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): July 29, 2020
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||||||||
| (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)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange of which registered | ||||||||||||
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 July 30, 2020, Xylem Inc. issued a press release announcing its financial results for the second quarter ended June 30, 2020. 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.
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. | ||||
On July 29, 2020, the Board of Directors (the “Board”) of Xylem Inc. (the "Company") increased the size of the Board from 10 to 12 directors, and appointed Lila Tretikov and Uday Yadav as members of the Board to fill the vacancies, effective immediately. The Board expects to determine committee assignments for Ms. Tretikov and Mr. Yadav at a subsequent meeting. The Board has determined that Ms. Tretikov and Mr. Yadav are independent under the Company’s Corporate Governance Principles, the New York Stock Exchange listing standards and applicable Securities and Exchange Commission (“SEC”) rules and regulations.
Ms. Tretikov currently serves as Corporate Vice President of Technology in the Office of the Chief Technology Officer at Microsoft Corporation. There are no arrangements or understandings between Ms. Tretikov and any other person pursuant to which she was elected as a director.
Mr. Yadav currently serves as the President and Chief Operating Officer, Electrical Sector for Eaton. There are no arrangements or understandings between Mr. Yadav and any other person pursuant to which he was elected as a director.
Neither Ms. Tretikov nor Mr. Yadav is a party to any transaction with the Company that would require disclosure under Item 404(a) of Regulation S-K.
Ms. Tretikov and Mr. Yadav will receive compensation consistent with the standard compensatory arrangements for non-employee directors of the Board, as described under the heading “Director Compensation” in the Company's 2020 Proxy Statement filed with the SEC on April 1, 2020. Ms. Tretikov and Mr. Yadav’s compensation for the current term will be prorated. Their prorated cash retainer fees for service through December 31, 2020 will also be subject to a temporary 20% reduction, applicable to all directors as previously approved by the Board in response to the business and economic changes arising out of the novel coronavirus (COVID-19) pandemic.
The Company issued a press release announcing the appointment of Ms. Tretikov and Mr. Yadav to the Board, which is attached as Exhibit 99.1.
| Item 9.01 | Financial Statements and Exhibits | ||||
(d) Exhibits.
Exhibit No. | Description | ||||
| Press Release issued by Xylem Inc. on July 30, 2020. | |||||
| 104.0 | The cover page from Xylem Inc.'s Form 8-K, formatted in Inline XBRL. | ||||
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: July 30, 2020 | By: | /s/ E. Mark Rajkowski | ||||||||||||
| E. Mark Rajkowski | ||||||||||||||
Senior Vice President & Chief Financial Officer (Authorized Officer of Registrant) | ||||||||||||||
Exhibit 99.1
Xylem Inc.
1 International Drive, Rye Brook N.Y. 10573
Tel +1.914.323.5700 Fax +1.914.323.5752
| Contacts: | Media | Investors | ||||||||||||
| Houston Spencer +1 (914) 323-5723 | Matt Latino +1 (914) 323-5821 | |||||||||||||
Houston.Spencer@xyleminc.com | Matthew.Latino@xyleminc.com | |||||||||||||
Xylem Reports Second Quarter 2020 Results,
Appoints Two New Board Members
•Reported net income of $31 million or $0.17 per share; adjusted net income of $73 million or $0.40 per share
•Revenue declined 14% on a reported basis, and 12% organically, impacted by COVID-19
•Strong cash performance with free cash flow of $137 million, up 117%; and operating cash flow of $181 million, up 47%
RYE BROOK, N.Y., July 30, 2020 – Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported second quarter 2020 net income of $31 million, or $0.17 per share. Excluding the impact of restructuring, realignment and special charges, the Company delivered adjusted net income of $73 million or $0.40 per share in the quarter.
Second quarter revenue was $1.2 billion, down 14 percent on a reported basis and 12 percent organically, declining less than previously expected primarily driven by the resilience of the wastewater utility business. Orders were down 11 percent on a reported basis and 9 percent, organically. Reported operating margin in the quarter was 4.7 percent, down 800 basis points versus the prior year. Adjusted operating margin was 9.3 percent, down 500 basis points compared to the prior year. Both were driven largely by the pandemic’s impact on volume in the quarter.
Xylem ended the quarter with $181 million of operating cash flow, and $137 million of free cash flow, more than doubling from the prior year, driven by strong working capital performance and reduced capital spending. The Company’s liquidity remains strong, at approximately $2.4 billion from healthy cash generation and issuance of a $1 billion green bond in June.
“The quick action from our teams in the first and second quarters allowed us to adapt swiftly, and positioned us well to mitigate the near-term impacts of the pandemic,” said Patrick Decker, Xylem’s president and CEO. “Our financial and supply chain strengths have enabled us to stand behind our customers and the essential services they have been delivering during the pandemic to the communities we all serve.”
