Market Overview

Xylem reports eight percent increase in organic revenue and orders, and strong double-digit growth in 2nd quarter 2018 earnings

Share:
  • Second quarter 2018 reported net income was $115 million or $0.64
    per share; Adjusted net income for the quarter was $131 million or
    $0.73 per share, up 24 percent versus the prior year period
  • Xylem delivered $1.3 billion in second quarter 2018 revenue, up 13
    percent year-over-year including the impact of foreign exchange and
    acquisitions
  • Reported and adjusted EBITDA margin increased 80 and 70 basis
    points, respectively
  • Second quarter free cash flow conversion increased 800 basis points
    year-over-year

Xylem Inc. (NYSE:XYL), a leading global water technology company
dedicated to solving the world's most challenging water issues, today
reported second quarter 2018 net income of $115 million, or $0.64 per
share. Excluding the impact of restructuring, realignment and other
special items, the Company delivered adjusted net income of $131 million
or $0.73 per share in the quarter, a 24-percent increase over the prior
year period. Second quarter revenue was $1.3 billion, up 13 percent
including the impact of foreign exchange and acquisitions. Revenue for
the quarter increased eight percent on an organic basis, driven by
double-digit growth in utilities and continued strength in the
industrial and commercial end markets across nearly all major
geographies. Orders increased eight percent organically in the quarter.
Adjusted earnings before interest, tax, depreciation and amortization
(EBITDA) margin improved by 70 basis points year-over-year to 19.3
percent driven by volume leverage and savings from productivity
initiatives. Reported operating margin in the quarter was 13 percent and
adjusted operating margin increased 70 basis points year-over-year to
13.8 percent, including a 20-basis-point negative impact due to purchase
accounting amortization.

Patrick Decker, President and Chief Executive Officer of Xylem, said,
"Our second quarter results were very strong as our team continued to
successfully execute on our strategy to generate consistent, profitable
growth. Once again, we delivered high single-digit organic growth in
revenue and orders globally, reflecting solid growth in each of the
major geographic markets in which we operate. We are capturing share in
the utilities end market where strong orders and backlog growth reflect
continued momentum. As we indicated previously, we began implementing
price increases earlier this year and I'm pleased with the traction
we've gained in the marketplace. Our ability to successfully realize
meaningful pricing impact, while continuing to execute our productivity
initiatives, has and will continue to help us mitigate higher input
costs from inflationary pressures and tariffs. Our strong operational
performance in the first half of the year and continued momentum
underpins our confidence in our updated expectations for the full year."

Updated Full-year 2018 Outlook

Xylem now forecasts full-year 2018 revenue of approximately $5.2
billion, up more than 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 six to seven percent.

The Company has narrowed the range of its full-year 2018 earnings
expectations. Reflected in this expectation is $0.04 of operational
improvement driven by stronger operational execution and price
realization offset by the impact of a strengthening dollar and
divestiture of a non-core business. Full-year 2018 adjusted operating
margin is now expected to be in the range of 13.9 to 14.2 percent,
resulting in adjusted earnings per share of $2.85 to $2.95. This
represents an increase of 19 to 23 percent from Xylem's 2017 adjusted
results. The Company's adjusted earnings outlook excludes projected
integration, restructuring and realignment costs, which now 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.

Second 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.

  • Second quarter 2018 revenue was $546 million, up 11 percent
    organically compared with second quarter 2017. This growth includes
    strong results in the utilities end market, particularly in the U.S.,
    which was up 13 percent in the quarter. Large project deliveries along
    with strong aftermarket performance drove a nearly 30 percent
    year-over-year increase in the Company's treatment business. The
    industrial end market also continued to show solid growth, reflecting
    solid global demand in dewatering.
  • Second quarter reported operating income for the segment was $92
    million. Adjusted operating income for the segment, which excludes $5
    million of restructuring and realignment costs, was $97 million, a
    23-percent increase over the same period a year ago. Adjusted EBITDA
    margin for the Water Infrastructure segment increased 80 basis points
    to 20.1 percent. Reported operating margin for the segment was 16.8
    percent, up 140 basis points versus the prior year, and adjusted
    operating margin increased 140 basis points to 17.8 percent. This
    growth reflects volume leverage, productivity gains and price
    realization, partially offset by inflation and a higher mix of
    treatment project deliveries.

