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): November 1, 2012

 

 

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.)
1133 Westchester Avenue, Suite N200 White Plains, New York 10604
(Address of principle executive offices, including zip code)

(914) 323-5700

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(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))

 

 

 

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Item 2.02

Results of Operations and Financial Condition

Attached hereto as Exhibit 99.1 and incorporated herein by reference is the news release issued by Xylem Inc. on November 1, 2012, announcing the financial results for the quarter ended September 30, 2012. 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 (the “Securities Act”), or the Exchange Act.

 

Item 7.01

Regulation FD Disclosure

Attached hereto as Exhibit 99.2 and incorporated herein by reference are earnings slides posted on Xylem Inc.’s website on November 1, 2012, summarizing Xylem Inc.’s financial results for the quarter ended September 30, 2012. This information is furnished pursuant to Item 7.01 Regulation FD Disclosure. This information shall not be deemed filed for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.		Description
99.1		News Release issued by Xylem Inc. on November 1, 2012.
99.2		Slides summarizing third quarter financial results posted by Xylem Inc. on November 1, 2012.

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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: November 1, 2012				By:		/s/ Michael T. Speetzen
						Michael T. Speetzen
						Senior Vice President and Chief Financial Officer
						(Authorized Officer of Registrant)

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		News Release issued by Xylem Inc. on November 1, 2012.
99.2		Slides summarizing third quarter financial results posted by Xylem Inc. on November 1, 2012.

Exhibit 99.1

 

Xylem

1133 Westchester Ave., White Plains, NY 10604

Tel +1.914.323.5700 Fax +1.914.696.2960

FOR IMMEDIATE RELEASE

 

Contacts:
Media Tom Glover +1-914-323-5891 Tom.Glover@xyleminc.com		Investors Phil De Sousa +1-914-323-5930 Phil.DeSousa@xyleminc.com

Xylem Inc. reports third quarter 2012 results

Third quarter adjusted net income was $83 million or $0.44 per share; $72 million or $0.38 per share as reported

Third quarter revenue up 3 percent in constant currencies to $931 million; down 1 percent as reported on negative impact of currency translation; emerging market revenue up 9 percent in constant currencies

Gross margin climbs 130 basis points to 40.2 percent as Customer Excellence and cost reduction initiatives drive profitability; adjusted operating margin was 12.9 percent

Company completes second acquisition in 2012 with the purchase of Heartland Pump, bolstering industrial dewatering portfolio

WHITE PLAINS, N.Y., November 1, 2012 – Xylem Inc. (NYSE: XYL), a leading global water technology company focused on solving the world’s most challenging water issues, today reported third quarter revenue of $931 million, up 3 percent on a constant currency basis, down 1 percent as reported from the third quarter 2011. Third quarter net income was $72 million or $0.38 per share, down $0.04 per share from the same period last year. Adjusting for one-time separation costs resulting from the Xylem spinoff from ITT Corporation on October 31, 2011, and special items, net income was $83 million or $0.44 per share, down $0.01 per share over the third quarter 2011 on a normalized basis.*

“As we mark our first anniversary as a stand-alone water company, our performance showcases both the strength of our global portfolio, with 9 percent constant currency revenue growth in the emerging markets, and our strategic focus on margin expansion through the execution of our Customer Excellence sales initiative and cost discipline,” said Gretchen McClain, President and Chief Executive Officer of Xylem. “We’re also seeing the benefit of our investments in acquisitions. Just last week we completed the purchase of Heartland Pump, which expands our

 

*

The 2011 normalized earnings per share reflect adjustments (including interest expense, stand-alone costs, and special tax items) to our GAAP results to better illustrate year-over-year performance. The normalized earnings are intended to give a representation of our performance had Xylem been a stand-alone company in 2011.

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U.S. reach in dewatering rental and service, and grows our presence in industrial markets. And our two other recent acquisitions, YSI and MJK Automation, both continue to perform well and help establish our Analytics business as a long-term growth platform.”

