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MarketScreener Homepage  >  Equities  >  Australian Stock Exchange  >  Amcor plc    AMC   AU000000AMC4

AMCOR PLC

(AMC)
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AMCOR : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

08/27/2020 | 01:47pm EST

Management's Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of this Annual Report on Form 10-K.


Two Year Review of Results
(In millions, except per share amounts)                                 2020                                                2019
Net sales                                                  $ 12,467.5             100.0  %       $ 9,458.2                100.0  %
Cost of sales                                                (9,932.0)            (79.7)          (7,659.1)               (81.0)

Gross profit                                                  2,535.5              20.3            1,799.1                 19.0

Operating expenses:
Selling, general, and administrative expenses                (1,384.8)            (11.1)            (999.0)               (10.6)
Research and development expenses                               (97.3)             (0.8)             (64.0)                (0.7)
Restructuring and related expenses                             (115.1)             (0.9)            (130.8)                (1.4)
Other income, net                                                55.7               0.4              186.4                  2.0

Operating income                                                994.0               8.0              791.7                  8.4

Interest income                                                  22.2               0.2               16.8                  0.2
Interest expense                                               (206.9)             (1.7)            (207.9)                (2.2)
Other non-operating income (loss), net                           15.9               0.1                3.5                    -

Income from continuing operations before income
taxes and equity in income (loss) of affiliated                 825.2               6.6              604.1                  6.4
companies

Income tax expense                                             (186.9)             (1.5)            (171.5)                (1.8)
Equity in income (loss) of affiliated companies                 (14.0)             (0.1)               4.1                    -

Income from continuing operations                               624.3               5.0              436.7                  4.6

Income (loss) from discontinued operations, net of               (7.7)             (0.1)               0.7                    -
tax

Net income                                                 $    616.6               4.9  %       $   437.4                  4.6  %

Net (income) loss attributable to non-controlling                (4.4)                -               (7.2)                (0.1)

interests


Net income attributable to Amcor plc                       $    612.2               4.9  %       $   430.2                  4.5  %



                                       24
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Overview


    Amcor is a global leader in developing and producing responsible packaging
for food, beverage, pharmaceutical, medical, home and personal-care, and other
products. Amcor works 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. The company is focused on making packaging that
is increasingly light-weighted, recyclable and reusable, and made using an
increasing amount of recycled content. During fiscal year 2020, approximately
47,000 Amcor employees generated $12.5 billion in sales from operations that
spanned approximately 231 locations in over 40 countries.

Significant Items Affecting the Periods Presented

Impact of COVID-19


    The 2019 Novel Coronavirus ("COVID-19") has introduced a period of
unprecedented uncertainty and challenge. Amcor's operations have been largely
recognized as 'essential' by governments and authorities around the world given
the role we play in the supply chains for critical food and healthcare products.
Our scale and global footprint has enabled us to collaborate with customers and
suppliers to meet volatile changes in demand and continue to service our
customers. In dealing with the exceptional challenges posed by COVID-19, we have
established three guiding principles focusing on the health and safety of our
employees, keeping our operations running and contributing to relief efforts in
our communities.

Health and Safety

    Our commitment to the health and safety of its employees remains our first
priority. Our rigorous precautionary measures include the formation of global
and regional response teams that maintain contact with authorities and experts
to actively manage the situation, restrictions on company travel, quarantine
protocols for employees who may have had exposure or have symptoms, frequent
disinfecting of Amcor locations and other measures designed to help protect
employees, customers and suppliers. We expect to continue these measures until
the COVID-19 pandemic is adequately contained for our business.

Operations and Supply Chain


    To support our business partners, we have instituted business continuity
plans in each of our operations and offices globally which address infection
prevention measures, incident response, return to work protocols and supply
chain risks. We have experienced minimal disruptions to our operations to date
as we have largely been deemed as providing essential services. However, we have
experienced volatility in customer order patterns in the second half of fiscal
year 2020 and could continue to experience significant volatility in the demand
for our products in the future. For instance, in April, our Rigid Packaging
Segment sales volumes in North America and Latin America were adversely impacted
as a result of a decrease in foot traffic in the convenience and on-the-go
channels. Our facilities have largely been exempt from government mandated
closure orders and while governmental measures may be modified, we expect that
our operations 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.

    We have not experienced any significant disruptions in our supply chain to
date and continue to monitor the risk of customer, raw material and other supply
chain disruptions.

Contributions to Our Communities

To support our local communities, we launched a global program to help mitigate the impact of COVID-19 by donating food and healthcare packaging products and by funding local community initiatives to improve access to healthcare, education or food and other essential products.

Looking Ahead


    We believe we are well-positioned to meet the challenges of the 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 duration of social distancing measures and other
government imposed restrictions and the nature and pace of macroeconomic
recovery in key global economies.

                                       25
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The Acquisition of Bemis Company, Inc.


    On June 11, 2019, we completed the acquisition of 100% of the outstanding
shares of Bemis Company, Inc. ("Bemis"), a global manufacturer of flexible
packaging products based in the United States, for the purchase price of $5.2
billion in an all-stock transaction. In connection with the Bemis transaction,
we assumed $1.4 billion of debt.

2019 Bemis Integration Plan

    In connection with the acquisition of Bemis, we initiated restructuring
activities in the fourth quarter of 2019 aimed at integrating and optimizing the
combined organization. As previously announced, we continue to target realizing
approximately $180 million of pre-tax synergies driven by procurement, supply
chain, and general and administrative savings by the end of fiscal year 2022.

    Our total 2019 Bemis Integration Plan pre-tax integration costs are expected
to be approximately $200 million. The total 2019 Bemis Integration Plan costs
include $165 million of restructuring and related expenses and $35 million of
general integration expenses. The restructuring and related expenses are
comprised of approximately $90 million in employee related expenses, $25 million
in fixed asset related expenses, $20 million in other restructuring and $30
million in restructuring related expenses. We estimate that approximately $150
million of the $200 million total integration costs will result in cash
expenditures, of which $115 million relate to restructuring and related
expenditures. Cash payments for the fiscal year 2020 were $80.2 million, of
which $54.1 million were payments related to restructuring and related
expenditures. The 2019 Bemis Integration Plan relates to the Flexibles segment
and Corporate and is expected to be completed by the end of fiscal year 2022.

    Restructuring related costs are directly attributable to restructuring
activities; however, they do not qualify for special accounting treatment as
exit or disposal activities. General integration costs are not linked to
restructuring. We believe the disclosure of restructuring related costs provides
more information on the total cost of our 2019 Bemis Integration Plan. The
restructuring related costs relate primarily to the closure of facilities and
include costs to replace graphics, train new employees on relocated equipment
and anticipated loss on sale of closed facilities.

Other Restructuring Plans


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

    Our total 2018 Rigid Packaging Restructuring Plan pre-tax restructuring
costs are expected to be approximately $110 million with the main component
being the cost to exit manufacturing facilities and employee related costs. The
total plan cost has been increased by approximately $15 million in the fourth
quarter of fiscal year 2020 due primarily to additional non-cash impairments. We
estimate that approximately $70 million of the $110 million total costs will
result in cash expenditures. Cash payments for the fiscal year 2020 were $23.6
million. The 2018 Rigid Packaging Restructuring Plan is expected to be completed
during fiscal year 2021.

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

    As part of the 2016 Flexibles Restructuring Plan, we had closed eight
manufacturing facilities and reduced headcount at certain facilities. Our total
pre-tax restructuring costs were $230.8 million, with $166.7 million in employee
termination costs, $31.4 million in fixed asset impairment costs and $32.7
million in other costs, which primarily represent the cost to dismantle
equipment and terminate existing lease contracts. Approximately $166 million of
the $230.8 million in total program costs resulted in cash expenditures. Cash
payments for fiscal year 2019 were $14.4 million. The Plan was substantially
completed by the end of fiscal year 2019.

                                       26
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Impairment in Equity Method Investment

    Due to impairment indicators present for the years ended June 30, 2020, 2019
and 2018, we performed impairment tests by comparing the carrying value of its
investment in AMVIG Holdings Limited ("AMVIG") at the end of each period,
including interim periods, to the fair value of the investment, which was
determined based on AMVIG's quoted share price. We recorded impairment charges
in fiscal years 2020, 2019 and 2018 of $25.6 million, $14.0 million and $36.5
million, respectively, as the fair value of the investment was below its
carrying value. Refer to Note 7, "Equity Method Investments" for more
information about our equity method investments.

Highly Inflationary Accounting


    We have subsidiaries in Argentina that historically had a functional
currency of the Argentine Peso. As of June 30, 2018, the Argentine economy was
designated as highly inflationary for accounting purposes. Accordingly,
beginning July 1, 2018, we began reporting the financial results of our
Argentinean subsidiaries with a functional currency of the Argentine Peso at the
functional currency of the parent, which is the U.S. dollar. The transition to
highly inflationary accounting resulted in a negative impact of $27.7 million
and $30.2 million that was reflected on the consolidated statement of income for
the year ended June 30, 2020 and 2019, respectively.


                                       27
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Results of Operations


The following is a discussion and analysis of changes in the financial condition
and results of operations for fiscal year 2020 compared to fiscal year 2019. A
discussion and analysis regarding our results of operations for fiscal year 2019
compared to fiscal year 2018 that are not included in this Annual Report on Form
10-K can be found in Part II, Item 7 of our Annual Report on Form 10-K for the
fiscal year ended June 30, 2019, filed with the SEC on September 3, 2019.

Consolidated Results of Operations

      (in millions)                                            2020             2019
      Net sales                                            $ 12,467.5$ 9,458.2
      Operating income                                          994.0           791.7
      Operating profit as a percentage of net sales               8.0  %   

8.4 %

      Net income attributable to Amcor plc                 $    612.2

$ 430.2

      Diluted Earnings Per Share                           $    0.382

$ 0.363




    Net sales increased $3,009.3 million, or 31.8%, to $12,467.5 million for the
fiscal year 2020, from $9,458.2 million for the fiscal year 2019. Excluding
negative currency impacts of $274.0 million, or (2.9%), and pass-through of
lower raw material costs of $205.6 million, or (2.2%), the increase in net
sales, including intersegment sales, for the fiscal year 2020 was $3,488.9
million or 36.9%, driven by favorable volumes of 0.2% and unfavorable price/mix
of (0.4%), with acquisition related impacts contributing 37.1%.

    Net income attributable to Amcor plc increased by $182.0 million, or 42.3%,
to $612.2 million for the fiscal year 2020, from $430.2 million for the fiscal
year 2019 mainly as a result of the Bemis acquisition and related transaction
and integration cost impacts.

    Diluted earnings per shares ("Diluted EPS") increased to $0.382, or 5.2%,
for the fiscal year 2020, from $0.363 for the fiscal year 2019, with net income
attributable to ordinary shareholders increasing 42.3% and the diluted weighted
average number of shares outstanding increased 35.3%. The increase in the
diluted weighted average number of shares outstanding was due to the acquisition
of Bemis.

Segment Results of Operations

    Flexibles Segment

    Our Flexibles reporting segment develops and supplies flexible packaging
globally.
(in millions)                                                              2020               2019
Net sales including intersegment sales                                 $ 9,754.7$ 6,566.7
Adjusted EBIT from continuing operations                                 1,335.1              817.2
Adjusted EBIT from continuing operations as a percentage of net
sales                                                                       13.7  %            12.4  %



    Net sales including intersegment sales increased $3,188.0 million, or 48.5%,
to $9,754.7 million for fiscal year 2020, from $6,566.7 million for fiscal year
2019. Excluding negative currency impacts of $235.2 million, or (3.6%), and
pass-through of lower raw material costs of $87.9 million, or (1.4%), the
increase in net sales including intersegment sales for the fiscal year 2020 was
$3,511.1 million, or 53.5%, driven by favorable volumes of 0.1% and unfavorable
price/mix of (0.1%) with acquisition related impacts contributing 53.5%.

