Press Release

Xylem Inc. reports third quarter 2016 earnings

November 1, 2016

Company completes Sensus acquisition and also acquires Visenti, a provider of smart technologies for the management of water networks;

Both additions increase Xylem’s offerings of systems intelligence solutions

  • Third quarter 2016 earnings per share (EPS) were $0.41, down 15 percent from the prior year period due primarily to increased restructuring, realignment and acquisition-related costs; adjusted EPS1 were $0.54, a 10-percent increase over the previous year
  • Third quarter 2016 revenue was $897 million; down one percent and flat organically compared with a year ago
  • Reported operating margin declined 110 basis points to 12.2 percent; adjusted operating margin increased 90 basis points to 14.6 percent, reflecting strong execution on productivity initiatives
  • Company continues to execute its capital deployment strategy, successfully completing the Sensus acquisition on October 31 and acquiring Singapore-based Visenti, a provider of leak detection and pressure management products and services

RYE BROOK, N.Y.--(BUSINESS WIRE)--Nov. 1, 2016-- Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2016 net income of $73 million, or $0.41 per share, a decrease of 15 percent year-over-year reflecting higher restructuring, realignment and acquisition-related costs. Adjusted net income in the quarter was $97 million or $0.54 per share, a 10-percent increase over the prior year period. Third quarter revenue was $897 million, which was down one percent from third quarter 2015 and flat organically. The robust revenue growth in the public utility end market was offset by weaker conditions in the industrial sector. Reported operating margin in the quarter declined 110 basis points to 12.2 percent. On an adjusted basis, operating margin grew 90 basis points to 14.6 percent as strong execution on productivity initiatives more than offset inflation and targeted investments in strategic growth initiatives.

“I am pleased with our team’s performance this quarter as they executed well in a mixed market environment, while successfully advancing on our capital deployment strategy as well,” said Patrick Decker, Xylem President and Chief Executive Officer. “We continued to capitalize on a strong public utility end market, where we grew 10 percent globally and 25 percent in the U.S. in the quarter. This growth helped offset the softness in the broader industrial sector. We continue to drive cost savings from global procurement and lean and six sigma initiatives. In addition, we are accelerating certain restructuring actions to mitigate the weaker industrial sector and enable us to continue to drive margin expansion. Our productivity and business simplification initiatives will be key contributors as we continue to invest for stronger growth in the marketplace while further expanding operating margins to enhance our long-term earnings growth.”

“Yesterday, we completed the acquisition of Sensus, which expands our offerings to customers around the globe and reshapes the growth profile of Xylem as we significantly increase our exposure to the fast-growing public utility end market. This addition also enhances our ability to bring systems intelligence solutions to the marketplace in the water and energy industries. We are well into executing the integration planning of this business, operating as one business today and focused on realizing cost synergies and driving the substantial revenue synergies we expect from this combination.”

Mr. Decker continued, “In addition, we have completed the acquisition of Visenti, which provides products and services for utilities to optimize their drinking water networks, including in the rapidly growing areas of leak detection, pressure management and water quality monitoring. Visenti’s portfolio is highly complementary to the Sensus offerings, and targets utilities’ growing challenge of managing water loss, known as non-revenue water. This addition will enable us to immediately offer more valuable solutions to our customers. We look forward to integrating their capabilities into Xylem and helping them to scale and grow this business.”

______________________

1 See attachment for definitions of non-GAAP measures and non-GAAP reconciliations

Full-year 2016 Outlook

Xylem increased its forecast of full-year 2016 revenue to approximately $3.8 billion, including approximately five-percent growth from completed acquisitions and the unfavorable impacts of foreign exchange. On an organic basis, Xylem’s revenue growth now is anticipated to be one-and-one-half percent.

Xylem is maintaining the same adjusted EPS mid-point for the full year, while narrowing the range of its earnings outlook. Xylem now expects to generate full-year 2016 adjusted operating income of $509 million to $513 million, or adjusted EPS of $2.02 to $2.04. The Company is also updating its projected restructuring and realignment costs to approximately $45 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 integration and acquisition-related costs, special charges and discrete tax impacts.

