Xylem Inc. - FORM 8-K - EX-99.1 - NEWS RELEASE

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EX-99.2 - SLIDES SUMMARIZING FIRST QUARTER FINANCIAL RESULTS - Xylem Inc.	d345872dex992.htm
8-K - FORM 8-K - Xylem Inc.	d345872d8k.htm

Exhibit 99.1

LOGO

Xylem

1133 Westchester Ave., White Plains, NY 10604

Tel +1.914.323.5700 Fax +1.914.696.2960

FOR IMMEDIATE RELEASE


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

Xylem Inc. reports solid first quarter 2012 results; affirms previous full-year guidance

•

First quarter 2012 revenue up 6 percent in constant currencies to $925 million; up 4 percent as reported

•

First quarter 2012 adjusted net income of $67 million or $0.36 per share, up 9 percent on a normalized basis; $63 million or $0.34 per share as reported

•

Orders for the quarter exceed $1 billion for the first time; up 3 percent over Q1 2011

•

YSI acquisition integration ahead of plan; accretive to earnings per share

WHITE PLAINS, N.Y., May 3, 2012 – Xylem Inc. (NYSE: XYL), a leading global water technology company focused on solving the world’s most challenging water issues, today reported first quarter revenue of $925 million, up 6 percent from the first quarter 2011 on a constant currency basis and up 4 percent on a reported basis. First quarter net income was $63 million or $0.34 per share. Adjusting for one-time separation costs resulting from the Xylem spinoff from ITT Corporation on October 31, 2011, net income was $67 million or $0.36 per share, up 9 percent or 3 cents per share over the first quarter 2011 on a normalized basis.*

“Our growth in revenue and operating earnings in the first quarter is a testament to the strength of our comprehensive water portfolio, particularly the investments we’ve made in expanding our analytics and dewatering platforms,” said Gretchen McClain, president and chief executive officer of Xylem. “We believe we are particularly well-positioned to capture growth opportunities from the diverse end markets we serve.”

“We continue to see strong growth in our businesses serving the industrial markets, our largest end market,” McClain continued. “We are gaining market share in commercial building services, bolstered by some of our new products including the energy-saving eSV multistage booster pump. Total orders for the quarter exceeded $1 billion for the first time. And our latest acquisition, YSI, is already contributing to earnings and its integration into the rest of the business is ahead of plan. Solid free cash flow performance allows us to continue to make strategic investments and drive future growth.”

Xylem achieved free cash flow of $41 million and an adjusted operating margin of 11.2 percent, excluding non-recurring separation costs. Operating margin was also impacted by incremental stand-alone costs of $10 million, which reduced margin by 110 basis points.

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.

First Quarter 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.

•

First quarter 2012 segment revenue was $584 million, up 8 percent from the first quarter of 2011 on a constant currency basis, and up 6 percent on a reported basis. This reflects the YSI acquisition, growth in industrial applications and growth in emerging markets.

•

Segment orders were $638 million for the quarter, up 4 percent over last year, reflecting the YSI acquisition.

•

First quarter adjusted segment operating margin, excluding non-recurring separation costs but including the impact of stand-alone costs, expanded by 160 basis points from the first quarter 2011 to 13.2 percent, driven by price and productivity gains. Stand-alone costs impacted operating margin by 20 basis points for the first quarter 2012.

Applied Water

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

•

First quarter 2012 segment revenue and orders were $355 million and $382 million, respectively, both up 1 percent over the first quarter of 2011 on an organic basis. Solid growth in general industry, commercial building services, and food and beverage was mostly offset by residential market weakness in Europe and the Middle East.

•

First quarter adjusted segment operating margin, excluding non-recurring separation costs but including stand-alone costs, was 11.5 percent, down 150 basis points from the first quarter 2011, driven by lower volume in highly profitable HVAC products due to a warm winter in the U.S., lower marine volume and continued investment in the segment. Stand-alone costs impacted operating margin 60 basis points for the first quarter of 2012.

Affirming previous full-year 2012 guidance

Xylem is affirming previous guidance for full-year 2012 revenue in the range of $3.9 billion – $4.0 billion, representing year-over-year organic growth of 4 to 6 percent. Operating margins are anticipated to be in the range of 12.7 to 13.3 percent, excluding spinoff-related costs, but including incremental stand-alone costs of $25 to $30 million as Xylem completes its first full year as an independent company. These stand-alone costs will offset operating margin by 60 to 80 basis points. Full-year 2012 adjusted net income is forecast to be $334 million to $362 million, for adjusted earnings per share of $1.80 to $1.95 for the full year 2012, which reflects expected growth of 8 to 17 percent over normalized 2011. Reported net income, which includes one-time separation costs, is anticipated to range from $319 million to $350 million, or $1.72 to $1.89 per share.

