Press Release

Xylem Inc. reports fourth quarter and full-year 2016 results

February 2, 2017

Company also announces 16-percent increase in its quarterly cash dividend

  • Fourth quarter 2016 reported net income was $50 million or $0.28 per share; Adjusted net income for the quarter was $118 million or $0.66 per share, up 10 percent versus the prior year period
  • Full-year 2016 reported net income was $260 million or $1.45 per share; Adjusted net income was $364 million or $2.03 per share, a 10-percent increase over the prior year result
  • Xylem delivered $1.1 billion in fourth quarter 2016 revenue, up 10 percent year-over-year, and $3.8 billion for the full year 2016, representing a full-year gain of three percent
  • Full-year free cash flow grew 11 percent to $386 million, representing a 120-percent conversion
  • Xylem projects full-year 2017 revenue growth of 20 to 22 percent, adjusted earnings per share of $2.20 to $2.35

RYE BROOK, N.Y.--(BUSINESS WIRE)--Feb. 2, 2017-- Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported fourth quarter 2016 net income of $50 million, or $0.28 per share. Excluding the impact of restructuring, realignment, Sensus acquisition-related charges and other special items, the Company delivered adjusted net income of $118 million or $0.66 per share in the quarter, a 10-percent increase over the prior year period. Fourth quarter revenue was $1.1 billion, which was up 10 percent due to the contribution of the Sensus business, which was acquired on October 31, 2016. Revenue for the quarter declined two percent organically, reflecting ongoing softness in the industrial end market. Reported operating margin in the quarter was 10 percent. Adjusted operating margin increased 60 basis points year-over-year to 15.3 percent. This margin expansion was driven by the Company’s ongoing execution of productivity initiatives.

For the full year 2016, Xylem generated $3.8 billion in revenue, up three percent on a reported basis and one percent organically. Full-year reported net income was $260 million, or $1.45 per share, with an operating margin of 10.8 percent. Adjusted net income, which excludes the impact of restructuring, realignment, Sensus acquisition-related charges and other special items, was $364 million, or $2.03 per share, a 10-percent increase over the prior year. Xylem delivered a full-year 2016 adjusted operating margin of 13.6 percent, up 70 basis points versus the prior year. The Company generated $386 million in free cash flow, an increase of 11 percent versus last year, representing a 120-percent conversion.

“Xylem closed out a transformative year in 2016 and I’m proud of the solid commercial and financial results our teams delivered,” said Patrick Decker, President and Chief Executive Officer of Xylem. “For the year, we generated organic revenue growth in mixed market conditions, and grew our operating margins and earnings in a meaningful way. While the industrial end market was challenged in certain regions, we grew share in the public utility sector as our industry-leading brands and solutions were increasingly the preferred choice of customers worldwide. We executed our capital deployment strategy as planned, successfully completing three acquisitions that collectively expanded our systems intelligence offerings in a significant way and extended our business into global smart metrology. We are well underway with the integration of our recent acquisition, Sensus, a business that significantly advances our move into smart water infrastructure.”

Decker continued, “This quarter we drove strong operating margin expansion by realizing the continued benefits from global procurement and lean and six sigma initiatives. In addition, order rates for the quarter increased two percent organically despite challenging market conditions. As we look to 2017, our organic and inorganic investments in 2016 along with continued improvements to our cost structure will pave the way for accelerated growth as we continue to execute on our investment thesis and increase shareholder value.”

Xylem announced that its Board of Directors declared a dividend in the amount of $0.18 per share, an increase of 16.2 percent. The dividend is payable on March 15, 2017 to shareholders of record as of February 16, 2017.

Xylem also announced plans to host an Investor Day on Tuesday, April 4, 2017, in Raleigh, North Carolina, at the headquarters of its newly acquired Sensus business.

Full-year 2017 Outlook

Xylem forecasts full-year 2017 revenue in the range of $4.5 to $4.6 billion, up 20 to 22 percent, including growth from previously announced acquisitions and projected unfavorable impacts of foreign exchange translation. On an organic basis, Xylem’s revenue growth is anticipated to be in the range of one to three percent.

Full-year 2017 adjusted operating margin is expected to be in the range of 13.2 to 13.7 percent, resulting in adjusted earnings per share of $2.20 to $2.35. This represents an increase of 8 to 16 percent from Xylem’s 2016 adjusted results. Excluding projected unfavorable impacts of foreign exchange translation, Xylem’s adjusted earnings per share growth is anticipated to be in the range of 12 to 20 percent. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs of approximately $30 million for the year. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort.

Fourth Quarter Segment Results

Water Infrastructure

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

  • Fourth quarter 2016 revenue was $612 million, down two percent organically compared with the fourth quarter 2015. This decline reflects ongoing softness in the oil and gas sector and industrial end market, partially offset by continuing growth in the U.S. public utility sector and large project deliveries in Emerging Markets.
  • Fourth quarter reported operating income for the segment was $105 million. Adjusted operating income for the segment, which excludes $7 million of restructuring and realignment costs, was $112 million, a two-percent increase over the same period in 2015. Reported operating margin for the Water Infrastructure segment was 17.2 percent, flat versus the prior year, and adjusted operating margin increased 80 basis points to 18.3 percent. Both results reflect cost reductions which more than offset inflation and lower volume.

Applied Water

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

  • Fourth quarter 2016 Applied Water revenue was $351 million, a two-percent decline organically year-over-year. This performance reflects a weak U.S. industrial market, partially offset by improved performance in Emerging Markets, primarily driven by stronger results in China and Latin America.
  • Fourth quarter reported operating income for the segment was $48 million, and adjusted operating income, which excludes $7 million of restructuring and realignment costs, was $55 million, a 12-percent increase over the comparable period last year. Applied Water segment operating margin was 13.7 percent, up 80 basis points over the prior year period. Adjusted operating margin increased 230 basis points to 15.7 percent as cost reductions more than offset inflation as well as unfavorable mix and strategic investments.

Sensus

Xylem’s Sensus segment consists of its portfolio of businesses in smart metering, network technologies and advanced data analytics. Xylem completed its acquisition of Sensus on October 31, 2016, and these results reflect the segment’s performance for November and December 2016.

  • For the final two months of 2016, Sensus revenue was $132 million. The segment operated at a loss of $17 million, including $26 million of acquisition-related and restructuring costs. Excluding those costs, adjusted operating income for the segment was $9 million. Sensus began 2017 with $388 million in backlog, of which approximately half is expected to be realized in 2017.

Supplemental information on Xylem’s fourth quarter and full-year 2016 earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com.

About Xylem

Xylem (XYL) is a leading global water technology company committed to developing innovative technology solutions to the world’s water challenges. The Company’s products and services move, treat, analyze, monitor and return water to the environment in public utility, industrial, residential and commercial building services, and agricultural settings. With its October 2016 acquisition of Sensus, Xylem added smart metering, network technologies and advanced data analytics for water, gas and electric utilities to its portfolio of solutions. The combined Company’s nearly 16,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2016 revenue of $3.8 billion, Xylem does business in more than 150 countries through a number of market-leading product brands.

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.xylem.com.

Forward-Looking Statements

This press release 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,” “forecast,” “believe,” “target,” “will,” “could,” “would,” “should” 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 statements about the capitalization of Xylem Inc. (the “Company”), the Company’s restructuring and realignment, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals. All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future – including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results – are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated include: economic, political and other risks associated with our international operations, including military actions, economic sanctions or trade embargoes that could affect customer markets, and non-compliance with laws, including foreign corrupt practice laws, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; ability to retain and attract key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions, including the integration of Sensus; our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; governmental investigations; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements made herein are based on information currently available to the Company. 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.

 

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (Unaudited)

(In Millions, except per share data)

           
Year Ended December 31,         2016 2015 2014
Revenue $ 3,771 $ 3,653 $ 3,916
Cost of revenue 2,310   2,249   2,403
Gross profit 1,461 1,404 1,513
Selling, general and administrative expenses 915 854 920
Research and development expenses 110 95 104
Restructuring and asset impairment charges 30   6   26
Operating income 406 449 463
Interest expense 70 55 54
Other non-operating income (expense), net 4 — 1
Gain from sale of business —   9   11
Income before taxes 340 403 421
Income tax expense 80   63   84
Net income $ 260   $ 340   $ 337
Earnings per share:
Basic $ 1.45 $ 1.88 $ 1.84
Diluted $ 1.45 $ 1.87 $ 1.83
Weighted average number of shares:
Basic 179.1 180.9 183.1
Diluted 180.0 181.7 184.2
Dividends declared per share $ 0.6196 $ 0.5632 $ 0.5120
 
