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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Indiana
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45-2080495
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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Large accelerated filer
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þ
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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ITEM
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PAGE
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PART I – Financial Information
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Item 1
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-
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Item 2
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-
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Item 3
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-
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Item 4
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-
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PART II – Other Information
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Item 1
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-
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Item 1A
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-
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Item 2
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-
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Item 3
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-
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Item 4
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-
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Item 5
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-
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Item 6
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-
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For the three months ended March 31,
|
2013
|
|
2012
|
||||
Revenue
|
$
|
879
|
|
|
$
|
925
|
|
Cost of revenue
|
545
|
|
|
562
|
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Gross profit
|
334
|
|
|
363
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|
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Selling, general and administrative expenses
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236
|
|
|
231
|
|
||
Research and development expenses
|
26
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|
|
28
|
|
||
Restructuring charges
|
5
|
|
|
—
|
|
||
Separation costs
|
1
|
|
|
5
|
|
||
Operating income
|
66
|
|
|
99
|
|
||
Interest expense
|
13
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|
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14
|
|
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Other non-operating (expense), net
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(2
|
)
|
|
(1
|
)
|
||
Income before taxes
|
51
|
|
|
84
|
|
||
Income tax expense
|
10
|
|
|
21
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Net income
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$
|
41
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|
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$
|
63
|
|
Earnings per share:
|
|
|
|
||||
Basic
|
$
|
0.22
|
|
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$
|
0.34
|
|
Diluted
|
$
|
0.22
|
|
|
$
|
0.34
|
|
Weighted average number of shares:
|
|
|
|
||||
Basic
|
185.8
|
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185.4
|
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||
Diluted
|
186.4
|
|
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185.9
|
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||
