Form 8-K Xylem Inc. For: Aug 02


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 2, 2022

XYLEM INC.

(Exact name of registrant as specified in its charter)

Indiana 001-35229 45-2080495

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

301 Water Street SE 20003
Washington DC
(Address of principal executive offices) (Zip Code)

(202) 869-9150

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

1 International Drive, Rye Brook, NY 10573
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange of which registered
Common Stock, par value $0.01 per share XYL New York Stock Exchange
2.250% Senior Notes due 2023 XYL23 New York Stock Exchange
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨


Item 2.02 Results of Operations and Financial Condition

On August 2, 2022, Xylem Inc. issued a press release announcing its financial results for the second quarter ended June 30, 2022. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated by reference herein.

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

Exhibit

   No.

Description
Press Release issued by Xylem Inc. on August 2, 2022.
104.0 The cover page from Xylem Inc.’s Form 8-K, formatted in Inline XBRL.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

XYLEM INC.
Date: August 2, 2022 By: /s/ Sandra E. Rowland
Sandra E. Rowland

Senior Vice President & Chief Financial Officer

(Authorized Officer of Registrant)

Exhibit 99.1

xylemlogoa16.jpg

Xylem Inc.

301 Water Street SE, Washington, DC 20003

Tel +1.202.869.9150

Contacts: Media Investors

Houston Spencer +1 (914) 323-5723 Andrea van der Berg +1 (202) 869-9151

houston.spencer@xylem.com andrea.vanderberg@xylem.com

Xylem Reports Second Quarter 2022 Results

Robust continuing demand drove strong organic orders growth: 1% on a reported basis, 6% organically

Revenue of $1.4 billion, up 1% on a reported basis, up 6% organically

Earnings per share of $0.62, adjusted earnings per share of $0.66

Adjusted EBITDA margin exceeded guidance by 160 basis points

Raising full-year organic revenue guidance to a range of 8% to 10% from 4% to 6%, and adjusted EPS to a range of $2.50 to $2.70 from $2.40 to $2.70

Washington, D.C., August 2, 2022 – Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported second quarter revenue of $1.4 billion, surpassing previous guidance in each business segment. Strong continued global demand drove orders and backlog growth across the portfolio.

Second quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin was 16.6 percent, better than the Company’s previous guidance and reflecting a year-over-year decrease of 70 basis points. Inflation and the impact of continuing chip shortages drove the margin decline, exceeding the benefits of price realization and productivity savings. Xylem generated net income of $112 million, or $0.62 per share, and adjusted net income of $120 million, or $0.66 per share, which excludes the impact of restructuring, realignment and special charges.

“The team delivered very strong second quarter performance on all key metrics, and well ahead of our guidance for the quarter,” said Patrick Decker, Xylem president and CEO. “The result reflects our commercial momentum on continuing underlying demand, disciplined operational execution, and a moderate easing in chip supply constraints.”

“On the strength of robust backlog and orders growth, and the team’s demonstrated success mitigating the effects of inflation, we are raising our full-year guidance on revenue and earnings. This further reinforces our longer-term growth and value creation thesis for Xylem.”

Outlook

Xylem now expects full-year 2022 organic revenue growth to be in the range of 8 to 10 percent, and 3 to 5 percent on a reported basis. This represents an increase from the Company’s previous full-year organic revenue guidance of 4 to 6 percent, and 1 to 3 percent on a reported basis. Full-year 2022 adjusted EBITDA margin is now expected to be in the range of 16.5 to 17.0 percent, raising the low end of the previous range of 16.0 to 17.0 percent. This results in adjusted earnings per share of $2.50 to $2.70, raising the low end from the previous range of $2.40 to $2.70. The increased guidance reflects strong demand, gradual easing of supply chain constraints and price realization partially offset by inflation and foreign exchange headwinds.


Further 2022 planning assumptions are included in Xylem’s second quarter 2022 earnings materials posted at www.xylem.com/investors. 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

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 2022 Water Infrastructure revenue was $589 million, a 9.0 percent increase organically compared with second quarter 2021. This robust growth was driven by strong price realization, industrial dewatering demand, and healthy activity in our wastewater utility business in the U.S. and Western Europe.

