Exhibit 99.1
xylemlogoa03.jpg
Xylem Inc.
1 International Drive, Rye Brook N.Y. 10573
Tel +1.914.323.5700 Fax +1.914.696.2960
Contacts:
 
Media
 
Investors
 
 
Kelly McAndrew +1 (914) 323-5969
 
Matt Latino +1 (914) 323-5821
 
 
Kelly.McAndrew@xyleminc.com
 
Matthew.Latino@xyleminc.com

Xylem Inc. reports solid second quarter 2017 results

Second quarter 2017 reported net income was $99 million or $0.55 per share; Adjusted net income for the quarter was $106 million or $0.59 per share, up 23 percent versus the prior year period
Xylem delivered $1.2 billion in second quarter 2017 revenue, up 25 percent year-over-year including the impact of acquisitions
Orders exceeded $1.2 billion in the second quarter, growing eight percent organically
Reported operating margin increased 20 basis points to 11.9 percent; Adjusted operating margin increased 100 basis points excluding purchase accounting amortization impact
Xylem increases its full-year 2017 forecast for adjusted earnings per share to $2.30 to $2.40, which reflects the expected impact of foreign exchange translation

RYE BROOK, N.Y., August 1, 2017 - Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported second quarter 2017 net income of $99 million, or $0.55 per share. The Company delivered adjusted net income of $106 million or $0.59 per share in the quarter, a 23-percent increase over the prior year period, excluding the impact of restructuring, realignment and Sensus acquisition-related charges, and other items.  Revenue in the second quarter, including the contribution from Xylem’s Sensus business, was $1.2 billion, up 25 percent year-over-year. Xylem’s pro forma organic revenue, which includes Sensus, grew more than one percent in the quarter. This includes a two-percent year-over-year increase in the Sensus business as well as one-percent organic growth in the base Xylem business. Reported operating margin in the quarter increased 20 basis points to 11.9 percent, and adjusted operating margin was 13.3 percent. Excluding the negative impact of purchase accounting amortization related to the Sensus acquisition, the adjusted operating margin expanded by 100 basis points year-over-year.

“Our businesses performed well in the second quarter and are capitalizing on strong order activity that we expect to generate improved growth,” said Patrick Decker, President and Chief Executive Officer of Xylem. “In the second quarter, we turned in an eight-percent increase in orders with double-digit growth in treatment orders, a strong harbinger for continued strength in the water utility sector. We are pleased with the growth momentum that continues in Sensus as well as the progress we’re making in further integrating the business. The team delivered a signature project win in the electric and gas space in the quarter, which represents one of Sensus’ largest communication system deployments to date in the U.S., and includes the installation of the network as well as electric and gas smart meters.”

“Looking ahead, we have solid plans and are operating in improving end markets, which reinforce our confidence in our ability to deliver solid growth and margin expansion in line with our improved guidance for the full year.”







Full-year 2017 Outlook
Xylem now forecasts full-year 2017 revenue in the range of $4.65 billion to $4.70 billion, up 24 to 25 percent, including growth from previously announced acquisitions and projected impacts of foreign exchange translation. On a pro forma organic basis, Xylem projects revenue growth of three to four percent. On an organic basis, which excludes the impact of acquisitions and the impact of foreign exchange translation, Xylem’s revenue growth is now anticipated to be in the range of two to three percent. 