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 2016 Water Infrastructure revenue was $554 million, up one percent over the prior year period on a reported basis. This growth reflects continued strength in the public utility end market, which was up 10 percent on a global basis in the quarter and 25 percent in the U.S. In addition, the delivery of a major project in India contributed to the gains. This growth was largely offset by weaker conditions in the industrial end market, notably the ongoing declines in oil and gas in North America and a slowdown in Middle East projects.
  • Reported segment operating income was $79 million in the third quarter, down from $83 million in the prior year. Adjusted segment operating income was $88 million, a four-percent increase over the $85 million generated in the comparable period a year ago. Operating margin for the quarter decreased 80 basis points to 14.3 percent, reflecting a year-over-year increase in restructuring and realignment charges. Excluding these charges, adjusted operating margin for the segment increased 50 basis points reflecting strong productivity and volume growth, net of inflation, investments in strategic growth initiatives and unfavorable mix.

Applied Water

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

  • Third quarter 2016 revenue was $343 million, down two percent from the prior year period on a reported basis and one percent in constant currency. New product sales and channel investments helped drive growth in Europe, which was more than offset by declines in the U.S. industrial and commercial building sectors.
  • Segment operating income was $50 million in the third quarter, up from $46 million in third quarter 2015. Adjusted segment operating income grew year over year by $5 million to $53 million, reflecting the impact of accelerated productivity initiatives and cost control measures. Segment operating margin increased 150 basis points to 14.6 percent. On an adjusted basis, segment operating margin grew 180 basis points to 15.5 percent. A strong focus on cost reductions drove this margin expansion, which was partially offset by inflation and ongoing investment in growth initiatives.

Supplemental information on Xylem’s third quarter earnings and reconciliations for non-GAAP items are posted at http://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 2015 revenue of $3.7 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

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

       
Three Months Nine Months
For the periods ended September 30,       2016   2015 2016   2015
Revenue $ 897 $ 902 $ 2,676 $ 2,659
Cost of revenue 540   551   1,621   1,645
Gross profit 357 351 1,055 1,014
Selling, general and administrative expenses 219 207 665 631
Research and development expenses 23 23 75 71
Restructuring charges 6   1   18   5
Operating income 109 120 297 307
Interest expense 16 13 50 41
Other non-operating income, net 2 — 3 —
Gain from sale of businesses —   —   —   9
Income before taxes 95 107 250 275
Income tax expense 22   19   40   49
Net income $ 73   $ 88   $ 210   $ 226
Earnings per share:
Basic $ 0.41 $ 0.48 $ 1.17 $ 1.25
Diluted $ 0.41 $ 0.48 $ 1.17 $ 1.24
Weighted average number of shares:
Basic 179.3 180.8 179.0 181.5
Diluted 180.3 181.6 179.8 182.3
Dividends declared per share $ 0.1549 $ 0.1408 $ 0.4647 $ 0.4224
 
 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

       
        September 30,
2016 		December 31,
2015
 
ASSETS
Current assets:
Cash and cash equivalents $ 659 $ 680
Receivables, less allowances for discounts and doubtful accounts of $29 and $33 in 2016 and 2015, respectively 792 749
Inventories 488 433
Prepaid and other current assets 153   143  
Total current assets 2,092 2,005
Property, plant and equipment, net 440 439
Goodwill 1,621 1,584
Other intangible assets, net 444 435
Other non-current assets 181   194  
Total assets $ 4,778   $ 4,657  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 341 $ 338
Accrued and other current liabilities 438 407
Short-term borrowings and current maturities of long-term debt 62   78  
Total current liabilities 841 823
Long-term debt 1,148 1,196
Accrued postretirement benefits 335 335
Deferred income tax liabilities 114 118
Other non-current accrued liabilities 113   101  
Total liabilities 2,551   2,573  
 
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 191.3 shares and 190.2 shares in 2016 and 2015, respectively 2 2
Capital in excess of par value 1,871 1,834
Retained earnings 1,011 885
Treasury stock – at cost 11.9 shares and 11.8 shares in 2016 and 2015, respectively (402 ) (399 )
Accumulated other comprehensive loss (255 ) (238 )
Total stockholders’ equity 2,227   2,084  
Total liabilities and stockholders’ equity $ 4,778   $ 4,657  
 