 

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Millions, except per share amounts)

         
December 31,         2016 2015
ASSETS
Current assets:
Cash and cash equivalents $ 308 $ 680
Receivables, less allowances for discounts, returns and doubtful accounts of $30 and $33 in 2016 and 2015, respectively 843 749
Inventories 522 433
Prepaid and other current assets 166   143  
Total current assets 1,839 2,005
Property, plant and equipment, net 616 439
Goodwill 2,648 1,584
Other intangible assets, net 1,187 435
Other non-current assets 186   194  
Total assets $ 6,476   $ 4,657  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 457 $ 338
Accrued and other current liabilities 521 407
Short-term borrowings and current maturities of long-term debt 370   78  
Total current liabilities 1,348 823
Long-term debt, net 1,998 1,196
Accrued postretirement benefits 408 335
Deferred income tax liabilities 354 118
Other non-current accrued liabilities 178   101  
Total liabilities 4,286   2,573  
 
Stockholders’ equity:
Common Stock — par value $0.01 per share:
Authorized 750.0 shares, issued 191.4 and 190.2 shares in 2016 and 2015, respectively 2 2
Capital in excess of par value 1,876 1,834
Retained earnings 1,033 885
Treasury stock – at cost 11.9 shares and 11.8 shares in 2016 and 2015, respectively (403 ) (399 )
Accumulated other comprehensive loss (318 ) (238 )
Total stockholders’ equity 2,190   2,084  
Total liabilities and stockholders’ equity $ 6,476   $ 4,657  
 
 

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Millions)

       
Year Ended December 31,     2016 2015 2014
Operating Activities
Net income $ 260 $ 340 $ 337
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 87 88 95
Amortization 64 45 47
Deferred income taxes 14 (9 ) (29 )
Share-based compensation 18 15 18
Restructuring and asset impairment charges, net 30 6 26
Gain from sale of businesses — (9 ) (11 )
Other, net 6 12 2
Payments for restructuring (16 ) (14 ) (26 )
Contributions to postretirement benefit plans (27 ) (25 ) (35 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (6 ) (24 ) (37 )
Changes in inventories (15 ) 23 (49 )
Changes in accounts payable 61 20 17
Changes in accrued liabilities 13 (11 ) 3
Changes in accrued taxes (13 ) (3 ) 25
Net changes in other assets and liabilities     21   10   33  
Net Cash — Operating activities     497   464   416  
Investing Activities
Capital expenditures (124 ) (117 ) (119 )
Proceeds from the sale of property, plant and equipment 1 — 2
Acquisitions of businesses and assets, net of cash acquired (1,782 ) (18 ) —
Proceeds from sale of business — 1 30
Other, net     19   2   1  
Net Cash — Investing activities     (1,886 ) (132 ) (86 )
Financing Activities
Short-term debt issued 387 — 52
Short-term debt repaid (80 ) (3 ) —
Long-term debt issued, net 1,427 — —
Long-term debt repaid (608 ) — —
Repurchase of common stock (4 ) (179 ) (134 )
Proceeds from exercise of employee stock options 24 21 26
Excess tax benefit from share based compensation — 2 2
Dividends paid (112 ) (102 ) (94 )
Other, net     —   (1 ) 1  
Net Cash — Financing activities     1,034   (262 ) (147 )
Effect of exchange rate changes on cash     (17 ) (53 ) (53 )
Net change in cash and cash equivalents (372 ) 17 130
Cash and cash equivalents at beginning of year     680   663   533  
Cash and cash equivalents at end of year     $ 308   $ 680   $ 663  
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 49 $ 52 $ 51
Income taxes (net of refunds received) $ 78 $ 75 $ 81
 
 
Xylem Inc. Non-GAAP Measures
 
 

Management reviews 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 non-GAAP (or "adjusted") 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, including but not limited to dividends, acquisitions, share repurchases and debt repayment. However, other than with respect to total revenue, we only provide guidance on a non-GAAP basis and do not provide reconciliations of such forward-looking measures to GAAP due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as integration and acquisition-related costs, special charges and tax related special items. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. 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 operating activities 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 fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation assumes no change in exchange rates from the prior period.
 
“Constant currency” defined as financial results adjusted for foreign 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.
 

"Adjusted Operating Income", "Adjusted Segment Operating Income", "Adjusted Net Income", and “Adjusted EPS” defined as operating income, segment operating income, adjusted net income and earnings per share, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs, gain on sale of businesses, special charges and tax-related special items, as applicable.

