FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer Pursuant
to Rule 13a-16 or 15d-16 of the Securities
Exchange Act of 1934

For the month of September 2006

Amcor Limited

(Translation of registrant’s name into English)

679 Victoria Street Abbotsford

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes x No o

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- 0000869428

 

The Way Forward

 

Full Year Financial Report

Financial Report 2006

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Amcor Limited ABN 62 000 017 372

Annual General Meeting

The 2006 Annual General Meeting of Amcor Limited will be held in the Savoy Ballroom of the Grand Hyatt Melbourne, 123 Collins Street, Melbourne at 11.00am on Wednesday 25 October 2006.

Formal notice of the meeting is enclosed with this report.

Julie McPherson
Company Secretary and Group General Counsel
Amcor Limited

 

About this report

Amcor’s Full Year Financial Report is issued in two sections – Concise and Financial. Both versions can be viewed on, or downloaded from, Amcor’s website www.amcor.com

In this report, ‘the year’, ‘2005/06’ and ‘2006’ refer to the financial year ended 30 June 2006. Likewise, ‘2006/07’ and ‘2007’ refer to the financial year ending 30 June 2007.

All monetary amounts are in Australian dollars unless otherwise specified.

 

Contents

1		Income Statements
2		Balance Sheets
3		Statements of Recognised Income and Expense
4		Cash Flow Statements
5		Notes to the Financial Statements
111		Directors’ Declaration
112		Independent Audit Report to Members of Amcor Limited
113		Statement of Shareholdings
114		Statistical Summary
115		Investor Information
116		Senior Management and Corporate Directory
Inside Back Cover
		Financial Calendar and Interest Payable

 

Income Statements

For the financial year ended 30 June 2006

				Consolidated				Amcor Limited
$ million		Note		2006		2005(1)		2006		2005(1)
Sales revenue from continuing operations		5		11,041.9		10,646.1		—		—
Cost of sales				(9,329.9	)	(8,853.3	)	—		—
Gross profit				1,712.0		1,792.8		—		—
Other income		5		176.2		70.2		30.7		366.3
Sales and marketing expenses				(319.3	)	(301.2	)	—		—
General and administration expenses				(790.6	)	(1,013.2	)	(284.9	)	(40.2	)
Research costs		6		(37.0	)	(39.7	)	(0.1	)	(0.3	)
Share of net profit of associates		45		9.8		1.8		—		—
Profit/(loss) from operations				751.1		510.7		(254.3	)	325.8
Financial income		5		21.7		20.4		360.9		323.1
Financial expenses		6		(263.9	)	(181.1	)	(286.9	)	(217.1	)
Net finance costs				(242.2	)	(160.7	)	74.0		106.0
Profit/(loss) before related income tax expense				508.9		350.0		(180.3	)	431.8
Income tax (expense)/benefit		9		(92.3	)	(72.4	)	106.0		(60.3	)
Profit/(loss) from continuing operations				416.6		277.6		(74.3	)	371.5
Loss from discontinued operations		12		(37.4	)	(19.2	)	—		—
Profit/(loss) for the financial year				379.2		258.4		(74.3	)	371.5
Profit/(loss) attributable to:
Members of Amcor Limited				351.3		245.3		(74.3	)	371.5
Minority interest				27.9		13.1		—		—
				379.2		258.4		(74.3	)	371.5

 

				Cents		Cents
Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the company
Basic earnings per share		11		44.4		24.2
Diluted earnings per share		11		43.2		24.1
Earnings per share for profit attributable to the ordinary equity holders of the company
Basic earnings per share		11		39.9		22.0
Diluted earnings per share		11		39.4		21.9

 

(1)                                  The Income Statements for the year ended 30 June 2005 have not been restated to comply with AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement which have been adopted from 1 July 2005. Refer Note 1(a).

The above Income Statements should be read in conjunction with the accompanying Notes.