Dividends declared per share
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$
|
0.1164
|
|
|
$
|
0.1012
|
|
For the three months ended March 31,
|
2013
|
|
2012
|
||||
Net income
|
$
|
41
|
|
|
$
|
63
|
|
Other comprehensive income, before tax:
|
|
|
|
||||
Foreign currency translation adjustment
|
(43
|
)
|
|
49
|
|
||
Net change in cash flow hedges:
|
|
|
|
||||
Unrealized (losses) gains
|
(2
|
)
|
|
4
|
|
||
Amount of gain reclassified into net income
|
(1
|
)
|
|
—
|
|
||
Net change in postretirement benefit plans:
|
|
|
|
||||
Amortization of net actuarial loss
|
4
|
|
|
2
|
|
||
Settlement
|
—
|
|
|
2
|
|
||
Other comprehensive (loss) income, before tax
|
(42
|
)
|
|
57
|
|
||
Income tax expense related to items of other comprehensive income
|
1
|
|
|
2
|
|
||
Other comprehensive (loss) income, net of tax
|
(43
|
)
|
|
55
|
|
||
Comprehensive (loss) income
|
$
|
(2
|
)
|
|
$
|
118
|
|
|
March 31,
2013 |
|
December 31,
2012 |
||||
|
(Unaudited)
|
|
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
375
|
|
|
$
|
504
|
|
Receivables, less allowances for discounts and doubtful accounts of $27 and $34 in 2013 and 2012, respectively
|
767
|
|
|
776
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|
||
Inventories, net
|
461
|
|
|
443
|
|
||
Prepaid and other current assets
|
111
|
|
|
110
|
|
||
Deferred income tax assets
|
43
|
|
|
41
|
|
||
Total current assets
|
1,757
|
|
|
1,874
|
|
||
Property, plant and equipment, net
|
474
|
|
|
487
|
|
||
Goodwill
|
1,669
|
|
|
1,647
|
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||
Other intangible assets, net
|
504
|
|
|
484
|
|
||
Other non-current assets
|
185
|
|
|
187
|
|
||
Total assets
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$
|
4,589
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|
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$
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4,679
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
309
|
|
|
$
|
332
|
|
Accrued and other current liabilities
|
406
|
|
|
443
|
|
||
Short-term borrowings and current maturities of long-term debt
|
6
|
|
|
6
|
|
||
Total current liabilities
|
721
|
|
|
781
|
|
||
Long-term debt
|
1,199
|
|
|
1,199
|
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||
Accrued postretirement benefits
|
397
|
|
|
400
|
|
||
Deferred income tax liabilities
|
179
|
|
|
173
|
|
||
Other non-current accrued liabilities
|
53
|
|
|
52
|
|
||
Total liabilities
|
2,549
|
|
|
2,605
|
|
||
Commitments and contingencies (Note 17)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Common Stock – par value $0.01 per share:
|
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|
||||
Authorized 750.0 shares, issued 186.3 shares and 186.2 shares in 2013 and 2012, respectively
|
2
|
|
|
2
|
|
||
Capital in excess of par value
|
1,711
|
|
|
1,706
|
|
||
Retained earnings
|
283
|
|
|
264
|
|
||
Treasury stock – at cost 1.0 shares and 0.5 shares in 2013 and 2012, respectively
|
(28
|
)
|
|
(13
|
)
|
||
Accumulated other comprehensive income
|
72
|
|
|
115
|
|
||
Total stockholders’ equity
|
2,040
|
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|
2,074
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Total liabilities and stockholders’ equity
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$
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4,589
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$
|
4,679
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For the three months ended March 31,
|
2013
|
|
2012
|
||||
Operating Activities
|
|
|
|
||||
Net income
|
$
|
41
|
|
|
$
|
63
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation
|
25
|
|
|
23
|
|
||
Amortization
|
12
|
|
|
11
|
|
||
Share-based compensation
|
6
|
|
|