McClain said the company continues to move forward with restructuring and realignment initiatives, and now foresees approximately $20 million in aggregated costs during 2012 to position the business for future growth. The company maintains its outlook for full-year 2012 revenue of $3.8 billion, and has revised the mid-point of its 2012 earnings guidance to $1.76 from $1.77 per share to reflect the $0.01 per share dilutive impact of the Heartland Pump acquisition.

Business Segment Results

Water Infrastructure

Xylem’s Water Infrastructure businesses provide equipment and services focused on the transport, treatment and testing of water and wastewater in the public utility and industrial markets.

 

•

Third quarter 2012 segment revenue was $595 million, up 7 percent in constant currencies, and up 2 percent as reported, with growth in public utility activity in all regions more than offsetting weakness in industrial.

 

•

Third quarter adjusted segment operating margin was 15.0 percent. Stand-alone costs negatively impacted operating margin 50 basis points for the third quarter of 2012.

Applied Water

Xylem’s Applied Water businesses provide equipment and services in the residential and commercial building services, general industrial and agricultural markets.

 

•

Third quarter 2012 segment revenue was $350 million, down 2 percent in constant currencies, and 5 percent as reported, reflecting comparison to a particularly strong third quarter 2011, and ongoing weakness in commercial building services.

 

•

Third quarter adjusted segment operating margin was 12.6 percent. Stand-alone costs negatively impacted operating margin 60 basis points for the third quarter of 2012.

More detail available

Supplemental information on Xylem’s third quarter earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com.

About Xylem

Xylem (NYSE: XYL) is a leading global water technology provider, enabling customers to transport, treat, test and efficiently use water in public utility, residential and commercial building services, industrial and agricultural settings. The company does business in more than 150 countries through a number of market-leading product brands, and its people bring broad

 

2

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applications expertise with a strong focus on finding local solutions to the world’s most challenging water and wastewater problems. Launched in 2011 from the spinoff of the water-related businesses of ITT Corporation, Xylem is headquartered in White Plains, N.Y., with 2011 annual revenues of $3.8 billion and 12,500 employees worldwide. In 2012, Xylem was named to the Dow Jones Sustainability World Index for advancing sustainable business practices and solutions worldwide.

The name Xylem is derived from classical Greek and is the tissue that transports water in plants, highlighting the engineering efficiency of our water-centric business by linking it with the best water transportation of all — that which occurs in nature. For more information, please visit us at www.xyleminc.com.

Forward-Looking Statements

This document contains information that may constitute “forward-looking statements.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements include, but are not limited to, statements about the separation of Xylem Inc. (the “Company”) from ITT Corporation, the terms and the effect of the separation, the nature and impact of the separation, capitalization of the Company, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to orders, sales, operating margins and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements.

Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those set forth in Item 1A in our Annual Report on Form 10-K, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission.

###

 

3

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XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

 

		Three Months								Nine Months
For the periods ended September 30,		2012				2011				2012				2011
Revenue		$	931			$	939			$	2,822			$	2,800
Cost of revenue			557				574				1,702				1,719
Gross profit			374				365				1,120				1,081
Selling, general and administrative expenses			231				215				682				643
Research and development expenses			24				23				80				73
Restructuring and asset impairment charges, net			4				2				4				2
Separation costs			4				46				15				67
Operating income			111				79				339				296
Interest expense			14				1				41				2
Other non-operating income, net			3				4				1				5
Income before taxes			100				82				299				299
Income tax expense			28				5				75				72
Net income		$	72			$	77			$	224			$	227
Earnings per share:
Basic		$	0.39			$	0.42			$	$1.20			$	1.23
Diluted		$	0.38			$	0.42			$	$1.20			$	1.23
Weighted average number of shares:
Basic			185.9				184.6				185.7				184.6
Diluted			186.3				184.6				186.2				184.6
Dividends declared per share		$	0.1012			$	—			$	0.3036			$	—

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XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

 

