01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. reported 2014 revenue of $3,916 milliona, up 2.1% from $3,837 million in 2013 (3.3% on a constant currency basis), with operating income rising 27.5% to $463 million and net income of $337 million, or $1.83 per diluted share ($1.97 adjusted).
Growth was driven by industrial and public utility end markets and emerging markets, most notably China, while Europe was flat organically and Japan and Australia declined. Operating margin improved to 11.8% from 9.5%, reflecting lean six sigma, global sourcing, restructuring savings, and the absence of $24 millionb in 2013 special charges, partially offset by cost inflation and unfavorable sales mix. Orders reached $4,021 million, up 2.8% (3.9% constant currency), and backlog rose to $740 million from $707 million.
Cash generation was solid, with operating cash flow of $416 millionc and free cash flow of $297 million. The company repurchased $130 million of shares under its $250 million program and increased dividends by 10.0%. Total debt was $1,288 million, and the $600 million revolving credit facility remained undrawn.
For 2015, management expects organic revenue growth of low single digits, with a negative foreign exchange impact of high single digits driven by a weaker Euro. The filing also discloses a voluntary contact with the SEC and the Department of Justice in late January 2015 regarding an internal investigation into Xylem South Korea, which concerns a Korea Fair Trade Commission bid-rigging decision and possible Foreign Corrupt Practices Act issues. The company said it could not reasonably estimate any potential liability, but believes these matters will not have a material adverse effect.
02—Key points
Key Highlights
- 2014 revenue of $3.92 billion, up 2.1% as reported and 3.3% on a constant currency basis; 62% of revenue came from outside the United States
- Operating income rose 27.5% to $463 million, lifting operating margin to 11.8% from 9.5%, driven by cost savings and lapping $24 million of 2013 special charges
- Net income of $337 million, or $1.83 per diluted share, compared with $1.22 in 2013; adjusted EPS was $1.97
- Orders of $4.02 billion rose 2.8% (3.9% constant currency); backlog reached $740 million at year-end, with more than 85% expected to convert to revenue in 2015
- Free cash flow of $297 million and operating cash flow of $416 million; $130 million of share repurchases under the $250 million program
- Total debt of $1.29 billion, including $600 million 3.55% notes due 2016 and $600 million 4.875% notes due 2021; the $600 million credit facility remained undrawn
- 2015 outlook calls for low single digit organic revenue growth, offset by a negative foreign exchange impact of high single digits
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Xylem kept $0.09.
- Revenue$3.92B100.0%
- Cost of revenue−$2.40B61.4%
- Gross profit$1.51B38.6%
- Operating costs−$1.05B26.8%
- Operating income$463.0M11.8%
- Interest, other & tax−$126.0M3.2%
- Net income$337.0M8.6%
Where FY2014 revenue went
$3.92B- Cost of revenue: $2.40B, 61% of revenue
- SG&A: $920.0M, 23% of revenue
- Net income: $337.0M, 8.6% of revenue
- R&D: $104.0M, 2.7% of revenue
- Other operating costs: $26.0M, 0.7% of revenue
- Interest, other & tax: $126.0M, 3.2% of revenue
Kept 8.6% as net incomeOther operating costs $26.0M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $3.92B$3.84B | +2.1% |
| Cost of Revenue | $2.40B$2.34B | +2.8% |
| Gross Profit | $1.51B$1.50B | +0.9% |
| R&D Expenses | $104.00M$104.00M | 0.0% |
| SG&A Expenses | $920.00M$990.00M | −7.1% |
| Operating Income | $463.00M$363.00M | +27.5% |
| Interest Expense | $54.00M$55.00M | −1.8% |
| Net Income | $337.00M$228.00M | +47.8% |
| EPS (Basic) | $1.84$1.23 | +49.6% |
| EPS (Diluted) | $1.83$1.22 | +50.0% |
| Shares Outstanding (Basic) | 183.08M185.22M | −1.2% |
| Shares Outstanding (Diluted) | 184.25M186.04M | −1.0% |
05—Questions
Frequently Asked Questions
How did Xylem perform financially in 2014?
Revenue rose 2.1% to $3,916 million, operating income increased 27.5% to $463 million, and net income grew 47.8% to $337 million. Diluted EPS was $1.83, versus $1.22 in 2013. Adjusted net income was $362 million, or $1.97 per diluted share.
What drove the improvement in operating margin?
Management attributed the increase to savings from lean six sigma, global sourcing and restructuring actions, plus the absence of $24 million in non-recurring 2013 special charges. These benefits were partly offset by cost inflation and unfavorable geographic and product sales mix. Operating margin was 11.8%, compared with 9.5% in 2013.
What is the outlook for 2015?
Xylem expects organic revenue growth of low single digits. This excludes an expected negative foreign exchange translation impact of high single digits, primarily from a weaker Euro against the U.S. dollar. The company also expects about $20 million in restructuring and realignment costs in 2015.
What regulatory matters does the company disclose?
A subsidiary, Xylem Water Solutions South Korea, was fined approximately $1.6 million by the Korea Fair Trade Commission over bid-rigging findings, and the matter was referred for criminal prosecution. The company began an internal investigation that includes FCPA compliance, contacted the SEC and DOJ in January 2015, and said it cannot reasonably estimate potential liability but does not expect a material adverse effect.
How much capital did Xylem return to shareholders?
In 2014 the company repurchased $130 million of shares under its $250 million program, with up to $70 million still available. Dividends paid totaled $94 million, and declared dividends per share rose to $0.5120 from $0.4656. In the first quarter of 2015, the company declared a $0.1408 quarterly dividend.
06—Continue