View:
Download DOC
Download PDF
Download XLS
Document
 

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): October 31, 2017
 
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))
¨
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨


 


Item 2.02
Results of Operations and Financial Condition
On October 31, 2017, Xylem Inc. issued a press release announcing its financial results for the third quarter ended September 30, 2017. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated by reference herein.
This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Item9.01
Financial Statements and Exhibits
(d) Exhibits.
Exhibit
   No.
Description
 
 
99.1
Press Release issued by Xylem Inc. on October 31, 2017.






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: October 31, 2017
 
By:
 
/s/ E. Mark Rajkowski
 
 
 
 
E. Mark Rajkowski
 
 
 
 
Senior Vice President & Chief Financial Officer
(Authorized Officer of Registrant)






EXHIBIT INDEX
Exhibit
   No.
Description
 
 
Press Release issued by Xylem Inc. on October 31, 2017.


Exhibit


Exhibit 99.1
https://cdn.kscope.io/5882361b8a188c58876bf7ccdd3dbc19-xylemlogoa03.jpg
Xylem Inc.
1 International Drive, Rye Brook N.Y. 10573
Tel +1.914.323.5700 Fax +1.914.696.2960
Contacts:
 
Media
 
Investors
 
 
Kelly McAndrew +1 (914) 323-5969
 
Matt Latino +1 (914) 323-5821
 
 
Kelly.McAndrew@xyleminc.com
 
Matthew.Latino@xyleminc.com

Xylem Inc. reports strong revenue, orders and earnings growth in third quarter 2017

•
Xylem generated $1.2 billion in third quarter 2017 revenue, up 33 percent year-over-year including the impact of acquisitions; Pro forma organic revenue increased five percent
•
Third quarter reported net income was $105 million or $0.58 per share; Adjusted net income for the quarter was $119 million or $0.65 per share, up 20 percent versus the prior year period
•
Global orders grew six percent organically
•
Reported operating margin increased 50 basis points to 12.7 percent; Adjusted operating margin increased 20 basis points excluding purchase accounting impact
•
Xylem raised the mid-point of its full-year 2017 forecast for adjusted earnings per share by five cents; the updated range is $2.39 to $2.41

RYE BROOK, N.Y., October 31, 2017 - Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2017 net income of $105 million, or $0.58 per share. The Company delivered adjusted net income of $119 million, or $0.65 per share, in the quarter, a 20-percent increase over the prior year period, excluding the impact of restructuring, realignment and acquisition-related charges, and other items.  Revenue in the third quarter, including the contribution from Xylem’s Sensus business, was $1.2 billion, a 33-percent increase year-over-year. Xylem’s pro forma organic revenue grew five percent in the quarter with growth achieved across all three business segments. Xylem’s base business and Sensus each grew five percent in the quarter. Reported operating margin in the quarter increased 50 basis points to 12.7 percent, and adjusted operating margin was 14.1 percent. Excluding the negative impact of purchase accounting amortization related to the Sensus acquisition, the adjusted operating margin expanded by 20 basis points year-over-year.

“Our teams continued to execute well, delivering strong results across all business segments in the third quarter,” said Patrick Decker, President and Chief Executive Officer of Xylem. “As conditions in our varied end markets continued to improve, we generated solid growth and, in some cases, captured share, expanding the reach of Xylem solutions. We delivered positive organic growth in each of our geographic regions, while continuing to deliver on our productivity initiatives. We’ve been building momentum in our business over the past several quarters, which is reflected in our robust six-percent orders growth in the third quarter. That, combined with continued solid market execution, positions us well for strong revenue growth and margin expansion in the fourth quarter and into 2018.”

Full-year 2017 Outlook
Xylem now forecasts full-year 2017 revenue to be approximately $4.70 billion, up 24 to 25 percent, including growth from previously announced acquisitions and projected impacts of foreign exchange translation. On a pro forma organic basis, Xylem projects revenue growth of three to four percent.





