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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): May 1, 2018
 
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 May 1, 2018, Xylem Inc. issued a press release announcing its financial results for the first quarter. 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 May 1, 2018.






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: May 1, 2018
 
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 May 1, 2018.


Exhibit


Exhibit 99.1
https://cdn.kscope.io/5fef75b4dcd30119013d135103201c09-xylemlogoa05.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 reports seven percent organic revenue increase and
strong double-digit growth in 1st quarter 2018 earnings

•
First quarter 2018 reported net income was $79 million or $0.43 per share; Adjusted net income for the quarter was $93 million or $0.51 per share, up 31 percent versus the prior year period
•
Xylem delivered $1.2 billion in first quarter 2018 revenue, up 14 percent year-over-year including the impact of foreign exchange and acquisitions
•
Orders increased 10 percent organically
•
Reported and adjusted EBITDA increased 110 and 130 basis points, respectively

RYE BROOK, N.Y., May 1, 2018 - Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported first quarter 2018 net income of $79 million, or $0.43 per share. Excluding the impact of restructuring, realignment, acquisition-related charges and other special items, the Company delivered adjusted net income of $93 million or $0.51 per share in the quarter, a 31-percent increase over the prior year period. First quarter revenue was $1.2 billion, up 14 percent including the impact of foreign exchange and acquisitions. Revenue for the quarter increased seven percent on an organic basis, driven by a strong performance in the utilities and industrial end markets in nearly every geography and continued solid growth in the commercial and residential end markets. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) improved by 130 basis points year-over-year to 17.5 percent driven by volume leverage and savings from productivity initiatives. Reported operating margin in the quarter was 9.3 percent and adjusted operating margin increased 60 basis points year-over-year to 11.1 percent, including a 40-basis-point negative impact due to purchase accounting amortization.

“Focused execution and increased collaboration by our teams resulted in a strong start to 2018,” said Patrick Decker, President and Chief Executive Officer of Xylem. “We delivered another consecutive quarter of strong growth in revenue, orders and backlog, which sets us up for a solid year ahead. We’re encouraged by the continuing momentum we see in both the utilities and industrial end markets, where we are capturing share. In addition, our growing portfolio of advanced technologies is opening up new opportunities to expand our relationship with current customers and cultivate new ones. We continue to successfully execute against our productivity plans, which is helping to fund our growth initiatives and mitigate inflation. Looking ahead, we have strong confidence in our plans to drive continued profitable growth as we deepen our customer relationships and partnerships.”
  







Full-year 2018 Outlook
Xylem continues to forecast full-year 2018 revenue in the range of $5.1 to $5.2 billion, up eight to 10 percent, including growth from previously announced acquisitions. On an organic basis, Xylem continues to anticipate revenue growth in the range of four to six percent. 
Full-year 2018 adjusted operating margin is expected to be in the range of 13.9 to 14.3 percent, resulting in adjusted earnings per share of $2.82 to $2.97. This represents an increase of 18 to 24 percent from Xylem’s 2017 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs of approximately $35 million for the year. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort.
First Quarter Segment Results
Water Infrastructure
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.
•
First quarter 2018 revenue was $480 million, up nine percent organically compared with first quarter 2017. This growth includes strong results in the utilities end market, particularly in the U.S. which was up 10 percent. The industrial end market also continued to show solid growth, reflecting healthy market conditions in the U.S. for dewatering applications.
•
First quarter reported operating income for the segment was $49 million. Adjusted operating income for the segment, which excludes $5 million of restructuring and realignment costs, was $54 million, a 20-percent increase over the same period a year ago. Adjusted EBITDA for the Water Infrastructure segment increased 30 basis points to 14.6 percent. Reported operating margin for the segment was 10.2 percent, up 40 basis points versus the prior year, and adjusted operating margin increased 60 basis points to 11.3 percent. This growth reflects volume leverage and productivity gains, partially offset by inflation, a higher mix of treatment project deliveries and foreign exchange impacts.

Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.
•
First quarter 2018 Applied Water revenue was $366 million, a seven-percent increase organically year-over-year. This performance reflects double-digit growth in Western Europe and solid increases in the U.S. and Emerging Markets. In the U.S., the business experienced continued improvement in large industrial projects, and also captured share gains across all end markets in Western Europe. In addition, commercial building applications showed solid growth from demand for projects.
•
First quarter reported operating income for the segment was $50 million and adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $53 million, an 18-percent increase over the comparable period last year. Adjusted EBITDA for the Applied Water segment was 16.1 percent, an increase of 110 basis points over the prior year. Reported operating margin was 13.7 percent, up 290 basis points year-over-year, and adjusted operating margin increased 100 basis points to 14.5 percent as volume leverage and productivity initiatives more than offset inflation and unfavorable mix.

Measurement & Control Solutions
Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced infrastructure analytics and analytic instrumentation.




•
First quarter 2018 Measurement & Control Solutions revenue was $371 million, up five percent organically versus the prior year period. This reflects solid growth in the Sensus business, up six percent year-over-year, primarily driven by strength in North America. Double-digit growth in the electric, gas and services businesses was partially offset by modest declines in the water sector, which primarily reflects the timing of large project deliveries in Western Europe and the Middle East in the year-ago period. Xylem’s legacy analytics business increased three percent organically in the quarter.
•
First quarter reported operating income for the segment was $33 million, and adjusted operating income, which excludes $10 million of restructuring and realignment costs and acquisition-related costs, was $43 million. Adjusted EBITDA for the Measurement & Control Solutions segment increased 270 basis points to 21.8 percent. Reported operating margin for the segment was 8.9 percent. Adjusted operating margin increased 90 basis points year-over-year to 11.6 percent as volume leverage and price combined with cost reductions more than offset inflation, the funding of strategic R&D investments and higher purchase accounting amortization.

Supplemental information on Xylem’s first quarter 2018 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.
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. Xylem also provides a leading portfolio of smart metering, network technologies and advanced infrastructure analytics solutions for water, electric and gas utilities. The Company’s more than 16,500 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2017 revenue of $4.7 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; 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, 2017, 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
For the three months ended March 31,
2018
 
2017
Revenue
$
1,217

 
$
1,071

Cost of revenue
757

 
659

Gross profit
460

 
412

Selling, general and administrative expenses
296

 
272

Research and development expenses
41

 
42

Restructuring and asset impairment charges, net
10

 
12

Operating income
113

 
86

Interest expense
21

 
20

Other non-operating income (expense), net
3

 
(1
)
Gain from sale of business
—

 
5

Income before taxes
95

 
70

Income tax expense
16

 
14

Net income
$
79

 
$
56

Earnings per share:
 
 
 
Basic
$
0.44

 
$
0.31

Diluted
$
0.43

 
$
0.31

Weighted average number of shares:
 
 
 
Basic
179.9

 
179.6

Diluted
181.4

 
180.7

Dividends declared per share
$
0.2100

 
$
0.1800







XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
297

 
$
414

Receivables, less allowances for discounts and doubtful accounts of $29 and $35 in 2018 and 2017, respectively
999

 
956

Inventories
578

 
524

Prepaid and other current assets
192

 
177

Total current assets
2,066

 
2,071

Property, plant and equipment, net
666

 
643

Goodwill
3,082

 
2,768

Other intangible assets, net
1,303

 
1,168

Other non-current assets
233

 
210

Total assets
$
7,350

 
$
6,860

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
543

 
$
549

Accrued and other current liabilities
546

 
551

Short-term borrowings and current maturities of long-term debt
371

 
—

Total current liabilities
1,460

 
1,100

Long-term debt
2,228

 
2,200

Accrued postretirement benefits
446

 
442

Deferred income tax liabilities
285

 
252

Other non-current accrued liabilities
374

 
347

Total liabilities
4,793

 
4,341

Stockholders’ equity:
 
 
 
Common Stock – par value $0.01 per share:
 
 
 
Authorized 750.0 shares, issued 192.8 shares and 192.3 shares in 2018 and 2017, respectively
2