5
|
|
||
Restructuring charges
|
5
|
|
|
—
|
|
||
Payments for restructuring
|
(4
|
)
|
|
—
|
|
||
Changes in assets and liabilities (net of acquisitions):
|
|
|
|
||||
Changes in receivables
|
1
|
|
|
7
|
|
||
Changes in inventories
|
(29
|
)
|
|
(31
|
)
|
||
Changes in accounts payable
|
(8
|
)
|
|
14
|
|
||
Other, net
|
(29
|
)
|
|
(31
|
)
|
||
Net Cash – Operating activities
|
20
|
|
|
61
|
|
||
Investing Activities
|
|
|
|
||||
Capital expenditures
|
(30
|
)
|
|
(31
|
)
|
||
Acquisitions, net of cash acquired
|
(78
|
)
|
|
—
|
|
||
Proceeds from the sale of property, plant and equipment
|
3
|
|
|
2
|
|
||
Net Cash – Investing activities
|
(105
|
)
|
|
(29
|
)
|
||
Financing Activities
|
|
|
|
||||
Repurchase of common stock
|
(15
|
)
|
|
(1
|
)
|
||
Proceeds from exercise of employee stock options
|
—
|
|
|
16
|
|
||
Dividends paid
|
(22
|
)
|
|
(19
|
)
|
||
Other, net
|
1
|
|
|
(6
|
)
|
||
Net Cash – Financing activities
|
(36
|
)
|
|
(10
|
)
|
||
Effect of exchange rate changes on cash
|
(8
|
)
|
|
7
|
|
||
Net change in cash and cash equivalents
|
(129
|
)
|
|
29
|
|
||
Cash and cash equivalents at beginning of year
|
504
|
|
|
318
|
|
||
Cash and cash equivalents at end of period
|
$
|
375
|
|
|
$
|
347
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid during the period for:
|
|
|
|
||||
Interest
|
$
|
11
|
|
|
$
|
11
|
|
Income taxes (net of refunds received)
|
$
|
27
|
|
|
$
|
18
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2013
|
|
2012
|
||||
By component:
|
|
|
|
||||
Severance and other charges
|
$
|
5
|
|
|
$
|
—
|
|
Reversal of restructuring accruals
|
—
|
|
|
—
|
|
||
Total restructuring charges
|
$
|
5
|
|
|
$
|
—
|
|
|
|
|
|
||||
By segment:
|
|
|
|
||||
Water Infrastructure
|
$
|
5
|
|
|
$
|
—
|
|
Applied Water
|
—
|
|
|
—
|
|
||
Corporate and other
|
—
|
|
|
—
|
|
(in millions)
|
|
2013
|
|
2012
|
||||
Restructuring accruals - January 1
|
|
$
|
9
|
|
|
$
|
1
|
|
Severance and other
|
|
5
|
|
|
—
|
|
||
Cash payments
|
|
(4
|
)
|
|
—
|
|
||
Other
|
|
—
|
|
|
(1
|
)
|
||
Restructuring accruals - March 31
|
|
$
|
10
|
|
|
$
|
—
|
|
|
|
|
|
|
||||
By segment:
|
|
|
|
|
||||
Water Infrastructure
|
|
$
|
7
|
|
|
$
|
—
|
|
Applied Water
|
|
3
|
|
|
—
|
|
||
Corporate and other
|
|
—
|
|
|
—
|
|
|
|
2013
|
|
2012
|
||
Planned reductions - January 1
|
|
54
|
|
|
—
|
|
Additional planned reductions
|
|
99
|
|
|
—
|
|
Actual reductions
|
|
(52
|
)
|
|
—
|
|
Planned reductions - March 31
|
|
101
|
|
|
—
|
|
(in millions)
|
Three Months Ended
|
||||||
March 31,
|
|||||||
2013
|
|
2012
|
|||||
Advisory fees and other
|
$
|
—
|
|
|
$
|
3
|
|
Rebranding and marketing costs
|
—
|
|
|
2
|
|
||
Information and technology costs
|
1
|
|
|
—
|
|
||
Total separation costs in operating income
|
1
|
|
|
5
|
|
||
Income tax benefit
|
—
|
|
|
(1
|
)
|
||
Total separation costs, net of tax
|
$
|
1
|
|
|
$
|
4
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
|
2013
|
|
2012
|
||||
Net income (in millions)
|
$
|
41
|
|
|
$
|
63
|
|
Shares (in thousands):
|
|
|
|
||||
Weighted average common shares outstanding
|
185,573
|
|
|
184,963
|
|
||
Add: Participating securities (a)
|
234
|
|
|
435
|
|
||
Weighted average common shares outstanding — Basic
|
185,807
|
|
|
185,398
|
|
||
Plus incremental shares from assumed conversions: (b)
|
|
|
|
||||
Dilutive effect of stock options
|
178
|
|
|
289
|
|
||
Dilutive effect of restricted stock
|
450
|
|
|
172
|
|
||
Weighted average common shares outstanding — Diluted
|
186,435
|
|
|
185,859
|
|
||
Basic earnings per share
|
$
|
0.22
|
|
|
$
|
0.34
|
|
Diluted earnings per share
|
$
|
0.22
|
|
|
$
|
0.34
|
|
(a)
|
Restricted stock awards containing rights to non-forfeitable dividends that participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.
