# Amcor plc (AMCR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Amcor plc's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1748790/000174879023000030/amcr-20230630.htm
Accession: 0001748790-23-000030
Filing date: 2023-08-17
Report date: 2023-06-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/AMCR/
All MD&A years: /company/AMCR/mda/
Previous year: /company/AMCR/mda/fy2022/ (FY 2022)
Next year: /company/AMCR/mda/fy2024/ (FY 2024)

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.

The following is a discussion and analysis of changes in the results of operations for fiscal year 2023 compared to fiscal year 2022. A discussion and analysis regarding our results of operations for fiscal year 2022, compared to fiscal year 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on August 18, 2022 and incorporated by reference.

Two Year Review of Results

[[GREPCENT_TABLE]]
[["(in millions)","","2023","","2022"],["Net sales","","$","14,694","","","100.0","%","","$","14,544","","","100.0","%"],["Cost of sales","","(11,969)","","","(81.5)","","","(11,724)","","","(80.6)"],["Gross profit","","2,725","","","18.5","","","2,820","","","19.4"],["Operating expenses:"],["Selling, general, and administrative expenses","","(1,246)","","","(8.5)","","","(1,284)","","","(8.8)"],["Research and development expenses","","(101)","","","(0.7)","","","(96)","","","(0.7)"],["Restructuring, impairment, and other related activities, net","","104","","","0.7","","","(234)","","","(1.6)"],["Other income, net","","26","","","0.2","","","33","","","0.2"],["Operating income","","1,508","","","10.3","","","1,239","","","8.5"],["Interest income","","31","","","0.2","","","24","","","0.2"],["Interest expense","","(290)","","","(2.0)","","","(159)","","","(1.1)"],["Other non-operating income, net","","2","","","\u2014","","","11","","","0.1"],["Income before income taxes","","1,251","","","8.5","","","1,115","","","7.7"],["Income tax expense","","(193)","","","(1.3)","","","(300)","","","(2.1)"],["Net income","","$","1,058","","","7.2","%","","$","815","","","5.6","%"],["Net income attributable to non-controlling interests","","(10)","","","(0.1)","","","(10)","","","(0.1)"],["Net income attributable to Amcor plc","","$","1,048","","","7.1","%","","$","805","","","5.5","%"]]
[[/GREPCENT_TABLE]]

29

Overview

    Amcor is a global leader in developing and producing responsible packaging for food, beverage, pharmaceutical, medical, home and personal-care, and other products. We work with leading companies around the world to protect their products and the people who rely on them, differentiate brands, and improve supply chains through a range of flexible and rigid packaging, specialty cartons, closures, and services. We are focused on making packaging that is increasingly light-weighted, recyclable and reusable, and made using an increasing amount of recycled content. During fiscal year 2023, Amcor generated $14.7 billion in sales from operations that spanned 218 locations in over 40 countries.    

Significant Developments Affecting the Periods Presented

Economic and Market Conditions

    During fiscal year 2023, we have continued to experience intermittent supply shortages and price volatility of certain resins and raw materials as a result of market dynamics, especially in the first half of fiscal year 2023, and higher rates of inflation impacting energy, fuel, and labor costs. In addition, higher inflation, especially in Europe and the United States, has led central banks to rapidly raise interest rates to dampen inflation which results in higher interest expense on our variable rate debt particularly U.S. dollar and Euro denominated debt. The underlying causes for the continued volatility can be attributed to a variety of factors, such as the Russia-Ukraine conflict and higher inflation in many economies, which has resulted in increased volatility in energy and food markets and impacted global economies. This has led to reduced consumer demand for certain of our products and customer destocking in fiscal year 2023.

    We will continue to work closely with our suppliers and customers, leveraging our global capabilities and expertise to work through supply chain disruptions and other resulting issues. In addition, we are focused on driving costs out of our business in this challenging environment and recovering higher raw material costs to help mitigate inflation. However, there could be a time lag between recognizing the benefit of our mitigating actions and when the inflation occurs, and there is no assurance that measures taken will be able to fully mitigate the impact of ongoing inflation. While we expect customer destocking to abate in the short-term and consumer demand to improve incrementally throughout fiscal year 2024, there is no assurance that demand will rebound.

Russia-Ukraine Conflict / 2023 Restructuring Plan

    Russia's invasion of Ukraine that began in February 2022 continues as of the date of the filing of this annual report. In advance of the invasion, we proactively suspended operations at our small manufacturing site in Ukraine. We also operated three manufacturing facilities in Russia ("Russian business") until their sale on December 23, 2022, for net cash proceeds of $365 million. In addition, we repatriated approximately $65 million in cash held in Russia as part of the transaction. We recorded a pre-tax net gain on sale of $215 million. The carrying value of the Russian business had previously been impaired by $90 million in the quarter ended June 30, 2022.

    On February 7, 2023, we announced that we expect to invest $110 million to $130 million of the sale proceeds from the Russian business in various cost savings initiatives to partly offset divested earnings from the Russian business (the "2023 Restructuring Plan" or the "Plan"). We expect total Plan cash and non-cash net expenses of $200 million to $220 million. Of the remaining cash received from the sale of the Russian business, we allocated $100 million to repurchase additional shares and the remainder was used to reduce debt.