 
2

Capital in excess of par value
1,925

 
1,912

Retained earnings
1,282

 
1,227

Treasury stock – at cost 12.8 shares and 12.4 shares in 2018 and 2017, respectively
(461
)
 
(428
)
Accumulated other comprehensive loss
(207
)
 
(210
)
Total stockholders’ equity
2,541

 
2,503

Non-controlling interest
16

 
16

Total equity
2,557

 
2,519

Total liabilities and stockholders’ equity
$
7,350

 
$
6,860





XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the three months ended March 31,
2018
 
2017
Operating Activities
 
 
 
Net income
$
79

 
$
56

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
29

 
28

Amortization
38

 
31

Share-based compensation
9

 
6

Restructuring and asset impairment charges
10

 
12

Gain from sale of business
—

 
(5
)
Other, net
(4
)
 
(2
)
Payments for restructuring
(5
)
 
(8
)
Changes in assets and liabilities (net of acquisitions):
 
 
 
Changes in receivables
(9
)
 
(12
)
Changes in inventories
(40
)
 
(10
)
Changes in accounts payable
6

 
(32
)
Other, net
(50
)
 
(12
)
Net Cash – Operating activities
63

 
52

Investing Activities
 
 
 
Capital expenditures
(61
)
 
(43
)
Acquisition of business, net of cash acquired
(430
)
 
(6
)
Proceeds from sale of assets and business
—

 
11

Net Cash – Investing activities
(491
)
 
(38
)
Financing Activities
 
 
 
Short-term debt issued, net
371

 
—

  Short-term debt repaid
—

 
(5
)
Repurchase of common stock
(33
)
 
(5
)
Proceeds from exercise of employee stock options
3

 
1

Dividends paid
(38
)
 
(33
)
Other, net
(1
)
 
1

Net Cash – Financing activities
302

 
(41
)
Effect of exchange rate changes on cash
9

 
6

Net change in cash and cash equivalents
(117
)
 
(21
)
Cash and cash equivalents at beginning of year
414

 
308

Cash and cash equivalents at end of period
$
297

 
$
287

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
14

 
$
12

Income taxes (net of refunds received)
$
17

 
$
17






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 and amortization expense. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses and special charges.
"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 or loss from sale of businesses, 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, acquisition costs, costs related to the recognition of the backlog intangible asset amortization recorded in purchase accounting.
“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, due diligence costs, initial acquisition and integration costs not related to Sensus 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.
"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 2018 v. 2017
 
% Change 2018 v. 2017
 
Acquisitions/
Divestitures
 
FX
Impact
 
Change
Adj.
2018 v. 2017
 
% Change
Adj. 2018 v. 2017
 
 
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,320

 
1,137

 
183

 
16
%
 
(8
)
 
(56
)
 
119

 
10
%
 
11
%
Water Infrastructure
554

 
467

 
87

 
19
%
 
—

 
(28
)
 
59

 
13
%
 
13
%
Applied Water
384

 
354

 
30

 
8
%
 
6

 
(14
)
 
22

 
6
%
 
5
%
Measurement & Control Solutions
382

 
316

 
66

 
21
%
 
(14
)
 
(14
)
 
38

 
12
%
 
16
%




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 2018 v. 2017
 
% Change 2018 v. 2017
 
Acquisitions /
Divestitures
 
FX
Impact
 
Change Adj. 2018 v. 2017
 
% Change Adj. 2018 v. 2017
 
 
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,217

 
1,071

 
146

 
14
%
 
(15
)
 
(54
)
 
77

 
7
%
 
9
%
Water Infrastructure
480

 
419

 
61

 
15
%
 
—

 
(25
)
 
36

 
9
%
 
9
%
Applied Water
366

 
333

 
33

 
10
%
 
5

 
(14
)
 
24

 
7
%
 
6
%
Measurement & Control Solutions
371

 
319

 
52

 
16
%
 
(20
)
 
(15
)
 
17

 
5
%
 
12
%





Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
 
Q1
 
2018
 
2017
Total Revenue
 
 
 