Applied Water

Xylem's Applied Water segment consists of its portfolio of businesses in
residential and commercial building services, and industrial
applications.

  • Second quarter 2018 Applied Water revenue was $388 million, a
    six-percent increase organically year-over-year. This performance
    reflects solid growth in the U.S. in both the industrial and
    commercial sectors, and double-digit growth in Emerging Markets.
    Increased project business as well as continued commercial growth
    drove a double-digit increase in China.
  • Second quarter reported operating income for the segment was $61
    million and adjusted operating income, which excludes $2 million of
    restructuring and realignment costs, was $63 million, a 19-percent
    increase over the comparable period last year. Adjusted EBITDA margin
    for the Applied Water segment was 18 percent, an increase of 110 basis
    points over the prior year. Reported operating margin was 15.7
    percent, up 240 basis points year-over-year, and adjusted operating
    margin increased 150 basis points to 16.2 percent as volume leverage,
    productivity initiatives and price realization more than offset
    inflation and unfavorable mix.

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.

  • Second quarter 2018 Measurement & Control Solutions revenue was $383
    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
    energy sector in North America. Revenue in Xylem's analytics business
    increased six percent organically in the quarter.
  • Second 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 three-percent increase over the prior-year period.
    Adjusted EBITDA margin for the Measurement & Control Solutions segment
    decreased 140 basis points to 18.5 percent. Reported operating margin
    for the segment was 8.1 percent. The benefits of volume leverage were
    more than offset by the negative impact of mix driven by large
    deployments in the energy business as well as the funding of strategic
    R&D and commercial investments to accelerate growth and higher
    purchase accounting amortization. This resulted in a 150-basis-point
    decrease in adjusted operating margin to 9.1 percent.

Supplemental information on Xylem's second 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: economic, 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 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 Six Months
For the period ended June 30,   2018   2017 2018   2017
Revenue $ 1,317 $ 1,164 $ 2,534 $ 2,235
Cost of revenue 798   707   1,555   1,366
Gross profit 519 457 979 869
Selling, general and administrative expenses 293 270 589 542
Research and development expenses 50 44 91 86
Restructuring and asset impairment charges, net 5   6   15   18
Operating income 171 137 284 223
Interest expense 21 21 42 41
Other non-operating income (expense), net 2 5 5 4
(Loss) gain from sale of business (2 )   (2 ) 5
Income before taxes 150 121 245 191
Income tax expense 35   21   51   35
Net income 115 100 194 156
Less: Net income attributable to non-controlling interests   1     1
Net income attributable to Xylem $ 115   $ 99   $ 194   $ 155
Earnings per share:
Basic $ 0.64 $ 0.55 $ 1.08 $ 0.87
Diluted $ 0.64 $ 0.55 $ 1.07 $ 0.86
Weighted average number of shares:
Basic 179.8 179.6 179.8 179.6
Diluted 181.0 180.6 181.2 180.6
Dividends declared per share $ 0.2100 $ 0.1800 $ 0.4200 $ 0.3600
 
   
XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

 
    June 30,
2018
December 31,
2017
 
ASSETS
Current assets:
Cash and cash equivalents $       321 $ 414
Receivables, less allowances for discounts and doubtful accounts of
$31 and $35 in 2018 and 2017, respectively
1,019 956
Inventories 598 524
Prepaid and other current assets 168   177  
Total current assets 2,106 2,071
Property, plant and equipment, net 643 643
Goodwill 2,996 2,768
Other intangible assets, net 1,269 1,168
Other non-current assets 218   210  
Total assets $       7,232   $ 6,860  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 580 $ 549
Accrued and other current liabilities 536 551
Short-term borrowings and current maturities of long-term debt 361    
Total current liabilities 1,477 1,100
Long-term debt 2,179 2,200
Accrued postretirement benefits 426 442
Deferred income tax liabilities 288 252
Other non-current accrued liabilities 333   347  
Total liabilities 4,703   4,341  
 
