Xylem reports seven percent organic revenue increase and strong double-digit growth in 4th quarter 2017 earnings

Company completes acquisition of Pure Technologies

• Fourth quarter 2017 reported net income was $71 million or $0.40 per share; Adjusted net income for the quarter was $137 million or $0.76 per share, up 15 percent versus the prior year period
• Full-year 2017 reported net income was $331 million or $1.83 per share; Adjusted net income was $433 million or $2.40 per share, up 18-percent year-over-year
• Xylem delivered $4.7 billion in revenue for the full year, representing pro forma organic growth of four percent
• Full-year free cash flow grew 41 percent to $544 million, representing a 147-percent conversion
• Company increases quarterly cash dividend by 17 percent
• Xylem projects full-year 2018 organic revenue growth of four to six percent, adjusted earnings per share of $2.82 to $2.97

RYE BROOK, N.Y.--(BUSINESS WIRE)--Feb. 1, 2018-- Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported fourth quarter 2017 net income of $71 million, or $0.40 per share. Excluding the impact of restructuring, realignment, acquisition-related charges and other special items, the Company delivered adjusted net income of $137 million or $0.76 per share in the quarter, a 15-percent increase over the prior year period. Fourth quarter revenue was $1.3 billion, up 17 percent including the full quarter contribution from the Sensus business versus the prior year period which included only two months of Sensus results. Revenue for the quarter increased seven percent on a pro forma organic basis, driven by a strong performance in the public utility end market in nearly every geography and continued growth in industrial, commercial and residential end markets. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) improved by 40 basis points year-over-year to 20.2 percent driven by net productivity gains and volume leverage. Reported operating margin in the quarter was 14 percent and adjusted operating margin decreased 10 basis points year-over-year to 15.2 percent, including a 20-basis-point impact due to purchase accounting amortization.

For the full year 2017, Xylem generated $4.7 billion in revenue, up 25 percent on a reported basis and four percent on a pro forma organic basis. Full-year reported net income was $331 million, or $1.83 per share, with an operating margin of 11.8 percent. Adjusted net income, which excludes the impact of restructuring, realignment, acquisition-related charges and other special items, was $433 million, or $2.40 per share, an 18-percent increase over the prior year. Adjusted EBITDA improved by 80 basis points to 18.7 percent year-over-year. Xylem delivered a full-year 2017 adjusted operating margin of 13.4 percent, down 20 basis points versus the prior year including a 50-basis-point impact due to purchase accounting amortization. The Company generated $544 million in free cash flow, an increase of 41 percent versus last year, representing a 147-percent conversion.

“Our teams delivered a strong performance throughout 2017 and I’m very pleased with our full-year results,” said Patrick Decker, President and Chief Executive Officer of Xylem. “Our relentless focus on the customer and continuing to enhance our execution in the field translated into improved results in revenue, orders and backlog growth, with the momentum we built in the second half of the year carrying into 2018. We capitalized on improving end market conditions, particularly in public utilities where we continue to gain share. Our productivity for growth initiatives continue to generate significant savings and fund critical R&D investments for our long-term growth. The successful integration of the new capabilities and capacity we gained with the addition of Sensus and Visenti are opening up new growth opportunities for us. And we’re building upon this as we continue to execute our strategy of disciplined capital deployment.”

Xylem also confirmed the completion of its previously announced acquisition of Pure Technologies, a leader in smart infrastructure assessment and management. Pure’s diagnostic and analytics solutions and services address key water and wastewater infrastructure challenges, including non-revenue water and asset management, a critical issue as infrastructure ages.

Decker continued, “Pure’s solutions are highly complementary to the broader Xylem portfolio. This business brings a unique set of proprietary technologies as well as data analytics expertise that further augment our ability to identify and address some of our customers’ most urgent needs. As we bring these and other advanced infrastructure analytics capabilities together, we will create a portfolio of solutions that is holistic, disruptive and scalable to significantly improve the economics of our customers’ operations.”

Xylem announced that its Board of Directors declared a dividend in the amount of $0.21 per share, an increase of 17 percent. The dividend is payable on March 15, 2018 to shareholders of record as of February 15, 2018.

Full-year 2018 Outlook

Xylem forecasts full-year 2018 revenue in the range of $5.1 to $5.2 billion, up eight to 10 percent, including growth from previously announced acquisitions. On an organic basis, Xylem’s revenue growth is anticipated to be in the range of four to six percent.

