolidated Other Non-Operating Income (Loss), Net
(in millions)
 
2019
 
2018
 
2017
Other non-operating income (loss), net
 
$
3.5

 
$
(74.1
)
 
$
(21.6
)
Other non-operating income (loss), net, as a percentage of net sales
 
0.0%

 
(0.8
)%
 
(0.2
)%

Other non-operating income, net increased by $77.6 million, or 104.7%, to $3.5 million for fiscal year 2019, from an other non-operating loss, net of $74.1 million for fiscal year 2018. The increase was primarily driven by the non-recurrence of the unwind of net investment hedge activities not deemed to be effective net investment hedging instruments under U.S. GAAP.

Other non-operating losses, net increased by $52.5 million, or 243.1%, to $74.1 million for fiscal year 2018, from $21.6 million for fiscal year 2017. The increase was primarily driven by the foreign exchange rate movements on external loans not deemed to be effective net investment hedging instruments under U.S. GAAP.

Consolidated Income Tax Expense
(in millions)
 
2019
 
2018
 
2017
Income tax expense
 
$
(171.5
)
 
$
(118.8
)
 
$
(148.9
)
Effective tax rate
 
28.4
%
 
16.4
%
 
20.8
%

Income tax expense increased by $52.7 million, or 44.4%, to $171.5 million for fiscal year 2019, from $118.8 million for fiscal year 2018. Income tax expense for fiscal year 2019 includes an impact from the anti-trust remedies the company had to take for the regulators to approve the merger with Bemis. The increase in the effective tax rate for 2019 largely reflects the non-deductibility of transaction costs that are capital in nature and the taxation of the U.S. Remedy sale.

Presentation of Non-GAAP Information

This Annual Report on Form 10-K refers to non-GAAP financial measures: adjusted earnings before interest and taxes ("EBIT") from continuing operations, adjusted net income and net debt.

This adjusted information should not be construed as an alternative to results determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Amcor's management uses the non-GAAP measures to evaluate operating performance and believes that these non-GAAP measures are useful to enable investors to perform comparisons of current and historical performance of the Company.


28


A reconciliation of reported net income attributable to Amcor plc to adjusted EBIT from continuing operations and adjusted net income for fiscal years 2019, 2018 and 2017 follows:
 
 
For the years ended June 30,
(in millions)
 
2019
 
2018
 
2017
Net income attributable to Amcor plc, as reported
 
$
430.2

 
$
575.2

 
$
564.0

Add: Net income (loss) attributable to non controlling interests
 
7.2

 
11.4

 
17.0

Less: Income (loss) from discontinued operations, net of tax
 
(0.7
)
 
—

 
—

Net income
 
436.7


586.6


581.0

Add: Income tax expense
 
171.5

 
118.8

 
148.9

Add: Interest expense
 
207.9

 
210.0

 
190.9

Less: Interest income
 
(16.8
)
 
(13.1
)
 
(12.2
)
EBIT from continuing operations
 
799.3


902.3


908.6

Add: Material restructuring programs (1)
 
64.1

 
14.4

 
135.4

Add: Impairments in equity method investments (2)
 
14.0

 
36.5

 
—

Add: Material acquisition costs and other (3)
 
143.1

 
—

 
—

Add: Amortization of acquired intangible assets from business combinations (4)
 
31.1

 
19.3

 
17.7

Add/(Less): Economic net investment hedging activities not qualifying for hedge accounting (5)
 
(1.4
)
 
83.9

 
(38.0
)
Add: Impact of hyperinflation (6)
 
30.2

 
—

 
—

Add: Material impact of pension settlements (7)
 
—

 
—

 
55.5

Less: Net legal settlements (8)
 
(5.0
)
 
—

 
—

Adjusted EBIT from continuing operations
 
1,075.4

 
1,056.4

 
1,079.2

Less: Income tax expense
 
(171.5
)
 
(118.8
)
 
(148.9
)
Add: Adjustments to income tax expense (9)
 
23.2

 
(32.0
)
 
(34.4
)
Less: Interest expense
 
(207.9
)
 
(210.0
)
 
(190.9
)
Add: Interest income
 
16.8

 
13.1

 
12.2

Add: Income (loss) from discontinued operations, net of tax
 
0.7

 
—

 
—

Less: Net (income) loss attributable to non-controlling interests
 
(7.2
)
 