Full-year 2017 adjusted operating margin is expected to be in the range of 13.2 to 13.7 percent. The Company increased its forecast for full-year earnings to reflect its updated assumption for foreign exchange impact. The Company now expects to deliver adjusted earnings per share of $2.30 to $2.40.  This represents an increase of 13 to 18 percent from Xylem’s 2016 adjusted results.  The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs, which now are forecast to be approximately $40 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.
Second Quarter Segment Results
As previously announced, Xylem combined its Analytics, Sensus and Visenti businesses effective second quarter 2017. As a result of this change, the Company now reports the financial and operational results from these businesses as one segment currently referred to as Sensus & Analytics. Xylem’s Water Infrastructure segment no longer includes the results of the Analytics business. The Applied Water segment remains unchanged.
Water Infrastructure
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.
Second quarter 2017 revenue was $482 million, up one percent organically compared with the second quarter 2016. Strong industrial sector growth was fueled by dewatering demand in the construction industry as well as improved conditions in mining and oil and gas. This strength was partially offset by a decline in the public utility end market, where the Company faced a challenging comparison to the 15-percent growth generated in the year ago period, which benefited from the timing of large project deliveries. Growth in Emerging Markets continued to improve, up 11 percent in the quarter.
Second quarter reported operating income for the segment was $74 million. Adjusted operating income for the segment, which excludes $5 million of restructuring and realignment costs, was $79 million, a 10-percent increase over the same period in 2016. Reported operating margin for the Water Infrastructure segment was 15.4 percent, reflecting a 180-basis-point increase year-over-year. Adjusted operating margin increased 150 basis points to 16.4 percent due to benefits from global procurement and continuous improvement initiatives as well as operating leverage on volume growth, which was partially offset by cost inflation.

Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.
Second quarter 2017 Applied Water revenue was $361 million, reflecting one-percent growth year-over-year on an organic basis. The U.S. residential and the commercial end markets continue to show strength, which was partially offset by softness in agriculture.
Second quarter reported operating income for the segment was $49 million, a four-percent decrease versus the prior year. Adjusted operating income, which excludes $5 million of restructuring and realignment charges, was flat year-over-year at $54 million.  Applied Water





segment reported operating margin was 13.6 percent, down 30 basis points over the prior year period. Adjusted operating margin increased 20 basis points to 15 percent as cost reductions and productivity initiatives more than offset inflation.

Sensus & Analytics
Xylem’s Sensus & Analytics segment consists of its portfolio of businesses in smart metering, network technologies, advanced data analytics and analytic instrumentation.
Second quarter 2017 Sensus & Analytics segment revenue was $321 million, up two percent on a pro forma organic basis over the prior year period. The Sensus business delivered growth across most applications, and its results compare with a particularly strong quarter in the year-ago period, which benefited from a new product launch and channel stocking.
The segment delivered operating income of $29 million, including $5 million of restructuring and acquisition-related costs. Excluding those costs, adjusted operating income for the segment was $34 million, with an adjusted operating margin of 10.6 percent. Adjusted operating margin increased 210 basis points primarily due to the addition of higher operating margins from Sensus. Cost reductions offset inflation and higher investments for growth. Adjusted operating margin was 13.1 percent, excluding the impact of Sensus purchase accounting.
Supplemental information on Xylem’s second quarter 2017 earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com. In addition, Sensus historical financial results for 2016 are also posted at investors.xyleminc.com.
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.  With its October 2016 acquisition of Sensus, Xylem added smart metering, network technologies and advanced data analytics for water, gas and electric utilities to its portfolio of solutions.  The combined Company’s nearly 16,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2016 revenue of $3.8 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, including the integration of Sensus; 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
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(in millions, except per share data)
 
Three Months
 
Six Months
For the period ended June 30,
2017
 
2016
 
2017
 
2016
Revenue
$
1,164

 
$
932

 
$
2,235

 
$
1,779

Cost of revenue
705

 
563

 
1,364

 
1,081

Gross profit
459

 
369

 
871

 
698

Selling, general and administrative expenses
270

 
227

 
542

 
446

Research and development expenses
44

 
27

 
86

 
52

Restructuring and asset impairment charges, net
6

 
6

 
18

 
12

Operating income
139

 
109

 
225

 
188

Interest expense
21

 
20

 
41

 
34

Other non-operating income, net
3

 
1

 
2

 
1

Gain from sale of business

 

 
5

 

Income before taxes
121

 
90

 
191

 
155

Income tax expense
21

 
19

 
35

 
18

Net income
$
100

 
$
71

 
$
156

 
$
137

Less: Net income attributable to non-controlling interests
1

 

 
1

 

Net income attributable to Xylem
99

 
71

 
155

 
137

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.55

 
$
0.39

 
$
0.87

 
$
0.77

Diluted
$
0.55

 
$
0.39

 
$
0.86

 
$
0.76

Weighted average number of shares:
 
 
 
 
 
 
 
Basic
179.6

 
179.1

 
179.6

 
178.8

Diluted
180.6

 
179.9

 
180.6

 
179.6

Dividends declared per share
$
0.1800

 
$
0.1549

 
$
0.3600

 
$
0.3098








XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
June 30,
2017
 
December 31,
2016
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
288

 
$
308

Receivables, less allowances for discounts and doubtful accounts of $28 and $30 in 2017 and 2016, respectively
944

 
843

Inventories
554

 
522

Prepaid and other current assets
175

 
166

Total current assets
1,961

 
1,839

Property, plant and equipment, net
627

 
616

Goodwill
2,717

 
2,632

Other intangible assets, net
1,184

 
1,201

Other non-current assets
218

 
186

Total assets
$
6,707

 
$
6,474

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
442

 
$
457

Accrued and other current liabilities
515

 
521

Short-term borrowings and current maturities of long-term debt
243

 
260

Total current liabilities
1,200

 
1,238

Long-term debt
2,168

 
2,108

Accrued postretirement benefits
427

 
408

Deferred income tax liabilities
329

 
352

Other non-current accrued liabilities
201

 
161

Total liabilities
4,325

 
4,267

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Common Stock – par value $0.01 per share:
 
 
 
Authorized 750.0 shares, issued 191.9 shares and 191.4 shares in 2017 and 2016, respectively
2

 
2

Capital in excess of par value
1,894

 
1,876

Retained earnings
1,117

 
1,033

Treasury stock – at cost 12.4 shares and 11.9 shares in 2017 and 2016, respectively
(428
)
 
(403
)
Accumulated other comprehensive loss
(220
)
 
(318
)
Total stockholders’ equity
2,365

 
2,190

Non-controlling interest
17

 
17

Total equity
2,382

 
2,207

Total liabilities and stockholders’ equity
$
6,707

 
$
6,474






XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the six months ended June 30,
2017
 
2016
Operating Activities
 
 
 
Net income
$
156

 
$
137

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
55

 
41

Amortization
61

 
24

Share-based compensation
11

 
10

Restructuring and asset impairment charges
18

 
12

Gain from sale of business
(5
)
 

Other, net
4

 
8

Payments for restructuring
(17
)
 
(6
)
Changes in assets and liabilities (net of acquisitions):
 
 
 
Changes in receivables
(70
)
 
(19
)
Changes in inventories
(13
)
 
(39
)
Changes in accounts payable
(19
)
 
9

Other, net
(30
)
 
(52
)
Net Cash – Operating activities
151

 
125

Investing Activities
 
 
 
Capital expenditures
(77
)
 
(62
)
Acquisition of business, net of cash acquired
(6
)
 
(70
)
Proceeds from sale of business
11

 

Other, net
3

 
5

Net Cash – Investing activities
(69
)
 
(127
)
Financing Activities
 
 
 
Short-term debt issued
33

 
89

  Short-term debt repaid
(65
)
 
(77
)
Long-term debt issued

 
540

  Long-term debt repaid

 
(608
)
Repurchase of common stock
(25
)
 
(3
)
Proceeds from exercise of employee stock options
7

 
16

Dividends paid
(65
)
 
(56
)
Other, net

 
1

Net Cash – Financing activities
(115
)
 
(98
)
Effect of exchange rate changes on cash
13

 
6

Net change in cash and cash equivalents
(20
)
 
(94
)
Cash and cash equivalents at beginning of year
308

 
680

Cash and cash equivalents at end of period
$
288

 
$
586

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
46

 
$
34

Income taxes (net of refunds received)
$
47

 
$
49







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, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude restructuring and realignment costs, Sensus acquisition related costs, gain from sale of business 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 from sale of business, 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 and costs related to the recognition of the backlog intangible asset recorded in purchase accounting.
“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, initial acquisition costs not related to Sensus and other special non-operating items, as well as interest expense related to the early extinguishment of debt during Q2 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
2,349

 
1,811

 
538

 
30
%
 
(465
)
 
