EX-99.1 2 xyl09302018ex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
xylemlogoa07.jpg
Xylem Inc.
1 International Drive, Rye Brook N.Y. 10573
Tel +1.914.323.5700 Fax +1.914.696.2960
Contacts:
 
Media
 
Investors
 
 
Kelly McAndrew +1 (914) 323-5969
 
Matt Latino +1 (914) 323-5821
 
 
Kelly.McAndrew@xyleminc.com
 
Matthew.Latino@xyleminc.com

Xylem reports strong quarter with eight percent growth
in organic revenue and orders; double-digit growth in 3rd quarter 2018 earnings

Third quarter 2018 reported net income was $130 million or $0.72 per share; Adjusted net income for the quarter was $139 million or $0.77 per share, up 18 percent versus the prior year period
Xylem delivered $1.3 billion in third quarter 2018 revenue, up eight percent year-over-year excluding the impact of foreign exchange and acquisitions
Reported and adjusted EBITDA margin increased 150 and 110 basis points, respectively
Company narrows full-year earnings outlook to reflect strong year-to-date performance and negative impact of foreign currency translation

RYE BROOK, N.Y., October 30, 2018 - Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2018 net income of $130 million, or $0.72 per share. Excluding the impact of restructuring, realignment and other special items, the Company delivered adjusted net income of $139 million or $0.77 per share in the quarter, an 18-percent increase over the prior year period. Third quarter revenue was $1.3 billion, up eight percent excluding the impact of foreign exchange and acquisitions. Revenue for the quarter increased eight percent on an organic basis, driven by continued strong growth in all end markets and across all major geographies. Orders also increased eight percent organically for the second consecutive quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin improved by 110 basis points year-over-year to 20.3 percent driven by volume leverage, savings from productivity initiatives and price realization. Reported operating margin in the quarter was 13.7 percent and adjusted operating margin increased 50 basis points year over year to 14.6 percent, including a 20-basis-point negative impact due to purchase accounting.

Patrick Decker, President and Chief Executive Officer of Xylem, said, “Our team delivered another quarter of strong results, positioning us well to meet our long-term growth and financial commitments. The organic growth we delivered in revenue and orders reflects strong performance in each of our major geographies and across all end markets. We see momentum strengthening in our ongoing efforts to drive commercial excellence and leverage our expanded portfolio, which are yielding more wins and share gains. Our focus on executing productivity initiatives and realizing additional pricing has enabled us to continue to mitigate ongoing inflationary pressures. I’m pleased with our teams’ marketplace execution, which has continued to gain momentum throughout the year and sets us up for continued strong growth ahead.”









Full-year 2018 Outlook
Xylem continues to forecast full-year 2018 revenue of approximately $5.2 billion, up approximately 10 percent versus the prior year, including growth from previously announced acquisitions. On an organic basis, Xylem now anticipates revenue growth in the range of seven to eight percent. 
Xylem has narrowed the range of its full-year 2018 earnings expectations to reflect the Company’s strong operational performance year-to-date and the negative impact of foreign exchange translation. Full-year 2018 adjusted operating margin is now expected to be in the range of 13.9 to 14.0 percent, resulting in adjusted earnings per share of $2.87 to $2.89. This represents an increase of approximately 20 percent from Xylem’s 2017 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs, which are expected to be approximately $45 million for the year. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort.
Third Quarter Segment Results
Water Infrastructure
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.
Third quarter 2018 revenue was $541 million, up eight percent organically compared with third quarter 2017. This growth includes an eight-percent increase in the utilities end market, which continues to show strength, particularly in Emerging Markets and North America. The industrial end market delivered mid-single-digit growth, driven by growing demand for Xylem’s dewatering applications in construction, mining and the oil and gas sector.
Third quarter reported operating income for the segment was $99 million. Adjusted operating income for the segment, which excludes $5 million of restructuring and realignment costs, was $104 million, an 11-percent increase over the same period a year ago. Adjusted EBITDA margin for the Water Infrastructure segment increased 120 basis points to 22.2 percent. Reported operating margin for the segment was 18.3 percent, up 80 basis points versus the prior year, and adjusted operating margin increased 110 basis points to 19.2 percent. This growth reflects productivity gains, volume leverage and price realization, partially offset by inflation and higher investments in strategic growth initiatives.

Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.
Third quarter 2018 Applied Water revenue was $378 million, an eight-percent increase organically year over year. This performance reflects high-single-digit growth in the U.S., Western Europe and Emerging Markets. Strength in the commercial end market was driven by project activity as well as market share gains in U.S. and Europe. The Company’s business in the industrial end market was particularly strong in the U.S., driven by healthy project business.
Third quarter reported operating income for the segment was $59 million and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $61 million, an 11-percent increase over the comparable period last year. Adjusted EBITDA margin for the Applied Water segment was 18 percent, an increase of 50 basis points over the prior year. Reported operating margin was 15.6 percent, up 150 basis points year over year, and adjusted operating margin increased 60 basis points to 16.1 percent as productivity initiatives, price realization and volume leverage more than offset inflation and unfavorable foreign exchange impacts.








Measurement & Control Solutions
Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced infrastructure analytics and analytic instrumentation.
Third quarter 2018 Measurement & Control Solutions revenue was $368 million, up eight percent organically versus the prior year period. This reflects solid growth in the Sensus business, up high single digits year over year, driven by large project deployments in the gas sector and double-digit growth in the water sector in North America.
Third quarter reported operating income for the segment was $31 million, and adjusted operating income, which excludes $4 million of restructuring and realignment costs and acquisition-related costs, was $35 million, a nine-percent increase over the prior-year period. Adjusted EBITDA margin for the Measurement & Control Solutions segment increased 90 basis points to 19 percent. Reported operating margin for the segment was 8.4 percent, flat versus the prior year period. The benefits of volume leverage and productivity initiatives were more than offset by the funding of strategic growth investments, inflation and purchase accounting. This resulted in a 50-basis-point decrease in adjusted operating margin to 9.5 percent.

Supplemental information on Xylem’s third quarter 2018 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.
About Xylem
Xylem (XYL) is a leading global water technology company committed to developing innovative technology solutions to the world’s water challenges. The Company’s products and services move, treat, analyze, monitor and return water to the environment in public utility, industrial, residential and commercial building services settings. Xylem also provides a leading portfolio of smart metering, network technologies and advanced infrastructure analytics solutions for water, electric and gas utilities. The Company’s more than 16,500 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2017 revenue of $4.7 billion, Xylem does business in more than 150 countries through a number of market-leading product brands. 
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.xylem.com.
Forward-Looking Statements
This press release 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,” “forecast,” “believe,” “target,” “will,” “could,” “would,” “should” 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 statements about the capitalization of Xylem Inc. (the “Company”), the Company’s restructuring and realignment, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals. All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future - including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results - are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those





expressed or implied in, or reasonably inferred from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated include: overall economic and business conditions, political and other risks associated with our international operations, including military actions, economic sanctions or trade barriers and embargoes that could affect customer markets, and non-compliance with laws, including foreign corrupt practice laws, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; ability to retain and attract talent and key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions; our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; governmental investigations; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements made herein are based on information currently available to the Company. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
###









XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(in millions, except per share data)
 
Three Months
 
Nine Months
For the periods ended September 30,
2018
 
2017
 
2018
 
2017
Revenue
$
1,287

 
$
1,195

 
$
3,821

 
$
3,430

Cost of revenue
782

 
724

 
2,337

 
2,090

Gross profit
505

 
471

 
1,484

 
1,340

Selling, general and administrative expenses
279

 
270

 
868

 
812

Research and development expenses
46

 
45

 
137

 
131

Restructuring and asset impairment charges, net
4

 
4

 
19

 
22

Operating income
176

 
152

 
460

 
375

Interest expense
21

 
21

 
63

 
62

Other non-operating income (expense), net
4

 
1

 
9

 
5

Gain (loss) from sale of business
2

 
(1
)
 