 
“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 certain non-discretionary cash payments, such as debt.
 
“Realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
 

“Sensus Acquisition Related Costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include transaction costs, integration costs, costs related to the recognition of the inventory step up and amortization of the backlog intangible asset recorded in purchase accounting.

 

“Special charges" defined as costs incurred by the Company, such as interest expense related to the early extinguishment of debt during Q2 2016, financing costs related to the bridge loan entered into in Q3 2016 for the Sensus acquisition, initial acquisition costs not related to Sensus, costs incurred for the contractual indemnification of tax obligations to ITT and other special non-operating items.

 
“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments.
 
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Orders
($ Millions)
                                       
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
  (A)   (B)   (C)   (D)   (E) = B+C+D   (F) = E/A (G) = (E - C) / A
 
Change % Change Acquisitions / Divestitures Change % Change
Orders Orders 2016 v. 2015 2016 v. 2015 FX Impact Adj. 2016 v. 2015 Adj. 2016 v. 2015
2016 2015

Year Ended December 31

 
Xylem Inc. 3,824 3,711 113 3% (179) 78 12 0% 5%
 
Water Infrastructure 2,272 2,296 (24) -1% (32) 58 2 0% 1%
Applied Water 1,405 1,415 (10) -1% - 20 10 1% 1%
Sensus 147 - 147 N/A (147) - - N/A N/A
 

Quarter Ended December 31

 
Xylem Inc. 1,067 913 154 17% (155) 19 18 2% 19%
 
Water Infrastructure 572 559 13 2% (8) 14 19 3% 5%
Applied Water 348 354 (6) -2% - 5 (1) 0% 0%
Sensus 147 - 147 N/A (147) - - N/A N/A
 

Quarter Ended September 30

 
Xylem Inc. 946 939 7 1% (10) 15 12 1% 2%
 
Water Infrastructure 604 590 14 2% (10) 9 13 2% 4%
Applied Water 342 349 (7) -2% - 6 (1) 0% 0%
 

Quarter Ended June 30

 
Xylem Inc. 923 944 (21) -2% (9) 13 (17) -2% -1%
 
Water Infrastructure 562 585 (23) -4% (9) 11 (21) -4% -2%
Applied Water 361 359 2 1% - 2 4 1% 1%
 

Quarter Ended March 31

 
Xylem Inc. 888 915 (27) -3% (5) 31 (1) 0% 0%
 
Water Infrastructure 534 562 (28) -5% (5) 24 (9) -2% -1%
Applied Water 354 353 1 0% - 7 8 2% 2%
 
 
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) = B+C+D   (F) = E/A (G) = (E - C) / A
 
Change % Change

 

Change % Change
Revenue Revenue 2016 v. 2015 2016 v. 2015

Acquisitions / Divestitures

FX Impact Adj. 2016 v. 2015 Adj. 2016 v. 2015
2016 2015

Year Ended December 31

 
Xylem Inc. 3,771 3,653 118 3% (163) 74 29 1% 5%
 
Water Infrastructure 2,246 2,231 15 1% (32) 55 38 2% 3%
Applied Water 1,393 1,422 (29) -2% - 20 (9) -1% -1%
Sensus 132 - 132 N/A (131) (1) - N/A N/A
 

Quarter Ended December 31

 
Xylem Inc. 1,095 994 101 10% (138) 20 (17) -2% 12%
 
Water Infrastructure 612 629 (17) -3% (7) 14 (10) -2% 0%
Applied Water 351 365 (14) -4% - 7 (7) -2% -2%
Sensus 132 - 132 N/A (131) (1) - N/A N/A
 

Quarter Ended September 30

 
Xylem Inc. 897 902 (5) -1% (8) 14 1 0% 1%
 
Water Infrastructure 554 551 3 1% (8) 9 4 1% 2%
Applied Water 343 351 (8) -2% - 5 (3) -1% -1%
 

Quarter Ended June 30

 
Xylem Inc. 932 920 12 1% (11) 13 14 2% 3%
 
Water Infrastructure 566 551 15 3% (11) 11 15 3% 5%
Applied Water 366 369 (3) -1% - 2 (1) 0% 0%
 