1

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Balance Sheets

As at 30 June 2006

				Consolidated				Amcor Limited
$ million		Note		2006		2005(1)		2006		2005(1)
Current assets
Cash and cash equivalents		13		113.9		229.8		—		3.7
Trade and other receivables		14		1,691.9		1,824.7		6,519.3		6,004.8
Inventories		15		1,380.3		1,440.1		—		—
Other financial assets		16		10.8		—		4.1		—
Total current assets				3,196.9		3,494.6		6,523.4		6,008.5
Non-current assets
Investments accounted for using the equity method		17		283.1		40.7		—		—
Other financial assets		18		19.1		52.8		4,692.8		4,686.0
Property, plant and equipment		19		4,296.8		4,426.8		0.6		4.1
Deferred tax assets		20		390.7		349.9		36.4		—
Intangible assets		21		1,888.4		1,998.0		16.2		10.5
Other non-current assets		22		80.5		96.3		5.1		10.5
Total non-current assets				6,958.6		6,964.5		4,751.1		4,711.1
Total assets				10,155.5		10,459.1		11,274.5		10,719.6
Current liabilities
Trade and other payables		23		2,076.6		1,996.0		53.0		35.9
Interest-bearing liabilities		24		690.4		887.2		4,570.2		3,849.6
Subordinated convertible securities		25		464.2		—		246.0		—
Other financial liabilities		26		3.2		—		—		—
Current tax liabilities				54.7		82.5		28.2		13.2
Provisions		27		290.0		289.3		1.6		2.1
Total current liabilities				3,579.1		3,255.0		4,899.0		3,900.8
Non-current liabilities
Trade and other payables		28		31.1		31.6		—		—
Interest-bearing liabilities		29		2,084.9		1,917.3		1,509.8		1,275.9
Subordinated convertible securities		30		—		301.1		—		301.1
Deferred tax liabilities		31		541.2		517.3		—		35.8
Provisions		27		100.6		99.9		5.9		5.5
Retirement benefit obligations		32		246.6		358.9		35.8		58.8
Total non-current liabilities				3,004.4		3,226.1		1,551.5		1,677.1
Total liabilities				6,583.5		6,481.1		6,450.5		5,577.9
Net assets				3,572.0		3,978.0		4,824.0		5,141.7
Equity
Contributed equity		33		2,810.3		3,322.1		2,810.3		2,725.5
Reserves		34		(84.5	)	(148.2	)	(13.4	)	4.4
Retained profits		34		794.6		726.1		2,027.1		2,411.8
Total equity attributable to equity holders of the parent				3,520.4		3,900.0		4,824.0		5,141.7
Minority interest		35		51.6		78.0		—		—
Total equity		36		3,572.0		3,978.0		4,824.0		5,141.7

 

(1)                                  The Balance Sheets as at 30 June 2005 have not been restated to comply with AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement which have been adopted from 1 July 2005. Refer Note 1(a).

The above Balance Sheets should be read in conjunction with the accompanying Notes.

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Statements of Recognised Income and Expense

For the financial year ended 30 June 2006

				Consolidated				Amcor Limited
$ million		Note		2006		2005(1)		2006		2005(1)
Available for sale financial assets, net of tax				(0.1	)	—		—		—
Cash flow hedges, net of tax				9.0		—		2.9		—
Exchange differences on translation of foreign operations				85.6		(168.4	)	—		—
Actuarial gains and losses on defined benefit plans				12.8		(34.4	)	(3.3	)	10.3
Net income recognised directly in equity				107.3		(202.8	)	(0.4	)	10.3
Profit for the financial year				379.2		258.4		(74.3	)	371.5
Total recognised income and expense for the financial year		36		486.5		55.6		(74.7	)	381.8
Total recognised income and expense for the financial year is attributable to:
Members of Amcor Limited				452.4		58.3		(74.7	)	381.8
Minority interest				34.1		(2.7	)	—		—
		36		486.5		55.6		(74.7	)	381.8
Effects of change in accounting policy – financial instruments:
Adjustment on adoption of AASB 132 and AASB 139, net of tax:
Contributed equity				(596.6	)	—		—		—
Retained profits				3.2		—		(8.3	)	—
Reserves				(28.1	)	—		(24.1	)	—
		36		(621.5	)	—		(32.4	)	—
Adjustment on adoption of AASB 132 and AASB 139, net of tax is attributable to:
Members of Amcor Limited				(621.5	)	—		(32.4	)	—
Minority interest				—		—		—		—
		36		(621.5	)	—		(32.4	)	—

 

(1)                                  The Statements of Recognised Income and Expense as at 30 June 2005 have not been restated to comply with AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement which have been adopted from 1 July 2005. Refer Note 1(a).

Other movements in equity arising from transactions with owners are set out in Note 36.

The amounts recognised directly in equity are disclosed net of tax, refer to Notes 20 and 31 for the tax effect.

The above Statements of Recognised Income and Expense should be read in conjunction with the accompanying Notes.

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Cash Flow Statements

For the financial year ended 30 June 2006

				Consolidated				Amcor Limited
$ million		Note		2006		2005(1)		2006		2005(1)
Cash flows from operating activities
Receipts from customers (inclusive of goods and services and sales tax)				11,457.2		10,978.7		—		—
Payments to suppliers and employees (inclusive of goods and services and sales tax)				(10,231.3	)	(9,878.3	)	(91.2	)	(66.6	)
Dividends received				0.4		0.6		18.9		40.6
Other income received				56.5		71.3		1.2		31.8
Finance income received				22.0		20.6		372.8		309.6
Finance expenses paid				(261.6	)	(175.6	)	(279.1	)	(211.8	)
Income taxes paid				(79.1	)	(115.5	)	(26.1	)	(42.2	)
Net cash from operating activities		46		964.1		901.8		(3.5	)	61.4
Cash flows from investing activities
Repayment of loans by associated companies and other persons				0.1		4.8		0.1		163.5
Payments for controlled entities, businesses and associates, net of cash		42, 45		(66.8	)	(45.5	)	(5.9	)	(10.1	)
Payments for property, plant and equipment				(486.4	)	(647.4	)	(3.1	)	(3.1	)
Proceeds on disposal of controlled entities and businesses(2)				(24.8	)	10.8		—		—
Proceeds on disposal of controlled entities and business treated as discontinued operations		12		297.5		—		21.2		—
Proceeds on disposal of property, plant and equipment				33.4		77.4		—		0.3
Net cash from investing activities				(247.0	)	(599.9	)	12.3		150.6
Cash flows from financing activities
Proceeds from share issues, convertible securities and calls on partly-paid shares				143.5		12.9		143.5		12.9
Payments for shares bought back		33		(57.8	)	(15.4	)	(57.8	)	(15.4	)
Share issue and buy-back transaction costs				(0.9	)	—		(0.9	)	—
Proceeds from borrowings				6,206.0		3,876.0		6,170.3		3,326.9
Repayment of borrowings				(6,833.3	)	(3,706.4	)	(5,974.6	)	(3,250.0	)
Principal lease repayments				(19.4	)	(18.1	)	—		—
Dividends and other equity distributions paid				(308.8	)	(346.6	)	(298.8	)	(290.2	)
Net cash from financing activities				(870.7	)	(197.6	)	(18.3	)	(215.8	)
Net (decrease)/increase in cash held				(153.6	)	104.3		(9.5	)	(3.8	)
Cash and cash equivalents at the beginning of the financial year				213.8		121.1		3.7		7.5
Effects of exchange rate changes on cash and cash equivalents				4.8		(11.6	)	—		—
Cash and cash equivalents at the end of the financial year				65.0		213.8		(5.8	)	3.7
Financing arrangements		29
Non-cash investing and financing activities		47