    In connection with the 2023 Restructuring Plan, we initiated in fiscal year 2023 restructuring and related projects with an expected net cost of approximately $150 million, of which approximately $80 million is expected to result in net cash expenditures. As of June 30, 2023, we have incurred $65 million in employee related expenses, $13 million in fixed asset related expenses, $10 million in other restructuring expenses, and $6 million in restructuring related expenses. To date, the Plan has resulted in approximately $25 million of cash outflows.

    Management initiated other restructuring actions in the fourth quarter of fiscal year 2022 to help mitigate the impact of the Russian sale. Management expects to realize an annualized pre-tax benefit of approximately $50 million from structural cost reduction actions taken as a result of all Russia related restructuring by the end of fiscal year 2025.

    For further information, refer to Note 4, "Restructuring, Impairment, and Other Related Activities, Net," Note 6, "Held for Sale," and Note 7, "Restructuring" of "Part II, Item 8, Notes to Consolidated Financial Statements."

30

Impact of COVID-19

    There are currently no significant COVID-19 related restrictions on our business, with China relaxing controls and eliminating lockdowns in December 2022. Lockdowns and related impacts, including the unwinding of lockdowns, impacted demand for our products in China in fiscal year 2023. Throughout the COVID-19 pandemic, our facilities were largely exempt from government mandated closure orders. The impact of any future pandemics or regional health crises on our business will depend on the extent and nature of any future disruptions across the supply chain, the implementation of social distancing measures and other government-imposed restrictions, as well as the nature and pace of macroeconomic recovery in key global economies.

South Africa Fire

    On July 13, 2021, our Durban, South Africa, manufacturing facility was destroyed by fire associated with general civil unrest. The facility employed 350 individuals and no employees were injured as the facility had been closed in advance of the disturbance. In fiscal years 2023 and 2022, we recorded total expenses of $55 million before insurance settlements, primarily related to inventory, property, and equipment losses from the fire and other expenses related to the fire and closure of our South African business. We had insurance for the majority of property and other losses resulting from the fire and received total gross insurance settlements of $46 million in fiscal years 2023 and 2022.

2019 Bemis Integration Plan

    In connection with the acquisition of Bemis Company, Inc. ("Bemis"), we initiated restructuring activities in the fourth quarter of 2019 aimed at integrating and optimizing the combined organization. We have exceeded the targeted pre-tax synergies of $180 million by approximately 10% driven by procurement, supply chain, and general and administrative savings as of June 30, 2022.

    The 2019 Bemis Integration Plan was completed by June 30, 2022, with final pre-tax integration cost amounting to $253 million. The total 2019 Bemis Integration Plan cost included $213 million of restructuring and related expenses, net, and $40 million of general integration expenses. The net cash expenditures for the plan, including disposal proceeds, were $170 million, of which $40 million related to general integration expenses. As part of this Plan, we incurred $144 million in employee related expenses, $36 million in fixed asset related expenses, $39 million in other restructuring and $45 million in restructuring related expenses, partially offset by a gain on disposal of a business of $51 million. In fiscal year 2022, the Plan resulted in net cash outflows of $49 million, of which $47 million were payments related to restructuring and related expenditures. The remaining cash outflow was primarily incurred in fiscal year 2023.

Highly Inflationary Accounting

    We have 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, we began reporting the financial results of our Argentine subsidiaries with a functional currency of the Argentine Peso at the functional currency of the parent, which is the U.S. dollar. Highly inflationary accounting resulted in a negative impact of $24 million and $16 million in foreign currency transaction losses that were reflected in the consolidated statements of income for the fiscal years ended June 30, 2023, and 2022, respectively.

31

Results of Operations

Consolidated Results of Operations

[[GREPCENT_TABLE]]
[["($ in millions, except per share data)","","2023","","2022"],["Net sales","","$","14,694","","","$","14,544"],["Operating income","","1,508","","","1,239"],["Operating income as a percentage of net sales","","10.3","%","","8.5","%"],["Net income attributable to Amcor plc","","$","1,048","","","$","805"],["Diluted Earnings Per Share","","$","0.705","","","$","0.529"]]
[[/GREPCENT_TABLE]]

    Net sales increased by $150 million, or 1%, in fiscal year 2023, compared to fiscal year 2022. Excluding the pass-through of raw material costs of $776 million, negative currency impacts of $426 million, and the negative impact of disposed and ceased operations of $207 million, the remaining variation in net sales for the fiscal year 2023 was an increase of $7 million, or 0%, reflecting price/mix benefits of 3% and unfavorable volumes of (3%).

    Net income attributable to Amcor plc increased by $243 million, or 30%, in fiscal year 2023, compared to fiscal year 2022, mainly as a result of a pre-tax net gain of $215 million on the disposal of the Russian business in fiscal year 2023, decreased restructuring, impairment, and other related activities, net of $123 million, and a decrease in income tax expense of $107 million, partially offset by a decrease in gross profit of $95 million and an increase in net interest expense of $124 million.

    Diluted earnings per share ("Diluted EPS") increased by $0.176, or 33%, in fiscal year 2023, compared to fiscal year 2022, with net income attributable to ordinary shareholders increasing by 30% and the diluted weighted-average number of shares outstanding decreasing by 3%. The decrease in the diluted weighted-average number of shares outstanding was due to the repurchase of shares under announced share buyback programs.

