Xylem Reports Fourth Quarter and Full Year 2013 Results Reflecting Record Q4 Revenue and Improved Operational Performance

RYE BROOK, N.Y. — FEBRUARY 4TH, 2014

• Fourth quarter 2013 adjusted net income was $103 million or $0.56 per share, up 19 percent over fourth quarter 2012; GAAP net income was $68 million or  $0.37 per share
• Full year 2013 adjusted net income was $311 million or $1.67 per share; FY GAAP net income was $228 million or $1.22 per share
• Fourth quarter 2013 revenue was a record $1.03 billion, up 7 percent; FY 2013 revenue was $3.84 billion, up 1 percent
• Fourth quarter 2013 adjusted operating margin up 60 basis points; up 180 basis points as reported
• Fourth quarter organic orders up 5 percent over fourth quarter 2012
• Company issues full-year 2014 financial guidance, sees FY 2014 adjusted EPS of $1.85 -  $2.00 per share for earnings growth of 11 to 20 percent on revenue growth of 2 to 4 percent
• Xylem Board of Directors approves a 10 percent increase in the dividend for first quarter 2014

Xylem today reported fourth quarter 2013 net income of $68 million, or $0.37 per share. Excluding the impact of restructuring, realignment and other special items, adjusted net income was $103 million or $0.56 per share, up 9 cents or 19 percent from the comparable period in 2012. Fourth quarter revenue was $1.03 billion, up 7 percent, reflective of strength in industrial and public utility markets. Fourth quarter adjusted operating margins improved 60 basis points, driven by higher volume and the impact of efficiency and cost control measures undertaken throughout the year.

"We are very pleased to deliver another strong quarter with upturns in revenue and earnings while continuing to execute our aggressive growth and operational improvement initiatives," said Steve Loranger, chief executive officer and president of Xylem. "Organic order and revenue growth during the quarter point to the early success of our sales force accountability initiative and the strength of our business portfolio as economic conditions continue to improve. We launched new products such as our e-HMTM energ-efficeint stainless steel industrial pump, and won new projects, such as a large contract to supply the technology and equipment for a sophisticated drainage system on the New Jersey coastline following the damage caused by Super Storm Sandy. Under the leadership of our new regional and growth center leaders, all of our businesses substantially contributed to fourth quarter performance and are energized to build even more momentum as we begin 2014."

Loranger said the company continues to execute cost reduction actions including further refinement of the global organization and footprint, and has reinvigorated its productivity initiatives around global sourcing and Lean Six Sigma.

"We intend to bring more to the bottom line by continuing to take out costs where we can, and continue deploying our capital to invest in the business, and maximize shareholder return," Loranger said.

Xylem today also announced that its Board of Directors declared a dividend in the amount of $0.128 per share for the first quarter of 2014, an increase of 10 percent, payable on March 19, 2014 to shareholders of record as of February 19, 2014.

For the full year 2013, Xylem revenues were $3.84 billion, up 1 percent over 2012. Full year reported net income was $228 million, or $1.22 per share with an operating margin of 9.5 percent. Adjusted net income, excluding the impact of restructuring, realignment and other special items, was $311 million or $1.67 per share. Full year 2013 adjusted operating margins were 11.8 percent. Free cash flow was $198 million, 87 percent of net earnings.

FULL-YEAR 2014 OUTLOOK

Xylem forecasts full year 2014 revenue of approximately $4 billion, up 2 to 4 percent over 2013. Full year 2014 adjusted net income is expected to be in the range of $345 to $370 million, for adjusted earnings per share of $1.85 to $2.00, reflecting 11 to 20 percent growth over 2013. The company anticipates that restructuring and realignment costs will range from $40 to $50 million for the year.

"We're encouraged by signs of stabilization in some of our key end markets such as industrial and public utilities, as well as relative strength in Europe," Loranger said. "We believe the improvement we saw in the back half of 2013 will carry into 2014, combining with our continued focus on cost control to enable potential upside for our full year earnings."

FOURTH QUARTER SEGMENT RESULTS

WATER INFRASTRUCTURE

Xylem's Water Infrastructure segment consists of its businesses serving clean water delivery, wastewater transport and treatment, dewatering and analytical instrumentation.

• Fourth quarter 2013 revenue was $691 million, up 8 percent compared with the fourth quarter 2012, reflecting improvement in Transport business in the Americas and Europe.
• Fourth quarter adjusted segment operating income, which excludes $12 million of restructuring, realignment and other special items, was $112 million, up 7 percent over the same period in 2012. Adjusted operating margin for the quarter declined 30 basis points, including 150 basis points of unfavorable foreign exchange impacts, acquisitions and lower price.

APPLIED WATER

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

• Fourth quarter 2013 revenue was $358 million, up 3 percent compared with the fourth quarter 2012, with growth coming in industrial and irrigation applications.
• Fourth quarter adjusted segment operating income, which excludes $4 million of restructuring and realignment costs, was $46 million, 15 percent higher than the comparable period last year. Adjusted operating margin grew 120 basis points primarily driven by the benefits of cost reduction actions taken throughout the year.

Supplemental information on Xylem's fourth quarter and full year 2013 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors