UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 29, 2014
XYLEM INC.
(Exact name of registrant as specified in its charter)
| Indiana | 001-35229 | 45-2080495 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 1 International Drive Rye Brook, New York |
10573 | |
| (Address of principal executive offices) | (Zip Code) |
(914) 323-5700
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02 | Results of Operations and Financial Condition |
Attached hereto as Exhibit 99.1 and incorporated herein by reference is the news release issued by Xylem Inc. on April 29, 2014, announcing its financial results for the quarter ended March 31, 2014.
This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
| Item 9.01 | Financial Statements and Exhibits |
(d) Exhibits.
| Exhibit No. |
Description | |
| 99.1 | News Release issued by Xylem Inc. on April 29, 2014. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| XYLEM INC. | ||||||
| Date: April 29, 2014 | By: | /s/ Michael T. Speetzen | ||||
| Michael T. Speetzen | ||||||
| Senior Vice President and Chief Financial Officer (Authorized Officer of Registrant) | ||||||
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | News Release issued by Xylem Inc. on April 29, 2014. | |
Exhibit 99.1
Xylem Inc.
1 International Drive, Rye Brook N.Y. 10573
Tel +1.914.323.5700 Fax +1.914.696.2960
| Contacts: | Media | Investors | ||
| Tom Glover +1 (914) 323-5891 | Phil DeSousa +1 (914) 323-5930 | |||
| tom.glover@xyleminc.com | phil.desousa@xyleminc.com |
Xylem Inc. reports improved first quarter earnings; maintains full-year outlook
| • | First quarter 2014 adjusted net income was $63 million or $0.34 per share, up 7 cents or 26 percent over first quarter 2013; GAAP net income was $49 million or $0.27 per share, up 5 cents or 23 percent |
| • | First quarter 2014 revenue was $906 million, up 3 percent organically from first quarter 2013; first quarter organic orders up 3 percent |
| • | First quarter 2014 adjusted operating margin up 150 basis points; up 90 basis points as reported |
| • | Xylem maintains full-year outlook; adjusted EPS of $1.85 to $2.00 on revenue of approximately $4 billion |
RYE BROOK, N.Y., April 29, 2014 – Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today announced first quarter 2014 net income of $49 million, or $0.27 per share. Excluding the impact of restructuring and realignment costs, and special tax items, adjusted net income was $63 million or $0.34 per share, up 7 cents or 26 percent from the comparable period in 2013. First quarter revenue was $906 million, up 3 percent organically, reflecting strength across both of the company’s business segments. First quarter adjusted operating margins improved 150 basis points, driven by increased volume and solid execution against operating efficiencies and ongoing initiatives to reduce costs.
“We are off to a good start in 2014. We had solid order activity during the quarter and strong sales execution, putting us on track to deliver our full-year commitments while maintaining our investments in those areas of the business with the most growth potential,” said Patrick Decker, president and chief executive officer of Xylem.
Decker said the company is moving ahead with initiatives to streamline operations, and is introducing new products to support growth for the full year.
“As I’ve travelled to many of our key sites in my first six weeks at Xylem, I’ve been impressed with our local teams’ knowledge, our passion for customer service, and the opportunities we have to bring further innovative solutions to our customers,” Decker said. “We’re winning business and growing our backlog. Clearly we have opportunity for continued operational improvements and efficiencies, and we will further embed a continuous improvement mindset across the company. We have a solid foundation from which to expand the business, and I’m confident that we will successfully execute our growth strategy.”
Full-year 2014 Outlook
Xylem also today reaffirmed full-year guidance, forecasting full-year 2014 revenue growth of 2 to 4 percent to approximately $4 billion. Full-year 2014 adjusted net income is expected to be in the range of $345 to $370 million, for adjusted earnings per share of $1.85 to $2.00, reflecting 11 to 20 percent growth over 2013. The company anticipates that restructuring and realignment costs will range from $40 to $50 million for the year.
