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| 8-K - 8-K COVER PAGE - MOHAWK INDUSTRIES INC | a1q20168-kcoverpage.htm |
Exhibit 99.1
NEWS RELEASE | ||||
For Release: Immediately
Contact: Frank H. Boykin, Chief Financial Officer (706) 624-2695
MOHAWK INDUSTRIES REPORTS RECORD 1st QUARTER EARNINGS
• | Q1 Adjusted EPS Up 40% |
• | Record Net Sales for Any Quarter |
Calhoun, Georgia, May 5, 2016 - Mohawk Industries, Inc. (NYSE:MHK) today announced 2016 first quarter net earnings of $172 million and diluted earnings per share (EPS) of $2.30. Excluding restructuring, acquisition and other charges, net earnings were $177 million and EPS was $2.38, a 40% increase over last year’s first quarter adjusted EPS. Net sales for the first quarter of 2016 were $2.2 billion, up 15.5% versus the prior year’s first quarter or approximately 19% increase on a constant days and currency exchange rate basis. For the first quarter of 2015, net sales were $1.9 billion, net earnings were $22 million and EPS was $0.30; excluding restructuring, acquisition and other charges, net earnings were $125 million and EPS was $1.70.
Commenting on Mohawk Industries’ first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “We entered 2016 with an optimistic outlook, and our results exceeded our projections with revenue growing across all segments. We delivered our eighth consecutive quarter with record year over year adjusted EPS, as well as the highest net sales for any quarter in the company’s history. For the period, our adjusted operating income margin rose to a first quarter record of 11.6%, an increase of 200 basis points over the prior year due to acquisitions, volume, productivity and input costs. All of these results were achieved with one less day in the period than last year.
“Our major capital projects initiated last year are progressing as expected, with the first production line in our Tennessee ceramic plant now operational, our U.S. LVT production accelerating and the second phase of our European ceramic upgrade now complete. Each of our capital expansion projects creates significant long-term value, adding new revenues by increasing our product offerings and customer base. Typically, these projects take one to three years to achieve their full benefit. All of these investments should provide higher returns than our acquisitions, though start-up costs impact our immediate results.
“In 2016, we have identified more opportunities to grow our business and have already approved additional LVT production lines in the U.S. and Europe, the doubling of our central Mexico ceramic plant, the final phase of our European ceramic equipment upgrades and the expansion of our U.S. and European premium laminate production with new technology. We anticipate investing more than $600 million in capital projects this year, and we are assessing further internal opportunities.
“For the quarter, our Global Ceramic Segment sales were up approximately 8% as reported. On a constant days and currency basis, the segment grew 11% with the legacy business up approximately 9%. Adjusted operating income for the segment rose 18% on a constant currency basis over last year to an operating margin of 13%. In our North American ceramic business, which constitutes the majority of the segment, our service centers grew the fastest of all our channels during the period as we invested more in sales personnel, marketing and new product introductions. Our new floor and wall tile products are gaining additional placements in the home center channel as those retailers place greater emphasis on the category. To support our growth, our new plant in Tennessee initiated production on schedule, and the first line is running well. The plant’s remaining two lines will be operational between now and August. Our Mexican ceramic business is outpacing the market and is the fastest growing part of the segment. We continue to increase our customer base in the Mexican market, adding new distributors, expanding home center placements and increasing our participation in new construction projects. Our European ceramic sales grew during the period, and we are increasing our investments in sales personnel, merchandising, retail training and brand advertising. Our KAI acquisition continues to progress as we enhance the product
offering, organization and reporting systems while expanding sales to Western Europe and the U.S. Our Russian ceramic business continues to outperform the market, which remains challenging as the economy contracts and investments in real estate decline.
“During the quarter, our Flooring North America Segment’s sales were up 7% as reported. On constant days basis the segment grew approximately 9% with the legacy sales up 4%. Adjusted operating income for the segment rose 42% over last year to an operating margin of 9%. Last year, we began expanding our investments in sales personnel and marketing to broaden our distribution in carpet and hard surface products. Our profit margins have improved as a result of more differentiated products and more efficient operations. We continue to build on our strengths in premium residential carpet with innovative products that should enhance our mix as homeowners seek luxurious softness and improved performance. Our commercial margins improved with the success of our fashionable new product introductions and streamlined manufacturing processes. Our U.S. hard surface sales increased across all channels as we leverage our relationships with independent retailers, home centers and commercial customers. Our LVT sales are growing dramatically in both residential and commercial sectors as we ramp up production at our new U.S. plant. We have announced a hardwood price increase of 6% - 10% effective on May 15th. Our manufacturing plants are improving process efficiencies and quality as well as implementing equipment upgrades to extend our competitive advantages.
