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Xylem reports third quarter earnings growth and margin expansion

October 31, 2019

RYE BROOK, N.Y.--(BUSINESS WIRE)-- Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2019 net income of $65 million, or $0.36 per share. Excluding the impact of restructuring and realignment, impairment charges and one-time tax benefits, the Company delivered adjusted net income of $149 million, or $0.82 per share in the quarter. Excluding the impact of foreign exchange translation, adjusted earnings per share was up 10 percent. Third quarter revenue was $1.3 billion, up 3 percent organically led by healthy growth in the utilities end-market moderated by slower-than-expected growth in industrial and commercial markets. Reported operating margin in the quarter was 0.8 percent and adjusted operating margin was 15.1 percent, up 50 basis points compared to the prior year.

“Solid demand and disciplined execution in our largest markets drove margin expansion and delivery on our earnings commitments," said Patrick Decker, president and CEO of Xylem. "Steady revenue growth in our utilities business has been partially offset, however, by notable weakening in industrial and commercial end-markets.”

“The near-term softness in those market environments has caused us to lower our organic revenue and earnings guidance," Decker continued. "Nevertheless, we expect to exit the year with sizable backlogs as our core utilities business remains healthy and the digital transformation of the water sector continues to gather pace. This gives us confidence in our ability to continue to outperform the market in 2020, and deliver mid-single-digit growth over the long term."

Full-year 2019 Outlook

Xylem is updating its forecasted full-year 2019 revenue outlook to be in the range of $5.24 to $5.27 billion. On an organic basis, Xylem’s revenue growth is adjusted to a range of 3 to 4 percent (approximately 1 percent on a reported basis) from previous guidance of 5 to 6 percent.

Xylem is revising its full-year 2019 adjusted operating margin outlook from 14.5 to 14.9 percent to 13.8 to 14.0 percent. The full-year adjusted earnings per share is now expected to be $3.01 to $3.03, lowered from previous guidance of $3.12 to $3.22, but reflecting an increase of approximately 5 percent versus prior year — the equivalent of 7 to 8 percent excluding foreign exchange effects. The Company’s adjusted earnings outlook excludes projected restructuring and realignment and goodwill impairment costs. 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 primarily serving wastewater operations for utility and industrial customers through transport, dewatering and treatment applications.

  • Third quarter 2019 revenue was $531 million, up 1 percent organically compared with third quarter 2018. Healthy growth in the utilities market, particularly in the U.S., more than offset declines in our short-cycle industrial business.
  • Third quarter reported operating income for the segment was $97 million and adjusted operating income, which excludes $7 million of restructuring and realignment costs, was $104 million. The segment’s reported operating margin was 18.3 percent and adjusted operating margin was 19.6 percent, up 40 basis points versus the prior year due to higher net productivity and price realization, partially offset by the impact of lower volumes and mix.

Applied Water

Xylem’s Applied Water segment consists of its portfolio of businesses primarily serving the end users of water through industrial water management, commercial building services and residential applications.

  • Third quarter 2019 Applied Water revenue was $376 million, a 1 percent increase organically year-over-year. Versus strong prior year comparisons, both industrial and commercial end-markets were slower than expected, influenced by U.S. project delays.
  • Third quarter reported operating income for the segment was $61 million and adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $64 million. The segment’s reported operating margin was 16.2 percent and adjusted operating margin was 17.0 percent, an 90 basis point increase over prior year period due to higher price realization and productivity more than off-setting inflation.

Measurement & Control Solutions

Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses primarily serving the clean water and energy operations for utility and industrial customers through smart metering, network technologies, advanced infrastructure analytics and analytic instrumentation applications.

  • Third quarter 2019 Measurement & Control Solutions revenue was $389 million, up 8 percent organically versus the prior year. Revenue growth was driven by execution in the metrology water business.
  • Third quarter reported operating income for the segment was a loss of $136 million, and adjusted operating income, which excludes $20 million of restructuring and realignment costs and a $155 million impairment charge, was $39 million. The segment’s reported operating margin was -35 percent. Adjusted operating margin was 10 percent, up 50 basis points versus the prior year, driven by productivity and volume gains, as well as increased price realization, which was partially offset by higher growth investments.

