01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. reported 2016 revenue of $3.77 billiona, up 3.2% from $3.65 billion in 2015 (5.3% on a constant currency basis), driven by $163 million of acquisition revenue, including the Sensus acquisition completed October 31, 2016 for approximately $1.7 billion in cash.
Operating income declined 9.6% to $406 millionb, with operating margin falling to 10.8% from 12.3%, primarily due to $53 million of Sensus acquisition related costs and higher restructuring and realignment costs. Excluding these items, adjusted operating income rose 8.7% to $511 million, with adjusted operating margin of 13.6%. Net income fell 23.5% to $260 million, or $1.45 per diluted share, versus $1.87 in 2015; adjusted earnings per share were $2.03.
The balance sheet changed materially with the acquisition. Total debt rose to $2.37 billionc from $1.27 billion, cash fell to $308 million from $680 million, and total assets increased to $6.47 billion from $4.66 billion, with goodwill of $2.63 billion. Operating cash flow was $497 million and free cash flow, excluding Sensus acquisition related costs, was $386 million.
Orders grew 3.0% to $3.82 billiond (0.3% organic), and backlog rose to $1.08 billion from $716 million, with Sensus contributing $385 million. Dividends declared per share rose to $0.6196 from $0.5632. For 2017, management expects total revenue growth of 20% to 22%, with organic revenue growth in the low-single-digits and the remainder from Sensus.
The company also expects approximately $30 million of Sensus integration, restructuring and realignment costs in 2017. Management reported that its internal control over financial reporting was effective as of December 31, 2016, excluding Sensus, and Deloitte & Touche LLP issued an unqualified opinion.
02—Key points
Key Highlights
- 2016 revenue of $3.77 billion, up 3.2%; constant currency growth of 5.3%, with $163 million from acquisitions
- Operating income fell 9.6% to $406 million; adjusted operating income rose 8.7% to $511 million (adjusted operating margin 13.6%)
- Net income of $260 million, or $1.45 per diluted share, versus $1.87 in 2015; adjusted EPS of $2.03
- Sensus acquisition completed October 31, 2016 for approximately $1.7 billion in cash, funded partly by $900 million of senior notes and a euro term loan
- Total debt rose to $2.37 billion from $1.27 billion; cash fell to $308 million from $680 million
- Total backlog of $1.08 billion at December 31, 2016, up from $716 million, with Sensus contributing $385 million
- 2017 outlook: total revenue growth of 20% to 22%, with organic growth in the low-single-digits
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Xylem kept $0.07.
- Revenue$3.77B100.0%
- Cost of revenue−$2.31B61.2%
- Gross profit$1.46B38.8%
- Operating costs−$1.05B28.0%
- Operating income$408.0M10.8%
- Interest, other & tax−$148.0M3.9%
- Net income$260.0M6.9%
Where FY2016 revenue went
$3.77B- Cost of revenue: $2.31B, 61% of revenue
- SG&A: $914.0M, 24% of revenue
- Net income: $260.0M, 6.9% of revenue
- R&D: $110.0M, 2.9% of revenue
- Other operating costs: $30.0M, 0.8% of revenue
- Interest, other & tax: $148.0M, 3.9% of revenue
Kept 6.9% as net incomeOther operating costs $30.0M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.77B$3.65B | +3.2% |
| Cost of Revenue | $2.31B$2.25B | +2.7% |
| Gross Profit | $1.46B$1.40B | +4.1% |
| R&D Expenses | $110.00M$95.00M | +15.8% |
| SG&A Expenses | $914.00M$854.00M | +7.0% |
| Operating Income | $408.00M$449.00M | −9.1% |
| Interest Expense | $70.00M$55.00M | +27.3% |
| Net Income | $260.00M$340.00M | −23.5% |
| EPS (Basic) | $1.45$1.88 | −22.9% |
| EPS (Diluted) | $1.45$1.87 | −22.5% |
| Shares Outstanding (Basic) | 179.11M180.89M | −1.0% |
| Shares Outstanding (Diluted) | 180.04M181.74M | −0.9% |
05—Questions
Frequently Asked Questions
Why did operating margin decline in 2016?
Operating margin fell to 10.8% from 12.3%, primarily due to $53 million of Sensus acquisition related costs, a $27 million increase in restructuring and realignment costs, and a $4 million increase in special charges. Excluding these costs, adjusted operating margin increased 70 basis points to 13.6%.
How was the Sensus acquisition financed?
The approximately $1.7 billion cash consideration was funded with cash on hand, commercial paper issuances, borrowings under a new euro-denominated term loan, and the issuance of $500 million of 3.250% Senior Notes due 2026 and $400 million of 4.375% Senior Notes due 2046.
What is the company's 2017 outlook?
Xylem anticipates total revenue growth of 20% to 22% in 2017, with organic revenue growth in the low-single-digits and Sensus contributing the additional growth. The company expects approximately $30 million in Sensus integration, restructuring and realignment costs in 2017.
How did the company's liquidity and debt position change?
Total debt increased to $2,368 million at December 31, 2016 from $1,274 million a year earlier, and cash and cash equivalents decreased to $308 million from $680 million. Operating cash flow was $497 million. The $600 million Five-Year Revolving Credit Facility was undrawn at year end.
06—Continue