Second quarter adjusted EBITDA margin was 21.4 percent, up 240 basis points from the prior year. Reported operating income for the segment was $108 million. Adjusted operating income for the segment, which excludes $3 million of restructuring and realignment, was $111 million, a 14.4 percent increase versus the comparable period last year. Reported operating margin for the segment was 18.3 percent, up 200 basis points versus the prior year, and adjusted operating margin was 18.8 percent, up 180 basis points versus the prior year. Strong price realization, volume, and productivity savings more than offset inflation and strategic investments.

Applied Water

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

Second quarter 2022 Applied Water revenue was $429 million, a 7.0 percent increase organically year-over-year. The segment delivered strong price realization and backlog execution in industrial and residential end markets, partially offset by continued supply chain constraints in commercial buildings in the United States.

Second quarter adjusted EBITDA margin was 16.1 percent, down 130 basis points from the prior year. Reported operating income for the segment was $61 million and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $63 million, a 4.5 percent decrease versus the comparable period last year. The segment reported operating margin was 14.2 percent, down 130 basis points versus the prior year period. Adjusted operating margin declined 120 basis points to 14.7 percent. Strong price realization and productivity savings were more than offset by inflation and lower volume.

Measurement & Control Solutions

Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced infrastructure analytics and analytic instrumentation.

Second quarter 2022 Measurement & Control Solutions revenue was $346 million, down 2.0 percent organically versus the prior year. While chip supply remains constrained, the result is better than our expectations due to improved chip supply in the quarter, and strength in our water quality test applications.


Second quarter adjusted EBITDA margin was 9.8 percent, down 410 basis points from the prior year. Reported operating income for the segment was $(5) million, and adjusted operating income, which excludes $3 million of restructuring and realignment costs and $1 million of special charges, was $(1) million, a 108 percent decrease versus the comparable period last year. The Measurement & Control Solutions segment reported operating margin was (1.4) percent, down 490 basis points versus the prior year period. Adjusted operating margin of (0.3) percent decreased 380 basis points over the prior year period. Volume declines from chip shortages, unfavorable mix and higher inflation more than offset price realization and productivity savings.

Supplemental information on Xylem’s second quarter 2022 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.

###

About Xylem

Xylem (XYL) is a leading global water technology company committed to solving critical water and infrastructure challenges with innovation. Our 17,000 diverse employees delivered revenue of $5.2 billion in 2021. We are creating a more sustainable world by enabling our customers to optimize water and resource management, and helping communities in more than 150 countries become water-secure. Join us at www.xylem.com.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “contemplate,” “predict,” “forecast,” “likely,” “believe,” “target,” “will,” “could,” “would,” “should,” “potential,” “may” and similar expressions or their negative, may, but are not necessary to, identify forward-looking statements. By their nature, forward-looking statements address uncertain matters and include any statements that are not historical, such as statements about our strategy, financial plans, outlook, objectives, plans, intentions or goals (including those related to our social, environmental and other sustainability goals); or address possible or future results of operations or financial performance, including statements relating to orders, revenues, operating margins and earnings per share growth.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Additionally, many of these risks and uncertainties are, and may continue to be, amplified by impacts from the war between Russia and Ukraine, as well as the ongoing coronavirus (“COVID-19”) pandemic and related macroeconomic conditions (including inflation). Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include, among others, the following: the impact of overall industry and general economic conditions, including industrial, governmental, and public and private sector spending and the strength of the residential and commercial real estate markets, on economic activity and our operations; geopolitical events, including the war between Russia and Ukraine, and regulatory, economic and other risks associated with our global sales and operations, including with respect to domestic content requirements applicable to projects with governmental funding; continued uncertainty around the ongoing COVID-19 pandemic’s magnitude, duration and impacts on our business, operations, growth, and financial condition; actual or potential other epidemics, pandemics or global health crises; availability, shortage or delays in receiving electronic components (in particular, semiconductors), parts, and raw materials from our supply chain; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, supply