Supplemental information on Xylem’s third quarter 2019 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 approximately 17,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York, with 2018 revenue of $5.2 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" within the meaning of the Private Securities Litigation Act of 1995. 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. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These forward-looking statements include any statements that are not historical in nature, including any statements about the capitalization of 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 including tariffs and embargoes that could affect customer markets and our business, and non-compliance with laws, including foreign corrupt practice laws, data privacy, 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; weather conditions; 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; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; claims or investigations by governmental or regulatory bodies; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report") and with subsequent filings we make with the Securities and Exchange Commission ("SEC").

All forward-looking statements made herein are based on information currently available to the Company as of the date of this Report. 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,

2019

 

2018

 

2019

 

2018

Revenue

$

1,296

 

 

$

1,287

 

 

$

3,878

 

 

$

3,821

 

Cost of revenue

787

 

 

782

 

 

2,369

 

 

2,337

 

Gross profit

509

 

 

505

 

 

1,509

 

 

1,484

 

Selling, general and administrative expenses

273

 

 

279

 

 

870

 

 

868

 

Research and development expenses

44

 

 

46

 

 

142

 

 

137

 

Restructuring and asset impairment charges

33

 

 

4

 

 

58

 

 

19

 

Goodwill impairment charge

148

 

 

 

 

148

 

 

 

Operating income

11

 

 

176

 

 

291

 

 

460

 

Interest expense

16

 

 

21

 

 

52

 

 

63

 

Other non-operating (expense) income, net

(7

)

 

4

 

 

(2

)

 

9

 

Gain from sale of business

 

 

2

 

 

1

 

 

 

(Loss) income before taxes

(12

)

 

161

 

 

238

 

 

406

 

Income tax (benefit) expense

(77

)

 

31

 

 

(45

)

 

82

 

Net income

$

65

 

 

$

130

 

 

$

283

 

 

$

324

 

Earnings per share:

 

 

 

 

 

 

 

Basic

$

0.36

 

 

$

0.73

 

 

$

1.57

 

 

$

1.80

 

Diluted

$

0.36

 

 

$

0.72

 

 

$

1.56

 

 

$

1.79

 

Weighted average number of shares:

 

 

 

 

 

 

 

Basic

180.1

 

 

179.7

 

 

179.9

 

 

179.8

 

Diluted

181.2

 

 

181.1

 

 

181.2

 

 

181.2

 

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)

 

September 30,
2019

 

December 31,
2018

 

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

453

 

 

$

296

 

Receivables, less allowances for discounts and doubtful accounts of $33 and $35 in 2019 and 2018, respectively

1,078

 

 

1,031

 

Inventories

580

 

 

595

 

Prepaid and other current assets

152

 

 

172

 

Total current assets

2,263

 

 

2,094

 

Property, plant and equipment, net

641

 

 

656

 

Goodwill

2,811

 

 

2,976

 

Other intangible assets, net

1,180

 

 

1,232

 

Other non-current assets

620

 

 

264

 

Total assets

$

7,515

 

 

$

7,222

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

521

 

 

$

586

 

Accrued and other current liabilities

634

 

 

546

 

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

306

 

 

257

 

Total current liabilities

1,461

 

 

1,389

 

Long-term debt

2,030

 

 

2,051

 

Accrued postretirement benefits

385

 

 

400

 

Deferred income tax liabilities

310

 

 

303

 

Other non-current accrued liabilities

434

 

 

297

 

Total liabilities

4,620

 

 

4,440

 

 

 

 

 

Stockholders’ equity:

 

 

 

Common Stock – par value $0.01 per share:

 

 

 

Authorized 750.0 shares, issued 193.8 shares and 192.9 shares in 2019 and 2018, respectively

2

 

 

2

 

Capital in excess of par value

1,983

 

 

1,950

 

Retained earnings

1,791

 

 

1,639

 

Treasury stock – at cost 13.7 shares and 13.2 shares in 2019 and 2018, respectively

(526

)

 

(487

)

Accumulated other comprehensive loss

(364

)

 

(336

)

Total stockholders’ equity

2,886

 

 

2,768

 

Non-controlling interests

9

 

 

14

 

Total equity

2,895

 

 

2,782

 

Total liabilities and stockholders’ equity

$

7,515

 

 

$

7,222

 

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)

For the nine months ended September 30,

2019

 

2018

Operating Activities

 

 

 

Net income

$

283

 

 

$

324

 

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

 

 

 

Depreciation

88

 

 

87

 

Amortization

104

 

 

108

 

Share-based compensation

23

 

 

23

 

Restructuring and asset impairment charges

58

 

 

19

 

Goodwill impairment charge

148

 

 

 

Gain from sale of business

(1

)