First 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.
| • | First quarter 2014 revenue was $568 million, up 3 percent compared with the first quarter 2013. Strong growth in emerging markets and more modest growth in Europe more than offset weather-related revenue declines in the U.S. dewatering rental business. |
| • | First quarter adjusted segment operating income, which excludes $12 million of restructuring and realignment costs, was $58 million, up 12 percent over the same period in 2013. Adjusted operating margin for the quarter increased 80 basis points, reflecting higher volume and significant benefits from cost reduction actions, partially offset by unfavorable mix and negative impact of foreign exchange. |
Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, industrial and agricultural applications.
| • | First quarter 2014 revenue was $355 million, up 3 percent compared with the first quarter 2013, with continued strength in U.S. residential building services and irrigation applications, and growth in industrial and residential in the emerging markets. |
| • | First quarter adjusted segment operating income, which excludes $6 million of restructuring and realignment costs, was $47 million, 12 percent higher than the comparable period last year. Adjusted operating margin grew 100 basis points primarily driven by modest volume growth, price and the positive impact of cost reduction actions. |
Supplemental information on Xylem’s first quarter earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com.
About Xylem
Xylem (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 Rye Brook, N.Y., with 2013 revenues of $3.8 billion and more than 12,500 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.xylem.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 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, 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, revenues, 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 of 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)
| For the three months ended March 31, |
2014 | 2013 | ||||||
| Revenue |
$ | 906 | $ | 879 | ||||
| Cost of revenue |
564 | 545 | ||||||
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| Gross profit |
342 | 334 | ||||||
| Selling, general and administrative expenses |
224 | 237 | ||||||
| Research and development expenses |
27 | 26 | ||||||
| Restructuring charges |
15 | 5 | ||||||
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| Operating income |
76 | 66 | ||||||
| Interest expense |
14 | 13 | ||||||
| Other non-operating (expense), net |
(1 | ) | (2 | ) | ||||
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| Income before taxes |
61 | 51 | ||||||
| Income tax expense |
12 | 10 | ||||||
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| Net income |
$ | 49 | $ | 41 | ||||
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| Earnings per share: |
||||||||
| Basic |
$ | 0.27 | $ | 0.22 | ||||
| Diluted |
$ | 0.27 | $ | 0.22 | ||||
| Weighted average number of shares: |
||||||||
| Basic |
184.5 | 185.8 | ||||||
| Diluted |
185.8 | 186.4 | ||||||
| Dividends declared per share |
$ | 0.1280 | $ | 0.1164 | ||||
XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
| March 31, 2014 |
December 31, 2013 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 466 | $ | 533 | ||||
| Receivables, less allowances for discounts and doubtful accounts of $25 and $31 in 2014 and 2013, respectively |
803 | 817 | ||||||
| Inventories, net |
516 | 475 | ||||||
| Prepaid and other current assets |
166 | 143 | ||||||
| Deferred income tax assets |
40 | 41 | ||||||
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| Total current assets |
1,991 | 2,009 | ||||||
| Property, plant and equipment, net |
476 | 488 | ||||||
| Goodwill |
1,719 | 1,718 | ||||||
| Other intangible assets, net |
480 | 488 | ||||||
| Other non-current assets |
221 | 193 | ||||||
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| Total assets |
$ | 4,887 | $ | 4,896 | ||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable |
$ | 325 | $ | 332 | ||||
| Accrued and other current liabilities |
488 | 479 | ||||||
| Short-term borrowings and current maturities of long-term debt |
44 | 42 | ||||||
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| Total current liabilities |
857 | 853 | ||||||
| Long-term debt |
1,199 | 1,199 | ||||||
| Accrued postretirement benefits |
348 | 348 | ||||||