Stockholders' equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 192.8 shares and 191.9 shares in
2018 and 2017, respectively
2 2
Capital in excess of par value 1,932 1,912
Retained earnings 1,359 1,227
Treasury stock – at cost 13.2 shares and 12.4 shares in 2018 and
2017, respectively
(486 ) (428 )
Accumulated other comprehensive loss (294 ) (210 )
Total stockholders' equity 2,513   2,503  
Non-controlling interests 16 16
Total equity 2,529   2,519  
Total liabilities and stockholders' equity $       7,232   $ 6,860  
 
   
XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

 
For the six months ended June 30,   2018 2017
Operating Activities
Net income $       194 $       156
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 58 55
Amortization 74 61
Share-based compensation 16 11
Restructuring and asset impairment charges 15 18
Loss (gain) from sale of business

2

(5 )
Other, net

(7

)

4
Payments for restructuring (12 ) (17 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (68 ) (70 )
Changes in inventories (87 ) (13 )
Changes in accounts payable 54 (19 )
Other, net

(38

) (30 )
Net Cash – Operating activities 201   151  
Investing Activities
Capital expenditures (111 ) (77 )
Acquisition of business, net of cash acquired (430 ) (6 )
Proceeds from sale of business 11
Other, net 4   3  
Net Cash – Investing activities (537 ) (69 )
Financing Activities
Short-term debt issued, net 437 33
Short-term debt repaid (54 ) (65 )
Repurchase of common stock (58 ) (25 )
Proceeds from exercise of employee stock options 4 7
Dividends paid (76 ) (65 )
Other, net (1 )  
Net Cash – Financing activities 252   (115 )
Effect of exchange rate changes on cash (9 ) 13  
Net change in cash and cash equivalents (93 ) (20 )
Cash and cash equivalents at beginning of year 414   308  
Cash and cash equivalents at end of period $       321   $       288  
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 46 $ 46
Income taxes (net of refunds received) $ 51 $ 47
 
 
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. For Sensus historical adjustments, see Sensus
Historical - Adjusted Operating Income table.
 
"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 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
 
Change % Change

Acquisitions /

Change % Change
Orders Orders 2018 v. 2017 2018 v. 2017

Divestitures

FX Impact Adj. 2018 v. 2017 Adj. 2018 v. 2017  
2018 2017

Six Months Ended June 30

 
Xylem Inc. 2,698 2,349 349 15% (42) (86) 221 9% 11%
 
Water Infrastructure 1,134 988 146 15% - (42) 104 11% 11%
Applied Water 785 729 56 8% 10 (23) 43 6% 5%
Measurement & Control Solutions 779 632 147 23% (52) (21) 74 12% 20%
 

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 & Analytics 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
 
Change % Change

Acquisitions /

Change % Change
Revenue Revenue 2018 v. 2017 2018 v. 2017

Divestitures

FX Impact Adj. 2018 v. 2017 Adj. 2018 v. 2017  
2018 2017

Six Months Ended June 30

 
Xylem Inc. 2,534 2,235 299 13% (41) (83) 175 8% 10%
 
Water Infrastructure 1,026 901 125 14% - (38) 87 10% 10%
Applied Water 754 694 60 9% 8 (22) 46 7% 5%
Measurement & Control Solutions 754 640 114 18% (49) (23) 42 7% 14%
 

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 YTD

2018

2017

2018

2017

2018

2017

Total Revenue
• Total Xylem 1,217 1,071 1,317 1,164 2,534 2,235
• Water Infrastructure 480 419 546 482