Quarter Ended March 31

 
Xylem Inc. 847 837 10 1% (6) 27 31 4% 4%
 
Water Infrastructure 514 500 14 3% (6) 21 29 6% 7%
Applied Water 333 337 (4) -1% - 6 2 1% 1%
 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                                               
Q1 Q2 Q3 Q4 YTD
2016   2015 2016   2015 2016   2015 2016   2015 2016   2015
Total Revenue
• Total Xylem 847 837 932 920 897 902 1,095 994 3,771 3,653
• Water Infrastructure 514 500 566 551

 

554 551

 

612 629 2,246 2,231
• Applied Water 333 337 366 369

 

343 351

 

351 365 1,393 1,422
• Sensus - - - - - - 132 - 132 -
                                               
Operating Income
• Total Xylem 79 83 109 104 109 120 109 142 406 449
• Water Infrastructure 54 47 70 65

 

79 83

 

105 108 308 303
• Applied Water 39 46 51 51

 

50 46

 

48 47 188 190
• Sensus - - - - - - (17) - (17) -
• Total Segments 93 93 121 116 129 129 136 155 479 493
 
Operating Margin
• Total Xylem 9.3% 9.9% 11.7% 11.3% 12.2% 13.3% 10.0% 14.3% 10.8% 12.3%
• Water Infrastructure 10.5% 9.4% 12.4% 11.8% 14.3% 15.1% 17.2% 17.2% 13.7% 13.6%
• Applied Water 11.7% 13.6% 13.9% 13.8% 14.6% 13.1% 13.7% 12.9% 13.5% 13.4%
• Sensus N/A N/A N/A N/A N/A N/A -12.9% N/A -12.9% N/A
• Total Segments         11.0%   11.1%   13.0%   12.6%   14.4%   14.3%   12.4%   15.6%   12.7%   13.5%
 
Sensus Acquisition Related Costs
• Total Xylem - - - - 10 - 43 - 53 -
• Water Infrastructure - - - - - - - - - -
• Applied Water - - - - - - - - - -
• Sensus - - - - - - 25 - 25 -
• Total Segments - - - - - - 25 - 25 -
 
Special Charges
• Total Xylem 4 1 1 - - - - - 5 1
• Water Infrastructure 4 1 1 - - - - - 5 1
• Applied Water - - - - - - - - - -
• Sensus - - - - - - - - - -
• Total Segments 4 1 1 - - - - - 5 1
 
Restructuring & Realignment Costs
• Total Xylem 9 6 11 6 12 4 15 4 47 20
• Water Infrastructure 4 5 8 4 9 2 7 2 28 13
• Applied Water 3 1 3 2 3 2 7 2 16 7
• Sensus - - - - - - 1 - 1 -
• Total Segments 7 6 11 6 12 4 15 4 45 20
                                               
Adjusted Operating Income
• Total Xylem 92 90 121 110 131 124 167 146 511 470
• Water Infrastructure 62 53 79 69

 

88 85

 

112 110 341 317
• Applied Water 42 47 54 53

 

53 48

 

55 49 204 197
• Sensus - - - -

 

- -

 

9 - 9 -
• Total Segments 104 100 133 122 141 133 176 159 554 514
 
Adjusted Operating Margin
• Total Xylem 10.9% 10.8% 13.0% 12.0% 14.6% 13.7% 15.3% 14.7% 13.6% 12.9%
• Water Infrastructure 12.1% 10.6% 14.0% 12.5% 15.9% 15.4% 18.3% 17.5% 15.2% 14.2%
• Applied Water 12.6% 13.9% 14.8% 14.4% 15.5% 13.7% 15.7% 13.4% 14.6% 13.9%
• Sensus N/A N/A N/A N/A N/A N/A 6.8% N/A 6.8% N/A
• Total Segments         12.3%   11.9%   14.3%   13.3%   15.7%   14.7%   16.1%   16.0%   14.7%   14.1%
 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
               
 
 
 
                   
Q4 2016 Q4 2015
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 1,095 1,095 994 994
Operating Income 109 58 a 167 142 4 a 146
Operating Margin 10.0 % 15.3 % 14.3 % 14.7 %
Interest Expense (20 ) 1 b (19 ) (14 ) (14 )
Other Non-Operating Income (Expense)   1       1     -     b   -  
Income before Taxes 90 59 149 128 4 132
Provision for Income Taxes   (40 )   9   c   (31 )   (14 )   (10 ) c   (24 )
Net Income   50     68     118     114     (6 )   108  
Diluted Shares           180.6           180.6       180.0           180.0  
Diluted EPS         $ 0.28     $ 0.38     $ 0.66     $ 0.63     $ (0.03 )   $ 0.60  
 
