 Robert W. Baird's 42 Annual Industrial Conference
November 7, 2012
nd
Exhibit 99.1 |
 Forward Looking Statements
2
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,
revenues, 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 of our Annual Report on Form 10-K, and those
described from time to time in subsequent reports filed with the Securities and Exchange
Commission. |
 •
Design, Manufacture, & Service Highly Engineered Technologies
•
A True Water Pure Play
•
Diverse End Market & Geographic Mix
•
Leading Brands & Application Expertise
•
Resilient Portfolio & Large Installed Base
•
Unrivaled Global Reach …
Serving 150+ Countries
Global Leader in Water
Application Solutions
3
$3.8B Company Uniquely Positioned in the Attractive Water Industry
|
 Region
Highlights
Europe
•
Large Installed Base
•
So. Europe ~8% Tot Revenue
•
2011 Flat Organically
U.S.
•
Large Installed Base
•
2011 Up Low Single Digits
Emerging
Markets
•
Evenly Spread Across Latin
America, Middle East & Africa,
Eastern Europe, Asia Pac
Diversified Geographic Market Mix
4
Europe
37%
U.S.
36%
Asia Pac
11%
Other
16%
Geographical Mix*
Geographical Mix*
Xylem
Xylem
Emerging
Emerging
Market Revenue
Market Revenue
~19% in 2011
~19% in 2011
*2011 Revenues
…
…
With Large Installed Base & Growing Emerging Market Exposure
With Large Installed Base & Growing Emerging Market Exposure
Emerging Markets
Emerging Markets
•
BRIC & ROW Focused Growth Strategy
•
40+ Sales Units Spread Globally
•
2 Localized R&D Centers
•
14 Production Facilities
•
’09 -’11 Revenue CAGR +20%
•
Proj. Long-Term Revenue Growth 8-10+% |
 Diversified End Market Mix
5
…
…
With Strong Long Term Fundamentals & Growth Drivers
With Strong Long Term Fundamentals & Growth Drivers
% of XYL Revenue
40%
36%
13%
9%
3%
Cycle
•
Late/Less
Cyclical
•
Non-Cyclical
•
Late Cycle
•
Early Cycle
•
Mid Cycle
Fundamentals
•
Operation Critical
•
Growing Tariffs
•
Green Regulation
•
Energy Efficiency
•
Growing Demand
•
Aftermarket &
Replacement
•
Aftermarket &
Replacement
•
Strong
Replacement
•
Strong
Replacement
XYL ‘12
Organic Growth
•
Flat to Up Low
Single Digits
•
Flat to Up Low
Single Digits
•
Flat to Down Low
Single Digits
•
Flat to Down Low
Single Digits
•
Up Low Single
Digits
•
Depleting Water
Supply
•
Tightening
Regulation
•
Aging
Infrastructure
•
Population
Growth
•
Urbanization
•
Sustainability
•
Energy
Efficiency
Public Utility
Commercial
Residential
Agriculture
Industrial
LT Growth Drivers |
 6
Highly Attractive Recurring Revenue Profile
•
15%
of Xylem revenue
•
Strong global presence
•
120+ owned service centers
•
600+ service employees
•
Extensive channel partner network
•
9% Revenue CAGR ‘06-’11 despite
economic
downturn
•
Approximately 22% of Xylem revenue
•
Installed base drives replacement sales
•
Brand loyalty drives like-for-like
replacement
•
Installed base provides opportunity for
upgrades, next generation and services
$M
Note:
(1) Based on company estimates.