“Clearly, there are still near-term market challenges and macro uncertainty. That said, we are optimistic on the basis of modestly improving trajectories in some of our key markets,” continued Decker. “We’ve delivered significant commercial momentum alongside very strong cash
performance. And we are well positioned both to be resilient in a range of short-term scenarios, and to capitalize on the market’s recovery over the longer term.”
Outlook
Xylem withdrew 2020 guidance earlier this year due to the uncertainties caused by COVID-19. The Company is not reinstating full-year guidance, but is providing a framework for the third quarter which includes expectation that organic revenue will be down in the range of 8 to 12 percent – down 10 to 14 percent on a reported basis – and adjusted operating margin will be in the range of 11.0 percent to 11.5 percent. This represents sequential improvement in both organic revenue and adjusted operating margin from the second quarter to the third quarter.
Appointments to Board of Directors
Xylem also announced that Lila Tretikov and Uday Yadav have been elected to the Company’s Board of Directors.
Ms. Tretikov currently serves as corporate vice president of technology in the Office of the CTO at Microsoft Corporation. In that role, she applies a cross-disciplinary approach to the development and commercialization of advanced-technology products that apply innovation to solve complex problems.
Mr. Yadav is the president and chief operating officer of Eaton's Electrical Sector, which reported $13.3 billion in revenue for 2019. He brings over 20 years of international and industrial experience and global P&L leadership serving diverse sectors including heavy industry, aerospace, and automotive. He has deep experience in deploying new product and service solutions, and developing new business models.
“We are pleased to welcome Lila and Uday to the Board of Directors,” said Robert Friel, chair of Xylem’s Board. “Both have outstanding leadership experience and global perspectives that are complimentary to the Board. Lila’s background in technology and innovation will add insights to the Company’s focus on the digital transformation of the water sector. Uday combines operational discipline with expertise in industrial transformation across international markets. We look forward to working with both of them as we continue to grow the company and create value for our shareholders.”
Further commenting on the appointments, Decker added, “In addition to their outstanding qualifications, Lila and Uday’s appointments further deepen the diversity of our Board, which is important to the long-term sustainability of our business. All of Xylem’s stakeholders will benefit from Lila and Uday’s rich experience as we bring innovation to bear on solving the world’s toughest water challenges.”
Second Quarter Segment Results
Water Infrastructure
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving wastewater transport and treatment, clean water delivery, and dewatering.
•Second quarter 2020 revenue was $501 million, down 8 percent organically, and down 11 percent as reported, compared with second quarter 2019. Utilities spending in critical
wastewater infrastructure remained relatively resilient in the quarter, offset by soft industrial and construction market rental activity in North America dewatering.
•Second quarter reported operating income for the segment was $73 million. Adjusted operating income for the segment, which excludes $8 million of restructuring and realignment costs, was $81 million. Reported operating margin for the segment was 14.6 percent, down 290 basis points versus prior year. Adjusted operating margins of 16.2 percent were down 290 basis points versus prior year from lower sales volume, unfavorable mix and higher inflation partially offset by productivity benefits.
Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in industrial, commercial building, and residential applications.
•Second quarter 2020 revenue was $337 million, a 13 percent decline organically year-over-year, a 14 percent decline as reported, driven by volume weakness across industrial, commercial and residential end markets from COVID-19 related site restrictions and limited activity levels primarily in the United States.
•Second quarter reported operating income for the segment was $41 million and adjusted operating income, which excludes $4 million of restructuring and realignment costs, was $45 million. The segment’s reported operating margin was 12.2 percent, down 350 basis points versus prior year, and adjusted operating margin was 13.4 percent, down 340 basis points versus prior year. Volume declines and inflation were partially offset by productivity benefits and price realization.
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.
•Second quarter 2020 revenue was $322 million, down 17 percent organically and as reported versus the prior year driven by significant impacts from COVID-19 site restrictions delaying large project deployments and meter replacement activity.
•Reported operating income for the segment was negative $46 million, and adjusted operating income, which excludes $31 million of restructuring and realignment costs and $10 million of special charges, was negative 5 million. The segment reported operating margin was -14.3 percent, down 21 percent versus prior year. Adjusted operating margin contracted to -1.6 percent, down 10.3 percent from prior year primarily driven by volume declines which were partly offset by cost reductions.
Supplemental information on Xylem’s first quarter 2020 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.
###
About Lila Tretikov
Lila Tretikov is a corporate vice president of technology in the Office of the CTO at Microsoft Corporation, and a leading expert on artificial intelligence and business transformation. She brings a diverse background of business, technology, design, and policy. In her role at Microsoft, Lila applies a cross-disciplinary approach to creating solutions that address some of the world's most challenging problems and empower humanity through technology.