Segment Results of Operations

    Flexibles Segment

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["Net sales","","$","11,154","","","$","11,151"],["Adjusted EBIT","","1,429","","","1,517"],["Adjusted EBIT as a percentage of net sales","","12.8","%","","13.6","%"]]
[[/GREPCENT_TABLE]]

    Net sales increased by $3 million, or 0%, in fiscal year 2023, compared to fiscal year 2022. Excluding the pass-through of higher raw material costs of $516 million, negative currency impacts of $404 million, and the negative impact of disposed and ceased operations of $207 million, the remaining variation in net sales for the fiscal year 2023 was an increase of $98 million, or 1%, reflecting favorable price/mix of 4%, and unfavorable volumes of (3%).

    Adjusted earnings before interest and tax ("Adjusted EBIT") decreased by $88 million, or 6% in fiscal year 2023, compared to fiscal year 2022. Excluding negative currency impacts of $41 million and the negative impact of disposed and ceased operations of $63 million, the remaining variation in adjusted EBIT for the fiscal year 2023 was an increase of $16 million, or 1%, reflecting favorable price/mix of 17%, offset by unfavorable volumes of (7%), unfavorable plant costs of (5%), and unfavorable SG&A and other costs of (4%), all largely impacted by inflationary pressures.

    Rigid Packaging Segment

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["Net sales","","$","3,540","","","$","3,393"],["Adjusted EBIT","","265","","","289"],["Adjusted EBIT as a percentage of net sales","","7.5","%","","8.5","%"]]
[[/GREPCENT_TABLE]]

    Net sales increased by $147 million, or 4%, in fiscal year 2023, compared to fiscal year 2022. Excluding the pass-through of raw material costs of $260 million and negative currency impacts of $22 million, the remaining variation in net sales

32

for the fiscal year 2023 was a decrease of $91 million, or (3%), reflecting price/mix benefits of approximately 1%, offset by unfavorable volumes (4%).

    Adjusted EBIT decreased by $24 million, or 8%, in fiscal year 2023, compared to fiscal year 2022. Excluding negative currency impacts of $2 million, the remaining variation in adjusted EBIT for the fiscal year 2023 was a decrease of $22 million, or 8%, with favorable price/mix of 20%, more than offset by unfavorable volumes of (12%), unfavorable plant costs of (11%) and unfavorable SG&A and other costs of (5%), all largely impacted by inflationary pressures.

Consolidated Gross Profit

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["Gross profit","","$","2,725","","","$","2,820"],["Gross profit as a percentage of net sales","","18.5","%","","19.4","%"]]
[[/GREPCENT_TABLE]]

    Gross profit decreased by $95 million, or 3%, in fiscal year 2023, compared to fiscal year 2022. Excluding negative currency impacts of $78 million, the negative impact from disposed and ceased operations of $73 million, the remaining variation in gross profit for fiscal year 2023 was an increase of $56 million, reflecting favorable operating cost performance. Gross profit as a percentage of sales decreased to 18.5% in fiscal year 2023, mainly from the impact on the calculation from the pass-through of higher raw material costs during the current fiscal period and the impact of disposed operations.

Consolidated Selling, General, and Administrative ("SG&A") Expenses

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["SG&A expenses","","$","(1,246)","","","$","(1,284)"],["SG&A expenses as a percentage of net sales","","(8.5)","%","","(8.8)","%"]]
[[/GREPCENT_TABLE]]

    SG&A decreased by $38 million, or 3%, in fiscal year 2023, compared to fiscal year 2022. The decrease was primarily driven by exchange rate movements.

Consolidated Restructuring, Impairment and Other Related Activities, Net

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["Restructuring, impairment, and other related activities, net","","$","104","","","$","(234)"],["Restructuring, impairment, and other related activities, net, as a percentage of net sales","","0.7","%","","(1.6)","%"]]
[[/GREPCENT_TABLE]]

    Restructuring, impairment, and other related activities, net decreased by $338 million, or 144%, in fiscal year 2023, compared to fiscal year 2022. The decrease in net expense was mainly a result of a pre-tax net gain of $215 million on the disposal of the Russian business in fiscal year 2023, and the non-recurrence of impairment expenses of $138 million related to the Russia-Ukraine conflict in fiscal year 2022, partially offset by an increase in restructuring and related costs of $15 million.

Consolidated Interest Income

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["Interest income","","$","31","","","$","24"],["Interest income as a percentage of net sales","","0.2","%","","0.2","%"]]
[[/GREPCENT_TABLE]]

    Interest income increased by $7 million, or 29%, in fiscal year 2023, compared to fiscal year 2022, driven by increased interest rates on cash balances.

Consolidated Interest Expense

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["Interest expense","","$","(290)","","","$","(159)"],["Interest expense as a percentage of net sales","","(2.0)","%","","(1.1)","%"]]
[[/GREPCENT_TABLE]]

    Interest expense increased by $131 million, or 82%, in fiscal year 2023, compared to fiscal year 2022, primarily driven by increased interest rates on U.S. dollar and Euro denominated variable rate debt.

33

Consolidated Income Tax Expense

[[GREPCENT_TABLE]]
[["($ in millions)","","2023","","2022"],["Income tax expense","","$","(193)","","","$","(300)"],["Effective tax rate","","15.4","%","","26.9","%"]]
[[/GREPCENT_TABLE]]

    Income tax expense decreased by $107 million, or 36%, in fiscal year 2023, compared to fiscal year 2022. The decrease was predominantly attributable to a decrease in tax provisions for uncertain tax positions and a non-taxable capital gain on the sale of the Russian business.