Aftermarket Provides Stability and Drives Strong Profitable Growth
Aftermarket Parts & Services Revenues
Replacement Equipment (1)
2006
2007
2008
2009
2010
2011
$370
$382
$396
$433
$512
$570
•
~11% revenue growth 2010-2011 |
 Resilient Portfolio & Increasing Profitability
…
…
Proven Track Record, Continued Focus
Proven Track Record, Continued Focus
7
•
Resilient Portfolio …
Despite Challenging End Market Conditions
•
Management Discipline …Proactive Actions (~$100M of Restructuring &
Realignment ‘08-’12) •
Operational Excellence …
Driving Productivity Initiatives
•
Continued Investment Driving Growth in Core Business
•
Key Acquisitions …
Transitioning Portfolio to Higher Profitability Levels
(2012E At Mid-Point Guidance)
Incl. Stand-
Alone Costs
12.7% 12.8%
$M, unless otherwise indicated
Operating Margin *
Revenue
2008
2009
2010
2011
2012E
10.8%
10.8%
12.6%
12.8%
13.6%
2008
2009
2010
2011
2012E
3,291
2,849
3,202
3,803
~3.8B
Expansion +290 Bps On Comp Basis
Op Income Up ~$160M …
~45%
Incremental Margin ~31%
Revenue Up ~$510M …
+15%
* Excludes the impact of restructuring and stand alone costs for all periods. See Appendix for
Non-GAAP Reconciliations |
 Focused on Free Cash Flow
8
1
Free
Cash
Flow
=
Net
cash
from
operating
activities
-
Capital
expenditures
Free Cash Flow
and Conversion ($M)
Strong Free Cash Flow & Solid Balance Sheet to Fund Growth Initiatives
Strong Free Cash Flow & Solid Balance Sheet to Fund Growth Initiatives
Capital Structure & Liquidity Position
September 30, 2012
Cash
424
Debt
1,212
Net Debt
788
Shareholders’
Equity
2,054
Net Capital
2,842
Net Debt to Net Capital
28%
•
Strong Cash Flow Conversion
•
Balance Sheet Flexibility
•
No Significant Debt Maturities Until 2016
•
28% Net Debt to Net Capital
•
1.2x Net Debt/Adj. TTM EBITDA
•
$600M
Revolving
Credit
Facility
-
Unutilized
•
Access
to
Commercial
Paper
-
Unutilized
* See non-GAAP reconciliations.
$341
$308
$301
$388
152%
117%
91%
111%
2008
2009
2010
2011
1
* |
 Disciplined Capital Deployment
9
•
2.5% –
3.5% of sales
•
~$0.10/share
•
In-line with peers
•
Up to $300M / year
Capital Deployment Strategy
•
Balance of organic & inorganic investment
•
Return value to shareholders
•
Maintain solid investment grade metrics
•
Debt & pension
Organic Growth
World Class Facilities
Cash Return to
Shareholders
Cash to Meet Key
Obligations
Inorganic Investment
to Fuel Growth
Capital Deployment Evaluation
•
Fold targeted performance into Operating plans
•
Quarterly / Annual investment review
•
Ensure targeted returns achieved
Focused on Long Term Shareholder Return
Focused on Long Term Shareholder Return
Cash from
Operations
Capex
Return to
Shareholders
Financial
Obligations
Acquisition
Strategy |
 Financial Projections
10
•
Market growth of 3-5%...4-6% Xylem targeted growth
•
Acquisition strategy adds 1-2 % points of growth
•
Emerging markets > 20% of revenues
Xylem is Poised to Achieve its Long-Term Financial Objectives
Xylem is Poised to Achieve its Long-Term Financial Objectives
•
Operational & Commercial excellence expand segment margins 50-75 bps per
year –
Gross margin > 40%
•
Continued cash management discipline to achieve cash conversion of ~100%
•
Capital deployment strategy to drive ROIC
2012 FY Guidance
As of Nov. 1, 2012
2015
Target **
Revenues
~$3.8B
$4.5B to $5.0B
Operating Margin*
12.7% to 12.9%
14.5% to 15.5%
Free Cash Flow Conversion
95%
100%
Normalized EPS Growth*
+4% to +8%
Long-Term Targets
* See non-GAAP reconciliations.