Prior to Microsoft, Tretikov was chief executive officer of Terrawatt and senior vice president of Engie, a global organization based in France, with a mission to alter the Earth's ecology through energy transition to CO2-negative systems. She was also chief executive of Wikimedia Foundation, an organization supporting Wikipedia. She has authored numerous patents and articles in the field of technology-enabled business transformations. She previously served on the Board of Rackspace, a publicly traded cloud technology company, and several private companies.
Tretikov attended Moscow State Lomonosov University, where she studied Mathematics, and the University of California, Berkeley, where she studied Artificial Intelligence and Visual Art.
About Uday Yadav
Uday Yadav is president and chief operating officer, Electrical Sector, for Eaton, a power management company. In this role, Yadav is responsible for the company’s global electrical business and has corporate responsibility for Eaton’s Europe, Middle East and Africa region. Previously, Yadav served as president and chief operating officer of the company’s Industrial Sector and had corporate responsibility for the company’s operations in the Asia Pacific, Central and South American regions.
Since joining Eaton in 1999, Yadav has held leadership positions in all of Eaton’s operating groups, as well as corporate-wide roles. He has served as president of Eaton’s Aerospace segment; executive vice president, Eaton Business System; president, Hydraulics - Asia Pacific; vice president of Supply Chain Management for the Fluid Power Group; local managing director for Eaton in India; and held in-market roles based in China, Europe and the United States. Prior to joining Eaton, Yadav worked with Lucas Engineering and Systems and Aeroquip Vickers, based in the UK.
Yadav holds a double degree with honors in engineering and business from Nottingham Trent University in the United Kingdom.
About Xylem
Xylem (XYL) is a leading global water technology company committed to solving critical water and infrastructure challenges with technological innovation. Our more than 16,000 diverse employees delivered revenue of $5.25 billion in 2019. We are creating a more sustainable world by enabling our customers to optimize water and resource management, and helping communities in more than 150 countries become water-secure. Join us at www.xylem.com.
Forward-Looking Statements
This press release contains information that may constitute “forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “contemplate,” “predict,” “forecast,” “believe,” “target,” “will,” “could,” “would,” “should,” “potential,” “may” and similar expressions identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These forward-looking statements include any statements that are not historical in nature, including any 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. Many of these risks and uncertainties are currently amplified by and may continue to be amplified by, or in the future may be amplified by, the novel coronavirus (“COVID-19”) pandemic.
Factors that could cause results to differ materially from those anticipated include: overall economic and business conditions; uncertainty of the magnitude, duration, geographic reach and impact on the global economy of the COVID-19 pandemic; the current, and uncertain future, impact of the COVID-19 pandemic on our business, growth, projections, financial condition, operations, cash flows, and liquidity, including the impact of adverse economic conditions caused by the COVID-19 pandemic on our performance or customer markets; actual or potential other epidemics, pandemics or global health crises; geopolitical and other risks associated with our international operations, including military actions, protectionism, economic sanctions or trade barriers including tariffs and embargoes that could affect customer markets and our business, and non-compliance with laws, including foreign corrupt practice laws, data privacy, 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; disruption, competition and pricing pressures in the markets we serve; industrial, governmental and private sector spending; the strength of housing and related markets; weather conditions; ability to retain and attract talent and key members of management; our relationship with and the performance of our supply chain including 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; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; changes in the value of goodwill or intangible assets; the preliminary nature of our cost and savings estimates related to restructuring, realignment and related charges, including the timing of such charges and savings, which are subject to change as the Company makes decisions and refines estimates over time; timing delays in implementing restructuring, realignment and strategic initiatives; our ability to realize all of the cost savings anticipated in connection with restructuring and realignment; management and employee distraction resulting from restructuring actions; our ability to continue making strategic investments for growth; risks relating to product defects, product security, product liability and recalls; claims or investigations by governmental or regulatory bodies; cybersecurity attacks, breaches or other disruptions of information technology systems on which we rely; our sustainability initiatives; the anticipated use of proceeds from our green bond offering, including any failure to allocate the net proceeds to eligible green projects, or to meet or continue to meet the investment requirements of certain environmentally focused investors; litigation and contingent liabilities; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, “Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in subsequent filings we have made or may make with the Securities and Exchange Commission. All forward-looking statements made herein are based on information currently available to the Company as of the date of this press release. 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 | Six Months | ||||||||||||||||||||||