Full-year 2017 adjusted operating margin is expected to be approximately 13.5 percent. The Company increased the mid-point of its full-year 2017 forecast for adjusted earnings per share by five cents. The Company now expects to deliver adjusted earnings per share of $2.39 to $2.41.  This represents an increase of 18 to 19 percent from Xylem’s 2016 adjusted results.  The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs, which now are forecast to be approximately $50 million for the year. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts, without unreasonable effort, that would be included in GAAP earnings.
Third Quarter Segment Results
As previously announced, Xylem combined its Analytics, Sensus and Visenti businesses effective second quarter 2017. As a result of this change, the Company now reports the financial and operational results from these businesses as one segment, which has now been named Measurement & Control Solutions.
Water Infrastructure
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.
•
Third quarter 2017 segment revenue was $520 million, a seven-percent organic increase over third quarter 2016. This growth reflects improved public utility demand across geographies globally as well as several significant treatment project deliveries. The industrial sector continued to strengthen as conditions improved in mining and oil and gas. Segment revenues in Emerging Markets grew 16 percent in the quarter, the second consecutive quarter of double-digit growth.
•
Third quarter reported operating income for the segment was $91 million, a 21-percent increase year-over-year. Adjusted operating income for the segment, which excludes $3 million of restructuring and realignment costs, was $94 million, an 18-percent increase over the same period in 2016. Reported operating margin for the Water Infrastructure segment was 17.5 percent, reflecting a 180-basis-point increase year-over-year. Adjusted operating margin increased 140 basis points to 18.1 percent driven by benefits from operating leverage from volume growth, global procurement and lean initiatives. These improvements more than offset cost inflation and investments for strategic growth initiatives.

Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.
•
Third quarter 2017 segment revenue was $354 million, reflecting two-percent growth year-over-year on an organic basis. The commercial end market remained strong across the U.S., Europe and China, while the residential business was particularly strong in China as demand for secondary water supply increased, as well as in the U.S. driven by promotional activity. This growth was partially offset by ongoing softness in agriculture, primarily in the U.S. Third quarter orders in the segment increased nine percent year-over-year, including key project wins that will deliver solid revenue into 2018.
•
Third quarter reported operating income for the segment was $51 million, a two-percent increase versus the prior year. Adjusted operating income, which excludes $5 million of restructuring and realignment charges, increased six percent year-over-year to $56 million.  Applied Water segment reported operating margin was 14.4 percent, down 20 basis points over the prior year period. Adjusted operating margin increased 30 basis points to 15.8 percent as cost reductions and productivity initiatives more than offset inflation and strategic growth initiative investments.







Measurement & Control Solutions
Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced data analytics and analytic instrumentation.
•
Third quarter 2017 segment revenue was $321 million, up five percent on a pro forma organic basis over the prior year period. The Sensus business delivered double-digit growth in the energy and software services sectors. The water sector revenues were down due to a strong year-ago quarter that included channel stocking of a new product and timing of current project deliveries. Revenue from Xylem’s legacy analytics business increased five percent in the quarter.
•
The segment delivered operating income of $26 million in the third quarter. Adjusted operating income for the segment was $31 million, which excludes $5 million of restructuring and acquisition-related costs, with an adjusted operating margin of 9.7 percent. Excluding the impact of Sensus purchase accounting, adjusted operating margin increased 150 basis points.

Supplemental information on Xylem’s third quarter 2017 earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com. In addition, Sensus historical financial results for 2016 are also 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 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, 2016, 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,
2017
 
2016
 
2017
 
2016
Revenue
$
1,195

 
$
897

 
$
3,430

 
$
2,676

Cost of revenue
724

 
540

 
2,088

 
1,621

Gross profit
471

 
357

 
1,342

 
1,055

Selling, general and administrative expenses
270

 
219

 
812

 
665

Research and development expenses
45

 
23

 
131

 
75

Restructuring and asset impairment charges, net
4

 
6

 
22

 
18

Operating income
152

 
109

 
377

 
297

Interest expense
21

 
16

 
62

 
50

Other non-operating income, net
1

 
2

 
3

 
3

Gain from sale of business
(1
)
 
—

 
4

 
—

Income before taxes
131

 
95

 
322

 
250

Income tax expense
27

 
22

 
62

 
40

Net income
$
104

 
$
73

 
$
260

 
$
210

Less: Net loss attributable to non-controlling interests
(1
)
 