34

Presentation of Non-GAAP Information

    This Annual Report on Form 10-K refers to non-GAAP financial measures: adjusted earnings before interest and taxes ("Adjusted EBIT"), earnings before interest and tax ("EBIT"), adjusted net income, and net debt. Such measures have not been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These non-GAAP financial measures adjust for factors that are unusual or unpredictable. These measures exclude the impact of certain amounts related to the effect of changes in currency exchange rates, acquisitions, and restructuring, including employee related costs, equipment relocation costs, accelerated depreciation, and the write-down of equipment. These measures also exclude gains or losses on sales of significant property and divestitures, significant property and other impairments, net of insurance recovery, certain regulatory and litigation matters, significant pension settlements, impairments in goodwill and equity method investments, and certain acquisition-related expenses, including transaction and integration expenses, due diligence expenses, professional and legal fees, purchase accounting adjustments for inventory, order backlog, intangible amortization, changes in the fair value of deferred acquisition payments and economic hedging instruments on commercial paper, and impacts related to the Russia-Ukraine conflict. Note that while amortization of acquired intangible assets is excluded from non-GAAP adjusted financial measures, the revenue of the acquired entities and all other expenses unless otherwise stated, are reflected in Adjusted EBIT and adjusted net income and the acquired assets contribute to revenue generation.

    This adjusted information should not be construed as an alternative to results determined in accordance with U.S. GAAP. We use the non-GAAP measures to evaluate operating performance and believe that these non-GAAP measures are useful to enable investors and other external parties to perform comparisons of our current and historical performance.

    A reconciliation of reported net income attributable to Amcor plc to Adjusted EBIT and adjusted net income for fiscal years 2023, 2022, and 2021 is as follows:

[[GREPCENT_TABLE]]
[["","","Years ended June 30,"],["($ in millions)","","2023","","2022","","2021"],["Net income attributable to Amcor plc, as reported","","$","1,048","","","$","805","","","$","939"],["Add: Net income attributable to non-controlling interests","","10","","","10","","","12"],["Net income","","1,058","","","815","","","951"],["Add: Income tax expense","","193","","","300","","","261"],["Add: Interest expense","","290","","","159","","","153"],["Less: Interest income","","(31)","","","(24)","","","(14)"],["EBIT","","1,510","","","1,250","","","1,351"],["Add: 2018/2019 Restructuring programs (1)","","\u2014","","","37","","","88"],["Add: Amortization of acquired intangible assets from business combinations (2)","","160","","","163","","","165"],["Add: Impact of hyperinflation (3)","","24","","","16","","","19"],["Add: Pension settlements (4)","","5","","","8","","","\u2014"],["Add/(Less): Net (gain)/loss on disposals (5)","","\u2014","","","10","","","(9)"],["Add: Property and other losses, net (6)","","2","","","13","","","\u2014"],["Add/(Less): Russia-Ukraine conflict impacts (7)","","(90)","","","200","","","\u2014"],["Add/(Less): Other (8)","","(3)","","","4","","","7"],["Adjusted EBIT","","1,608","","","1,701","","","1,621"],["Less: Income tax expense","","(193)","","","(300)","","","(261)"],["Less: Adjustments to income tax expense (9)","","(57)","","","(32)","","","(51)"],["Less: Interest expense","","(290)","","","(159)","","","(153)"],["Add: Interest income","","31","","","24","","","14"],["Less: Net income attributable to non-controlling interests","","(10)","","","(10)","","","(12)"],["Adjusted net income","","$","1,089","","","$","1,224","","","$","1,158"]]
[[/GREPCENT_TABLE]]

(1)2018/2019 Restructuring programs include restructuring and related expenses for the 2019 Bemis Integration Plan for fiscal year 2022, and 2018 Rigid Packaging Restructuring Plan and the 2019 Bemis Integration Plan for fiscal year 2021. Refer to Note 7, "Restructuring," for more information.

35

(2)Amortization of acquired intangible assets from business combinations includes amortization expenses related to all acquired intangible assets from past acquisitions.

(3)Impact of hyperinflation includes the adverse impact of highly inflationary accounting for subsidiaries in Argentina where the functional currency was the Argentine Peso.

(4)Pension settlements in fiscal year 2023 primarily includes the settlement of a small European plan and in fiscal year 2022 the purchase of group annuity contracts and transfer of pension plan assets and related benefit obligations. Refer to Note 13, "Pension Plans," for more information.

(5)Net (gain)/loss on disposals, excluding the disposal of our Russian business, includes an expense of $10 million from the disposal of non-core assets in fiscal year 2022. Refer to Note 11, "Fair Value Measurements," for more information. Fiscal year 2021 includes the gain realized upon the disposal of AMVIG and the loss upon disposal of other non-core businesses not part of material restructuring programs. Refer to Note 8, "Equity Method and Other Investments," for further information on the disposal of AMVIG and Note 5, "Acquisitions and Divestitures," for more information regarding the other disposals.

(6)Property and other losses, net in fiscal year 2023 includes property claims and losses of $5 million and $3 million of net insurance recovery related to the closure of our South African business. Fiscal year 2022 includes business losses primarily associated with the destruction of our Durban, South Africa facility during general civil unrest in July 2021, net of insurance recovery.

(7)Russia-Ukraine conflict impacts in fiscal year 2023 includes a pre-tax net gain on the sale of our Russian business of $215 million, incremental costs of $18 million, and restructuring and related expenses of $107 million incurred in connection with the conflict. Fiscal year 2022 includes $138 million of impairment charges, $57 million of restructuring and related expenses, and $5 million of other expenses. Refer to Note 4, "Restructuring, Impairment, and Other Related Activities, Net," and Note 7, "Restructuring," for further information.

(8)Other in fiscal year 2023 includes other restructuring, acquisition, litigation, and integration expenses of $13 million and fair value gains of $16 million on economic hedges. Fiscal years 2022 and 2021 include costs associated with the Bemis transaction and fiscal year 2021 also includes a $19 million benefit related to Brazil indirect taxes resulting from a May 2021 Brazil Supreme Court decision.

(9)Net tax impact on items (1) through (8) above.

Reconciliation of Net Debt

    A reconciliation of total debt to net debt at June 30, 2023 and 2022 is as follows:

[[GREPCENT_TABLE]]
[["($ in millions)","","June 30, 2023","","June 30, 2022"],["Current portion of long-term debt","","$","13","","","$","14"],["Short-term debt","","80","","","136"],["Long-term debt, less current portion","","6,653","","","6,340"],["Total debt","","6,746","","","6,490"],["Less cash and cash equivalents","","689","","","775"],["Net debt","","$","6,057","","","$","5,715"]]
[[/GREPCENT_TABLE]]

36

Supplemental Guarantor Information

    Amcor plc, along with certain wholly owned subsidiary guarantors, guarantee the following senior notes issued by the wholly owned subsidiaries, Amcor Flexibles North America, Inc., Amcor UK Finance plc, and Amcor Finance (USA), Inc.

•$500 million, 4.000% Guaranteed Senior Notes due 2025 of Amcor Flexibles North America, Inc.

•$300 million, 3.100% Guaranteed Senior Notes due 2026 of Amcor Flexibles North America, Inc.

•$600 million, 3.625% Guaranteed Senior Notes due 2026 of Amcor Flexibles North America, Inc.

•$500 million, 4.500% Guaranteed Senior Notes due 2028 of Amcor Flexibles North America, Inc.

•$500 million, 2.630% Guaranteed Senior Notes due 2030 of Amcor Flexibles North America, Inc.

•$800 million, 2.690% Guaranteed Senior Notes due 2031 of Amcor Flexibles North America, Inc.

•€500 million, 1.125% Guaranteed Senior Notes due 2027 of Amcor UK Finance plc

•$500 million, 5.625% Guaranteed Senior Notes due 2033 of Amcor Finance (USA), Inc.

    The six notes issued by Amcor Flexibles North America, Inc. are guaranteed by its parent entity, Amcor plc, and the subsidiary guarantors Amcor Pty Ltd, Amcor Finance (USA), Inc., and Amcor UK Finance plc. The note issued by Amcor UK Finance plc is guaranteed by its parent entity, Amcor plc, and the subsidiary guarantors Amcor Pty Ltd, Amcor Flexibles North America, Inc., and Amcor Finance (USA), Inc. The note issued by Amcor Finance (USA), Inc. is guaranteed by its ultimate parent entity, Amcor plc, and the subsidiary guarantors Amcor Pty Ltd, Amcor Flexibles North America, Inc., and Amcor UK Finance plc.

    All guarantors fully, unconditionally, and irrevocably guarantee, on a joint and several basis, to each holder of the notes, the due and punctual payment of the principal of, and any premium and interest on, such note and all other amounts payable, when and as the same shall become due and payable, whether at stated maturity, by declaration of acceleration, call for redemption or otherwise, in accordance with the terms of the notes and related indenture. The obligations of the applicable guarantors under their guarantees will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, or similar laws) under applicable law. The guarantees will be unsecured and unsubordinated obligations of the guarantors and will rank equally with all existing and future unsecured and unsubordinated debt of each guarantor. None of our other subsidiaries guarantee such notes. The issuers and guarantors conduct large parts of their operations through other subsidiaries of Amcor plc.

    Amcor Flexibles North America, Inc. is incorporated in Missouri in the United States, Amcor UK Finance plc is incorporated in England and Wales, United Kingdom, Amcor Finance (USA), Inc. is incorporated in Delaware in the United States, and the guarantors are incorporated under the laws of Jersey, Australia, the United States, and England and Wales and, therefore, insolvency proceedings with respect to the issuers and guarantors could proceed under, and be governed by, among others, Jersey, Australian, United States, or English insolvency law, as the case may be, if either issuer or any guarantor defaults on its obligations under the applicable Notes or Guarantees, respectively.

    Set forth below is the summarized financial information of the combined Obligor Group made up of Amcor plc (as parent guarantor), Amcor Flexibles North America, Inc., Amcor UK Finance plc, and Amcor Finance (USA), Inc. (as subsidiary issuers of the notes and guarantors of each other’s notes), and Amcor Pty Ltd (as the remaining subsidiary guarantor).

37

Basis of Preparation

    The following summarized financial information is presented for the parent, issuer, and guarantor subsidiaries ("Obligor Group") on a combined basis after elimination of intercompany transactions between entities in the combined group and amounts related to investments in any subsidiary that is a non-guarantor.

    This information is not intended to present the financial position or results of operations of the combined group of companies in accordance with U.S. GAAP.