** See
Xylem
October
13, 2011
Investor
Day
Presentation
for
further
details |
 Investment
Highlights
11
•
$3.8B Company Uniquely Positioned in the Attractive Water Industry
•
Resilient Portfolio & Proven Track Record of Increasing Profitability
•
Leading Brands &
World-Class Distribution Channels
•
Diversified End & Geographic Markets Mix
•
Attractive Growth Opportunities & Large Installed Base
•
Solid Cash Flow Generation & Disciplined Capital Deployment Strategy
Ability to Deliver Strong & Consistent Financial Performance
Ability to Deliver Strong & Consistent Financial Performance
|
 12
NYSE: XYL
http://investors.xyleminc.com
Thank you for your interest !
Thank you for your interest !
Phil De Sousa, Investor Relations Officer
(914) 323-5930
Janice Tedesco, Investor Relations Coordinator
(914) 323-5931 |
 Appendix |
 Water
Infrastructure
Equipment
& Services
End
Users
Uniquely Positioned …
14
…
…
Global Leader in Attractive Water Industry
Global Leader in Attractive Water Industry
Growth Drivers
•
Depleting Water Supply
•
Tightening Regulation
•
Aging Infrastructure
•
Population Growth
•
Urbanization
•
Sustainability
•
Energy Efficiency
$500B
Global Water
Industry
Technology Intensive $30B
•
Highly Engineered
•
Premium Value
•
High Performance
•
Knowledge-Based Services
•
Differentiated Solutions
•
Higher Profitability |
 Segment Overview
Market Size: $16B
2011 Revenues: $2.4B
2011 Op Margin*: 14.9%
Water
Infrastructure
63%
Water Infrastructure Overview
Applied Water
37%
Market Size: $14B
2011 Revenues: $1.4B
2011 Op Margin*: 12.0%
Customers
Residential & Commercial,
Industrial Facilities, Agriculture
Applied Water Overview
Customers
Public Utilities
Industrial Facilities
Distribution
World-Class Global Direct
Note: (1) Global market share based on company estimates.
Distribution
Primarily through World-Class
Indirect (+70%) Channels
15
*Excluding separation costs of $16M
*Excluding separation costs of $13M
Revenue by Application
Market
Share
(1)
Transport
73%
#1
Treatment
18%
#1
Test
9%
#2
Revenue by Application
Market
Share
(1)
Bldg. Services
51%
#2
Industrial Water
42%
#2
Irrigation
7%
#3
Unique Position -
Only Provider of All Three “T’s”
Large Installed Base
Growth Despite Slow New Construction
(~70%) & Indirect Channels |
 Xylem
Has a Focused Growth Strategy Organic Growth
Organic Growth
Emerging Markets
Emerging Markets
Acquisition Strategy
Acquisition Strategy
•
Replicate leadership positions
•
Strong aftermarket opportunities
•
Innovative application solutions
Organic & Inorganic Growth Expertise
Organic & Inorganic Growth Expertise
•
Established footprint
•
Localized innovation centers
•
Focused BRIC & ROW Strategy
•
Disciplined approach
•
History of successful integration
•
Bolt-on, niche go-forward strategy
16
Long Term Growth Rates
(1)
$4.5B -
$5.0B
Market Growth Rates
~8% CAGR
(1)
Revenue growth rates based on 2011
revenue of $3,803. See Xylem October 13,
2011 Investor Day Presentation for further
details.
$M, unless otherwise indicated
2010
2011
2012E
2015E
3,202
3,803
~3.8B
•
Developed
•
Emerging
•
Global
1 -
3%
8 -
10+%
3 -
5%
Organic
4 -
6%
1 -
2%
M&A |
 Gross
Margin Improvement Funds Future Growth Xylem Continues to Invest While
Increasing Profitability Xylem Continues to Invest While Increasing
Profitability 17
•
Operational and Commercial Excellence
•
Growth in Higher Margin Analytics and Dewatering applications
•
Xylem’s Water Infrastructure Direct Sales Force a Key Competitive Advantage
|
 Public Utility & Industrial
Transport & Treatment
18
Application
Technologies
•
Waste Water Transport
•
Filtration
•
Biological Treatment
•
UV & Ozone Disinfection |
 19
•
36% of Xylem Revenues related
to
Public
Utility
spending
–
in
2011:
•
~$1B for Maintenance Activities
•
Public Utility spending grows
long term
•
U.S.: ~6%
CAGR
1965
–
2011
•
Europe similar to U.S.