 

Reconciliation of cash and cash equivalents

For purposes of the Cash Flow Statements, cash and cash equivalents includes cash on hand and at bank and short-term money market investments, net of outstanding bank overdrafts. Cash and cash equivalents as at the end of the financial year as shown in the Cash Flow Statements is reconciled to the related items in the Balance Sheet as follows:

Cash assets and cash equivalents		13		113.9		229.8		—		3.7
Bank overdrafts		24		(48.9	)	(16.0	)	(5.8	)	—
				65.0		213.8		(5.8	)	3.7

 

(1)                                  The Cash Flow Statements for the year ended 30 June 2005 have not been restated to comply with AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement which have been adopted from 1 July 2005. Refer Note 1(a).

(2)                                  Proceeds on disposal of controlled entities and businesses is net of $39.6 million cash transferred in respect of the Asian tobacco packaging business.

The above Cash Flow Statements should be read in conjunction with the accompanying Notes.

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Contents of Notes to the Financial Statements

Note		Description		Page
1		Summary of significant accounting policies		6
2		Financial risk management		18
3		Critical accounting estimates and judgements		20
4		Segment information		21
5		Revenue, other income and financial income		25
6		Expenses		26
7		Significant items – income/(expense)		27
8		Revision of estimates		28
9		Income tax expense		29
10		Auditors’ remuneration		31
11		Earnings per share		31
12		Discontinued operations		33
13		Current assets – Cash and cash equivalents		35
14		Current assets – Trade and other receivables		35
15		Current assets – Inventories		35
16		Current assets – Other financial assets		36
17		Non-current assets – Investments accounted for using the equity method		36
18		Non-current assets – Other financial assets		36
19		Non-current assets – Property, plant and equipment		38
20		Non-current assets – Deferred tax assets		41
21		Non-current assets – Intangible assets		42
22		Non-current assets – Other		45
23		Current liabilities – Trade and other payables		45
24		Current liabilities – Interest-bearing liabilities		46
25		Current liabilities – Subordinated convertible securities		47
26		Current liabilities – Other financial liabilities		47
27		Current and non-current liabilities – Provisions		48
28		Non-current liabilities – Trade and other payables		51
29		Non-current liabilities – Interest-bearing liabilities		52
30		Non-current liabilities – Subordinated convertible securities		53
31		Non-current liabilities – Deferred tax liabilities		54
32		Non-current liabilities – Retirement benefit obligations		54
33		Contributed equity		64
34		Reserves and retained profits		65
35		Minority interest		66
36		Total equity reconciliation		67
37		Dividends		68
38		Other financial instrument information		69
39		Key management personnel and their related parties disclosures		73
40		Contingencies		79
41		Commitments		81
42		Business combinations		82
43		Subsidiaries		82
44		Deed of cross guarantee		87
45		Investments in associates		89
46		Reconciliation of profit after related income tax to net cash provided by operating activities		90
47		Non-cash investing and financing activities		90
48		Share-based payments		90
49		Events subsequent to balance date		99
50		Impact of adopting Australian Equivalents to International Financial Reporting Standards		100

 

5

Notes to the Financial Statements

30 June 2006

Note 1 Summary of Significant Accounting Policies

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial report includes separate financial statements for Amcor Limited as an individual entity and the consolidated entity consisting of Amcor Limited and its subsidiaries.

(a) Basis of preparation of the annual financial report

This general purpose financial report for the year ended 30 June 2006 has been prepared in accordance with Australian Accounting Standards (‘AASBs’) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001.

International Financial Reporting Standards (‘IFRS’) form the basis of AASBs adopted by the AASB, and for the purpose of this report are called Australian Equivalents to IFRS (‘AIFRS’) to distinguish them from the previous Australian Generally Accepted Accounting Principles (‘AGAAP’).

Application of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards

These financial statements are the first Amcor Limited annual financial statements to be prepared in accordance with AIFRS. AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing these financial statements.

