Xylem Inc. reports first quarter 2013 results, affirms full-year guidance

  Xylem Inc. reports first quarter 2013 results, affirms full-year guidance

  *First quarter 2013 adjusted net income was $50 million or $0.27 per share,
    down $0.09 from first quarter 2012; GAAP net income was $41 million or
    $0.22 per share, down $0.12
  *First quarter 2013 revenue was $879 million, down $46 million from first
    quarter 2012
  *Xylem maintains FY 2013 EPS of $1.79-$1.89 on revenue midpoint of $3.9
    billion

Business Wire

WHITE PLAINS, N.Y. -- April 30, 2013

Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to
solving the world’s most challenging water issues, today reported first
quarter 2013 net income of $41 million, or $0.22 per share. Adjusted net
income was $50 million, or $0.27 per share, excluding the impact of special
items that include restructuring and realignment charges, and special tax
items. First quarter revenue was $879 million, down $46 million from the first
quarter 2012, reflective of on-going European economic challenges, U.S.
industrial weakness and lower shipments for treatment projects. First quarter
2013 adjusted operating margins were down 230 basis points, down 320 basis
points as reported, resulting from lower volume, acquisition costs and
continued investments in growth initiatives.

"We were pleased to deliver earnings in line with our expectations despite
weaker revenue for the quarter than we had anticipated,” said Gretchen
McClain, president and chief executive officer of Xylem Inc. “We’re addressing
continued market challenges in several key regions of the world, especially
Europe, and are taking assertive cost actions to reposition ourselves as a
more competitive and efficient organization, and to create more value for our
customers. We continue to pursue attractive acquisitions that will help to
strengthen our portfolio. During the first quarter, we completed two
acquisitions – PIMS, which bolsters our attractive service business; and
MultiTrode, which enhances our global water and wastewater monitoring and
control offering.”

“Exciting new product launches are winning in the market place, leading to
share gains in key market segments,” McClain said. “We were proud to launch
several innovative products this quarter, including new dewatering solutions
from our Godwin and Flygt brands, as well as new analytical lab instruments
from our YSI and OI Analytical brands. As we look ahead to the remainder of
2013, we are focused on introducing additional new products, and continuing to
expand geographically. Through these and other customer-focused solutions, we
will continue to position Xylem as a global leader in the water industry.”

Xylem affirms full-year guidance, forecasting 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 1 to 7 percent to $333 to $352 million, for
adjusted earnings per share of $1.79 to $1.89 per share. The company
anticipates that restructuring and realignment costs will range from $60 to
$70 million for the year.

First 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.

  *First quarter 2013 revenue was $551 million, down 6 percentcompared with
    the first quarter 2012, reflecting U.S. industrial weakness, European
    economic challenges and decreased treatment shipments.
  *First quarter adjusted segment operating income was $52 million. Adjusted
    operating margin was 9.4 percent, reflecting lower volumes, acquisition
    impacts and continued investments.

Applied Water

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

  *First quarter 2013 revenue was $345 million, down 3 percentcompared with
    the first quarter 2012, reflecting weak industrial demand and European
    economic challenges, offset by strength in U.S. residential and
    agricultural end markets.
  *First quarter adjusted segment operating income was $42 million, up 2
    percent versus the same period in 2012. Adjusted operating margin was 12.2
    percent, reflecting strong operational performance.

Supplemental information on Xylem’s first quarter earnings and reconciliations
for certain non-GAAP items are posted at investors.xyleminc.com.

About Xylem

Xylem (NYSE: 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
approximately 12,700 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

CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)

(in millions, except per share data)
                                                                    
For the three months ended March 31,               2013           2012
Revenue                                              $ 879          $ 925
Cost of revenue                                      545           562      
Gross profit                                         334            363
Selling, general and administrative expenses         236            231
Research and development expenses                    26             28
Restructuring charges                                5              —
Separation costs                                     1             5        
Operating income                                     66             99
Interest expense                                     13             14
Other non-operating (expense), net                   (2       )     (1       )
Income before taxes                                  51             84
Income tax expense                                   10            21       
Net income                                           $ 41          $ 63     
Earnings per share:
Basic                                                $ 0.22         $ 0.34
Diluted                                              $ 0.22         $ 0.34
Weighted average number of shares:
Basic                                                185.8          185.4
Diluted                                              186.4          185.9
Dividends declared per share                         $ 0.1164       $ 0.1012
                                                                             