 

1,026 901
• Applied Water 366 333 388 361

 

754 694
• Measurement & Control Solutions 371 319 383 321 754 640
 
Operating Income
• Total Xylem 113 86 171 137 284 223
• Water Infrastructure 49 41 92 74

 

141 115
• Applied Water 50 36 61 48

 

111 84
• Measurement & Control Solutions 33 25 31 29 64 54
• Total Segments 132 102 184 151 316 253
 
Operating Margin
• Total Xylem 9.3% 8.0% 13.0% 11.8% 11.2% 10.0%
• Water Infrastructure 10.2% 9.8% 16.8% 15.4% 13.7% 12.8%
• Applied Water 13.7% 10.8% 15.7% 13.3% 14.7% 12.1%
• Measurement & Control Solutions 8.9% 7.8% 8.1% 9.0% 8.5% 8.4%
• Total Segments 10.8% 9.5% 14.0% 13.0% 12.5% 11.3%
 
Sensus Acquisition Related Costs
• Total Xylem - 10 - 4 - 14
• Water Infrastructure - - - - - -
• Applied Water - - - - - -
• Measurement & Control Solutions - 6 - 3 - 9
• Total Segments - 6 - 3 - 9
 
Special Charges
• Total Xylem 6 5 1 - 7 5
• 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 26 23
• Water Infrastructure 5 4 5 5 10 9
• Applied Water 3 4 2 5 5 9
• Measurement & Control Solutions 8 3 3 2 11 5
• Total Segments 16 11 10 12 26 23
 
Adjusted Operating Income
• Total Xylem 135 112 182 153 317 265
• Water Infrastructure 54 45 97 79

 

151 124
• Applied Water 53 45 63 53

 

116 98
• Measurement & Control Solutions 43 34 35 34

 

78 68
• Total Segments 150 124 195 166 345 290
 
Adjusted Operating Margin
• Total Xylem 11.1% 10.5% 13.8% 13.1% 12.5% 11.9%
• Water Infrastructure 11.3% 10.7% 17.8% 16.4% 14.7% 13.8%
• Applied Water 14.5% 13.5% 16.2% 14.7% 15.4% 14.1%
• Measurement & Control Solutions 11.6% 10.7% 9.1% 10.6% 10.3% 10.6%
• Total Segments 12.3% 11.6% 14.8% 14.3% 13.6% 13.0%
 
 
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)
 
                           
Q2 2018 Q2 2017

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

Total Revenue 1,317 1,317 1,164 1,164
Operating Income 171 11 a 182 137 16 a 153
Operating Margin 13.0% 13.8% 11.8% 13.1%
Interest Expense (21) (21) (21) (21)
Other Non-Operating Income (Expense) 2 2 5 5
(Loss)/Gain from sale of business (2) 2 - -   -
Income before Taxes 150 13 163 121 16 137
Provision for Income Taxes (35) 3 b (32) (21) (9) b (30)
Income attributable to minority interest     - (1)   (1)
Net Income attributable to Xylem 115 16 131 99 7 106
Diluted Shares   181.0           181.0   180.6           180.6
Diluted EPS   $ 0.64   $ 0.09       $ 0.73   $ 0.55   $ 0.04       $ 0.59
 
Year-over-year currency translation impact on current year diluted
EPS
  $ 0.03   $ -       $ 0.03
Diluted EPS at Constant Currency   $ 0.61   $ 0.09       $ 0.70
 
 
Note: 2017 amounts have been restated in accordance with the
adoption of the new guidance on presentation of net periodic benefit
costs.
 