Financial statements of Amcor Limited have been prepared in accordance with previous AGAAP until 30 June 2005. AGAAP differs in certain respects from AIFRS. When preparing the financial report for the year ended 30 June 2006, management adopted certain changes to the accounting, valuation and consolidation methods applied in the previous AGAAP financial statements to comply with AIFRS. With the exception of financial instruments, the comparative figures have been restated to reflect these adjustments. The consolidated entity has taken the exemption available under AASB 1 to apply AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005. Refer Note 1(z).

Compliance with AIFRS ensures that the financial reports of the consolidated entity and the parent entity also comply with IFRS, except that an election has been made to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure.

Early adoption of standard

The consolidated entity has elected to apply AASB 119 Employee Benefits (issued in December 2004) and AASB 2004-3 Amendments to Australian Accounting Standards to the reporting periods beginning 1 July 2005. This includes applying AASB 119 to the comparatives in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, derivative financial instruments, and financial assets and liabilities measured at fair value.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

(b) Principles of consolidation

(i) Subsidiaries

These financial statements incorporate the assets and liabilities of all subsidiaries of Amcor Limited (‘parent entity’) as at 30 June 2006 and the results of all subsidiaries for the year then ended. Amcor Limited and its subsidiaries together are referred to as the Group or consolidated entity.

Subsidiaries are all those entities (including special purpose entities) over which the consolidated entity has the power to govern the financial and operating policies, generally accompanying a shareholding of more than 50% of the voting rights.

Subsidiaries are fully consolidated from the date control commences until the date control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the consolidated entity. Refer Note 1(h).

All balances and transactions between entities included in the consolidated entity have been eliminated.

Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively.

Investments in subsidiaries are accounted for at cost in the parent entity financial report of Amcor Limited.

(ii) Associates

Associates are all entities over which the consolidated entity has significant influence but not control. Investments in associates are accounted for in the parent entity financial statements using the cost method and in the consolidated financial statements using the equity method, after initially being recognised at cost. The consolidated entity’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.

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The consolidated entity recognises its share of its associates’ post-acquisition profits or losses in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as a reduction in the consolidated entity’s carrying amount of the investment.

Changes in the consolidated entity’s share of net worth of associates caused by an issue of equity by the associate are recognised in the income statement as gains or losses.

Unrealised gains on transactions between the consolidated entity and its associates are eliminated to the extent of the consolidated entity’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

(c) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the consolidated entity’s entities are measured using the currency of the economic environment in which the entity primarily generates and expends cash (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Amcor Limited’s functional currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses arising from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Refer to Notes 1(o)(ii) and 1(o)(iii).

Translation of differences on non-monetary items, such as equities held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available for sale financial assets, are included in the available for sale investments revaluation reserve in equity.

(iii) Group companies

The results and financial position of all the Group entities, excluding those in a hyperinflationary economy, that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

·      assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

·      income and expenses for each income statement are translated at average exchange rates, which approximate the exchange rates at the dates of the transactions; and

·      all resulting exchange differences are recognised in the exchange fluctuation reserve.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to the exchange fluctuation reserve. When a foreign operation is sold, the cumulative exchange differences from 1 July 2004 are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(d) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, allowances and discounts. Revenue is recognised as follows:

(i) Sale of goods

Sales revenue comprises revenue earned (net of returns, discounts and allowances) from the provision of products to entities outside the consolidated entity. Sales revenue is recognised when the risks and rewards of ownership have transferred to the customer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, there is risk of return of goods or there is continuing management involvement with the goods.

(ii) Interest income

Interest income is recognised as it accrues, taking into account the effective yield on the financial asset. Interest income is included as financial income in the income statement.

(e) Government grants

Grants from governments are recognised at their fair value where there is a reasonable assurance that the grant will be received and the consolidated entity will comply with all attached conditions.

Grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight line basis over the expected lives of the related assets.

(f) Income tax

(i) General

Income tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and by the availability of unused tax losses. Current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity.

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Deferred tax balances are determined using the balance sheet liability method which calculates temporary differences based on the carrying amounts of an entity’s assets and liabilities in the balance sheet and their associated tax bases. The amount of deferred tax provided will be based on the expected manner of realisation of the asset or settlement of the liability, using tax rates enacted or substantively enacted at reporting date.

Deferred tax assets will be recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised.

The parent entity is the head entity in the tax-consolidated group comprising all the Australian wholly-owned subsidiaries. The head entity recognises all of the current tax liabilities of the tax-consolidated group (after elimination of intragroup transactions). The tax-consolidated group has entered into a tax-sharing agreement that requires wholly-owned subsidiaries to make contributions to the head entity for tax liabilities arising from external transactions during the year. The contributions are calculated as if each subsidiary continued to be a stand-alone taxpayer in its own right. The contributions are payable annually.

(ii) Capital gains tax

Capital gains tax, expected to be paid, is provided in the period in which an asset is sold.

(iii) Goods and services tax/value added tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax and value added tax (‘GST/VAT’) and other sales related taxes, except where the amount of GST/VAT incurred is not recoverable from the relevant taxation authority. In these circumstances the GST/VAT is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST/VAT included.