 
 
 
 
                   
Q4 YTD 2016 Q4 YTD 2015
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 3,771 3,771 3,653 3,653
Operating Income 406 105 a 511 449 21 a 470
Operating Margin 10.8 % 13.6 % 12.3 % 12.9 %
Interest Expense (70 ) 13 b (57 ) (55 ) (55 )
Other Non-Operating Income (Expense) 4 4 - 4 b 4
Gain from sale of businesses   -       -     9     (9 )   -  
Income before Taxes 340 118 458 403 16 419
Provision for Income Taxes   (80 )   (14 ) c   (94 )   (63 )   (20 ) c   (83 )
Net Income   260     104     364     340     (4 )   336  
Diluted Shares           180.0           180.0       181.7           181.7  
Diluted EPS         $ 1.45     $ 0.58     $ 2.03     $ 1.87     $ (0.02 )   $ 1.85  
 
a   Restructuring & realignment costs of $15 million and $4 million in the fourth quarter of 2016 and 2015, respectively and Sensus acquisition related costs of $43 million in the fourth quarter of 2016. Restructuring & realignment costs of $47 million and $20 million year-to-date 2016 and 2015, respectively, special charges of $5 million and $1 million year-to-date 2016 and 2015, respectively and Sensus acquisition related costs of $53 million year-to-date 2016.
b

Fourth quarter special charges of $1 million of financing costs related to the bridge loan entered into for the Sensus acquisition in 2016. Year-to-date special charges of $5 million of financing costs related to the bridge loan entered into for the Sensus acquisition and $8 million of costs related to the early extinguishment of debt in 2016 and $4 million of other special charges in 2015.

c

Net tax impact on restructuring & realignment costs of $4 million and $1 million in the fourth quarter of 2016 and 2015, respectively, net tax impact on Sensus acquisition related costs of $15 million in the fourth quarter of 2016 and tax-related special items of $28 million of benefit and $9 million of expense for the fourth quarter of 2016 and 2015, respectively. Net tax impact on year-to-date restructuring & realignment costs of $13 million and $5 million and on special charges of $7 million and $0 million in 2016 and 2015, respectively, net tax impact on Sensus acquisition related costs of $15 million in 2016 and tax-related special items of $21 million of benefit and $15 million of expense for year-to-date 2016 and 2015, respectively.

 
 
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
                         
 
Q1 Q2 Q3 Q4 Year Ended
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
 
Net Cash - Operating Activities $ 41 $ 39 $ 84 $ 84 $ 149 $ 137 $ 223 $ 204 $ 497 $ 464
 
Capital Expenditures (37 ) (37 ) (25 ) (20 ) (28 ) (21 ) (34 ) (39 ) (124 ) (117 )
                   
Free Cash Flow $ 4   $ 2   $ 59   $ 64   $ 121   $ 116   $ 189   $ 165   $ 373   $ 347  
 
Cash paid for Sensus Acquisition Related Costs - - - - (3 ) - (10 ) - (13 ) -
                   
Free Cash Flow, excluding Sensus Acquisition Related Costs $ 4   $ 2   $ 59   $ 64   $ 124   $ 116   $ 199   $ 165   $ 386   $ 347  
 
Net Income 66 64 71 74 73 88 50 114 260 340
 
Gain from sale of businesses - 9 - - - - - - - 9
 
Special Charges - Interest on debt extinguishment - - (8 ) - - - - - (8 ) -
 
Sensus Acquisition Related Costs   -     -     -     -     (10 )   -     (43 )   -     (53 )   -  
 
Net Income, excluding gain on sale of businesses, Interest on debt extinguishment and Sensus Acquisition Related Costs $ 66   $ 55   $ 79   $ 74   $ 83   $ 88   $ 93   $ 114   $ 321   $ 331  
 
Free Cash Flow Conversion   6 %   4 %   75 %   86 %   149 %   132 %   214 %   145 %   120 %   105 %

Source: Xylem Inc.

Xylem Inc.
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Kelly McAndrew, +1-914-323-5969
Kelly.McAndrew@xyleminc.com
or
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Phil DeSousa, +1-914-323-5930
Phil.DeSousa@xyleminc.com