Statement of Income for Obligor Group

(in millions)

[[GREPCENT_TABLE]]
[["For the year ended June 30,","","2023"],["Net sales - external","","$","1,065"],["Net sales - to subsidiaries outside the Obligor Group","","6"],["Total net sales","","$","1,071"],["Gross profit","","187"],["Net income (1)","","$","1,583"],["Net income attributable to non-controlling interests","","\u2014"],["Net income attributable to Obligor Group","","$","1,583"]]
[[/GREPCENT_TABLE]]

(1) Includes $1,993 million net intercompany income from Amcor entities from outside the Obligor Group, mainly attributable to intercompany dividends and intercompany interest income.

Balance Sheet for Obligor Group

(in millions)

[[GREPCENT_TABLE]]
[["As of June 30,","","2023"],["Assets"],["Current assets - external","","$","1,184"],["Current assets - due from subsidiaries outside the Obligor Group","","190"],["Total current assets","","1,374"],["Non-current assets - external","","1,415"],["Non-current assets - due from subsidiaries outside the Obligor Group","","10,992"],["Total non-current assets","","12,407"],["Total assets","","$","13,781"],["Liabilities"],["Current liabilities - external","","$","1,912"],["Current liabilities - due to subsidiaries outside the Obligor Group","","37"],["Total current liabilities","","1,949"],["Non-current liabilities - external","","6,801"],["Non-current liabilities - due to subsidiaries outside the Obligor Group","","9,917"],["Total non-current liabilities","","16,718"],["Total liabilities","","$","18,667"]]
[[/GREPCENT_TABLE]]

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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.

    We believe that our cash flows provided by operating activities, together with borrowings available under our credit facilities and access to the commercial paper market, backstopped by our bank debt facilities, will continue to provide sufficient liquidity to fund our operations, capital expenditures, and other commitments, including dividends and purchases of our ordinary shares and CHESS Depositary Instruments under authorized share repurchase programs, into the foreseeable future.

Overview

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[[/GREPCENT_TABLE]]

Cash Flow Overview

    Net Cash Provided by Operating Activities

    Net cash provided by operating activities decreased by $265 million in fiscal year 2023, compared to fiscal year 2022. The decrease in cash flow reflects lower accounts payable balances resulting from moderated purchasing activities due to inventory reduction initiatives, higher interest payments, and lower sales volumes in fiscal year 2023.

    Net Cash Used in Investing Activities

    Net cash used in investing activities decreased by $218 million in fiscal year 2023, compared to fiscal year 2022. The decrease is mainly driven by the disposal proceeds collected from the sale of the Russian business in the current period, partially offset by business acquisitions and equity method and other investments.

    Net Cash Used in Financing Activities

    Net cash used in financing activities increased by $134 million in fiscal year 2023, compared to fiscal year 2022. The change is primarily due to lower net debt drawdowns, partially offset by lower share buybacks in the current period as compared to the prior period.

Net Debt

    We borrow from financial institutions and debt investors in the form of bank overdrafts, bank loans, corporate bonds, unsecured notes, and commercial paper. We have a mixture of fixed and floating interest rates and use interest rate swaps to provide further flexibility in managing the interest cost of borrowings.

    At the end of October 2022, we entered into two interest rate swap contracts for a total notional amount of $1.25 billion. Under the terms of the contracts, we paid a weighted average fixed rate of interest of 4.53% and received a variable rate of interest, based on compound overnight SOFR, from November 1, 2022, through June 30, 2023, settled monthly. In March 2023, we entered into two additional interest rate swap contracts for a total notional amount of $1.2 billion. Under the terms of the contracts, we will pay a weighted average fixed rate of interest of 3.88% and receive a variable rate of interest based on 1-month Term SOFR. The swaps are effective as of July 1, 2023, and mature on June 30, 2024. The interest rate swap contracts economically hedge the SOFR component of our forecasted commercial paper issuances.

    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

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extend the debt beyond 12 months. The current portion of long-term debt consists of debt amounts repayable within a year after the balance sheet date.

    Our primary bank debt facilities and notes are unsecured and subject to negative pledge arrangements limiting the amount of secured indebtedness we can incur to 10.0% of our total tangible assets, subject to some exceptions and variations by facility. In addition, the covenants of the bank debt facilities require us to maintain a leverage ratio not higher than 3.9 times. The negative pledge arrangements and the financial covenants are defined in the related debt agreements. As of June 30, 2023, we were in compliance with all applicable covenants under our bank debt facilities.

    Our net debt as of June 30, 2023, and June 30, 2022 was $6.1 billion and $5.7 billion, respectively.

Debt Facilities and Refinancing

    As of June 30, 2023, we had undrawn credit facilities available in the amount of $1.3 billion. Our senior facilities are available to fund working capital, growth capital expenditures, and refinancing obligations and are provided to us by two bank syndicates. These facilities mature in April 2025 and April 2027, respectively, and the revolving tranches have two 12-month options available to extend the maturity date.

    As of June 30, 2023, the revolving senior bank debt facilities had an aggregate limit of $3.8 billion, of which $2.5 billion had been drawn (inclusive of amounts drawn under commercial paper programs reducing the overall balance of available senior facilities). Subject to certain conditions, we can request the total commitment level under each agreement to be increased by up to $500 million. For further information, refer to Note 14, "Debt."