(11.4
)
 
(17.0
)
Adjusted net income
 
$
729.5

 
$
697.3

 
$
700.2

(1)
Material restructuring programs includes the 2018 Rigid Packaging Restructuring Plan for fiscal year 2019 and the 2016 Flexibles Restructuring Plan for fiscal years 2017 and 2018. Refer to Note 6, "Restructuring Plans," for more information about the Company's restructuring plans.
(2)
Impairments in equity method investments includes the impairment charges related to other-than-temporary impairments related to the investment in AMVIG. Refer to Note 7, "Equity Method Investments" for more information about the Company's equity method investments.
(3)
Material acquisition costs and other includes $47.9 million of costs related to the 2019 Bemis Integration Plan, $15.6 million of Bemis acquisition related inventory fair value step-up, $42.5 million of long-lived asset impairments, $133.7 million of Bemis transaction-related costs, partially offset by $96.5 million of gain related to the U.S. Remedy sale net of related and other costs.
(4)
Amortization of acquired intangible assets from business combinations includes amortization expenses related to all acquired intangible assets from prior acquisitions impacting the periods presented.
(5)
Economic net investment hedging activities not qualifying for hedge accounting includes the exchange rate movements on external loans not deemed to be effective net investment hedging instruments resulting from the Company's conversion to U.S. GAAP from Australian Accounting Standards ("AAS") recognized in other non-operating income (loss), net.
(6)
Impact of hyperinflation includes the adverse impact of highly inflationary accounting for subsidiaries in Argentina where the functional currency was the Argentine Peso.
(7)
Material impact of pensions settlements includes the amount of actuarial losses recognized in the consolidated income statement related to the settlement of certain Swiss defined benefit plans in the amount of $55.5 million for the year ended June 30, 2017, not including related tax effects. 
(8)
Net legal settlements includes the impact of significant legal settlements after associated costs.
(9)
Net tax impact on items (1) through (8) above.


29


Reconciliation of Net Debt

A reconciliation of total debt to net debt at June 30, 2019 and 2018 follows:
(in millions)
 
June 30, 2019
 
June 30, 2018
Current portion of long-term debt
 
$
5.4

 
$
984.1

Short-term borrowings
 
788.8

 
1,173.8

Long-term debt, less current portion
 
5,309.0

 
2,690.4

Total debt
 
6,103.2

 
4,848.3

Less cash and cash equivalents
 
601.6

 
620.8

Net debt
 
$
5,501.6

 
$
4,227.5


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. Based on our current cash flow from operating activities and available cash, we believe our cash flows provided by operating activities, together with borrowings available under our credit facilities, will provide sufficient liquidity to fund our operations, capital expenditures and other commitments.

Overview
 
 
Year Ended June 30,
 
 
 
 
(in millions)
 
2019
 
2018
 
2017
 
Change 2019 vs. 2018
 
Change 2018 vs. 2017
Cash flow from operating activities
 
$
776.1

 
$
871.4

 
908.9

 
(95.3
)
 
(37.5
)
Cash flow from investing activities
 
10.2

 
(241.9
)
 
(632.0
)
 
252.1

 
390.1

Cash flow from financing activities
 
(764.9
)
 
(542.7
)
 
(223.0
)
 
(222.2
)
 
(319.7
)

Cash Flow Overview

Cash Flow from Operating Activities

Net cash inflows provided by operating activities decreased by $95.3 million, or 10.9%, to $776.1 million for fiscal year 2019, from $871.4 million for fiscal year 2018. This decrease was primarily driven by Bemis transaction related costs partially offset by working capital improvements.

Net cash inflows provided by operating activities decreased by $37.5 million, or 4.1%, to $871.4 million for fiscal year 2018. This decrease was primarily due to a cash outflow in working capital of $122.5 million in 2018 compared to a cash outflow of $51.0 million in fiscal year 2017.

Cash Flow from Investing Activities

Net cash inflows provided by investing activities increased by $252.1 million, or 104.2%, to $10.2 million for fiscal year 2019, from net cash outflows used by investing activities of $241.9 million for fiscal year 2018. This increase was from proceeds from sale of affiliated companies and subsidiaries of $216.3 million, which primarily related to the cash proceeds of the U.S. Remedy.

