Amcor plc 10-Q for FY2022 Q3
Amcor plc (AMCR)
10-Q
2022-11-02
For: 2022-09-30
View Original
Added on
April 10, 2026
About this 10-Q
Amcor plc filed this 10-Q on November 2, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.71B
- up 8.5% from $3.42B a year earlier
- Net income
- $232M
- up 14.9% from net income of $202M a year earlier
- Diluted EPS
- $0.16
- up 18.3% from $0.13 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the Quarterly Period Ended September 30, 2022
OR
For the transition period from __________ to __________
Commission File Number 001-38932
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(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 | ||||||||||||
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 ☒ No ☐
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 ☒ No ☐
1
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):
| ☒ | Emerging Growth Company | ||||||||||
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | |||||||||
| Accelerated Filer | ☐ | ||||||||||
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2022, the registrant had 1,489,019,556 ordinary shares, $0.01 par value, outstanding.
2
Amcor plc
Quarterly Report on Form 10-Q
Table of Contents
3
Cautionary Statement Regarding Forward-Looking Statements
Unless otherwise indicated, references to "Amcor," the "Company," "we," "our," and "us" in this Quarterly Report on Form 10-Q refer to Amcor plc and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q contains certain statements that are "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identified with words like "believe," "expect," "target," "project," "may," "could," "would," "approximately," "possible," "will," "should," "intend," "plan," "anticipate," "commit," "estimate," "potential," "ambitions," "outlook," or "continue," the negative of these words, other terms of similar meaning, or the use of future dates. Such statements are based on the current expectations of the management of Amcor and are qualified by the inherent risks and uncertainties surrounding future expectations generally. Actual results could differ materially from those currently anticipated due to a number of risks and uncertainties. None of Amcor or any of its respective directors, executive officers, or advisors, provide any representation, assurance, or guarantee that the occurrence of the events expressed or implied in any forward-looking statements will actually occur. Risks and uncertainties that could cause actual results to differ from expectations include, but are not limited 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;
• significant competition in the industries and regions in which we operate;
• the inability to expand our current business effectively through either organic growth, including by product innovation, or acquisitions;
• challenging current and future global economic conditions, including inflation and supply chain disruptions;
• impact of operating internationally, including negative impacts from the Russia-Ukraine conflict;
• price fluctuations or shortages in the availability of raw materials, energy and other inputs, which could adversely affect our business;
• production, supply, and other commercial risks, including counterparty credit risks, which may be exacerbated in times of economic volatility;
• global health outbreaks, including the Coronavirus pandemic ("COVID-19");
• an inability to attract and retain key personnel;
• costs and liabilities related to current and future environment, health and safety laws and regulations;
• labor disputes;
• risks related to climate change;
• failures or disruptions in information technology systems;
• cybersecurity risks, which could disrupt our operations or risk of loss of our sensitive business information;
• a significant increase in our indebtedness or a downgrade in our credit rating could reduce our operating flexibility and increase our borrowing costs and negatively affect our financial condition and results of operations;
• foreign exchange rate risk;
• rising interest rates that increase our borrowing costs on our variable rate indebtedness and could have other negative impacts;
• a significant write-down of goodwill and/or other intangible assets;
• failure to maintain an effective system of internal control over financial reporting;
• an inability of our insurance policies, including our use of a captive insurance company, to provide adequate protection against all of the risks we face;
• an inability to defend our intellectual property rights or intellectual property infringement claims against us;
• litigation, including product liability claims, or regulatory developments;
• increasing scrutiny and changing expectations with respect to our Environmental, Social, and Governance ("ESG") practices resulting in additional costs or exposure to additional risks;
• changing government regulations in environmental, health, and safety matters; and
• changes in tax laws or changes in our geographic mix of earnings.
These risks and uncertainties are supplemented by those identified from time to time in our filings with the Securities and Exchange Commission, including without limitation, those described under Part I, "Item 1A - Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, as updated by our quarterly reports on Form 10-Q. You can obtain copies of Amcor’s filings with the SEC for free at the SEC’s website (www.sec.gov). Forward-looking statements included herein are made only as of the date hereof and Amcor does not undertake any obligation to update any forward-looking statements, or any other information in this communication, as a result of new information, future developments or otherwise, or to correct any inaccuracies or omissions in them which become apparent, except as expressly required by law. All forward-looking statements in this communication are qualified in their entirety by this cautionary statement.
4
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Amcor plc and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| ($ in millions, except per share data) | 2022 | 2021 | ||||||||||||||||||||||||
| Net sales | $ | $ | ||||||||||||||||||||||||
| Cost of sales | ( | ( | ||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Selling, general, and administrative expenses | ( | ( | ||||||||||||||||||||||||
| Research and development expenses | ( | ( | ||||||||||||||||||||||||
| Restructuring and related expenses, net | ( | ( | ||||||||||||||||||||||||
| Other income/(expenses), net | ( | |||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| Other non-operating income, net | ||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ( | ( | ||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||
| Net income attributable to non-controlling interests | ( | ( | ||||||||||||||||||||||||
| Net income attributable to Amcor plc | $ | $ | ||||||||||||||||||||||||
| Basic earnings per share: | $ | $ | ||||||||||||||||||||||||
| Diluted earnings per share: | $ | $ | ||||||||||||||||||||||||
5
Amcor plc and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||
| Net losses on cash flow hedges, net of tax (a) | ( | ( | ||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax (b) | ( | ( | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||||
| Comprehensive income attributable to non-controlling interests | ( | |||||||||||||||||||||||||
| Comprehensive income attributable to Amcor plc | $ | $ | ||||||||||||||||||||||||
| (a) Tax benefit related to cash flow hedges | $ | $ | ||||||||||||||||||||||||
| (b) Tax expense related to foreign currency translation adjustments | $ | ( | $ | ( | ||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
6
Amcor plc and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| ($ in millions, except share and per share data) | September 30, 2022 | June 30, 2022 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Trade receivables, net of allowance for doubtful accounts of $ | ||||||||||||||
| Inventories, net: | ||||||||||||||
| Raw materials and supplies | ||||||||||||||
| Work in process and finished goods | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Assets held for sale, net | ||||||||||||||
| Total current assets | ||||||||||||||
| Non-current assets: | ||||||||||||||
| Property, plant, and equipment, net | ||||||||||||||
| Operating lease assets | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Other intangible assets, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Employee benefit assets | ||||||||||||||
| Other non-current assets | ||||||||||||||
| Total non-current assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Current portion of long-term debt | $ | $ | ||||||||||||
| Short-term debt | ||||||||||||||
| Trade payables | ||||||||||||||
| Accrued employee costs | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Liabilities held for sale | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Non-current liabilities: | ||||||||||||||
| Long-term debt, less current portion | ||||||||||||||
| Operating lease liabilities | ||||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Employee benefit obligations | ||||||||||||||
| Other non-current liabilities | ||||||||||||||
| Total non-current liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
Commitments and contingencies (See Note 14) | ||||||||||||||
| Shareholders' Equity | ||||||||||||||
| Amcor plc shareholders’ equity: | ||||||||||||||
Ordinary shares ($ | ||||||||||||||
Authorized ( | ||||||||||||||
Issued ( | $ | $ | ||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
Treasury shares ( | ( | ( | ||||||||||||
| Total Amcor plc shareholders' equity | ||||||||||||||
| Non-controlling interests | ||||||||||||||
| Total shareholders' equity | ||||||||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
7
Amcor plc and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||
| Depreciation, amortization, and impairment | ||||||||||||||
| Net periodic benefit cost | ||||||||||||||
| Amortization of debt discount and deferred financing costs | ||||||||||||||
| Net foreign exchange gain | ( | ( | ||||||||||||
| Share-based compensation | ||||||||||||||
| Other, net | ||||||||||||||
| Loss from hyperinflationary accounting for Argentine subsidiaries | ||||||||||||||
| Deferred income taxes, net | ( | ( | ||||||||||||
| Changes in operating assets and liabilities, excluding effect of acquisitions, divestitures, and currency | ( | ( | ||||||||||||
| Net cash used in operating activities | ( | ( | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Investments in affiliated companies and other | ( | |||||||||||||