    Adjusted earnings before interest and tax from continuing operations
("Adjusted EBIT") for the fiscal year 2020 increased $517.9 million, or 63.4% to
$1,335.1 million from $817.2 million for the fiscal year 2019. Excluding
negative currency impacts of $25.4 million, or (3.0%), the increase in Adjusted
EBIT for the fiscal year 2020 was $543.3 million, or 66.4%, driven by plant cost
improvements of 8.7%, selling, general and administrative ("SG&A") and other
cost improvements of 2.5%, favorable volumes of 0.1%, partially offset by
unfavorable price/mix of (1.5%) with acquisition related impacts contributing
56.6%.

    Rigid Packaging Segment
                                       28
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Our Rigid Packaging reporting segment manufactures rigid packaging containers and related products. (in millions)

                                                              2020               2019
Net sales including intersegment sales                                 $ 2,716.3$ 2,892.7
Adjusted EBIT from continuing operations                                   290.1              308.2
Adjusted EBIT from continuing operations as a percentage of net
sales                                                                       10.7  %            10.7  %



    Net sales decreased $176.4 million, or 6.1%, to $2,716.3 million for fiscal
year 2020, from $2,892.7 million for fiscal year 2019. Excluding negative
currency impacts of $39.0 million, or (1.3%) and pass-through of lower raw
material costs of $117.7 million, or (4.1%), the decrease in net sales for the
fiscal year 2020 was $19.7 million, or 0.7%, driven by favorable volumes of 0.5%
and unfavorable price/mix of (1.2)%.

    Adjusted EBIT for the fiscal year 2020 decreased $18.1 million or 5.9% to
$290.1 million for the fiscal year 2020 from $308.2 million for the fiscal year
2019. Excluding negative currency impacts of $5.1 million, or (1.7%), the
decrease in Adjusted EBIT for the fiscal year 2020 was $13.0 million, or 4.2%,
driven by favorable plant costs of 2.2%, favorable SG&A and other costs at 0.9%,
favorable volumes of 0.4%, and unfavorable price/mix of 7.7%.

Consolidated Gross Profit
         (in millions)                                       2020            2019
         Gross profit                                    $ 2,535.5$ 1,799.1
         Gross profit as a percentage of net sales            20.3  %         19.0  %



    Gross profit increased by $736.4 million, or 40.9%, to $2,535.5 million for
fiscal year 2020, from $1,799.1 million for fiscal year 2019. The increase was
primarily in the Flexibles reporting segment driven by the Bemis acquisition.

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

         (in millions)                                       2020           

2019

         SG&A expenses                                   $ (1,384.8)      $ 

(999.0)

         SG&A expenses as a percentage of net sales           (11.1) %      

(10.6) %




    SG&A increased by $385.8 million, or 38.6%, to $1,384.8 million for fiscal
year 2020, from $999.0 million for fiscal year 2019. The increase was primarily
in the Flexibles reporting segment and Other driven by the Bemis acquisition,
including related transaction and integration cost impacts.

Consolidated Research and Development ("R&D") Expense

           (in millions)                                      2020          2019
           R&D expenses                                    $ (97.3)$ (64.0)
           R&D expenses as a percentage of net sales          (0.8) %       (0.7) %


    Research and development costs increased by $33.3 million, or 52.0%, to
$97.3 million for fiscal year 2020, from $64.0 million for fiscal year 2019. The
increase was primarily driven by the addition of the Bemis cost base and timing
of project costs.

Consolidated Restructuring and Related Expense
(in millions)                                                              2020               2019
Restructuring and related expenses                                     $  (115.1)$  (130.8)
Restructuring and related expenses as a percentage of net sales             (0.9) %            (1.4) %



    Restructuring and related costs decreased by $15.7 million to $115.1 million
for fiscal year 2020, from $130.8 million for fiscal year 2019. The decrease was
primarily driven by a reduction in restructuring activities in connection with
the 2018 Rigid Packaging Restructuring Plan.

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Consolidated Other Income, Net

        (in millions)                                           2020        

2019

        Other income, net                                     $ 55.7

$ 186.4

Other income, net, as a percentage of net sales 0.4 %

2.0 %




    Other income, net decreased by $130.7 million to $55.7 million for fiscal
year 2020, from $186.4 million for fiscal year 2019. The decrease was mainly
driven by nonrecurrence of remedy disposal related gains in the fiscal year
2019.

Consolidated Interest Income

          (in millions)                                        2020         2019
          Interest income                                    $ 22.2$ 16.8
          Interest income as a percentage of net sales          0.2  %       0.2  %



    Interest income increased by $5.4 million, or 32.1%, to $22.2 million for
fiscal year 2020, from $16.8 million for fiscal year 2019, mainly driven by
higher cash balances during the period and negative interest rates on a portion
of Euro denominated borrowings.

Consolidated Interest Expense
       (in millions)                                           2020           2019
       Interest expense                                     $ (206.9)$ (207.9)
       Interest expense as a percentage of net sales            (1.7) %     

(2.2) %

Interest expense remained relatively stable at $206.9 million for fiscal year 2020 compared to $207.9 million for fiscal year 2019.

Consolidated Other Non-Operating Income (Loss), Net (in millions)

                                                              2020               2019
Other non-operating income (loss), net                                 $    15.9$     3.5
Other non-operating income (loss), net, as a percentage of net
sales                                                                        0.1                  -  %



    Other non-operating income, net increased by $12.4 million to $15.9 million
for fiscal year 2020, from an other non-operating income, net of $3.5 million
for fiscal year 2019, mainly driven by impacts relating to the acquired Bemis
pension plans.

Consolidated Income Tax Expense

                      (in millions)              2020           2019
                      Income tax expense      $ (186.9)$ (171.5)
                      Effective tax rate          22.6  %        28.4  %



    Income tax expense increased by $15.4 million, or 9.0%, to $186.9 million
for fiscal year 2020, from $171.5 million for fiscal year 2019. The increase was
primarily driven by the higher overall profit of the total Company with a full
year of Bemis' results having been included compared to three weeks in fiscal
year 2019.