The net amount of GST/VAT recoverable from, or payable to, taxing authorities is included as a current asset or liability in the balance sheet.

Cash flows are included in the cash flow statements on a gross basis. The GST/VAT component of cash flows arising from investing and financing activities which are recoverable from, or payable to, taxing authorities are classified as operating cash flows.

(g) Leases

Leases under which the consolidated entity assumes substantially all the risks and benefits of ownership are classified as finance leases. Other leases are classified as operating leases.

Finance leases are capitalised at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in current and non-current interest-bearing liabilities. Each lease payment is allocated between the liability and the finance charges. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term, unless it is reasonably certain that ownership will be obtained by the end of the lease term where it is depreciated over the period of the expected use which is the useful life of the asset.

Payments made under operating leases are expensed on a straight line basis over the term of the lease.

(h) Acquisition of assets

The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published price at the date of exchange unless it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the consolidated entity’s share of the identifiable net assets acquired is recorded as goodwill (refer Note 1(s)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

(i) Impairment of assets

The recoverable amount of the consolidated entity’s assets, excluding deferred tax assets, defined benefit assets, and goodwill are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset is tested for impairment by comparing its recoverable amount to its carrying amount.

Goodwill and intangible assets that have an indefinite useful life and intangible assets not ready for use are tested for impairment at least annually.

The recoverable amount is estimated for the individual asset or, if it is not possible to estimate the recoverable amount for the individual asset, the recoverable amount of the cash generating unit (CGU) to which the asset belongs is determined. CGUs have been determined as the smallest identifiable group of assets that generate cash inflows largely independent of the cash inflows of other assets or

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group of assets. Each CGU is no larger than a segment.

An impairment loss is recognised as an expense when the carrying amount of an asset or its CGU exceeds its recoverable amount. Recoverable amount is determined as the higher of fair value less costs to sell and value-in-use. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss recognised in prior periods for an asset (other than goodwill) is reversed if, and only where there is an indicator that the impairment loss may no longer exist, and if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The increased carrying amount of an asset due to a reversal of an impairment loss does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.

In calculating value-in-use, the cash flows include projections of cash inflows and outflows from continuing use of the asset and cash flows associated with disposal of the asset. The cash flows are estimated for the asset in its current condition and therefore do not include cash inflows and outflows expected to arise from future restructurings which are not yet committed, or from improving or enhancing the asset’s performance. In assessing value-in-use, the estimated cash flows are discounted to their present value effectively using a pre-tax discount rate that reflects the current market assessments of the risks specific to the asset or CGU.

(j) Cash and cash equivalents

Cash and cash equivalents include cash on hand and at bank, short-term deposits and short-term money market investments. Bank overdrafts are shown within interest-bearing liabilities in current liabilities on the balance sheet.

(k) Trade and other receivables

Trade and other receivables are recognised at their cost, less any impairment losses and are non-interest bearing.

Collectibility of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. An impairment loss is recognised when there is objective evidence that the consolidated entity will not be able to collect amounts due according to the original terms of the receivables.

(l) Inventories

Inventories are valued at the lower of cost (including an appropriate proportion of fixed and variable overheads) and net realisable value in the normal course of business.

After initial measurement of the cost of finished goods inventories, cost is determined using the most appropriate of either first-in, first-out (FIFO) or weighted average cost formula and includes the appropriate share of fixed and variable overheads.

(m) Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) classified as held for sale are stated at the lower of their carrying amount and fair value less costs to sell, if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

(n) Investments and other financial assets

From 1 July 2004 to 30 June 2005

The consolidated entity has taken the exemption available under AASB 1 to apply AASB 132 and AASB 139 only from 1 July 2005. The consolidated entity has applied previous AGAAP to the comparative information on the financial instruments within the scope of AASB 132 and AASB 139. For further information on previous AGAAP, refer to the annual report for the year ended 30 June 2005.

From 1 July 2005

The consolidated entity classifies its investments and other financial assets into the following categories: financial assets at fair value through the income statement, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments and other financial assets were acquired. Management determines the classification of held-to-maturity assets at initial recognition and re-evaluates this designation at each reporting date.

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Available-for-sale financial assets and financial assets at fair value through the income statement are initially and subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity in the available-for-sale fair value reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

The fair values of quoted investments are based on current bid prices.

The consolidated entity makes an assessment as to the impairment of any financial asset or group of financial assets at each reporting date. This assessment is carried out, based on the existence of objective evidence of impairment. The amount of any impairment is calculated as the difference between the carrying amount of the asset, or group of assets and the present value of the estimated future cash flows. For financial assets carried at cost or amortised cost, the amount of any loss will be recognised in the income statement. For available-for-sale financial assets, the cumulative loss directly recognised in equity will be removed and recognised in the income statement when the financial asset is sold.

(i) Financial assets at fair value through the income statement

This category has two sub-categories: financial assets held for trading, and those designated at fair value through the income statement on initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term, or to generate short-term profits, or if so designated by management. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the consolidated entity provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets.

Loans and other receivables excluding those held as available-for-sale are recognised at their amortised cost using the effective interest rate method.

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the consolidated entity’s management has the positive intention and ability to hold to maturity.