| Business acquisitions | ( | |||||||||||||
| Purchase of property, plant, and equipment, and other intangible assets | ( | ( | ||||||||||||
| Proceeds from divestitures | ||||||||||||||
| Proceeds from sales of property, plant, and equipment, and other intangible assets | ||||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Proceeds from issuance of shares | ||||||||||||||
| Purchase of treasury shares | ( | ( | ||||||||||||
| Proceeds from issuance of long-term debt | ||||||||||||||
| Repayment of long-term debt | ( | ( | ||||||||||||
| Net borrowing of commercial paper | ||||||||||||||
| Net repayment of short-term debt | ( | ( | ||||||||||||
| Repayment of lease liabilities | ( | ( | ||||||||||||
| Share buyback/cancellations | ( | |||||||||||||
| Dividends paid | ( | ( | ||||||||||||
| Net cash provided by financing activities | ||||||||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ( | ||||||||||||
| Change in cash and cash equivalents classified as held for sale | ||||||||||||||
| Net decrease in cash and cash equivalents | ( | ( | ||||||||||||
| Cash and cash equivalents balance at beginning of year | ||||||||||||||
| Cash and cash equivalents balance at end of period | $ | $ | ||||||||||||
| Supplemental cash flow information: | ||||||||||||||
| Interest paid, net of amounts capitalized | $ | $ | ||||||||||||
| Income taxes paid | $ | $ | ||||||||||||
| Supplemental non-cash disclosures relating to investing and financing activities: | ||||||||||||||
| Purchase of property and equipment, accrued but unpaid | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
8
Amcor plc and Subsidiaries
Condensed Consolidated Statements of Equity
(Unaudited)
| ($ in millions, except per share data) | Ordinary Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Shares | Non-controlling Interest | Total | |||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Share buyback/cancellations | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Options exercised and shares vested | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net settlement of forward contracts to purchase own equity for share-based incentive plans, net of tax | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Options exercised and shares vested | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net settlement of forward contracts to purchase own equity for share-based incentive plans, net of tax | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
9
Amcor plc and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - Nature of Operations and Basis of Presentation
Amcor plc ("Amcor" or the "Company") is a public limited company incorporated under the Laws of the Bailiwick of Jersey. The Company's history dates back more than 150 years, with origins in both Australia and the United States of America. Today, Amcor is a global leader in developing and producing responsible packaging for food, beverage, pharmaceutical, medical, home and personal-care, and other consumer goods end markets. The Company's innovation excellence and global packaging expertise enables the Company to solve packaging challenges around the world every day, producing packaging that is more functional, appealing, and cost effective for its customers and their consumers and importantly, more sustainable for the environment.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by U.S. GAAP for complete financial statements. Further, the year-end condensed consolidated balance sheet data as of June 30, 2022 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. It is management's opinion, however, that all material and recurring adjustments have been made that are necessary for a fair statement of its interim financial position, results of operations, and cash flows. For further information, this Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
There have been no material changes to the accounting policies followed by the Company during the current fiscal year. The Company reclassified prior year comparative figures in the condensed consolidated balance sheets to conform to the current year's presentation. This change in presentation did not have an impact on the Company’s financial condition or operating results. Certain amounts in the Company's notes to unaudited condensed consolidated financial statements may not add or recalculate due to rounding.
10
Note 2 - New Accounting Guidance
Recently Adopted Accounting Standards
In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, Government Assistance (Topic 832) that adds certain disclosure requirements for entities that receive government assistance. The standard is effective for annual periods beginning after December 15, 2021 with early adoption permitted. The Company adopted ASU 2021-10 on July 1, 2022, and the adoption did not have a material impact on the Company's condensed consolidated financial statements. ASU 2021-10 may have a material impact on the Company’s disclosures in the future, if government assistance provided to the Company were to become material.
Accounting Standards Not Yet Adopted
In September 2022, the FASB issued Accounting Standards Update ("ASU") 2022-04 that adds certain disclosure requirements for entities that use supplier finance programs in connection with the purchase of goods and services. The new standard's requirement to disclose the key terms of supplier finance programs is effective for all interim and annual periods beginning with the Company's fiscal year ending June 30, 2024. The new standard does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. Early adoption is permitted. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.
The Company considers the applicability and impact of all ASUs issued by the FASB. The Company determined at this time that all other ASUs not yet adopted are either not applicable or are expected to have a minimal impact on its results of operation, financial position, and disclosures.
11
Note 3 - Held for Sale
During the fourth quarter of fiscal year 2022, the Company classified the assets and liabilities of its Russian operations as held for sale as a result of the Company's decision to sell its three manufacturing facilities in Russia ("Russian business"), and recorded an impairment of $90 million. In the first quarter of fiscal year 2023, the Company has obtained indicative bids on which basis the expected fair value less costs to sell the Russian business has been updated, which did not result in a change to the previously recognized impairment. The Russian business is part of the Company’s Flexibles segment and is expected to be sold within fiscal year 2023. The disposal of the Russian business will not represent a strategic shift that will have a major effect on the Company's operations and financial results, and therefore does not qualify for reporting as a discontinued operation.
| ($ in millions) | September 30, 2022 | June 30, 2022 | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Trade receivables, net | ||||||||||||||
| Inventories, net | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Property, plant, and equipment, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Total assets held for sale | ||||||||||||||
| Less accumulated impairment (1) | ( | ( | ||||||||||||
| Total assets held for sale, net | $ | $ | ||||||||||||
| Trade payables | ||||||||||||||
| Total current liabilities held for sale | $ | $ | ||||||||||||
(1) Inclusive of accumulated other comprehensive loss related to the Russian business.
This table excludes other non-material assets and liabilities that are held for sale but not part of the Russian business.
12
Note 4 - Acquisitions
On August 1, 2022, the Company completed the acquisition of 100% equity interest in DGPack s.r.o., a Czech Republic company that operates a world-class flexible packaging manufacturing plant. The initial purchase consideration amounted to $60 million and is subject to customary post-closing adjustments. The consideration includes $6 million that will be paid in the second quarter of fiscal year 2023. The acquisition is part of the Company's Flexibles reportable segment and resulted in the recognition of acquired identifiable net assets of $39 million and goodwill of $21 million. Goodwill is not deductible for tax purposes. The fair values of the identifiable net assets acquired and goodwill are based on the Company's best estimate as of September 30, 2022 and are considered preliminary. The fair value estimates were based on income, market, and cost valuation methods. The Company aims to complete the purchase price allocation as soon as practicable but no later than one year from the date of the acquisition.
Pro forma information related to the acquisition of DGPack s.r.o. has not been presented, as the effect of the acquisition on the Company's consolidated financial statements was not material.
13
Note 5 - Restructuring
The Company's restructuring activities in the three months ended September 30, 2022 were primarily comprised of restructuring activities related to the Russia-Ukraine conflict.
Restructuring and related expenses, net were $1 million and $8 million during the three months ended September 30, 2022 and 2021, respectively, and primarily relate to the Flexibles reporting segment. The expenses related to restructuring activities have been presented on the unaudited condensed consolidated statements of income as restructuring and related expenses, net.
| ($ in millions) | Employee Costs | Fixed Asset Related Costs | Other Costs | Total Restructuring Costs | ||||||||||||||||||||||
| Liability balance at June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
| Cash paid | ( | ( | ( | ( | ||||||||||||||||||||||
| Reversal of unused amounts | ( | ( | ||||||||||||||||||||||||
| Foreign currency translation | ( | ( | ( | |||||||||||||||||||||||
| Liability balance at September 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
14
Note 6 - Goodwill and Other Intangible Assets, Net
Goodwill
| ($ in millions) | Flexibles Segment | Rigid Packaging Segment | Total | |||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | |||||||||||||||||
| Acquisitions | ||||||||||||||||||||
| Foreign currency translation | ( | ( | ( | |||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | |||||||||||||||||
Goodwill is not amortized but is tested for impairment annually in the fourth quarter of the fiscal year, or during interim periods if events or circumstances arise which indicate that goodwill may be impaired.