26

 
99

 
5
%
 
31
%
Water Infrastructure
988

 
944

 
44

 
5
%
 

 
16

 
60

 
6
%
 
6
%
Applied Water
729

 
715

 
14

 
2
%
 
3

 
10

 
27

 
4
%
 
3
%
Sensus & Analytics
632

 
152

 
480

 
316
%
 
(468
)
 

 
12

 
8
%
 
316
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
%
Sensus & Analytics
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
%
Sensus & Analytics
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
2,235

 
1,779

 
456

 
26
 %
 
(478
)
 
25

 
3

 
0
 %
 
27
 %
Water Infrastructure
901

 
924

 
(23
)
 
-2
 %
 

 
15

 
(8
)
 
-1
 %
 
-1
 %
Applied Water
694

 
699

 
(5
)
 
-1
 %
 
3

 
10

 
8

 
1
 %
 
1
 %
Sensus & Analytics
640

 
156

 
484

 
310
 %
 
(481
)
 

 
3

 
2
 %
 
310
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 %
Sensus & Analytics
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
 %
Sensus & Analytics
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)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xylem Inc.
2,235

 
2,244

 
(9
)
 
0
 %
 
1

 
34

 
26

 
1
 %
 
1
 %
Water Infrastructure
901

 
924

 
(23
)
 
-3
 %
 

 
15

 
(8
)
 
-1
 %
 
-1
 %
Applied Water
694

 
699

 
(5
)
 
-1
 %
 
3

 
10

 
8

 
1
 %
 
1
 %
Sensus & Analytics
640

 
621

 
19

 
3
 %
 
(2
)
 
9

 
26

 
4
 %
 
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
 %
Sensus & Analytics
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
 %
Sensus & Analytics
319

 
302

 
17

 
6
 %
 
(2
)
 
4

 
19

 
6
 %
 
7
 %

(a)
 Includes Sensus and Visenti revenue for the six months ended June 30, 2016, which was prior to Xylem acquiring the businesses.





















Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
 
Q1
 
Q2
 
YTD
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Total Revenue
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
1,071

 
847

 
1,164

 
932

 
2,235

 
1,779

• Water Infrastructure
419

 
440

 
482

 
484

 
901

 
924

• Applied Water
333

 
333

 
361

 
366

 
694

 
699

• Sensus & Analytics
319

 
74

 
321

 
82

 
640

 
156

Operating Income
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
86

 
79

 
139

 
109

 
225

 
188

• Water Infrastructure
40

 
51

 
74

 
66

 
114

 
117

• Applied Water
36

 
39

 
49

 
51

 
85

 
90

• Sensus & Analytics
25

 
3

 
29

 
4

 
54

 
7

• Total Segments
101

 
93

 
152

 
121

 
253

 
214

Operating Margin
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
8.0
%
 
9.3
%
 
11.9
%
 
11.7
%
 
10.1
%
 
10.6
%
• Water Infrastructure
9.5
%
 
11.6
%
 
15.4
%
 
13.6
%
 
12.7
%
 
12.7
%
• Applied Water
10.8
%
 
11.7
%
 
13.6
%
 
13.9
%
 
12.2
%
 
12.9
%
• Sensus & Analytics
7.8
%
 
4.1
%
 
9.0
%
 
4.9
%
 
8.4
%
 
4.5
%
• Total Segments
9.4
%
 
11.0
%
 
13.1
%
 
13.0
%
 
11.3
%
 
12.0
%
Sensus Acquisition Related Costs
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
10

 

 
4

 

 
14

 

• Water Infrastructure

 

 

 

 

 

• Applied Water

 

 

 

 

 

• Sensus & Analytics
6

 

 
3

 

 
9

 

• Total Segments
6

 

 
3

 

 
9

 

Special Charges
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
5

 
4

 

 
1

 
5

 
5

• Water Infrastructure

 
2

 

 

 

 
2

• Applied Water
5

 

 

 

 
5

 

• Sensus & Analytics

 
2

 

 
1

 

 
3

• Total Segments
5

 
4

 

 
1

 
5

 
5

Restructuring & Realignment Costs
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
11

