EX-99.1 2 d307841dex991.htm NEWS RELEASE News Release

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 fourth quarter and full-year 2011 results

 

  •  

Fourth quarter 2011 revenue of $1.0 billion, up 7 percent from fourth quarter 2010; full-year 2011 revenue of $3.8 billion, up 19 percent over prior year

 

  •  

Fourth quarter 2011 earnings per share of $0.28; adjusted earnings of $0.40 per share, up 5 percent over fourth quarter 2010 normalized earnings per share

 

  •  

Full-year 2011 earnings per share of $1.50; adjusted earnings of $1.93 per share, up 30 percent from 2010 normalized earnings per share*

 

  •  

Strong full-year cash generation of $388 million, 111 percent conversion of adjusted net income

WHITE PLAINS, N.Y., February 28, 2012 – Xylem Inc. (NYSE: XYL) today reported fourth quarter revenue of $1.0 billion, up 7 percent from the fourth quarter 2010, and net income of $52 million or $0.28 per share. Xylem, a leading global water technology company focused on solving the world’s most challenging water issues, was spun off from ITT Corporation on October 31, 2011. Excluding the impact of one-time separation costs and other special items, adjusted net income was $74 million or $0.40 per share, up 2 cents or 5 percent from the normalized earnings in the fourth quarter 2010.

“We drove solid business performance in 2011. We delivered revenue and earnings growth that reflected the strength of our core water and wastewater portfolio, as well as increased activity in the emerging markets, and solid returns from investments in our analytical instrumentation and dewatering businesses,” said Gretchen McClain, president and chief executive officer of Xylem. “All of this was accomplished as we worked through the successful launch of our new company. It is a testament to the dedication of our 12,500 employees who focus on solving our customers’ water challenges.”

For the fourth quarter, Xylem achieved adjusted operating margin of 12.0 percent, including incremental stand-alone costs of $5 million, which reduced margin by 50 basis points. Operating margin in the fourth quarter of 2010 was 11.9 percent.

For the full year 2011, Xylem revenue was $3.8 billion, up 19 percent over 2010. Excluding the impact of acquisitions and positive foreign currency translation, full-year organic revenue growth was 7 percent. Adjusted operating margin was 12.7 percent, up 60 basis points compared to 2010. The $5 million of incremental stand-alone cost incurred in the fourth quarter reduced full-year operating margin by 10 basis points. Full-year reported net income was $279 million, or

 

*

The 2010 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 2010.

$1.50 per share. Adjusted net income, excluding the impact of the spinoff and other special items, was $358 million or $1.93 per share, up 45 cents or 30 percent from the normalized earnings in 2010. Strong performance from acquired businesses and working capital improvements helped generate $388 million of free cash flow during the year, which excludes $65 million of cash paid for spinoff-related costs. This represents a 111 percent conversion of adjusted net income.

Fourth Quarter and Full-Year 2011 Segment Results

Water Infrastructure

Xylem’s Water Infrastructure businesses provide equipment and services to water and wastewater transport and treatment, dewatering and analytical instrumentation markets.

 

  •  

Fourth-quarter 2011 revenue was $679 million, an increase of 9 percent compared with the fourth quarter 2010, up 6 percent organically. This reflects solid growth in dewatering and the emerging markets, particularly in treatment and analytical instrumentation.

 

  •  

Orders for the quarter increased 15 percent, 10 percent organically, to $589 million from the comparable period in 2010.

 

  •  

Fourth-quarter segment operating income, which included $6 million of spinoff-related costs, was $98 million. Adjusted operating income for the period, excluding the impact of the spinoff costs, was $104 million, up $3 million relative to the same period in 2010.

 

  •  

Full-year segment revenue was $2.42 billion, up 25 percent over the prior year. Full-year reported segment operating income was $343 million. Full-year adjusted operating income for the Water Infrastructure segment was $359 million, an increase of 30 percent or $83 million over the full year 2010.

Applied Water

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

 

  •  

Fourth quarter 2011 Applied Water segment revenue was $336 million, up 3 percent compared with the fourth quarter 2010, with growth in sales of energy-efficient solutions like the e-SV pump used in a wide range of applications, more than offsetting relative weakness in building services in the developed markets.

