Xylem Inc. reports fourth quarter and full year 2012 results, announces 15 percent dividend increase

Xylem Inc. reports fourth quarter and full year 2012 results, announces 15 percent dividend increase

  • Fourth quarter 2012 adjusted net income was $88 million or $0.47 per share, up 21 percent on a normalized1basis over fourth quarter 2011; GAAP EPS were $0.39 per share, up 39 percent;FY 2012 adjusted earnings were $1.77 per share, up 7 percent on a normalized basis; GAAP EPS were $1.59, up 6 percent

  • Fourth quarter 2012 revenue was $969 million, down 3 percent; FY 2012 revenue was $3.8 billion, up 3 percent in constant currencies, flat as reported

  • Fourth quarter 2012 adjusted operating margins up 140 basis points, up 70 points as reported

  • Full year free cash flow was $312 million, 100 percent of adjusted net earnings

  • Company issues full-year 2013 financial guidance, sees FY 2013 adjusted earnings of $1.80-$1.90 per share, earningsgrowth of 2 to 7 percent on revenue growth of 3 to 4 percent

  • Xylem Board of Directors approves a 15 percent increase in the dividend for first quarter 2013

WHITE PLAINS, N.Y.--(BUSINESS WIRE)-- Xylem Inc. (NYS: XYL) , a leading global water technology company dedicated to solving the world's most challenging water issues, today reported fourth quarter 2012 net income of $73 million, or $0.39 per share, up 39 percent from the fourth quarter 2011. Excluding the impact of one-time separation costs and other adjustments associated with Xylem's 2011 spinoff from ITT Corporation as well as restructuring and realignment costs, adjusted net income was $88 million or $0.47 per share, up 8 cents or 21 percent on a normalized basis from 2011. Fourth quarter revenue was $969 million, down 3 percent, reflective of weakness in industrial and public utility markets. Fourth quarter adjusted operating margins improved 140 basis points driven by efficiency and cost control measures.

_______________________


1 The 2011 normalized earnings per share reflect adjustments (including one-time separation costs, 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.

"Our fourth quarter results show the impact of strategic steps we've taken to improve our financial performance, streamlining operations and taking aggressive cost control measures in the face of challenging market conditions," said Gretchen McClain, president and chief executive officer of Xylem Inc. "While recognizing and addressing uncertainties in the market, we stayed focused on the needs of our customers, as illustrated during our response to the flooding following Hurricane Sandy. We have continued to invest for future growth, deploying assets to accelerate new product technology and expanding our growth in emerging markets. We also continue to acquire attractive businesses to supplement our growth platforms of analytics, dewatering and services. Our most recent acquisition, PIMS Group of the U.K., is our third since becoming an independent company, and will strengthen our aftermarket and service offering."

For the full year 2012, Xylem revenues were $3.8 billion, up 3 percent in constant currencies over 2011, flat as reported. Full year reported net income was $297 million, or $1.59 per share. Adjusted net income, excluding the impact of the spinoff and other one-time items, was $330 million or $1.77 per share. Full year 2012 adjusted operating margins were 12.9 percent, up 100 basis points on a normalized basis. Free cash flow was $312 million, 100 percent of adjusted net earnings.

Xylem forecasts full year 2013 revenue growth of 3 to 4 percent to approximately $3.9 billion. Full year 2013 adjusted net income is forecast to grow 2 to 7 percent to $335 to $354 million, for adjusted earnings per share of $1.80 to $1.90 per share. The company anticipates that restructuring and realignment costs will range from $60 to $70 million for the year.

"As a global company, we continually evaluate our actions based on end markets and regional economic conditions," McClain said. "That's why we're taking action in Europe and elsewhere to best position our people and our facilities to meet the needs of our customers and provide economic benefit. Through these steps and with our applications expertise, market-leading brands, a large installed base and unmatched distribution in more than 150 countries around the world, our Xylem portfolio is well-positioned to deliver differentiated growth over the long term."

Xylem today also announced that its Board of Directors declared a dividend in the amount of $0.1164 per share for the first quarter of 2013, an increase of 15 percent, payable on March 20, 2013 to shareholders of record on February 20, 2013.

"The increased cash dividend returns value to our shareholders, and is made possible through everything we've done to maintain a strong balance sheet, improve operating performance significantly and grow cash flow," McClain said.

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 2012 revenue was $637 million, down 6 percent compared with the fourth quarter 2011, reflecting weakness in the public utility and industrial dewatering markets.

  • Fourth quarter adjusted segment operating income, which excludes $1 million of one-time separation-related costs and $15 million of restructuring and realignment costs, was $105 million, up 1 percent over the same period in 2011. Adjusted operating margin for the quarter grew 120 basis points, though after factoring in separation, restructuring and realignment costs, posted a decline of 40 basis points.