Full-year 2018 adjusted operating margin is expected to be in the range of 14.0 to 14.4 percent, resulting in adjusted earnings per share of $2.82 to $2.97. This represents an increase of 18 to 24 percent from Xylem’s 2017 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs of approximately $35 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.

Fourth 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.

• Fourth quarter 2017 revenue was $583 million, up six percent organically compared with fourth quarter 2016. This increase was driven by strong results in the public utility end market across most regions globally from wastewater transport applications and treatment project deliveries. The industrial end market also continued to show solid growth, reflecting improved market conditions in North America for dewatering applications.
• Fourth quarter reported operating income for the segment was $103 million. Adjusted operating income for the segment, which excludes $4 million of restructuring and realignment costs, was $107 million, a six-percent increase over the same period a year ago. Reported operating margin for the Water Infrastructure segment was 17.7 percent, down 100 basis points versus the prior year, and adjusted operating margin was down 70 basis points to 18.4 percent. This reflects inflation and higher investments in strategic initiatives, which more than offset strong productivity gains and volume leverage achieved in the quarter.

Applied Water

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

• Fourth quarter 2017 Applied Water revenue was $373 million, a five-percent increase organically year-over-year. This performance reflects continued growth in the U.S. and Europe industrial end markets. Demand for clean water supply helped drive growth in the residential end market in Asia Pacific, and the Company also captured share gains in Europe. Commercial building applications showed solid growth from demand for projects and restocking due to cold weather conditions.
• Fourth 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, a 16-percent increase over the comparable period last year. Applied Water segment reported operating margin was 16.4 percent, up 270 basis points over the prior year period. Adjusted operating margin increased 150 basis points to 17.2 percent as cost reductions and volume leverage more than offset inflation and the funding of investments.

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.

• Fourth quarter 2017 Measurement & Control Solutions revenue was $321 million, up 12 percent organically versus the prior year. This growth was driven by a strong performance in the Sensus business, which increased 15 percent on a pro forma organic basis in the quarter, reflecting double-digit growth in water, gas and software services sectors partially offset by modest declines in the electric business. Revenue from Xylem’s legacy analytics business increased one percent organically in the quarter.
• Fourth quarter reported operating income for the segment was $30 million, and adjusted operating income, which excludes $4 million of restructuring and realignment costs and acquisition-related costs, was $34 million. Measurement & Control Solutions segment reported operating margin was 9.3 percent. Adjusted operating margin increased 130 basis points to 10.6 percent as volume leverage and mix combined with cost reductions more than offset inflation and the funding of strategic R&D investments.

Supplemental information on Xylem’s fourth quarter and full-year 2017 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 16,000 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 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, 2016, 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 CONSOLIDATED INCOME STATEMENTS (Unaudited) (In Millions, except per share data)
Year Ended December 31,			2017				2016				2015
Revenue			$	4,707			$	3,771			$	3,653
Cost of revenue			2,856				2,310				2,249
Gross profit			1,851				1,461				1,404
Selling, general and administrative expenses			1,090				915				854
Research and development expenses			180				110				95
Restructuring and impairment charges			25				30				6
Operating income			556				406				449
Interest expense			82				70				55
Other non-operating income, net			2				4				—
(Loss)/gain on sale of businesses			(10		)		—				9
Income before taxes			466				340				403
Income tax expense			136				80				63
Net income			330				260				340
Less: Net loss attributable to non-controlling interests			(1		)		—				—
Net income attributable to Xylem			$	331			$	260			$	340
Earnings per share:
Basic			$	1.84			$	1.45			$	1.88
Diluted			$	1.83			$	1.45			$	1.87
Weighted average number of shares:
Basic			179.6				179.1				180.9
Diluted			180.9				180.0				181.7
Dividends declared per share			$	0.7200			$	0.6196			$	0.5632

XYLEM INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In Millions, except per share amounts)
December 31,			2017				2016
ASSETS
Current assets:
Cash and cash equivalents			$	414			$	308
Receivables, less allowances for discounts, returns and doubtful accounts of $35 and $30 in 2017 and 2016, respectively			956				843
Inventories			524				522
Prepaid and other current assets			177				166
Total current assets			2,071				1,839
Property, plant and equipment, net			643				616
Goodwill			2,768				2,632
Other intangible assets, net			1,168				1,201
Other non-current assets			210				186
Total assets			$	6,860			$	6,474
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	549			$	457
Accrued and other current liabilities			551				521
Short-term borrowings and current maturities of long-term debt			—				260
Total current liabilities			1,100				1,238
Long-term debt, net			2,200				2,108
Accrued postretirement benefits			442				408
Deferred income tax liabilities			252				352
Other non-current accrued liabilities			347				161
Total liabilities			4,341				4,267
Stockholders’ equity:
Common stock — par value $0.01 per share:
Authorized 750.0 shares, issued 192.3 and 191.4 shares in 2017 and 2016, respectively			2				2
Capital in excess of par value			1,912				1,876
Retained earnings			1,227				1,033
Treasury stock – at cost 12.4 shares and 11.9 shares in 2017 and 2016, respectively			(428		)		(403		)
Accumulated other comprehensive loss			(210		)		(318		)
Total stockholders’ equity			2,503				2,190
Non-controlling interest			16				17
Total equity			2,519				2,207
Total liabilities and stockholders’ equity			$	6,860			$	6,474

XYLEM INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions) (Unaudited)
Year Ended December 31,			2017				2016				2015
Operating Activities
Net income			$	330			$	260			$	340
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			109				87				88
Amortization			125				64				45
Deferred income taxes			(33		)		14				(9		)
Share-based compensation			21				18				15
Restructuring and impairment charges			25				30				6
Gain from sale of businesses			10				—				(9		)
Other, net			19				6				12
Payments for restructuring			(28		)		(16		)		(14		)
Contributions to postretirement benefit plans			(33		)		(27		)		(25		)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables			(79		)		(6		)		(24		)
Changes in inventories			27				(15		)		23
Changes in accounts payable			50				61				20
Changes in accrued liabilities			28				13				(11		)
Changes in accrued taxes			104				(13		)		(3		)
Net changes in other assets and liabilities			11				21				10
Net Cash — Operating activities			686				497				464
Investing Activities
Capital expenditures			(170		)		(124		)		(117		)
Proceeds from the sale of property, plant and equipment			1				1				—
Acquisitions of businesses and assets, net of cash acquired			(33		)		(1,782		)		(18		)
Proceeds from sale of businesses			16				—				1
Cash received from investments			10				—				—
Cash paid for investments			(11		)		—				—
Other, net			6				19				2
Net Cash — Investing activities			(181		)		(1,886		)		(132		)
Financing Activities
Short-term debt issued			—				274				—
Short-term debt repaid, net			(282)				(80		)		(3		)
Long-term debt issued, net			—				1,540				—
Long-term debt repaid			—				(608		)		—
Repurchase of common stock			(25		)		(4		)		(179		)
Proceeds from exercise of employee stock options			16				24				21
Excess tax benefit from share based compensation			—				—				2
Dividends paid			(130		)		(112		)		(102		)
Other, net			—				—				(1		)
Net Cash — Financing activities			(421		)		1,034				(262		)
Effect of exchange rate changes on cash			22				(17		)		(53		)
Net change in cash and cash equivalents			106				(372		)		17
Cash and cash equivalents at beginning of year			308				680				663
Cash and cash equivalents at end of year			$	414			$	308			$	680
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest			$	78			$	49			$	52
Income taxes (net of refunds received)			$	57			$	78			$	75

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. For Sensus historical adjustments, see Sensus Historical - Adjusted EBITDA table.

"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 and inventory step-up recorded in purchase accounting.

“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, due diligence costs, initial acquisition and integration costs not related to Sensus and other special non-operating items, as well as interest expense related to the early extinguishment of debt and financing costs on the bridge loan entered into for the Sensus acquisition during 2016.

“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.

"Pro forma" defined as including the results of Sensus for the calendar period prior to the acquisition of Sensus by Xylem Inc. on October 31, 2016.