 

  •  

Orders of $330 million were essentially flat vs. the comparable period in 2010.

 

  •  

Fourth quarter segment operating income, which included $4 million of spinoff-related expenses, was $27 million. Excluding the impact of these special items, segment operating income was $31 million, up 15 percent or $4 million relative to the same period in 2010.

 

  •  

Full-year segment revenue was $1.44 billion, up 9 percent over the prior year. Full-year reported segment operating income was $160 million, including $13 million of spinoff- related expenses. Full-year adjusted segment operating income was $173 million, an increase of 9 percent or $15 million over 2010.

Full-year 2012 Outlook

Xylem forecasts full-year 2012 revenue in the range of $3.9 billion – $4.0 billion, representing year over year organic growth of 4 percent 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

 

2

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.

“We’ve begun 2012 in a strong competitive and financial position,” McClain said. “We remain mindful of the pockets of weak economic activity in Europe, and less rapid growth in some of the emerging markets. With our applications expertise, customer focus, market-leading brands, large installed base and superior distribution in more than 150 countries, our portfolio is fundamentally well-positioned to continue growing at a rate faster than the global market. Further, we will continue investing in attractive opportunities, deploying resources to continue growing our core businesses through new product development and innovative applications, while maintaining our ability to make attractive acquisitions.”

More detail available

Supplemental information on Xylem’s fourth quarter and full-year 2011 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.

 

3

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 our Registration Statement on Form 10, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission.

###

 

4

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED INCOME STATEMENTS

(In Millions, except per share data)

 

Year Ended December 31,

    2011      2010      2009  

Revenue

    $ 3,803       $ 3,202       $ 2,849   

Cost of revenue

      2,342         1,988         1,812   
  

 

 

     

 

 

     

 

 

  

Gross profit

      1,461         1,214         1,037   

Selling, general and administrative expenses

      877         737         667   

Research and development expenses

      100         74         63   

Separation costs

      87         —           —     

Restructuring and asset impairments charges, net

      2         15         31   
  

 

 

     

 

 

     

 

 

  

Operating income

      395         388         276   

Interest expense

      17         —           —     

Other non-operating income, net

      5         —           1   
  

 

 

     

 

 

     

 

 

  

Income before taxes

      383         388         277   

Income tax expense

      104         59         14   
  

 

 

     

 

 

     

 

 

  

Net income

    $ 279       $ 329       $ 263   
  

 

 

     

 

 

     

 

 

  

Earnings per share:

         

Basic

    $ 1.51       $ 1.78       $ 1.42   

Diluted

    $ 1.50       $ 1.78       $ 1.42   

Weighted average number of shares – Basic

      185.1         184.6         184.6   

Weighted average number of shares – Diluted

      185.3         184.6         184.6   

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED BALANCE SHEETS

(In Millions, except per share amounts)

 

December 31,

    2011      2010  

ASSETS

      

Current assets:

      

Cash and cash equivalents

    $ 318       $ 131   

Receivable, less allowances for discounts and doubtful accounts of $37 and $32 in 2011 and 2010, respectively

      756         690   

Inventories, net

      426         389   

Prepaid assets

      97         79   

Deferred income tax assets

      45         47   
  

 

 

     

 

 

  

Total current assets

      1,642         1,336   

Property, plant and equipment, net

      463         454   

Goodwill

      1,610         1,437   

Other intangible assets, net

      505         416   

Other non-current assets

      173         92   
  

 

 

     

 

 

  

Total assets

    $ 4,393       $ 3,735   
  

 

 

     

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Current liabilities:

      

Accounts payable

    $ 322       $ 309   

Accrued and other current liabilities

      490         340   

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

      5         —     
  

 

 

     

 

 

  

Total current liabilities

      817         649   

Long-term debt

      1,201         4   

Accrued postretirement benefits

      316         163   

Deferred income tax liabilities

      165         99   

Other non-current accrued liabilities

      67         101   
  

 

 

     

 

 

  

Total liabilities

      2,566         1,016   
  

 

 

     

 

 

  

Commitments and contingencies

Stockholders’ equity:

      

Common Stock - par value $0.01 per share:

      

Authorized 750.0 shares, issued 184.6 shares

      2         —     

Capital in excess of par value

      1,663         —     

Retained earnings

      40         —     

Parent company investment

      —           2,682   

Accumulated other comprehensive income

      122         37   
  

 

 

     

 

 

  

Total stockholders’ equity

      1,827         2,719   
  

 

 

     

 

 

  

Total liabilities and stockholders’ equity

    $ 4,393       $ 3,735   
  

 

 

     

 

 

  

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED CASH FLOWS

(In Millions)

 

Year Ended December 31,

    2011     2010     2009  

Operating Activities

       

Net income

    $ 279      $ 329      $ 263   

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

       

Depreciation and amortization

      137        92        70   

Deferred income taxes

      8        (31 )      (36 ) 

Share-based compensation

      13        9        9   

Non-cash separation costs

      10        —          —     

Restructuring charges, net

      2        15        31   

Payments of restructuring

      (7 )      (22 )      (40 ) 

Changes in assets and liabilities (net of acquisitions):

       

Changes in receivables

      (61 )      (45 )      45   

Changes in inventories

      (18 )      7        62   

Changes in accounts payable

      (9 )      41        (38 ) 

Changes in accrued liabilities

      53        12        (11 ) 

Changes in accrued taxes

      56        (17 )      (1 ) 

Net changes in other assets and liabilities

      (14 )      5        16   
  

 

 

    

 

 

    

 

 

  

Net Cash - Operating activities

      449        395        370   
  

 

 

    

 

 

    

 

 

  

Investing Activities

       

Capital expenditures

      (126 )      (94 )      (62 ) 

Proceeds from the sale of property, plant and equipment

      11        4        11   

Acquisitions of businesses and assets, net of cash acquired

      (309 )      (1,004 )      (33 ) 

Other, net

      1        1        —     
  

 

 

    

 

 

    

 

 

  

Net Cash - Investing activities

      (423 )      (1,093 )      (84 ) 
  

 

 

    

 

 

    

 

 

  

Financing Activities

       

Net transfer (to)/from parent

      (995 )      745        (292 ) 

Issuance of short-term debt

      5        —          —     

Issuance of senior notes, net of discount

      1,198        —          —     

Principal payments of debt and capital lease obligations

      (8 )      —          —     

Proceeds from exercise of employee stock options

      1        —          —     

Payments of debt issuance costs

      (10 )      —          —     

Dividends paid

      (19 )      —          —     
  

 

 

    

 

 

    

 

 

  

Net Cash - Financing activities

      172        745        (292 ) 
  

 

 

    

 

 

    

 

 

  

Effect of exchange rate changes on cash

      (11 )      3        6   
  

 

 

    

 

 

    

 

 

  

Net change in cash and cash equivalents

      187        50        —     

Cash and cash equivalents at beginning of year

      131        81        81   
  

 

 

    

 

 

    

 

 

  

Cash and cash equivalents at end of year

    $ 318      $ 131      $ 81   
  

 

 

    

 

 

    

 

 

  

Supplemental disclosure of cash flow information:

       

Cash paid during the year for:

       

Income taxes (net of refunds received)

    $ 64      $ 110      $ 52   
  

 

 

    

 

 

    

 

 

  

 

Xylem Inc. Non-GAAP Measures

Management views key performance indicators including revenue, segment operating income and margins, orders growth, 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 or net cash from continuing 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.

“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 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 and 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 Order Growth

($ Millions)

 

     (As Reported - GAAP)     (As Adjusted - Organic)  
            (A)      (B)           (C)     (D)     (E)     (F) = B+C+D+E     (G) = F/A  
     Orders      Orders      Change
2011 v. 2010		     % Change
2011 v. 2010		     Acquisitions /
Divestitures		     FX Contribution     Eliminations     Change
Adj. 2011 v.  2010		     % Change
Adj. 2011 v. 2010		  
     2011      2010                                             

Year Ended December 31, 2011

                     

Xylem Inc.