| Deferred income tax liabilities |
198 | 191 | ||||||
| Other non-current accrued liabilities |
56 | 64 | ||||||
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| Total liabilities |
2,658 | 2,655 | ||||||
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| Commitments and contingencies |
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| Stockholders’ equity: |
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| Common Stock – par value $0.01 per share: |
||||||||
| Authorized 750.0 shares, issued 188.2 shares and 187.6 shares in 2014 and 2013, respectively |
2 | 2 | ||||||
| Capital in excess of par value |
1,768 | 1,753 | ||||||
| Retained earnings |
430 | 405 | ||||||
| Treasury stock – at cost 4.4 shares and 3.0 shares in 2014 and 2013, respectively |
(137 | ) | (86 | ) | ||||
| Accumulated other comprehensive income |
166 | 167 | ||||||
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| Total stockholders’ equity |
2,229 | 2,241 | ||||||
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| Total liabilities and stockholders’ equity |
$ | 4,887 | $ | 4,896 | ||||
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XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
| For the three months ended March 31, |
2014 | 2013 | ||||||
| Operating Activities |
||||||||
| Net income |
$ | 49 | $ | 41 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
23 | 25 | ||||||
| Amortization |
13 | 12 | ||||||
| Share-based compensation |
4 | 6 | ||||||
| Restructuring charges |
15 | 5 | ||||||
| Other, net |
4 | — | ||||||
| Payments for restructuring |
(9 | ) | (4 | ) | ||||
| Changes in assets and liabilities (net of acquisitions): |
||||||||
| Changes in receivables |
(5 | ) | 1 | |||||
| Changes in inventories |
(42 | ) | (29 | ) | ||||
| Changes in accounts payable |
(2 | ) | (8 | ) | ||||
| Other, net |
(28 | ) | (29 | ) | ||||
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| Net Cash – Operating activities |
22 | 20 | ||||||
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| Investing Activities |
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| Capital expenditures |
(25 | ) | (30 | ) | ||||
| Acquisitions of businesses and assets, net of cash acquired |
— | (78 | ) | |||||
| Proceeds from the sale of property, plant and equipment |
1 | 3 | ||||||
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| Net Cash – Investing activities |
(24 | ) | (105 | ) | ||||
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| Financing Activities |
||||||||
| Issuance of short-term debt |
2 | — | ||||||
| Repurchase of common stock |
(51 | ) | (15 | ) | ||||
| Proceeds from exercise of employee stock options |
11 | — | ||||||
| Dividends paid |
(24 | ) | (22 | ) | ||||
| Excess tax benefit from share based compensation |
1 | — | ||||||
| Other, net |
(1 | ) | 1 | |||||
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| Net Cash – Financing activities |
(62 | ) | (36 | ) | ||||
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| Effect of exchange rate changes on cash |
(3 | ) | (8 | ) | ||||
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| Net change in cash and cash equivalents |
(67 | ) | (129 | ) | ||||
| Cash and cash equivalents at beginning of year |
533 | 504 | ||||||
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| Cash and cash equivalents at end of period |
$ | 466 | $ | 375 | ||||
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| Supplemental disclosure of cash flow information: |
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| Cash paid during the period for: |
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| Interest |
$ | 11 | $ | 11 | ||||
| Income taxes (net of refunds received) |
$ | 18 | $ | 27 | ||||
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 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 restructuring and realignment costs and tax-related special items.
“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.
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 |
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| Orders | Orders | Change 2014 v. 2013 |
% Change 2014 v. 2013 |
Acquisitions / Divestitures |
FX Contribution |
Eliminations | Change Adj. 2014 v. 2013 |
% Change Adj. 2014 v. 2013 |
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| 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||
| Quarter Ended March 31 |
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| Xylem Inc. |