More detail available

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

About Xylem

Xylem (XYL) is a leading global water technology provider, enabling customers to transport, treat, test and efficiently use water in public utility, residential and commercial building services, industrial and agricultural settings. The company does business in more than 150 countries through a number of market-leading product brands, and its people bring broad applications expertise with a strong focus on finding local solutions to the world’s most challenging water and wastewater problems. 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.

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.

###

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)


For the three months ended March 31,	2012			2011
Revenue	$	925		$	890
Cost of revenue		562			553

Gross profit		363			337
Selling, general and administrative expenses		231			210
Research and development expenses		28			24
Separation costs		5			3

Operating income		99			100
Interest expense		14			—
Other non-operating (expense) income, net		(1	)		1

Income before taxes		84			101
Income tax expense		21			23

Net income	$	63		$	78

Earnings per share:
Basic	$	0.34		$	0.42
Diluted	$	0.34		$	0.42
Weighted average number of shares – Basic		185.4			184.6
Weighted average number of shares – Diluted		185.9			184.6

Dividends declared per share	$	0.1012		$	—

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions)


For the three months ended March 31,	2012		2011
Net income	$	63	$	78
Other comprehensive income, before tax:
Foreign currency translation adjustment		49		86
Net change in cash flow hedges:
Unrealized gains (losses)		4		—
Net change in postretirement benefit plans:
Amortization of net actuarial loss		2		—
Settlement		2		—

Other comprehensive income, before tax		57		86
Income tax expense related to items of other comprehensive income		2		—

Other comprehensive income, net of tax		55		86

Comprehensive income	$	118	$	164

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)


	March 31, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	347		$	318
Receivables, less allowances for discounts and doubtful accounts of $32 and $37 in 2012 and 2011, respectively		761			756
Inventories, net		465			426
Prepaid and other current assets		117			97
Deferred income tax assets		45			45

Total current assets		1,735			1,642

Property, plant and equipment, net		468			463
Goodwill		1,631			1,610
Other intangible assets, net		502			505
Other non-current assets		177			173

Total assets	$	4,513		$	4,393

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	329		$	322
Accrued and other current liabilities		486			490
Short-term borrowings and current maturities of long-term debt		4			5

Total current liabilities		819			817

Long-term debt		1,202			1,201
Accrued postretirement benefits		320			316
Deferred income tax liability		155			165
Other non-current accrued liabilities		68			67

Total liabilities		2,564			2,566

Commitments and contingencies (Note 14)
Stockholders’ equity:
Common Stock – authorized 750.0 shares, par value $0.01 per share:
Issued 185.4 shares and 184.6 shares in 2012 and 2011, respectively		2			2
Capital in excess of par value		1,687			1,663
Retained earnings		84			40
Treasury stock – at cost 0.1 shares and 0 shares in 2012 and 2011, respectively		(1	)		—
Accumulated other comprehensive income		177			122

Total stockholders’ equity		1,949			1,827

Total liabilities and stockholders’ equity	$	4,513		$	4,393

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)


For the three months ended March 31,	2012			2011
Operating Activities
Net income	$	63		$	78
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34			33
Share-based compensation		5			3
Payments of restructuring		—			(5	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		7			(3	)
Changes in inventories		(31	)		(16	)
Changes in accounts payable		14			(31	)
Changes in accrued liabilities		(25	)		(5	)
Changes in accrued taxes		3			11
Net changes in other assets and liabilities		(9	)		6

Net Cash - Operating activities		61			71

Investing Activities
Capital expenditures		(31	)		(19	)
Proceeds from the sale of property, plant and equipment		2			2
Other, net		—			(1	)

Net Cash - Investing activities		(29	)		(18	)

Financing Activities
Net transfer (to)/from former parent		(6	)		(33	)
Issuance of short-term debt		3			—
Principal payments of debt and capital lease obligations		(3	)		—
Purchase of common stock		(1	)		—
Proceeds from exercise of employee stock options		16			—
Tax impact from equity compensation activity		(1	)		—
Dividends paid		(19	)		—
Other, net		1			—

Net Cash - Financing activities		(10	)		(33	)

Effect of exchange rate changes on cash		7			3

Net change in cash and cash equivalents		29			23
Cash and cash equivalents at beginning of year		318			131

Cash and cash equivalents at end of year	$	347		$	154

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	11		$	—
Income taxes (net of refunds received)	$	18		$	9

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 revenues, 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 by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries where the functional currency is the local currency.

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

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

“Normalized EPS” defined as earnings per share, adjusted to exclude one-time separation costs associated with the Xylem spin-off from ITT Corporation and tax-related special items, as well as an adjustment 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.

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Revenue / 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
Orders
Quarter Ended March 31, 2012

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	%


	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
Revenue
Quarter Ended March 31, 2012

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 and intersegment eliminations the sum of segment amounts may not agree to Xylem totals.

Xylem Inc. Non-GAAP Reconciliation

Adjusted Diluted EPS

For The Three Months Ended 2012 & 2011

($ Millions, except per share amounts)


	Q1 2012		Q1 2011
Net Income		63		78
Separation costs, net of tax		4		2

Adjusted Net Income before Special Tax Items		67		80

Special Tax Items		—		—

Adjusted Net Income		67		80

Diluted Earnings per Share	$	0.34	$	0.42
Separation costs per Share	$	0.02	$	0.01

Adjusted diluted EPS before Special Tax Items	$	0.36	$	0.43
Special Tax Items per Share	$	0.00	$	0.00

Adjusted diluted EPS	$	0.36	$	0.43

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)


	Q1 2011															Q1 2012
	As Reported			Adjustments			Adjusted			Adjustments			Normalized			As Reported			Adjustments			Adjusted
Total Revenue		890						890						890			925						925
Operating Income		100			3a			103			(10	)c		93			99			5a			104
Operating Margin		11.2	%					11.6	%					10.4	%		10.7	%					11.2	%
Interest Expense		—						—			(13	)d		(13	)		(14	)					(14	)
Other Non-Operating Income (Expense)		1						1						1			(1	)					(1	)

Income before Taxes		101			3			104			(23	)		81			84			5			89

Provision for Income Taxes		(23	)		(1	)b		(24	)		5e			(19	)		(21	)		(1	)b		(22	)

Net Income		78			2			80			(18	)		62			63			4			67

Diluted Shares		184.6												184.6			185.9						185.9

Diluted EPS	$	0.42		$	0.01		$	0.43		$	(0.10	)	$	0.33		$	0.34		$	0.02		$	0.36

a	One time separation costs

b	Tax impact of one time separation costs

c	Incremental stand alone costs incurred in 2012

d	Incremental interest expense on long-term debt incurred in 2012

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

Xylem Inc. Non-GAAP Reconciliation

Segment Operating Income

($ Millions)

Adjusted Segment Operating Income


	Q1						Q2					Q3					Q4
	’12			’11			’12		’11			’12		’11			’12		’11
Total Revenue
• Water Infrastructue		584			551			—		602			—		584			—		679
• Applied Water		355			355			—		385			—		368			—		336

Operating Income
• Water Infrastructue		75			64			—		94			—		87			—		98
• Applied Water		40			46			—		50			—		37			—		27

Separation Costs
• Water Infrastructue		2			—			—		2			—		8			—		6
• Applied Water		1			—			—		—			—		9			—		4

Adjusted Operating Income*
• Water Infrastructue		77			64			—		96			—		95			—		104
• Applied Water		41			46			—		50			—		46			—		31

Operating Margin
• Water Infrastructue		12.8	%		11.6	%				15.6	%				14.9	%				14.4	%
• Applied Water		11.3	%		13.0	%				13.0	%				10.0	%				8.0	%

Adjusted Operating Margin*
• Water Infrastructue		13.2	%		11.6	%				15.9	%				16.3	%				15.3	%
• Applied Water		11.5	%		13.0	%				13.0	%				12.5	%				9.2	%

*	Adjusted Operating Income excludes non-recurring separation costs

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

For The Three Months Ended 2012 & 2011

($ Millions)


	Three Months Ended
	2012			2011
Net Cash - Operating Activities		61			71
Capital Expenditures		(31	)		(19	)

Free Cash Flow, including separation costs		30			52
Separation Costs (Cash Paid incl. Capex)		11			2

Free Cash Flow, excluding separation costs		41			54

Net Income		63			78
Separation Costs, net of tax		4			2

Adjusted Net Income		67			80

Free Cash Flow Conversion		61	%		68	%

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