 
9

 
12

 
11

 
23

 
20

• Water Infrastructure
4

 
3

 
5

 
6

 
9

 
9

• Applied Water
4

 
3

 
5

 
3

 
9

 
6

• Sensus & Analytics
3

 
1

 
2

 
2

 
5

 
3

• Total Segments
11

 
7

 
12

 
11

 
23

 
18

Adjusted Operating Income
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
112

 
92

 
155

 
121

 
267

 
213

• Water Infrastructure
44

 
56

 
79

 
72

 
123

 
128

• Applied Water
45

 
42

 
54

 
54

 
99

 
96

• Sensus & Analytics
34

 
6

 
34

 
7

 
68

 
13

• Total Segments
123

 
104

 
167

 
133

 
290

 
237

Adjusted Operating Margin
 
 
 
 
 
 
 
 
 
 
 
• Total Xylem
10.5
%
 
10.9
%
 
13.3
%
 
13.0
%
 
11.9
%
 
12.0
%
• Water Infrastructure
10.5
%
 
12.7
%
 
16.4
%
 
14.9
%
 
13.7
%
 
13.9
%
• Applied Water
13.5
%
 
12.6
%
 
15.0
%
 
14.8
%
 
14.3
%
 
13.7
%
• Sensus & Analytics
10.7
%
 
8.1
%
 
10.6
%
 
8.5
%
 
10.6
%
 
8.3
%
• Total Segments
11.5
%
 
12.3
%
 
14.3
%
 
14.3
%
 
13.0
%
 
13.3
%





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

 
Q2 2017
 
Q2 2016
 
As Reported
 
Adjustments
 
Adjusted
 
As Reported
 
Adjustments
 
Adjusted
Total Revenue
1,164

 
 
 
1,164

 
932

 
 
 
932

Operating Income
139

 
16

 a
155

 
109

 
12

 a
121

Operating Margin
11.9
%
 
 
 
13.3
%
 
11.7
%
 
 
 
13.0
%
Interest Expense
(21
)
 
 
 
(21
)
 
(20
)
 
8

b
(12
)
Other Non-Operating Income (Expense)
3

 
 
 
3

 
1

 
 
 
1

Income before Taxes
121

 
16

 
137

 
90

 
20

 
110

Provision for Income Taxes
(21
)
 
(9
)
c
(30
)
 
(19
)
 
(4
)
c
(23
)
Minority interest
(1
)
 
 
 
(1
)
 

 
 
 

Net Income attributable to Xylem
99

 
7

 
106

 
71

 
16

 
87

Diluted Shares
180.6

 
 
 
180.6

 
179.9

 
 
 
179.9

Diluted EPS
$
0.55

 
$
0.04

 
$
0.59

 
$
0.39

 
$
0.09

 
$
0.48

Year-over-year currency translation impact on current year diluted EPS
$
(0.02
)
 
 
 
$
(0.02
)
Diluted EPS at Constant Currency
$
0.57

 
$
0.04

 
$
0.61


 
Q2 YTD 2017
 
Q2 YTD 2016
 
As Reported
 
Adjustments
 
Adjusted
 
As Reported
 
Adjustments
 
Adjusted
Total Revenue
2,235

 

 
2,235

 
1,779

 

 
1,779

Operating Income
225

 
42

 a
267

 
188

 
25

 a
213

Operating Margin
10.1
%
 

 
11.9
%
 
10.6
%
 

 
12.0
%
Interest Expense
(41
)
 

 
(41
)
 
(34
)
 
8

b
(26
)
Other Non-Operating Income (Expense)
2

 

 
2

 
1

 

 
1

Gain from sale of business
5

 
(5
)
 

 

 

 

Income before Taxes
191

 
37

 
228

 
155

 
33

 
188

Provision for Income Taxes
(35
)
 
(15
)
c
(50
)
 
(18
)
 
(21
)
c
(39
)
Minority interest
(1
)
 
 
 
(1
)
 

 

 

Net Income attributable to Xylem
155

 
22

 
177

 
137

 
12

 
149

Diluted Shares
180.6

 
 