“For the quarter, our Flooring Rest of the World segment’s sales were up 56% as reported. On a constant days and currency basis the segment increased 62% with legacy sales up 4%. Adjusted operating income for the segment rose 70% on a constant currency basis to an operating margin of 17%. Our laminate and wood business in Europe outpaced market trends due to our differentiated high-end products. Our deeply textured new laminate collections are driving growth in the category, and our engineered wood sales rose in both our Quick-Step brand and our direct distribution. We are planning to increase laminate capacity this year to support new product growth. Our sheet vinyl plants are fully utilized and our mix is improving. Our LVT sales are growing substantially as our new production expands, and we sourced
products to grow even faster. Additional equipment will be installed in the third quarter to further increase our LVT capacity. Our insulation panel business grew significantly during the period, primarily through the acquisition of Xtratherm which was completed the end of last year. Our boards and roof panel businesses are delivering improved sales and margins as we upgrade the mix and equipment.
“Mohawk delivered another strong performance during the first period with all of our segments enhancing their position in the marketplace. In the U.S., increased investments in marketing, products and distribution should increase our sales and margins across all product categories. Although growth in Europe is limited and Russia remains in a recession, we anticipate improving our market share and positioning ourselves for the future. We are investing in our businesses at the highest rate in our history to expand our product offerings, improve efficiency and increase capacity. Our recent acquisitions have been significantly integrated, and our financial leverage has been reduced, so we can pursue additional opportunities as they become available. Taking all of these factors into account, our guidance for the second quarter is $3.29 to $3.38, which would represent a 22% to 26% increase over 2015, excluding any restructuring charges. Our first quarter performance reflects the positive impact of the investments we have made in the business over the past three years. Our unique products, marketing and manufacturing position will enhance our operating results going forward.”
ABOUT MOHAWK INDUSTRIES
Mohawk Industries is the leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. Mohawk’s vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone and vinyl flooring. Our industry-leading innovation has yielded products and technologies that differentiate our brands in the marketplace and satisfy all remodeling and new construction requirements. Our brands are among the most recognized in the industry and include American Olean, Bigelow, Daltile, Durkan, IVC, Karastan, Lees, Marazzi, Mohawk, Pergo, Unilin and Quick-Step. During the past decade, Mohawk has transformed its business from an American carpet manufacturer into the world’s largest
flooring company with operations in Australia, Brazil, Canada, Europe, India, Malaysia, Mexico, New Zealand, Russia and the United States.
Certain of the statements in the immediately preceding paragraphs, particularly anticipating future performance, business prospects, growth and operating strategies and similar matters and those that include the words “could,” “should,” “believes,” “anticipates,” “expects,” and “estimates,” or similar expressions constitute “forward-looking statements.” For those statements, Mohawk claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties. The following important factors could cause future results to differ: changes in economic or industry conditions; competition; inflation and deflation in raw material prices and other input costs; inflation and deflation in consumer markets; energy costs and supply; timing and level of capital expenditures; timing and implementation of price increases for the Company’s products; impairment charges; integration of acquisitions; international operations; introduction of new products; rationalization of operations; tax, product and other claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements.
Conference call Friday, May 6, 2016, at 11:00 AM Eastern Time
The telephone number is 1-800-603-9255 for US/Canada and 1-706-634-2294 for International/Local. Conference ID # 88703650. A replay will be available until Monday, June 6, 2016, by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 88703650.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES | |||||||