Other Intangible Assets, Net
| September 30, 2022 | ||||||||||||||||||||
| ($ in millions) | Gross Carrying Amount | Accumulated Amortization and Impairment (1) | Net Carrying Amount | |||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||
| Computer software | ( | |||||||||||||||||||
| Other (2) | ( | |||||||||||||||||||
| Total other intangible assets | $ | $ | ( | $ | ||||||||||||||||
| June 30, 2022 | ||||||||||||||||||||
| ($ in millions) | Gross Carrying Amount | Accumulated Amortization and Impairment (1) | Net Carrying Amount | |||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||
| Computer software | ( | |||||||||||||||||||
| Other (2) | ( | |||||||||||||||||||
| Total other intangible assets | $ | $ | ( | $ | ||||||||||||||||
(1)Accumulated amortization and impairment included $32 million and $33 million for September 30, 2022 and June 30, 2022, respectively, of accumulated impairment in the Other category.
(2)Other included $16
Amortization expenses for intangible assets were $43 million and $45 million during the three months ended September 30, 2022 and 2021, respectively.
15
Note 7 - Fair Value Measurements
The fair values of the Company's financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price).
The Company's non-derivative financial instruments primarily include cash and cash equivalents, trade receivables, trade payables, short-term debt, and long-term debt. As of September 30, 2022 and June 30, 2022, the carrying value of these financial instruments, excluding long-term debt, approximated fair value because of the short-term nature of these instruments.
The carrying value and estimated fair value of long-term debt with fixed interest rates (including fixed-rate debt with designated receive-fixed/pay-variable interest rate swaps) were as follows:
| September 30, 2022 | June 30, 2022 | |||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||
| ($ in millions) | (Level 2) | (Level 2) | ||||||||||||||||||||||||
| Total long-term debt with fixed interest rates (excluding commercial paper and finance leases) | $ | $ | $ | $ | ||||||||||||||||||||||
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Additionally, the Company measures and records certain assets and liabilities, including derivative instruments and contingent purchase consideration liabilities, at fair value. The following table summarizes the fair value of these instruments, which are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
| September 30, 2022 | ||||||||||||||||||||||||||
| ($ in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | ||||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Contingent purchase consideration liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
| Commodity contracts | ||||||||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
16
| June 30, 2022 | ||||||||||||||||||||||||||
| ($ in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | ||||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Contingent purchase consideration liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
| Commodity contracts | ||||||||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
Contingent purchase consideration liabilities arise from business acquisitions. As of September 30, 2022, the Company's contingent purchase consideration liabilities consist of a $10 million liability that is contingent on future royalty income generated by Discma AG, a subsidiary acquired in March 2017, and a $6 million balance relating to consideration for small business acquisitions where payments are contingent on the Company vacating a certain property or performance criteria. The fair value of the contingent purchase consideration liabilities was determined for each arrangement individually. The fair value was determined using the income approach with significant inputs that are not observable in the market. Key assumptions include the discount rates consistent with the level of risk of achievement and probability adjusted financial projections. The expected outcomes are recorded at net present value, which requires adjustment over the life for changes in risks and probabilities. Changes arising from modifications in forecasts related to contingent consideration are expected to be immaterial.
The fair value of contingent purchase consideration liabilities is included in other current liabilities and other non-current liabilities in the unaudited condensed consolidated balance sheets.
Assets and Liabilities Measured and Recorded at Fair Value on a Nonrecurring Basis
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a nonrecurring basis. These nonrecurring fair value measurements are considered to be Level 3 in the fair value hierarchy.
As further discussed in Note 3 -"Held for Sale," during the fourth quarter of fiscal year 2022, the Company met the criteria to recognize the Russian business as held for sale which resulted in the Company remeasuring the disposal group at its fair value, less cost to sell, which is considered a Level 3 fair value measurement. In the first quarter of fiscal year 2023, the Company has obtained indicative bids on which basis the expected fair value less costs to sell the Russian business has been updated, which did not result in a change to the previously recognized impairment.
During the three months ended September 30, 2021, long-lived assets with a carrying value of $12 million were written down to a fair value of zero as the Company's Durban, South Africa, manufacturing facility was destroyed in a fire as the result of general civil unrest. In addition, other long-lived assets in South Africa, with a carrying amount of $8 million, were written down to their estimated fair value of $4 million using level 3 inputs. These expenses are included within other income/(expenses), net in the accompanying unaudited condensed consolidated statements of income.
The Company tests indefinite-lived intangibles, including goodwill, for impairment when facts and circumstances indicate the carrying value may not be recoverable. These nonrecurring fair value measurements are considered to be Level 3 in the fair value hierarchy. During the three months ended September 30, 2022, and 2021, there were no
17
Note 8 - Derivative Instruments
The Company periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity price, and currency risks. The Company does not hold or issue derivative instruments for speculative or trading purposes. For hedges that meet the hedge accounting criteria, the Company, at inception, formally designates and documents the instruments as a fair value hedge or a cash flow hedge of a specific underlying exposure. On an ongoing basis, the Company assesses and documents that its hedges have been and are expected to continue to be highly effective.
Interest Rate Risk
The Company's 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 various interest rate derivative instruments including, but not limited to, interest rate swaps, cross-currency interest rate swaps, and interest rate locks. For interest rate swaps that are accounted for as fair value hedges, the gains and losses related to the changes in the fair value of the interest rate swaps are included in interest expense and offset changes in the fair value of the hedged portion of the underlying debt that are attributable to the changes in market interest rates. Changes in the fair value of interest rate swaps that have not been designated as hedging instruments are reported in the accompanying unaudited condensed consolidated statements of income in other non-operating income, net.
As of September 30, 2022, and June 30, 2022, the total notional amount of the Company’s receive-fixed/pay-variable interest rate swaps accounted for as fair value hedges was $650
Foreign Currency Risk
The Company manufactures and sells its products and finances operations in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The purpose of the Company's foreign currency hedging program is to manage the volatility associated with the changes in exchange rates.
To manage this exchange rate risk, the Company utilizes forward contracts. Contracts that qualify for hedge accounting are designated as cash flow hedges of certain forecasted transactions denominated in foreign currencies. The effective portion of the changes in fair value of these instruments is reported in accumulated other comprehensive loss ("AOCI") and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion is recognized in earnings over the life of the hedging relationship in the same consolidated statements of income line item as the underlying hedged item. Changes in the fair value of forward contracts that have not been designated as hedging instruments are reported in the accompanying unaudited condensed consolidated statements of income.
As of September 30, 2022, and June 30, 2022, the notional amount of the outstanding forward contracts was $0.9 billion and $1.0 billion, respectively.
Commodity Risk
Certain raw materials used in the Company's production processes are subject to price volatility caused by weather, supply conditions, political and economic variables, and other unpredictable factors. The Company's policy is to minimize exposure to price volatility by passing through the commodity price risk to customers, including the use of fixed price swaps.
The Company purchases on behalf of customers fixed price commodity swaps to offset the exposure of price volatility on the underlying sales contracts. These instruments are cash closed out on maturity and the related cost or benefit is passed through to customers. Information about commodity price exposure is derived from supply forecasts submitted by customers and these exposures are hedged by central treasury units. Changes in the fair value of commodity hedges are recognized in AOCI. The cumulative amount of the hedge is recognized in the unaudited condensed consolidated statements of income when the forecasted transaction is realized.
| September 30, 2022 | June 30, 2022 | |||||||||||||
| Commodity | Volume | Volume | ||||||||||||
| Aluminum | ||||||||||||||
| PET resin | ||||||||||||||
18
| ($ in millions) | Balance Sheet Location | September 30, 2022 | June 30, 2022 | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Derivatives in cash flow hedging relationships: | ||||||||||||||||||||
| Commodity contracts | $ | $ | ||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||
| Total current derivative contracts | ||||||||||||||||||||
| Total non-current derivative contracts | ||||||||||||||||||||
| Total derivative asset contracts | $ | $ | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Derivatives in cash flow hedging relationships: | ||||||||||||||||||||
| Commodity contracts | $ | $ | ||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||
| Total current derivative contracts | ||||||||||||||||||||
| Derivatives in cash flow hedging relationships: | ||||||||||||||||||||
| Forward exchange contracts | ||||||||||||||||||||
| Derivatives in fair value hedging relationships: | ||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||
| Total non-current derivative contracts | ||||||||||||||||||||
| Total derivative liability contracts | $ | $ | ||||||||||||||||||
| Location of Gain / (Loss) Reclassified from AOCI into Income (Effective Portion) | Gain / (Loss) Reclassified from AOCI into Income (Effective Portion) | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Derivatives in cash flow hedging relationships | ||||||||||||||||||||||||||||||||
| Commodity contracts | $ | $ | ||||||||||||||||||||||||||||||
| Treasury locks | ( | ( | ||||||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||||||||
19
| Location of Loss Recognized in the Unaudited Condensed Consolidated Statements of Income | Loss Recognized in Income for Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||
| Forward exchange contracts | Other income/(expenses), net | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Total | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| Location of Loss Recognized in the Unaudited Condensed Consolidated Statements of Income | Loss Recognized in Income for Derivatives in Fair Value Hedging Relationships | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Derivatives in fair value hedging relationships | ||||||||||||||||||||||||||||||||
| Interest rate swaps | Interest expense | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Total | $ | ( | $ | ( | ||||||||||||||||||||||||||||
20
Note 9 - Components of Net Periodic Benefit Cost
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Service cost | $ | $ | ||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ||||||||||||||||||||||||
| Amortization of actuarial loss | ||||||||||||||||||||||||||
| Amortization of prior service credit | ( | ( | ||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | ||||||||||||||||||||||||
21
Note 10 - Income Taxes
The provision for income taxes for the three months ended September 30, 2022 and 2021 is based on the Company’s estimated annual effective tax rate for the respective fiscal years, and is applied on income before income taxes, and adjusted for specific items that are required to be recognized in the period in which they are incurred.
The effective tax rate for the three months ended September 30, 2022 decreased by 3.8 percentage points compared to the three months ended September 30, 2021 from 23.7 % to 19.9 % primarily due to differences in the income mix, including higher and non-deductible expenses that did not recur in the current period, and differences in the magnitude of discrete events in both periods.
22
Note 11 - Shareholders' Equity
| Ordinary Shares | Treasury Shares | |||||||||||||||||||||||||
| (shares and $ in millions) | Number of Shares | Amount | Number of Shares | Amount | ||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | ( | |||||||||||||||||||||||
| Share buy-back / cancellations | ( | |||||||||||||||||||||||||
| Options exercised and shares vested | ( | |||||||||||||||||||||||||
| Purchase of treasury shares | ( | |||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | ( | |||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | ( | |||||||||||||||||||||||
| Options exercised and shares vested | ( | |||||||||||||||||||||||||
| Purchase of treasury shares | ( | |||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | ( | |||||||||||||||||||||||
| Foreign Currency Translation | Net Investment Hedge | Pension | Effective Derivatives | Total Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||
| ($ in millions) | (Net of Tax) | (Net of Tax) | (Net of Tax) | (Net of Tax) | ||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||
| Other comprehensive income / (loss) before reclassifications | ( | ( | ||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | ||||||||||||||||||||||||||||||
| Net current period other comprehensive loss | ( | ( | ( | |||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | ( | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||
| Other comprehensive loss before reclassifications | ( | ( | ( | |||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | ||||||||||||||||||||||||||||||
| Net current period other comprehensive loss | ( | ( | ( | |||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||
23
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Amortization of pension: | ||||||||||||||||||||||||||
| Amortization of prior service credit | $ | ( | $ | ( | ||||||||||||||||||||||
| Amortization of actuarial loss | ||||||||||||||||||||||||||
| Total before tax effect | ||||||||||||||||||||||||||
| Tax effect on amounts reclassified into earnings | ||||||||||||||||||||||||||
| Total net of tax | $ | $ | ||||||||||||||||||||||||
| (Gains) / losses on cash flow hedges: | ||||||||||||||||||||||||||
| Commodity contracts | $ | ( | $ | ( | ||||||||||||||||||||||
| Treasury locks | ||||||||||||||||||||||||||
| Total before tax effect | ( | ( | ||||||||||||||||||||||||
| Tax effect on amounts reclassified into earnings | ||||||||||||||||||||||||||
| Total net of tax | $ | ( | $ | ( | ||||||||||||||||||||||
Forward contracts to purchase own shares
The Company's employee share plans require the delivery of shares to employees in the future when rights vest or vested options are exercised. The Company currently acquires shares on the open market to deliver shares to employees to satisfy vesting or exercising commitments. This exposes the Company to market price risk.
To manage the market price risk, the Company has entered into forward contracts for the purchase of its ordinary shares. As of September 30, 2022, the Company had forward contracts outstanding that mature between March 2023 and May 2023 to purchase 11 million shares at a weighted average price of $12.45 . As of June 30, 2022, the Company had forward contracts outstanding that mature between November 2022 and June 2023 to purchase 14 million shares at a weighted average price of $12.67 . During the quarter ended September 30, 2022, forward contracts related to 9 million shares were settled, which were outstanding as of June 30, 2022.
The forward contracts to purchase the Company's own shares are classified as a current liability. Equity is reduced by an amount equal to the fair value of the shares at inception. The carrying value of the forward contracts at each reporting period was determined based on the present value of the cost required to settle the contracts.
24
Note 12 - Segments
The Company's business is organized and presented in the two
Flexibles: Consists of operations that manufacture flexible and film packaging in the food and beverage, medical and pharmaceutical, fresh produce, snack food, personal care, and other industries.
Rigid Packaging: Consists of operations that manufacture rigid containers for a broad range of predominantly beverage and food products, including carbonated soft drinks, water, juices, sports drinks, milk-based beverages, spirits and beer, sauces, dressings, spreads and personal care items, and plastic caps for a wide variety of applications.
Other consists of the Company's undistributed corporate expenses including executive and functional compensation costs, equity method and other investments, intercompany eliminations, and other business activities.
25
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Sales including intersegment sales | ||||||||||||||||||||||||||
| Flexibles | $ | $ | ||||||||||||||||||||||||
| Rigid Packaging | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total sales including intersegment sales | ||||||||||||||||||||||||||
| Intersegment sales | ||||||||||||||||||||||||||
| Flexibles | ||||||||||||||||||||||||||
| Rigid Packaging | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total intersegment sales | ||||||||||||||||||||||||||
| Net sales | $ | $ | ||||||||||||||||||||||||
| Adjusted earnings before interest and taxes ("Adjusted EBIT") | ||||||||||||||||||||||||||
| Flexibles | $ | $ | ||||||||||||||||||||||||
| Rigid Packaging | ||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||
| Adjusted EBIT | ||||||||||||||||||||||||||
| Less: Material restructuring programs (1) | ( | |||||||||||||||||||||||||
| Add/(Less): Material acquisition costs and other (2) | ( | |||||||||||||||||||||||||
| Less: Amortization of acquired intangible assets from business combinations (3) | ( | ( | ||||||||||||||||||||||||
| Less: Impact of hyperinflation (4) | ( | ( | ||||||||||||||||||||||||
| Less: Property and other losses, net (5) | ( | |||||||||||||||||||||||||
| Less: Russia-Ukraine conflict impacts (6) | ( | |||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| Income before income taxes | $ | $ | ||||||||||||||||||||||||
(1)Material restructuring programs includes restructuring and related expenses for the 2019 Bemis Integration Plan for the three months ended September 30, 2021.
(2)Material acquisition costs and other includes costs / releases of accruals associated with the Bemis transaction.
(3)Amortization of acquired intangible assets from business combinations includes amortization expenses related to all acquired intangible assets from past acquisitions.
(4)Impact of hyperinflation includes the adverse impact of highly inflationary accounting for subsidiaries in Argentina where the functional currency was the Argentine Peso.
(5)Property and other losses, net includes property and related business losses primarily associated with the destruction of the Company's Durban, South Africa, facility during general civil unrest in July 2021, net of insurance recovery.
(6)Russia-Ukraine conflict impacts include incremental costs incurred in connection with the conflict.
26
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
| ($ in millions) | Flexibles | Rigid Packaging | Total | Flexibles | Rigid Packaging | Total | ||||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Latin America | ||||||||||||||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
27
Note 13 - Earnings Per Share Computations
The Company applies the two-class method when computing its earnings per share ("EPS"), which requires that net income per share for each class of share be calculated assuming all of the Company's net income is distributed as dividends to each class of share based on their contractual rights.
