01—Abstract
Summary
Summary of the 10-K filed February 28, 2012. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. (XYL) filed its first annual report on Form 10-K following its October 31, 2011 spin-off from ITT Corporation, in which ITT shareholders received one share of Xylem common stock for each ITT share held.
The company reported 2011 revenue of $3,803 milliona, up from $3,202 million in 2010, with net income of $279 million, or $1.50 per diluted share. Excluding $87 million of separation costs, operating income was $482 million, and adjusted net income was $358 million. Revenue growth was driven by acquisitions (YSI, Godwin, Nova), organic growth of 7.1%, and favorable currency translation.
Order growth was 18.8% to $3,847 millionb, with backlog of $651 million at December 31, 2011. The company operates two segments: Water Infrastructure, which generated $2,416 million of 2011 revenue, and Applied Water, which generated $1,444 million. Operating income for Water Infrastructure was $343 million and for Applied Water was $160 million, while Corporate and other absorbed $108 million of costs.
Approximately 64% of 2011 revenue was generated outside the United States. Total debt rose to $1,206 millionc following the September 2011 issuance of $1.2 billion in senior notes, the proceeds of which funded a net cash transfer to ITT. Cash and cash equivalents were $318 million at year-end, and the company has a $600 million Four Year Competitive Advance and Revolving Credit Facility, with no borrowings outstanding at December 31, 2011.
The filing also highlights risks typical of a newly independent company, including reliance on the IRS ruling and tax-free treatment of the spin-off, indemnification obligations to ITT and Exelis, and the requirement to comply with Section 404 of Sarbanes-Oxley beginning with the 2012 annual report. The company declared a first-quarter 2012 dividend of $0.1012d per share and paid $19 million in dividends during 2011.
02—Key points
Key Highlights
- Revenue of $3,803 million in 2011, up 18.8% from $3,202 million, with organic revenue growth of 7.1%
- Net income of $279 million, or $1.50 per diluted share; adjusted net income of $358 million after $87 million of pre-tax separation costs
- Order growth of 18.8% to $3,847 million; backlog of $651 million at December 31, 2011, with over 80% expected to convert to revenue in 2012
- Water Infrastructure segment revenue of $2,416 million (up 25.2%) and operating income of $343 million; Applied Water revenue of $1,444 million and operating income of $160 million
- Total debt of $1,206 million, including $600 million 3.55% Senior Notes due 2016 and $600 million 4.875% Senior Notes due 2021, issued September 2011
- Approximately 64% of 2011 revenue generated outside the United States; revenue from emerging markets was 19% of total revenue
- Quarterly dividend of $0.1012 per share declared for the first quarter of 2012; $19 million in dividends paid in 2011
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Xylem kept $0.06.
- Revenue$3.80B100.0%
- Cost of revenue−$2.34B61.6%
- Gross profit$1.46B38.4%
- Operating costs−$1.07B28.0%
- Operating income$395.0M10.4%
- Interest, other & tax−$175.0M4.6%
- Net income$220.0M5.8%
Where FY2011 revenue went
$3.80B- Cost of revenue: $2.34B, 62% of revenue
- SG&A: $877.0M, 23% of revenue
- Net income: $220.0M, 5.8% of revenue
- R&D: $100.0M, 2.6% of revenue
- Other operating costs: $89.0M, 2.3% of revenue
- Interest, other & tax: $175.0M, 4.6% of revenue
Kept 5.8% as net incomeNet income $220.0M · 5.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 28, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $3.80B$3.20B | +18.8% |
| Cost of Revenue | $2.34B$1.99B | +17.8% |
| Gross Profit | $1.46B$1.21B | +20.3% |
| R&D Expenses | $100.00M$74.00M | +35.1% |
| SG&A Expenses | $877.00M$737.00M | +19.0% |
| Operating Income | $395.00M$388.00M | +1.8% |
| Interest Expense | $17.00M$0 | — |
| Net Income | $220.00M$329.00M | −33.1% |
| EPS (Basic) | $1.51$1.78 | −15.2% |
| EPS (Diluted) | $1.50$1.78 | −15.7% |
| Shares Outstanding (Basic) | 185.06M184.57M | +0.3% |
| Shares Outstanding (Diluted) | 185.32M184.57M | +0.4% |
05—Questions
Frequently Asked Questions
How did Xylem come to be a public company?
Xylem was formerly ITT Corporation's water equipment and services businesses. On October 31, 2011, ITT completed the spin-off, distributing Xylem common stock to ITT shareholders on a one-for-one basis. Xylem's common stock began regular-way trading on the NYSE under the symbol XYL on November 1, 2011.
What drove revenue growth in 2011?
Revenue rose $601 million, or 18.8%, to $3,803 million. The filing attributes $226 million to organic growth, $264 million to acquisitions net of divestitures, and $111 million to foreign currency translation. Water Infrastructure grew most, driven by acquisitions such as Godwin, Nova and YSI and by dewatering and treatment volume.
What were the one-time costs related to the separation from ITT?
The company recorded non-recurring pre-tax separation costs of $87 million, or $72 million after tax, in 2011. Components included IT costs of $19 million, advisory fees of $18 million, employee retention and hiring costs of $14 million, and rebranding and marketing costs of $13 million. The company estimates remaining pre-tax cash impact of approximately $15 million to $20 million.
How is Xylem's debt structured and what are its liquidity sources?
Total debt at December 31, 2011 was $1,206 million, consisting mainly of $600 million 3.55% Senior Notes due 2016 and $600 million 4.875% Senior Notes due 2021. The company has a $600 million Four Year Competitive Advance and Revolving Credit Facility with no borrowings outstanding at year-end. Cash and cash equivalents were $318 million, and operating cash flow was $449 million.
What risks are specific to Xylem as a newly independent company?
The filing cites the risk that the spin-off could fail to qualify as tax-free, which could create significant tax liability for Xylem and its stockholders. It also notes that historical financials are carve-out figures that may not reflect stand-alone results, that standalone costs may be higher than those under ITT, and that Xylem must comply with Section 404 of Sarbanes-Oxley beginning with its 2012 annual report.
06—Continue