—

 
—

 
—

Net income attributable to Xylem
105

 
73

 
260

 
210

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.58

 
$
0.41

 
$
1.45

 
$
1.17

Diluted
$
0.58

 
$
0.41

 
$
1.44

 
$
1.17

Weighted average number of shares:
 
 
 
 
 
 
 
Basic
179.6

 
179.3

 
179.6

 
179.0

Diluted
180.9

 
180.3

 
180.7

 
179.8

Dividends declared per share
$
0.1800

 
$
0.1549

 
$
0.5400

 
$
0.4647







XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
September 30,
2017
 
December 31,
2016
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
283

 
$
308

Receivables, less allowances for discounts and doubtful accounts of $30 and $30 in 2017 and 2016, respectively
990

 
843

Inventories
562

 
522

Prepaid and other current assets
160

 
166

Total current assets
1,995

 
1,839

Property, plant and equipment, net
637

 
616

Goodwill
2,741

 
2,632

Other intangible assets, net
1,174

 
1,201

Other non-current assets
236

 
186

Total assets
$
6,783

 
$
6,474

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
477

 
$
457

Accrued and other current liabilities
562

 
521

Short-term borrowings and current maturities of long-term debt
97

 
260

Total current liabilities
1,136

 
1,238

Long-term debt
2,189

 
2,108

Accrued postretirement benefits
429

 
408

Deferred income tax liabilities
324

 
352

Other non-current accrued liabilities
225

 
161

Total liabilities
4,303

 
4,267

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Common Stock – par value $0.01 per share:
 
 
 
Authorized 750.0 shares, issued 192.0 shares and 191.4 shares in 2017 and 2016, respectively
2

 
2

Capital in excess of par value
1,900

 
1,876

Retained earnings
1,188

 
1,033

Treasury stock – at cost 12.4 shares and 11.9 shares in 2017 and 2016, respectively
(428
)
 
(403
)
Accumulated other comprehensive loss
(199
)
 
(318
)
Total stockholders’ equity
2,463

 
2,190

Non-controlling interest
17

 
17

Total equity
2,480

 
2,207

Total liabilities and stockholders’ equity
$
6,783

 
$
6,474





XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the nine months ended September 30,
2017
 
2016
Operating Activities
 
 
 
Net income
$
260

 
$
210

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
83

 
61

Amortization
91

 
36

Share-based compensation
16

 
15

Restructuring and asset impairment charges
22

 
18

Gain from sale of business
(4
)
 
—

Other, net
18

 
8

Payments for restructuring
(25
)
 
(11
)
Changes in assets and liabilities (net of acquisitions):
 
 
 
Changes in receivables
(114
)
 
(27
)
Changes in inventories
(14
)
 
(42
)
Changes in accounts payable
3

 
14

Other, net
43

 
(8
)
Net Cash – Operating activities
379

 
274

Investing Activities
 
 
 
Capital expenditures
(119
)
 
(90
)
Acquisition of business, net of cash acquired
(16
)
 
(70
)
Proceeds from sale of assets and business
11

 
—

Cash received from investments
10

 
—

Cash paid for investments
(11
)
 
—

Other, net
3

 
5

Net Cash – Investing activities
(122
)
 
(155
)
Financing Activities
 
 
 
Short-term debt issued
—

 
62

  Short-term debt repaid
(184
)
 
(80
)
Long-term debt issued
—

 
540

  Long-term debt repaid
—

 
(608
)
Repurchase of common stock
(25
)
 
(3
)
Proceeds from exercise of employee stock options
8

 
22

Dividends paid
(97
)
 
(84
)
Other, net
(1
)
 
1

Net Cash – Financing activities
(299
)
 
(150
)
Effect of exchange rate changes on cash
17

 
10

Net change in cash and cash equivalents
(25
)
 