 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

       
For the nine months ended September 30,       2016 2015
Operating Activities
Net income $ 210 $ 226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 61 69
Amortization 36 33
Share-based compensation 15 11
Restructuring charges 18 5
Gain from sale of businesses — (9 )
Other, net 8 10
Payments for restructuring (11 ) (11 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (27 ) (32 )
Changes in inventories (42 ) (15 )
Changes in accounts payable 14 6
Other, net (8 ) (33 )
Net Cash – Operating activities 274   260  
Investing Activities
Capital expenditures (90 ) (78 )
Acquisition of business, net of cash acquired (70 ) —
Proceeds from sale of businesses — 1
Proceeds from the sale of property, plant and equipment — 1
Other, net 5   2  
Net Cash – Investing activities (155 ) (74 )
Financing Activities
Short-term debt issued 62 —
Short-term debt repaid (80 ) (3 )
Long-term debt issued 540 —
Long-term debt repaid (608 ) —
Repurchase of common stock (3 ) (128 )
Proceeds from exercise of employee stock options 22 14
Dividends paid (84 ) (77 )
Other, net 1   —  
Net Cash – Financing activities (150 ) (194 )
Effect of exchange rate changes on cash 10   (44 )
Net change in cash and cash equivalents (21 ) (52 )
Cash and cash equivalents at beginning of year 680   663  
Cash and cash equivalents at end of period $ 659   $ 611  
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 34 $ 37
Income taxes (net of refunds received) $ 60 $ 57
 
 
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.
 
“EBITDA” defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude restructuring and realignment costs, gain on sale of business and special charges.
 
"Adjusted Operating Income", "Adjusted Segment Operating Income", and “Adjusted EPS” defined as operating income, segment operating income and earnings per share, adjusted to exclude restructuring and realignment 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.
 

“Special charges" defined as costs incurred by the Company, such as interest expense related to the early extinguishment of debt during Q2 2016, initial acquisition and integration related costs (including financing costs related to the bridge loan entered into in Q3 2016 for the Sensus acquisition), 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 Contribution Adj. 2016 v. 2015 Adj. 2016 v. 2015
2016 2015

Nine Months Ended September 30

 
Xylem Inc. 2,757 2,798 (41) -1% (24) 59 (6) 0% 1%
 
Water Infrastructure 1,700 1,737 (37) -2% (24) 44 (17) -1% 0%
Applied Water 1,057 1,061 (4) 0% - 15 11 1% 1%
 

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 Acquisitions / Divestitures Change % Change
Revenue Revenue 2016 v. 2015 2016 v. 2015 FX Contribution Adj. 2016 v. 2015 Adj. 2016 v. 2015
2016 2015

Nine Months Ended September 30

 
Xylem Inc. 2,676 2,659 17 1% (25) 54 46 2% 3%
 
Water Infrastructure 1,634 1,602 32 2% (25) 41 48 3% 5%
Applied Water 1,042 1,057 (15) -1% - 13 (2) 0% 0%
 

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 YTD
2016   2015 2016   2015 2016   2015 2016   2015
Total Revenue
• Total Xylem 847 837 932 920 897 902 2,676 2,659
• Water Infrastructure 514 500 566 551

 

554 551

 

1,634 1,602
• Applied Water 333 337 366 369

 

343 351

 

1,042 1,057
                                           
Operating Income
• Total Xylem 79 83 109 104 109 120 297 307
• Water Infrastructure 54 47 70 65

 

79 83

 

203 195
• Applied Water 39 46 51 51

 

50 46

 

140 143
• Total Segments 93 93 121 116 129 129 343 338
 
Operating Margin
• Total Xylem 9.3% 9.9% 11.7% 11.3% 12.2% 13.3% 11.1% 11.5%
• Water Infrastructure 10.5% 9.4% 12.4% 11.8% 14.3% 15.1% 12.4% 12.2%
• Applied Water 11.7% 13.6% 13.9% 13.8% 14.6% 13.1% 13.4% 13.5%
• Total Segments       11.0%   11.1%     13.0%   12.6%     14.4%   14.3%     12.8%   12.7%
 
Special Charges
• Total Xylem 4 1 1 - 10 - 15 1
• Water Infrastructure 4 1 1 - - - 5 1
• Applied Water - - - - - - - -
• Total Segments 4 1 1 - - - 5 1
 
Restructuring & Realignment Costs
• Total Xylem 9 6 11 6 12 4 32 16
• Water Infrastructure 4 5 8 4 9 2 21 11
• Applied Water 3 1 3 2 3 2 9 5
• Total Segments 7 6 11 6 12 4 30 16
                                           