chain shortages, logistics challenges, tight labor markets, prevailing price changes, tariffs and other factors; demand for our products; disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents or other disruptions of information technology systems on which we rely, or involving our products; disruptions in operations at our facilities or that of third parties upon which we rely; ability to retain and attract senior management and other diverse and key talent, as well as competition for overall talent and labor; difficulty predicting our financial results; defects, security, warranty and liability claims, and recalls with respect to products; availability, regulation or interference with radio spectrum used by certain of our products; uncertainty related to restructuring and realignment actions and related charges and savings; our ability to continue strategic investments for growth; our ability to successfully identify, execute and integrate acquisitions; volatility in served markets or impacts on business and operations due to weather conditions, including the effects of climate change; fluctuations in foreign currency exchange rates; our ability to borrow or refinance our existing indebtedness and uncertainty around the availability of liquidity sufficient to meet our needs; risk of future impairments to goodwill and other intangible assets; failure to comply with, or changes in, laws or regulations, including those pertaining to anti-corruption, data privacy and security, export and import, competition, and the environment and climate change; changes in our effective tax rates or tax expenses; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

Forward-looking and other statements in this press release regarding our environmental and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or are required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking social, environmental and sustainability related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. All forward-looking statements made herein are based on information currently available to us as of the date of this press release. We undertake 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, 2022 2021 2022 2021
Revenue $ 1,364  $ 1,351  $ 2,636  $ 2,607 
Cost of revenue 844  831  1,649  1,597 
Gross profit 520  520  987  1,010 
Selling, general and administrative expenses 314  304  618  605 
Research and development expenses 53  53  105  103 
Restructuring and asset impairment charges 7  7 
Operating income 146  160  257  293 
Interest expense 12  21  25  42 
Other non-operating (expense) income, net 2  (3) 1  (1)
Gain from sale of business   1 
Income before taxes 136  138  234  252 
Income tax expense 24  25  40  52 
Net income $ 112  $ 113  $ 194  $ 200 
Earnings per share:
Basic $ 0.62  $ 0.63  $ 1.07  $ 1.11 
Diluted $ 0.62  $ 0.62  $ 1.07  $ 1.10 
Weighted average number of shares:
Basic 180.2  180.1  180.2  180.2 
Diluted 180.6  181.3  180.8  181.4 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

June 30,
2022
December 31,
2021
   
ASSETS
Current assets:
Cash and cash equivalents $ 1,113  $ 1,349 

Receivables, less allowances for discounts, returns and credit losses of $41 and $44 in 2022 and 2021, respectively

1,024  953 
Inventories 852  700 
Prepaid and other current assets 185  158 
Total current assets 3,174  3,160 
Property, plant and equipment, net 608  644 
Goodwill 2,714  2,792 
Other intangible assets, net 975  1,016 
Other non-current assets 718  664 
Total assets $ 8,189  $ 8,276 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 648  $ 639 
Accrued and other current liabilities 782  752 
Short-term borrowings and current maturities of long-term debt 521  — 
Total current liabilities 1,951  1,391 
Long-term debt 1,879  2,440 
Accrued post-retirement benefits 408  438 
Deferred income tax liabilities 292  287 
Other non-current accrued liabilities 456  494 
Total liabilities 4,986  5,050 
Stockholders’ equity:

Common Stock – par value $0.01 per share:

Authorized 750.0 shares, issued 195.9 shares and 195.6 shares in 2022 and 2021, respectively

2 
Capital in excess of par value 2,111  2,089 
Retained earnings 2,238  2,154 

Treasury stock – at cost 15.8 shares and 15.2 shares in 2022 and 2021, respectively

(708) (656)
Accumulated other comprehensive loss (448) (371)
Total stockholders’ equity 3,195  3,218 
Non-controlling interests 8 
Total equity 3,203  3,226 
Total liabilities and stockholders’ equity $ 8,189  $ 8,276 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