      3,847         3,237         610        18.8 %      (272 )      (120 )      —          218        6.7 % 

Water infrastructure

      2,454         1,941         513        26.4 %      (272 )      (96 )      1        146        7.5 % 

Applied Water

      1,452         1,352         100        7.4 %      —          (27 )      (1 )      72        5.3 % 

Quarter Ended December 31, 2011

                     

Xylem Inc.

      905         836         69        8.3 %      (24 )      5        —          50        6.0 % 

Water infrastructure

      589         514         75        14.6 %      (24 )      4        (5 )      50        9.7 % 

Applied Water

      330         331         (1 )      -0.3 %      —          1        (1 )      (1 )      -0.3 % 

Quarter Ended September 30, 2011

                     

Xylem Inc.

      966         810         156        19.3 %      (41 )      (42 )      —          73        9.0 % 

Water infrastructure

      621         504         117        23.2 %      (41 )      (33 )      5        48        9.5 % 

Applied Water

      358         322         36        11.2 %      —          (10 )      —          26        8.1 % 

Quarter Ended June 30, 2011

                     

Xylem Inc.

      998         822         176        21.4 %      (91 )      (70 )      —          15        1.8 % 

Water infrastructure

      632         498         134        26.9 %      (91 )      (55 )      2        (10 )      -2.0 % 

Applied Water

      383         341         42        12.3 %      —          (17 )      1        26        7.6 % 

Quarter Ended March 31, 2011

                     

Xylem Inc.

      978         769         209        27.2 %      (116 )      (13 )      —          80        10.4 % 

Water infrastructure

      612         425         187        44.0 %      (116 )      (12 )      (1 )      58        13.6 % 

Applied Water

      381         358         23        6.4 %      —          (1 )      (1 )      21        5.9 % 

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic Revenue

($ Millions)

 

     (As Reported - GAAP)     (As Adjusted - Organic)  
            (A)      (B)            (C)     (D)     (E)     (F) = B+C+D+E      (G) = F/A  
     Revenue      Revenue      Change
2011 v. 2010		      % Change
2011 v. 2010		     Acquisitions /
Divestitures		     FX Contribution     Eliminations     Change
Adj. 2011 v.  2010		      % Change
Adj. 2011 v. 2010		  
     2011      2010                                               

Year Ended December 31, 2011

                       

Xylem Inc.

      3,803         3,202         601         18.8 %      (264 )      (111 )      —          226         7.1 % 

Water infrastructure

      2,416         1,930         486         25.2 %      (264 )      (87 )      2        137         7.1 % 

Applied Water

      1,444         1,327         117         8.8 %      —          (28 )      (1 )      88         6.6 % 

Quarter Ended December 31, 2011

                       

Xylem Inc.

      1,003         935         68         7.3 %      (27 )      6        —          47         5.0 % 

Water Infrastructure

      679         622         57         9.2 %      (27 )      5        1        36         5.8 % 

Applied Water

      336         327         9         2.8 %      —          1        (1 )      9         2.8 % 

Quarter Ended September 30, 2011

                       

Xylem Inc.

      939         806         133         16.5 %      (42 )      (39 )      —          52         6.5 % 

Water infrastructure

      584         488         96         19.7 %      (42 )      (30 )      1        25         5.1 % 

Applied Water

      368         331         37         11.2 %      —          (10 )      1        28         8.5 % 

Quarter Ended June 30, 2011

                       

Xylem Inc.

      971         775         196         25.3 %      (85 )      (65 )      —          46         5.9 % 

Water infrastructure

      602         443         159         35.9 %      (85 )      (50 )      1        25         5.6 % 

Applied Water

      385         346         39         11.3 %      —          (18 )      —          21         6.1 % 

Quarter Ended March 31, 2011

                       

Xylem Inc.