(21
)
Cash and cash equivalents at beginning of year
308

 
680

Cash and cash equivalents at end of period
$
283

 
$
659

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
46

 
$
34

Income taxes (net of refunds received)
$
58

 
$
60






Xylem Inc. Non-GAAP Measures
Management reviews key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, 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 to 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. 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. 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 impacts is determined by translating current period and prior period activity using the same currency conversion rate.
“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, Sensus acquisition related costs, gain from sale of business and special charges. For Sensus historical adjustments, see Sensus Historical - Adjusted EBITDA table.
"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 from sale of business, special charges and tax-related special items, as applicable. For Sensus historical adjustments, see Sensus Historical - Adjusted Operating Income table.
“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 flow 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 integration costs and costs related to the recognition of the backlog intangible asset recorded in purchase accounting.
“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, initial acquisition costs not related to Sensus and other special non-operating items, as well as interest expense related to the early extinguishment of debt during Q2 2016.
“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.
"Pro forma" defined as including the results of Sensus for the calendar period prior to the acquisition of Sensus by Xylem Inc. on October 31, 2016.




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
 
Orders
 
Orders
 
Change 2017 v. 2016
 
% Change 2017 v. 2016
 
Acquisitions/
Divestitures
 
FX
Impact
 
Change
Adj.
2017 v. 2016
 
% Change
Adj. 2017 v. 2016
 
 
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
3,598

 
2,757

 
841

 
31
%
 
(688
)
 
4

 
157

 
6
%
 
31
%
Water Infrastructure
1,546

 
1,465

 
81

 
6
%
 
—

 
4

 
85

 
6
%
 
6
%
Applied Water
1,103

 
1,057

 
46

 
4
%
 
5

 
6

 
57

 
5
%
 
5
%
Measurement & Control Solutions
949

 
235

 
714

 
304
%
 
(693
)
 
(6
)
 
15

 
6
%
 
301
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,249

 
946

 
303

 
32
%
 
(223
)
 
(22
)
 
58

 
6
%
 
30
%
Water Infrastructure
558

 
521

 
37

 
7
%
 
—

 
(12
)
 
25

 
5
%
 
5
%
Applied Water
374

 
342

 
32

 
9
%
 
2

 
(4
)
 
30

 
9
%
 
8
%
Measurement & Control Solutions
317

 
83

 
234

 
282
%
 
(225
)
 
(6
)
 
3

 
4
%
 
275
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,212

 
923

 
289

 
31
%
 
(228
)
 
14

 
75

 
8
%
 
33
%
Water Infrastructure
521

 
483

 
38

 
8
%
 
—

 
9

 
47

 
10
%
 
10
%
Applied Water
375

 
361

 
14

 
4
%
 
2

 
5

 
21

 
6
%
 
5
%
Measurement & Control Solutions
316

 
79

 
237

 
300
%
 
(230
)
 
—

 
7

 
9
%
 
300
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,137

 
888

 
249

 
28
%
 
(237
)
 
12

 
24

 
3
%
 
29
%
Water Infrastructure
467

 
461

 
6

 
1
%
 
—

 
7

 
13

 
3
%
 
3
%
Applied Water
354

 
354

 
—

 
0
%
 
1

 
5

 
6

 
2
%
 
1
%
Measurement & Control Solutions
316

 
73

 
243

 
333
%
 
(238
)
 
—

 
5

 
7
%
 
333
%





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
 
Revenue
 
Revenue
 
Change 2017 v. 2016
 
% Change 2017 v. 2016
 
Acquisitions /
Divestitures
 
FX
Impact
 
Change
Adj.
2017 v. 2016
 
% Change
Adj. 2017 v. 2016
 
 
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
3,430

 
2,676

 
754

 
28
 %
 
(710
)
 
3

 
47

 
2
 %
 
28
 %
Water Infrastructure
1,421

 
1,402

 
19

 
1
 %
 
—

 
5

 
24

 
2
 %
 
2
 %
Applied Water
1,048

 
1,042

 
6

 
1
 %
 
5

 
5

 
16

 
2
 %
 
1
 %
Measurement & Control Solutions
961

 
232

 
729

 
314
 %
 
(715
)
 
(7
)
 
7

 
3
 %
 
311
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,195

 
897

 
298

 
33
 %
 
(232
)
 
(22
)
 
44

 
5
 %
 
31
 %
Water Infrastructure
520

 
478

 
42

 
9
 %
 
—

 
(10
)
 
32

 
7
 %
 
7
 %
Applied Water
354

 
343

 
11

 
3
 %
 
2

 
(5
)
 