| For the period ended June 30, | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Revenue | $ | 1,160 | $ | 1,345 | $ | 2,283 | $ | 2,582 | |||||||||||||||
| Cost of revenue | 726 | 819 | 1,440 | 1,582 | |||||||||||||||||||
| Gross profit | 434 | 526 | 843 | 1,000 | |||||||||||||||||||
| Selling, general and administrative expenses | 288 | 294 | 585 | 597 | |||||||||||||||||||
| Research and development expenses | 44 | 47 | 93 | 98 | |||||||||||||||||||
| Restructuring and asset impairment charges | 48 | 14 | 50 | 25 | |||||||||||||||||||
| Operating income | 54 | 171 | 115 | 280 | |||||||||||||||||||
| Interest expense | 18 | 18 | 34 | 36 | |||||||||||||||||||
| Other non-operating (expense) income, net | (1) | 3 | (4) | 5 | |||||||||||||||||||
| Gain from sale of business | — | — | — | 1 | |||||||||||||||||||
| Income before taxes | 35 | 156 | 77 | 250 | |||||||||||||||||||
| Income tax expense | 4 | 17 | 8 | 32 | |||||||||||||||||||
| Net income | $ | 31 | $ | 139 | $ | 69 | $ | 218 | |||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 0.17 | $ | 0.77 | $ | 0.38 | $ | 1.21 | |||||||||||||||
| Diluted | $ | 0.17 | $ | 0.77 | $ | 0.38 | $ | 1.20 | |||||||||||||||
| Weighted average number of shares: | |||||||||||||||||||||||
| Basic | 180.0 | 180.0 | 180.1 | 179.9 | |||||||||||||||||||
| Diluted | 180.6 | 181.2 | 181.0 | 181.1 | |||||||||||||||||||
XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
| June 30, 2020 | December 31, 2019 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,577 | $ | 724 | |||||||
| Receivables, less allowances for discounts, returns and doubtful accounts of $35 and $35 in 2020 and 2019, respectively | 956 | 1,036 | |||||||||
| Inventories | 595 | 539 | |||||||||
| Prepaid and other current assets | 173 | 151 | |||||||||
| Total current assets | 3,301 | 2,450 | |||||||||
| Property, plant and equipment, net | 635 | 658 | |||||||||
| Goodwill | 2,820 | 2,839 | |||||||||
| Other intangible assets, net | 1,108 | 1,174 | |||||||||
| Other non-current assets | 580 | 589 | |||||||||
| Total assets | $ | 8,444 | $ | 7,710 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 498 | $ | 597 | |||||||
| Accrued and other current liabilities | 663 | 628 | |||||||||
| Short-term borrowings and current maturities of long-term debt | 212 | 276 | |||||||||
| Total current liabilities | 1,373 | 1,501 | |||||||||
| Long-term debt | 3,031 | 2,040 | |||||||||
| Accrued postretirement benefits | 446 | 445 | |||||||||
| Deferred income tax liabilities | 304 | 310 | |||||||||
| Other non-current accrued liabilities | 425 | 447 | |||||||||
| Total liabilities | 5,579 | 4,743 | |||||||||
| Stockholders’ equity: | |||||||||||
| Common Stock – par value $0.01 per share: | |||||||||||
| Authorized 750.0 shares, issued 194.5 shares and 193.9 shares in 2020 and 2019, respectively | 2 | 2 | |||||||||
| Capital in excess of par value | 2,012 | 1,991 | |||||||||
| Retained earnings | 1,838 | 1,866 | |||||||||
| Treasury stock – at cost 14.5 shares and 13.7 shares in 2020 and 2019, respectively | (587) | (527) | |||||||||
| Accumulated other comprehensive loss | (409) | (375) | |||||||||
| Total stockholders’ equity | 2,856 | 2,957 | |||||||||
| Non-controlling interest | 9 | 10 | |||||||||
| Total equity | 2,865 | 2,967 | |||||||||
| Total liabilities and stockholders’ equity | $ | 8,444 | $ | 7,710 | |||||||
XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
| For the six months ended June 30, | 2020 | 2019 | |||||||||
| Operating Activities | |||||||||||
| Net income | $ | 69 | $ | 218 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | 58 | 58 | |||||||||
| Amortization | 68 | 69 | |||||||||
| Share-based compensation | 16 | 16 | |||||||||
| Restructuring and asset impairment charges | 50 | 25 | |||||||||
| Gain from sale of business | — | (1) | |||||||||
| Other, net | 18 | 4 | |||||||||
| Payments for restructuring | (12) | (12) | |||||||||
| Changes in assets and liabilities (net of acquisitions): | |||||||||||
| Changes in receivables | 48 | (68) | |||||||||
| Changes in inventories | (63) | (10) | |||||||||
| Changes in accounts payable | (86) | (23) | |||||||||
| Other, net | 13 | (70) | |||||||||
| Net Cash – Operating activities | 179 | 206 | |||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (95) | (129) | |||||||||
| Acquisition of businesses, net of cash acquired | — | (18) | |||||||||
| Proceeds from sale of business | — | (2) | |||||||||
| Other, net | 7 | 3 | |||||||||
| Net Cash – Investing activities | (88) | (146) | |||||||||
| Financing Activities | |||||||||||
| Short-term debt issued, net | 359 | 257 | |||||||||
| Short-term debt repaid | (422) | (113) | |||||||||
| Long-term debt issued, net | 987 | — | |||||||||
| Repurchase of common stock | (60) | (39) | |||||||||
| Proceeds from exercise of employee stock options | 5 | 8 | |||||||||
| Dividends paid | (95) | (87) | |||||||||
| Other, net | — | (1) | |||||||||
| Net Cash – Financing activities | 774 | 25 | |||||||||
| Effect of exchange rate changes on cash | (12) | 2 | |||||||||
| Net change in cash and cash equivalents | 853 | 87 | |||||||||
| Cash and cash equivalents at beginning of year | 724 | 296 | |||||||||
| Cash and cash equivalents at end of period | $ | 1,577 | $ | 383 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | 45 | $ | 45 | |||||||
| Income taxes (net of refunds received) | $ | 11 | $ | 74 | |||||||
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 items to represent the non-GAAP measures we consider to be key performance indicators, as well as the related reconciling items to the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures may not be comparable to similarly titled measures reported by other companies.