 
180.6

 
179.6

 
 
 
179.6

Diluted EPS
$
0.86

 
$
0.12

 
$
0.98

 
$
0.76

 
$
0.07

 
$
0.83

Year-over-year currency translation impact on current year diluted EPS
$
(0.04
)
 
0.01

 
$
(0.03
)
Diluted EPS at Constant Currency
$
0.90

 
$
0.11

 
$
1.01

a
Second quarter: Restructuring & realignment costs of $12 million and $11 million in 2017 and 2016, respectively, Sensus acquisition related costs of $4 million in 2017 and special charges of $1 million of initial acquisition costs in 2016.
 
First half: Restructuring & realignment costs of $23 million and $20 million in 2017 and 2016, respectively, Sensus acquisition related costs of $19 million in 2017 and special charges of $5 million of initial acquisition costs in 2016.
b
Special charges consisting of $8 million of costs related to the early extinguishment of debt for the second quarter and first half of 2016.
c
Second quarter: Net tax impact on restructuring & realignment costs of $5 million and $3 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $1 million in 2017, net tax impact on special charges of $4 million in 2016 and tax-related special items of $3 million of expense in 2017 and $3 million of benefit in 2016.
 
First half: Net tax impact on restructuring & realignment costs of $7 million and $5 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $5 million in 2017, net tax impact on special charges of $2 million and $5 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 charges of $3 million and $11 million in 2017 and 2016, respectively.





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

 
Q1
 
Q2
 
Six Months Ended
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Net Cash - Operating Activities
$
58

 
$
41

 
$
93

 
$
84

 
$
151

 
$
125

Capital Expenditures
(49
)
 
(37
)
 
(28
)
 
(25
)
 
(77
)
 
(62
)
Free Cash Flow
$
9

 
$
4

 
$
65

 
$
59

 
$
74

 
$
63

Cash paid for Sensus acquisition related costs
(17
)
 

 
(5
)
 

 
(22
)
 

Free Cash Flow, excluding Sensus Acquisition Related Costs
$
26

 
$
4

 
$
70

 
$
59

 
$
96

 
$
63

Net Income
56

 
66

 
100

 
71

 
156

 
137

Gain from sale of business
(5
)
 

 

 

 
(5
)
 

Special Charges - Non-cash impairment
5

 

 

 
(8
)
 
5

 
(8
)
Sensus acquisition related costs
(10
)
 

 
(4
)
 

 
(14
)
 

Net Income, excluding gain on sale of business, non-cash impairment charges and Sensus Acquisition Related Costs
$
66

 
$
66

 
$
104

 
$
79

 
$
170

 
$
145

Free Cash Flow Conversion
39
%
 
6
%
 
67
%
 
75
%
 
56
%
 
43
%
 
 
 
 
 
 
 
 
 
 
 
 






Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
($ Millions)

2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
Net Income
56

 
100

 
 
 
 
 
156

Income Tax Expense
14

 
21

 
 
 
 
 
35

Interest Expense (Income), net
20

 
20

 
 
 
 
 
40

Depreciation
28

 
27

 
 
 
 
 
55

Amortization
31

 
30

 
 
 
 
 
61

Stock Compensation
6

 
5

 
 
 
 
 
11

EBITDA
155

 
203

 
 
 
 
 
358

Restructuring & Realignment
11

 
12

 
 
 
 
 
23

Gain on sale of business
(5
)
 

 
 
 
 
 
(5
)
Sensus acquisition related costs
7

 
2

 
 
 
 
 
9

Special Charges
5

 

 
 
 
 
 
5

Adjusted EBITDA
173

 
217

 
 
 
 
 
390

Revenue
1,071

 
1,164

 
 
 
 
 
2,235

Adjusted EBITDA Margin
16.2
%
 
18.6
%
 
 
 
 
 
17.4
%
 
 
 
 
 
 
 
 
 
 
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

Stock Compensation
5

 
5

 
5

 
3

 
18

EBITDA
116

 
147

 
148

 
166

 
577

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
%
 
 
 
 
 
 
 
 
 
 







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