                                                             
XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)
                                                                  
                                               March 31,       December 31,
                                                  2013            2012
                                                  (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents                         $  375          $  504
Receivables, less allowances for discounts
and doubtful accounts of $27 and $34 in 2013      767             776
and 2012, respectively
Inventories, net                                  461             443
Prepaid and other current assets                  111             110
Deferred income tax assets                        43             41        
Total current assets                              1,757           1,874
Property, plant and equipment, net                474             487
Goodwill                                          1,669           1,647
Other intangible assets, net                      504             484
Other non-current assets                          185            187       
Total assets                                      $  4,589       $  4,679  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                  $  309          $  332
Accrued and other current liabilities             406             443
Short-term borrowings and current maturities      6              6         
of long-term debt
Total current liabilities                         721             781
Long-term debt                                    1,199           1,199
Accrued postretirement benefits                   397             400
Deferred income tax liabilities                   179             173
Other non-current accrued liabilities             53             52        
Total liabilities                                 2,549          2,605     
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common Stock – authorized 750.0 shares, par
value $0.01 per share:
Issued 186.3 shares and 186.2 shares in 2013      2               2
and 2012, respectively
Capital in excess of par value                    1,711           1,706
Retained earnings                                 283             264
Treasury stock – at cost 1.0 shares and 0.5       (28       )     (13       )
shares in 2013 and 2012, respectively
Accumulated other comprehensive income            72             115       
Total stockholders’ equity                        2,040          2,074     
Total liabilities and stockholders’ equity        $  4,589       $  4,679  
                                                                            

                                                                  
XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(in millions)
                                                                       
For the three months ended March 31,                     2013      2012
Operating Activities
Net income                                                 $ 41        $ 63
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation                                               25          23
Amortization                                               12          11
Share-based compensation                                   6           5
Restructuring charges                                      5           —
Payments for restructuring                                 (4    )     —
Changes in assets and liabilities (net of
acquisitions):
Changes in receivables                                     1           7
Changes in inventories                                     (29   )     (31   )
Changes in accounts payable                                (8    )     14
Other, net                                                 (29   )     (31   )
Net Cash – Operating activities                            20         61    
Investing Activities
Capital expenditures                                       (30   )     (31   )
Acquisitions, net of cash acquired                         (78   )     —
Proceeds from the sale of property, plant and              3          2     
equipment
Net Cash – Investing activities                            (105  )     (29   )
Financing Activities
Repurchase of common stock                                 (15   )     (1    )
Proceeds from exercise of employee stock options           —           16
Dividends paid                                             (22   )     (19   )
Other, net                                                 1          (6    )
Net Cash – Financing activities                            (36   )     (10   )
Effect of exchange rate changes on cash                    (8    )     7     
Net change in cash and cash equivalents                    (129  )     29
Cash and cash equivalents at beginning of year             504        318   
Cash and cash equivalents at end of period                 $ 375      $ 347 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest                                                   $ 11        $ 11
Income taxes (net of refunds received)                     $ 27        $ 18
                                                                             

                         Xylem Inc. Non-GAAP Measures

Management views key performance indicators including revenue, gross margins,
segment operating income and margins, orders growth, free cash flow, working
capital, and backlog, among others. In addition, we consider certain measures
to be useful to management and investors evaluating our operating performance
for the periods presented, and 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. 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
operations 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 foreign currency fluctuations,
intercompany transactions, and contributions from acquisitions and
divestitures. Divestitures include sales of portions of our business that did
not meet the criteria for classification as a discontinued operation or
insignificant portions of our business that we did not classify as a
discontinued operation. The period-over-period change resulting from foreign
currency fluctuations assumes no change in exchange rates from the prior
period.

“Constant currency” defined as financial results adjusted for 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 for non-recurring separation costs
associated with the Xylem spin-off from ITT Corporation (not excluded for
2013) as well as non-recurring restructuring and realignment costs.

"Adjusted Operating Income", "Adjusted Segment Operating Income", and
“Adjusted EPS” defined as operating income and earnings per share, adjusted to
exclude non-recurring separation costs associated with the Xylem spin-off from
ITT Corporation (not excluded for 2013), non-recurring restructuring and
realignment costs and tax-related special items.

“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 flows does not consider non-discretionary cash
payments, such as debt.