(Unaudited) | |||||||
Consolidated Statement of Operations | Three Months Ended | ||||||
(Amounts in thousands, except per share data) | April 2, 2016 | April 4, 2015 | |||||
Net sales | $ | 2,172,046 | 1,881,177 | ||||
Cost of sales | 1,532,367 | 1,369,234 | |||||
Gross profit | 639,679 | 511,943 | |||||
Selling, general and administrative expenses | 394,007 | 468,169 | |||||
Operating income | 245,672 | 43,774 | |||||
Interest expense | 12,301 | 16,449 | |||||
Other expense (income), net | 3,429 | (1,083 | ) | ||||
Earnings before income taxes | 229,942 | 28,408 | |||||
Income tax expense | 57,825 | 5,904 | |||||
Net earnings including noncontrolling interest | 172,117 | 22,504 | |||||
Net earnings attributable to noncontrolling interest | 569 | 158 | |||||
Net earnings attributable to Mohawk Industries, Inc. | $ | 171,548 | 22,346 | ||||
Basic earnings per share attributable to Mohawk Industries, Inc. | |||||||
Basic earnings per share attributable to Mohawk Industries, Inc. | $ | 2.32 | 0.31 | ||||
Weighted-average common shares outstanding - basic | 73,976 | 72,988 | |||||
Diluted earnings per share attributable to Mohawk Industries, Inc. | |||||||
Diluted earnings per share attributable to Mohawk Industries, Inc. | $ | 2.30 | 0.30 | ||||
Weighted-average common shares outstanding - diluted | 74,490 | 73,530 | |||||
Other Financial Information | |||||||
(Amounts in thousands) | |||||||
Depreciation and amortization | $ | 100,194 | 85,656 | ||||
Capital expenditures | $ | 140,833 | 105,794 | ||||
Consolidated Balance Sheet Data | |||||||
(Amounts in thousands) | |||||||
April 2, 2016 | April 4, 2015 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 98,305 | 107,041 | ||||
Receivables, net | 1,406,725 | 1,158,858 | |||||
Inventories | 1,652,030 | 1,505,632 | |||||
Prepaid expenses and other current assets | 313,491 | 285,261 | |||||
Total current assets | 3,470,551 | 3,056,792 | |||||
Property, plant and equipment, net | 3,224,327 | 2,618,633 | |||||
Goodwill | 2,339,521 | 1,553,155 | |||||
Intangible assets, net | 950,975 | 661,846 | |||||
Deferred income taxes and other non-current assets | 306,941 | 389,635 | |||||
Total assets | $ | 10,292,315 | 8,280,061 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt and commercial paper | $ | 2,076,179 | 1,806,176 | ||||
Accounts payable and accrued expenses | 1,247,489 | 1,074,456 | |||||
Total current liabilities | 3,323,668 | 2,880,632 | |||||
Long-term debt, less current portion | 1,173,600 | 601,519 | |||||
Deferred income taxes and other long-term liabilities | 615,037 | 574,115 | |||||
Total liabilities | 5,112,305 | 4,056,266 | |||||
Redeemable noncontrolling interest | 23,432 | — | |||||
Total stockholders' equity | 5,156,578 | 4,223,795 | |||||
Total liabilities and stockholders' equity | $ | 10,292,315 | 8,280,061 | ||||
Segment Information(a) | As of or for the Three Months Ended | ||||||
(Amounts in thousands) | April 2, 2016 | April 4, 2015 | |||||
Net sales: | |||||||
Global Ceramic | $ | 773,726 | 719,828 | ||||
Flooring NA | 906,364 | 846,911 | |||||
Flooring ROW | 491,956 | 314,742 | |||||
Intersegment sales | — | (304 | ) | ||||
Consolidated net sales | $ | 2,172,046 | 1,881,177 | ||||
Operating income (loss): | |||||||
Global Ceramic | $ | 99,777 | 85,327 | ||||
Flooring NA | 75,351 | (75,192 | ) | ||||
Flooring ROW | 79,537 | 44,641 | |||||
Corporate and eliminations | (8,993 | ) | (11,002 | ) | |||
Consolidated operating income | $ | 245,672 | 43,774 | ||||
Assets: | |||||||
Global Ceramic | $ | 3,988,285 | 3,584,471 | ||||
Flooring NA | 3,267,529 | 2,631,310 | |||||
Flooring ROW | 2,926,959 | 1,753,404 | |||||
Corporate and eliminations | 109,542 | 310,876 | |||||
Consolidated assets | $ | 10,292,315 | 8,280,061 | ||||
Reconciliation of Net Earnings Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc. | ||||||
(Amounts in thousands, except per share data) | ||||||
Three Months Ended | ||||||
April 2, 2016 | April 4, 2015 | |||||
Net earnings attributable to Mohawk Industries, Inc. | $ | 171,548 | 22,346 | |||
Adjusting items: | ||||||
Restructuring, acquisition and integration-related and other costs | 7,718 | 12,529 | ||||
Legal settlement and reserves | — | 125,000 | ||||
Deferred loan costs | — | 651 | ||||
Income taxes | (2,277 | ) | (35,554 | ) | ||
Adjusted net earnings attributable to Mohawk Industries, Inc. | $ | 176,989 | 124,972 | |||
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. | $ | 2.38 | 1.70 | |||
Weighted-average common shares outstanding - diluted | 74,490 | 73,530 | ||||