    The effective tax rate for the fiscal year 2020 reduced relative to 2019
mainly due to the decrease in non-deductible transaction costs related to the
acquisition of Bemis. The current year effective tax rate is reflective of a
greater proportion of the business in the U.S. as a result of the Bemis
acquisition.


                                       30
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Presentation of Non-GAAP Information


    This Annual Report on Form 10-K refers to financial measures that have not
been prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP"): adjusted earnings before interest and
taxes ("Adjusted EBIT") from continuing operations, adjusted net income from
continuing operations, and net debt. These non-GAAP financial measures adjust
for factors that are unusual or unpredictable. These measures exclude the impact
of significant tax reform, 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, certain litigation matters,
pension settlements and certain acquisition-related expenses, including
transaction expenses, due diligence expenses, professional and legal fees,
purchase accounting adjustments for inventory, order backlog, intangible
amortization, and changes in the fair value of deferred acquisition payments.

    This adjusted information should not be construed as an alternative to
results determined under U.S. GAAP. Management of the Company uses the non-GAAP
measures to evaluate operating performance and believes that these non-GAAP
measures are useful to enable investors and other external parties to perform
comparisons of current and historical performance of the Company.

A reconciliation of reported net income attributable to Amcor plc to Adjusted EBIT from continuing operations and adjusted net income for fiscal years 2020, 2019 and 2018 is as follows:

                                                                              For the years ended June 30,
(in millions)                                                           2020                  2019              2018
Net income attributable to Amcor plc, as reported                $      612.2$  430.2$  575.2

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

                                                                 4.4                   7.2              11.4

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

                                                                       7.7                  (0.7)                -
Income from continuing operations                                       624.3                 436.7             586.6
Add: Income tax expense                                                 186.9                 171.5             118.8
Add: Interest expense                                                   206.9                 207.9             210.0
Less: Interest income                                                   (22.2)                (16.8)            (13.1)
EBIT from continuing operations                                         995.9                 799.3             902.3
Add: Material restructuring programs (1)                                105.7                  64.1              14.4
Add: Impairments in equity method investments (2)                        25.6                  14.0              36.5
Add: Material acquisition costs and other (3)                           145.6                 143.1                 -

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

                                               191.1                  31.1              19.3

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

                                         -                  (1.4)             83.9
Add: Impact of hyperinflation (6)                                        27.7                  30.2                 -
Less: Net legal settlements (7)                                             -                  (5.0)                -
Add: Pension settlements (8)                                              5.5                     -                 -
Adjusted EBIT from continuing operations                              1,497.1               1,075.4           1,056.4
Less: Income tax expense                                               (186.9)               (171.5)           (118.8)
Add: Adjustments to income tax expense (9)                              (88.9)                 23.2             (32.0)
Less: Interest expense                                                 (206.9)               (207.9)           (210.0)
Add: Interest income                                                     22.2                  16.8              13.1

Less: Material restructuring programs attributable to non-controlling interest

                                                 (4.3)                    -                 -

Less: Net (income) loss attributable to non-controlling interests

                                                                (4.4)                 (7.2)            (11.4)
Adjusted net income from continuing operations                   $    1,027.9$  728.8$  697.3


(1)Material restructuring programs includes the 2018 Rigid Packaging
Restructuring Plan and the 2019 Bemis Integration Plan for fiscal year 2020, the
2018 Rigid Packaging Restructuring Plan for the fiscal year 2019, and the 2016
Flexibles Restructuring Plan for fiscal year 2018. Refer to Note 6,
"Restructuring Plans," for more information about the Company's restructuring
plans.
                                       31
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(2)Impairments in equity method investments includes the impairment charges
related to other-than-temporary impairments related to the investment in AMVIG.
Refer to Note 7, "Equity Method Investments" for more information about the
Company's equity method investments.
(3)During fiscal year 2020, material acquisition costs and other includes
$57.8 million amortization of Bemis acquisition related inventory fair value
step-up and $87.8 million of Bemis transaction related costs and integration
costs not qualifying as exit costs, including certain advisory, legal, audit and
audit related fees. During fiscal year 2019, material acquisition costs and
other includes $47.9 million of costs related to the 2019 Bemis Integration
Plan, $15.6 million of Bemis acquisition related inventory fair value step-up,
$42.5 million of long-lived asset impairments, $133.7 million of Bemis
transaction-related costs, partially offset by $96.5 million of gain related to
the U.S. Remedy sale net of related and other costs.
(4)Amortization of acquired intangible assets from business combinations
includes amortization expenses related to all acquired intangible assets from
acquisitions impacting the periods presented, including $26.4 million and
$4.5 million of sales backlog amortization for the fiscal year 2020 and 2019,
respectively, from the Bemis acquisition.
(5)Economic net investment hedging activities not qualifying for hedge
accounting includes the exchange rate movements on external loans not deemed to
be effective net investment hedging instruments resulting from the Company's
conversion to U.S. GAAP from Australian Accounting Standards ("AAS") recognized
in other non-operating income (loss), net.
(6)Impact of hyperinflation includes the adverse impact of highly inflationary
accounting for subsidiaries in Argentina where the functional currency was the
Argentine Peso.
(7)Net legal settlements includes the impact of significant legal settlements
after associated costs.
(8)Impact of pensions settlements includes the amount of actuarial losses
recognized in the consolidated income statement related to the settlement of
certain defined benefit plans, not including related tax effects.
(9)Net tax impact on items (1) through (8) above.

Reconciliation of Net Debt

A reconciliation of total debt to net debt at June 30, 2020 and 2019 is as follows:

        (in millions)                              June 30, 2020       June 

30, 2019

        Current portion of long-term debt         $         11.1      $          5.4
        Short-term borrowings                              195.2               788.8
        Long-term debt, less current portion             6,028.4           

5,309.0

        Total debt                                       6,234.7            

6,103.2

        Less cash and cash equivalents                     742.6               601.6
        Net debt                                  $      5,492.1$      5,501.6




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Supplemental Guarantor Information

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

•4.500% Guaranteed Senior Notes due 2021 of Bemis Company, Inc.
•3.100% Guaranteed Senior Notes due 2026 of Bemis Company, Inc.
•2.630% Guaranteed Senior Notes due 2030 of Bemis Company, Inc.
•3.625% Guaranteed Senior Notes due 2026 of Amcor Finance (USA), Inc.
•4.500% Guaranteed Senior Notes due 2028 of Amcor Finance (USA), Inc.
•1.125% Guaranteed Senior Notes due 2027 of Amcor UK Finance plc

    The three notes issued by Bemis Company, Inc. are guaranteed by its parent
entity Amcor plc and the subsidiary guarantors Amcor Pty Ltd (formerly known as
Amcor Limited), Amcor Finance (USA), Inc. and Amcor UK Finance plc. The two
notes issued by Amcor Finance (USA), Inc. are guaranteed by its parent entity
Amcor plc and the subsidiary guarantors Amcor Pty Ltd, Bemis Company, 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, Bemis
Company, 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.

    Bemis is incorporated in Missouri in the United States, Amcor Finance (USA)
Inc. is incorporated in Delaware 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), Bemis Company, Inc.,
Amcor Finance (USA), Inc. and Amcor UK Finance plc (as subsidiary issuers of the
notes and guarantors of each other's notes) and Amcor Pty Ltd (as the remaining
subsidiary guarantor).

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Basis of Preparation


    Amcor has voluntarily adopted amendments to the financial disclosure
requirements for guarantors and issuers of guaranteed securities registered or
being registered as issued by the SEC [Release No. 33-10762; 34-88307; File No.
S7-19-18] in March 2020. 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)
For the year ended June 30,                                          2020
Net sales - external                                              $   915.0
Net sales - to subsidiaries outside the Obligor Group                   4.9
Total net sales                                                       919.9

Gross profit                                                          174.4

Income from continuing operations (1)                               9,201.1

Income (loss) from discontinued operations, net of tax                  9.6

Net income                                                        $ 9,210.7

Net (income) loss attributable to non-controlling interests               -

Net income attributable to Obligor Group                          $ 9,210.7


(1)Includes $9,516.3 net income from subsidiaries outside the Obligor Group
mainly made up of intercompany dividend and interest income, partially offset by
expenses related to a legal entity reorganization executed during the period and
other expenses related to transactions with subsidiaries outside the Obligor
Group.

                        Balance Sheet for Obligor Group
                                 (in millions)
As of June 30,                                                                 2020
                            Assets
Current assets - external                                            $               899.3

Current assets - due from subsidiaries outside the Obligor Group

136.1

Total current assets                                                        

1,035.4

Non-current assets - external                                               

1,002.4

Non-current assets - due from subsidiaries outside the Obligor
Group                                                                             12,405.0
Total non-current assets                                                          13,407.4
Total assets                                                         $            14,442.8
                         Liabilities
Current liabilities - external                                       $      

1,647.3

Current liabilities - due from subsidiaries outside the Obligor Group

35.6

Total current liabilities                                                   

1,682.9

Non-current liabilities - external                                          

6,073.6

Non-current liabilities - due from subsidiaries outside the Obligor Group

11,200.8

Total non-current liabilities                                                     17,274.4
Total liabilities                                                    $            18,957.3



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Liquidity and Capital Resources


    We finance our business primarily through cash flows provided by operating
activities, commercial paper, 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, including the recent COVID-19 pandemic,
expected future cash flows, potential funding requirements for debt refinancing,
capital expenditures and acquisitions, the cost of capital, sensitivity analyses
reflecting downside scenarios, the impact on our financial metrics and credit
ratings, and our ease of access to funding sources.

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

Overview

                                                Year Ended June 30,
  (in millions)                                  2020           2019        

Change 2020 vs. 2019

  Cash flow from operating activities       $    1,384.2$ 776.1               608.1
  Cash flow from investing activities               37.9         10.2                27.7
  Cash flow from financing activities           (1,236.4)      (764.9)             (471.5)



Cash Flow Overview

Cash Flow from Operating Activities


    Net cash inflows provided by operating activities increased by $608.1
million, or 78.4%, to $1,384.2 million for fiscal year 2020, from $776.1 million
for fiscal year 2019. This increase was primarily due to impacts from the Bemis
acquisition.

Cash Flow from Investing Activities


    Net cash inflows provided by investing activities increased by $27.7
million, or 271.6%, to $37.9 million for fiscal year 2020, from a $10.2 million
inflow for fiscal year 2019. This increase was primarily due to higher disposal
proceeds from the EC Remedy related to the Bemis acquisition as compared to the
U.S. Remedy in the fiscal year 2019, partially offset by higher capital
expenditures as a result of the Bemis acquisition.

    Capital expenditures were $399.5 million for fiscal year 2020, an increase
of $67.3 million compared to $332.2 million for fiscal year 2019. The increase
in capital expenditures was primarily due to the increased capital spending
following the Bemis acquisition.

Cash Flow from Financing Activities


    Net cash flows used in financing activities increased by $471.5 million, or
61.6%, to $1,236.4 million for fiscal year 2020, from a $764.9 million outflow
for fiscal year 2019. This increase was primarily due to the $500 million
on-market share buy-back program, partially offset by net inflows from long and
short-term debt sources.

Net Debt

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

    Short-term debt consists of bank debt with a duration of less than 12 months
and bank overdrafts which are classified as current due to the short-term nature
of the borrowings, except where we have the ability and intent to refinance and
as such extend the debt beyond 12 months. The current portion of the long-term
debt consists of debt amounts repayable within a year after the balance sheet
date.

                                       35
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    Our primary bank debt facilities and notes are unsecured and subject to
negative pledge arrangements limiting the amount of secured indebtedness we can
incur to a range between 7.5% to 15.0% of our total tangible assets, subject to
some exceptions and variations by facility. In addition, the bank debt
facilities and U.S. private placement debt require us to comply with certain
financial covenants, including leverage and interest coverage ratios. The
negative pledge arrangements and the financial covenants are defined in the
related debt agreements. As of June 30, 2020, we are in compliance with all
applicable covenants under our bank debt facilities and U.S. private placement
debt.

Our net debt as of both June 30, 2020 and June 30, 2019 was $5.5 billion.

Available Financing

As of June 30, 2020, we had undrawn credit facilities available in the amount of $1.8 billion. Our senior facilities are available to fund working capital, growth capital expenditures and refinancing obligations and are provided to us by five separate bank syndicates. On September 25, 2019 and December 15, 2019, we canceled $250.0 million and $100.0 million, respectively, of the $750.0 million term loan facility.


    During the quarter ended March 31, 2020, the Company extended the maturity
of a 364-day syndicated facility by an additional six months to October 2020 and
reduced the facility size from $1,050.0 million to $840 million. This facility
was canceled on June 29, 2020 following the issuance of a $500.0 million 10 year
senior unsecured note on June 19, 2020 and a €500.0 million 7 year senior
unsecured note on June 23, 2020.

    As of June 30, 2020, the revolving senior bank debt facilities had an
aggregate limit of $4.2 billion, of which $2.4 billion had been drawn (inclusive
of amounts drawn under commercial paper programs reducing the overall balance of
available senior facilities). Our senior facilities mature between fiscal years
2022 and 2024, with an option to extend.

Dividend Payments

In fiscal years 2020, 2019 and 2018, we paid $761.1 million, $679.7 million and $526.8 million, respectively, in dividends.

Credit Rating

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

Share Repurchases

On August 21, 2019, our Board of Directors approved an on-market buy-back of $500 million of ordinary shares and Chess Depositary Instruments ("CDIs"). During the twelve months ended June 30, 2020, the Company repurchased approximately $500.0 million, excluding transaction costs, or 53.9 million shares. The shares repurchased as part of the program were canceled upon repurchase.


    We had cash outflows of $67.0 million, $20.2 million and $35.7 million for
the purchase of our shares in the open market during fiscal years 2020, 2019 and
2018, respectively, as treasury shares to satisfy the vesting and exercises of
share-based compensation awards and shares purchased for shareholder settlement
in the fourth quarter of fiscal year 2020. As of June 30, 2020, 2019 and 2018,
we held treasury shares at cost of $67.0 million, $16.1 million and $10.7
million, representing 6.7 million, 1.4 million and 0.9 million shares,
respectively.

                                       36
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Contractual Obligations


    The following table provides a summary of contractual obligations including
our debt payment obligations, operating lease obligations and certain other
commitments as of June 30, 2020. These amounts do not reflect all planned
spending under the various categories but rather that portion of spending to
which we are contractually committed.

                                               Less than 1        Within 1 to 3        Within 3 to 5         More than 5
(in millions)                                     year                years                years                years
Short-term debt obligations (1)               $    195.2          $         -          $         -          $        -
Long-term debt obligations (1)                     409.6              1,814.6              1,292.1             2,485.7
Interest expense on short- and
long-term debt, fixed and floating rate
(2)                                                131.1                185.9                150.6               206.6
Operating leases (3)                                99.7                166.3                116.1               280.1
Finance leases                                       2.9                  5.4                  4.8                32.6
Purchase obligations (4)                         1,043.5                970.5                 16.0                11.3
Employee benefit plan obligations                   90.7                178.4                183.4               477.0
Total                                         $  1,972.7$   3,321.1$   1,763.0$  3,493.3


(1)All debt obligations are based on their contractual face value, excluding
interest rate swap fair value adjustments and unamortized discounts.
(2)Variable interest rate commitments are based on the current contractual
maturity date of the underlying facility, calculated on the existing drawdown at
June 30, 2020, after allowing for increases/(decreases) in projected bank
reference rates.
(3)We lease certain manufacturing sites, office space, warehouses, land,
vehicles and equipment under operating leases. The leases have varying terms,
escalation clauses and renewal rights. Not included in the above commitments are
contingent rental payments which may arise as part of the rental increase
indexed to the consumer price index or in the event that units produced by
certain leased assets exceed a predetermined production capacity.
(4)Purchase obligations represent contracts or commitments for the purchase of
raw materials, utilities, capital equipment and various other goods and
services.

Off-Balance Sheet Arrangements

Other than as described under "Contractual Obligations" as of June 30, 2020, we had no significant off-balance sheet contractual obligations or other commitments.

Liquidity Risk and Outlook


    In 2020, the Company continued to have access to liquidity through the
commercial paper market. However, our access was temporarily restricted in March
both in the U.S. and Europe due to the impact from COVID-19 on financial
markets. We refinanced these maturities with drawings under our committed bank
facilities. As a precautionary measure to maximize liquidity, in March 2020, we
also extended our 364-day syndicated facility by an additional six months to
October 2020 while reducing the facility size from $1,050.0 million to $840.0
million. This facility was canceled on June 29, 2020 following the issuance of a
$500.0 million 10-year senior unsecured note on June 19, 2020 and a €500.0
million 7-year senior unsecured note on June 23, 2020. The Company also filed a
Form S-3 shelf registration statement on June 10, 2020, which enabled the
Company to issue the two notes in June 2020 and will enable the Company to issue
debt securities in the future when market conditions are favorable and on a
timely basis.

    Liquidity risk arises from the possibility that we might encounter
difficulty in settling our debts or otherwise meeting our obligations related to
financial liabilities. We manage our liquidity risk centrally and such
management involves maintaining available funding and ensuring that we have
access to an adequate amount of committed credit facilities. Due to the dynamic
nature of our business, we aim to maintain flexibility within our funding
structure through the use of bank overdrafts, bank loans, corporate bonds,
unsecured notes, commercial paper and factoring. The following guidelines are
used to manage our liquidity risk:

•maintaining minimum undrawn committed liquidity of at least $200 million that
can be drawn at short notice;
•regularly performing a comprehensive analysis of all cash inflows and outflows
in relation to operational, investing and financing activities;
•generally using tradable instruments only in highly liquid markets;
•maintaining a senior credit investment grade rating with a reputable
independent rating agency;
•managing credit risk related to financial assets;
                                       37
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•monitoring the duration of long-term debt;
•only investing surplus cash with major financial institutions; and
•to the extent practicable, spreading the maturity dates of long-term debt
facilities.