		September 30,				December 31,
		2012				2011
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	424			$	318
Receivables, less allowances for discounts and doubtful accounts of $33 and $37 in 2012 and 2011, respectively			801				756
Inventories, net			467				426
Prepaid and other current assets			106				97
Deferred income tax assets			36				45
Total current assets			1,834				1,642
Property, plant and equipment, net			464				463
Goodwill			1,621				1,610
Other intangible assets, net			485				505
Other non-current assets			192				173
Total assets		$	4,596			$	4,393
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	316			$	322
Accrued and other current liabilities			456				490
Short-term borrowings and current maturities of long-term debt			13				5
Total current liabilities			785				817
Long-term debt			1,199				1,201
Accrued postretirement benefits			319				316
Deferred income tax liability			170				165
Other non-current accrued liabilities			69				67
Total liabilities			2,542				2,566
Commitments and contingencies Stockholders’ equity:
Common Stock – authorized 750.0 shares, par value $0.01 per share:
Issued 186.0 shares and 184.6 shares in 2012 and 2011, respectively			2				2
Capital in excess of par value			1,699				1,663
Retained earnings			206				40
Treasury stock – at cost 0.2 shares and 0 shares in 2012 and 2011, respectively			(6	)			—
Accumulated other comprehensive income			153				122
Total stockholders’ equity			2,054				1,827
Total liabilities and stockholders’ equity		$	4,596			$	4,393

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XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

 

For the nine months ended September 30,		2012				2011
Operating Activities
Net income		$	224			$	227
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			103				104
Share-based compensation			16				7
Non-cash separation costs			—				8
Restructuring and asset impairment charges			4				2
Payments for restructuring			—				(7	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables			(33	)			(58	)
Changes in inventories			(33	)			(40	)
Changes in accounts payable			(7	)			(31	)
Changes in accrued liabilities			(30	)			14
Changes in accrued taxes			1				4
Net changes in other assets and liabilities			(14	)			18
Other, net			(1	)			4
Net Cash - Operating activities			230				252
Investing Activities
Capital expenditures			(81	)			(79	)
Acquisitions, net of cash required			(12	)			(309	)
Proceeds from the sale of property, plant and equipment			4				9
Other, net			—				2
Net Cash - Investing activities			(89	)			(377	)
Financing Activities
Net transfer to former parent			(9	)			(1,012	)
Issuance of short-term debt			12				5
Issuance of senior notes, net of discount			—				1,189
Principal payments of debt and capital lease obligations			(6	)			—
Purchase of common stock			(4	)			—
Proceeds from exercise of employee stock options			22				—
Dividends paid			(56	)			—
Net Cash - Financing activities			(41	)			182
Effect of exchange rate changes on cash			6				(4	)
Net change in cash and cash equivalents			106				53
Cash and cash equivalents at beginning of year			318				131
Cash and cash equivalents at end of year		$	424			$	184
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	38			$	—
Income taxes (net of refunds received)		$	76			$	37

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Xylem Inc. Non-GAAP Measures

Management views key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, free cash flow, working capital, and backlog, among others. In addition, we consider certain measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operations as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

“Organic revenue” and “Organic orders” defined as revenue and orders, respectively, excluding the impact of foreign currency fluctuations, intercompany transactions, and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for classification as a discontinued operation or insignificant portions of our business that we did not classify as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period.

“Constant currency” defined as financial results adjusted for currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.

“EBITDA” defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude for non-recurring separation costs associated with the Xylem spin-off from ITT Corporation as well as non-recurring restructuring and realignment costs.

“Adjusted Operating Income”, “Adjusted Segment Operating Income”, and “Adjusted EPS” defined as operating income and earnings per share, adjusted to exclude non-recurring separation costs associated with the Xylem spin-off from ITT Corporation, non-recurring restructuring and realignment costs and tax-related special items.

“Normalized EPS” defined as adjusted earnings per share, as well as adjustments to reflect the incremental current period amount of interest expense and stand alone costs in the prior comparable period.

“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flows does not consider non-discretionary cash payments, such as debt.

