01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. reported 2015 revenue of $3.65 billiona, down from $3.92 billion in 2014, with the decline driven mainly by foreign currency translation of $313 million.
On a constant currency basis, revenue grew 1.3%, supported by organic growth in emerging markets, particularly China and India, as well as in the United States and western Europe. Operating income was $449 millionb, versus $463 million in 2014, while operating margin rose to 12.3% from 11.8%, reflecting lower restructuring and realignment costs and continuous improvement savings. Net income was $340 million, or $1.87 per diluted share, compared with $1.83 in 2014.
Adjusted EPS was $1.85c, down from $1.97. Cash generation was solid, with net cash from operating activities of $464 million and free cash flow of $347 million. The company repurchased $175 million of shares in 2015 and raised its dividend, with dividends declared per share of $0.5632 for the year and a first-quarter 2016 declaration of $0.1549 per share.
Total debt was $1.27 billiond at year-end, including $600 million of 3.55% senior notes due September 2016, which the company classified as long-term based on its intent to refinance. The Credit Facility of $600 million was undrawn at December 31, 2015. Management anticipates low-to-mid single-digit organic revenue growth in 2016.
Backlog was $716 million at year-end 2015, with approximately 81% expected to convert to revenue in 2016. Orders were $3.71 billion, up 0.5% organically. Risks highlighted in the filing include foreign currency exposure (59% of revenue generated outside the United States), weakness in oil and gas-related dewatering demand, and goodwill and intangible assets of approximately $2 billion.
02—Key points
Key Highlights
- Revenue of $3,653 million in 2015, down 6.7% from $3,916 million, with constant currency revenue up 1.3%
- Operating margin improved to 12.3% from 11.8%; operating income of $449 million, down 3.0%
- Net income of $340 million, or $1.87 per diluted share; adjusted EPS of $1.85 versus $1.97 in 2014
- Net cash from operating activities of $464 million and free cash flow of $347 million
- Repurchased $175 million of shares in 2015 and dividends paid rose 10%; Q1 2016 dividend declared at $0.1549 per share
- Backlog of $716 million at December 31, 2015, with more than 81% expected to be recognized as revenue in 2016
- Total debt of $1,274 million, including $600 million of 3.55% senior notes due September 2016; $600 million revolving credit facility undrawn
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Xylem kept $0.09.
- Revenue$3.65B100.0%
- Cost of revenue−$2.25B61.6%
- Gross profit$1.40B38.4%
- Operating costs−$955.0M26.1%
- Operating income$449.0M12.3%
- Interest, other & tax−$109.0M3.0%
- Net income$340.0M9.3%
Where FY2015 revenue went
$3.65B- Cost of revenue: $2.25B, 62% of revenue
- SG&A: $854.0M, 23% of revenue
- Net income: $340.0M, 9.3% of revenue
- R&D: $95.0M, 2.6% of revenue
- Interest, other & tax: $109.0M, 3.0% of revenue
Kept 9.3% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $3.65B$3.92B | −6.7% |
| Cost of Revenue | $2.25B$2.40B | −6.4% |
| Gross Profit | $1.40B$1.51B | −7.2% |
| R&D Expenses | $95.00M$104.00M | −8.7% |
| SG&A Expenses | $854.00M$920.00M | −7.2% |
| Operating Income | $449.00M$463.00M | −3.0% |
| Interest Expense | $55.00M$54.00M | +1.9% |
| Net Income | $340.00M$337.00M | +0.9% |
| EPS (Basic) | $1.88$1.84 | +2.2% |
| EPS (Diluted) | $1.87$1.83 | +2.2% |
| Shares Outstanding (Basic) | 180.89M183.08M | −1.2% |
| Shares Outstanding (Diluted) | 181.74M184.25M | −1.4% |
05—Questions
Frequently Asked Questions
Why did revenue decline in 2015 despite constant currency growth?
Reported revenue fell $263 million, or 6.7%, to $3,653 million. Foreign currency translation reduced revenue by $313 million, or 8.0%, mainly due to a stronger U.S. dollar against the Euro, Swedish Krona, Australian Dollar, British Pound, Canadian Dollar and Norwegian Krone. Excluding currency effects, revenue grew 1.3%, driven by organic growth in emerging markets, particularly China and India.
How did the company's profitability change in 2015?
Operating income was $449 million, down $14 million or 3.0% from $463 million. Operating margin rose to 12.3% from 11.8%, primarily due to reduced restructuring and realignment costs and incremental cost savings from continuous improvement initiatives, partially offset by cost inflation, unfavorable mix and foreign exchange. Net income increased slightly to $340 million from $337 million, and the effective tax rate fell to 15.6% from 19.8%.
What is the company's debt position and refinancing plan?
Total debt was $1,274 million at December 31, 2015. This includes $600 million of 3.55% senior notes due September 2016, which the company classified as long-term because it has the current ability and intent to refinance them. The filing also lists $600 million of 4.875% senior notes due October 2021, and a $76 million balance under the European Investment Bank R&D Facility Agreement. The company stated it was in compliance with all covenants.
What is the outlook for 2016?
The company continues to anticipate organic revenue growth in the low-to-mid single digits in 2016. It expects growth in public utilities and commercial markets in the mid-single digits, residential growth in the low-to-mid single digits, and flat to low-single-digit growth in industrial markets, with double-digit declines in oil and gas and mining applications. It expects to incur approximately $25 million in restructuring and realignment costs in 2016.
How is the company returning cash to shareholders?
In 2015, the company repurchased a total of $175 million in shares under its programs and paid $102 million in dividends. The Board authorized up to $500 million in repurchases in August 2015, with up to $420 million remaining at year-end. Dividends declared were $0.5632 per share for 2015, and a dividend of $0.1549 per share was declared in the first quarter of 2016.
06—Continue