Capital expenditures were $332.2 million for fiscal year 2019, a decrease of $32.8 million compared to $365.0 million for fiscal year 2018. The decrease in capital expenditures was primarily the result of general capital expenditure decreases across both the Flexibles and Rigid Packaging Segments.

Net cash outflows used in investing activities decreased by $390.1 million, or 61.7%, to $241.9 million for fiscal year 2018, from $632.0 million for fiscal year 2017. This decrease was primarily due to a decrease in payments for acquisitions of

30


businesses ($0.0 million in fiscal year 2018 compared to $335.6 million in fiscal year 2017) in addition to higher proceeds from sales of property, plant and equipment and other intangible assets ($137.0 million in fiscal year 2018 compared to $82.9 million in fiscal year 2017).

Capital expenditures were $365.0 million for fiscal year 2018, a decrease of $14.3 million compared to $379.3 million for fiscal year 2017. The decrease in capital expenditures was primarily the result of a decrease in the amount spent on greenfield plants, partially offset by full year impacts of acquisitions in fiscal year 2018 compared to fiscal year 2017, when Sonoco was acquired.

Cash Flow from Financing Activities

Net cash flows used in financing activities increased by $222.2 million, or 40.9%, to $764.9 million for fiscal year 2019 , from $542.7 million for fiscal year 2018. This increase was primarily due the repayment of long-term debt, offset by the proceeds from the issuance of long-term debt.

Net cash flows used in financing activities increased by $319.7 million, or 143.4%, to $542.7 million for fiscal year 2018, from $223.0 million for fiscal year 2017. This increase was primarily due to repayments of long-term debt increasing to $4.7 billion in 2018 compared to $3.7 billion in 2017, net proceeds from borrowings increasing to $4.5 billion in 2018 compared to $4.0 billion in 2017 and dividend payments increasing from $489.1 million in 2017 to $526.8 million in 2018, partially offset by the increase in short-term debt borrowings from $114.0 million in 2017 to $155.4 million in 2018.

Net Debt

We borrow money 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 the long-term debt consists of debt amounts repayable within a year after the balance sheet date.

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 a range between 7.5% to 15.0% of our total tangible assets, subject to some exceptions and variations by facility. In addition, the bank debt facilities and U.S. private placement debt require us to comply with certain financial covenants, including leverage and interest coverage ratios. The negative pledge arrangements and the financial covenants are defined in the related debt agreements. As of June 30, 2019, we are in compliance with all applicable covenants under our bank debt facilities and U.S. private placement debt.

Our net debt as of June 30, 2019 and June 30, 2018 was $5.5 billion and $4.2 billion, respectively, with the change being primarily due to the Bemis acquisition.

Available Financing

As of June 30, 2019, we had undrawn credit facilities available in the amount of $2.7 billion. Our senior facilities are available to fund working capital, growth capital expenditures and refinancing obligations and are provided to us by five separate bank syndicates. As of June 30, 2019, the revolving senior bank debt facilities had an aggregate limit of $5.6 billion, of which $2.9 billion had been drawn (inclusive of amounts drawn under commercial paper programs reducing the overall balance of available senior facilities). Our senior facilities mature between fiscal years 2020 and 2024.

Dividend Payments

In fiscal years 2019, 2018 and 2017, we paid $679.7 million, $526.8 million, and $489.1 million, respectively, in dividends.

Credit Rating


31


Our capital structure and financial practices have earned us investment grade credit ratings from two internationally recognized credit rating agencies. These credit ratings are important to our ability to issue debt at favorable rates of interest, for various tenors and from a diverse range of markets that are highly liquid, including European and U.S. debt capital markets and from global financial institutions.


Share Repurchases

We had cash outflows of $20.2 million, $35.7 million, and $40.2 million for the purchase of our shares in the open market during fiscal years 2019, 2018 and 2017, respectively, as treasury shares to satisfy the vesting and exercises of share-based compensation awards. As of June 30, 2019, 2018 and 2017, we held treasury shares at cost of $16.1 million, $10.7 million and $8.1 million, representing 1.4 million, 0.9 million and 0.7 million shares, respectively.

Contractual Obligations

The following table provides a summary of contractual obligations including our debt payment obligations, operating lease obligations and certain other commitments as of June 30, 2019. These amounts do not reflect all planned spending under the various categories but rather that portion of spending to which we are contractually committed.

(in millions)
 
Less than 1 year
 
Within 1 to 3 years
 
Within 3 to 5 years
 
More than 5 years
Short-term debt obligations
 
$
788.8

 
$
—

 
$
—

 
$
—

Long-term debt obligations (1)
 
5.4

 
1,904.3

 
1,966.2

 
1,429.2

Interest expense on short- and long-term debt, fixed and floating rate (2)
 
171.7

 
179.5

 
117.6

 
174.1

Operating lease expenditure contracted but not provided for or payable (3)
 
97.6

 
168.1

 
123.2

 
301.8

Purchase obligations (4)
 
1,373.6

 
1,063.8

 
609.6

 
6.6

Employee benefit plan obligations
 
84.9

 
179.2

 
181.5

 
471.0

Total
 
$
2,522.0

 
$
3,494.9

 
$
2,998.1

 
$
2,382.7

(1)
Long-term debt obligations include liabilities maturing in fiscal year 2020 which have been classified as long-term liabilities in accordance with our ability and intent to refinance such obligations on a long-term basis.
(2)
Variable interest rate commitments are based on the current contractual maturity date of the underlying facility, calculated on the existing drawdown as at June 30, 2019, after allowing for increases/(decreases) in projected bank reference rates.
(3)
We lease motor vehicles, property, plant and equipment under operating leases. The leases have varying terms, escalation clauses and renewal rights. Not included in the above commitments are contingent rental payments which may arise as part of the rental increase indexed to the consumer price index or in the event that units produced by certain leased assets exceed a predetermined production capacity. 
(4)
Purchase obligations represent contracts or commitments for the purchase of raw materials, utilities, capital equipment and various other goods and services.

Off-Balance Sheet Arrangements

Other than as described under "Contractual Obligations" as of June 30, 2019, we had no significant off-balance sheet contractual obligations or other commitments.

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 our 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, we aim to maintain flexibility within our funding structure through the use of bank overdrafts, bank loans, corporate bonds, unsecured notes, commercial paper and factoring. 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;

32


•
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.

As of June 30, 2019 and 2018, an aggregate principal amount of $221.3 million and $759.5 million, respectively, was drawn under these commercial paper programs. However, such programs are backstopped by committed bank syndicated loan facilities with maturities in April 2022 ($750.0 million), April 2023 ($1.5 billion) and April 2024 ($1.5 billion), under which we had $2.2 billion in unused capacity remaining as of June 30, 2019.

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 growth 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 financial year. Our long-term access to liquidity depends on both our results of operations and on the availability of funding in domestic and international financial markets.

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 with U.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 on 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;
•
The valuation of intangible assets and goodwill;
•
The calculation of deferred taxes; and
•
The calculation of equity method investments.

Pension Costs

Approximately 50% of our defined benefits plans are closed to new entrants and future accruals. The accounting for our 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 relate to our defined benefit plans in the United States, Germany, Switzerland and the United Kingdom. Net periodic pension cost recorded in fiscal year 2019 was $12.5 million, compared to pension cost of $7.7 million in fiscal year 2018 and $80.2 million in fiscal year 2017. We expect pension expense before the effect of income taxes for fiscal year 2020 to be approximately $6.3 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

33


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 Sheet 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. 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 income statements 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. For Mexico, Poland and Turkey a corporate bond credit spread has been added to the government bond yields. 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.

Pension Assumptions Sensitivity Analysis

The following chart depicts the sensitivity of estimated fiscal year 2020 pension expense to incremental changes in the discount rate and the expected long-term rate of return on assets.
Discount Rate
 
Total Increase (Decrease) to Pension Expense from Current Assumption
 
Rate of Return on Plan Assets
 
Total Increase (Decrease) to Pension Expense from Current Assumption
 
(in millions)
 
 
(in millions)
+25 basis points
 
(0.5
)
 
+25 basis points
 
(4.0
)
2.54 percent (current assumption)
 
—

 
4.51 percent (current assumption)
 
—

-25 basis points
 
0.8

 
-25 basis points
 
4.0


    
Intangible Assets and Goodwill

The purchase price of each new acquisition is allocated to tangible assets, identifiable intangible assets, liabilities assumed, and goodwill. Determining the portion of the purchase price allocated to identifiable intangible assets and goodwill requires us to make significant estimates. The amount of the purchase price allocated to intangible assets is generally determined by estimating the future cash flows of each asset and asset group and discounting the net cash flows back to their present values. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods.