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Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Order Growth

($ Millions)

 

		(As Reported - GAAP)																(As Adjusted - Organic)																				Constant Currency
						(A)				(B)								(C)				(D)				(E)				(F) = B+C+D+E				(G) = F/A				(H) = (B + D) / A
		Orders				Orders				Change 2012 v. 2011				% Change 2012 v. 2011				Acquisitions / Divestitures				FX Contribution				Eliminations				Change Adj. 2012 v. 2011				% Change Adj. 2012 v. 2011
			2012				2011
Nine Months Ended September 30
Xylem Inc.			2,856				2,942				(86	)			-2.9	%			(88	)			108				—				(66	)			-2.2	%			0.7	%
Water infrastructure			1,819				1,865				(46	)			-2.5	%			(88	)			82				—				(52	)			-2.8	%			1.9	%
Applied Water			1,086				1,122				(36	)			-3.2	%			—				30				(8	)			(14	)			-1.2	%			-0.5	%
Quarter Ended September 30, 2012
Xylem Inc.			882				966				(84	)			-8.7	%			(21	)			39				—				(66	)			-6.8	%			-4.7	%
Water infrastructure			564				621				(57	)			-9.2	%			(21	)			29				—				(49	)			-7.9	%			-4.5	%
Applied Water			334				358				(24	)			-6.7	%			—				12				(5	)			(17	)			-4.7	%			-3.4	%
Quarter Ended June 30
Xylem Inc.			970				998				(28	)			-2.8	%			(30	)			51				—				(7	)			-0.7	%			2.3	%
Water infrastructure			617				632				(15	)			-2.4	%			(30	)			40				—				(5	)			-0.8	%			4.0	%
Applied Water			370				383				(13	)			-3.4	%			—				13				(2	)			(2	)			-0.5	%			0.0	%
Quarter Ended March 31
Xylem Inc.			1,004				978				26				2.7	%			(37	)			18				—				7				0.7	%			4.5	%
Water infrastructure			638				612				26				4.2	%			(37	)			13				—				2				0.3	%			6.4	%
Applied Water			382				381				1				0.3	%			—				5				(1	)			5				1.3	%			1.6	%

Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.

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Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Revenue

($ Millions)

 

		(As Reported - GAAP)																(As Adjusted - Organic)																				Constant Currency
						(A)				(B)								(C)				(D)				(E)				(F) = B+C+D+E				(G) = F/A				(H) = (B + D) / A
		Revenue				Revenue				Change 2012 v. 2011				% Change 2012 v. 2011				Acquisitions / Divestitures				FX Contribution				Eliminations				Change Adj. 2012 v. 2011				% Change Adj. 2012 v. 2011
		2012				2011
Nine Months Ended September 30
Xylem Inc.			2,822				2,800				22				0.8	%			(87	)			101				—				36				1.3	%			4.4	%
Water infrastructure			1,788				1,737				51				2.9	%			(87	)			75				—				39				2.2	%			7.3	%
Applied Water			1,078				1,108				(30	)			-2.7	%			—				30				(3	)			(3	)			-0.3	%			0.0	%
Quarter Ended September 30, 2012
Xylem Inc.			931				939				(8	)			-0.9	%			(21	)			38				—				9				1.0	%			3.2	%
Water infrastructure			595				584				11				1.9	%			(21	)			28				—				18				3.1	%			6.7	%
Applied Water			350				368				(18	)			-4.9	%			—				12				(2	)			(8	)			-2.2	%			-1.6	%
Quarter Ended June 30
Xylem Inc.			966				971				(5	)			-0.5	%			(32	)			49				—				12				1.2	%			4.5	%
Water infrastructure			609				602				7				1.2	%			(32	)			37				(1	)			11				1.8	%			7.3	%
Applied Water			373				385				(12	)			-3.1	%			—				13				(1	)			—				0.0	%			0.3	%
Quarter Ended March 31
Xylem Inc.			925				890				35				3.9	%			(34	)			14				—				15				1.7	%			5.5	%
Water infrastructure			584				551				33				6.0	%			(34	)			10				1				10				1.8	%			7.8	%
Applied Water			355				355				—				0.0	%			—				5				—				5				1.4	%			1.4	%

Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.