Basic EPS is computed by dividing net income available to ordinary shareholders by the weighted-average number of ordinary shares outstanding after excluding the ordinary shares to be repurchased using forward contracts. Diluted EPS includes the effects of share options, restricted shares, performance rights, performance shares, and share rights, if dilutive.
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Numerator | ||||||||||||||||||||||||||||||||||||||
| Net income attributable to Amcor plc | $ | $ | ||||||||||||||||||||||||||||||||||||
| Distributed and undistributed earnings attributable to shares to be repurchased | ( | |||||||||||||||||||||||||||||||||||||
| Net income available to ordinary shareholders of Amcor plc—basic and diluted | $ | $ | ||||||||||||||||||||||||||||||||||||
| Denominator | ||||||||||||||||||||||||||||||||||||||
| Weighted-average ordinary shares outstanding | ||||||||||||||||||||||||||||||||||||||
| Weighted-average ordinary shares to be repurchased by Amcor plc | ( | ( | ||||||||||||||||||||||||||||||||||||
| Weighted-average ordinary shares outstanding for EPS—basic | ||||||||||||||||||||||||||||||||||||||
| Effect of dilutive shares | ||||||||||||||||||||||||||||||||||||||
| Weighted-average ordinary shares outstanding for EPS—diluted | ||||||||||||||||||||||||||||||||||||||
| Per ordinary share income | ||||||||||||||||||||||||||||||||||||||
| Basic earnings per ordinary share | $ | $ | ||||||||||||||||||||||||||||||||||||
| Diluted earnings per ordinary share | $ | $ | ||||||||||||||||||||||||||||||||||||
Certain outstanding share options were excluded from the diluted earnings per share calculation because they were anti-dilutive. The excluded share options for the three months ended September 30, 2022 and 2021 represented an aggregate of 9 million and 2 million shares, respectively.
28
Note 14 - Contingencies and Legal Proceedings
Contingencies - Brazil
The Company's operations in Brazil are involved in various governmental assessments and litigation, principally related to claims for excise and income taxes. The Company vigorously defends its positions and believes it will prevail on most, if not all, of these matters. The Company does not believe that the ultimate resolution of these matters will materially impact the Company's consolidated results of operations, financial position, or cash flows. Under customary local regulations, the Company's Brazilian subsidiaries may need to post cash or other collateral if a challenge to any administrative assessment proceeds to the Brazilian court system; however, the level of cash or collateral already pledged or potentially required to be pledged would not significantly impact the Company's liquidity. At September 30, 2022 and June 30, 2022, the Company had recorded accruals of $12 20
As of September 30, 2022, the Company has provided letters of credit of $36 million, judicial insurance of $1 million, and deposited cash of $11 million with the courts to continue to defend the cases.
Contingencies - Environmental Matters
The Company, along with others, has been identified as a potentially responsible party ("PRP") at several waste disposal sites under U.S. federal and related state environmental statutes and regulations and may face potentially material environmental remediation obligations. While the Company benefits from various forms of insurance policies, actual coverage may not, or only partially, cover the total potential exposures. The Company has recorded $17 million aggregate accruals for its share of estimated future remediation costs at these sites.
In addition to the matters described above, the Company has also recorded aggregate accruals of $40 million for potential liabilities for remediation obligations at various worldwide locations that are owned or operated by the Company, or were formerly owned or operated.
The SEC requires the Company to disclose certain information about proceedings arising under federal, state, or local environmental provisions if the Company reasonably believes that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to SEC regulations, the Company uses a threshold of $1 million or more for purposes of determining whether disclosure of any such proceedings is required. Applying this threshold, there are no environmental matters required to be disclosed for the three months ended September 30, 2022.
While the Company believes that its accruals are adequate to cover its future obligations, there can be no assurance that the ultimate payments will not exceed the accrued amounts. Nevertheless, based on the available information, the Company does not believe that its potential environmental obligations will have a material adverse effect upon its liquidity, results of operations, or financial condition.
Other Matters
In the normal course of business, the Company is subject to legal proceedings, lawsuits, and other claims. While the potential financial impact with respect to these ordinary course matters is subject to many factors and uncertainties, management believes that any financial impact to the Company from these matters, individually and in the aggregate, would not have a material adverse effect upon its liquidity, results of operations, or financial condition.
29
Note 15 - Subsequent Events
On November 1, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.1225 per share to be paid on December 13, 2022 to shareholders of record as of November 23, 2022. Amcor has received a waiver from the Australian Securities Exchange ("ASX") settlement operating rules, which will allow Amcor to defer processing conversions between ordinary share and CHESS Depositary Instrument ("CDI") registers from November 23, 2022 to November 24, 2022, inclusive.
At the end of October 2022, the Company entered into interest rate swap contracts for a total notional amount of $1.25 billion. Under the terms of the contracts, the Company will pay a weighted-average fixed rate of interest of 4.53 % and receive a variable rate of interest, based on compound overnight SOFR, for the period from November 2022 through June 2023, settled monthly. The Company expects that the interest rate swap contracts will effectively hedge the SOFR component for $1.25 billion of ongoing USD commercial paper issuances at 4.53 %.
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis ("MD&A") should be read in conjunction with our Form 10-K for fiscal year 2022 filed with the U.S Securities and Exchange Commission (the "SEC") on August 18, 2022, together with the unaudited condensed consolidated financial statements and accompanying notes included in Part 1, Item 1 of this Form 10-Q. Throughout the MD&A, amounts and percentages may not recalculate due to rounding.
Summary of Financial Results
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,712 | 100.0 | % | $ | 3,420 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | (3,044) | (82.0 | %) | (2,770) | (81.0 | %) | ||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 668 | 18.0 | % | 650 | 19.0 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | (302) | (8.1 | %) | (313) | (9.2 | %) | ||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | (25) | (0.7 | %) | (25) | (0.7 | %) | ||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and related expenses, net | (1) | — | % | (8) | (0.2 | %) | ||||||||||||||||||||||||||||||||||||||||||||
| Other income/(expenses), net | 2 | 0.1 | % | (8) | (0.2 | %) | ||||||||||||||||||||||||||||||||||||||||||||
| Operating income | 342 | 9.2 | % | 296 | 8.7 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Interest income | 9 | 0.2 | % | 5 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (59) | (1.6 | %) | (40) | (1.2 | %) | ||||||||||||||||||||||||||||||||||||||||||||
| Other non-operating income, net | — | — | % | 5 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 292 | 7.9 | % | 266 | 7.8 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | (58) | (1.6 | %) | (63) | (1.8 | %) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 234 | 6.3 | % | $ | 203 | 5.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interests | (2) | (0.1 | %) | (1) | — | % | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Amcor plc | $ | 232 | 6.3 | % | $ | 202 | 5.9 | % | ||||||||||||||||||||||||||||||||||||||||||
31
Overview
Amcor is a global leader in developing and producing responsible packaging for food, beverage, pharmaceutical, medical, home and personal-care, and other products. We work with leading companies around the world to protect their products and the people who rely on them, differentiate brands, and improve supply chains through a range of flexible and rigid packaging, specialty cartons, closures, and services. We are focused on making packaging that is increasingly light-weighted, recyclable and reusable, and made using an increasing amount of recycled content. During fiscal year 2022, Amcor generated $14.5 billion in net sales.
Significant Items Affecting the Periods Presented
Raw Material, Inflation, and Supply Chain Trends
During the first quarter of fiscal year 2023, we continued to experience intermittent supply shortages and price volatility of certain resins and raw materials as a result of market dynamics 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. The underlying causes for the continued volatility can be attributed to a variety of factors, including the ongoing impacts of the COVID-19 pandemic resulting in labor shortages and transportation constraints, energy shortages and the ongoing impacts of macroeconomic and geopolitical conditions which are tied to the Russia-Ukraine conflict. We will continue to work closely with our suppliers and customers, leveraging our global capabilities and expertise to work through supply 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 our mitigating measures will be able to fully mitigate the impact of ongoing inflation.
Impact of COVID-19
We continue to monitor the impact of the ongoing 2019 Novel Coronavirus ("COVID-19") pandemic on all aspects of our business. The COVID-19 pandemic has resulted in intermittent regional government restrictions on the movement of people, goods, and non-essential services resulting in a period of historic uncertainty and challenges. We remain focused on our commitment to the health and safety of our employees as our first priority. We expect to continue to evaluate our response and related precautions until the COVID-19 pandemic has been fully resolved as a public health crisis.