                                                                                                                   
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Order Growth
($ Millions)
                                                                                                                                     
                 (As Reported - GAAP)                        (As Adjusted - Organic)                                                   Constant
                                                                                                                                       Currency
                            (A)        (B)                   (C)              (D)              (E)              (F) =       (G) =      (H) = (B
                                                                                                                B+C+D+E     F/A        + D) / A
                                                                                                                                       
                                                                                                                Change      %
                                                                                                                            Change
                                       Change     %                                                             Adj.        Adj.
                                                  Change
                                       2013       2013       Acquisitions                                       2013 v.     2013
                                       v.         v.         /                                                              v.
                 Orders     Orders     2012       2012       Divestitures     FX               Eliminations     2012        2012       
                                                                              Contribution
                 2013       2012
Quarter Ended
March 31, 2013
                                                                                                                                       
Xylem Inc.       962        1,004      (42  )     -4.2 %     (26     )        2                -                (66  )      -6.6 %     -4.0  %
                                                                                                                                       
Water            601        638        (37  )     -5.8 %     (26     )        2                -                (61  )      -9.6 %     -5.5  %
Infrastructure
Applied Water    378        382        (4   )     -1.0 %     -                -                (1     )         (5   )      -1.3 %     -1.0  %
                                                                                                                                       
                                                                                                                                       
Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.
                                                                                                                                       


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)            (F) =     (G) =      (H) = (B
                                                                                                                  B+C+D+E     F/A        + D) / A
                                                                                                                                         
                                                                                                                  Change      %
                                                                                                                              Change
                                         Change     %                                                             Adj.        Adj.
                                                    Change
                                         2013       2013       Acquisitions                                       2013 v.     2013
                                         v.         v.         /                                                              v.
                 Revenue     Revenue     2012       2012       Divestitures     FX               Eliminations     2012        2012       
                                                                                Contribution
                 2013        2012
                                                                                                                                         
Quarter Ended
March 31, 2013
                                                                                                                                         
Xylem Inc.       879         925         (46  )     -5.0 %     (23     )        2                -                (67  )      -7.2 %     -4.8  %
                                                                                                                                         
Water            551         584         (33  )     -5.7 %     (23     )        1                -                (55  )      -9.4 %     -5.5  %
Infrastructure
Applied Water    345         355         (10  )     -2.8 %     -                -                (2     )         (12  )      -3.4 %     -2.8  %
                                                                                                                                         
                                                                                                                                         
Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.


                                           
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                                      
                                      Q1
                                      '13       '12
Total Revenue
• Total Xylem                         879       925
• Water Infrastructure                551       584
• Applied Water                       345       355
                                          
Operating Income
• Total Xylem                         66        99
• Water Infrastructure                42        75
• Applied Water                       40        40
                                                
Operating Margin
• Total Xylem                         7.5%      10.7%
• Water Infrastructure                7.6%      12.8%
• Applied Water                     11.6%   11.3%
                                                
Separation Costs
• Total Xylem                         -         5
• Water Infrastructure                -         2
• Applied Water                       -         1
                                                
Restructuring & Realignment Costs
• Total Xylem                         12        -
• Water Infrastructure                10        -
• Applied Water                       2         -
                                          
Adjusted Operating Income*
• Total Xylem                         78        104
• Water Infrastructure                52        77
• Applied Water                       42        41
                                                
Adjusted Operating Margin*
• Total Xylem                         8.9%      11.2%
• Water Infrastructure                9.4%      13.2%
• Applied Water                     12.2%   11.5%
                                                

*Adjusted Operating Income excludes restructuring & realignment costs in 2013
and excludes non-recurring separation costs in 2012.

                                                                                         
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
  
                                                                                                        
                                                                                                        
    
                                                                     
                      Q1 2012                                         Q1 2013
                      As            Adjustments         Adjusted      As            Adjustments         Adjusted
                      Reported                                        Reported
    Total Revenue       925                               925           879                               879
    Operating           99             5          a       104           66             12         c       78
    Income
    Operating           10.7  %                           11.2  %       7.5   %                           8.9   %
    Margin
    Interest            (14   )                           (14   )       (13   )                           (13   )
    Expense
    Other
    Non-Operating      (1    )                         (1    )      (2    )                         (2    )
    Income
    (Expense)
    Income before      84           5                89           51             12                 63
    Taxes
    Provision for      (21   )       (1    )    b      (22   )      (10   )       (3    )    d      (13   )
    Income Taxes
    Net Income         63           4                67          41           9                50    
    Diluted          185.9                    185.9     186.4                    186.4 
    Shares
    Diluted EPS     $ 0.34     $  0.02        $ 0.36     $ 0.22     $  0.05        $ 0.27  
                                                                                                        