For the six months ended June 30, 2022 2021
Operating Activities
Net income $ 194  $ 200 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 56  59 
Amortization 62  65 
Share-based compensation 18  17 
Restructuring and asset impairment charges 7 
Gain from sale of business (1) (2)
Other, net 6 
Payments for restructuring (5) (18)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (119) (66)
Changes in inventories (189) (89)
Changes in accounts payable 40  36 
Other, net (37) (11)
Net Cash – Operating activities 32  206 
Investing Activities
Capital expenditures (95) (80)
Proceeds from sale of business 1 
Proceeds from the sale of property, plant and equipment 3  — 
Cash received from investments 4  — 
Cash paid for investments (7) — 
Other, net 10 
Net Cash – Investing activities (84) (69)
Financing Activities
Repurchase of common stock (52) (68)
Proceeds from exercise of employee stock options 3 
Dividends paid (110) (102)
Other, net 1  (1)
Net Cash – Financing activities (158) (162)
Effect of exchange rate changes on cash (26) (10)
Net change in cash and cash equivalents (236) (35)
Cash and cash equivalents at beginning of year 1,349  1,875 
Cash and cash equivalents at end of period $ 1,113  $ 1,840 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 40  $ 58 
Income taxes (net of refunds received) $ 42  $ 60 

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 items to represent the non-GAAP measures we consider to be key performance indicators, as well as the related reconciling items to the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

“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 or discontinuance of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.

“Constant currency” defined as financial results adjusted for foreign currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.

“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense. “Adjusted EBITDA” and “Adjusted Segment EBITDA” reflect the adjustments to EBITDA and segment EBITDA, respectively, to exclude share-based compensation charges, restructuring and realignment costs, gain or loss from sale of businesses and special charges.

“Adjusted EBITDA Margin” and “Adjusted Segment EBITDA Margin” defined as adjusted EBITDA and adjusted segment EBITDA divided by total revenue and segment revenue, respectively.

“Adjusted Operating Income”, “Adjusted Segment Operating Income”, “Adjusted Net Income” and “Adjusted EPS” defined as operating income, segment operating income, net income and earnings per share, adjusted to exclude restructuring and realignment costs, gain or loss from sale of businesses, special charges and tax-related special items, as applicable.

“Adjusted Operating Margin” and “Adjusted Segment Operating Margin” defined as adjusted operating income and adjusted segment operating income divided by total revenue and segment revenue, respectively.

“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures, and “Free Cash Flow Conversion” defined as Free Cash Flows divided by net income, excluding the gain on sale of businesses, non-cash impairment charges and significant deferred tax items. Our definitions of “free cash flow” and “free cash flow conversion” do 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.

“Special charges” defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges and both operating and non-operating adjustments for costs related to the UK pension plan buyout.

“Tax-related special items” defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments.


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 2022 v. 2021 % Change 2022 v. 2021 Acquisitions/
Divestitures

FX

Impact

Change
Adj.
2022 v. 2021
% Change
Adj. 2022 v. 2021
2022 2021
Six Months Ended June 30
Xylem Inc. 3,399  3,198  201  % 11  107  319  10  % 10  %
Water Infrastructure 1,391  1,250  141  11  % —  66  207  17  % 17  %
Applied Water 985  963  22  % —  25  47  % %
Measurement & Control Solutions 1,023  985  38  % 11  16  65  % %
Quarter Ended June 30
Xylem Inc. 1,684  1,660  24  % 5 67 96 % %
Water Infrastructure 731  639  92  14  % —  42 134 21  % 21  %
Applied Water 480  486  (6) (1) % —  15 9 % %
Measurement & Control Solutions 473  535  (62) (12) % 5 10 (47) (9) % (10) %
Quarter Ended March 31
Xylem Inc. 1,715  1,538  177  12  % 6 40 223 14  % 14  %
Water Infrastructure 660  611  49  % —  24 73 12  % 12  %
Applied Water 505  477  28  % —  10 38 % %
Measurement & Control Solutions 550  450  100  22  % 6 6 112 25  % 24  %

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 2022 v. 2021 % Change 2022 v. 2021