      890         686         204         29.7 %      (110 )      (13 )      —          81         11.8 % 

Water infrastructure

      551         377         174         46.2 %      (110 )      (12 )      (1 )      51         13.5 % 

Applied Water

      355         323         32         9.9 %      —          (1 )      (1 )      30         9.3 % 

 

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Operating Income and Earnings Per Share (EPS)

($ Millions, except per share amounts)

 

     Q4 ’10     Q4 ’11  
     As Reported     Adjustments     Normalized     As Reported     Adjustments     Adjusted  

Total Revenue

      935          935        1,003          1,003   

Operating Income

      111        (5 )a      106        100        20 g      120   

Operating Margin

      11.9 %         b      11.4 %      9.9 %        11.9 % 

Interest Income (Expense)

      —          (14 )      (14 )      (13 )        (13 ) 

Other Income (Expense)

      —            —          (1 )        (1 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before Taxes

      111        (19 )      92        85        20        105   

Provision for Income Taxes

      (14 )      (9 )f      (23 )      (33 )      2 h      (31 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net Income

      97        (28 )      69        52        22        74   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Diluted Shares

      184.6          184.6        185.3          185.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Diluted EPS

    $ 0.53      $ (0.15 )    $ 0.38      $ 0.28      $ 0.12      $ 0.40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     FY ’10     FY ’11  
     As Reported     Adjustments     Normalized     As Reported     Adjustments     Adjusted  
     3,202          3,202        3,803          3,803   

Operating Income

      388        (5 )a      383        395        87 d      482   
     12.1 %         b      11.9 %      10.4 %        12.7 % 

Interest Income (Expense)

      —          (14 )      (14 )      (17 )        (17 ) 

Other Income (Expense)

      —            —          5          5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before Taxes

      388        (19 )      369        383        87        470   

Provision for Income Taxes

      (59 )      (37 )c      (96 )      (104 )      (7 )e      (111 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net Income

      329        (56 )      273        279        80        359   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Diluted Shares

      184.6          184.6        185.3          185.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Diluted EPS

    $ 1.78      $ (0.30 )    $ 1.48      $ 1.50      $ 0.43      $ 1.93   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

a Equals incremental stand alone costs incurred in 2011 of $5M
b Represents incremental interest expense on long-term debt that was incurred in 2011
c Represents net tax impact of above items, less 2010 special tax items of $43M
d Represents one-time separation costs incurred in 2011
e Represents the tax benefit on one time separation costs of $15M, less special tax items of $7M
f Represents net tax impact on stand alone and interest expenses, less Q4 2010 special tax items of $15M
g One time separation costs incurred in Q4 2010
h Represents net tax impact of one time separation costs

Xylem Inc. Non-GAAP Reconciliation

Adjusted Diluted EPS

2011 and 2010

($ Millions, except per share amounts)

 

     Q1 2011      Q2 2011      Q3 2011     Q4 2011      FY 2011  

Net Income

      78         72         77        52         279   

Separation costs, net of tax

      2         27         25        18         72   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

Adjusted Net Income before Special Tax Items

      80         99         102        70         351   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

Special Tax Items

         4         (1 )      4         7   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

Adjusted Net Income

      80         103         101        74         358   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

Diluted Earnings per Share

    $ 0.42       $ 0.39       $ 0.42      $ 0.28       $ 1.50   

Separation costs per Share

    $ 0.01       $ 0.15       $ 0.13      $ 0.10       $ 0.39   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

Adjusted diluted EPS before Special Tax Items

    $ 0.43       $ 0.54       $ 0.55      $ 0.38       $ 1.89   

Special Tax Items per Share

    $ 0.00       $ 0.02       ($ 0.01 )    $ 0.02       $ 0.04   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

Adjusted diluted EPS

    $ 0.43       $ 0.56       $ 0.54      $ 0.40       $ 1.93   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

 

     Q1 2010     Q2 2010     Q3 2010     Q4 2010     FY 2010  

Net Income

      56        85        91        97        329   

Separation costs, net of tax

      —          —          —          —          —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted Net Income before Special Tax Items

      56        85        91        97        329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Special Tax Items

      (6 )      (11 )      (11 )      (15 )      (43 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted Net Income

      50        74        80        82        286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Diluted Earnings per Share

    $ 0.30      $ 0.46      $ 0.49      $ 0.53      $ 1.78   

Adjusted diluted EPS before Special Tax Items

    $ 0.30      $ 0.46      $ 0.49      $ 0.53      $ 1.78   

Special Tax Items per Share

    ($ 0.03 )    ($ 0.06 )    ($ 0.05 )    ($ 0.09 )    ($ 0.23 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted diluted EPS