    On May 26, 2023, we issued U.S. dollar notes with a principal amount of $500 million and a contractual maturity in May 2033. The notes pay a coupon of 5.63% per annum, payable semi-annually in arrears. The proceeds of the issuance were used to refinance a portion of our U.S. dollar commercial paper outstanding.

    On March 22, 2023, we redeemed Euro bonds of €300 million (equivalent to $322 million) at maturity. The redemption was funded with commercial paper. The notes carried an interest rate of 2.75%.

Dividend Payments

    In fiscal years 2023, 2022, and 2021, we paid $723 million, $732 million, and $742 million, respectively, in dividends. The dividend per share has increased in each of the years, with the total amount paid declining due to repurchase of shares under announced share buyback programs.

Credit Rating

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

Share Repurchases

    On August 17, 2022, our Board of Directors approved a $400 million buyback of ordinary shares and/or CHESS Depositary Instruments ("CDIs") and this program has been completed in fiscal year 2023. Further, on February 7, 2023, our Board of Directors approved an additional buyback of up to $100 million of ordinary shares and/or CDIs in the following twelve months. During the fiscal year ended June 30, 2023, we repurchased approximately $431 million, excluding transaction costs, or 41 million shares. The shares repurchased were canceled upon repurchase.

    We had cash outflows of $221 million, $143 million, and $8 million for the purchase of our shares in the open market during fiscal years 2023, 2022, and 2021, respectively, as treasury shares to satisfy the vesting and exercises of share-based compensation awards. As of June 30, 2023, 2022, and 2021, we held treasury shares at cost of $12 million, $18 million, and $29 million, representing 1 million, 2 million, and 3 million shares, respectively.

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Material Cash Requirements

    Our material cash requirements for future periods from known contractual obligations are included below. We expect to fund these cash requirements primarily through cash flows provided by operating activities, borrowings from banks, and proceeds from issuances of debt and equity. These amounts reflect material cash requirements for which we are contractually committed.

•Debt obligations: Refer to Note 14, “Debt” of the notes to consolidated financial statements for additional information about our debt obligations and the related timing of these expected payments.

•Interest payments: Refer to Note 14, “Debt” of the notes to consolidated financial statements for additional information about our interest payments and the related timing of the expected payments.

•Operating and finance leases: Refer to Note 15, “Leases” of the notes to consolidated financial statements for information about our lease obligations and the related timing of the expected payments.

•Employee benefit plan obligations: Refer to Note 13, “Pension Plans” of the notes to consolidated financial statements for additional information about our employee benefit plan obligations and the related timing of the expected payments.

•Capital expenditures: As of June 30, 2023, we have $249 million in committed capital expenditures for the fiscal year 2024.

•Other purchase obligations: Amcor has other purchase obligations, including commitments to purchase a specified minimum amount of goods, inclusive of raw materials, utilities, and other. These obligations are legally binding and non-cancellable. Where we are unable to determine the periods in which these obligations could be payable under these contracts, we present the cash requirement in the earliest period in which the minimum obligation could be payable. The estimated future cash outlays are approximately $1.1 billion, $450 million, $250 million, $100 million, and $100 million in fiscal years 2024, 2025, 2026, 2027, and 2028, respectively.

Off-Balance Sheet Arrangements

    Other than as described under "Material Cash Requirements" as of June 30, 2023, 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 liquidity risk centrally and such management involves maintaining available funding and ensuring that we have access to an adequate amount of committed credit facilities. Due to the dynamic nature of our business, the aim is to maintain flexibility within our funding structure through the use of bank overdrafts, bank loans, corporate bonds, unsecured notes, and commercial paper. The following guidelines are used to manage our liquidity risk:

•maintaining minimum undrawn committed liquidity of at least $200 million that can be drawn at short notice;

•regularly performing a comprehensive analysis of all cash inflows and outflows in relation to operational, investing, and financing activities;

•generally using tradable instruments only in highly liquid markets;

•maintaining a senior credit investment grade rating with a reputable independent rating agency;

•managing credit risk related to financial assets;

•monitoring the duration of long-term debt;

•only investing surplus cash with major financial institutions or well diversified money market funds; and

•to the extent practicable, spreading the maturity dates of long-term debt facilities.

    Our three- and five-year syndicated facility agreements each provide a revolving credit facility of $1.9 billion, $3.8 billion in total. The facilities are unsecured and have contractual maturities in April 2025 and April 2027, respectively. The agreements include customary terms and conditions for a syndicated facility of this nature, and the revolving tranches have two 12-month options available to extend the maturity date.

    As of June 30, 2023, and 2022, an aggregate principal amount of $2.5 billion and $2.4 billion, respectively, was drawn under commercial paper programs. However, such programs are backstopped by committed bank syndicated loan facilities with maturities in April 2025 ($1.9 billion), and April 2027 ($1.9 billion), with an option to extend, under which we had $1.3 billion in unused capacity remaining as of June 30, 2023.

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    We expect long-term future funding needs to primarily relate to refinancing and servicing our outstanding financial liabilities maturing as outlined above and to finance our capital expenditure and payments for acquisitions that may be completed. We expect to continue to fund our long-term business needs on the same basis as in the past, i.e., partially through the cash flow provided by operating activities available to the business and management of the capital of the business, in particular through issuance of commercial paper and debt securities on a regular basis. We decide on discretionary growth capital expenditures and acquisitions individually based on, among other factors, the return on investment after related financing costs and the payback period of required upfront cash investments in light of our mid-term liquidity planning covering a period of four years post the current fiscal year. Our long-term access to liquidity depends on both our results of operations and on the availability of funding in financial markets.

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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 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 critical accounting estimates discussed below should be read together with our significant accounting policies in Note 2, “Significant Accounting Policies,” of the notes to our consolidated financial statements.

Pensions

    The majority of our principal defined benefit plans are closed to new entrants and future accruals. The accounting for defined benefit pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet. A significant portion of our pension amounts relates to our defined benefit plans in the United States, Switzerland, United Kingdom, and Germany. The net periodic pension cost recorded in fiscal year 2023 was $11 million, compared to net periodic pension cost of $12 million in fiscal year 2022 and $15 million in fiscal year 2021. We expect net periodic pension cost before the effect of income taxes for fiscal year 2024 to be approximately $11 million. 

    For our sponsored plans, the relevant accounting guidance requires management to 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 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, known economic and market conditions at the time of valuation, and 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 difference between the fair value of plan assets and the projected benefit obligation of a pension plan must be recorded on the consolidated balance sheets as an asset, in the case of an overfunded plan, or as a liability, in the case of an underfunded plan. Gains or losses and prior service costs or credits that arise but are not recognized as components of pension cost are recorded as a component of other comprehensive income/(loss). Pension plan liabilities are revalued annually, or when an event occurs that requires remeasurement, based on updated assumptions and information about the individuals covered by the plan. Accumulated actuarial gains and losses in excess of a 10 percent corridor and the prior service cost are amortized on a straight-line basis from the date recognized over the average remaining service period of active participants or over the average life expectancy for plans with significant inactive participants.

    We review annually the discount rates used to calculate the present value of pension plan liabilities. The discount rates used at each measurement date is determined 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 not a deep market for corporate bonds, we generally use a government bond approach to set the discount rate. Additionally, the expected long-term rates 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 on the plan's target asset allocation.

Pension Assumptions Sensitivity Analysis

    The following chart depicts the sensitivity of estimated fiscal year 2024 pension expense to incremental changes in the weighted average discount rate and expected long-term rate of return on assets.

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Goodwill and Other Intangible Assets

    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 for impairment annually in the fourth quarter of each fiscal year, 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 we have defined as an operating segment, based on the relative fair value of the reporting unit at the time of each acquisition. We have six reporting units, of which five are included in our Flexibles reportable segment. The other reporting unit, Rigid Packaging, is also a reportable segment.

    In our impairment analysis, we may elect to first assess qualitative factors to determine whether a quantitative test is necessary. If we determine that a quantitative test is necessary or elect to perform a quantitative test instead of the qualitative test, we derive an estimate of fair values for each of our reporting units using income approaches. The most significant assumptions used in the determination of the estimated fair value of the reporting units are revenue growth, projected operating income growth, market multiples, terminal values, and discount rates. When the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit, adjusted for any tax benefits, limited to the amount of the carrying value of goodwill.

    Our estimates associated with the goodwill impairment tests are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value amounts, including projected future cash flows. Judgment is also used in assessing whether goodwill should be tested more frequently for impairment than annually. Factors such as a significant decrease in expected net earnings, adverse equity market conditions, and other external events, such as significant inflation and rising interest rates, may result in the need for more frequent assessments.

    Intangible assets consist primarily of purchased customer relationships, technology, trademarks, and software and are amortized using the straight-line method over their estimated useful lives, ranging from one to twenty years. We review these intangible assets for impairment when changes in circumstances or the occurrence of events suggest that the remaining value is not recoverable. The impairment test 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 about future events, conditions, and amounts of future cash flows.

Deferred Taxes and Uncertain Tax Positions

    Significant judgments and estimates are required in determining our deferred tax assets and liabilities and uncertain tax positions as tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant taxing authorities. Determining uncertain tax positions involves evaluating whether the weight of available positive and negative 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 upon 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. Additionally, we are required to assess the likelihood of recovering deferred tax assets against future sources of taxable income which may result in the need for a valuation allowance on deferred tax assets, including operating loss, capital loss, and tax credit carryforwards if we do not reach the more likely than not threshold based on all available evidence. Examples of factors considered in determining deferred tax asset realizability include the expected future performance of operations and taxable earnings, the expected timing of the reversal of temporary differences, as well as the feasibility of tax planning strategies. If actual results differ from these estimates or if there are future changes in tax laws or statutory tax rates, we may need to adjust valuation allowances, or deferred tax liabilities, which could have a material impact on our consolidated financial position and results of operations.

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Valuation of Assets and Liabilities Held for Sale

    Disposal groups held for sale are assessed for impairment by comparing their fair values, less cost to sell, to their carrying values. The fair values of disposal groups held for sale are estimated using accepted valuation techniques, including earnings multiples, discounted cash flows, and indicative bids. Several significant estimates and assumptions are involved in the application of these techniques, including forecasting sales, expenses, and various other factors. We consider historical experience, guidance received from third parties, and all information available at the time the estimates are made to derive fair value. However, the fair value that is ultimately realized upon the divestiture of a business may significantly differ from the estimated fair value recognized in our consolidated financial statements, especially for disposal groups located in conflict regions. Refer to Note 5, "Acquisitions and Divestitures," and Note 6, "Held for Sale."

New Accounting Pronouncements

    Refer to Note 3, "New Accounting Guidance," of the notes to consolidated financial statements for information about new accounting pronouncements.

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