                           
Q2 YTD 2018 Q2 YTD 2017

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

Total Revenue 2,534 2,534 2,235 2,235
Operating Income 284 33 a 317 223 42 a 265
Operating Margin 11.2% 12.5% 10.0% 11.9%
Interest Expense (42) (42) (41) (41)
Other Non-Operating Income (Expense) 5 5 4 4

(Loss)/Gain from sale of business

(2) 2 - 5 (5) -
Income before Taxes 245 35 280 191 37 228
Provision for Income Taxes (51) (5) b (56) (35) (15) b (50)
Income attributable to minority interest -   - (1)   (1)
Net Income attributable to Xylem 194 30 224 155 22 177
Diluted Shares   181.2           181.2   180.6           180.6
Diluted EPS   $ 1.07   $ 0.17       $ 1.24   $ 0.86   $ 0.12       $ 0.98
 
Year-over-year currency translation impact on current year diluted
EPS
  $ 0.09   $ -       $ 0.09
Diluted EPS at Constant Currency   $ 0.98   $ 0.17       $ 1.15
 
a   Second quarter: Restructuring & realignment costs of $10 million and
$12 million in 2018 and 2017, respectively; special charges of $1
million of acquisition related costs in 2018 and $4 million of
Sensus acquisition related costs in 2017.
 
First half: Restructuring & realignment costs of $26 million and $23
million in 2018 and 2017, respectively; 2018 special charges of $7
million and 2017 Sensus acquisition related costs of $19 million.
 
b Second quarter: Net tax impact on restructuring & realignment costs
of $3 million and $5 million in 2018 and 2017, respectively; net tax
impact on 2017 Sensus acquisition related costs of $1 million and
tax-related special items of $6 million of benefit and $3 million of
expense in 2018 and 2017, respectively.
 
First half: Net tax impact on restructuring & realignment costs of
$7 million in both 2018 and 2017, respectively; net tax impact on
2018 special charges of $1 million; net tax impact on 2017 Sensus
acquisition related costs of $7 million in 2017; net tax impact of
$2 million on the gain from sale of business in 2017 and tax-related
special items of $3 million of benefit and $3 million of expense in
2018 and 2017, respectively.
 
           
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
 
 
Q1 Q2 Six Months Ended
2018 2017 2018 2017 2018 2017
 
Net Cash - Operating Activities $       63 $       52 $       138 $       99 $       201 $       151
 
Capital Expenditures (61) (43) (50) (34) (111) (77)
           
Free Cash Flow $       2 $       9 $       88 $       65 $       90 $       74
 
Cash paid for Sensus acquisition related costs (1) (17) - (5) (1) (22)
           
Free Cash Flow, excluding Sensus Acquisition Related Costs $       3 $       26 $       88 $       70 $       91 $       96
 
Net Income 79 56 115 100 194 156
 
Gain/(Loss) from sale of businesses - 5 (2) - (2) 5
 
Special Charges - non-cash impairment and early debt extinguishment - (5) - - - (5)
 
Sensus acquisition related costs         -         (10)         -         (4)         -         (14)
 

Net Income, excluding gain on sale of businesses, non-cash
impairment
charges and Sensus Acquisition Related Costs

$       79 $       66 $       117 $       104 $       196 $       170
 
Free Cash Flow Conversion         4%         39%         75%         67%         46%         56%
 
         
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
 
($ Millions)
 
2018
Q1 Q2 Q3 Q4 Total
 
Net Income 79 115 194
 
Income Tax Expense 16 35 51
 
Interest Expense (Income), net 20 20 40
Depreciation 29 29 58
Amortization 38 36     74
EBITDA 182 235 - - 417
 
Share-based Compensation 9 7 16
 
Restructuring & Realignment 16 9 25
 
Loss from sale of business - 2 2
 
Sensus Acquisition Related Costs - - -
 
Special Charges 6 1 7
         
Adjusted EBITDA 213 254 - - 467
 
Revenue 1,217 1,317     2,534
 
Adjusted EBITDA Margin 17.5% 19.3%     18.4%
 
 
 