8

 
2
 %
 
2
 %
Measurement & Control Solutions
321

 
76

 
245

 
322
 %
 
(234
)
 
(7
)
 
4

 
5
 %
 
313
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,164

 
932

 
232

 
25
 %
 
(236
)
 
14

 
10

 
1
 %
 
26
 %
Water Infrastructure
482

 
484

 
(2
)
 
0
 %
 
—

 
9

 
7

 
1
 %
 
1
 %
Applied Water
361

 
366

 
(5
)
 
-1
 %
 
2

 
5

 
2

 
1
 %
 
0
 %
Measurement & Control Solutions
321

 
82

 
239

 
291
 %
 
(238
)
 
—

 
1

 
1
 %
 
291
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,071

 
847

 
224

 
26
 %
 
(242
)
 
11

 
(7
)
 
-1
 %
 
28
 %
Water Infrastructure
419

 
440

 
(21
)
 
-5
 %
 
—

 
6

 
(15
)
 
-3
 %
 
-3
 %
Applied Water
333

 
333

 
—

 
0
 %
 
1

 
5

 
6

 
2
 %
 
2
 %
Measurement & Control Solutions
319

 
74

 
245

 
331
 %
 
(243
)
 
—

 
2

 
3
 %
 
331
 %





Xylem Inc. Non-GAAP Reconciliation - Pro forma with Sensus
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
 
Revenue
 
Revenue
 
Change 2017 v. 2016
 
% Change 2017 v. 2016
 
Acquisitions /
Divestitures
 
FX
Impact
 
Change
Adj.
2017 v. 2016
 
% Change
Adj. 2017 v. 2016
 
 
 
2017
 
2016 (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
3,430

 
3,369

 
61

 
2
 %
 
3

 
16

 
80

 
2
 %
 
2
 %
Water Infrastructure
1,421

 
1,402

 
19

 
1
 %
 
—

 
5

 
24

 
2
 %
 
2
 %
Applied Water
1,048

 
1,042

 
6

 
1
 %
 
5

 
5

 
16

 
2
 %
 
1
 %
Measurement & Control Solutions
961

 
925

 
36

 
4
 %
 
(2
)
 
6

 
40

 
4
 %
 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,195

 
1,125

 
70

 
6
 %
 
2

 
(18
)
 
54

 
5
 %
 
5
 %
Water Infrastructure
520

 
478

 
42

 
9
 %
 
—

 
(10
)
 
32

 
7
 %
 
7
 %
Applied Water
354

 
343

 
11

 
3
 %
 
2

 
(5
)
 
8

 
2
 %
 
2
 %
Measurement & Control Solutions
321

 
304

 
17

 
6
 %
 
—

 
(3
)
 
14

 
5
 %
 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,164

 
1,169

 
(5
)
 
0
 %
 
2

 
19

 
16

 
1
 %
 
1
 %
Water Infrastructure
482

 
484

 
(2
)
 
0
 %
 
—

 
9

 
7

 
1
 %
 
1
 %
Applied Water
361

 
366

 
(5
)
 
-1
 %
 
2

 
5

 
2

 
1
 %
 
0
 %
Measurement & Control Solutions
321

 
319

 
2

 
1
 %
 
—

 
5

 
7

 
2
 %
 
2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,071

 
1,075

 
(4
)
 
0
 %
 
(1
)
 
15

 
10

 
1
 %
 
1
 %
Water Infrastructure
419

 
440

 
(21
)
 
-5
 %
 
—

 
6

 
(15
)
 
-3
 %
 
-3
 %
Applied Water
333

 
333

 
—

 
0
 %
 
1

 
5

 
6

 
2
 %
 
2
 %
Measurement & Control Solutions
319

 
302

 
17

 
6
 %
 
(2
)
 
4

 
19

 
6
 %
 
7
 %

(a)
 Includes Measurement & Control Solutions and Visenti revenue for the nine months ended September 30, 2016, which was prior to Xylem acquiring the businesses.







Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)

 
Q1
 
Q2
 
Q3
 
YTD
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Total Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
1,071

 
847

 
1,164

 
932

 
1,195

 
897

 
3,430

 
2,676

• Water Infrastructure
419

 
440

 
482

 
484

 
520

 
478

 
1,421

 
1,402

• Applied Water
333

 
333

 
361

 
366

 
354

 
343

 
1,048

 
1,042

• Measurement & Control Solutions
319

 
74

 
321

 
82

 
321

 
76

 
961

 
232

Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
86

 
79

 
139

 
109

 
152

 
109

 
377

 
297

• Water Infrastructure
40

 
51

 
74

 
66

 
91

 
75

 
205

 
192

• Applied Water
36

 
39

 
49

 
51

 
51

 
50

 
136

 
140

• Measurement & Control Solutions
25

 
3

 
29

 
4

 
26

 
4

 
80

 
11

• Total Segments
101

 
93

 
152

 
121

 
168

 
129

 
421

 
343

Operating Margin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
8.0
%
 
9.3
%
 
11.9
%
 
11.7
%
 
12.7
%
 
12.2
%
 
11.0
%
 
11.1
%
• Water Infrastructure
9.5
%
 
11.6
%
 
15.4
%
 
13.6
%
 
17.5
%
 
15.7
%
 
14.4
%
 
13.7
%
• Applied Water
10.8
%
 
11.7
%
 
13.6
%
 
13.9
%
 
14.4
%
 
14.6
%
 
13.0
%
 
13.4
%
• Measurement & Control Solutions
7.8
%
 
4.1
%
 
9.0
%
 
4.9
%
 
8.1
%
 
5.3
%
 
8.3
%
 
4.7
%
• Total Segments
9.4
%
 
11.0
%
 
13.1
%
 
13.0
%
 
14.1
%
 
14.4
%
 
12.3
%
 
12.8
%
Sensus Acquisition Related Costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
10

 
—

 
4

 
—

 
5

 
10

 
19

 
10

• Water Infrastructure
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

• Applied Water
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

• Measurement & Control Solutions
6

 
—

 
3

 
—

 
4

 
—

 
13

 
—

• Total Segments
6

 
—

 
3

 
—

 
4

 
—

 
13

 
—

Special Charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
5

 
4

 
—

 
1

 
3

 
—

 
8

 
5

• Water Infrastructure
—

 
2

 
—

 
—

 
—

 
—

 
—

 
2

• Applied Water
5

 
—

 
—

 
—

 
—

 
—

 
5

 
—

• Measurement & Control Solutions
—

 
2

 
—

 
1

 
—

 
—

 
—

 
3

• Total Segments
5

 
4

 
—

 
1

 
—

 
—

 
5

 
5

Restructuring & Realignment Costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
11

 
9

 
12

 
11

 
9

 
12

 
32

 
32

• Water Infrastructure
4

 
3

 
5

 
6

 
3

 
5

 
12

 
14

• Applied Water
4

 
3

 
5

 
3

 
5

 
3

 
14

 
9

• Measurement & Control Solutions
3

 
1

 
2

 
2

 
1

 
4

 
6

 
7

• Total Segments
11

 
7

 
12

 
11

 
9

 
12

 
32

 
30

Adjusted Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
112

 
92

 
155

 
121

 
169

 
131

 
436

 
344

• Water Infrastructure
44

 
56

 
79

 
72

 
94

 
80

 
217

 
208

• Applied Water
45

 
42

 
54

 
54

 
56

 
53

 
155

 
149

• Measurement & Control Solutions
34

 
6

 
34

 
7

 
31

 
8

 
99

 
21

• Total Segments
123

 
104

 
167

 
133

 
181

 
141

 
471

 
378

Adjusted Operating Margin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
10.5
%
 
10.9
%
 
13.3
%
 
13.0
%
 
14.1
%
 
14.6
%
 
12.7
%
 
12.9
%
• Water Infrastructure
10.5
%
 
12.7
%
 
16.4
%
 
14.9
%
 
18.1
%
 
16.7
%
 
15.3
%
 
14.8
%
• Applied Water
13.5
%
 
12.6
%
 
15.0
%
 
14.8
%
 
15.8
%
 
15.5
%
 
14.8
%
 
14.3
%
• Measurement & Control Solutions
10.7
%
 
8.1
%
 
10.6
%
 
8.5
%
 
9.7
%
 
10.5
%
 
10.3
%
 
9.1
%
• Total Segments
11.5
%
 
12.3
%
 
14.3
%
 
14.3
%
 
15.1
%
 
15.7
%
 
13.7
%
 
14.1
%




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

 
Q3 2017
 
Q3 2016
 
As Reported
 
Adjustments
 
Adjusted
 
As Reported
 
Adjustments
 
Adjusted
Total Revenue
1,195

 
 