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 2017 v. 2016		% Change 2017 v. 2016			Acquisitions / Divestitures		FX Impact		Change Adj. 2017 v. 2016		% Change Adj. 2017 v. 2016
			2017		2016
Year Ended December 31
Xylem Inc.			4,868		3,824		1,044		27%			(751)		(33)		260		7%			26%
Water Infrastructure			2,112		1,957		155		8%			-		(16)		139		7%			7%
Applied Water			1,476		1,405		71		5%			11		(3)		79		6%			5%
Measurement & Control Solutions			1,280		462		818		177%			(762)		(14)		42		9%			174%
Quarter Ended December 31
Xylem Inc.			1,270		1,067		203		19%			(63)		(37)		103		10%			16%
Water Infrastructure			566		492		74		15%			-		(20)		54		11%			11%
Applied Water			373		348		25		7%			6		(9)		22		6%			5%
Measurement & Control Solutions			331		227		104		46%			(69)		(8)		27		12%			42%
Quarter Ended September 30
Xylem Inc.			1,249		946		303		32%			(223)		(22)		58		6%			30%
Water Infrastructure			558		521		37		7%			-		(12)		25		5%			5%
Applied Water			374		342		32		9%			2		(4)		30		9%			8%
Measurement & Control Solutions			317		83		234		282%			(225)		(6)		3		4%			275%
Quarter Ended June 30
Xylem Inc.			1,212		923		289		31%			(228)		14		75		8%			33%
Water Infrastructure			521		483		38		8%			-		9		47		10%			10%
Applied Water			375		361		14		4%			2		5		21		6%			5%
Measurement & Control Solutions			316		79		237		300%			(230)		-		7		9%			300%
Quarter Ended March 31
Xylem Inc.			1,137		888		249		28%			(237)		12		24		3%			29%
Water Infrastructure			467		461		6		1%			-		7		13		3%			3%
Applied Water			354		354		-		0%			1		5		6		2%			1%
Measurement & Control Solutions			316		73		243		333%			(238)		-		5		7%			333%

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 2017 v. 2016		% Change 2017 v. 2016		Acquisitions / Divestitures		FX Impact		Change Adj. 2017 v. 2016		% Change Adj. 2017 v. 2016
		2017		2016
Year Ended December 31
Xylem Inc.		4,707		3,771		936		25%		(780)		(34)		122		3%		24%
Water Infrastructure		2,004		1,932		72		4%		-		(16)		56		3%		3%
Applied Water		1,421		1,393		28		2%		10		(4)		34		2%		2%
Measurement & Control Solutions		1,282		446		836		187%		(790)		(14)		32		7%		184%
Quarter Ended December 31
Xylem Inc.		1,277		1,095		182		17%		(70)		(37)		75		7%		13%
Water Infrastructure		583		530		53		10%		-		(21)		32		6%		6%
Applied Water		373		351		22		6%		5		(9)		18		5%		4%
Measurement & Control Solutions		321		214		107		50%		(75)		(7)		25		12%		47%
Quarter Ended September 30
Xylem Inc.		1,195		897		298		33%		(232)		(22)		44		5%		31%
Water Infrastructure		520		478		42		9%		-		(10)		32		7%		7%
Applied Water		354		343		11		3%		2		(5)		8		2%		2%
Measurement & Control Solutions		321		76		245		322%		(234)		(7)		4		5%		313%
Quarter Ended June 30
Xylem Inc.		1,164		932		232		25%		(236)		14		10		1%		26%
Water Infrastructure		482		484		(2)		0%		-		9		7		1%		1%
Applied Water		361		366		(5)		-1%		2		5		2		1%		0%
Measurement & Control Solutions		321		82		239		291%		(238)		-		1		1%		291%
Quarter Ended March 31
Xylem Inc.		1,071		847		224		26%		(242)		11		(7)		-1%		28%
Water Infrastructure		419		440		(21)		-5%		-		6		(15)		-3%		-3%
Applied Water		333		333		-		0%		1		5		6		2%		2%
Measurement & Control Solutions		319		74		245		331%		(243)		-		2		3%		331%

