See footnotes below for descriptions of these non-generally accepted accounting principles, or non-GAAP measures, the reasons management believes they are useful to investors, and reconciliations to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be read in connection with the company’s consolidated financial statements presented in accordance with GAAP.

1. EBIT represents earnings from continuing operations before income taxes, interest income and interest expense. EBIT margin is the ratio of EBIT to net sales. The company’s management believes these measures provide useful additional information to investors about trends in the company’s operations and are useful for period-over-period comparisons.
   
   Reconciliation of EBIT

   Dollars in millions	FY18	FY17	FY16
   Earnings from continuing operations before income taxes	$1,054	$1,033	$983
   Interest income	-6	-4	-5
   Interest expense	85	88	88
   EBIT — non-GAAP	$1,133	$1,117	$1,066
   EBIT margin — non-GAAP	18.5%	18.7%	18.5%
   Net sales	$6,124	$5,973	$5,761

2. Reconciliation of Economic Profit⁽ⁱ⁾

   Dollars in millions and all calculations
   based on rounded numbers	FY18	FY17	FY16
   Earnings from continuing operations before income taxes	$1,054	$1,033	$983
   Add back:
   Noncash U.S. GAAP restructuring and
   intangible asset impairment costs	2	4	9
   Interest expense	85	88	88
   Earnings from continuing operations before income taxes,
   noncash U.S. GAAP restructuring and intangible asset impairment charges, and interest expense	$1,141	$1,125	$1,080
   Less: Income taxes on earnings from continuing operations
   before income taxes, noncash U.S. GAAP restructuring and intangible asset impairment charges and interest expense (ii)	249	359	368
   Adjusted after-tax profit	$892	$766	$712
   Average capital employed (iii)	$2,977	$2,680	$2,463
   Less: Capital charge (iv)	$268	$241	$222
   Economic profit (i) (adjusted after-tax profit
   less capital charge)	$624	$525	$490

   1. Economic profit (EP) is defined by the Company as earnings from continuing operations before income taxes, excluding noncash U.S. GAAP restructuring and intangible asset impairment charges, and interest expense; less income taxes (calculated utilizing the Company’s effective tax rate), and less a capital charge (calculated as average capital employed multiplied by a cost of capital rate). EP is a key financial metric that the Company’s management uses to evaluate business performance and allocate resources, and is a component in determining employee incentive compensation. The Company’s management believes EP provides additional perspective to investors about financial returns generated by the business and represents profit generated over and above the cost of capital used by the business to generate that profit.
   2. The tax rate applied is the effective tax rate on earnings from continuing operations, which was 21.8%, 31.9% and 34.1% in fiscal years 2018, 2017 and 2016, respectively.
   3. Total capital employed represents total assets less non-interest bearing liabilities. Adjusted capital employed represents total capital employed adjusted to add back current year after tax noncash U.S. GAAP restructuring and intangible asset impairment charges. Average capital employed is the average of adjusted capital employed for the current year and total capital employed for the prior year, based on year-end balances. See below for details of the average capital employed calculation:

      Dollars in millions	FY18	FY17	FY16
      Total assets(v)	$5,060	$4,573	$4,510
      Less:
      Accounts payable and accrued liabilities(vi)	1,000	1,002	1,032
      Income taxes payable	—	—	—
      Other liabilities(vi)	778	770	784
      Deferred income taxes	72	61	82
      Non-interest bearing liabilities	1,850	1,833	1,898
      Total capital employed	3,210	2,740	2,612
      After tax noncash U.S. GAAP restructuring
      and intangible asset impairment charges	—	2	6
      Adjusted capital employed	$3,211	$2,742	$2,618
      Average capital employed	$2,977	$2,680	$2,463

   4. Capital charge represents average capital employed multiplied by a cost of capital, which was 9% for all fiscal years presented. The calculation of capital charge includes the impact of rounding numbers.
   5. Amount for the year ended June 30, 2016 has been retrospectively adjusted to conform to the current year presentation of debt issuance costs required by ASU No 2015-03, “Simplifying the Presentation of Debt Issuance Costs.”
   6. Accounts payable and accrued liabilities and Other Liabilities are adjusted to exclude interest-bearing liabilities.
3. Free cash flow is calculated as net cash provided by continuing operations less capital expenditures and was $780 million, $640 million and $596 million for fiscal years 2018, 2017 and 2016, respectively. For fiscal years 2018, 2017 and 2016, net cash provided by continuing operations was $974 million, $871 million and $768 million, respectively, and capital expenditures were $194 million, $231 million and $172 million, respectively. The company’s management uses free cash flow and free cash flow as a percent of sales to help assess the cash generation ability of the business and funds available for investing activities, such as acquisitions, investing in the business to drive growth, and financing activities, including debt payments, dividend payments and share repurchases. Free cash flow does not represent cash available only for discretionary expenditures, since the Company has mandatory debt service requirements and other contractual and non-discretionary expenditures. In addition, free cash flow may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded.