Press Release

Xylem Inc. delivers improvement in third quarter 2013 results

October 29, 2013
  • Third quarter 2013 adjusted net income was $92 million or $0.49 per share, up 11 percent or $0.05 from third quarter 2012; GAAP net income was $73 million or $0.39 per share
  • Third quarter 2013 revenue was $965 million, up one percent organically, up 4 percent on constant currency basis
  • Third quarter organic orders up 6 percent over comparable period 2012
  • Company raises full year guidance to range of $1.60 to $1.65 per share

WHITE PLAINS, N.Y.--(BUSINESS WIRE)--Oct. 29, 2013-- Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2013 net income of $73 million, or $0.39 per share. Adjusted net income was $92 million, or $0.49 per share, excluding the impact of restructuring and realignment charges, as well as special charges. Third quarter revenue was $965 million, up $34 million or 4 percent from third quarter 2012 on a constant currency basis, reflecting strong performance in emerging markets and better than expected activity in Europe. Third quarter 2013 adjusted operating margins were 13.5 percent, up 60 basis points over last year.

“We are pleased with the pickup in sales activity, and we’re encouraged by the immediate impact of operating improvements and cost control initiatives that are reflected in third quarter bottom line growth,” said Steve Loranger, chief executive officer and president of Xylem. “Emerging markets, particularly China with its continued investment in infrastructure, are driving organic revenue growth. Higher sales in northern and central Europe more than offset continued weakness in southern Europe in the quarter.”

Loranger said the business is seeing improved order activity, with third quarter orders up 6 percent organically, including some notable wins, such as a large ozone project in China and a comprehensive pumping and control system for the Singapore Transport Authority’s Downtown Line Mass Rapid Transit project. New products introduced in the quarter include laboratory and water analytical instruments and a more energy-efficient stainless steel pump for industrial applications.

In addition to delivering strong earnings this quarter, Loranger said that the company continues to enhance shareholder value through the active repurchase of Xylem shares on the open market since the approval of a $250 million repurchase program in August.

“Our third quarter performance and ongoing cash generation are strong signs that we are regaining traction,” Loranger said. “They give us a solid base from which to execute our strategy and deliver improved operating performance in 2014 and beyond.”

FY 2013 Outlook

Loranger said that due to stronger third quarter performance, the impact of ongoing cost reductions, modestly improving market conditions and better visibility through year end, the company is raising its full year 2013 earnings forecast to a range of $1.60 to $1.65 per share on projected revenue of approximately $3.8 billion.

Third Quarter Segment Results

Water Infrastructure

Xylem’s Water Infrastructure segment consists of its businesses serving clean water delivery, wastewater transport and treatment, dewatering and analytical instrumentation.

  • Third quarter 2013 revenue was $619 million, up one percent organically compared with the third quarter 2012, reflecting stronger performance in Europe and strength in emerging markets.
  • Third quarter adjusted segment operating income was $96 million. Adjusted operating margin was 15.5 percent, up 50 basis points over last year, reflecting a return to organic growth, improved execution and the impact of cost reductions.

Applied Water

Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, industrial and agricultural applications.

  • Third quarter 2013 revenue was $360 million, up two percent organically compared with the third quarter 2012, reflecting strong performance in emerging markets, especially China, and strength in U.S. commercial and agricultural end markets.
  • Third quarter adjusted segment operating income was $44 million. Adjusted operating margin was 12.2 percent, down 40 basis points from 2012, primarily driven by higher sales mix in emerging markets.

Supplemental information on Xylem’s third quarter earnings and reconciliations for certain non-GAAP items are posted at investors.xyleminc.com.

About Xylem

Xylem (NYSE:XYL) is a leading global water technology provider, enabling customers to transport, treat, test and efficiently use water in public utility, residential and commercial building services, industrial and agricultural settings. The company does business in more than 150 countries through a number of market-leading product brands, and its people bring broad applications expertise with a strong focus on finding local solutions to the world’s most challenging water and wastewater problems. Xylem is headquartered in White Plains, N.Y., with 2012 annual revenues of $3.8 billion and approximately 12,900 employees worldwide. Xylem was named to the Dow Jones Sustainability World Index for the last two years for advancing sustainable business practices and solutions worldwide.

The name Xylem is derived from classical Greek and is the tissue that transports water in plants, highlighting the engineering efficiency of our water-centric business by linking it with the best water transportation of all -- that which occurs in nature. For more information, please visit us at www.xyleminc.com.

Forward-Looking Statements

This document contains information that may constitute “forward-looking statements.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements include, but are not limited to, statements about the separation of Xylem Inc. (the “Company”) from ITT Corporation in 2011, capitalization of the Company, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to orders, sales, operating margins and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements.

Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those set forth in Item 1A in our Annual Report on Form 10-K, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission.

 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

       
Three Months Nine Months
For the periods ended September 30,     2013     2012 2013     2012
Revenue $ 965 $ 931 $ 2,804 $ 2,822
Cost of revenue 581   557   1,715   1,702
Gross profit 384 374 1,089 1,120
Selling, general and administrative expenses 256 231 744 682
Research and development expenses 24 24 78 80
Restructuring charges 5 4 30 4
Separation costs 1   4   3   15
Operating income 98 111 234 339
Interest expense 14 14 41 41
Other non-operating (expense) income, net (1 ) 3   (2 ) 1

Income before taxes

83 100 191 299
Income tax expense 10   28   31   75
Net income $ 73   $ 72   $ 160   $ 224
Earnings per share:
Basic $ 0.39 $ 0.39 $ 0.86 $ 1.20
Diluted $ 0.39 $ 0.38 $ 0.86 $ 1.20
Weighted average number of shares:
Basic 185.2 185.9 185.5 185.7
Diluted 186.0 186.3 186.2 186.2
Dividends declared per share $ 0.1164 $ 0.1012 $ 0.3492 $ 0.3036
 
 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

 
     

September 30,
2013

   

December 31,
2012

    (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 394 $ 504

Receivables, less allowances for discounts and doubtful accounts
of $30 and $34 in 2013 and 2012, respectively

845 776
Inventories, net 496 443
Prepaid and other current assets 120 110
Deferred income tax assets 44   41  
Total current assets 1,899 1,874
Property, plant and equipment, net 478 487
Goodwill 1,704 1,647
Other intangible assets, net 497 484
Other non-current assets 206   187  
Total assets $ 4,784   $ 4,679  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 324 $ 332
Accrued and other current liabilities 475 443

Short-term borrowings and current maturities of long-term debt

3   6  
Total current liabilities 802 781
Long-term debt 1,199 1,199
Accrued postretirement benefits 400 400
Deferred income tax liabilities 173 173
Other non-current accrued liabilities 52   52  
Total liabilities 2,626   2,605  
Commitments and contingencies (Note 18)
Stockholders’ equity:
Common Stock – par value $0.01 per share:

Authorized 750.0 shares, issued 186.8 shares and 186.2 shares
in 2013 and 2012, respectively

2 2
Capital in excess of par value 1,729 1,706
Retained earnings 359 264

Treasury stock – at cost 2.3 shares and 0.5 shares in 2013 and
2012, respectively

(61 ) (13 )
Accumulated other comprehensive income 129   115  
Total stockholders’ equity 2,158   2,074  
Total liabilities and stockholders’ equity $ 4,784   $ 4,679  
 
 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

       
For the nine months September 30,     2013 2012
Operating Activities
Net income $ 160 $ 224

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation 72 68
Amortization 38 35
Share-based compensation 21 16
Restructuring charges 30 4
Other, net 11 1
Payments for restructuring (24 ) —
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (71 ) (33 )
Changes in inventories (59 ) (33 )
Changes in accounts payable 4 (7 )
Other, net (19 ) (45 )
Net Cash – Operating activities 163   230  
Investing Activities
Capital expenditures (91 ) (81 )
Acquisitions of businesses and assets, net of cash acquired (81 ) (12 )
Proceeds from the sale of property, plant and equipment 7   4  
Net Cash – Investing activities (165 ) (89 )
Financing Activities
Issuance of short-term debt — 12
Principal payments of debt and capital lease obligations (2 ) (6 )
Repurchase of common stock (44 ) (4 )
Proceeds from exercise of employee stock options 2 22
Dividends paid (65 ) (56 )
Other, net —   (9 )
Net Cash – Financing activities (109 ) (41 )
Effect of exchange rate changes on cash 1   6  
Net change in cash and cash equivalents (110 ) 106
Cash and cash equivalents at beginning of year 504   318  
Cash and cash equivalents at end of period $ 394   $ 424  
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 37 $ 38
Income taxes (net of refunds received) $ 61 $ 76
 
 
Xylem Inc. Non-GAAP Measures
 
 
Management views key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, free cash flow, working capital, and backlog, among others. In addition, we consider certain measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operations as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:
 

“Organic revenue” and “Organic orders” defined as revenue and orders, respectively, excluding the impact of foreign currency fluctuations, intercompany transactions, and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for classification as a discontinued operation or insignificant portions of our business that we did not classify as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period.

 
“Constant currency” defined as financial results adjusted for currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.
 

“EBITDA” defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude for non-recurring separation costs associated with the Xylem spin-off from ITT Corporation as well as non-recurring restructuring and realignment costs.

 

“Adjusted Operating Income,” “Adjusted Segment Operating Income,” and “Adjusted EPS” defined as operating income and earnings per share, adjusted to exclude non-recurring separation costs associated with the Xylem spin-off from ITT Corporation, non-recurring restructuring and realignment costs and tax-related special items.

 

“Normalized EPS” defined as adjusted earnings per share, as well as adjustments to reflect the incremental current period amount of interest expense and stand alone costs in the prior comparable period.

 

“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flows does not consider non-discretionary cash payments, such as debt.

 
“Realignment costs” defined as non-recurring costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, relocation, travel and other costs.
 

“Special charges” defined as costs incurred by the Company associated with the settlement of legal proceedings with Xylem Group LLC, as well as certain costs incurred for the change in chief executive officer made during the third quarter of 2013.

 
                     
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Order Growth
($ Millions)
                                               
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
    (A)     (B)     (C) (D) (E)     (F) = B+C+D+E   (G) = F/A (H) = (F - C) / A
 
Orders Orders

Change
2013 v. 2012

% Change
2013 v. 2012

Acquisitions /
Divestitures

FX Contribution

Eliminations

Change
Adj. 2013 v. 2012

% Change
Adj. 2013 v. 2012

2013 2012

Nine Months Ended September 30

 
Xylem Inc. 2,926 2,856 70 2 % (71 ) 1 - - 0 % 2 %
 

Water Infrastructure

1,865 1,819 46 3 % (71 ) 4 - (21 ) -1 % 3 %
Applied Water 1,111 1,086 25 2 % - (4 ) 1 22 2 % 2 %

 

Quarter Ended September 30

 
Xylem Inc. 955 882 73 8 % (20 ) 1 - 54 6 % 8 %
 

Water Infrastructure

617 564 53 9 % (20 ) 3 - 36 6 % 10 %
Applied Water 355 334 21 6 % - (3 ) 1 19 6 % 6 %
 

Quarter Ended June 30

 
Xylem Inc. 1,009 970 39 4 % (25 ) (2 ) - 12 1 % 4 %
 

Water Infrastructure

647 617 30 5 % (25 ) (1 ) - 4 1 % 5 %
Applied Water 378 370 8 2 % - (1 ) 1 8 2 % 2 %
 

Quarter Ended March 31

 
Xylem Inc. 962 1,004 (42 ) -4 % (26 ) 2 - (66 ) -7 % -4 %
 

Water Infrastructure

601 638 (37 ) -6 % (26 ) 2 - (61 ) -10 % -5 %
Applied Water 378 382 (4 ) -1 % - - (1 ) (5 ) -1 % -1 %
 
 
Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.
 