Most of the countries in which we operate currently have little to no COVID-19 related restrictions, with the exception of China, which continues to initiate lockdowns related to the pandemic. These lockdowns have impacted demand and may continue to impact demand for our products and have also led to supply chain disruptions and other challenges. Throughout the COVID-19 pandemic, our facilities have largely been exempt from government mandated closure orders and while governmental measures may be modified, we expect that our facilities will remain operational given the essential products we supply. However, despite our best efforts to contain the impact in our facilities, it remains possible that significant disruptions could occur as a result of the pandemic, including temporary closures of our facilities due to outbreaks of the virus among our workforce or government mandates.
We continue to believe we are well-positioned to meet the challenges of the ongoing COVID-19 pandemic. However, we cannot reasonably estimate the duration and severity of this pandemic or its ultimate impact on the global economy and our operations and financial results. The ultimate near-term impact of the pandemic on our business will depend on the extent and nature of any future disruptions across the supply chain, the implementation of further social distancing measures and other government-imposed restrictions, as well as the nature and pace of macroeconomic recovery in key global economies.
Russia and Ukraine Conflict
Russia's invasion of Ukraine that began in February 2022 continues as of the date of the filing of this quarterly report. In advance of the invasion, we proactively suspended operations at our small manufacturing site in Ukraine. We also operate three manufacturing facilities in Russia. In the fourth quarter of fiscal year 2022, after a thorough review of our strategic options, we committed to sell our Russian operations, which resulted in a non-cash $90 million impairment charge. During the first quarter of fiscal year 2023, we received indicative bids for our Russian operations which are subject to due diligence. Based on these indicative bids, the fair value less costs to sell our Russian operations has been updated, which did not result in a
32
change to the previously recognized impairment. We continue to expect the sale of our Russian operations will be completed in fiscal year 2023.
Since our decision in March 2022 to scale back our Russian operations, we have remained committed to continuing to support our Russian and Ukrainian employees and customers. We are proactively taking steps to mitigate the financial impact of exiting our Russian operations, including adjusting our European footprint to reallocate and consolidate volumes from Russia and Ukraine to leverage utilization and deliver enhanced efficiencies across Central and Western Europe, as well as taking actions to restructure our regional cost base. We expect approximately $30 million in additional restructuring and other costs in fiscal year 2023 related to our exit decision.
For further information, refer to Note 3, "Held for Sale," and Note 5, "Restructuring" of "Part I, Item 1, Notes to Condensed Consolidated Financial Statements."
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 has been 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 in the three months ended September 30, 2022 and 2021 resulted in a negative impact of $8 million and $2 million, respectively, in foreign currency transaction losses that was reflected in the unaudited condensed consolidated statements of income.
33
Results of Operations - Three Months Ended September 30, 2022
Consolidated Results of Operations
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions, except per share data) | 2022 | 2021 | ||||||||||||
| Net sales | $ | 3,712 | $ | 3,420 | ||||||||||
| Operating income | 342 | 296 | ||||||||||||
| Operating income as a percentage of net sales | 9.2 | % | 8.7 | % | ||||||||||
| Net income attributable to Amcor plc | $ | 232 | $ | 202 | ||||||||||
| Diluted Earnings Per Share | $ | 0.155 | $ | 0.131 | ||||||||||
Net sales increased by $292 million, or 9%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Excluding the pass-through of raw material costs of $398 million, negative currency impacts of $207 million, and negative net impact of acquisitions, disposed, and ceased operations of $10 million, the increase in net sales for the three months ended September 30, 2022 was $111 million, or 3%, driven by favorable price/mix of 4% and unfavorable volumes of 1%.
Net income attributable to Amcor plc increased by $30 million, or 15%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, mainly as a result of increased gross profit of $18 million generated by net sales improvement, and lower selling, general, and administrative (“SG&A”) and other expenses of $28 million, partially offset by higher interest expense of $19 million.
Diluted earnings per share ("Diluted EPS") increased by $0.024, or by 18%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, with the net income attributable to ordinary shareholders of Amcor plc increasing by 15% and the diluted weighted average number of shares outstanding decreasing by 3%. The decrease in the diluted weighted-average number of shares outstanding was due to repurchase of shares under announced share buyback programs.
Segment Results of Operations
Flexibles Segment
The Flexibles reportable segment develops and supplies flexible packaging globally.
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Net sales including intersegment sales | $ | 2,779 | $ | 2,634 | ||||||||||
| Adjusted EBIT | 353 | 339 | ||||||||||||
| Adjusted EBIT as a percentage of net sales | 12.7 | % | 12.9 | % | ||||||||||
Net sales including intersegment sales increased by $145 million, or by 6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Excluding the pass-through of raw material costs of $267 million, negative currency impacts of $201 million, and negative net impact of acquisitions, disposed, and ceased operations of $10 million, the increase in net sales, including intersegment sales, for the three months ended September 30, 2022, was $89 million, or 3%, driven by favorable price/mix of 4%, and unfavorable volumes of 1%.
Adjusted earnings before interest and tax ("Adjusted EBIT") increased by $14 million, or by 4%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Excluding negative currency impacts of $21 million and the negative net impact of acquisitions, disposed, and ceased operations of $2 million, the increase in Adjusted EBIT for the three months ended September 30, 2022, was $37 million, or 11%, driven by favorable price/mix of 19%, partially offset by unfavorable SG&A and other costs of (4%), unfavorable plant costs of (3%), and unfavorable volumes of (1%).
34
Rigid Packaging Segment
The Rigid Packaging reportable segment manufactures rigid packaging containers and related products.
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Net sales | $ | 933 | $ | 786 | ||||||||||
| Adjusted EBIT | 66 | 62 | ||||||||||||
| Adjusted EBIT as a percentage of net sales | 7.1 | % | 7.9 | % | ||||||||||
Net sales increased by $147 million, or by 19%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Excluding the pass-through of raw material costs of $132 million and negative currency impacts of $6 million, the increase in net sales for the three months ended September 30, 2022 was $21 million, or 3%, driven by favorable volumes of 1% and favorable price/mix of 2%.
Adjusted EBIT increased by $4 million, or by 6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Excluding negative currency impacts of $1 million, the increase in Adjusted EBIT for
the three months ended September 30, 2022, was $5 million, or 7%, driven primarily by favorable volumes of 8%, favorable
price/mix of 34%, partially offset by unfavorable SG&A, and other costs of (6%) and unfavorable plant costs of (29%) driven
primarily by inflation on operating costs including higher energy and labor costs.
Consolidated Gross Profit
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Gross profit | $ | 668 | $ | 650 | ||||||||||
| Gross profit as a percentage of net sales | 18.0 | % | 19.0 | % | ||||||||||
Gross profit increased by $18 million, or by 3%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily driven by the increase in net sales of 3% referred to above. Gross profit as a percentage of sales decreased to 18.0% for the three months ended September 30, 2022, primarily due to the impact on the calculation from the pass through of higher raw material costs during the current fiscal quarter.
Consolidated Selling, General, And Administrative Expenses
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Selling, general, and administrative expenses | $ | (302) | $ | (313) | ||||||||||
| Selling, general, and administrative expenses as a percentage of net sales | (8.1) | % | (9.2) | % | ||||||||||
Selling, general, and administrative expenses decreased by $11 million, or by 4%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily driven by positive currency impacts during the current fiscal quarter.
Consolidated Other Income/(Expenses), Net
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Other income/(expenses), net | $ | 2 | $ | (8) | ||||||||||
| Other income/(expenses), net as a percentage of net sales | 0.1 | % | (0.2) | % | ||||||||||
Other income/(expenses), net fluctuated by $10 million, or by 125%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, driven by the non-recurrence of property and related business losses primarily associated with the destruction of our Durban, South Africa, facility in July 2021.
35
Consolidated Interest Expense
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Interest expense | $ | (59) | $ | (40) | ||||||||||
| Interest expense as a percentage of net sales | (1.6 | %) | (1.2) | % | ||||||||||
Interest expense increased by $19 million, or by 48%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, driven by increased interest rates on our variable rate debt.