 
4

Income before taxes
161

 
131

 
406

 
322

Income tax expense
31

 
27

 
82

 
62

Net income
$
130

 
$
104

 
$
324

 
$
260

Less: Net loss attributable to non-controlling interests

 
(1
)
 

 

Net income attributable to Xylem
130

 
105

 
324

 
260

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.73

 
$
0.58

 
$
1.80

 
$
1.45

Diluted
$
0.72

 
$
0.58

 
$
1.79

 
$
1.44

Weighted average number of shares:
 
 
 
 
 
 
 
Basic
179.7

 
179.6

 
179.8

 
179.6

Diluted
181.1

 
180.9

 
181.2

 
180.7

Dividends declared per share
$
0.2100

 
$
0.1800

 
$
0.6300

 
$
0.5400








XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
September 30,
2018
 
December 31,
2017
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
404

 
$
414

Receivables, less allowances for discounts and doubtful accounts of $34 and $35 in 2018 and 2017, respectively
1,017

 
956

Inventories
622

 
524

Prepaid and other current assets
161

 
177

Total current assets
2,204

 
2,071

Property, plant and equipment, net
636

 
643

Goodwill
3,008

 
2,768

Other intangible assets, net
1,259

 
1,168

Other non-current assets
219

 
210

Total assets
$
7,326

 
$
6,860

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
570

 
$
549

Accrued and other current liabilities
571

 
551

Short-term borrowings and current maturities of long-term debt
342

 

Total current liabilities
1,483

 
1,100

Long-term debt
2,189

 
2,200

Accrued postretirement benefits
409

 
442

Deferred income tax liabilities
284

 
252

Other non-current accrued liabilities
330

 
347

Total liabilities
4,695

 
4,341

Stockholders’ equity:
 
 
 
Common Stock – par value $0.01 per share:
 
 
 
Authorized 750.0 shares, issued 192.9 shares and 192.3 shares in 2018 and 2017, respectively
2

 
2

Capital in excess of par value
1,942

 
1,912

Retained earnings
1,452

 
1,227

Treasury stock – at cost 13.2 shares and 12.4 shares in 2018 and 2017, respectively
(486
)
 
(428
)
Accumulated other comprehensive loss
(293
)
 
(210
)
Total stockholders’ equity
2,617

 
2,503

Non-controlling interest
14

 
16

Total equity
2,631

 
2,519

Total liabilities and stockholders’ equity
$
7,326

 
$
6,860






XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the nine months ended September 30,
2018
 
2017
Operating Activities
 
 
 
Net income
$
324

 
$
260

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
87

 
83

Amortization
108

 
91

Share-based compensation
23

 
16

Restructuring and asset impairment charges
19

 
22

Loss (gain) from sale of business

 
(4
)
Other, net
2

 
18

Payments for restructuring
(18
)
 
(25
)
Changes in assets and liabilities (net of acquisitions):
 
 
 
Changes in receivables
(76
)
 
(114
)
Changes in inventories
(115
)
 
(14
)
Changes in accounts payable
51

 
3

Other, net
(17
)
 
43

Net Cash – Operating activities
388

 
379

Investing Activities
 
 
 
Capital expenditures
(171
)
 
(119
)
Acquisition of business, net of cash acquired
(433
)
 
(16
)
Proceeds from sale of assets and business
22

 
11

Cash received from investments

 
10

Cash paid for investments

 
(11
)
Other, net
3

 
3

Net Cash – Investing activities
(579
)
 
(122
)
Financing Activities
 
 
 
Short-term debt issued, net
410

 

  Short-term debt repaid
(50
)
 