Reconciliation of Total Debt to Net Debt | |||
(Amounts in thousands) | |||
April 2, 2016 | |||
Current portion of long-term debt and commercial paper | $ | 2,076,179 | |
Long-term debt, less current portion | 1,173,600 | ||
Less: Cash and cash equivalents | 98,305 | ||
Net Debt | $ | 3,151,474 | |
Reconciliation of Operating Income to Pro forma Adjusted EBITDA | ||||||||||||||||
(Amounts in thousands) | Trailing Twelve | |||||||||||||||
Three Months Ended | Months Ended | |||||||||||||||
July 4, 2015 | October 3, 2015 | December 31, 2015 | April 2, 2016 | April 2, 2016 | ||||||||||||
Operating income | $ | 255,816 | 288,734 | 249,242 | 245,672 | 1,039,464 | ||||||||||
Other (expense) income | (2,928 | ) | (4,249 | ) | (11,525 | ) | (3,429 | ) | (22,131 | ) | ||||||
Net (earnings) loss attributable to non-controlling interest | (282 | ) | (798 | ) | (446 | ) | (569 | ) | (2,095 | ) | ||||||
Depreciation and amortization | 88,011 | 94,955 | 94,025 | 100,194 | 377,185 | |||||||||||
EBITDA | 340,617 | 378,642 | 331,296 | 341,868 | 1,392,423 | |||||||||||
Restructuring, acquisition and integration-related and other costs | 15,275 | 11,690 | 30,820 | 7,718 | 65,503 | |||||||||||
Acquisitions purchase accounting (inventory step-up) | 6,156 | 7,160 | 21 | — | 13,337 | |||||||||||
Legal settlement and reserves | 2,000 | — | (2,520 | ) | — | (520 | ) | |||||||||
Release of indemnification asset | — | — | 11,180 | — | 11,180 | |||||||||||
Acquisitions EBITDA | 40,648 | 3,639 | 7,337 | — | 51,624 | |||||||||||
Pro forma Adjusted EBITDA | $ | 404,696 | 401,131 | 378,134 | 349,586 | 1,533,547 | ||||||||||
Net Debt to Pro forma Adjusted EBITDA | 2.1 | |||||||||||||||
Reconciliation of 2016 Net Sales to Net Sales on a Constant Exchange Rate and Constant Shipping Days Excluding 2016 Q1 Acquisition Volume | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
April 2, 2016 | April 4, 2015 | |||||
Net sales | $ | 2,172,046 | 1,881,177 | |||
Adjustment to net sales on constant shipping days | 31,734 | — | ||||
Adjustment to net sales on a constant exchange rate | 26,043 | — | ||||
Net sales on a constant exchange rate and constant shipping days | 2,229,823 | 1,881,177 | ||||
Less: 2016 Q1 impact of acquisition volume | (242,956 | ) | — | |||
2016 net sales on a constant exchange rate and constant shipping days excluding acquisition volume | $ | 1,986,867 | 1,881,177 | |||
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and Constant Shipping Days Excluding 2016 Q1 Acquisition Volume | |||||||
(Amounts in thousands) | |||||||
Three Months Ended | |||||||
Global Ceramic | April 2, 2016 | April 4, 2015 | |||||
Net sales | $ | 773,726 | 719,828 | ||||
Adjustment to net sales on constant shipping days | 10,189 | — | |||||
Adjustment to segment net sales on a constant exchange rate | 16,610 | — | |||||
2016 segment net sales on a constant exchange rate and constant shipping days | 800,525 | 719,828 | |||||
Less: 2016 Q1 impact of acquisition volume | (19,782 | ) | — | ||||
2016 segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume | $ | 780,743 | 719,828 | ||||
Reconciliation of Segment Net Sales to Segment Net Sales on Constant Shipping Days Excluding 2016 Q1 Acquisition Volume | |||||||
(Amounts in thousands) | |||||||
Three Months Ended | |||||||
Flooring NA(a) | April 2, 2016 | April 4, 2015 | |||||
Net sales | $ | 906,364 | 846,911 | ||||
Adjustment to net sales on constant shipping days | 12,400 | — | |||||
2016 segment net sales on constant shipping days | 918,764 | 846,911 | |||||
Less: 2016 Q1 impact of acquisition volume | (40,400 | ) | — | ||||
2016 segment net sales on constant shipping days excluding acquisition volume | $ | 878,364 | 846,911 | ||||
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and Constant Shipping Days Excluding 2016 Q1 Acquisition Volume | |||||||
(Amounts in thousands) | |||||||
Three Months Ended | |||||||
Flooring ROW(a) | April 2, 2016 | April 4, 2015 | |||||
Net sales | $ | 491,956 | 314,742 | ||||
Adjustment to net sales on constant shipping days | 9,145 | — | |||||
Adjustment to segment net sales on a constant exchange rate | 9,433 | — | |||||
2016 segment net sales on a constant exchange rate and constant shipping days | 510,534 | 314,742 | |||||
Less: 2016 Q1 impact of acquisition volume | (182,773 | ) | — | ||||
2016 segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume | $ | 327,761 | 314,742 | ||||
Reconciliation of Gross Profit to Adjusted Gross Profit | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
April 2, 2016 | April 4, 2015 | |||||