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 five reporting units, of which four are included in our Flexible Packaging Reporting Segment. The other Reporting Segment is Rigid Packaging.

Goodwill for our reporting units is reviewed for impairment annually in the fourth quarter of each year. We elected to early adopt the Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment, in fiscal year 2017. As a result of this election, if the carrying value of a reporting unit exceeds its fair value, we would recognize an impairment loss

34


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.

Our estimates associated with the goodwill impairment tests are considered critical due to the amount of goodwill recorded on our consolidated balance sheet and the judgment required in determining fair value amounts, including undiscounted 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 may require 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, condition, and amounts of future cash flows.

Deferred Taxes

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 of deferred tax assets, including operating loss, capital loss and tax credit carryforwards if we do not reach 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.

Equity Accounted Investments

Investments in ordinary shares of companies, in which we believe we exercise significant influence over operating and financial policies, are accounted for using the equity method of accounting. Under this method, the investment is carried at cost and is adjusted to recognize our share of earnings or losses of the investee after the date of acquisition and cash dividends paid. The assessment of whether a decline in fair value below the cost basis is other-than-temporary and the amount of such other-than-temporary decline requires significant estimates.

We review our investment in affiliated companies for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. There was a prolonged and significant decline in AMVIG's quoted share price during the year ended June 30, 2019 and 2018. We determined these prolonged declines were other than temporary impairments of our investment in AMVIG. Accordingly, we recorded impairments of $14.0 million and $36.5 million for fiscal years 2019 and 2018, respectively.

New Accounting Pronouncements

Refer to Note 3, "New Accounting Guidance" of the Notes to Consolidated Financial Statements for information about new accounting pronouncements.

Quantitative and Qualitative Disclosures About Market Risk

Overview

Our activities expose us to a variety of market risks and financial risks. Our overall risk management program seeks to minimize potential adverse effects of these risks on its financial performance. From time to time, we enter into various derivative financial instruments such as foreign exchange contracts, commodity fixed price swaps (on behalf of customers) and interest rate swaps to manage these risks. Our hedging activities are conducted on a centralized basis through standard

35


operating procedures and delegated authorities, which provide guidelines for control, counterparty risk and ongoing reporting. These derivative instruments are designed to reduce the economic risk associated with movements in foreign exchange rates, raw material prices and to fixed and variable interest rates, but may not have been designated or qualify for hedge accounting under U.S. GAAP and hence may increase income statement volatility. However, we do not trade in derivative financial instruments for speculative purposes. In addition, we may enter into loan agreements in currencies other than the respective legal entity's functional currency to economically hedge foreign exchange risk in net investments in foreign subsidiaries, which do not qualify for hedge accounting under U.S. GAAP and hence may increase income statement volatility.

There have been no material changes in the risks described below for the fiscal years 2019 and 2018 related to interest rate risk, foreign exchange risk, raw material and commodity price risk and credit risk.

Interest Rate Risk

Our policy is to manage exposure to interest rate risk by maintaining a mixture of fixed-rate and variable-rate debt, monitoring global interest rates and, where appropriate, hedging floating interest rate exposure or debt at fixed interest rates through the use of interest rate swaps. Interest rate swaps are accounted for as fair value hedges so the changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in interest expense.

A hypothetical but reasonably possible increase of 1% in the floating rate on the relevant interest rate yield curve applicable to both, derivative and non-derivative instruments denominated in U.S. dollars, the currency with the largest interest rate sensitivity, outstanding as of June 30, 2019, would have resulted in an adverse impact on income before income taxes and equity in income (loss) of affiliated companies of $17.0 million for the year ended June 30, 2019.

Foreign Exchange Risk

We operate in over 40 countries across the world.

For the year ended June 30, 2019, a hypothetical but reasonably possible adverse change of 1% in the underlying average foreign currency exchange rate for the Euro would have resulted in an adverse impact on our net sales of $22.9 million.

In fiscal years 2019 and 2018, 36% and 33% of our net sales, respectively, were effectively generated in U.S. dollar functional currency entities. For the same years, 24% and 26% of net sales, respectively, were generated in Euro functional currency entities with the remaining 40% and 41% of net sales, respectively, being generated in entities with functional currencies other than U.S. dollars and Euros. The impact of translating Euro and other non-U.S. dollar net sales and operating expenses into U.S. dollar for reporting purposes will vary depending on the movement of those currencies from period to period.

Raw Material and Commodity Price Risk

The primary raw materials for our products are resins, film, aluminum, and liquids. We have market risk primarily in connection with the pricing of our products and are exposed to commodity price risk from a number of commodities and certain other raw materials and energy price risk.

Changes in prices of our key raw materials and commodities, including resins, film, aluminum, and liquids and other raw materials, may result in a temporary or permanent reduction in income before income taxes and equity in income (loss) of affiliated companies depending on the level of recovery by material type. The level of recovery depends both on the type of material and the market in which we operate. Across our business, we have a number of contract provisions that allow for passing on of raw material price fluctuations to customers within contractually predefined periods.

A hypothetical but reasonably possible 1% increase on average prices for resins, film, aluminum and liquids, not passed on to the customer by way of a price adjustment, would have resulted in an increase in cost of sales and hence an adverse impact on income before income taxes and equity in income (loss) of affiliated companies for fiscal years 2019 and 2018 of $41.4 million and $43.7 million, respectively.

Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss. We are exposed to credit risk arising from financing activities including deposits with banks and financial institutions, foreign

36


exchange transactions and other financial instruments, as well as from over-the-counter raw material and commodity related derivative instruments.

We manage our credit risk from balances with financial institutions through standard operating procedures, which provide guidelines on setting limits to minimize the concentration of risks and therefore mitigating financial loss through potential counterparty failure and on dealing and settlement procedures. The investment of surplus funds is made only with approved counterparties and within credit limits assigned to each specific counterparty. Financial derivative instruments can only be entered into with high credit quality approved financial institutions with a minimum long-term credit rating of A- or better by Standard & Poor's. As of June 30, 2019 and 2018, we did not have a significant concentration of credit risk in relation to derivatives entered into in accordance with our hedging and risk management activities.


Item 7A. - Quantitative and Qualitative Disclosures About Market Risk

The information required by this Item 7A is included in Note 11, "Derivative Instruments," to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and under the caption "Quantitative and Qualitative Disclosures About Market Risk" which is part of Management’s Discussion and Analysis included in Item 7 of this Annual Report on Form 10-K.


37


Item 8. - Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Amcor plc

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Amcor plc and its subsidiaries (the “Company”) as of June 30, 2019, and the related consolidated statement of income, comprehensive income, cash flows and equity for the year then ended, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019, and the results of its operations and its cash flows for the year ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers AG
Zürich, Switzerland
September 3, 2019

We have served as the Company's auditor since 2019.


38


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Amcor Plc

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Amcor Plc (formerly known as Amcor Limited) and its subsidiaries (the “Company’) as of June 30, 2018, and the related consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of equity, and consolidated statements of cash flows for each of the two years in the period ended June 30, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers
Melbourne, Australia
December 14, 2018

We served as the Company's auditor from 2008 to 2018.


39


Amcor plc and Subsidiaries
Consolidated Statement of Income
(in millions, except per share data)
For the years ended June 30,
 
2019
 
2018
 
2017
Net sales
 
$
9,458.2

 
$
9,319.1

 
$
9,101.0

Cost of Sales
 
(7,659.1
)
 
(7,462.3
)
 
(7,189.2
)
 
 
 
 
 
 
 
Gross profit
 
1,799.1

 
1,856.8

 
1,911.8

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Selling, general, and administrative expenses
 
(999.0
)
 
(793.2
)
 
(850.2
)
Research and development expenses
 
(64.0
)
 
(72.7
)
 
(69.1
)
Restructuring and related expenses
 
(130.8
)
 
(40.2
)
 