• Total Xylem
1,217

 
1,071

• Water Infrastructure
480

 
419

• Applied Water
366

 
333

• Measurement & Control Solutions
371

 
319

Operating Income
 
 
 
• Total Xylem
       113

 
86

• Water Infrastructure
49

 
41

• Applied Water
50

 
36

• Measurement & Control Solutions
33

 
25

• Total Segments
132

 
102

Operating Margin
 
 
 
• Total Xylem
9.3
%
 
8.0
%
• Water Infrastructure
10.2
%
 
9.8
%
• Applied Water
13.7
%
 
10.8
%
• Measurement & Control Solutions
8.9
%
 
7.8
%
• Total Segments
10.8
%
 
9.5
%
Sensus Acquisition Related Costs
 
 
 
• Total Xylem
—

 
10

• Water Infrastructure
—

 
—

• Applied Water
—

 
—

• Measurement & Control Solutions
—

 
6

• Total Segments
—

 
6

Special Charges
 
 
 
• Total Xylem
6

 
5

• Water Infrastructure
—

 
—

• Applied Water
—

 
5

• Measurement & Control Solutions
2

 
—

• Total Segments
2

 
5

Restructuring & Realignment Costs
 
 
 
• Total Xylem
16

 
11

• Water Infrastructure
5

 
4

• Applied Water
3

 
4

• Measurement & Control Solutions
8

 
3

• Total Segments
16

 
11

Adjusted Operating Income
 
 
 
• Total Xylem
135

 
112

• Water Infrastructure
54

 
45

• Applied Water
53

 
45

• Measurement & Control Solutions
43

 
34

• Total Segments
150

 
124

Adjusted Operating Margin
 
 
 
• Total Xylem
11.1
%
 
10.5
%
• Water Infrastructure
11.3
%
 
10.7
%
• Applied Water
14.5
%
 
13.5
%
• Measurement & Control Solutions
11.6
%
 
10.7
%
• Total Segments
12.3
%
 
11.6
%
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.




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

 
Q1 2018
 
Q1 2017
 
As Reported
 
Adjustments
 
Adjusted
 
As Reported
 
Adjustments
 
Adjusted
Total Revenue
1,217

 
 
 
1,217

 
1,071

 
 
 
1,071

Operating Income
113

 
22

 a
135

 
86

 
26

 a
112

Operating Margin
9.3
%
 
 
 
11.1
%
 
8.0
%
 
 
 
10.5
%
Interest Expense
(21
)
 
 
 
(21
)
 
(20
)
 
 
 
(20
)
Other Non-Operating Income (Expense)
3

 
 
 
3

 
(1
)
 
 
 
(1
)
(Loss)/Gain from sale of business
—

 
 
 
—

 
5

 
(5
)
 
—

Income before Taxes
95

 
22

 
117

 
70

 
21

 
91

Provision for Income Taxes
(16
)
 
(8
)
b
(24
)
 
(14
)
 
(6
)
b
(20
)
Net Income attributable to Xylem
79

 
14

 
93

 
56

 
15

 
71

Diluted Shares
181.4

 
 
 
181.4

 
180.7

 
 
 
180.7

Diluted EPS
$
0.43

 
$
0.08

 
$
0.51

 
$
0.31

 
$
0.08

 
$
0.39

Year-over-year currency translation impact on current year diluted EPS
$
0.05

 
0.01

 
$
0.06

Diluted EPS at Constant Currency
$
0.38

 
$
0.07

 
$
0.45


 
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
a
Restructuring & realignment costs of $16 million and $11 million in 2018 and 2017, respectively; special charges of $6 million of acquisition costs in 2018 and $5 million of asset impairment in 2017 and Sensus acquisition related costs of $10 million in 2017.
b
Net tax impact on restructuring & realignment costs of $4 million and $2 million in 2018 and 2017, respectively; net tax impact on special charges of $1 million and $2 million in 2018 and 2017, respectively; net tax impact on Sensus acquisition related costs of $4 million and tax benefit of $2 million on the gain from sale of business in 2017 and tax-related special items of $3 million of expense in 2018.