Consolidated Income Tax Expense
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Income tax expense | $ | (58) | $ | (63) | ||||||||||
| Effective income tax rate | 19.9 | % | 23.7 | % | ||||||||||
The provision for income taxes for the three months ended September 30, 2022 and 2021 is based on our estimated annual effective tax rate for the respective fiscal years, and is applied on income before income taxes, and adjusted for specific items that are required to be recognized in the period in which they are incurred.
The effective tax rate for the three months ended September 30, 2022 decreased by 3.8 percentage points compared to the three months ended September 30, 2021, primarily due to differences in the income mix, including higher and non-deductible expenses that did not recur in the current period, and the difference in magnitude of discrete events in both periods.
36
Presentation of Non-GAAP Information
This Quarterly Report on Form 10-Q 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 significant tax reforms, certain amounts related to the effect of changes in currency exchange rates, acquisitions, and restructuring, including employee-related costs, equipment relocation costs, accelerated depreciation, and the write-down of equipment. These measures also exclude gains or losses on sales of significant property and divestitures, significant property and other impairments, net of insurance recovery, certain litigation matters, significant pension settlements, impairments in goodwill and equity method investments, and certain acquisition-related expenses, including transaction expenses, due diligence expenses, professional and legal fees, purchase accounting adjustments for inventory, order backlog, intangible amortization, changes in the fair value of deferred acquisition payments, and impacts related to the Russia-Ukraine conflict.
This adjusted information should not be construed as an alternative to results determined in accordance with U.S. GAAP. We use the non-GAAP measures to evaluate operating performance and believe that these non-GAAP measures are useful to enable investors and other external parties to perform comparisons of our current and historical performance.
A reconciliation of reported net income attributable to Amcor plc to EBIT, Adjusted EBIT and Adjusted net income for the three months ended September 30, 2022 and 2021 is as follows:
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Net income attributable to Amcor plc, as reported | $ | 232 | $ | 202 | ||||||||||||||||||||||
| Add: Net income attributable to non-controlling interests | 2 | 1 | ||||||||||||||||||||||||
| Net income | 234 | 203 | ||||||||||||||||||||||||
| Add: Income tax expense | 58 | 63 | ||||||||||||||||||||||||
| Add: Interest expense | 59 | 40 | ||||||||||||||||||||||||
| Less: Interest income | (9) | (5) | ||||||||||||||||||||||||
| EBIT | 342 | 301 | ||||||||||||||||||||||||
| Add: Material restructuring programs (1) | — | 7 | ||||||||||||||||||||||||
| Add/(Less): Material acquisition costs and other (2) | (1) | 2 | ||||||||||||||||||||||||
| Add: Amortization of acquired intangible assets from business combinations (3) | 40 | 41 | ||||||||||||||||||||||||
| Add: Impact of hyperinflation (4) | 8 | 2 | ||||||||||||||||||||||||
| Add: Property and other losses, net (5) | — | 28 | ||||||||||||||||||||||||
| Add: Russia-Ukraine conflict impacts (6) | 3 | — | ||||||||||||||||||||||||
| Adjusted EBIT | $ | 392 | $ | 381 | ||||||||||||||||||||||
| Less: Income tax expense | (58) | (63) | ||||||||||||||||||||||||
| Less: Adjustments to income tax expense (7) | (11) | (11) | ||||||||||||||||||||||||
| Less: Interest expense | (59) | (40) | ||||||||||||||||||||||||
| Add: Interest income | 9 | 5 | ||||||||||||||||||||||||
| Less: Net income attributable to non-controlling interests | (2) | (1) | ||||||||||||||||||||||||
| Adjusted net income | $ | 271 | $ | 271 | ||||||||||||||||||||||
(1)Material restructuring programs includes restructuring and related expenses for the 2019 Bemis Integration Plan for the three months ended September 30, 2021.
(2)Material acquisition costs and other includes costs / releases of accruals associated with the Bemis transaction.
(3)Amortization of acquired intangible assets from business combinations includes amortization expenses related to all acquired intangible assets from past acquisitions.
(4)Impact of hyperinflation includes the adverse impact of highly inflationary accounting for subsidiaries in Argentina where the functional currency was the Argentine Peso.
(5)Property and other losses, net includes property and related business losses primarily associated with the destruction of our Durban, South Africa, facility during general civil unrest in July 2021, net of insurance recovery.
(6)Russia-Ukraine conflict impacts include incremental costs incurred in connection with the conflict.
(7)Net tax impact on items (1) through (6) above.
37
Reconciliation of Net Debt
A reconciliation of total debt to net debt at September 30, 2022 and June 30, 2022 is as follows:
| ($ in millions) | September 30, 2022 | June 30, 2022 | ||||||||||||
| Current portion of long-term debt | $ | 14 | $ | 14 | ||||||||||
| Short-term debt | 62 | 136 | ||||||||||||
| Long-term debt, less current portion | 6,879 | 6,340 | ||||||||||||
| Total debt | 6,955 | 6,490 | ||||||||||||
| Less cash and cash equivalents | 562 | 775 | ||||||||||||
| Net debt | $ | 6,393 | $ | 5,715 | ||||||||||
38
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. and Amcor UK Finance plc.
• $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
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.
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, 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. and Amcor UK Finance plc (as subsidiary issuers of the notes and guarantors of each other’s notes), and Amcor Finance (USA), Inc. and Amcor Pty Ltd (as the remaining subsidiary guarantors).
39
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) | Three Months Ended September 30, 2022 | |||||||
| Net sales - external | $ | 278 | ||||||
| Net sales - to subsidiaries outside the Obligor Group | 2 | |||||||
| Total net sales | 280 | |||||||
| Gross profit | 48 | |||||||
| Net income (1) | $ | (613) | ||||||
| Net (income)/loss attributable to non-controlling interests | — | |||||||
| Net income attributable to Obligor Group | $ | (613) | ||||||
(1)Includes $514 million net expense from internal reorganization.
Balance Sheets for Obligor Group
| ($ in millions) | September 30, 2022 | June 30, 2022 | ||||||||||||
| Assets | ||||||||||||||
| Current assets - external | $ | 1,174 | $ | 1,254 | ||||||||||
| Current assets - due from subsidiaries outside the Obligor Group | 62 | 83 | ||||||||||||
| Total current assets | 1,236 | 1,337 | ||||||||||||
| Non-current assets - external | 1,399 | 1,396 | ||||||||||||
| Non-current assets - due from subsidiaries outside the Obligor Group | 9,782 | 10,978 | ||||||||||||
| Total non-current assets | 11,181 | 12,374 | ||||||||||||
| Total assets | $ | 12,417 | $ | 13,711 | ||||||||||
| Liabilities | ||||||||||||||
| Current liabilities - external | $ | 988 | $ | 2,014 | ||||||||||
| Current liabilities - due to subsidiaries outside the Obligor Group | 14 | 23 | ||||||||||||
| Total current liabilities | 1,002 | 2,037 | ||||||||||||
| Non-current liabilities - external | 7,044 | 6,456 | ||||||||||||
| Non-current liabilities - due to subsidiaries outside the Obligor Group | 10,025 | 11,255 | ||||||||||||
| Total non-current liabilities | 17,069 | 17,711 | ||||||||||||
| Total liabilities | $ | 18,071 | $ | 19,748 | ||||||||||
40
New Accounting Pronouncements
Refer to Note 2, "New Accounting Guidance," in "Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements."
Critical Accounting Estimates and Judgments
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed 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. 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. These critical accounting estimates are discussed in detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates and Judgments” in our Annual Report on Form 10-K for the year ended June 30, 2022. There have been no material changes in critical accounting estimates and judgments as of September 30, 2022 from those described in our Annual Report on Form 10-K for the year ended June 30, 2022.
41
Liquidity and Capital Resources
We finance our business primarily through cash flows provided by operating activities, borrowings from banks, and proceeds from issuances of debt and equity. We periodically review our capital structure and liquidity position in light of market conditions, expected future cash flows, potential funding requirements for debt refinancing, capital expenditures and acquisitions, the cost of capital, sensitivity analyses reflecting downside scenarios, the impact on our financial metrics and credit ratings, and our ease of access to funding sources.