(iv) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Purchases and sales of investments and other financial assets are recognised on trade-date, the date on which the consolidated entity commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.

(o) Derivatives

From 1 July 2004 to 30 June 2005

The consolidated entity has taken the exemption available under AASB 1 to apply AASB 132 and AASB 139 from 1 July 2005. The consolidated entity has applied previous AGAAP to the comparative information on financial instruments within the scope of AASB 132 and AASB 139. For further information on previous AGAAP, refer to the annual report for the year ended 30 June 2005.

From 1 July 2005

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The consolidated entity designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges); or (3) hedges of a net investment in a foreign operation.

The consolidated entity documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The consolidated entity also documents its assessment, both at hedge inception and on an ongoing basis, as to whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

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(i) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

(ii) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

(iii) Net investment in a foreign operation

Where effective, foreign exchange differences relating to foreign currency transactions hedging a net investment in a foreign operation, together with any related income tax, are transferred to the exchange fluctuations reserve on consolidation. The ineffective portion is recognised in the income statement.

(iv) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement.

(p) Financial instruments included in liabilities and equity

From 1 July 2005

Bank overdrafts, bank loans, commercial paper, mortgage loans and other loans are initially recognised at their fair value, net of transaction costs incurred. Subsequent measurement is at amortised cost with any difference between the net proceeds and the maturity amount recognised in the income statement over the period of the borrowings using the effective interest rate method.

Eurobond notes and US$ notes are carried at amortised cost, translated at exchange rates ruling at reporting date. Any difference between amortised cost and their amount at maturity is recognised in the income statement over the period of the borrowing using the effective interest method.

Undated subordinated convertible securities are carried at amortised cost. These securities have been translated at the exchange rate ruling at reporting date. Any difference between amortised cost and their amount at maturity is recognised in the income statement over the period of the borrowing using the effective interest method. The terms and conditions of undated subordinated convertible securities outstanding is set out in Note 25.

From 1 July 2005, the consolidated entity reclassified the issue of $400 million of Perpetual Amcor Convertible Reset Securities (‘PACRS1’) and $210 million of 2002 Perpetual Amcor Convertible Reset Securities (‘PACRS2’) from equity to liabilities. The conversion discount and transaction costs are set off against the carrying value of the PACRS1 and PACRS2 at amortised cost. Over the life of the PACRS1 and PACRS2, these amounts are reflected in the income statement as financing costs using the effective interest method. The coupons on the PACRS1 and PACRS2 are recorded as a finance cost in the income statement.

Prior to 1 July 2005

(i) Financial instruments included in equity

The issue of $400 million of Perpetual Amcor Convertible Reset Securities (‘PACRS1’) and $210 million of 2002 Perpetual Amcor Convertible Reset Securities (‘PACRS2’) was classified as equity and the coupon interest payable on the PACRS1 and PACRS2 was treated as a distribution of shareholders’ equity. The consolidated income statement did not include the coupon interest on the PACRS1 or PACRS2.

PACRS were recorded at the amount of consideration received less transaction costs.

(ii) Financial instruments included in liabilities

Liabilities were recognised for amounts to be paid in the future for goods and services received, whether or not billed to the consolidated entity.

Bank overdrafts, bank loans, mortgage loans and other loans were carried at their principal amounts. Interest was charged as an expense as it accrued other than for amounts capitalised.

Commercial paper was carried at face value. The discount interest was carried as a deferred expense and brought to account on an accruals basis.

US$ notes were carried at face value and translated at the exchange rates ruling at reporting date. Interest was charged as an expense as it accrued.

Eurobond notes were carried at face value. The discount on issue was carried as a deferred expense and amortised over the period to maturity. Interest was charged as an expense as it accrued.

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Undated subordinated convertible securities were initially recorded at the amount of consideration received. These securities were translated at the rate of exchange ruling at reporting date. Interest payable on these securities was recognised when entitlements accrued and was calculated in accordance with the terms of each issue.

(q) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition, measurement and disclosure purposes.

The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the consolidated entity is the current bid price; the quoted market price used for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The consolidated entity uses a variety of methods, including discounted cash flows, to calculate the fair value of financial instruments. These calculations are performed using current market inputs which may include the use of interest and forward exchange rates ruling at balance date. The consolidated entity makes assumptions concerning these valuations that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held.

The nominal value of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the consolidated entity for similar financial instruments.

(r) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Property, plant and equipment, excluding freehold land, are depreciated at rates based upon their expected useful lives using the straight line method.

Depreciation rates used for each class of asset are as follows:

·      Leasehold land between 1% – 3% (2005: 1% – 3%)

·      Land improvements between 1% – 3% (2005: 1% – 3%)

·      Buildings between 1% – 5% (2005: 1% – 5%)

·      Plant and equipment between 3% – 25% (2005: 3% – 25%)

·      Finance leased assets between 4% – 20% (2005: 4% – 20%).

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Gains and losses on disposals are determined by comparing the proceeds of each disposed asset with its carrying amount, and are included in the income statement as other income.

(s) Intangible assets

(i) Goodwill

Goodwill represents the difference between the cost of a business combination over the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is carried at cost less any accumulated impairment losses. Goodwill is allocated to CGUs and tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired.