Xylem Inc. Non-GAAP Reconciliation - Pro forma with Sensus
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 2017 v. 2016		% Change 2017 v. 2016		Acquisitions / Divestitures		FX Impact		Change Adj. 2017 v. 2016		% Change Adj. 2017 v. 2016
		2017		2016 (a)
Year Ended December 31
Xylem Inc.		4,707		4,533		174		4%		6		(21)		159		4%		3%
Water Infrastructure		2,004		1,932		72		4%		-		(16)		56		3%		3%
Applied Water		1,421		1,393		28		2%		10		(4)		34		2%		2%
Measurement & Control Solutions		1,282		1,208		74		6%		(4)		(1)		69		6%		6%
Quarter Ended December 31
Xylem Inc.		1,277		1,164		113		10%		3		(37)		79		7%		7%
Water Infrastructure		583		530		53		10%		-		(21)		32		6%		6%
Applied Water		373		351		22		6%		5		(9)		18		5%		4%
Measurement & Control Solutions		321		283		38		13%		(2)		(7)		29		10%		11%
Quarter Ended September 30
Xylem Inc.		1,195		1,125		70		6%		2		(18)		54		5%		5%
Water Infrastructure		520		478		42		9%		-		(10)		32		7%		7%
Applied Water		354		343		11		3%		2		(5)		8		2%		2%
Measurement & Control Solutions		321		304		17		6%		-		(3)		14		5%		5%
Quarter Ended June 30
Xylem Inc.		1,164		1,169		(5)		0%		2		19		16		1%		1%
Water Infrastructure		482		484		(2)		0%		-		9		7		1%		1%
Applied Water		361		366		(5)		-1%		2		5		2		1%		0%
Measurement & Control Solutions		321		319		2		1%		-		5		7		2%		2%
Quarter Ended March 31
Xylem Inc.		1,071		1,075		(4)		0%		(1)		15		10		1%		1%
Water Infrastructure		419		440		(21)		-5%		-		6		(15)		-3%		-3%
Applied Water		333		333		-		0%		1		5		6		2%		2%
Measurement & Control Solutions		319		302		17		6%		(2)		4		19		6%		7%
(a) Includes Measurement & Control Solutions and Visenti revenue for the ten months ended October 31, 2016 which was prior to Xylem acquiring the businesses.

Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
			Q1					Q2				Q3				Q4				YTD
			2017		2016			2017		2016		2017		2016		2017		2016		2017		2016
Total Revenue
• Total Xylem			1,071		847			1,164		932		1,195		897		1,277		1,095		4,707		3,771
• Water Infrastructure			419		440			482		484		520		478		583		530		2,004		1,932
• Applied Water			333		333			361		366		354		343		373		351		1,421		1,393
• Measurement & Control Solutions			319		74			321		82		321		76		321		214		1,282		446
Operating Income
• Total Xylem			86		79			139		109		152		109		179		109		556		406
• Water Infrastructure			40		51			74		66		91		75		103		99		308		291
• Applied Water			36		39			49		51		51		50		61		48		197		188
• Measurement & Control Solutions			25		3			29		4		26		4		30		(11)		110		-
• Total Segments			101		93			152		121		168		129		194		136		615		479
Operating Margin
• Total Xylem			8.0%		9.3%			11.9%		11.7%		12.7%		12.2%		14.0%		10.0%		11.8%		10.8%
• Water Infrastructure			9.5%		11.6%			15.4%		13.6%		17.5%		15.7%		17.7%		18.7%		15.4%		15.1%
• Applied Water			10.8%		11.7%			13.6%		13.9%		14.4%		14.6%		16.4%		13.7%		13.9%		13.5%
• Measurement & Control Solutions			7.8%		4.1%			9.0%		4.9%		8.1%		5.3%		9.3%		-5.1%		8.6%		0.0%
• Total Segments			9.4%		11.0%			13.1%		13.0%		14.1%		14.4%		15.2%		12.4%		13.1%		12.7%
Sensus Acquisition Related Costs
• Total Xylem			10		-			4		-		5		10		3		43		22		53
• Water Infrastructure			-		-			-		-		-		-		-		-		-		-
• Applied Water			-		-			-		-		-		-		-		-		-		-
• Measurement & Control Solutions			6		-			3		-		4		-		2		25		15		25
• Total Segments			6		-			3		-		4		-		2		25		15		25
Special Charges
• Total Xylem			5		4			-		1		3		-		3		-		11		5
• Water Infrastructure			-		2			-		-		-		-		-		-		-		2
• Applied Water			5		-			-		-		-		-		-		-		5		-
• Measurement & Control Solutions			-		2			-		1		-		-		-		-		-		3
• Total Segments			5		4			-		1		-		-		-		-		5		5
Restructuring & Realignment Costs
• Total Xylem			11		9			12		11		9		12		9		15		41		47
• Water Infrastructure			4		3			5		6		3		5		4		2		16		16
• Applied Water			4		3			5		3		5		3		3		7		17		16
• Measurement & Control Solutions			3		1			2		2		1		4		2		6		8		13
• Total Segments			11		7			12		11		9		12		9		15		41		45
Adjusted Operating Income
• Total Xylem			112		92			155		121		169		131		194		167		630		511
• Water Infrastructure			44		56			79		72		94		80		107		101		324		309
• Applied Water			45		42			54		54		56		53		64		55		219		204
• Measurement & Control Solutions			34		6			34		7		31		8		34		20		133		41
• Total Segments			123		104			167		133		181		141		205		176		676		554
Adjusted Operating Margin
• Total Xylem			10.5%		10.9%			13.3%		13.0%		14.1%		14.6%		15.2%		15.3%		13.4%		13.6%
• Water Infrastructure			10.5%		12.7%			16.4%		14.9%		18.1%		16.7%		18.4%		19.1%		16.2%		16.0%
• Applied Water			13.5%		12.6%			15.0%		14.8%		15.8%		15.5%		17.2%		15.7%		15.4%		14.6%
• Measurement & Control Solutions			10.7%		8.1%			10.6%		8.5%		9.7%		10.5%		10.6%		9.3%		10.4%		9.2%
• Total Segments			11.5%		12.3%			14.3%		14.3%		15.1%		15.7%		16.1%		16.1%		14.4%		14.7%

Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
			Q4 2017														Q4 2016
			As Reported				Adjustments					Adjusted					As Reported				Adjustments					Adjusted
Total Revenue				1,277									1,277					1,095									1,095
Operating Income				179				15		a			194					109				58		a			167
Operating Margin				14.0	%								15.2	%				10.0	%								15.3	%
Interest Expense				(20	)								(20	)				(20	)			1		e			(19	)
Other Non-Operating Income (Expense)				(1	)			2		b			1					1									1
(Loss)/Gain from sale of business				(14	)			14					-
Income before Taxes				144				31					175					90				59					149
Provision for Income Taxes				(74	)			36		c			(38	)				(40	)			9		c			(31	)
Gain/(Loss) attributable to minority interest				1				(1	)	d			-					-									-
Net Income attributable to Xylem				71				66					137					50				68					118
Diluted Shares				181.3									181.3					180.6									180.6
Diluted EPS			$	0.40			$	0.36				$	0.76				$	0.28			$	0.38				$	0.66
Year-over-year currency translation impact on current year diluted EPS			$	0.02			$	-				$	0.02
Diluted EPS at Constant Currency			$	0.38			$	0.36				$	0.74
			Q4 YTD 2017														Q4 YTD 2016
			As Reported				Adjustments					Adjusted					As Reported				Adjustments					Adjusted
Total Revenue				4,707									4,707					3,771									3,771
Operating Income				556				74		a			630					406				105		a			511
Operating Margin				11.8	%								13.4	%				10.8	%								13.6	%
Interest Expense				(82	)								(82	)				(70	)			13		e			(57	)
Other Non-Operating Income (Expense)				2				2		b			4					4									4
(Loss)/Gain from sale of business				(10	)			10					-					-									-
Income before Taxes				466				86					552					340				118					458
Provision for Income Taxes				(136	)			17		c			(119	)				(80	)			(14	)	c			(94	)
Income attributable to minority interest				1				(1	)	d			-
Net Income attributable to Xylem				331				102					433					260				104					364
Diluted Shares				180.9									180.9					180.0									180.0
Diluted EPS			$	1.83			$	0.57				$	2.40				$	1.45			$	0.58				$	2.03
Year-over-year currency translation impact on current year diluted EPS			$	(0.02	)		$	0.02				$	-
Diluted EPS at Constant Currency			$	1.85			$	0.55				$	2.40