 
1,195

 
897

 
 
 
897

Operating Income
152

 
17

 a
169

 
109

 
22

 a
131

Operating Margin
12.7
%
 
 
 
14.1
%
 
12.2
%
 
 
 
14.6
%
Interest Expense
(21
)
 
 
 
(21
)
 
(16
)
 
4

b
(12
)
Other Non-Operating Income (Expense)
1

 
 
 
1

 
2

 
 
 
2

Gain from sale of business
(1
)
 
1

 
—

 
 
 
 
 
 
Income before Taxes
131

 
18

 
149

 
95

 
26

 
121

Provision for Income Taxes
(27
)
 
(4
)
c
(31
)
 
(22
)
 
(2
)
c
(24
)
Loss attributable to minority interest
1

 
 
 
1

 
—

 
 
 
—

Net Income attributable to Xylem
105

 
14

 
119

 
73

 
24

 
97

Diluted Shares
180.9

 
 
 
180.9

 
180.3

 
 
 
108.3

Diluted EPS
$
0.58

 
$
0.07

 
$
0.65

 
$
0.41

 
$
0.13

 
$
0.54

Year-over-year currency translation impact on current year diluted EPS
$
0.01

 
 
 
$
0.01

Diluted EPS at Constant Currency
$
0.57

 
$
0.07

 
$
0.64


 
Q3 YTD 2017
 
Q3 YTD 2016
 
As Reported
 
Adjustments
 
Adjusted
 
As Reported
 
Adjustments
 
Adjusted
Total Revenue
3,430

 
—

 
3,430

 
2,676

 
—

 
2,676

Operating Income
377

 
59

 a
436

 
297

 
47

 a
344

Operating Margin
11.0
%
 
—

 
12.7
%
 
11.1
%
 
—

 
12.9
%
Interest Expense
(62
)
 
—

 
(62
)
 
(50
)
 
12

b
(38
)
Other Non-Operating Income (Expense)
3

 
—

 
3

 
3

 
—

 
3

Gain from sale of business
4

 
(4
)
 
—

 
—

 
—

 
—

Income before Taxes
322

 
55

 
377

 
250

 
59

 
309

Provision for Income Taxes
(62
)
 
(19
)
c
(81
)
 
(40
)
 
(23
)
c
(63
)
Income attributable to minority interest
—

 
 
 
—

 
—

 
—

 
—

Net Income attributable to Xylem
260

 
36

 
296

 
210

 
36

 
246

Diluted Shares
180.7

 
 
 
180.7

 
179.8

 
 
 
179.8

Diluted EPS
$
1.44

 
$
0.20

 
$
1.64

 
$
1.17

 
$
0.20

 
$
1.37

Year-over-year currency translation impact on current year diluted EPS
$
(0.02
)
 
—

 
$
(0.02
)
Diluted EPS at Constant Currency
$
1.46

 
$
0.20

 
$
1.66





a
Third quarter: Restructuring & realignment costs of $9 million and $12 million in 2017 and 2016, respectively, Sensus acquisition related costs of $5 million and $10 million in 2017 and 2016 and special charges of $3 million of due diligence costs in 2017.
 
Year-to-date: Restructuring & realignment costs of $32 million and $32 million in 2017 and 2016, respectively, Sensus acquisition related costs of $19 million and $10 million in 2017 and 2016, respectively and special charges of $5 million of asset impairment and $3 million of due diligence costs in 2017 and $5 million of initial acquisition costs in 2016.
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 year-to-date special charges of $12 million in 2016 consisting 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.
c
Third quarter: Net tax impact on restructuring & realignment costs of $4 million in both 2017 and 2016, net tax impact on Sensus acquisition related costs of $2 million and $1 million in 2017 and 2016, respectively, net tax impact on special charges of $1 million in both 2017 and 2016 and tax-related special items of $3 million and $4 million of benefit in 2017 and 2016, respectively.
 