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
 
(Gain)/Loss from sale of business (5) - 1 14 10
 
Sensus Acquisition Related Costs 7 2 3 2 14
 
Special Charges 5 - 3 5 13
         
Adjusted EBITDA 173 217 230 258 878
 
Revenue 1,071 1,164 1,195 1,277 4,707
 
Adjusted EBITDA Margin 16.2% 18.6% 19.2% 20.2% 18.7%
 
         
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Water Infrastructure
($ Millions)
 
2018
Q1 Q2 Q3 Q4 Total
 

Pre-Tax Income

47 90 137
 
Interest Expense (Income), net - (1) (1)
Depreciation 12 11 23
Amortization 5 5     10
EBITDA 64 105 - - 169
 
Share-based Compensation 1 - 1
 
Restructuring & Realignment 5 5     10
Adjusted EBITDA 70 110 - - 180
 
Revenue 480 546     1,026
 
Adjusted EBITDA Margin 14.6% 20.1%     17.5%
 
 
2017
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 39 73 90 105 307
 
Interest Expense (Income), net - - (1) (1) (2)
Depreciation 11 11 12 11 45
Amortization 5 4 5 5 19
EBITDA 55 88 106 120 369
 
Share-based Compensation 1 - - 1 2
 
Restructuring & Realignment 4 5 3 4 16
         
Adjusted EBITDA 60 93 109 125 387
 
Revenue 419 482 520 583 2,004
 
Adjusted EBITDA Margin 14.3% 19.3% 21.0% 21.4% 19.3%
 
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
EBITDA and Adjusted EBITDA by Quarter
Applied Water
($ Millions)
 
2018
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 50 61 111
 
Interest, net - - -
Depreciation 5 5 10
Amortization - 1     1
EBITDA 55 67 - - 122
 
Share-based Compensation 1 1 2
 
Restructuring & Realignment 3 2 5
         
Adjusted EBITDA 59 70 - - 129
 
Revenue 366 388     754
 
Adjusted EBITDA Margin 16.1% 18.0%     17.1%
 
 
2017
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 40 49 49 62 200
 
Interest, net - - - - -
Depreciation 5 5 5 5 20
Amortization 1 1 1 - 3
EBITDA 46 55 55 67 223
 
Share-based Compensation - 1 1 - 2
 
Restructuring & Realignment 4 5 5 3 17
 
Gain from sale of business (5) - 1 (2) (6)
 
Special Charges 5 - - - 5
         
Adjusted EBITDA 50 61 62 68 241
 
Revenue 333 361 354 373 1,421
 
Adjusted EBITDA Margin 15.0% 16.9% 17.5% 18.2% 17.0%
 
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
EBITDA and Adjusted EBITDA by Quarter
Measurement & Control Solutions
($ Millions)
     
2018
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 33 28 61
 
Interest Expense (Income), net - - -
Depreciation 8 9 17
Amortization 29 27     56
EBITDA 70 64 - - 134
 
Share-based Compensation 1 1 2
 
Restructuring & Realignment 8 3 11
 
Loss from sale of business

-

2

2

 
Special Charges 2 1 3
         
Adjusted EBITDA 81 71 - -

152

 
Revenue 371 383     754
 
Adjusted EBITDA Margin 21.8% 18.5%    

20.2%

 
2017
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 24 30 26 11 91
 
Interest Expense (Income), net - - - (1) (1)
Depreciation 8 8 7 7 30
Amortization 23 22 22 25 92
EBITDA 55 60 55 42 212
 
Share-based Compensation - 1 - 1 2
 
Restructuring & Realignment 3 2 1 2 8
 
Loss from sale of business - - - 16 16
 
Sensus Acquisition Related Costs 3 1 2 1 7
 
Special Charges - - - 2 2
         
Adjusted EBITDA 61 64 58 64 247
 
Revenue 319 321 321 321 1,282
 
Adjusted EBITDA Margin 19.1% 19.9% 18.1% 19.9% 19.3%
 
Note: 2017 amounts have been restated in accordance with the
adoption of the new guidance on presentation of net periodic benefit
costs.
 

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