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Xylem Inc. Non-GAAP Reconciliation

Adjusted Diluted EPS

For The Three and Nine Months Ended September 30, 2012 & 2011

($ Millions, except per share amounts)

 

		Q1 2012				Q2 2012				Q3 2012				YTD 2012
Net Income			63				89				72				224
Separation Costs, Net of Tax			4				4				3				11
Restructuring & Realignment, Net of Tax			—				—				4				4
Adjusted Net Income before Special Tax Items			67				93				79				239
Special Tax Items			—				(1	)			4				3
Adjusted Net Income			67				92				83				242
Diluted Earnings per Share		$	0.34			$	0.48			$	0.38			$	1.20
Separation Costs per Share		$	0.02			$	0.02			$	0.02			$	0.06
Restructuring & Realignment Costs per Share		$	0.00			$	0.00			$	0.02			$	0.02
Adjusted Diluted EPS before Special Tax Items		$	0.36			$	0.50			$	0.42			$	1.28
Special Tax Items per Share		$	0.00			$	(0.01	)		$	0.02			$	0.01
Adjusted Diluted EPS		$	0.36			$	0.49			$	0.44			$	1.29
		Q1 2011				Q2 2011				Q3 2011				YTD 2011
Net Income			78				72				77				227
Separation Costs, Net of Tax			2				27				25				54
Adjusted Net Income before Special Tax Items			80				99				102				281
Special Tax Items			—				4				(1	)			3
Adjusted Net Income			80				103				101				284
Diluted Earnings per Share		$	0.42			$	0.39			$	0.42			$	1.23
Separation Costs per Share		$	0.01			$	0.15			$	0.13			$	0.29
Adjusted Diluted EPS before Special Tax Items		$	0.43			$	0.54			$	0.55			$	1.52
Special Tax Items per Share		$	0.00			$	0.02			$	(0.01	)		$	0.01
Adjusted Diluted EPS		$	0.43			$	0.56			$	0.54			$	1.53

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Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

 

		Q3								YTD
		‘12				‘11				‘12				‘11
Total Revenue
• Total Xylem			931				939				2,822				2,800
• Water Infrastructure			595				584				1,788				1,737
• Applied Water			350				368				1,078				1,108
Operating Income
• Total Xylem			111				79				339				296
• Water Infrastructure			85				87				253				245
• Applied Water			43				37				135				133
Operating Margin
• Total Xylem			11.9	%			8.4	%			12.0	%			10.6	%
• Water Infrastructure			14.3	%			14.9	%			14.1	%			14.1	%
• Applied Water			12.3	%			10.0	%			12.5	%			12.0	%
Separation Costs
• Total Xylem			4				46				15				67
• Water Infrastructure			—				8				3				10
• Applied Water			1				9				2				9
Restructuring & Realignment Costs
• Total Xylem			5				—				5				—
• Water Infrastructure			4				—				4				—
• Applied Water			—				—				—				—
Adjusted Operating Income*
• Total Xylem			120				125				359				363
• Water Infrastructure			89				95				260				255
• Applied Water			44				46				137				142
Adjusted Operating Margin*
• Total Xylem			12.9	%			13.3	%			12.7	%			13.0	%
• Water Infrastructure			15.0	%			16.3	%			14.5	%			14.7	%
• Applied Water			12.6	%			12.5	%			12.7	%			12.8	%

 

*	Adjusted Operating Income excludes non-recurring separation, restructuring & realignment costs

 

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Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)

 

		Q3 2011																												Q3 2012
		As Reported				Adjustments								Adjusted				Adjustments								Normalized				As Reported				Adjustments								Adjusted
Total Revenue			939												939												939				931												931
Operating Income			79				46				a				125				(8	)			c				111				111				9				a				120
Operating Margin			8.4	%											13.3	%											12.5	%			11.9	%											12.9	%
Interest Expense			(1	)											(1	)			(13	)			d				(14	)			(14	)											(14	)
Other Non-Operating Income (Expense)			4												4												4				3												3
Income before Taxes			82				46								128				(21	)							107				100				9								109
Provision for Income Taxes			(5	)			(22	)			b				(27	)			4				e				(23	)			(28	)			2				b				(26	)
Net Income			77				24								101				(17	)							84				72				11								83
Diluted Shares			184.6																								184.6				186.3												186.3
Diluted EPS		$	0.42			$	0.12							$	0.54			$	(0.09	)						$	0.45			$	0.38			$	0.06							$	0.44