(ii) Other intangible assets

Other intangible assets acquired are carried at cost less accumulated amortisation and impairment losses.

Expenditure on research associated with product research is charged against net income in the year in which the expenditure is incurred.

Expenditure on development activities associated with product development innovation is capitalised if the product is technically and commercially feasible and adequate resources are available to complete development. Capitalised development expenditure is amortised over the period of time during which the benefits are expected to arise, typically not exceeding ten years.

Expenditure on significant commercial development, including major software applications and associated systems, is capitalised and amortised over the period of time during which the benefits are expected to arise, typically between three to eight years.

Software costs are capitalised as intangible assets if they are separable or arise from contractual or other legal rights and it is probable that the expected future economic benefits attributable to the asset will flow to the consolidated entity, and the cost of the asset can be measured reliably. Where software is internally generated, only the costs incurred in the development phase are capitalised and amortised over the period of time during which the benefits are expected to arise, typically not exceeding

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ten years. Software costs which are incurred in the research phase are expensed.

Expenditure on other internally generated intangibles is charged against net income in the year in which the expenditure is incurred.

(t) Trade and other payables

These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year which were unpaid at the end of the financial year.

These amounts are unsecured. Trade and other payables are stated at their amortised cost and are non-interest bearing.

(u) Financing costs

Financing costs include interest income and expense, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with the arrangement of borrowings, lease finance charges and the unwinding discount on provision balances.

Financing costs are brought to account in determining profit for the year, except to the extent the financing costs are directly attributable to the acquisition, construction or production of a qualifying asset. Such financing costs are capitalised as part of the cost of the asset up to the time it is ready for its intended use and are then amortised over the expected useful economic life.

(v) Provisions

A provision is recognised when there is a legal or constructive obligation as a result of a past event and it is probable that a future sacrifice of economic benefits will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the recovery receivable is recognised as an asset when it is virtually certain that the recovery will be received.

In the income statement, the expense recognised in respect of a provision is presented net of the recovery.

(i) Restructuring

A provision for restructuring is recognised when:

(a) there is a detailed formal plan for the restructuring at the commitment date, identifying at least: the business or part of a business concerned; the principal locations affected; the location, function and approximate number of employees who will be compensated for terminating their services (for involuntarily terminated employees, the plan must also specifically identify the benefit formula to be used for determining individual employee involuntary termination payments, job classification and functions); when the plan will be implemented; and the expenditures that will be made; and

(b) the entity has announced the main features of the plan or started to implement the plan so as to raise a valid expectation in those affected that the entity will carry out the restructuring.

(ii) Dividends

A provision for dividends payable is recognised in the reporting period in which the dividends are declared on or before the end of the financial period but not distributed at balance date.

(iii) Decommissioning

The present value of the estimated costs of dismantling and removing an asset and restoring the site on which it is located are recognised as an asset within property, plant and equipment and as a provision, where a legal or constructive obligation exists. At each reporting date, the liability is remeasured in line with changes in discount rates, timing and estimated cash flows. Any changes in the liability are added or deducted from the related asset, other than the unwinding of the discount, which is recognised as a financing cost in the income statement.

(iv) Onerous contracts

A provision for onerous contracts is recognised when unavoidable costs under a contract, calculated as the lower of the cost of fulfilling the contract and any compensation or penalties arising from the failure to fulfil it, is loss-making, rather than simply unfavourable due to current prices. A provision is recognised only in respect of the onerous element of the contract. The provision is discounted to its present value, where the effect of discounting is material.

(v) Insurance and other claims

Provisions for workers’ compensation, insurance and other claims are made for claims received and claims expected to be received in relation to incidents occurring prior to reporting date, based on historical claim rates.

Estimated net future cash flows are based on the assumption that all claims will be settled and the weighted average cost of historical claims adjusted for inflation will continue to approximate future costs.

(w) Employee benefits

(i) Wages, salaries, annual leave and sick leave

Liabilities for employee benefits such as wages, salaries, annual leave, sick leave and other current employee entitlements represent present obligations resulting from employees’ services provided to reporting date, and are measured at the amounts expected to be paid when the liabilities are settled.

(ii) Long service leave

Liabilities relating to long service leave are measured as the present value of estimated future cash outflows to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

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Liabilities which are not expected to be settled within 12 months are discounted using market yields at the reporting date of high quality corporate bonds. In countries where there is no deep market for corporate bonds (such as Australia), the market yield on government bonds at the reporting date is used. The rates used reflect the terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Retirement benefit obligations

(a) Defined benefit plans

The consolidated entity’s liability or asset in respect of defined benefit pension plans is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date plus unrecognised actuarial gains (less unrecognised actuarial losses), less the fair value of the pension plan’s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the reporting date, calculated annually by independent actuaries. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity.

Past service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight line basis over the vesting period.

Future taxes that are funded by the entity and are part of the provision of the existing benefit obligation (e.g. taxes on investment income and employer contributions) are taken into account in measuring the net liability or asset.