“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, 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, net income and earnings per share, adjusted to exclude restructuring and realignment costs, gain or loss from sale of businesses, special charges and tax-related special items, as applicable.
"Adjusted Operating Margin" and "Adjusted Segment Operating Margin" defined as adjusted operating income and adjusted segment operating income divided by total revenue and segment revenue, respectively.
“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures, and "Free Cash Flow Conversion" defined as Free Cash Flow divided by net income, excluding the gain on sale of businesses and non-cash impairment charges. Our definitions of "free cash flow" and "free cash flow conversion" does not consider certain non-discretionary cash payments, such as debt.
“Realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
“Special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges and other special non-operating items, such as pension adjustments.
“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments.
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Orders
($ Millions)
| (As Reported - GAAP) | (As Adjusted - Organic) | Constant Currency | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (A) | (B) | (C) | (D) | (E)=B+C+D | (F) = E/A | (G) = (E - C) / A | |||||||||||||||||||||||||||||||||||||||||||||||
| Orders | Orders | Change 2020 v. 2019 | % Change 2020 v. 2019 | Acquisitions/ Divestitures | FX Impact | Change Adj. 2020 v. 2019 | % Change Adj. 2020 v. 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Xylem Inc. | 2,493 | 2,707 | (214) | -8 | % | — | 59 | (155) | -6 | % | -6 | % | |||||||||||||||||||||||||||||||||||||||||
| Water Infrastructure | 1,112 | 1,118 | (6) | -1 | % | — | 42 | 36 | 3 | % | 3 | % | |||||||||||||||||||||||||||||||||||||||||
| Applied Water | 698 | 793 | (95) | -12 | % | — | 10 | (85) | -11 | % | -11 | % | |||||||||||||||||||||||||||||||||||||||||
| Measurement & Control Solutions | 683 | 796 | (113) | -14 | % | — | 7 | (106) | -13 | % | -13 | % | |||||||||||||||||||||||||||||||||||||||||
| Quarter Ended June 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Xylem Inc. | 1,232 | 1,392 | (160) | -11 | % | — | 36 | (124) | -9 | % | -9 | % | |||||||||||||||||||||||||||||||||||||||||
| Water Infrastructure | 598 | 586 | 12 | 2 | % | — | 27 | 39 | 7 | % | 7 | % | |||||||||||||||||||||||||||||||||||||||||
| Applied Water | 326 | 399 | (73) | -18 | % | — | 6 | (67) | -17 | % | -17 | % | |||||||||||||||||||||||||||||||||||||||||
| Measurement & Control Solutions | 308 | 407 | (99) | -24 | % | — | 3 | (96) | -24 | % | -24 | % | |||||||||||||||||||||||||||||||||||||||||
| Quarter Ended March 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Xylem Inc. | 1,261 | 1,315 | (54) | -4 | % | — | 23 | (31) | -2 | % | -2 | % | |||||||||||||||||||||||||||||||||||||||||
| Water Infrastructure | 514 | 532 | (18) | -3 | % | — | 15 | (3) | -1 | % | -1 | % | |||||||||||||||||||||||||||||||||||||||||
| Applied Water | 372 | 394 | (22) | -6 | % | — | 4 | (18) | -5 | % | -5 | % | |||||||||||||||||||||||||||||||||||||||||
| Measurement & Control Solutions | 375 | 389 | (14) | -4 | % | — | 4 | (10) | -3 | % | -3 | % | |||||||||||||||||||||||||||||||||||||||||
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 2020 v. 2019 | % Change 2020 v. 2019 | Acquisitions / Divestitures | FX Impact | Change Adj. 2020 v. 2019 | % Change Adj. 2020 v. 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Xylem Inc. | 2,283 | 2,582 | (299) | -12 | % | — | 44 | (255) | -10 | % | -10 | % | |||||||||||||||||||||||||||||||||||||||||