 

 

Other, net

7

 

 

2

 

Payments for restructuring

(21

)

 

(18

)

Changes in assets and liabilities (net of acquisitions):

 

 

 

Changes in receivables

(73

)

 

(76

)

Changes in inventories

(2

)

 

(115

)

Changes in accounts payable

(30

)

 

51

 

Changes in accrued taxes

(140

)

 

20

 

Other, net

7

 

 

(37

)

Net Cash – Operating activities

451

 

 

388

 

Investing Activities

 

 

 

Capital expenditures

(175

)

 

(171

)

Acquisitions of businesses, net of cash acquired

(18

)

 

(433

)

Proceeds from sale of business

(2

)

 

22

 

Cash received from investments

3

 

 

 

Other, net

7

 

 

3

 

Net Cash – Investing activities

(185

)

 

(579

)

Financing Activities

 

 

 

Short-term debt issued, net

317

 

 

410

 

Short-term debt repaid

(254

)

 

(50

)

Repurchase of common stock

(39

)

 

(58

)

Proceeds from exercise of employee stock options

10

 

 

7

 

Dividends paid

(131

)

 

(114

)

Other, net

(2

)

 

 

Net Cash – Financing activities

(99

)

 

195

 

Effect of exchange rate changes on cash

(10

)

 

(14

)

Net change in cash and cash equivalents

157

 

 

(10

)

Cash and cash equivalents at beginning of year

296

 

 

414

 

Cash and cash equivalents at end of period

$

453

 

 

$

404

 

Supplemental disclosure of cash flow information:

 

 

 

Cash paid during the period for:

 

 

 

Interest

$

46

 

 

$

47

 

Income taxes (net of refunds received)

$

94

 

 

$

60

 

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, 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, net income and earnings per share, adjusted to exclude restructuring and realignment 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 acquisition and integration related costs not included in "Sensus Acquisition Related Costs", non-cash impairment charges and other special non-operating items, such as pension adjustments.

“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.

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 /
Divestitures
Change % Change
Orders Orders 2019 v. 2018 2019 v. 2018 FX Impact Adj. 2019 v. 2018 Adj. 2019 v. 2018

2019

2018

Nine Months Ended September 30
 
Xylem Inc.

4,053

4,054

(1)

0%

13

113

125

3%

3%

 
Water Infrastructure

1,704

1,671

33

2%

-

64

97

6%

6%

Applied Water

1,169

1,162

7

1%

-

26

33

3%

3%

Measurement & Control Solutions

1,180

1,221

(41)

-3%

13

23

(5)

0%

-1%

 
Quarter Ended September 30
 
Xylem Inc.

1,346

1,356

(10)

-1%

4

24

18

1%

1%

 
Water Infrastructure

586

537

49

9%

-

13

62

12%

12%

Applied Water

376

377

(1)

0%

-

6

5

1%

1%

Measurement & Control Solutions

384

442

(58)

-13%

4

5

(49)

-11%

-12%

 
Quarter Ended June 30
 
Xylem Inc.

1,392

1,378

14

1%

7

33

54

4%

3%

 
Water Infrastructure

586

580

6

1%

-

16

22

4%

4%

Applied Water

399

401

(2)

0%

-

8

6

1%

1%

Measurement & Control Solutions

407

397

10

3%

7

9

26

7%

5%

 
Quarter Ended March 31
 
Xylem Inc.

1,315

1,320

(5)

0%

2

56

53

4%

4%

 
Water Infrastructure

532

554

(22)

-4%

-

35

13

2%

2%

Applied Water

394

384

10

3%

-

12

22

6%

6%

Measurement & Control Solutions

389

382

7

2%

2

9

18

5%

4%

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 /
Divestitures
Change % Change
Revenue Revenue 2019 v. 2018 2019 v. 2018 FX Impact Adj. 2019 v. 2018 Adj. 2019 v. 2018

2019

2018

Nine Months Ended September 30
 
Xylem Inc.

3,878

3,821

57

1%

18

107

182

5%

4%

 
Water Infrastructure

1,574

1,567

7

0%

-

59

66

4%

4%

Applied Water

1,149

1,132

17

2%

-

26

43

4%

4%

Measurement & Control Solutions

1,155

1,122

33

3%

18

22

73

7%

5%

 
Quarter Ended September 30
 
Xylem Inc.