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 2012 revenue was $346 million, up 3 percent compared with the fourth quarter 2011, with growth coming in residential and commercial building services and irrigation.

  • Fourth quarter adjusted segment operating income, which excludes $5 million of restructuring and realignment costs, was $40 million, 29 percent higher than the comparable period last year. Adjusted operating margin grew 240 basis points; including separation costs, as well as restructuring and realignment costs, operating margin grew 210 basis points.

Supplemental information on Xylem's fourth quarter and full year 2012 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. Xylem is headquartered in White Plains, N.Y., with 2012 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 in 2011, 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.

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Millions, except per share amounts)

December 31,

2012

2011

ASSETS

Current assets:

Cash and cash equivalents

$

504

$

318

Receivables, less allowances for discounts and doubtful accounts of $34 and $37 in 2012 and 2011, respectively

776

756

Inventories, net

443

433

Prepaid and other current assets

110

97

Deferred income tax assets

41

45

Total current assets

1,874

1,649

Property, plant and equipment, net

487

463

Goodwill

1,647

1,610

Other intangible assets, net

484

505

Other non-current assets

187

170

Total assets

$

4,679

$

4,397

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

332

$

322

Accrued and other current liabilities

443

490

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

6

5

Total current liabilities

781

817

Long-term debt

1,199

1,201

Accrued postretirement benefits

400

316

Deferred income tax liabilities

173

165

Other non-current accrued liabilities

52

67

Total liabilities

2,605

2,566

Stockholders' equity:

Common Stock — par value $0.01 per share:

Authorized 750.0 shares, issued 184.6 shares

2

2

Capital in excess of par value

1,706

1,663

Retained earnings

264

44

Treasury stock - at cost 0.5 shares and 0 shares in 2012 and 2011, respectively

(13

)

Accumulated other comprehensive income

115

122

Total stockholders' equity

2,074

1,831

Total liabilities and stockholders' equity

$

4,679

$

4,397

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED INCOME STATEMENTS

(In Millions, except per share data)

Year Ended December 31,

2012

2011

2010

Revenue

$

3,791

$

3,803

$

3,202

Cost of revenue

2,289

2,342

1,988

Gross profit

1,502

1,461

1,214

Selling, general and administrative expenses

914

877

737

Research and development expenses

106

100

74

Separation costs

22

87

Restructuring and asset impairments charges, net

17

2

15

Operating income

443

395

388

Interest expense

55

17

Other non-operating income, net

5

Income before taxes

388

383

388

Income tax expense

91

104

59

Net income

$

297

$

279

$

329

Earnings per share:

Basic

$

1.60

$

1.51

$

1.78

Diluted

$

1.59

$

1.50

$

1.78

Weighted average number of shares - Basic

185.8

185.1

184.6

Weighted average number of shares - Diluted

186.2

185.3

184.6

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(In Millions)

Year Ended December 31,

2012

2011

2010

Operating Activities

Net income

$

297

$

279

$

329

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

Depreciation and amortization

142

137

92

Deferred income taxes

1

8

(31

)

Share-based compensation

22

13

9

Non-cash separation costs

10

Restructuring and asset impairment charges, net

17

2

15

Payments of restructuring

(9

)

(7

)

(22

)

Contributions to postretirement benefit plans

(46

)

(16

)

(3

)

Changes in assets and liabilities (net of acquisitions):

Changes in receivables

2

(61

)

(45

)

Changes in inventories

5

(18

)

7

Changes in accounts payable

(4

)

(9

)

41

Changes in accrued liabilities

(28

)

53

12

Changes in accrued taxes

(17

)

56

(17

)

Net changes in other assets and liabilities

14

2

8

Net Cash — Operating activities

396

449

395

Investing Activities

Capital expenditures

(112

)

(126

)

(94

)

Proceeds from the sale of property, plant and equipment

5

11

4

Acquisitions of businesses and assets, net of cash acquired

(41

)

(309

)

(1,004

)

Other, net

1

1

1

Net Cash — Investing activities

(147

)

(423

)

(1,093

)

Financing Activities

Net transfer to former parent

(9

)

(995

)

745

Issuance of short-term debt

13

5

Issuance of senior notes, net of discount

1,198

Principal payments of debt and capital lease obligations

(14

)

(8

)

Purchase of Xylem common stock

(13

)

Proceeds from exercise of employee stock options

24

1

Payments of debt issuance costs

(10

)

Dividends paid

(75

)

(19

)

Net Cash — Financing activities

(74

)

172