| Water Infrastructure | 939 | 1,043 | (104) | -10 | % | — | 28 | (76) | -7 | % | -7 | % | |||||||||||||||||||||||||||||||||||||||||
| Applied Water | 675 | 773 | (98) | -13 | % | — | 9 | (89) | -12 | % | -12 | % | |||||||||||||||||||||||||||||||||||||||||
| Measurement & Control Solutions | 669 | 766 | (97) | -13 | % | — | 7 | (90) | -12 | % | -12 | % | |||||||||||||||||||||||||||||||||||||||||
| Quarter Ended June 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Xylem Inc. | 1,160 | 1,345 | (185) | -14 | % | — | 25 | (160) | -12 | % | -12 | % | |||||||||||||||||||||||||||||||||||||||||
| Water Infrastructure | 501 | 561 | (60) | -11 | % | — | 16 | (44) | -8 | % | -8 | % | |||||||||||||||||||||||||||||||||||||||||
| Applied Water | 337 | 394 | (57) | -14 | % | — | 6 | (51) | -13 | % | -13 | % | |||||||||||||||||||||||||||||||||||||||||
| Measurement & Control Solutions | 322 | 390 | (68) | -17 | % | — | 3 | (65) | -17 | % | -17 | % | |||||||||||||||||||||||||||||||||||||||||
| Quarter Ended March 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Xylem Inc. | 1,123 | 1,237 | (114) | -9 | % | — | 19 | (95) | -8 | % | -8 | % | |||||||||||||||||||||||||||||||||||||||||
| Water Infrastructure | 438 | 482 | (44) | -9 | % | — | 12 | (32) | -7 | % | -7 | % | |||||||||||||||||||||||||||||||||||||||||
| Applied Water | 338 | 379 | (41) | -11 | % | — | 3 | (38) | -10 | % | -10 | % | |||||||||||||||||||||||||||||||||||||||||
| Measurement & Control Solutions | 347 | 376 | (29) | -8 | % | — | 4 | (25) | -7 | % | -7 | % | |||||||||||||||||||||||||||||||||||||||||
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
| Q1 | Q2 | YTD | |||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Total Revenue | |||||||||||||||||||||||||||||||||||
| • Total Xylem | 1,123 | 1,237 | 1,160 | 1,345 | 2,283 | 2,582 | |||||||||||||||||||||||||||||
| • Water Infrastructure | 438 | 482 | 501 | 561 | 939 | 1,043 | |||||||||||||||||||||||||||||
| • Applied Water | 338 | 379 | 337 | 394 | 675 | 773 | |||||||||||||||||||||||||||||
| • Measurement & Control Solutions | 347 | 376 | 322 | 390 | 669 | 766 | |||||||||||||||||||||||||||||
| Operating Income | |||||||||||||||||||||||||||||||||||
| • Total Xylem | 61 | 109 | 54 | 171 | 115 | 280 | |||||||||||||||||||||||||||||
| • Water Infrastructure | 39 | 51 | 73 | 98 | 112 | 149 | |||||||||||||||||||||||||||||
| • Applied Water | 47 | 56 | 41 | 62 | 88 | 118 | |||||||||||||||||||||||||||||
| • Measurement & Control Solutions | (12) | 16 | (46) | 26 | (58) | 42 | |||||||||||||||||||||||||||||
| • Total Segments | 74 | 123 | 68 | 186 | 142 | 309 | |||||||||||||||||||||||||||||
| Operating Margin | |||||||||||||||||||||||||||||||||||
| • Total Xylem | 5.4 | % | 8.8 | % | 4.7 | % | 12.7 | % | 5.0 | % | 10.8 | % | |||||||||||||||||||||||
| • Water Infrastructure | 8.9 | % | 10.6 | % | 14.6 | % | 17.5 | % | 11.9 | % | 14.3 | % | |||||||||||||||||||||||
| • Applied Water | 13.9 | % | 14.8 | % | 12.2 | % | 15.7 | % | 13.0 | % | 15.3 | % | |||||||||||||||||||||||
| • Measurement & Control Solutions | (3.5) | % | 4.3 | % | (14.3) | % | 6.7 | % | (8.7) | % | 5.5 | % | |||||||||||||||||||||||
| • Total Segments | 6.6 | % | 9.9 | % | 5.9 | % | 13.8 | % | 6.2 | % | 12.0 | % | |||||||||||||||||||||||
| Special Charges | |||||||||||||||||||||||||||||||||||
| • Total Xylem | — | 4 | 11 | — | 11 | 4 | |||||||||||||||||||||||||||||
| • Water Infrastructure | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| • Applied Water | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| • Measurement & Control Solutions | — | 4 | 10 | — | 10 | 4 | |||||||||||||||||||||||||||||
| • Total Segments | — | 4 | 10 | — | 10 | 4 | |||||||||||||||||||||||||||||
| Restructuring & Realignment Costs | |||||||||||||||||||||||||||||||||||
| • Total Xylem | 9 | 20 | 43 | 21 | 52 | 41 | |||||||||||||||||||||||||||||
| • Water Infrastructure | 5 | 9 | 8 | 9 | 13 | 18 | |||||||||||||||||||||||||||||
| • Applied Water | 2 | 3 | 4 | 4 | 6 | 7 | |||||||||||||||||||||||||||||
| • Measurement & Control Solutions | 2 | 8 | 31 | 8 | 33 | 16 | |||||||||||||||||||||||||||||
| • Total Segments | 9 | 20 | 43 | 21 | 52 | 41 | |||||||||||||||||||||||||||||
| Adjusted Operating Income | |||||||||||||||||||||||||||||||||||
| • Total Xylem | 70 | 133 | 108 | 192 | 178 | 325 | |||||||||||||||||||||||||||||
| • Water Infrastructure | 44 | 60 | 81 | 107 | 125 | 167 | |||||||||||||||||||||||||||||
| • Applied Water | 49 | 59 | 45 | 66 | 94 | 125 | |||||||||||||||||||||||||||||
| • Measurement & Control Solutions | (10) | 28 | (5) | 34 | (15) | 62 | |||||||||||||||||||||||||||||
| • Total Segments | 83 | 147 | 121 | 207 | 204 | 354 | |||||||||||||||||||||||||||||
| Adjusted Operating Margin | |||||||||||||||||||||||||||||||||||
| • Total Xylem | 6.2 | % | 10.8 | % | 9.3 | % | 14.3 | % | 7.8 | % | 12.6 | % | |||||||||||||||||||||||
| • Water Infrastructure | 10.0 | % | 12.4 | % | 16.2 | % | 19.1 | % | 13.3 | % | 16.0 | % | |||||||||||||||||||||||
| • Applied Water | 14.5 | % | 15.6 | % | 13.4 | % | 16.8 | % | 13.9 | % | 16.2 | % | |||||||||||||||||||||||
| • Measurement & Control Solutions | (2.9) | % | 7.4 | % | (1.6) | % | 8.7 | % | (2.2) | % | 8.1 | % | |||||||||||||||||||||||
| • Total Segments | 7.4 | % | 11.9 | % | 10.4 | % | 15.4 | % | 8.9 | % | 13.7 | % | |||||||||||||||||||||||
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
| Q2 2020 | Q2 2019 | ||||||||||||||||||||||||||||||||||
| As Reported | Adjustments | Adjusted | As Reported | Adjustments | Adjusted | ||||||||||||||||||||||||||||||
| Total Revenue | 1,160 | — | 1,160 | 1,345 | — | 1,345 | |||||||||||||||||||||||||||||
| Operating Income | 54 | 54 | a | 108 | 171 | 21 | a | 192 | |||||||||||||||||||||||||||
| Operating Margin | 4.7 | % | 9.3 | % | 12.7 | % | 14.3 | % | |||||||||||||||||||||||||||
| Interest Expense | (18) | — | (18) | (18) | — | (18) | |||||||||||||||||||||||||||||
| Other Non-Operating Income (Expense) | (1) | 2 | b | 1 | 3 | — | 3 | ||||||||||||||||||||||||||||
| Income before Taxes | 35 | 56 | 91 | 156 | 21 | 177 | |||||||||||||||||||||||||||||
| Provision for Income Taxes | (4) | (14) | c | (18) | (17) | (17) | c | (34) | |||||||||||||||||||||||||||
| Net Income attributable to Xylem | 31 | 42 | 73 | 139 | 4 | 143 | |||||||||||||||||||||||||||||
| Diluted Shares | 180.6 | 180.6 | 181.2 | 181.2 | |||||||||||||||||||||||||||||||
| Diluted EPS | $ | 0.17 | $ | 0.23 | $ | 0.40 | $ | 0.77 | $ | 0.02 | $ | 0.79 | |||||||||||||||||||||||
| Year-over-year currency translation impact on current year diluted EPS | $ | (0.01) | $ | — | $ | (0.01) | |||||||||||||||||||||||||||||
| Diluted EPS at Constant Currency | $ | 0.18 | $ | 0.23 | $ | 0.41 | |||||||||||||||||||||||||||||
| Q2 YTD 2020 | Q2 YTD 2019 | ||||||||||||||||||||||||||||||||||
| As Reported | Adjustments | Adjusted | As Reported | Adjustments | Adjusted | ||||||||||||||||||||||||||||||
| Total Revenue | 2,283 | — | 2,283 | 2,582 | — | 2,582 | |||||||||||||||||||||||||||||
| Operating Income | 115 | 63 | a | 178 | 280 | 45 | a | 325 | |||||||||||||||||||||||||||
| Operating Margin | 5.0 | % | 7.8 | % | 10.8 | % | 12.6 | % | |||||||||||||||||||||||||||
| Interest Expense | (34) | — | (34) | (36) | — | (36) | |||||||||||||||||||||||||||||
| Other Non-Operating Income (Expense) | (4) | 3 | b | (1) | 5 | — | 5 | ||||||||||||||||||||||||||||