                                       
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Revenue
($ Millions)
                                               
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
(A) (B) (C) (D) (E) (F) = B+C+D+E (G) = F/A (H) = (F - C) / A
 
Revenue Revenue

Change
2013 v. 2012

% Change
2013 v. 2012

Acquisitions /
Divestitures

FX Contribution Eliminations

Change
Adj. 2013 v. 2012

% Change
Adj. 2013 v. 2012

 
2013 2012

Nine Months Ended September 30

 
Xylem Inc. 2,804 2,822 (18 ) -1 % (67 ) (2 ) - (87 ) -3 % -1 %
 

Water Infrastructure

1,766 1,788 (22 ) -1 % (67 ) 2 1 (86 ) -5 % -1 %
Applied Water 1,086 1,078 8 1 % - (5 ) (4 ) (1 ) 0 % 0 %
 

Quarter Ended September 30

 
Xylem Inc. 965 931 34 4 % (21 ) - - 13 1 % 4 %
 

Water Infrastructure

619 595 24 4 % (21 ) 3 1 7 1 % 5 %
Applied Water 360 350 10 3 % - (4 ) - 6 2 % 2 %
 

Quarter Ended June 30

 
Xylem Inc. 960 966 (6 ) -1 % (23 ) (4 ) - (33 ) -3 % -1 %
 

Water Infrastructure

596 609 (13 ) -2 % (23 ) (2 ) - (38 ) -6 % -2 %
Applied Water 381 373 8 2 % - (1 ) (2 ) 5 1 % 1 %
 

Quarter Ended March 31

 
Xylem Inc. 879 925 (46 ) -5 % (23 ) 2 - (67 ) -7 % -5 %
 

Water Infrastructure

551 584 (33 ) -6 % (23 ) 1 - (55 ) -9 % -5 %
Applied Water 345 355 (10 ) -3 % - - (2 ) (12 ) -3 % -3 %
 
 
Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.
 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                       
Q3 Q3 YTD

'13

   

'12

'13

   

'12

Total Revenue
• Total Xylem 965 931 2,804 2,822
• Water Infrastructure 619 595 1,766 1,788
• Applied Water 360 350 1,086 1,078
                         
Operating Income
• Total Xylem 98 111 234 339
• Water Infrastructure 88 85 171 253
• Applied Water 40 43 125 135
 
Operating Margin
• Total Xylem 10.2 % 11.9 % 8.3 % 12.0 %
• Water Infrastructure 14.2 % 14.3 % 9.7 % 14.1 %
• Applied Water     11.1 %     12.3 %     11.5 %     12.5 %
 
Separation Costs
• Total Xylem - 4 - 15
• Water Infrastructure - - - 3
• Applied Water - 1 - 2
 
Special Charges
• Total Xylem 20 - 20 -
• Water Infrastructure - - - -
• Applied Water - - - -
 
Restructuring & Realignment Costs
• Total Xylem 12 5 52 5
• Water Infrastructure 8 4 40 4
• Applied Water 4 - 12 -
                         
Adjusted Operating Income*
• Total Xylem 130 120 306 359
• Water Infrastructure 96 89 211 260
• Applied Water 44 44 137 137
 
Adjusted Operating Margin*
• Total Xylem 13.5 % 12.9 % 10.9 % 12.7 %
• Water Infrastructure 15.5 % 15.0 % 11.9 % 14.5 %
• Applied Water     12.2 %     12.6 %     12.6 %     12.7 %
 

*Adjusted Operating Income excludes restructuring & realignment costs and special charges in 2013 and excludes restructuring & realignment costs and non-recurring separation costs in 2012.

 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
                                 
 
 
 
                                       
Q3 2012 Q3 2013

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

Total Revenue 931 931 965 965
Operating Income 111 9 a 120 98 32 c 130
Operating Margin 11.9 % 12.9 % 10.2 % 13.5 %
Interest Expense (14 ) (14 ) (14 ) (14 )
Other Non-Operating Income (Expense)   3       3     (1 )     (1 )
Income before Taxes   100     9     109   83 32 115
Provision for Income Taxes   (28 )   2   b   (26 )   (10 )   (13 ) d   (23 )
Net Income   72     11     83     73     19     92  
Diluted Shares       186.3                     186.3         186.0                     186.0  
Diluted EPS     $ 0.38       $ 0.06             $ 0.44       $ 0.39       $ 0.10             $ 0.49  
 
 
 
 
                                       