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

 
Q1
 
 
2018
 
2017
 
Net Cash - Operating Activities
$
63

 
$
52

 
Capital Expenditures
(61
)
 
(43
)
 
Free Cash Flow
$
2

 
$
9

 
Cash paid for Sensus acquisition related costs
(1
)
 
(17
)
 
Free Cash Flow, excluding Sensus Acquisition Related Costs
$
3

 
$
26

 
Net Income
79

 
56

 
Gain/(Loss) from sale of businesses
—

 
5

 
Special Charges - non-cash impairment and early debt extinguishment
—

 
(5
)
 
Sensus acquisition related costs
—

 
(10
)
 
Net Income, excluding gain on sale of businesses, non-cash impairment charges and Sensus Acquisition Related Costs
$
79

 
$
66

 
Free Cash Flow Conversion
4
%
 
39
%
 
 
 
 
 
 





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

2018
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Net Income
79

 
 
 
 
 
 
 
79

Income Tax Expense
16

 
 
 
 
 
 
 
16

Interest Expense (Income), net
20

 
 
 
 
 
 
 
20

Depreciation
29

 
 
 
 
 
 
 
29

Amortization
38

 
 
 
 
 
 
 
38

EBITDA
182

 


 


 
 
 
182

Share-based Compensation

9

 
 
 
 
 
 
 
9

Restructuring & Realignment
16

 
 
 
 
 
 
 
16

Gain on sale of business
—

 
 
 
 
 
 
 
—

Sensus acquisition related costs
—

 
 
 
 
 
 
 
—

Special Charges
6

 
 
 
 
 
 
 
6

Adjusted EBITDA
213

 

 

 
 
 
213

Revenue
1,217

 
 
 
 
 
 
 
1,217

Adjusted EBITDA Margin
17.5
%
 
 
 
 
 
 
 
17.5
%
 
 
 
 
 
 
 
 
 
 
2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Net Income
56

 
100

 
104

 
70

 
330

Income Tax Expense
14

 
21

 
27

 
74

 
136

Interest Expense (Income), net
20

 
20

 
20

 
19

 
79

Depreciation
28

 
27

 
28

 
26

 
109

Amortization
31

 
30

 
30

 
34

 
125

EBITDA
149

 
198

 
209

 
223

 
779

Share-based Compensation

6

 
5

 
5

 
5

 
21

Restructuring & Realignment
11

 
12

 
9

 
9

 
41

Gain on sale of business
(5
)
 
—

 
1

 
14

 
10

Sensus acquisition related costs
7

 
2

 
3

 
2

 
14

Special Charges
5

 
—

 
3

 
5

 
13

Adjusted EBITDA
173

 
217

 
230

 
258

 
878

Revenue
1,071

 
1,164

 
1,195

 
1,277

 
4,707

Adjusted EBITDA Margin
16.2
%
 
18.6
%
 
19.2
%
 
20.2
%
 
18.7
%
 
 
 
 
 
 
 
 
 
 





















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

2018
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Pre-Tax Income
47

 
 
 
 
 
 
 
47

Interest Expense (Income), net
—

 
 
 
 
 
 
 
—

Depreciation
12

 
 
 
 
 
 
 
12

Amortization
5

 
 
 
 
 
 
 
5

EBITDA
64

 
 
 
 
 
 
 
64

Share-based Compensation

1

 
 
 
 
 
 
 
1

Restructuring & Realignment
5

 
 
 
 
 
 
 
5

Adjusted EBITDA
70

 
 
 
 
 
 
 
70

Revenue
480

 
 
 
 
 
 
 
480

Adjusted EBITDA Margin
14.6
%
 
 
 
 
 
 
 
14.6
%
 
 
 
 
 
 
 
 
 
 
2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Pre-Tax Income
39

 
73

 
90

 
105

 
307

Interest Expense (Income), net
—

 
—

 
(1
)
 
(1
)
 