•
Asia Pacific growing faster
•
Funding of expenditures secure
•
~80% funded by tariffs
•
Tariffs growing 8%/yr in U.S.
•
European Tariffs typically higher
than U.S.
•
Funds typically can not be used for
other purposes
Strong Long-term Fundamentals…Xylem Provides Mission Critical
Solutions Source: U.S. Census Bureau
The Public Utility End Market
•
~6% CAGR 1965 –
2011
•
Only 3 years (‘69, ’83 and ‘11) saw >10% drop
•
10% drop reduces Total XYL Revs. by ~(1-2) ppts
U.S. Water and Sewer Construction Spending - $M
|
 Test
Applications 20
Diverse Applications
•
Environmental
•
Water & Waste Water
•
Food & Beverage
•
Chemical
•
Pharmaceutical
•
Ocean/Coastal
Analytical Instrumentation
Analytical Instrumentation |
 Dewatering and Industrial
Water Applications
21
Diverse Applications
•
Construction
•
Disaster Recovery
•
Environmental
•
Heavy Industry
•
Mining
•
Oil, Gas & Chemical
•
Water & Waste Water
•
Marine
Dewatering Applications
Industrial Water Applications
Heating
Cooling
Pressure
Boosting
Waste Water
Removal |
 Commercial & Residential
22
Customers
•
Developers
•
Building Operators
•
Building Designers
•
HVAC Specialists
•
Contractors
•
Plumbers
HVAC -
Heating
Pressure boosters
Fire protection
HVAC -
Cooling
Wastewater
Zone Control |
 2012
Financial Guidance Summary 23
* See Appendix for Non-GAAP Reconciliations
2012 FY Guidance
As of
Nov. 1, 2012
Growth
2012E vs. 2011
Revenue
Constant
Currency
Organic
Acquisition
Xylem Consolidated
~$3.8B
~3%
2%
Water Infrastructure
~$2.4B
~5%
4%
Applied Water
~$1.4B
~1%
0%
Segment Margin *
14.1% -
14.3%
+10 to +30 bps
Operating
Margin *
12.7%
-
12.9%
+0 to +20 bps
EPS *
$1.72 -
$1.79
$1.76 Mid Point
incl. Heartland Pump Acq. impact
-$0.01
Free Cash Flow Conversion
95%
Excluding
one-time separation costs
Guidance
Assumptions:
Stand-Alone
Costs
~$28M
Included in EPS Guidance; In Line
with Expectations
Operating
Tax Rate
~25%
Excludes Special Tax Items
Share
Count
~186.2M
Items
Excluded from Guidance:
(1) Separation
Costs
~$20M
In Line with Expectations
(2) Restructuring &
Realignment Costs
~$20M
Additional Actions Identified in 3Q’12
~$11MTotal Run Rate Savings Beginning 2013
~1%
~1%
~1% |
 Non-GAAP Measures
24
“Constant currency”
defined as financial results adjusted for currency translation impacts by
translating current period and prior period activity using the
“EBITDA”
defined
as
earnings
before
interest,
taxes,
depreciation,
amortization
expense,
and
share-based
compensation.
“Adjusted
EBITDA”
reflects
"Adjusted
Operating
Income",
"Adjusted
Segment
Operating
Income",
and
“Adjusted
EPS”
defined
as
operating
income
and
earnings
per
share,
“Normalized
EPS”
defined
as
adjusted
earnings
per
share,
as
well
as
adjustments
to
reflect
the
incremental
current
period
amount
of
interest
expense
“Free Cash Flow”
defined as net cash from operating activities, as reported in the Statement of
Cash Flow, less capital expenditures as well as 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: 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. same currency conversion rate. This approach is used for countries whose functional currency is
not the U.S. dollar. the adjustment to EBITDA to exclude for one-time separation
costs associated with the Xylem spin-off from ITT Corporation as well as one-time restructuring and
realignment costs.
adjusted to exclude one-time separation costs associated with
the Xylem spin-off from ITT Corporation, one-time restructuring and realignment costs and
tax-related special items.
and stand alone costs in the prior comparable period.