 

a	One time separation, restructuring & realignment costs

b	Tax impact of one time separation costs and special tax items

c	Incremental stand alone costs incurred in 2012

d	Incremental interest expense on long-term debt entered into in conjunction with the spin

e	Tax impact of incremental interest expense and stand alone costs incurred in 2012

 

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Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

For The Nine Months Ended September 30, 2012 & 2011

($ Millions)

 

		Nine Months Ended
		2012				2011
Net Cash - Operating Activities			230				252
Capital Expenditures			(81	)			(79	)
Free Cash Flow, including separation costs			149				173
Cash Paid for Separation Costs (incl. Capex)			22				62
Free Cash Flow, excluding separation costs			171				235
Net Income			224				227
Separation Costs, net of tax (incl. tax friction)			11				54
Adjusted Net Income			235				281
Free Cash Flow Conversion			73	%			84	%

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Xylem Inc. Non-GAAP Reconciliation

Guidance

($ Millions, except per share amounts)

 

																														Illustration of Mid Point Guidance
2012 Guidance
		FY ‘11																												FY ‘12
		As Reported				Adjustments								Adjusted				Adjustments								Normalized				As Projected				Adjustments								Adjusted
Total Revenue			3,803												3,803												3,803				3,800												3,800
Segment Operating Income			503				29				a				532				(10	)			d				522				516				25				h,i				541
Segment Operating Margin			13.2	%											14.0	%											13.7	%			13.6	%											14.2	%
Corporate Expense			108				(58	)			b				50				18				e				68				68				(15	)			h				53
Operating Income			395				87								482				(28	)							454				448				40								488
Operating Margin			10.4	%											12.7	%											11.9	%			11.8	%											12.8	%
Interest Expense			(17	)											(17	)			(39	)			f				(56	)			(54	)											(54	)
Other Non-Operating Income (Expense)			5												5												5				(1	)											(1	)
Income before Taxes			383				87								470				(67	)							403				393				40								433
Provision for Income Taxes			(104	)			(8	)			c				(112	)			16				g				(96	)			(99	)			(7	)			j				(106	)
Net Income			279				79								358				(51	)							307				294				33								327
Diluted Shares			185.3																								185.3				186.2												186.2
Diluted EPS		$	1.50			$	0.43							$	1.93			$	(0.27	)							1.66				1.58				0.18								1.76

 

a	One time separation costs incurred at the segment level

b	One time separation costs incurred at the corporate level

c	Net tax impact of above items, plus the addition of 2011 special tax items

d	Incremental stand alone costs to be incurred in 2012 at the segment level ($10M)

e	Incremental stand alone costs to be incurred in 2012 at the corporate level ($18M)

f	Incremental interest expense on long-term debt to be incurred in 2012

g	Tax impact of incremental interest expense and stand alone costs to be incurred in 2012

h	Expected one time separation costs of $5M and $15M to be incurred at the segments and headquarters, respectively.

i	Restructuring & realignment costs of $20M to be incurred at the segments.

j	Tax impact of one time separation, restructuring & realignment costs expected to be incurred in 2012 and tax special items realized through Q3 2012.

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Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

 

																		Mid Point Guidance
		2008				2009				2010				2011				2012E
Revenue			3,291				2,849				3,202				3,803				3,800
Operating Income			315				276				388				395				448
Operating Margin			9.6	%			9.7	%			12.1	%			10.4	%			11.8	%
Restructuring & Realignment			41				31				15				—				20
Separation Costs			—				—				—				87				20
Adjusted Operating Income			356				307				403				482				488
Adjusted Operating Margin			10.8	%			10.8	%			12.6	%			12.7	%			12.8	%
Stand alone Costs			—				—				—				5				28
Adj. Operating Income, excl. Stand alone Costs			356				307				403				487				516
Adjusted Operating Margin, excl. Stand alone Costs			10.8	%			10.8	%			12.6	%			12.8	%			13.6	%

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