Q3 YTD 2012 Q3 YTD 2013

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

Total Revenue 2,822 2,822 2,804 2,804
Operating Income 339 20 a 359 234 72 c 306
Operating Margin 12.0 % 12.7 % 8.3 % 10.9 %
Interest Expense (41 ) (41 ) (41 ) (41 )
Other Non-Operating Income (Expense)   1       1     (2 )     (2 )
Income before Taxes   299     20     319     191     72     263  
Provision for Income Taxes   (75 )   (2 ) b   (77 )   (31 )   (24 ) d   (55 )
Net Income   224     18     242     160     48     208  
Diluted Shares       186.2                     186.2         186.2                     186.2  
Diluted EPS     $ 1.20       $ 0.09             $ 1.29       $ 0.86       $ 0.26             $ 1.12  
 
 
a

One-time separation costs and restructuring & realignment costs

b Net tax impact of separation costs, restructuring & realignment costs and special tax items
c Restructuring & realignment costs and special charges
d Net tax impact of restructuring & realignment costs, special charges and special tax items
 
 
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
       
 
Nine Months Ended
2013 2012
 
Net Cash - Operating Activities $ 163 $ 230
 
Capital Expenditures (91 ) (81 )
   
Free Cash Flow, including separation costs 72 149
 
Cash Paid for Separation Costs (incl. Capex) - 22
   
Free Cash Flow, excluding separation costs* $ 72   $ 171  
 
Net Income 160 224
 
Separation Costs, net of tax (incl. tax friction)   -     11  
 
Net Income, excluding separation costs* $ 160   $ 235  
 
Free Cash Flow Conversion   45 %   73 %
 
* Separation costs are not excluded in 2013
 
 
Xylem Inc. Non-GAAP Reconciliation
Guidance
($ Millions, except per share amounts)
                                 
 
Illustration of Mid Point Guidance
2013 Guidance                                                
                                       
FY '12 FY '13

As Reported

Adjustments

Adjusted

As Projected

Adjustments

Adjusted

Total Revenue 3,791 3,791 3,770 3,770
Segment Operating Income 512 30 a 542 425 73 c 498
Segment Operating Margin 13.5 % 14.3 % 11.3 % 13.2 %
Corporate Expense   69     (16 ) b   53     78     (20 ) d   58  
Operating Income   443     46     489     347     93     440  
Operating Margin 11.7 % 12.9 % 9.2 % 11.7 %
Interest Expense (55 ) (55 ) (55 ) (55 )
Other Non-Operating Income (Expense)   -       -     (3 )     (3 )
Income before Taxes   388     46     434   289 93 382
Provision for Income Taxes   (91 )   (13 ) e   (104 )   (48 )   (32 ) e   (80 )
Net Income   297     33     330     241     61     302  
Diluted Shares       186.2                     186.2         186.0                     186.0  
Diluted EPS     $ 1.59       $ 0.18             $ 1.77       $ 1.30       $ 0.33             $ 1.63  
 
a

One-time separation, restructuring and realignment costs incurred at the segment level

b

One-time separation, restructuring and realignment costs incurred at the corporate level

c Restructuring and realignment costs incurred at the segment level
d Special charges incurred at the corporate level
e Net tax impact of above items, plus the addition of special tax items
 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                       
 
          Mid Point Guidance
2008 2009 2010 2011 2012 2013E
 
Revenue 3,291 2,849 3,202 3,803 3,791 3,770
           
Operating Income 315   276   388   395   443   347  
 
Operating Margin 9.6 % 9.7 % 12.1 % 10.4 % 11.7 % 9.2 %
 
Restructuring, Realignment & Special Charges 41 31 15 - 24 93
Separation Costs* - - - 87 22 -
           
Adjusted Operating Income 356   307   403   482   489   440  
 
Adjusted Operating Margin 10.8 % 10.8 % 12.6 % 12.7 % 12.9 % 11.7 %
 
Standalone Costs - - - 5 28 -
           
Adj. Operating Income, excl. Standalone Costs 356   307   403   487   517   440  
 
Adjusted Operating Margin, excl. Standalone Costs 10.8 % 10.8 % 12.6 % 12.8 % 13.6 % 11.7 %
 
* 2013 separation costs are not excluded from adjusted operating income.
 

Source: Xylem Inc.

Xylem Inc.
Media
Tom Glover, +1-914-323-5891
tom.glover@xyleminc.com
or
Investors
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