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.
“Organic revenue" and "Organic orders”
defined as revenue and orders, respectively, excluding the impact of foreign
currency fluctuations, |
 Non-GAAP Reconciliation: Earnings Per Share
25
FY 2009
FY 2010
FY 2011
Net Income
263
329
279
Separation costs, net of tax
-
-
72
Adjusted Net Income before Special
Tax Items 263
329
351
Special Tax Items
(61)
(43)
7
Adjusted Net
Income 202
286
358
Diluted Earnings per Share
$1.42
$1.78
$1.50
Separation costs per Share
-
-
$0.39
Adjusted diluted EPS before Special Tax Items
$1.42
$1.78
$1.89
Special Tax Items per Share
($0.32)
($0.23)
$0.04
Adjusted diluted EPS
$1.10
$1.55
$1.93
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
2009, 2010, & 2011
($ Millions, except per share amounts) |
 Non-GAAP Reconciliation: Guidance
26
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 $20M to be incurred at the segments.
j
Tax impact of one time separation, restructuring & realignment costs expected to be
incurred in 2012 and tax special items realized through Q3 2012. |
  Non-GAAP Reconciliation: Free Cash Flow
27
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
Years ended 2011, 2010, 2009, & 2008
($ Millions)
Year Ended
2011
2010
2009
2008
Net Cash - Operating Activities
449
395
370
408
Capital Expenditures
(126)
(94)
(62)
(67)
Free Cash Flow, including separation costs
323
301
308
341
Separation Costs (Cash Paid incl. Capex)
65
-
-
-
Free Cash Flow, excluding separation costs
388
301
308
341
Net Income
279
329
263
224
Separation Costs, net of tax
72
-
-
-
Adjusted Net Income
351
329
263
224
Free Cash Flow Conversion
111%
91%
117%
152% |
 Non-GAAP Reconciliation: Adj. Operating Income & Margin
28
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%
Standalone Costs
-
-
-
5
28
Adj. Operating Income, excl.
Standalone Costs 356
307
403
487
516
Adjusted Operating Margin, excl.
Standalone Costs 10.8%
10.8%
12.6%
12.8%
13.6%
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions) |
  29
Non-GAAP Reconciliation: 2012 Xylem EBITDA & Adj. EBITDA
Q1
Q2
Q3
YTD
Income Before Taxes
84
115
100
299
Interest, net
13
13
12
38
Depreciation
23
21
24
68
Amortization
11
12
12
35
Stock
Compensation 5
5
6
16
EBITDA
136
166
154
456
Separation Costs
5
6
4
15
Restructuring &
Realignment Costs -
-
5
5
Adjusted
EBITDA 141
172
163
476
Revenue
925
966
931
2,822
Adjusted EBITDA Margin
15.2%
17.8%
17.5%
16.9%
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Total Xylem
($ Millions)
2012 |
  30
Non-GAAP Reconciliation: 2011 Xylem EBITDA & Adj. EBITDA
Q1
Q2
Q3
Q4
Total
Pre-Tax Net Income
101
115
82
85
383
Interest, net
-
-
1
16
17
Depreciation
22
25
25
21
93
Amortization
11
10
11
12
44
Stock
Compensation 3
2
2
6
13
EBITDA
137
152
121
140
550
Separation Costs
3
18
46
20
87
Adjusted EBITDA
140
170
167
160
637
Revenues
890
971
939
1,003
3,803
Adjusted EBITDA Margin
15.7%
17.5%
17.8%
16.0%
16.7%
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
($ Millions)
2011
Total Xylem |