Acquisitions /

Divestitures

FX

Impact

Change Adj. 2022 v. 2021 % Change Adj. 2022 v. 2021
2022 2021
Six Months Ended June 30
Xylem Inc. 2,636  2,607  29  % 93  127  % %
Water Infrastructure 1,122  1,078  44  % —  53  97  % %
Applied Water 854  807  47  % —  23  70  % %
Measurement & Control Solutions 660  722  (62) (9) % 17  (40) (6) % (6) %
Quarter Ended June 30
Xylem Inc. 1,364  1,351  13  % 60  76  % %
Water Infrastructure 589  569  20  % —  34  54  % %
Applied Water 429  414  15  % —  15  30  % %
Measurement & Control Solutions 346  368  (22) (6) % 11  (8) (2) % (3) %
Quarter Ended March 31
Xylem Inc. 1,272  1,256  16  % 33  51  % %
Water Infrastructure 533  509  24  % —  19  43  % %
Applied Water 425  393  32  % —  40  10  % 10  %
Measurement & Control Solutions 314  354  (40) (11) % (32) (9) % (10) %

Xylem Inc. Non-GAAP Reconciliation

Net Cash – Operating Activities vs. Free Cash Flow

($ Millions)

Q1 Q2 Year-to-Date
2022 2021 2022 2021 2022 2021
Net Cash – Operating Activities $ (81) $ (26) $ 113  $ 232  $ 32  $ 206 
Capital Expenditures – PP&E (31) (22) (30) (25) (61) (47)
Capital Expenditures – Software (18) (17) (16) (16) (34) (33)
Capital Expenditures (49) (39) (46) (41) (95) (80)
Free Cash Flow $ (130) $ (65) $ 67  $ 191  $ (63) $ 126 
Net Income 82  87  112  113  194  200 
Gain/(Loss) from sale of business 1  —    1 
Restructuring & Realignment Charges – non-cash impairment   (1)   —    (1)
Special Charges – non-cash impairment   (1) (1) —  (1) (1)
Net Income, excluding gain on sale of businesses, non-cash impairment charges and significant deferred tax items $ 81  $ 89  $ 113  $ 111  $ 194  $ 200 
Operating Cash Flow Conversion (99) % (30) % 101  % 205  % 16  % 103  %
Free Cash Flow Conversion (160) % (73) % 59  % 172  % (32) % 63  %

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

Q1 Q2 YTD
2022 2021 2022 2021 2022 2021
Total Revenue
• Total Xylem 1,272  1,256  1,364  1,351  2,636  2,607 
• Water Infrastructure 533  509  589  569  1,122  1,078 
• Applied Water 425  393  429  414  854  807 
• Measurement & Control Solutions 314  354  346  368  660  722 
Operating Income
• Total Xylem 111  133  146  160  257  293 
• Water Infrastructure 74  71  108  93  182  164 
• Applied Water 59  66  61  64  120  130 
• Measurement & Control Solutions (10) (5) 13  (15) 22 
• Total Segments 123  146  164  170  287  316 
Operating Margin
• Total Xylem 8.7  % 10.6  % 10.7  % 11.8  % 9.7  % 11.2  %
• Water Infrastructure 13.9  % 13.9  % 18.3  % 16.3  % 16.2  % 15.2  %
• Applied Water 13.9  % 16.8  % 14.2  % 15.5  % 14.1  % 16.1  %
• Measurement & Control Solutions (3.2) % 2.5  % (1.4) % 3.5  % (2.3) % 3.0  %
• Total Segments 9.7  % 11.6  % 12.0  % 12.6  % 10.9  % 12.1  %
Special Charges
• Total Xylem — 
• Water Infrastructure —  —  —  —  —  — 
• Applied Water —  —  —  — 
• Measurement & Control Solutions —  —  —  — 
• Total Segments —  — 
Restructuring & Realignment Costs
• Total Xylem 12  14 
• Water Infrastructure
• Applied Water
• Measurement & Control Solutions — 
• Total Segments 12  14 
Adjusted Operating Income
• Total Xylem 116  143  155  166  271  309 
• Water Infrastructure 75  76  111  97  186  173 
• Applied Water 60  68  63  66  123  134 
• Measurement & Control Solutions (8) 11  (1) 13  (9) 24 
• Total Segments 127  155  173  176  300  331 
Adjusted Operating Margin
• Total Xylem 9.1  % 11.4  % 11.4  % 12.3  % 10.3  % 11.9  %
• Water Infrastructure 14.1  % 14.9  % 18.8  % 17.0  % 16.6  % 16.0  %
• Applied Water 14.1  % 17.3  % 14.7  % 15.9  % 14.4  % 16.6  %
• Measurement & Control Solutions (2.5) % 3.1  % (0.3) % 3.5  % (1.4) % 3.3  %
• Total Segments 10.0  % 12.3  % 12.7  % 13.0  % 11.4  % 12.7  %

Xylem Inc. Non-GAAP Reconciliation

Adjusted Diluted EPS

($ Millions, except per share amounts)

Q2 2022 Q2 2021
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 1,364  —  1,364  1,351  —  1,351 
Operating Income 146   a 155  160   a 166 
Operating Margin 10.7  % 11.4  % 11.8  % 12.3  %
Interest Expense (12) —  (12) (21) —  (21)
Other Non-Operating Income (Expense) b (3) b — 
Gain/(Loss) from sale of business —  —  —  (2) — 
Income before Taxes 136  11  147  138  145 
Provision for Income Taxes (24) (3) c (27) (25) (1) c (26)
Net Income attributable to Xylem 112  120  113  119 
Diluted Shares 180.6  180.6  181.3  181.3 
Diluted EPS $ 0.62  $ 0.04  $ 0.66  $ 0.62  $ 0.04  $ 0.66 
Year-over-year currency translation impact on current year diluted EPS $ (0.08) $ —  $ (0.08)
Diluted EPS at Constant Currency $ 0.70  $ 0.04  $ 0.74 
Q2 YTD 2022 Q2 YTD 2021
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 2,636  —  2,636  2,607  —  2,607 
Operating Income 257  14   a 271  293  16   a 309 
Operating Margin 9.7  % 10.3  % 11.2  % 11.9  %
Interest Expense (25) —  (25) (42) —  (42)
Other Non-Operating Income (Expense) b (1) 4 b
Gain/(Loss) from sale of business (1) —  (2) — 
Income before Taxes 234  16  250  252  18  270 
Provision for Income Taxes (40) (6) c (46) (52) c (49)
Net Income attributable to Xylem 194  10  204  200  21  221 
Diluted Shares 180.8  180.8  181.4  181.4 
Diluted EPS $ 1.07  $ 0.06  $ 1.13  $ 1.10  $ 0.13  $ 1.23 
Year-over-year currency translation impact on current year diluted EPS $ (0.12) $ —  $ (0.12)
Diluted EPS at Constant Currency $ 1.19  $ 0.06  $ 1.25 
a Quarter-to-date: Restructuring & realignment costs of $8 million in 2022 and $6 million in 2021, as well as special charges of $1 million in 2022 (related to intangible asset impairment)                                                 
Year-to-date: Restructuring & realignment costs of $12 million in 2022 and $14 million in 2021, as well as special charges of $2 million ($1 million of intangible asset impairment charges and $1 million for pension costs related to the UK pension plan) in both 2022 and 2021.
b Quarter-to-date: Special non-operating charges consist of $2 million in 2022 and $3 million in 2021 for costs related to the UK pension plan that is going to be part of a buyout.
Year-to-date: Special non-operating charges consist of $3 million in 2022 and $4 million in 2021 for costs related to the UK pension plan that is going to be part of a buyout.
c Quarter-to-date: Net tax impact on restructuring & realignment costs of $2 million in 2022 and $1 million in 2021; $1 million net tax impact on special charges in 2021; and $1 million of negative impact from tax related special benefits to GAAP tax in 2022 and $1 million of positive impact from tax related special charges to GAAP tax in 2021.
Year-to-date: Net tax impact on restructuring & realignment costs of $3 million in both 2022 and 2021; $1 million net tax impact on special charges in 2022 and 2021; and $2 million of negative impact from tax related special benefits to GAAP tax in 2022 and $7 million of positive impact from tax related special charges to GAAP tax in 2021.

