01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. (NYSE: XYL) reported 2013 revenue of $3.84 billiona (up 1.2% from $3.79 billion in 2012), with organic revenue declining 1.0% and acquisitions adding $82 million.
Operating income fell to $363 millionb from $443 million, an 18.1% decline, driven by higher SG&A, restructuring charges, special charges and geographic mix, partly offset by cost reductions and price realization. Net income was $228 million, or $1.22 per diluted share, versus $297 million, or $1.59, in 2012. On an adjusted basis, which excludes restructuring, realignment and special charges, net income was $311 million, or $1.67 per diluted share.
Orders rose 3.4% on a constant currency basis to $3.91 billion, and backlog grew to $707 millionc from $647 million. Cash generation was weaker, with net cash from operating activities of $324 million and free cash flow of $198 million, compared with $396 million and $312 million in 2012. Management cited higher working capital use, particularly receivables in Europe.
The company ended 2013 with $533 milliond in cash and $1,241 million of total debt, including $600 million of 3.55% notes due 2016 and $600 million of 4.875% notes due 2021. Its $600 million revolving credit facility was undrawn at year end. Capital returns continued, with $73 million of share repurchases and $87 million of dividends paid, and the quarterly dividend was raised 10% to $0.128 per share for 2014.
Management expects a slow recovery in developed markets, modestly higher growth in emerging markets, and a continued weak mining market. The company is executing an organizational redesign into regional structures and expects $30 to $35 million of restructuring costs and $10 to $15 million of realignment costs in 2014. Investors should note that Analytics goodwill, $439 million, had fair value only about 18% above carrying value at year end, creating potential future impairment risk.
02—Key points
Key Highlights
- Revenue rose 1.2% to $3,837 million, but organic revenue declined 1.0% as Europe weakened; acquisitions contributed $82 million.
- Operating income fell 18.1% to $363 million, and operating margin dropped to 9.5% from 11.7%, reflecting higher SG&A, restructuring and special charges.
- Diluted EPS was $1.22 on a GAAP basis ($1.67 adjusted) versus $1.59 in 2012.
- Orders increased 3.4% on a constant currency basis to $3,912 million, and backlog rose to $707 million from $647 million.
- Free cash flow declined to $198 million from $312 million, and operating cash flow fell to $324 million from $396 million due to higher working capital use.
- Analytics reporting unit fair value exceeded its carrying value by approximately 18%, with $439 million of associated goodwill, so future impairment is possible.
- The quarterly dividend was increased 10% to $0.128 per share for 2014, and $250 million share repurchase authorization had $200 million remaining.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Xylem kept $0.06.
- Revenue$3.84B100.0%
- Cost of revenue−$2.34B60.9%
- Gross profit$1.50B39.1%
- Operating costs−$1.14B29.6%
- Operating income$363.0M9.5%
- Interest, other & tax−$135.0M3.5%
- Net income$228.0M5.9%
Where FY2013 revenue went
$3.84B- Cost of revenue: $2.34B, 61% of revenue
- SG&A: $990.0M, 26% of revenue
- Net income: $228.0M, 5.9% of revenue
- R&D: $104.0M, 2.7% of revenue
- Other operating costs: $42.0M, 1.1% of revenue
- Interest, other & tax: $135.0M, 3.5% of revenue
Kept 5.9% as net incomeNet income $228.0M · 5.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $3.84B$3.79B | +1.2% |
| Cost of Revenue | $2.34B$2.29B | +2.1% |
| Gross Profit | $1.50B$1.50B | −0.2% |
| R&D Expenses | $104.00M$106.00M | −1.9% |
| SG&A Expenses | $990.00M$914.00M | +8.3% |
| Operating Income | $363.00M$443.00M | −18.1% |
| Interest Expense | $55.00M$55.00M | 0.0% |
| Net Income | $228.00M$297.00M | −23.2% |
| EPS (Basic) | $1.23$1.60 | −23.1% |
| EPS (Diluted) | $1.22$1.59 | −23.3% |
| Shares Outstanding (Basic) | 185.22M185.78M | −0.3% |
| Shares Outstanding (Diluted) | 186.04M186.23M | −0.1% |
05—Questions
Frequently Asked Questions
Why did operating income decline in 2013?
Operating income fell $80 million, or 18.1%, to $363 million. The filing attributes this mainly to higher SG&A, including $20 million tied to the legal settlement with Xylem Group LLC and the CEO change, restructuring and asset impairment charges of $42 million, special charges of $24 million, and geographic mix. Cost reductions and higher price realization partly offset these factors.
How did the company's revenue perform by segment?
Water Infrastructure revenue rose 1.3% to $2,457 million, although organic revenue fell 1.9%. Applied Water revenue rose 1.4% to $1,444 million, with organic growth of 0.4%, driven mainly by irrigation and industrial water. Growth was held back by weakness in Europe.
What is the company's debt and liquidity position?
Total debt was $1,241 million at year end, consisting of $600 million of 3.55% Senior Notes due 2016 and $600 million of 4.875% Senior Notes due 2021, plus short-term borrowings. Cash and equivalents were $533 million. The $600 million Credit Facility was undrawn, and the company was in compliance with its covenants.
What does management expect for 2014?
Management expects a slow recovery in U.S. industrial markets, modestly improved European industrial markets, continued weakness in mining, and modest growth in public utilities. It expects $30 to $35 million of restructuring costs and $10 to $15 million of realignment costs in 2014, and $25 million of incremental net savings from 2013 actions plus $10 million from 2014 actions.
06—Continue