                                                                                                        
                                                                                                        
    One time
a   separation
    costs
    Net tax
b   impact of
    separation
    costs
    Restructuring
c   & realignment
    costs
d   Tax impact of restructuring
    & realignment costs
                                                                                                        

                                                              
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
Three Months Ended March 31, 2013 and 2012
($ Millions)
                                                                   
                                                                   
                                                      Three Months Ended
                                                      2013         2012
                                                                   
Net Cash - Operating Activities                       20           61
                                                                   
Capital Expenditures                                  (30  )       (31 )
                                                                  
Free Cash Flow, including separation costs            (10  )       30
                                                                   
Cash Paid for Separation Costs (incl. Capex)          -            11
                                                                  
Free Cash Flow, excluding separation costs*           (10  )       41  
                                                                   
Net Income                                            41           63
                                                                   
Separation Costs, net of tax (incl. tax friction)     -           4   
                                                                   
Net Income, excluding separation costs*               41          67  
                                                                   
Free Cash Flow Conversion                             -24  %       61  %
                                                                   

* Separation costs are not excluded in 2013

                                                                                         
Xylem Inc. Non-GAAP Reconciliation
Guidance
($ Millions, except per share amounts)
  
                                                                                                        
                                                                      Illustration of Mid Point Guidance
    2013 Guidance
                                                                     
                      FY '12                                          FY '13
                      As            Adjustments         Adjusted      As            Adjustments         Adjusted
                      Reported                                        Projected
    Total Revenue       3,791                             3,791         3,925                             3,925
    Segment
    Operating           512            30         a       542           484            65         d       549
    Income
    Segment
    Operating           13.5  %                           14.3  %       12.3  %                           14.0  %
    Margin
    Corporate          69           (16   )    b      53          59           -                59    
    Expense
    Operating          443          46               489         425          65               490   
    Income
    Operating           11.7  %                           12.9  %       10.8  %                           12.5  %
    Margin
    Interest            (55   )                           (55   )       (55   )                           (55   )
    Expense
    Other
    Non-Operating      -                              -           (2    )                         (2    )
    Income
    (Expense)
    Income before      388          46               434          368            65                 433
    Taxes
    Provision for      (91   )       (13   )    c      (104  )      (72   )       (19   )    c      (91   )
    Income Taxes
    Net Income         297          33               330         296          46               342   
    Diluted          186.2                    186.2     186.4                    186.4 
    Shares
    Diluted EPS     $ 1.59     $  0.18        $ 1.77     $ 1.59     $  0.25        $ 1.84  
                                                                                                        
a   One time separation, restructuring and realignment costs incurred at the segment level
b   One time separation, restructuring and realignment costs incurred at the corporate level
c   Net tax impact of above items, plus the addition of special tax items
d   Restructuring and realignment costs incurred at the segment level
    

                                                                 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                                                                              
                                                                              
                                                                              Mid
                                                                         Point
                                                                              Guidance
                  2008        2009        2010        2011        2012        2013E
                                                                              
Revenue           3,291       2,849       3,202       3,803       3,791       3,925
                                                                         
Operating         315        276        388        395        443        425    
Income
                                                                              
Operating         9.6   %     9.7   %     12.1  %     10.4  %     11.7  %     10.8   %
Margin
                                                                              
Restructuring     41          31          15          -           24          65
& Realignment
Separation        -           -           -           87          22          -
Costs
                                                                         
Adjusted
Operating         356        307        403        482        489        490    
Income
                                                                              
Adjusted
Operating         10.8  %     10.8  %     12.6  %     12.7  %     12.9  %     12.5   %
Margin
                                                                              
Standalone        -           -           -           5           28          -
Costs
                                                                         
Adj.
Operating
Income, excl.     356        307        403        487        517        490    
Standalone
Costs
                                                                              
Adjusted
Operating
Margin, excl.     10.8  %     10.8  %     12.6  %     12.8  %     13.6  %     12.5   %
Standalone
Costs

Contact:

Xylem
Media:
Tom Glover, +1-914-323-5891
tom.glover@xyleminc.com
or
Investors:
Phil DeSousa, +1-914-323-5930
phil.desousa@xyleminc.com