The COVID-19 pandemic and geopolitical tensions have not materially impacted our liquidity position, current and expected cash flows from operating activities, or available cash. We believe that our cash flows provided by operating activities, together with borrowings available under our credit facilities and access to the commercial paper market, backstopped by our bank debt facilities, will continue to provide sufficient liquidity to fund our operations, capital expenditures, and other commitments, including dividends and purchases of our ordinary shares and CHESS Depositary Instruments under authorized share repurchase programs, into the foreseeable future.
Overview
| Three Months Ended September 30, | ||||||||||||||
| ($ in millions) | 2022 | 2021 | ||||||||||||
| Net cash used in operating activities | $ | (260) | $ | (112) | ||||||||||
| Net cash used in investing activities | (240) | (145) | ||||||||||||
| Net cash provided by financing activities | 326 | 67 | ||||||||||||
Cash Flow Overview
Net Cash Used in Operating Activities
Net cash used in operating activities increased by $148 million, or by 133%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase in cash outflow is primarily driven by higher inventory levels to mitigate variability of raw material supply over the last twelve months along with the timing of higher raw material costs on working capital.
Net Cash Used in Investing Activities
Net cash used in investing activities increased by $95 million, or by 66%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase in cash outflow was primarily due to the acquisition of DGPack s.r.o. and additional investments in affiliated companies.
Net Cash Provided by Financing Activities
Net cash provided by financing activities increased by $259 million, or by 387%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase is primarily due to higher net debt drawdowns 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 interest rate swap contracts for a total notional amount of $1.25 billion. Under the terms of the contracts, we will pay a weighted average fixed rate of interest of 4.53% and receive a variable rate of interest, based on compound overnight SOFR, for the period from November 1, 2022, through June 30, 2023, settled monthly. We expect that the interest rate swap contracts will effectively hedge the SOFR component of $1.25 billion of ongoing USD commercial paper issuances at 4.53%.
Short-term debt consists of bank debt with a duration of less than 12 months and bank overdrafts which are classified as current due to the short-term nature of the borrowings, except where we have the ability and intent to refinance and as such extend the debt beyond 12 months. The current portion of long-term debt consists of debt amounts repayable within a year after the balance sheet date.
42
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 September 30, 2022, we were in compliance with all applicable covenants under our bank debt facilities.
Our net debt as of September 30, 2022 and June 30, 2022 was $6.4 billion and $5.7 billion, respectively.
Available Financing
As of September 30, 2022, we had undrawn credit facilities available in the amount of $0.8 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 management to extend the maturity date. Subject to certain conditions, we can request the total commitment level under each agreement to be increased by up to $500 million.
As of September 30, 2022, the revolving senior bank debt facilities had an aggregate limit of $3.8 billion, of which $3.0 billion had been drawn (inclusive of amounts drawn under commercial paper programs reducing the overall balance of available senior facilities).
Dividend Payments
We declared and paid a $0.12 cash dividend per ordinary share during the first fiscal quarter which ended September 30, 2022.
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"). During the three months ended September 30, 2022, no shares were repurchased under this program.
We had cash outflows of $202 million and $131 million for the purchase of our shares in the open market and using forwards contracts to purchase our own equity during the three months ended September 30, 2022 and 2021, respectively, as treasury shares to satisfy the vesting and exercises of share-based compensation awards. As of September 30, 2022, June 30, 2022, and September 30, 2021, we held treasury shares at cost of $49 million, $18 million, and $50 million, representing 4 million, 2 million, and 4 million shares, respectively.
43
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risk during the three months ended September 30, 2022. For additional information, refer to Note 7, "Fair Value Measurements," and Note 8, "Derivative Instruments," in the notes to our unaudited condensed consolidated financial statements, and to "Item 7A. - Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the year ended June 30, 2022.
44
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the first quarter of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
45
Part II - Other Information
Item 1. Legal Proceedings
The material set forth in Note 14, "Contingencies and Legal Proceedings," in "Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements" is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes from the risk factors contained in "Item 1A. - Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchases
Share repurchase activity during the three months ended September 30, 2022 was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts, which are expressed in U.S. dollars):
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share (1)(2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs (3) | ||||||||||||||||||||||
| July 1 - 31, 2022 | — | $ | — | — | $ | — | ||||||||||||||||||||
| August 1 - 31, 2022 | 16,000 | 12.62 | — | 400 | ||||||||||||||||||||||
| September 1 - 30, 2022 | — | — | — | 400 | ||||||||||||||||||||||
| Total | 16,000 | $ | 12.62 | — | ||||||||||||||||||||||
(1) Includes shares purchased on the open market to satisfy the vesting and exercises of share-based compensation awards.
(2) Average price paid per share excludes costs associated with the repurchase.
(3) On August 17, 2022, our Board of Directors approved a buyback of $400 million of ordinary shares and/or CHESS Depositary Instruments ("CDIs") during the following twelve months. The timing, volume, and nature of share repurchases may be amended, suspended, or discontinued at any time.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
46
Item 6. Exhibits
The documents in the accompanying Exhibits Index are filed, furnished, or incorporated by reference as part of this Quarterly Report on Form 10-Q, and such Exhibits Index is incorporated herein by reference.
| Exhibit | Description | ||||||||||||||||
| 22 | |||||||||||||||||
| 31 | .1 | ||||||||||||||||
| 31 | .2 | ||||||||||||||||
| 32 | |||||||||||||||||
| 101 | .INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||
| 101 | .SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||||||||||
| 101 | .CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||||||||
| 101 | .DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||||||||||
| 101 | .LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||||||||||
| 101 | .PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||||||||||||||
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AMCOR PLC | |||||||||||
| Date | November 2, 2022 | By | /s/ Michael Casamento | ||||||||
| Michael Casamento, Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||||||||||
| Date | November 2, 2022 | By | /s/ Julie Sorrells | ||||||||
| Julie Sorrells, Vice President and Corporate Controller (Principal Accounting Officer) | |||||||||||
48
EXHIBIT 22
LIST OF GUARANTORS AND SUBSIDIARY ISSUERS OF GUARANTEED SECURITIES AS OF SEPTEMBER 30, 2022
The following is a list of guarantors of the 4.000% Senior Notes due 2025, 3.100% Senior Notes due 2026, 3.625% Senior Notes due 2026, 4.500% Senior Notes due 2028, 2.630% Senior Notes due 2030, and 2.690% Senior Notes due 2031 issued by Amcor Flexibles North America, Inc. The issuer is a wholly owned subsidiary of Amcor plc.
| Name of Guarantor | Jurisdiction of Incorporation | |||||||
| Amcor plc | Jersey | |||||||
| Amcor Flexibles North America, Inc. (1) | United States of America | |||||||
| Amcor Finance (USA) Inc. | United States of America | |||||||
| Amcor Pty Ltd | Australia | |||||||
| Amcor UK Finance plc (1) | United Kingdom | |||||||
(1)Amcor Flexibles North America, Inc. and Amcor UK Finance plc guarantee each other’s notes.
The following is a list of guarantors of the 1.125% Senior Notes due 2027 issued by Amcor UK Finance plc, a wholly owned subsidiary of Amcor plc.
| Name of Guarantor | Jurisdiction of Incorporation | |||||||
| Amcor plc | Jersey | |||||||
| Amcor Flexibles North America, Inc. | United States of America | |||||||
| Amcor Finance (USA) Inc. | United States of America | |||||||
| Amcor Pty Ltd | Australia | |||||||
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CEO
I, Ronald Delia, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Amcor plc;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date | November 2, 2022 | /s/ Ronald Delia | |||||||||
| Ronald Delia, Managing Director and Chief Executive Officer | |||||||||||
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CFO
I, Michael Casamento, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Amcor plc;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date | November 2, 2022 | /s/ Michael Casamento | |||||||||
| Michael Casamento, Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||||||||||
EXHIBIT 32
SECTION 1350 CERTIFICATIONS OF CEO AND CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that the Quarterly Report on Form 10-Q of Amcor plc for the quarter ended September 30, 2022 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Amcor plc.
| /s/ Ronald Delia | /s/ Michael Casamento | ||||||||||
| Ronald Delia, Managing Director and Chief Executive Officer | Michael Casamento, Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||||
| Date | November 2, 2022 | Date | November 2, 2022 | ||||||||