a		Fourth quarter: Restructuring & realignment costs of $9 million and $15 million in 2017 and 2016, respectively, Sensus acquisition related costs of $3 million and $43 million in 2017 and 2016 and special charges of $3 million of other acquisition costs in 2017.
		Year-to-date: Restructuring & realignment costs of $41 million and $47 million in 2017 and 2016, respectively, Sensus acquisition related costs of $22 million and $53 million in 2017 and 2016, respectively and special charges of $11 million ($5 million of asset impairment, $3 million of due diligence costs and $3 of other acquisition costs) in 2017 and $5 million of initial acquisition costs in 2016.
b		Special charges of a write-down of investment in joint venture of $2 million in the fourth quarter of 2017.
c		Fourth quarter: Net tax impact on restructuring & realignment costs of $2 million and $4 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $1 million and $15 million in 2017 and 2016, respectively, net tax impact on special charges of $1 million in 2017 and tax-related special items of $40 million and $28 million of benefit in 2017 and 2016, respectively.
		Year-to-date: Net tax impact on restructuring & realignment costs of $13 million in both 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $8 million and $15 million in 2017 and 2016, respectively , net tax impact on special charges of $4 million and $7 million in 2017 and 2016, respectively, net tax impact of $2 million on the gain from sale of business in 2017 and tax-related special items of $40 million and $21 million of benefit in 2017 and 2016, respectively.
d		Special item consisting of minority interest income attributable to the loss on a joint venture held for sale in the fourth quarter of 2017.
e		Fourth quarter special charges of $1 million of financing costs related to the bridge loan entered into for the Sensus acquisition in 2016. Year-to-date special charges of $5 million of financing costs related to the bridge loan entered into for the Sensus acquisition and $8 million of costs related to the early extinguishment of debt in 2016.

Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
			Q1								Q2								Q3								Q4								Year Ended
			2017				2016				2017				2016				2017				2016				2017				2016				2017				2016
Net Cash - Operating Activities			$	58			$	41			$	93			$	84			$	228			$	149			$	307			$	223			$	686			$	497
Capital Expenditures				(49	)			(37	)			(28	)			(25	)			(42	)			(28	)			(51	)			(34	)			(170	)			(124	)
Free Cash Flow			$	9			$	4			$	65			$	59			$	186			$	121			$	256			$	189			$	516			$	373
Cash paid for Sensus acquisition related costs				(17	)			-				(5	)			-				(1	)			(3	)			(5	)			(10	)			(28	)			(13	)
Free Cash Flow, excluding Sensus Acquisition Related Costs			$	26			$	4			$	70			$	59			$	187			$	124			$	261			$	199			$	544			$	386
Net Income				56				66				100				71				104				73				70				50				330				260
Gain/(Loss) from sale of businesses				5				-				-				-				(1	)			-				(14	)			-				(10	)			-
Special Charges - non-cash impairment and early debt extinguishment				(5	)			-				-				(8	)			-				-				(2	)			-				(7	)			(8	)
Sensus acquisition related costs				(10	)			-				(4	)			-				(5	)			(10	)			(3	)			(43	)			(22	)			(53	)
Net Income, excluding gain on sale of businesses, non-cash impairment charges and Sensus Acquisition Related Costs			$	66			$	66			$	104			$	79			$	110			$	83			$	89			$	93			$	369			$	321
Free Cash Flow Conversion				39	%			6	%			67	%			75	%			170	%			149	%			293	%			214	%			147	%			120	%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
($ Millions)
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 on 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	%
2016
				Q1			Q2			Q3			Q4			Total
Net Income				66			71			73			50			260
Income Tax Expense				(1	)		19			22			40			80
Interest Expense (Income), net				14			19			16			19			68
Depreciation				20			21			20			26			87
Amortization				12			12			12			28			64
EBITDA				111			142			143			163			559
Share-based Compensation				5			5			5			3			18
Restructuring & Realignment				9			11			12			15			47
Sensus Acquisition Related Costs				-			-			10			36			46
Special Charges				4			1			-			-			5
Adjusted EBITDA				129			159			170			217			675
Revenue				847			932			897			1,095			3,771
Adjusted EBITDA Margin				15.2	%		17.1	%		19.0	%		19.8	%		17.9	%

View source version on businesswire.com: http://www.businesswire.com/news/home/20180201005594/en/

Source: Xylem Inc.

Xylem Inc.
Media
Kelly McAndrew, +1 914-323-5969
Kelly.McAndrew@xyleminc.com
or
Investors
Matt Latino, +1 914-323-5821
Matthew.Latino@xyleminc.com

Xylem