(184
)
Repurchase of common stock
(58
)
 
(25
)
Proceeds from exercise of employee stock options
7

 
8

Dividends paid
(114
)
 
(97
)
Other, net

 
(1
)
Net Cash – Financing activities
195

 
(299
)
Effect of exchange rate changes on cash
(14
)
 
17

Net change in cash and cash equivalents
(10
)
 
(25
)
Cash and cash equivalents at beginning of year
414

 
308

Cash and cash equivalents at end of period
$
404

 
$
283

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
47

 
$
46

Income taxes (net of refunds received)
$
60

 
$
58







Xylem Inc. Non-GAAP Measures
Management reviews key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including but not limited to, dividends, acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following 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 fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.
“Constant currency” defined as financial results adjusted for foreign currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.
“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses and special charges.
"Adjusted Operating Income", "Adjusted Segment Operating Income", "Adjusted Net Income" and “Adjusted EPS” defined as operating income, segment operating income, adjusted net income and earnings per share, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses, special charges and tax-related special items, as applicable.
“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 flow does not consider certain non-discretionary cash payments, such as debt.
“Realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
“Sensus Acquisition Related Costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include integration costs, acquisition costs, costs related to the recognition of the backlog intangible asset amortization recorded in purchase accounting.
“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, acquisition and integration related costs not related to Sensus, due diligence costs and other special non-operating items.
“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments.





Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Orders
($ Millions)
 
(As Reported - GAAP)
 
(As Adjusted - Organic)
 
Constant Currency
 
 
 
(A)
 
(B)
 
 
 
(C)
 
(D)
 
(E)=B+C+D
 
(F) = E/A
 
(G) = (E - C) / A
 
Orders
 
Orders
 
Change 2018 v. 2017
 
% Change 2018 v. 2017
 
Acquisitions/
Divestitures
 
FX
Impact
 
Change
Adj.
2018 v. 2017
 
% Change
Adj. 2018 v. 2017
 
 
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
4,054

 
3,598

 
456

 
13
 %
 
(69
)
 
(62
)
 
325

 
9
 %
 
11
 %
Water Infrastructure
1,671

 
1,546

 
125

 
8
 %
 

 
(25
)
 
100

 
6
 %
 
6
 %
Applied Water
1,162

 
1,103

 
59

 
5
 %
 
12

 
(18
)
 
53

 
5
 %
 
4
 %
Measurement & Control Solutions
1,221

 
949

 
272

 
29
 %
 
(81
)
 
(19
)
 
172

 
18
 %
 
27
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,356

 
1,249

 
107

 
9
 %
 
(27
)
 
24

 
104

 
8
 %
 
10
 %
Water Infrastructure
537

 
558

 
(21
)
 
-4
 %
 

 
17

 
(4
)
 
-1
 %
 
-1
 %
Applied Water
377

 
374

 
3

 
1
 %
 
2

 
5

 
10

 
3
 %
 
2
 %
Measurement & Control Solutions
442

 
317

 
125

 
39
 %
 
(29
)
 
2

 
98

 
31
 %
 
40
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,378

 
1,212

 
166

 
14
 %
 
(34
)
 
(30
)
 
102

 
8
 %
 
11
 %
Water Infrastructure
580

 
521

 
59

 
11
 %
 

 
(14
)
 
45

 
9
 %
 
9
 %
Applied Water
401

 
375

 
26

 
7
 %
 
4

 
(9
)
 
21

 
6
 %
 
5
 %
Measurement & Control Solutions
397

 
316

 
81

 
26
 %
 
(38
)
 
(7
)
 
36

 
11
 %
 
23
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,320

 
1,137

 
183

 
16
 %
 
(8
)
 
(56
)
 
119

 
10
 %
 
11
 %
Water Infrastructure
554

 
467

 
87

 
19
 %
 

 
(28
)
 
59

 
13
 %
 
13
 %
Applied Water
384

 
354

 
30

 
8
 %
 
6

 
(14
)
 
22

 
6
 %
 
5
 %
Measurement & Control Solutions
382

 
316

 
66

 
21
 %
 
(14
)
 
(14
)
 
38

 
12
 %
 
16
 %









Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Revenue
($ Millions)
 
(As Reported - GAAP)
 
(As Adjusted - Organic)
 
Constant Currency
 
 
 
(A)
 
(B)
 
 
 
(C)
 
(D)
 
(E) = B+C+D
 
(F) = E/A
 
(G) = (E - C) / A
 
Revenue
 
Revenue
 
Change 2018 v. 2017
 
% Change 2018 v. 2017
 
Acquisitions /
Divestitures
 
FX
Impact
 
Change Adj. 2018 v. 2017
 
% Change Adj. 2018 v. 2017
 
 
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
3,821

 
3,430

 
391

 
11
%
 
(63
)
 
(59
)
 
269

 
8
%
 
10
%
Water Infrastructure
1,567

 
1,421

 
146

 
10
%
 

 
(20
)
 
126

 
9
%
 
9
%
Applied Water
1,132

 
1,048

 
84

 
8
%
 
10

 
(18
)
 
76

 
7
%
 
6
%
Measurement & Control Solutions
1,122

 
961

 
161

 
17
%
 
(73
)
 
(21
)
 
67

 
7
%
 
15
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,287

 
1,195

 
92

 
8
%
 
(22
)
 
24

 
94

 
8
%
 
10
%
Water Infrastructure
541

 
520

 
21

 
4
%
 

 
18

 
39

 
8
%
 
8
%
Applied Water
378

 
354

 
24

 
7
%
 
2

 
4

 
30

 
8
%
 
8
%
Measurement & Control Solutions
368

 
321

 
47

 
15
%
 
(24
)
 
2

 
25

 
8
%
 
15
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,317

 
1,164

 
153

 
13
%
 
(26
)
 
(29
)
 
98

 
8
%
 
11
%
Water Infrastructure
546

 
482

 
64

 
13
%
 

 
(13
)
 
51

 
11
%
 
11
%
Applied Water
388

 
361

 
27

 
7
%
 
3

 
(8
)
 
22

 
6
%
 
5
%
Measurement & Control Solutions
383

 
321

 
62

 
19
%
 
(29
)
 
(8
)
 
25

 
8
%
 
17
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
1,217

 
1,071

 
146

 
14
%
 
(15
)
 
(54
)
 
77

 
7
%
 
9
%
Water Infrastructure
480

 
419

 
61

 
15
%
 

 
(25
)
 
36

 
9
%
 
9
%
Applied Water
366

 
333

 
33

 
10
%
 
5

 
(14
)
 
24

 
7
%
 
6
%
Measurement & Control Solutions
371

 
319

 
52

 
16
%
 
(20
)
 
(15
)
 
17

 
5
%
 
12
%






Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
 
Q1
 
Q2
 
Q3
 
YTD
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Total Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
1,217