1,296

1,287

9

1%

4

24

37

3%

3%

 
Water Infrastructure

531

541

(10)

-2%

-

13

3

1%

1%

Applied Water

376

378

(2)

-1%

-

6

4

1%

1%

Measurement & Control Solutions

389

368

21

6%

4

5

30

8%

7%

 
Quarter Ended June 30
 
Xylem Inc.

1,345

1,317

28

2%

9

32

69

5%

5%

 
Water Infrastructure

561

546

15

3%

-

16

31

6%

6%

Applied Water

394

388

6

2%

-

8

14

4%

4%

Measurement & Control Solutions

390

383

7

2%

9

8

24

6%

4%

 
Quarter Ended March 31
 
Xylem Inc.

1,237

1,217

20

2%

5

51

76

6%

6%

 
Water Infrastructure

482

480

2

0%

-

30

32

7%

7%

Applied Water

379

366

13

4%

-

12

25

7%

7%

Measurement & Control Solutions

376

371

5

1%

5

9

19

5%

4%

Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)

Q1 Q2 Q3 YTD

2019

2018

2019

2018

2019

2018

2019

2018

Total Revenue
• Total Xylem

1,237

1,217

1,345

1,317

1,296

1,287

3,878

3,821

• Water Infrastructure

482

480

561

546

531

541

1,574

1,567

• Applied Water

379

366

394

388

376

378

1,149

1,132

• Measurement & Control Solutions

376

371

390

383

389

368

1,155

1,122

 
Operating Income
• Total Xylem

109

113

171

171

11

176

291

460

• Water Infrastructure

51

49

98

92

97

99

246

240

• Applied Water

56

50

62

61

61

59

179

170

• Measurement & Control Solutions

16

33

26

31

(136)

31

(94)

95

• Total Segments

123

132

186

184

22

189

331

505

 
Operating Margin
• Total Xylem

8.8%

9.3%

12.7%

13.0%

0.8%

13.7%

7.5%

12.0%

• Water Infrastructure

10.6%

10.2%

17.5%

16.8%

18.3%

18.3%

15.6%

15.3%

• Applied Water

14.8%

13.7%

15.7%

15.7%

16.2%

15.6%

15.6%

15.0%

• Measurement & Control Solutions

4.3%

8.9%

6.7%

8.1%

-35.0%

8.4%

-8.1%

8.5%

• Total Segments

9.9%

10.8%

13.8%

14.0%

1.7%

14.7%

8.5%

13.2%

 
Special Charges
• Total Xylem

4

6

-

1

155

1

159

8

• Water Infrastructure

-

-

-

-

-

-

-

-

• Applied Water

-

-

-

-

-

-

-

-

• Measurement & Control Solutions

4

2

-

1

155

-

159

3

• Total Segments

4

2

-

1

155

-

159

3

 
Restructuring & Realignment Costs
• Total Xylem

20

16

21

10

30

11

71

37

• Water Infrastructure

9

5

9

5

7

5

25

15

• Applied Water

3

3

4

2

3

2

10

7

• Measurement & Control Solutions

8

8

8

3

20

4

36

15

• Total Segments

20

16

21

10

30

11

71

37

 
Adjusted Operating Income
• Total Xylem

133

135

192

182

196

188

521

505

• Water Infrastructure

60

54

107

97

104

104

271

255

• Applied Water

59

53

66

63

64

61

189

177

• Measurement & Control Solutions

28

43

34

35

39

35

101

113

• Total Segments

147

150

207

195

207

200

561

545

 
Adjusted Operating Margin
• Total Xylem

10.8%

11.1%

14.3%

13.8%

15.1%

14.6%

13.4%

13.2%

• Water Infrastructure

12.4%

11.3%

19.1%

17.8%

19.6%

19.2%

17.2%

16.3%

• Applied Water

15.6%

14.5%

16.8%

16.2%

17.0%

16.1%

16.4%

15.6%

• Measurement & Control Solutions

7.4%

11.6%

8.7%

9.1%

10.0%

9.5%

8.7%

10.1%

• Total Segments

11.9%

12.3%

15.4%

14.8%

16.0%

15.5%

14.5%

14.3%

Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)

Q3 2019 Q3 2018
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue

1,296

-

1,296

1,287

-

1,287

Operating Income

11

185

a

196

176

12

a

188

Operating Margin

0.8%

15.1%

13.7%

14.6%

Interest Expense

(16)

-

(16)

(21)

-

(21)

Other Non-Operating Income (Expense)

(7)