Adjusted Operating Income
• Total Xylem 92 90 121 110 131 124 344 324
• Water Infrastructure 62 53 79 69

 

88 85

 

229 207
• Applied Water 42 47 54 53

 

53 48

 

149 148
• Total Segments 104 100 133 122 141 133 378 355
 
Adjusted Operating Margin
• Total Xylem 10.9% 10.8% 13.0% 12.0% 14.6% 13.7% 12.9% 12.2%
• Water Infrastructure 12.1% 10.6% 14.0% 12.5% 15.9% 15.4% 14.0% 12.9%
• Applied Water 12.6% 13.9% 14.8% 14.4% 15.5% 13.7% 14.3% 14.0%
• Total Segments       12.3%   11.9%     14.3%   13.3%     15.7%   14.7%     14.1%   13.4%
 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
             
 
                   
Q3 2016 Q3 2015
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 897 897 902 902
Operating Income 109 22 a 131 120 4 a 124
Operating Margin 12.2 % 14.6 % 13.3 % 13.7 %
Interest Expense (16 ) 4 b (12 ) (13 ) (13 )
Other Non-Operating Income (Expense)   2       2     -     2   b   2  
Income before Taxes 95 26 121 107 6 113
Provision for Income Taxes   (22 )   (2 ) c   (24 )   (19 )   (4 ) c   (23 )
Net Income   73     24     97     88     2     90  
Diluted Shares         180.3           180.3       181.6           181.6  
Diluted EPS       $ 0.41     $ 0.13     $ 0.54     $ 0.48     $ 0.01     $ 0.49  
 
 
 
                   
Q3 YTD 2016 Q3 YTD 2015
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 2,676 2,676 2,659 2,659
Operating Income 297 47 a 344 307 17 a 324
Operating Margin 11.1 % 12.9 % 11.5 % 12.2 %
Interest Expense (50 ) 12 b (38 ) (41 ) (41 )
Other Non-Operating Income (Expense) 3 3 - 4 b 4
Gain from sale of businesses   -       -     9     (9 )   -  
Income before Taxes 250 59 309 275 12 287
Provision for Income Taxes   (40 )   (23 ) c   (63 )   (49 )   (10 ) c   (59 )
Net Income   210     36     246     226     2     228  
Diluted Shares         179.8           179.8       182.3           182.3  
Diluted EPS       $ 1.17     $ 0.20     $ 1.37     $ 1.24     $ 0.01     $ 1.25  
 
a   Restructuring & realignment costs of $12 million and $4 million in the third quarter of 2016 and 2015, respectively, and special charges of $10 million of initial acquisition and integration costs in the third quarter of 2016. Restructuring & realignment costs of $32 million and $16 million year-to-date 2016 and 2015, respectively, and special charges of $15 million of initial acquisition and integration costs and $1 million of other special charges year-to-date 2016 and 2015, respectively.
 
b Third quarter special charges of $4 million of financing costs related to the bridge loan entered into for the Sensus acquisition in 2016 and $2 million of other special charges in 2015. Year-to-date special charges of $ $4 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 and on special charges of $2 million and $0 million, and tax-related special items of $4 million of benefit and $3 million of expense for the third quarter of 2016 and 2015, respectively. Net tax impact on restructuring & realignment costs of $9 million and $4 million and on special charges of $7 million and $0 million, and tax-related special charges of $7 million and $6 million 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 Nine Months Ended
2016 2015 2016 2015 2016 2015 2016 2015
 
Net Cash - Operating Activities $ 41 $ 39 $ 84 $ 84 $ 149 $ 137 $ 274 $ 260
 
Capital Expenditures (37 ) (37 ) (25 ) (20 ) (28 ) (21 ) (90 ) (78 )
               
Free Cash Flow $ 4   $ 2   $ 59   $ 64   $ 121   $ 116   $ 184   $ 182  
 
Net Income 66 64 71 74 73 88 210 226
 
Gain from sale of businesses - 9 - - - - - 9
 
Special Charges - Interest   -     -     (8 )   -     -     -     (8 )   -  
 
Net Income, excluding gain on sale of businesses and Special Charges - Interest $ 66   $ 55   $ 79   $ 74   $ 73   $ 88   $ 218   $ 217  
 
Free Cash Flow Conversion   6 %   4 %   75 %   86 %   166 %   132 %   84 %   84 %

Source: Xylem Inc.

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