 
1,071

 
1,317

 
1,164

 
1,287

 
1,195

 
3,821

 
3,430

• Water Infrastructure
480

 
419

 
546

 
482

 
541

 
520

 
1,567

 
1,421

• Applied Water
366

 
333

 
388

 
361

 
378

 
354

 
1,132

 
1,048

• Measurement & Control Solutions
371

 
319

 
383

 
321

 
368

 
321

 
1,122

 
961

Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
113

 
86

 
171

 
137

 
176

 
152

 
460

 
375

• Water Infrastructure
49

 
41

 
92

 
74

 
99

 
91

 
240

 
206

• Applied Water
50

 
36

 
61

 
48

 
59

 
50

 
170

 
134

• Measurement & Control Solutions
33

 
25

 
31

 
29

 
31

 
27

 
95

 
81

• Total Segments
132

 
102

 
184

 
151

 
189

 
168

 
505

 
421

Operating Margin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
9.3
%
 
8.0
%
 
13.0
%
 
11.8
%
 
13.7
%
 
12.7
%
 
12.0
%
 
10.9
%
• Water Infrastructure
10.2
%
 
9.8
%
 
16.8
%
 
15.4
%
 
18.3
%
 
17.5
%
 
15.3
%
 
14.5
%
• Applied Water
13.7
%
 
10.8
%
 
15.7
%
 
13.3
%
 
15.6
%
 
14.1
%
 
15.0
%
 
12.8
%
• Measurement & Control Solutions
8.9
%
 
7.8
%
 
8.1
%
 
9.0
%
 
8.4
%
 
8.4
%
 
8.5
%
 
8.4
%
• Total Segments
10.8
%
 
9.5
%
 
14.0
%
 
13.0
%
 
14.7
%
 
14.1
%
 
13.2
%
 
12.3
%
Sensus Acquisition Related Costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem

 
10

 

 
4

 

 
5

 

 
19

• Water Infrastructure

 

 

 

 

 

 

 

• Applied Water

 

 

 

 

 

 

 

• Measurement & Control Solutions

 
6

 

 
3

 

 
4

 

 
13

• Total Segments

 
6

 

 
3

 

 
4

 

 
13

Special Charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
6

 
5

 
1

 

 
1

 
3

 
8

 
8

• Water Infrastructure

 

 

 

 

 

 

 

• Applied Water

 
5

 

 

 

 

 

 
5

• Measurement & Control Solutions
2

 

 
1

 

 

 

 
3

 

• Total Segments
2

 
5

 
1

 

 

 

 
3

 
5

Restructuring & Realignment Costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
16

 
11

 
10

 
12

 
11

 
9

 
37

 
32

• Water Infrastructure
5

 
4

 
5

 
5

 
5

 
3

 
15

 
12

• Applied Water
3

 
4

 
2

 
5

 
2

 
5

 
7

 
14

• Measurement & Control Solutions
8

 
3

 
3

 
2

 
4

 
1

 
15

 
6

• Total Segments
16

 
11

 
10

 
12

 
11

 
9

 
37

 
32

Adjusted Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
135

 
112

 
182

 
153

 
188

 
169

 
505

 
434

• Water Infrastructure
54

 
45

 
97

 
79

 
104

 
94

 
255

 
218

• Applied Water
53

 
45

 
63

 
53

 
61

 
55

 
177

 
153

• Measurement & Control Solutions
43

 
34

 
35

 
34

 
35

 
32

 
113

 
100

• Total Segments
150

 
124

 
195

 
166

 
200

 
181

 
545

 
471

Adjusted Operating Margin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
11.1
%
 
10.5
%
 
13.8
%
 
13.1
%
 
14.6
%
 
14.1
%
 
13.2
%
 
12.7
%
• Water Infrastructure
11.3
%
 
10.7
%
 
17.8
%
 
16.4
%
 
19.2
%
 
18.1
%
 
16.3
%
 
15.3
%
• Applied Water
14.5
%
 
13.5
%
 
16.2
%
 
14.7
%
 
16.1
%
 
15.5
%
 
15.6
%
 
14.6
%
• Measurement & Control Solutions
11.6
%
 
10.7
%
 
9.1
%
 
10.6
%
 
9.5
%
 
10.0
%
 
10.1
%
 
10.4
%
• Total Segments
12.3
%
 
11.6
%
 
14.8
%
 
14.3
%
 
15.5
%
 
15.1
%
 
14.3
%
 
13.7
%
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.





Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
 
Q3 2018
 
Q3 2017
 
As Reported
 
Adjustments
 
Adjusted
 
As Reported
 
Adjustments
 
Adjusted
Total Revenue
1,287

 
 
 
1,287

 
1,195

 
 
 
1,195

Operating Income
176

 
12

 a
188

 
152

 
17

 a
169

Operating Margin
13.7
%
 
 
 
14.6
%
 
12.7
%
 
 
 
14.1
%
Interest Expense
(21
)
 
 
 
(21
)
 
(21
)
 
 
 
(21
)
Other Non-Operating Income (Expense)
4

 
 
 
4

 
1

 
 
 
1

Gain/(Loss) from sale of business
2

 
(2
)
 

 
(1
)
 
1

 

Income before Taxes
161

 
10

 
171

 
131

 
18

 
149

Provision for Income Taxes
(31
)
 
(1
)
b
(32
)
 
(27
)
 
(4
)
b
(31
)
Income attributable to minority interest
 
 
 
 

 
1

 
 
 
1

Net Income attributable to Xylem
130

 
9

 
139

 
105

 
14

 
119

Diluted Shares
181.1

 
 
 
181.1

 
180.9

 
 
 
180.9

Diluted EPS
$
0.72

 
$
0.05

 
$
0.77

 
$
0.58

 
$
0.07

 
$
0.65

 
 
 
 
 
 
 
 
 
 
 
 
Year-over-year currency translation impact on current year diluted EPS
$
(0.01
)
 
$
(0.01
)
 
$
(0.02
)
 
 
 
 
 
 
Diluted EPS at Constant Currency
$
0.73

 
$
0.06

 
$
0.79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 YTD 2018
 
Q3 YTD 2017
 
As Reported
 
Adjustments
 
Adjusted
 
As Reported
 
Adjustments
 
Adjusted
Total Revenue
3,821

 
 
 
3,821

 
3,430

 
 
 
3,430

Operating Income
460

 
45

 a
505

 
375

 
59

 a
434

Operating Margin
12.0
%
 
 
 
13.2
%
 
11.0
%
 
 
 
12.7
%
Interest Expense
(63
)
 
 
 
(63
)
 
(62
)
 
 
 
(62
)
Other Non-Operating Income (Expense)
9

 
 
 
9

 
5

 
 
 
5

Gain/(Loss) from sale of business

 

 

 
4

 
(4
)
 

Income before Taxes
406

 
45

 
451

 
322

 
55

 
377

Provision for Income Taxes
(82
)
 
(6
)
b
(88
)
 
(62
)
 
(19
)
b
(81
)
Income attributable to minority interest

 
 
 

 

 
 
 

Net Income attributable to Xylem
324

 
39

 
363

 
260

 
36

 
296

Diluted Shares
181.2

 
 
 
181.2

 
180.7

 
 
 
180.7

Diluted EPS
$
1.79

 
$
0.21

 
$
2.00

 
$
1.44

 
$
0.20

 
$
1.64

 
 
 
 
 
 
 
 
 
 
 
 
Year-over-year currency translation impact on current year diluted EPS
$
0.07

 
$

 
$
0.07

 
 
 
 
 
 
Diluted EPS at Constant Currency
$
1.72

 
$
0.21

 
$
1.93

 
 
 
 
 
 
 
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
a
QTD: Restructuring & realignment costs of $11 million and $9 million in 2018 and 2017, respectively; special charges of $1 million of acquisition related costs in 2018 and $3 million of due diligence costs in 2017; and $5 million of Sensus acquisition related costs in 2017.
 
YTD: Restructuring & realignment costs of $37 million and $32 million in 2018 and 2017, respectively; special charges of $8 million of acquisition related costs in 2018 and $5 million of asset impairment and $3 million of due diligence costs in 2017; and 2017 Sensus acquisition related costs of $19 million.
b
QTD: Net tax impact on restructuring & realignment costs of $3 million and $4 million in 2018 and 2017, respectively; net tax impact on 2017 Sensus acquisition related costs of $2 million and special charges of $1 million; and tax-related special items of $2 million of benefit and $3 million of benefit in 2018 and 2017, respectively.
 