| Gain/(Loss) from sale of business | — | — | — | 1 | (1) | — | |||||||||||||||||||||||||||||
| Income before Taxes | 77 | 66 | 143 | 250 | 44 | 294 | |||||||||||||||||||||||||||||
| Provision for Income Taxes | (8) | (20) | c | (28) | (32) | (25) | c | (57) | |||||||||||||||||||||||||||
| Net Income attributable to Xylem | 69 | 46 | 115 | 218 | 19 | 237 | |||||||||||||||||||||||||||||
| Diluted Shares | 181.0 | 181.0 | 181.1 | 181.1 | |||||||||||||||||||||||||||||||
| Diluted EPS | $ | 0.38 | $ | 0.25 | $ | 0.63 | $ | 1.20 | $ | 0.11 | $ | 1.31 | |||||||||||||||||||||||
| Year-over-year currency translation impact on current year diluted EPS | $ | (0.02) | $ | (0.01) | $ | (0.03) | |||||||||||||||||||||||||||||
| Diluted EPS at Constant Currency | $ | 0.40 | $ | 0.26 | $ | 0.66 | |||||||||||||||||||||||||||||
| a | Quarter-to-date: Restructuring & realignment costs of $43 million in 2020 and $21 million in 2019.; special charges of $11 million ($10 million of intangible asset impairment charges and $1 million of other charges) in 2020. | ||||
| Year-to-date: Restructuring & realignment costs of $52 million and $41 million in 2020 and 2019, respectively; special charges of $11 million ($10 million of intangible asset impairment charges and $1 million of other charges) and $4 million of special charges in 2019 ($1 million of acquisition related costs and $3 million of asset impairment). | |||||
| b | Special charges consist of pension costs related to the UK pension plan that has been transferred to an annuity in 2020 as part of the planned buyout activities. | ||||
| c | Quarter-to-date: Net tax impact on restructuring & realignment costs of $10 million and $4 million in 2020 and 2019, respectively; $3 million of tax on special charges in 2020; and $1 million and $13 million of negative impact from tax related special benefit adjustments in 2020 and 2019, respectively. | ||||
| Year-to-date: Net tax impact on restructuring & realignment costs of $12 million and $8 million in 2020 and 2019, respectively; $3 million of tax impact on special charges in 2020; and $5 million and $17 million of negative impact from tax related special benefit adjustments in 2020 and 2019, respectively. | |||||
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
| Q1 | Q2 | Year-to-Date | |||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Net Cash - Operating Activities | $ | (2) | $ | 83 | $ | 181 | $ | 123 | $ | 179 | $ | 206 | |||||||||||||||||||||||
| Capital Expenditures - PP&E | (32) | (53) | (24) | (40) | (56) | (93) | |||||||||||||||||||||||||||||
| Capital Expenditures - Software | (19) | (16) | (20) | (20) | (39) | (36) | |||||||||||||||||||||||||||||
| Capital Expenditures | (51) | (69) | (44) | (60) | (95) | (129) | |||||||||||||||||||||||||||||
| Free Cash Flow | $ | (53) | $ | 14 | $ | 137 | $ | 63 | $ | 84 | $ | 77 | |||||||||||||||||||||||
| Net Income | 38 | 79 | 31 | 139 | 69 | 218 | |||||||||||||||||||||||||||||
| Gain/(Loss) from sale of businesses | — | 1 | — | — | — | 1 | |||||||||||||||||||||||||||||
| Restructuring Charges - non-cash impairment | — | — | (17) | — | (17) | — | |||||||||||||||||||||||||||||
| Special Charges - non-cash impairment | — | (3) | (10) | — | (10) | (3) | |||||||||||||||||||||||||||||
| Net Income, excluding gain on sale of businesses and non-cash impairment charges | $ | 38 | $ | 81 | $ | 58 | $ | 139 | $ | 96 | $ | 220 | |||||||||||||||||||||||
| Operating Cash Flow Conversion | (5) | % | 105 | % | 584 | % | 88 | % | 259 | % | 94 | % | |||||||||||||||||||||||
| Free Cash Flow Conversion | (139) | % | 17 | % | 236 | % | 45 | % | 88 | % | 35 | % | |||||||||||||||||||||||