(143.2
)
Other income, net
 
186.4

 
43.2

 
66.8

 
 
 
 
 
 
 
Operating income
 
791.7

 
993.9

 
916.1

 
 
 
 
 
 
 
Interest income
 
16.8

 
13.1

 
12.2

Interest expense
 
(207.9
)
 
(210.0
)
 
(190.9
)
Other non-operating income (loss), net
 
3.5

 
(74.1
)
 
(21.6
)
 
 
 
 
 
 
 
Income from continuing operations before income taxes and equity in income (loss) of affiliated companies
 
604.1

 
722.9

 
715.8

 
 
 
 
 
 
 
Income tax expense
 
(171.5
)
 
(118.8
)
 
(148.9
)
Equity in income (loss) of affiliated companies, net of tax
 
4.1

 
(17.5
)
 
14.1

 
 
 
 
 
 
 
Income from continuing operations
 
436.7

 
586.6

 
581.0

 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax
 
0.7

 
—

 
—

 
 
 
 
 
 
 
Net income
 
$
437.4

 
$
586.6

 
$
581.0

 
 
 
 
 
 
 
Net (income) loss attributable to non-controlling interests
 
(7.2
)
 
(11.4
)
 
(17.0
)
 
 


 


 


Net income attributable to Amcor plc
 
$
430.2

 
$
575.2

 
$
564.0

 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
Income from continuing operations
 
$
0.36

 
$
0.50

 
$
0.49

Income from discontinued operations
 
—

 
—

 
—

Net income
 
$
0.36

 
$
0.50

 
$
0.49

 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
Income from continuing operations
 
$
0.36

 
$
0.49

 
$
0.48

Income from discontinued operations
 
—

 
—

 
—

Net income
 
$
0.36

 
$
0.49

 
$
0.48

 
See accompanying notes to consolidated financial statements.

40


Amcor plc and Subsidiaries
Consolidated Statement of Comprehensive Income
(in millions)
For the years ended June 30,
 
2019
 
2018
 
2017
Net income
 
$
437.4

 
$
586.6

 
$
581.0

Other comprehensive income (loss):
 
 
 
 
 
 
Net gains (losses) on cash flow hedges, net of tax (a)
 
(3.6
)
 
(2.0
)
 
6.5

Foreign currency translation adjustments, net of tax (b)
 
60.5

 
43.2

 
(112.4
)
Net investment hedge of foreign operations, net of tax (c)
 
(11.2
)
 
—

 
—

Pension, net of tax (d)
 
(59.0
)
 
27.6

 
103.4

Other comprehensive income (loss)
 
(13.3
)
 
68.8

 
(2.5
)
Total comprehensive income
 
424.1

 
655.4

 
578.5

Comprehensive (income) loss attributable to non-controlling interest
 
(7.8
)
 
(10.6
)
 
(17.0
)
Comprehensive income attributable to Amcor plc
 
$
416.3

 
$
644.8

 
$
561.5

 
 
 
 
 
 
 
(a) Tax (expense) benefit related to cash flow hedges
 
$
1.8

 
$
0.6

 
$
(0.9
)
(b) Tax (expense) benefit related to foreign currency translation adjustments
 
$
(2.8
)
 
$
(15.3
)
 
$
(2.7
)
(c) Tax (expense) benefit related to net investment hedge of foreign operations
 
$
5.4

 
$
—

 
$
—

(d) Tax (expense) benefit related to pension adjustments
 
$
13.3

 
$
(6.9
)
 
$
(16.3
)
See accompanying notes to consolidated financial statements.


41


Amcor plc and Subsidiaries
Consolidated Balance Sheet
(in millions)
As of June 30,
 
2019
 
2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
601.6

 
$
620.8

Trade receivables, net
 
1,864.3

 
1,379.0

Inventories
 
1,953.8

 
1,358.8

Prepaid expenses and other current assets
 
374.3

 
261.7

Assets held for sale
 
416.1

 
—

Total current assets
 
5,210.1

 
3,620.3

Non-current assets:
 
 
 
