2019 Integrated Annual Report
MENU

Performance

Achieving financial success while
investing for the long term.

Net Sales
($ Millions)
 

Earnings From Continuing Operations Before Income Taxes
($ Millions)

Earnings From
Continuing Operations
($ Millions)

EBIT Margin1
(as a % of Net Sales) (non-GAAP)
 

Economic Profit2
(non-GAAP) ($ Millions)
 

Diluted Net Earnings Per Share From Continuing Operations
($)

Net Cash Provided by
Continuing Operations
($ Millions)

Free Cash Flow3
(non-GAAP) ($ Millions)
 

FOOTNOTES

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 FY19 FY18 FY17
    Earnings from continuing operations before income taxes $1,024 $1,054 $1,033
    Interest income (3) (6) (4)
    Interest expense 97 85 88
    EBIT — non-GAAP $1,118 $1,133 $1,117
    EBIT margin — non-GAAP 18.0% 18.5% 18.7%
    Net sales $6,214 $6,124 $5,973
  2. Reconciliation of Economic Profit (i)

    Dollars in millions and all calculations
    based on rounded numbers
    FY19 FY18 FY17 FY16 FY15 FY14
    Earnings from continuing operations before income taxes $1,024 $1,054 $1,033 $983 $921 $884
    Add back:
    Non-cash U.S. GAAP restructuring and
    intangible asset impairment costs
    2 2 4 9 1 3
    Interest expense 97 85 88 88 100 103
    Earnings from continuing operations before income taxes,
    non-cash U.S. GAAP restructuring and
    intangible asset impairment charges, and interest expense
    $1,123 $1,141 $1,125 $1,080 $1,022 $990
    Less: Income taxes on earnings from continuing operations
    before income taxes, non-cash U.S. GAAP restructuring and intangible asset impairment charges and interest expense (ii)
    222 249 359 368 350 342
    Adjusted after-tax profit $ 901 $ 892 $ 766 $ 712 $ 672 $ 648
    Average capital employed (iii) $3,231 $2,977 $2,680 $2,463 $2,385 $2,486
    Less: Capital charge (iv) $ 291 $ 268 $ 241 $ 222 $ 214 $ 224
    Economic profit (i) (adjusted after-tax profit less capital charge) $ 610 $ 624 $ 525 $ 490 $ 458 $ 424
    1. Economic profit (EP) is defined by the Company as earnings from continuing operations before income taxes, excluding non-cash 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. The aggregate EP for FY14 to FY19 is $3.131 billion.
    2. The tax rate applied is the effective tax rate on earnings from continuing operations, which was 19.8%, 21.8%, 31.9%, 34.1%, 34.2% and 34.6% in fiscal years 2019, 2018, 2017, 2016, 2015 and 2014, respectively.
  1. 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 FY19 FY18 FY17 FY16 FY15 FY14
    Total assets(v) $5,116 $5,060 $4,573 $4,510 $4,154 $4,251
    Less:
    Accounts payable and accrued liabilities(v) 1,033 1,000 1,002 1,032 976 912
    Income taxes payable 9
    Other liabilities(v) 774 778 770 784 745 768
    Deferred income taxes 50 72 61 82 95 103
    Non-interest bearing liabilities 1,866 1,850 1,833 1,898 1,847 1,791
    Total capital employed 3,250 3,210 2,740 2,612 2,307 2,460
    After tax non-cash U.S. GAAP
    restructuring and intangible asset impairment charges
    1 1 2 6 1 2
    Adjusted capital employed $3,251 $3,211 $2,742 $2,618 $2,308 $2,462
    Average capital employed $3,231 $2,977 $2,680 $2,463 $2,385 $2,486
  2. 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.
  3. Amounts for fiscal years 2016, 2015 and 2014 have been retrospectively adjusted to conform to the current year presentation of debt issuance costs required by Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.”
  4. Accounts payable and accrued liabilities were combined into one financial statement line as of June 30, 2016. The change has been retrospectively applied to fiscal years 2015 and 2014. Accounts payable and accrued liabilities and Other liabilities are adjusted to exclude interest-bearing liabilities.
  1. Free cash flow is calculated as net cash provided by continuing operations less capital expenditures.

    Reconciliation of Free Cash Flow

    Dollars in millions FY19 FY18* FY17*
    Net cash provided by continuing operations (GAAP) $ 992 $ 976 $ 868
    Less: capital expenditures (206) (194) (231)
    Free cash flow (non-GAAP) $ 786 $ 782 $ 637
    Free cash flow as a percentage of net
    sales (non-GAAP)
    12.6% 12.8% 10.7%
    Net sales $6,214 $6,124 $5,973

    *Net cash provided by continuing operations and free cash flow for fiscal years 2018 and 2017 have been adjusted to reflect the retrospective adoption of Accounting Standards Update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” effective July 1, 2018.

    The company’s management uses free cash flow and free cash flow as a percent of net 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 stock 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.