    As of June 30, 2020 and 2019, an aggregate principal amount of
$1,976.5 million and $221.2 million, respectively, was drawn under our
commercial paper programs. However, such programs are backstopped by committed
bank syndicated loan facilities with maturities in April 2022 ($750.0 million),
April 2023 ($1.5 billion) and April 2024 ($1.5 billion), with an option to
extend, under which we had $1.8 billion in unused capacity remaining as of June
30, 2020.

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

Critical Accounting Estimates and Judgments


    Our discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of expenses during the reporting period. On an ongoing basis, we
evaluate our estimates and judgments, including those related to retirement
benefits, intangible assets, goodwill, equity method investments and expected
future performance of operations. Our estimates and judgments are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following are critical accounting estimates used in the preparation of our consolidated financial statements.


•the calculation of annual pension costs and related assets and liabilities;
•valuation of intangible assets and goodwill;
•calculation of deferred taxes and uncertain tax positions;
•calculation of equity method investments; and
•calculation of acquisition fair values.

Considerations Related to the COVID-19 Pandemic


    The impact that the recent COVID-19 pandemic will have on our consolidated
operations is uncertain. While the overall impact on our operations to date has
not been material, we have experienced volatility in customer order patterns. We
have considered the potential impacts of the COVID-19 pandemic in our critical
accounting estimates and judgements as of June 30, 2020 and will continue to
evaluate the nature and extent of the impact on our business and consolidated
results of operations.

Pension Costs

    Approximately 50% of our defined benefits plans are closed to new entrants
and future accruals. The accounting for our pension plans requires us to
recognize the overfunded or underfunded status of the pension plans on our
balance sheet. A substantial portion of our pension amounts relate to our
defined benefit plans in the United States, Germany, Switzerland and the United
Kingdom. Net periodic pension cost recorded in fiscal year 2020 was $9.9
million, compared to pension cost of $12.5 million in fiscal year 2019 and $7.7
million in fiscal year 2018. We expect pension expense before the effect of
income taxes for fiscal year 2021 to be approximately $12.7 million.

For our sponsored plans, the relevant accounting guidance requires that management make certain assumptions relating to the long-term rate of return on plan assets, discount rates used to determine the present value of future obligations and expenses, salary inflation rates, mortality rates and other assumptions. We believe that the accounting estimates related to

                                       38
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our pension plans are critical accounting estimates because they are highly
susceptible to change from period to period based on the performance of plan
assets, actuarial valuations, market conditions and contracted benefit changes.
The selection of assumptions is based on historical trends and known economic
and market conditions at the time of valuation, as well as independent studies
of trends performed by our actuaries. However, actual results may differ
substantially from the estimates that were based on the critical assumptions.

    The amount by which the fair value of plan assets differs from the projected
benefit obligation of a pension plan must be recorded on the consolidated
balance sheet as an asset, in the case of an overfunded plan, or as a liability,
in the case of an underfunded plan. The gains or losses and prior service costs
or credits that arise but are not recognized as components of pension cost are
recorded as a component of other comprehensive income. Pension plan liabilities
are revalued annually, or when an event occurs that requires remeasurement,
based on updated assumptions and information about the individuals covered by
the plan. Accumulated actuarial gains and losses in excess of a 10 percent
corridor and the prior service cost are amortized on a straight-line basis from
the date recognized over the average remaining service period of active
participants or over the average life expectancy for plans with significant
inactive participants. The service costs related to defined benefits are
included in operating income. The other components of net benefit cost are
presented in the consolidated statement of income separately from the service
cost component and outside operating income.

    We review annually the discount rate used to calculate the present value of
pension plan liabilities. The discount rate used at each measurement date is set
based on a high-quality corporate bond yield curve, derived based on bond
universe information sourced from reputable third-party indexes, data providers,
and rating agencies. In countries where there is no deep market in corporate
bonds, we have used a government bond approach to set the discount rate. For
Mexico, Poland and Turkey, a corporate bond credit spread has been added to the
government bond yields. Additionally, the expected long-term rate of return on
plan assets is derived for each benefit plan by considering the expected future
long-term return assumption for each individual asset class. A single long-term
return assumption is then derived for each plan based upon the plan's target
asset allocation.

Pension Assumptions Sensitivity Analysis


    The following chart depicts the sensitivity of estimated fiscal year 2021
pension expense to incremental changes in the discount rate and the expected
long-term rate of return on assets.
                                     Total Increase                                                             Total Increase
                                  (Decrease) to Pension                                                      (Decrease) to Pension
                                  Expense from Current                                                       Expense from Current
                                       Assumption                         Rate of Return on Plan                  Assumption
Discount Rate                                             (in millions)   Assets                                                        (in millions)
+25 basis points                              0.1                         +25 basis points                              (4.2)
1.96 percent (current                                                     3.52 percent (current
assumption)                                     -                         assumption)                                      -
-25 basis points                             (0.2)                        -25 basis points                               4.2


Intangible Assets and Goodwill

    Goodwill represents the excess of the aggregate purchase price over the fair
value of net assets acquired, including intangible assets. Goodwill is not
amortized but is instead tested annually or when events and circumstances
indicate an impairment may have occurred. Our reporting units each contain
goodwill that is assessed for potential impairment. All goodwill is assigned to
a reporting unit, which is defined as an operating segment, at the time of each
acquisition based on the relative fair value of the reporting unit. We have six
reporting units, of which five are included in our Flexibles Segment. The other
reporting unit that is also a reporting segment is Rigid Packaging.

    Goodwill for our reporting units is reviewed for impairment annually in the
fourth quarter of each year or whenever events and circumstances indicate an
impairment may have occurred during the year. When the carrying value of a
reporting unit exceeds its fair value, we recognize an impairment loss equal to
the difference between the carrying value and estimated fair value of the
reporting unit, adjusted for any tax benefits, limited to the amount of the
carrying value of goodwill.

    In performing our impairment analysis, we may elect to first assess
qualitative factors to determine whether a quantitative test is necessary. If we
determine that a quantitative test is necessary, or elect to perform a
quantitative test instead of the qualitative test, we derive an estimate of fair
values for each of our reporting units using income approaches. The most
                                       39
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significant assumptions used in the determination of the estimated fair value of
the reporting units are the estimated net sales and earnings before interest,
tax, depreciation and amortization, discount rate and terminal values.

    Our estimates associated with the goodwill impairment tests are considered
critical due to the amount of goodwill recorded on our consolidated balance
sheet and the judgment required in determining fair value amounts, including
undiscounted projected future cash flows. Judgment is used in assessing whether
goodwill should be tested more frequently for impairment than annually. Factors
such as a significant decrease in expected net earnings, adverse equity market
conditions, and other external events, such as the COVID-19 pandemic, may result
in the need for more frequent assessments.

    Intangible assets consist primarily of purchased customer relationships,
technology, trademarks and software and are amortized using the straight-line
method over their estimated useful lives, which range from one to 20 years. We
review these intangible assets for impairment as changes in circumstances or the
occurrence of events suggest that the remaining value is not recoverable. The
test for impairment requires us to make estimates about fair value, most of
which are based on projected future cash flows and discount rates. These
estimates and projections require judgments as to future events, conditions, and
amounts of future cash flows.

Deferred Taxes and Uncertain Tax Positions


    We deal with uncertainties and judgments in the application of complex tax
regulations in a multitude of jurisdictions. The determination of uncertain tax
positions is based on an evaluation of whether the weight of available evidence
indicates that it is more likely than not that the position taken or expected to
be taken in the tax return will be sustained on tax audit, including resolution
of related appeals or litigation processes, if any. The recognized tax benefits
are measured as the largest benefit of having a more likely than not likelihood
of being sustained upon settlement. Significant estimates are required in
determining such uncertain tax positions and related income tax expense and
benefit. Additionally, we are also required to assess the likelihood of
recovering deferred tax assets against future sources of taxable income which
might result in the need for a valuation allowance of deferred tax assets,
including operating loss, capital loss and tax credit carryforwards if we do not
reach the more likely than not threshold based on all available evidence.
Significant judgments and estimates, including expected future performance of
operations and taxable earnings and the feasibility of tax planning strategies,
are required in determining the need for and amount of valuation allowances for
deferred tax assets. If actual results differ from these estimates or there are
future changes to tax laws or statutory tax rates, we may need to adjust
valuation allowances or tax liabilities, which could have a material impact on
our consolidated financial position and results of operations.

Equity Accounted Investments


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

    We review our investment in affiliated companies for impairment whenever
events or changes in circumstances indicate the carrying amount may not be
recoverable. For example, we tested our investment in AMVIG Holdings Limited
("AMVIG") for impairment at March 31, 2020 given that the quoted share price had
experienced a significant decline in the month of March associated with general
market declines due to the COVID-19 pandemic. At the end of March, we concluded
that the decline was temporary, and the investment was not impaired given our
intention to hold the investment. However, the quoted share price did not
recover in our fiscal fourth quarter and we determined that the investment was
impaired as of June 30, 2020 and recorded an impairment charge of $25.6 million.
We also recorded impairment charges of our AMVIG investment of $14.0 million in
fiscal year 2019 and $36.5 million in fiscal year 2018.

Acquisitions


    We record acquisitions resulting in the consolidation of an enterprise using
the purchase method of accounting. We recognize the identifiable assets
acquired, the liabilities assumed, and any non-controlling interests in an
acquired business at their fair values as of the date of acquisition. Goodwill
is measured as the excess of the consideration transferred, also measured at
fair value, over the net of the acquisition date fair values of the identifiable
assets acquired and liabilities assumed. The acquisition method of accounting
requires us to make significant estimates and assumptions, especially with
respect to intangible assets.

                                       40
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    We use all available information to estimate fair values and typically
engage outside appraisal firms to assist in the fair value determination for
significant acquisitions. The fair value measurements are based on available
historical information and on expectations and assumptions about the future,
considering the perspective of marketplace participants. Critical estimates in
valuing intangible assets include, but are not limited to, expected cash flows
from customer relationships, acquired developed technology, corporate trade name
and brand names; the period of time we expect to use the acquired intangible
asset; and discount rates.

    In estimating the future cash flows, we consider demand, competition, other
economic factors and actuarial assumptions for defined benefit plans. We utilize
common valuation techniques such as discounted cash flows and market approaches,
including the relief-from-royalty method to value acquired developed technology,
trade names and brand names. Customer relationships are valued using the cost
approach or an income approach such as the excess earnings method. We believe
our estimates to be based on assumptions that are reasonable, but which are
inherently uncertain and unpredictable and, as a result, actual results may
differ from estimates, which could result in impairment charges in the future.

    In connection with a given business acquisition, we may identify
pre-acquisition contingencies as of the acquisition date and may extend our
review and evaluation of these pre-acquisition contingencies throughout the
measurement period in order to obtain sufficient information to assess whether
we include these contingencies as part of the fair value estimates acquired and
liabilities assumed and, if so, to determine the estimated amounts.

    In addition, uncertain tax positions and tax related valuation allowances
assumed in a business combination are initially estimated as of the acquisition
date. We reevaluate these items quarterly based on facts and circumstances that
existed as of the acquisition date with any adjustments to our preliminary
estimates being recorded to goodwill if identified within the measurement
period.

    We account for costs to exit or restructure certain activities of an
acquired company separately from the business acquisition. A liability for costs
associated with an exit or disposal activity is recognized and measured at fair
value in the consolidated statement of income in the period in which the
liability is incurred. We reflect acquired operations that we intend to dispose
of as discontinued operations in our consolidated statement of income and as
assets held for sale in our consolidated balance sheet.

New Accounting Pronouncements

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

                                       41

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