993 | 962 | 31 | 3 | % | (7 | ) | 3 | — | 27 | 3 | % | 4 | % | ||||||||||||||||||||||||||
| Water infrastructure |
619 | 601 | 18 | 3 | % | (7 | ) | 6 | 2 | 19 | 3 | % | 4 | % | ||||||||||||||||||||||||||
| Applied Water |
394 | 378 | 16 | 4 | % | — | (4 | ) | (3 | ) | 9 | 2 | % | 2 | % | |||||||||||||||||||||||||
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 |
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| Revenue | Revenue | Change 2014 v. 2013 |
% Change 2014 v. 2013 |
Acquisitions / Divestitures |
FX Contribution | Eliminations | Change Adj. 2014 v. 2013 |
% Change Adj. 2014 v. 2013 |
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| 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||
| Quarter Ended March 31 |
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| Xylem Inc. |
906 | 879 | 27 | 3 | % | (5 | ) | 4 | — | 26 | 3 | % | 4 | % | ||||||||||||||||||||||||||
| Water infrastructure |
568 | 551 | 17 | 3 | % | (5 | ) | 7 | 1 | 20 | 4 | % | 5 | % | ||||||||||||||||||||||||||
| Applied Water |
355 | 345 | 10 | 3 | % | — | (3 | ) | (1 | ) | 6 | 2 | % | 2 | % | |||||||||||||||||||||||||
Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
| Q1 | ||||||||
| 2014 | 2013 | |||||||
| Total Revenue |
||||||||
| •Total Xylem |
906 | 879 | ||||||
| •Water Infrastructure |
568 | 551 | ||||||
| •Applied Water |
355 | 345 | ||||||
| Operating Income |
||||||||
| •Total Xylem |
76 | 66 | ||||||
| •Water Infrastructure |
46 | 42 | ||||||
| •Applied Water |
41 | 40 | ||||||
| Operating Margin |
||||||||
| •Total Xylem |
8.4 | % | 7.5 | % | ||||
| •Water Infrastructure |
8.1 | % | 7.6 | % | ||||
| •Applied Water |
11.5 | % | 11.6 | % | ||||
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| Restructuring & Realignment Costs |
||||||||
| •Total Xylem |
18 | 12 | ||||||
| •Water Infrastructure |
12 | 10 | ||||||
| •Applied Water |
6 | 2 | ||||||
| Adjusted Operating Income* |
||||||||
| •Total Xylem |
94 | 78 | ||||||
| •Water Infrastructure |
58 | 52 | ||||||
| •Applied Water |
47 | 42 | ||||||
| Adjusted Operating Margin* |
||||||||
| •Total Xylem |
10.4 | % | 8.9 | % | ||||
| •Water Infrastructure |
10.2 | % | 9.4 | % | ||||
| ŸApplied Water |
13.2 | % | 12.2 | % | ||||
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| * | Adjusted Operating Income excludes restructuring & realignment costs. |
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
| Q1 2013 | Q1 2014 | |||||||||||||||||||||||
| As Reported | Adjustments | Adjusted | As Reported | Adjustments | Adjusted | |||||||||||||||||||
| Total Revenue |
879 | 879 | 906 | 906 | ||||||||||||||||||||
| Operating Income |
66 | 12 | a | 78 | 76 | 18 | a | 94 | ||||||||||||||||
| Operating Margin |
7.5 | % | 8.9 | % | 8.4 | % | 10.4 | % | ||||||||||||||||
| Interest Expense |
(13 | ) | (13 | ) | (14 | ) | (14 | ) | ||||||||||||||||
| Other Non-Operating Income (Expense) |
(2 | ) | (2 | ) | (1 | ) | (1 | ) | ||||||||||||||||
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| Income before Taxes |
51 | 12 | 63 | 61 | 18 | 79 | ||||||||||||||||||
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| Provision for Income Taxes |
(10 | ) | (3 | )b | (13 | ) | (12 | ) | (4 | )b | (16 | ) | ||||||||||||
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| Net Income |
41 | 9 | 50 | 49 | 14 | 63 | ||||||||||||||||||
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| Diluted Shares |
186.4 | 186.4 | 185.8 | 185.8 | ||||||||||||||||||||
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| Diluted EPS |
$ | 0.22 | $ | 0.05 | $ | 0.27 | $ | 0.27 | $ | 0.07 | $ | 0.34 | ||||||||||||
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| a | Restructuring & realignment costs |
| b | Net tax impact of restructuring & realignment costs and special tax items |
Xylem Inc. Non-GAAP Reconciliation
Net Cash – Operating Activities vs. Free Cash Flow
($ Millions)
| Three Months Ended | ||||||||
| 2014 | 2013 | |||||||
| Net Cash – Operating Activities |
$ | 22 | $ | 20 | ||||
| Capital Expenditures |
(25 | ) | (30 | ) | ||||
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| Free Cash Flow |
$ | (3 | ) | $ | (10 | ) | ||
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| Net Income |
$ | 49 | $ | 41 | ||||
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| Free Cash Flow Conversion |
-6 | % | -24 | % | ||||
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