Gross Profit | $ | 639,679 | 511,943 | |||
Adjustments to gross profit: | ||||||
Restructuring, acquisition and integration-related and other costs | 5,848 | 9,976 | ||||
Adjusted gross profit | $ | 645,527 | 521,919 | |||
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
April 2, 2016 | April 4, 2015 | |||||
Selling, general and administrative expenses | $ | 394,007 | 468,169 | |||
Adjustments to selling, general and administrative expenses: | ||||||
Restructuring, acquisition and integration-related and other costs | (1,194 | ) | (2,553 | ) | ||
Legal settlement and reserves | — | (125,000 | ) | |||
Adjusted selling, general and administrative expenses | $ | 392,813 | 340,616 | |||
Reconciliation of Operating Income to Adjusted Operating Income on a Constant Exchange Rate | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
April 2, 2016 | April 4, 2015 | |||||
Operating income | $ | 245,672 | 43,774 | |||
Adjustments to operating income: | ||||||
Restructuring, acquisition and integration-related and other costs | 7,042 | 12,529 | ||||
Legal settlement and reserves | — | 125,000 | ||||
Adjusted operating income | 252,714 | 181,303 | ||||
Adjustment to operating income on a constant exchange rate | 2,965 | — | ||||
Adjusted operating income on a constant exchange rate | $ | 255,679 | 181,303 | |||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income on a Constant Exchange Rate | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
Global Ceramic | April 2, 2016 | April 4, 2015 | ||||
Operating income | $ | 99,777 | 85,327 | |||
Adjustments to segment operating income: | ||||||
Restructuring, acquisition and integration-related and other costs | 766 | 362 | ||||
Adjusted segment operating income | 100,543 | 85,689 | ||||
Adjustment to operating income on a constant exchange rate | 337 | — | ||||
Adjusted segment operating income on a constant exchange rate | $ | 100,880 | 85,689 | |||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
Flooring NA(a) | April 2, 2016 | April 4, 2015 | ||||
Operating income | $ | 75,351 | (75,192 | ) | ||
Adjustments to segment operating income: | ||||||
Legal settlement and reserves | — | 125,000 | ||||
Restructuring, acquisition and integration-related and other costs | 3,676 | 5,825 | ||||
Adjusted segment operating income | $ | 79,027 | 55,633 | |||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income on a Constant Exchange Rate | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
Flooring ROW(a) | April 2, 2016 | April 4, 2015 | ||||
Operating income | $ | 79,537 | 44,641 | |||
Adjustments to segment operating income: | ||||||
Restructuring, acquisition and integration-related and other costs | 2,600 | 5,155 | ||||
Adjusted segment operating income | 82,137 | 49,796 | ||||
Adjustment to operating income on a constant exchange rate | 2,627 | — | ||||
Adjusted segment operating income on a constant exchange rate | $ | 84,764 | 49,796 | |||
Reconciliation of Earnings Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
April 2, 2016 | April 4, 2015 | |||||
Earnings before income taxes | $ | 229,942 | 28,408 | |||
Noncontrolling interests | (569 | ) | (158 | ) | ||
Adjustments to earning including noncontrolling interests before income taxes: | ||||||
Restructuring, acquisition and integration-related & other costs | 7,718 | 12,529 | ||||
Legal settlement and reserves | — | 125,000 | ||||
Deferred loan costs | — | 651 | ||||
Adjusted earnings including noncontrolling interests before income taxes | $ | 237,091 | 166,430 | |||
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense | ||||||
(Amounts in thousands) | ||||||
Three Months Ended | ||||||
April 2, 2016 | April 4, 2015 | |||||
Income tax expense | $ | 57,825 | 5,904 | |||
Income tax effect of adjusting items | 2,277 | 35,554 | ||||
Adjusted income tax expense | $ | 60,102 | 41,458 | |||
Adjusted income tax rate | 25.4 | % | 24.9 | % | ||
(a) Prior year segment data adjusted to reflect second quarter 2015 segment realignment.
The Company believes it is useful for itself and investors to review, as applicable, both GAAP and the above non-GAAP measures in order to assess the performance of the Company's business for planning and forecasting in subsequent periods. In particular,
the Company believes excluding the impact of restructuring, acquisition, integration-related and other costs, legal settlement and reserves and acquisitions purchase accounting (inventory step-up) is useful because it allows investors to evaluate our performance for different periods on a more comparable basis.