    $ 0.27      $ 0.40      $ 0.44      $ 0.44      $ 1.55   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Xylem Inc. Non-GAAP Reconciliation

Segment Operating Income

($ Millions)

Adjusted Segment Operating Income

 

     Q1     Q2     Q3     Q4     FY  
     ’11     ’10     ’11     ’10     ’11     ’10     ’11     ’10     ’11     ’10  

Total Revenue

                     

• Water Infrastructue

      551        377        602        443        584        488        679        622        2,416        1,930   

• Applied Water

      355        323        385        346        368        331        336        327        1,444        1,327   

Operating Income

                     

• Water Infrastructue

      64        45        94        57        87        73        98        101        343        276   

• Applied Water

      46        40        50        51        37        40        27        27        160        158   

Separation Costs

                     

• Water Infrastructue

      —          —          2        —          8        —          6        —          16        —     

• Applied Water

      —          —          —          —          9        —          4        —          13        —     

Adjusted Operating Income*

                     

• Water Infrastructue

      64        45        96        57        95        73        104        101        359        276   

• Applied Water

      46        40        50        51        46        40        31        27        173        158   

Operating Margin

                     

• Water Infrastructue

      11.6 %      11.9 %      15.6 %      12.9 %      14.9 %      14.9 %      14.4 %      16.2 %      14.2 %      14.3 % 

• Applied Water

      13.0 %      12.4 %      13.0 %      14.7 %      10.0 %      12.0 %      8.0 %      8.3 %      11.1 %      11.9 % 

Adjusted Operating Margin*

                     

• Water Infrastructue

      11.6 %      11.9 %      15.9 %      12.9 %      16.3 %      14.9 %      15.3 %      16.2 %      14.9 %      14.3 % 

• Applied Water

      13.0 %      12.4 %      13.0 %      14.7 %      12.5 %      12.0 %      9.2 %      8.3 %      12.0 %      11.9 % 

 

* Adjusted Operating Income excludes non-recurring separation costs

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

Years ended 2011 & 2010

($ Millions)

 

     Year Ended  
     2011     2010  

Net Cash - Operating Activities

      449        395   

Capital Expenditures

      (126 )      (94 ) 
  

 

 

    

 

 

  

Free Cash Flow, including separation costs

      323        301   

Separation Costs (Cash Paid incl. Capex)

      65        —     
  

 

 

    

 

 

  

Free Cash Flow, excluding separation costs

      388        301   
  

 

 

    

 

 

  

Net Income

      279        329   

Separation Costs, net of tax

      72        —     
  

 

 

    

 

 

  

Adjusted Net Income

      351        329   
  

 

 

    

 

 

  

Free Cash Flow Conversion

      111 %      91 % 
  

 

 

    

 

 

  

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 Reported     Adjustments     Adjusted  

Total Revenue

     3,803          3,803          3,803        3,950          3,950   

Segment Operating Income

     503        29 a      532        (8 )d      524        577        8 h      585   

Segment Operating Margin

     13.2 %        14.0 %        13.8 %      14.6 %        14.8 % 

Corporate Expense

     108        (58 )b      50        20 e      70        81        (10 )h      71   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating Income

     395        87        482        (28 )      454        496        18        514   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating Margin

     10.4 %        12.7 %        11.9 %      12.6 %        13.0 % 

Interest Expense

     (17 )        (17 )      (39 )f      (56 )      (51 )        (51 ) 

Other Non-Operating Income (Expense)

     5          5          5        —            —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before Taxes

     383        87        470        (67 )      403        445        18        463   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Provision for Income Taxes

     (104 )      (7 )c      (111 )      16 g      (95 )      (111 )      (5 )i      (116 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net Income

     279        80        359        (51 )      308        334        13        347   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Diluted Shares

     185.3              185.3        185.8          185.8   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Diluted EPS

   $ 1.50      $ 0.43      $ 1.93      $ (0.27 )      1.66        1.80        0.07        1.87   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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 ($8M)
e Incremental stand alone costs to be incurred in 2012 at the corporate level ($20M)
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 $8M and $10M to be incurred at the segments and headquarters, respectively.
i Tax impact of one time separation costs expected to be incurred in 2012.