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

($ Millions)

2022
Q1 Q2 Q3 Q4 Total
Net Income 82  112  194 
Income Tax Expense 16  24  40 
Interest Expense (Income), net 11  10  21 
Depreciation 28  28  56 
Amortization 30  32  62 
EBITDA 167  206  —  —  373 
Share-based Compensation 18 
Restructuring & Realignment 12 
Loss/(Gain) from sale of business (1) —  (1)
Special Charges
Adjusted EBITDA 181  226  —  —  407 
Revenue 1,272  1,364  2,636 
Adjusted EBITDA Margin 14.2  % 16.6  % 15.4  %
2021
Q1 Q2 Q3 Q4 Total
Net Income 87  113  114  113  427 
Income Tax Expense 27  25  19  13  84 
Interest Expense (Income), net 19  19  20  11  69 
Depreciation 30  29  31  28  118 
Amortization 32  33  31  31  127 
EBITDA 195  219  215  196  825 
Share-based Compensation 33 
Restructuring & Realignment 22 
Loss/(Gain) from sale of business —  (2) —  —  (2)
Special Charges 12 
Adjusted EBITDA 215  234  227  214  890 
Revenue 1,256  1,351  1,265  1,323  5,195 
Adjusted EBITDA Margin 17.1  % 17.3  % 17.9  % 16.2  % 17.1  %

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

2022
Q1 Q2 Q3 Q4 Total
Pre-Tax Income 71  109  180 
Interest Expense (Income), net (1) —  (1)
Depreciation 11  11  22 
Amortization
EBITDA 83  123  206 
Share-based Compensation — 
Restructuring & Realignment
Special Charges —  —  — 
Adjusted EBITDA 85  126  —  —  211 
Revenue 533  589  1,122 
Adjusted EBITDA Margin 15.9  % 21.4  % 18.8  %
2021
Q1 Q2 Q3 Q4 Total
Pre-Tax Income 70  92  102  121  385 
Interest Expense (Income), net (1) (1) —  (1) (3)
Depreciation 11  11  11  10  43 
Amortization
EBITDA 82  104  114  133  433 
Share-based Compensation —  — 
Restructuring & Realignment 12 
Adjusted EBITDA 88  108  116  135  447 
Revenue 509  569  547  622  2,247 
Adjusted EBITDA Margin 17.3  % 19.0  % 21.2  % 21.7  % 19.9  %

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

2022
Q1 Q2 Q3 Q4 Total
Pre-Tax Income 58  61  119 
Interest Expense (Income), net —  —  — 
Depreciation
Amortization — 
EBITDA 63  66  —  129 
Share-based Compensation
Restructuring & Realignment
Loss/(Gain) from sale of business —  —  — 
Special Charges —  —  — 
Adjusted EBITDA 65  69  —  134 
Revenue 425  429  854 
Adjusted EBITDA Margin 15.3  % 16.1  % 15.7  %
2021
Q1 Q2 Q3 Q4 Total
Pre-Tax Income 66  65  60  48  239 
Interest Expense (Income), net —  —  —  —  — 
Depreciation 20 
Amortization —  — 
EBITDA 72  71  65  53  261 
Share-based Compensation
Restructuring & Realignment
Loss/(Gain) from sale of business —  (2) —  —  (2)
Special Charges —  —  — 
Adjusted EBITDA 75  72  68  56  271 
Revenue 393  414  400  406  1,613 
Adjusted EBITDA Margin 19.1  % 17.4  % 17.0  % 13.8  % 16.8  %

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Measurement & Control Solutions

($ Millions)

2022
Q1 Q2 Q3 Q4 Total
Pre-Tax Income (9) (6) (15)
Interest Expense (Income), net —  —  — 
Depreciation 17 
Amortization 25  26  51 
EBITDA 25  28  —  —  53 
Share-based Compensation
Restructuring & Realignment
Loss/(Gain) from sale of business (1) —  (1)
Special Charges — 
Adjusted EBITDA 27  34  —  —  61 
Revenue 314  346  660 
Adjusted EBITDA Margin 8.6  % 9.8  % 9.2  %
2021
Q1 Q2 Q3 Q4 Total
Pre-Tax (Loss) Income 12  (17) 10 
Interest Expense (Income), net —  —  —  —  — 
Depreciation 10  11  38 
Amortization 27  27  27  26  107 
EBITDA 44  49  45  17  155 
Share-based Compensation
Restructuring & Realignment —  (1)
Adjusted EBITDA 47  51  45  21  164 
Revenue 354  368  318  295  1,335 
Adjusted EBITDA Margin 13.3  % 13.9  % 14.2  % 7.1  % 12.3  %



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