(2
)
Depreciation
11

 
11

 
12

 
11

 
45

Amortization
5

 
4

 
5

 
5

 
19

EBITDA
55

 
88

 
106

 
120

 
369

Share-based Compensation

1

 
—

 
—

 
1

 
2

Restructuring & Realignment
4

 
5

 
3

 
4

 
16

Adjusted EBITDA
60

 
93

 
109

 
125

 
387

Revenue
419

 
482

 
520

 
583

 
2,004

Adjusted EBITDA Margin
14.3
%
 
19.3
%
 
21.0
%
 
21.4
%
 
19.3
%
 
 
 
 
 
 
 
 
 
 

Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.


























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

2018
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Pre-Tax Income
50

 
 
 
 
 
 
 
50

Interest, net
—

 
 
 
 
 
 
 
—

Depreciation
5

 
 
 
 
 
 
 
5

Amortization
—

 
 
 
 
 
 
 
—

EBITDA
55

 
 
 
 
 
 
 
55

Share-based Compensation

1

 
 
 
 
 
 
 
1

Restructuring & Realignment
3

 
 
 
 
 
 
 
3

Adjusted EBITDA
59

 
 
 
 
 
 
 
59

Revenue
366

 
 
 
 
 
 
 
366

Adjusted EBITDA Margin
16.1
%
 
 
 
 
 
 
 
16.1
%
 
 
 
 
 
 
 
 
 
 
2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Pre-Tax Income
40

 
49

 
49

 
62

 
200

Interest, net
—

 
—

 
—

 
—

 
—

Depreciation
5

 
5

 
5

 
5

 
20

Amortization
1

 
1

 
1

 
—

 
3

EBITDA
46

 
55

 
55

 
67

 
223

Share-based Compensation

—

 
1

 
1

 
—

 
2

Restructuring & Realignment
4

 
5

 
5

 
3

 
17

Gain on sale of business
(5
)
 
—

 
1

 
(2
)
 
(6
)
Special charges
5

 
—

 
—

 
—

 
5

Adjusted EBITDA
50

 
61

 
62

 
68

 
241

Revenue
333

 
361

 
354

 
373

 
1,421

Adjusted EBITDA Margin
15.0
%
 
16.9
%
 
17.5
%
 
18.2
%
 
17.0
%
 
 
 
 
 
 
 
 
 
 

Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
























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

2018
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Pre-Tax Income
33

 
 
 
 
 
 
 
33

Interest Expense (Income), net
—

 
 
 
 
 
 
 
—

Depreciation
8

 
 
 
 
 
 
 
8

Amortization
29

 
 
 
 
 
 
 
29

EBITDA
70

 
 
 
 
 
 
 
70

Share-based Compensation

1

 
 
 
 
 
 
 
1

Restructuring & Realignment
8

 
 
 
 
 
 
 
8

Special Charges
2

 
 
 
 
 
 
 
2

Adjusted EBITDA
81

 
 
 
 
 
 
 
81

Revenue
371

 
 
 
 
 
 
 
371

Adjusted EBITDA Margin
21.8
%
 
 
 
 
 
 
 
21.8
%
 
 
 
 
 
 
 
 
 
 
2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Pre-Tax Income
24

 
30

 
26

 
11

 
91

Interest Expense (Income), net
—

 
—

 
—

 
(1
)
 
(1
)
Depreciation
8

 
8

 
7

 
7

 
30

Amortization
23

 
22

 
22

 
25

 
92

EBITDA
55

 
60

 
55

 
42

 
212

Share-based Compensation

—

 
1

 
—

 
1

 
2

Restructuring & Realignment
3

 
2

 
1

 
2

 
8

Sensus Acquisition Related Costs
3

 
1

 
2

 
1

 
7

Adjusted EBITDA
61

 
64

 
58

 
64

 
247

Revenue
319

 
321

 
321

 
321

 
1,282

Adjusted EBITDA Margin
19.1
%
 
19.9
%
 
18.1
%
 
19.9
%
 
19.3
%
 
 
 
 
 
 
 
 
 
 

Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.