11

b

4

4

-

4

Gain/(Loss) From Sale of Businesses

-

-

-

2

(2)

-

Income before Taxes

(12)

196

184

161

10

171

Provision for Income Taxes

77

(112)

c

(35)

(31)

(1)

c

(32)

Net Income Attributable to Xylem

65

84

149

130

9

139

Diluted Shares

181.2

181.2

181.1

181.1

Diluted EPS

$ 0.36

$ 0.46

$ 0.82

$ 0.72

$ 0.05

$ 0.77

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

$ (0.02)

$ (0.01)

$ (0.03)

Diluted EPS at Constant Currency

$ 0.38

$ 0.47

$ 0.85

 
 
 
Q3 YTD 2019 Q3 YTD 2018

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

Total Revenue

3,878

-

3,878

3,821

3,821

Operating Income

291

230

a

521

460

45

a

505

Operating Margin

7.5%

13.4%

12.0%

13.2%

Interest Expense

(52)

-

(52)

(63)

-

(63)

Other Non-Operating Income (Expense)

(2)

11

b

9

9

-

9

Gain/(Loss) From Sale of Businesses

1

(1)

-

-

-

-

Income before Taxes

238

240

478

406

45

451

Provision for Income Taxes

45

(137)

c

(92)

(82)

(6)

c

(88)

Net Income Attributable to Xylem

283

103

386

324

39

363

Diluted Shares

181.2

181.2

181.2

181.2

Diluted EPS

$ 1.56

$ 0.57

$ 2.13

$ 1.79

$ 0.21

$ 2.00

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

$ (0.07)

$ (0.02)

$ (0.09)

Diluted EPS at Constant Currency

$ 1.63

$ 0.59

$ 2.22

a Quarter: Restructuring & realignment costs of $30 million and $11 million in 2019 and 2018, respectively; special charges of $155 million of intangible asset and goodwill impairment in 2019 $1 million of acquisition related costs in 2018.
Year-to-date: Restructuring & realignment costs of $71 million and $37 million in 2019 and 2018, respectively; special charges of $155 million of intangible asset and goodwill impairment and $4 million of acquisition related costs in 2019 and $8 million of acquisition related costs in 2018.
 
b Special charges related to incremental pension costs as a result of the planned buyout of our UK pension plan.
 
c Quarter: Net tax impact on restructuring & realignment costs of $9 million and $3 million in 2019 and 2018, respectively; $2 million of tax impact on special charges in 2019 and tax-related special items of $101 million negative impact from benefit adjustments in 2019 and $2 million positive impact from expense adjustments in 2018.
Year-to-date: Net tax impact on restructuring & realignment costs of $17 million and $10 million in 2019 and 2018, respectively; $2 million and $1 million of tax impact on special charges in 2019 and 2018, respectively and tax-related special items of $118 million negative impact from benefit adjustments in 2019 and $5 million positive impact from expense adjustments in 2018.

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

Q1 Q2 Q3 Year-to-Date

2019

2018

2019

2018

2019

2018

2019

2018

 
Net Cash - Operating Activities

$ 83

$ 63

$ 123

$ 138

$ 245

$ 187

$ 451

$ 388

 
Capital Expenditures

(69)

(61)

(60)

(50)

(46)

(60)

(175)

(171)

 
Free Cash Flow

$ 14

$ 2

$ 63

$ 88

$ 199

$ 127

$ 276

$ 217

 
Cash paid for Sensus acquisition related costs

-

(1)

-

-

-

-

-

(1)

 
Free Cash Flow, excluding Sensus Acquisition Related Costs

$ 14

$ 3

$ 63

$ 88

$ 199

$ 127

$ 276

$ 218

 
Net Income

79

79

139

115

65

130

283

324

 
Gain/(Loss) from sale of businesses

1

-

-

(2)

-

2

1

-

 
Special Charges - non-cash impairment

(3)

-

-

-

(155)

-

(158)

-

 
Significant deferred tax benefit/(charge)

-

-

-

-

97

-

97

 
Net Income, excluding gain on sale of businesses, non-cash impairment charges and significant deferred tax items

$ 81

$ 79

$ 139

$ 117

$ 123

$ 128

$ 343

$ 324

`
Free Cash Flow Conversion

17%

4%

45%

75%

162%

99%

80%

67%

 

Media
Houston Spencer +1 (914) 323-5723
Houston.Spencer@xyleminc.com

Investors
Matt Latino +1 (914) 323-5821
Matthew.Latino@xyleminc.com