Year-to-date: Net tax impact on restructuring & realignment costs of $11 million and $9 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $7 million and $1 million in 2017 and 2016, respectively , net tax impact on special charges of $3 million and $6 million in 2017 and 2016, respectively, net tax impact of $2 million on the gain from sale of business in 2017 and tax-related special charges of less than $1 million and $7 million in 2017 and 2016, respectively.




Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)

 
Q1
 
Q2
 
Q3
 
Nine Months Ended
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Net Cash - Operating Activities
$
58

 
$
41

 
$
93

 
$
84

 
$
228

 
$
149

 
$
379

 
$
274

Capital Expenditures
(49
)
 
(37
)
 
(28
)
 
(25
)
 
(42
)
 
(28
)
 
(119
)
 
(90
)
Free Cash Flow
$
9

 
$
4

 
$
65

 
$
59

 
$
186

 
$
121

 
$
260

 
$
184

Cash paid for Sensus acquisition related costs
(17
)
 
—

 
(5
)
 
—

 
(1
)
 
(3
)
 
(23
)
 
(3
)
Free Cash Flow, excluding Sensus Acquisition Related Costs
$
26

 
$
4

 
$
70

 
$
59

 
$
187

 
$
124

 
$
283

 
$
187

Net Income
56

 
66

 
100

 
71

 
104

 
73

 
260

 
210

Gain from sale of business
5

 
—

 
—

 
—

 
(1
)
 
—

 
4

 
—

Special Charges - Non-cash impairment
(5
)
 
—

 
—

 
(8
)
 
—

 
—

 
(5
)
 
(8
)
Sensus acquisition related costs
(10
)
 
—

 
(4
)
 
—

 
(5
)
 
(10
)
 
(19
)
 
(10
)
Net Income, excluding gain on sale of business, non-cash impairment charges and Sensus Acquisition Related Costs
$
66

 
$
66

 
$
104

 
$
79

 
$
110

 
$
83

 
$
280

 
$
228

Free Cash Flow Conversion
39
%
 
6
%
 
67
%
 
75
%
 
170
%
 
149
%
 
101
%
 
82
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
($ Millions)

2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Net Income
56

 
100

 
104

 
 
 
260

Income Tax Expense
14

 
21

 
27

 
 
 
62

Interest Expense (Income), net
20

 
20

 
20

 
 
 
60

Depreciation
28

 
27

 
28

 
 
 
83

Amortization
31

 
30

 
30

 
 
 
91

Stock Compensation
6

 
5

 
5

 
 
 
16

EBITDA
155

 
203

 
214

 
 
 
572

Restructuring & Realignment
11

 
12

 
9

 
 
 
32

Gain on sale of business
(5
)
 
—

 
1

 
 
 
(4
)
Sensus acquisition related costs
7

 
2

 
3

 
 
 
12

Special Charges
5

 
—

 
3

 
 
 
8

Adjusted EBITDA
173

 
217

 
230

 
 
 
620

Revenue
1,071

 
1,164

 
1,195

 
 
 
3,430

Adjusted EBITDA Margin
16.2
%
 
18.6
%
 
19.2
%
 
 
 
18.1
%
 
 
 
 
 
 
 
 
 
 
2016
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Net Income
66

 
71

 
73

 
50

 
260

Income Tax Expense
(1
)
 
19

 
22

 
40

 
80

Interest Expense (Income), net
14

 
19

 
16

 
19

 
68

Depreciation
20

 
21

 
20

 
26

 
87

Amortization
12

 
12

 
12

 
28

 
64

Stock Compensation
5

 
5

 
5

 
3

 
18

EBITDA
116

 
147

 
148

 
166

 
577

Restructuring & Realignment
9

 
11

 
12

 
15

 
47

Sensus acquisition related costs
—

 
—

 
10

 
36

 
46

Special Charges
4

 
1

 
—

 
—

 
5

Adjusted EBITDA
129

 
159

 
170

 
217

 
675

Revenue
847

 
932

 
897

 
1,095

 
3,771

Adjusted EBITDA Margin
15.2
%
 
17.1
%
 
19.0
%
 
19.8
%
 
17.9
%