YTD: Net tax impact on restructuring & realignment costs of $10 million and $11 million in 2018 and 2017, respectively; net tax impact on special charges of $1 million and $3 million in 2018 and 2017, respectively; net tax impact of $7 million on 2017 Sensus acquisition related costs; net tax impact of $2 million on the gain from sale of business in 2017; and tax-related special items of $5 million of benefit and $0 million in 2018 and 2017, respectively.





Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)

 
Q1
 
Q2
 
Q3
 
Nine Months Ended
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
Net Cash - Operating Activities
$
63

 
$
52

 
$
138

 
$
99

 
$
187

 
$
228

 
$
388

 
$
379

 
Capital Expenditures
(61
)
 
(43
)
 
(50
)
 
(34
)
 
(60
)
 
(42
)
 
(171
)
 
(119
)
 
Free Cash Flow
$
2

 
$
9

 
$
88

 
$
65

 
$
127

 
$
186

 
$
217

 
$
260

 
Cash paid for Sensus acquisition related costs
(1
)
 
(17
)
 

 
(5
)
 

 
(1
)
 
(1
)
 
(23
)
 
Free Cash Flow, excluding Sensus Acquisition Related Costs
$
3

 
$
26

 
$
88

 
$
70

 
$
127

 
$
187

 
$
218

 
$
283

 
Net Income
79

 
56

 
115

 
100

 
130

 
104

 
324

 
260

 
Gain/(Loss) from sale of businesses

 
5

 
(2
)
 

 
2

 
(1
)
 

 
4

 
Special Charges - non-cash impairment

 
(5
)
 

 

 

 

 

 
(5
)
 
Sensus acquisition related costs

 
(10
)
 

 
(4
)
 

 
(5
)
 

 
(19
)
 
Net Income, excluding gain on sale of businesses, non-cash impairment charges and Sensus Acquisition Related Costs
$
79

 
$
66

 
$
117

 
$
104

 
$
128

 
$
110

 
$
324

 
$
280

 
Free Cash Flow Conversion
4
%
 
39
%
 
75
%
 
67
%
 
99
%
 
170
%
 
67
%
 
101
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
($ Millions)

2018
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Net Income
79

 
115

 
130

 
 
 
324

Income Tax Expense
16

 
35

 
31

 
 
 
82

Interest Expense (Income), net
20

 
20

 
20

 
 
 
60

Depreciation
29

 
29

 
29

 
 
 
87

Amortization
38

 
36

 
34

 
 
 
108

EBITDA
182

 
235

 
244

 
 
 
661

Share-based Compensation

9

 
7

 
7

 
 
 
23

Restructuring & Realignment
16

 
9

 
11

 
 
 
36

Loss/(Gain) from sale of business

 
2

 
(2
)
 
 
 

Special Charges
6

 
1

 
1

 
 
 
8

Adjusted EBITDA
213

 
254

 
261

 
 
 
728

Revenue
1,217

 
1,317

 
1,287

 
 
 
3,821

Adjusted EBITDA Margin
17.5
%
 
19.3
%
 
20.3
%
 
 
 
19.1
%
 
 
 
 
 
 
 
 
 
 
2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Net Income
56

 
100

 
104

 
70

 
330

Income Tax Expense
14

 
21

 
27

 
74

 
136

Interest Expense (Income), net
20

 
20

 
20

 
19

 
79

Depreciation
28

 
27

 
28

 
26

 
109

Amortization
31

 
30

 
30

 
34

 
125

EBITDA
149

 
198

 
209

 
223

 
779

Share-based Compensation

6

 
5

 
5

 
5

 
21

Restructuring & Realignment
11

 
12

 
9

 
9

 
41

Loss/(Gain) from sale of business
(5
)
 

 
1

 
14

 
10

Sensus acquisition related costs
7

 
2

 
3

 
2

 
14

Special Charges
5

 

 
3

 
5