(b) Defined contribution plans

Contributions by the company or the consolidated entity to the defined contribution fund are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

(iv) Share-based payments

The company maintains two employee share schemes: the Employee Share Purchase Plan (‘ESPP’) and the Employee Share/Option Plan (‘ESOP’). Both schemes were introduced in 1985, and have been subsequently amended and approved by shareholders at Annual General Meetings.

A number of sub-plans exist under the ESPP, including the Employee Incentive Share Plan (‘EISP’), the Senior Executive Retention Share Plan (‘SERSP’) and the Senior Executive Retention Payment Plan (‘SERPP’).

Where loans are made to assist in the purchase of shares under a sub-plan, they are treated as a reduction in equity and not recognised as a receivable. Repayments are recorded as contributions to share capital. Shares are held in trust until the loan is settled.

Share options granted before 7 November 2002 which have vested before 1 January 2005

 

No expense is recognised in respect of these options. The shares are recognised when the options are exercised and the proceeds received allocated to share capital.

 

Share options granted after 7 November 2002 which have vested after 1 January 2005

 

The fair value of options granted is recognised as an employee benefit expense with a corresponding increase in the share-based payments reserve in equity. The fair value is measured at grant date taking into account market performance conditions only, and spread over the vesting period during which the employees become unconditionally entitled to the options. The fair value of options granted is measured using the Black Scholes model. The amount recognised as an expense is adjusted to reflect the actual number of options that vest, except where forfeiture is due to market related conditions.

Upon exercise of the options, the balance of the share-based payments reserve relating to those options is transferred to share capital.

(v) Profit sharing and bonus plans

A liability and an expense is recognised for profit sharing and bonus plans, including benefits based on the future value of equity instruments and benefits under plans allowing the consolidated entity to settle in either cash or shares.

Entitlements under the Employee Bonus Payment Plan (‘EBPP’) are estimated and accrued at the end of the financial reporting period.

(x) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or the exercise of options are shown in equity as a deduction, net of tax, from the proceeds.

(y) Earnings per share (EPS)

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to members of the company for the reporting period, by the weighted average number of ordinary shares of the company for the reporting period, adjusted for any bonus issue.

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(ii) Diluted earnings per share

Diluted EPS is calculated by adjusting the basic EPS for the after tax effect of financing costs and the effect of conversion to ordinary shares associated with dilutive potential ordinary shares.

The diluted EPS weighted average number of shares includes the number of ordinary shares assumed to be issued for no consideration in relation to dilutive potential ordinary shares. The number of ordinary shares assumed to be issued for no consideration represents the difference between the number that would have been issued at the exercise price and the number that would have been issued at the average market price.

The identification of dilutive potential ordinary shares is based on net profit or loss from continuing ordinary operations and is applied on a cumulative basis, taking into account the incremental earnings and incremental number of shares for each series of potential ordinary shares.

(z) Change in accounting policies – financial instruments

The consolidated entity has elected not to restate comparative information for financial instruments within the scope of Accounting Standards AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement, as permitted on the first-time adoption of AIFRS. The effect of changes in the accounting policies for financial instruments on the balance sheet as at 1 July 2005 is shown below:

				Consolidated						Amcor Limited
				30 June		Effect of		1 July		30 June		Effect of		1 July
$ million		Footnote		2005		adoption		2005		2005		adoption		2005
Current assets
Cash and cash equivalents				229.8		—		229.8		3.7		—		3.7
Trade and other receivables		(iii), (iv), (vii), (ix)		1,824.7		(120.8	)	1,703.9		6,004.8		(43.7	)	5,961.1
Inventories				1,440.1		—		1,440.1		—		—		—
Other financial assets		(iv), (vi), (vii), (viii)		—		109.6		109.6		—		1.7		1.7
Total current assets				3,494.6		(11.2	)	3,483.4		6,008.5		(42.0	)	5,966.5
Non-current assets
Investments accounted for using the equity method		(vi)		40.7		6.6		47.3		—		—		—
Other financial assets		(iv)		52.8		4.0		56.8		4,686.0		4.0		4,690.0
Property, plant and equipment				4,426.8		—		4,426.8		4.1		—		4.1
Deferred tax assets		(xi)		349.9		22.0		371.9		26.8		13.8		40.6
Intangible assets				1,998.0		—		1,998.0		10.5		—		10.5
Other non-current assets		(i), (iii)		96.3		(12.0	)	84.3		10.5		(8.4	)	2.1
Total non-current assets				6,964.5		20.6		6,985.1		4,737.9		9.4		4,747.3
Total assets				10,459.1		9.4		10,468.5		10,746.4		(32.6	)	10,713.8
Current liabilities
Trade and other payables		(ii), (ix)		1,996.0		9.2		2,005.2		35.9		(0.4	)	35.5
Interest-bearing liabilities		(iii)		887.2		(1.3	)	885.9		3,849.6		(1.3	)	3,848.3
Subordinated convertible securities		(i)		—		414.6		414.6		—		—		—
Other financial liabilities		(vii), (viii)		—		7.5		7.5		—		9.2		9.2
Current tax liabilities				82.5		—		82.5		13.2		—		13.2
Provisions		(ii)		289.3		(8.7	)	280.6		2.1		—		2.1
Total current liabilities				3,255.0		421.3		3,676.3		3,900.8		7.5		3,908.3

 

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