Xylem Inc. reports third quarter 2012 results

Xylem Inc. reports third quarter 2012 results

Third quarter adjusted net income was $83 million or $0.44 per share; $72 million or $0.38 per share as reported

Third quarter revenue up 3 percent in constant currencies to $931 million; down 1 percent as reported on negative impact of currency translation; emerging market revenue up 9 percent in constant currencies


Gross margin climbs 130 basis points to 40.2 percent as Customer Excellence and cost reduction initiatives drive profitability; adjusted operating margin was 12.9 percent

Company completes second acquisition in 2012 with the purchase of Heartland Pump, bolstering industrial dewatering portfolio

WHITE PLAINS, N.Y.--(BUSINESS WIRE)-- Xylem Inc. (NYS: XYL) , a leading global water technology company focused on solving the world's most challenging water issues, today reported third quarter revenue of $931 million, up 3 percent on a constant currency basis, down 1 percent as reported from the third quarter 2011. Third quarter net income was $72 million or $0.38 per share, down $0.04 per share from the same period last year. Adjusting for one-time separation costs resulting from the Xylem spinoff from ITT Corporation on October 31, 2011, and special items, net income was $83 million or $0.44 per share, down $0.01 per share over the third quarter 2011 on a normalized basis.*

"As we mark our first anniversary as a stand-alone water company, our performance showcases both the strength of our global portfolio, with 9 percent constant currency revenue growth in the emerging markets, and our strategic focus on margin expansion through the execution of our Customer Excellence sales initiative and cost discipline," said Gretchen McClain, President and Chief Executive Officer of Xylem. "We're also seeing the benefit of our investments in acquisitions. Just last week we completed the purchase of Heartland Pump, which expands our U.S. reach in dewatering rental and service, and grows our presence in industrial markets. And our two other recent acquisitions, YSI and MJK Automation, both continue to perform well and help establish our Analytics business as a long-term growth platform."

McClain said the company continues to move forward with restructuring and realignment initiatives, and now foresees approximately $20 million in aggregated costs during 2012 to position the business for future growth. The company maintains its outlook for full-year 2012 revenue of $3.8 billion, and has revised the mid-point of its 2012 earnings guidance to $1.76 from $1.77 per share to reflect the $0.01 per share dilutive impact of the Heartland Pump acquisition.

Business Segment Results

Water Infrastructure

Xylem's Water Infrastructure businesses provide equipment and services focused on the transport, treatment and testing of water and wastewater in the public utility and industrial markets.

  • Third quarter 2012 segment revenue was $595 million, up 7 percent in constant currencies, and up 2 percent as reported, with growth in public utility activity in all regions more than offsetting weakness in industrial.

  • Third quarter adjusted segment operating margin was 15.0 percent. Stand-alone costs negatively impacted operating margin 50 basis points for the third quarter of 2012.

Applied Water

Xylem's Applied Water businesses provide equipment and services in the residential and commercial building services, general industrial and agricultural markets.

  • Third quarter 2012 segment revenue was $350 million, down 2 percent in constant currencies, and 5 percent as reported, reflecting comparison to a particularly strong third quarter 2011, and ongoing weakness in commercial building services.

  • Third quarter adjusted segment operating margin was 12.6 percent. Stand-alone costs negatively impacted operating margin 60 basis points for the third quarter of 2012.

More detail available

Supplemental information on Xylem's third quarter earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com.

About Xylem

Xylem (NYS: XYL) is a leading global water technology provider, enabling customers to transport, treat, test and efficiently use water in public utility, residential and commercial building services, industrial and agricultural settings. The company does business in more than 150 countries through a number of market-leading product brands, and its people bring broad applications expertise with a strong focus on finding local solutions to the world's most challenging water and wastewater problems. Launched in 2011 from the spinoff of the water-related businesses of ITT Corporation, Xylem is headquartered in White Plains, N.Y., with 2011 annual revenues of $3.8 billion and 12,500 employees worldwide. In 2012, Xylem was named to the Dow Jones Sustainability World Index for advancing sustainable business practices and solutions worldwide.

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.xyleminc.com.

Forward-Looking Statements

This document 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," "believe," "target" 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, but are not limited to, statements about the separation of Xylem Inc. (the "Company") from ITT Corporation, the terms and the effect of the separation, the nature and impact of the separation, capitalization of the Company, future strategic plans and other statements that describe the Company's business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to orders, sales, operating margins and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements.

Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements. 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. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those set forth in Item 1A in our Annual Report on Form 10-K, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission.

*The 2011 normalized earnings per share reflect adjustments (including interest expense, stand-alone costs, and special tax items) to our GAAP results to better illustrate year-over-year performance. The normalized earnings are intended to give a representation of our performance had Xylem been a stand-alone company in 2011.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

Three Months

Nine Months

For the periods ended September 30,

2012

2011

2012

2011

Revenue

$

931

$

939

$

2,822

$

2,800

Cost of revenue

557

574

1,702

1,719

Gross profit

374

365

1,120

1,081

Selling, general and administrative expenses

231

215

682

643

Research and development expenses

24

23

80

73

Restructuring and asset impairment charges, net

4

2

4

2

Separation costs

4

46

15

67

Operating income

111

79

339

296

Interest expense

14

1

41

2

Other non-operating income, net

3

4

1

5

Income before taxes

100

82

299

299

Income tax expense

28

5

75

72

Net income

$

72

$

77

$

224

$

227

Earnings per share:

Basic

$

0.39

$

0.42

$

1.20

$

1.23

Diluted

$

0.38

$

0.42

$

1.20

$

1.23

Weighted average number of shares:

Basic

185.9

184.6

185.7

184.6

Diluted

186.3

184.6

186.2

184.6

Dividends declared per share

$

0.1012

$

$

0.3036

$

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

September 30,

December 31,

2012

2011

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

424

$

318

Receivables, less allowances for discounts and doubtful accounts

of $33 and $37 in 2012 and 2011, respectively

801

756

Inventories, net

467

426

Prepaid and other current assets

106

97

Deferred income tax assets

36

45

Total current assets

1,834

1,642

Property, plant and equipment, net

464

463

Goodwill

1,621

1,610

Other intangible assets, net

485

505

Other non-current assets

192

173

Total assets

$

4,596

$

4,393

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

316

$

322

Accrued and other current liabilities

456

490

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

13

5

Total current liabilities

785

817

Long-term debt

1,199

1,201

Accrued postretirement benefits

319

316

Deferred income tax liability

170

165

Other non-current accrued liabilities

69

67

Total liabilities

2,542

2,566

Commitments and contingencies

Stockholders' equity:

Common Stock - authorized 750.0 shares, par value $0.01 per share:

Issued 186.0 shares and 184.6 shares in 2012 and 2011, respectively

2

2

Capital in excess of par value

1,699

1,663

Retained earnings

206

40

Treasury stock - at cost 0.2 shares and 0 shares in 2012 and 2011, respectively

(6

)

Accumulated other comprehensive income

153

122

Total stockholders' equity

2,054

1,827

Total liabilities and stockholders' equity

$

4,596

$

4,393

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

For the nine months ended September 30,

2012

2011

Operating Activities

Net income

$

224

$

227

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

103

104

Share-based compensation

16

7

Non-cash separation costs

8

Restructuring and asset impairment charges

4

2

Payments for restructuring

(7

)

Changes in assets and liabilities (net of acquisitions):

Changes in receivables

(33

)

(58

)

Changes in inventories

(33

)

(40

)

Changes in accounts payable

(7

)

(31

)

Changes in accrued liabilities

(30

)

14

Changes in accrued taxes

1

4

Net changes in other assets and liabilities

(14

)

18

Other, net

(1

)

4

Net Cash - Operating activities

230

252

Investing Activities

Capital expenditures

(81

)

(79

)

Acquisitions, net of cash required

(12

)

(309

)

Proceeds from the sale of property, plant and equipment

4

9

Other, net

2

Net Cash - Investing activities

(89

)

(377

)

Financing Activities

Net transfer to former parent

(9

)

(1,012

)

Issuance of short-term debt

12

5

Issuance of senior notes, net of discount

1,189

Principal payments of debt and capital lease obligations

(6

)

Purchase of common stock

(4

)

Proceeds from exercise of employee stock options

22

Dividends paid

(56

)

Net Cash - Financing activities

(41

)

182

Effect of exchange rate changes on cash

6

(4

)

Net change in cash and cash equivalents

106

53

Cash and cash equivalents at beginning of year

318

131

Cash and cash equivalents at end of year

$

424

$

184

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest

$

38

$