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

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

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 companies						825.2						6.6						604.1						6.4
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 tax						(7.7)						(0.1)						0.7						—
Net income						$	616.6					4.9		%				$	437.4					4.6		%
Net (income) loss attributable to non-controlling interests						(4.4)						—						(7.2)						(0.1)
Net income attributable to Amcor plc						$	612.2					4.9		%				$	430.2					4.5		%

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.

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.

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.

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

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.

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.

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.

(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

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).

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

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.

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.

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.

(in millions)						Less than 1 year						Within 1 to 3 years						Within 3 to 5 years						More than 5 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;

• 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

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.

Discount Rate						Total Increase (Decrease) to Pension Expense from Current Assumption						Rate of Return on Plan Assets						Total Increase (Decrease) to Pension Expense from Current Assumption
						(in millions)												(in millions)
+25 basis points						0.1						+25 basis points						(4.2)
1.96 percent (current assumption)						—						3.52 percent (current 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

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.

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.