 
Investments in affiliated companies
 
98.9

 
116.3

Property, plant and equipment, net
 
3,975.0

 
2,698.5

Deferred tax assets
 
190.9

 
70.7

Other intangible assets, net
 
2,306.8

 
324.8

Goodwill
 
5,156.0

 
2,056.6

Employee benefit assets
 
40.2

 
52.5

Other non-current assets
 
187.1

 
117.8

Total non-current assets
 
11,954.9

 
5,437.2

Total assets
 
$
17,165.0

 
$
9,057.5

Liabilities
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
5.4

 
$
984.1

Short-term debt
 
788.8

 
1,173.8

Trade payables
 
2,303.4

 
1,861.0

Accrued employee costs
 
378.4

 
269.3

Other current liabilities
 
1,044.9

 
767.0

Liabilities held for sale
 
20.9

 
—

Total current liabilities
 
4,541.8

 
5,055.2

Long-term debt, less current portion
 
5,309.0

 
2,690.4

Deferred tax liabilities
 
1,011.7

 
147.5

Employee benefit obligations
 
386.8

 
286.3

Other non-current liabilities
 
241.0

 
182.7

Total liabilities
 
11,490.3

 
8,362.1

 
 
 
 
 
Commitments and contingencies (See Note 19)
 


 


 
 
 
 
 
Shareholders' Equity
 
 
 
 
Amcor plc shareholders’ equity:
 
 
 
 
Ordinary shares ($0.01 and no par value, respectively):
 
 
 
 
Authorized (9,000.0 and 1,158.1 shares, respectively)
 
 
 
 
Issued (1,625.9 and 1,157.2 shares, respectively)
 
16.3

 
—

Additional paid-in capital
 
6,007.5

 
784.4

Retained earnings
 
323.7

 
561.4

Accumulated other comprehensive income (loss)
 
(722.4
)
 
(708.5
)
Treasury shares (1.4 and 0.9 shares, respectively)
 
(16.1
)
 
(10.7
)
Total Amcor plc shareholders' equity
 
5,609.0

 
626.6

Non-controlling interest
 
65.7

 
68.8

Total shareholders' equity
 
5,674.7

 
695.4

Total liabilities and shareholders' equity
 
$
17,165.0

 
$
9,057.5

See accompanying notes to consolidated financial statements.


42


Amcor plc and Subsidiaries
Consolidated Statement of Cash Flows
(in millions)
For the years ended June 30,
 
2019
 
2018
 
2017
Cash flows from operating activities:
 
 

 
 

 
 

Net income
 
$
437.4

 
$
586.6

 
$
581.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation, amortization and impairment
 
453.0

 
357.1

 
374.2

Net periodic benefit cost
 
12.5

 
7.7

 
80.2

Amortization of debt discount and deferred financing costs
 
5.8

 
5.1

 
5.0

Amortization of deferred gain on sale and leasebacks
 
(7.0
)
 
(4.4
)
 
(1.9
)
Net gain on disposal of property, plant and equipment
 
(16.0
)
 
(18.2
)
 
(9.8
)
Remeasurement gain on purchase of subsidiary
 
—

 
—

 
(18.6
)
Gain on disposal of U.S. plants
 
(159.1
)
 
—

 
—

Equity in (income) loss of affiliated companies
 
(4.1
)
 
17.5

 
(14.1
)
Net foreign exchange (gain) loss
 
(5.1
)
 
85.9

 
(35.3
)
Share-based compensation
 
18.6

 
21.0

 
26.5

Other, net
 
(77.9
)
 
0.4

 
(5.1
)
Loss on transition to highly inflationary accounting for Argentine subsidiaries
 
30.2

 
—

 
—

Deferred income taxes, net
 
72.8

 
(73.5
)
 
(29.1
)
Dividends received from affiliated companies
 
8.3

 
8.7

 
6.9

Changes in operating assets and liabilities, excluding effect of acquisitions, divestitures, and currency:
 
 
 
 
 
 
Trade receivables
 
(83.7
)
 
0.7

 
(13.2
)
Inventories
 
3.2

 
(95.0
)
 
(48.1
)
Prepaid expenses and other current assets
 
(52.0
)
 
(10.0
)
 
(21.4
)
Trade payables
 
120.5

 
137.0

 
137.5

Other current liabilities
 
97.6

 
(68.2
)
 
(22.3
)
Accrued employee costs
 
(32.4
)