|
(in millions)
|
March 31,
2013 |
|
December 31,
2012 |
||||
Finished goods
|
$
|
184
|
|
|
$
|
182
|
|
Work in process
|
34
|
|
|
30
|
|
||
Raw materials
|
243
|
|
|
231
|
|
||
Total inventories, net
|
$
|
461
|
|
|
$
|
443
|
|
(in millions)
|
March 31,
2013 |
|
December 31,
2012 |
||||
Land, buildings and improvements
|
$
|
253
|
|
|
$
|
255
|
|
Machinery and equipment
|
648
|
|
|
653
|
|
||
Equipment held for lease or rental
|
183
|
|
|
183
|
|
||
Furniture and fixtures
|
88
|
|
|
90
|
|
||
Construction work in progress
|
43
|
|
|
40
|
|
||
Other
|
20
|
|
|
19
|
|
||
|
1,235
|
|
|
1,240
|
|
||
Less accumulated depreciation
|
761
|
|
|
753
|
|
||
Total property, plant and equipment, net
|
$
|
474
|
|
|
$
|
487
|
|
(in millions)
|
Water
Infrastructure
|
|
Applied Water
|
|
Total
|
|||
Balance as of December 31, 2012
|
1,085
|
|
|
562
|
|
|
1,647
|
|
Activity in 2013
|
|
|
|
|
|
|||
Goodwill acquired (a)
|
47
|
|
|
—
|
|
|
47
|
|
Foreign currency and other
|
(17
|
)
|
|
(8
|
)
|
|
(25
|
)
|
Balance as of March 31, 2013
|
1,115
|
|
|
554
|
|
|
1,669
|
|
|
March 31, 2013
|
|
December 31, 2012
|
||||||||||||||||||||
(in millions)
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
||||||||||||
Customer and distributor relationships
|
$
|
340
|
|
|
$
|
(81
|
)
|
|
$
|
259
|
|
|
$
|
317
|
|
|
$
|
(75
|
)
|
|
$
|
242
|
|
Proprietary technology
|
107
|
|
|
(30
|
)
|
|
77
|
|
|
105
|
|
|
(29
|
)
|
|
76
|
|
||||||
Trademarks
|
37
|
|
|
(14
|
)
|
|
23
|
|
|
33
|
|
|
(14
|
)
|
|
19
|
|
||||||
Patents and other
|
21
|
|
|
(17
|
)
|
|
4
|
|
|
21
|
|
|
(17
|
)
|
|
4
|
|
||||||
Indefinite-lived intangibles
|
141
|
|
|
—
|
|
|
141
|
|
|
143
|
|
|
—
|
|
|
143
|
|
||||||
|
$
|
646
|
|
|
$
|
(142
|
)
|
|
$
|
504
|
|
|
$
|
619
|
|
|
$
|
(135
|
)
|
|
$
|
484
|
|
(in millions; except number of instruments)
|
|
|
|
|
||||||||
Foreign Currency Derivative
|
Number of
Instruments
|
|
Notional
Sold
|
|
Sell Notional Currency
|
|
Notional
Purchased
|
|
Buy Notional
Currency
|
|||
Buy PLN/ Sell EUR forward
|
3
|
|
|
4.6
|
|
|
Euro (EUR)
|
|
19.4
|
|
|
Polish Zloty
(PLN) |
Buy HUF/ Sell EUR forward
|
3
|
|
|
1.8
|
|
|
Euro (EUR)
|
|
546.2
|
|
|
Hungarian
Forint (HUF) |
Sell CAD/ Buy EUR forward
|
8
|
|
|
10.0
|
|
|
Canadian Dollar (CAD)
|
|
7.4
|
|
|
Euro (EUR)
|
Sell USD/ Buy EUR forward
|
8
|
|
|
40.5
|
|
|
United States
Dollar (USD) |
|
31.0
|
|
|
Euro (EUR)
|
Sell AUD/ Buy EUR forward
|
8
|
|
|
20.0
|
|
|
Australian Dollar (AUD)
|
|
15.5
|
|
|
Euro (EUR)
|
Sell GBP/ Buy EUR forward
|
8
|
|
|
9.0
|
|
|
British Pound Sterling (GBP)
|
|
10.4
|
|
|
Euro (EUR)
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2013
|
|
2012
|
||||
Derivatives in Cash Flow Hedges
|
|
|
|
||||
Foreign Exchange Contracts
|
|
|
|
||||
Amount of (loss) gain recognized in OCI (a)
|
$
|
(2
|
)
|
|
$
|
4
|
|
Amount of (gain) loss reclassified from OCI into revenue (a)
|
(1
|
)
|
|
—
|
|
||
Amount of (gain) loss reclassified from OCI into cost of revenue (a)
|
—
|
|
|
—
|
|
(a)
|
Effective portion
|
(in millions)
|
March 31, 2013
|
|
December 31, 2012
|
||||
Derivatives designated as hedging instruments
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Other current liabilities
|
$
|
2
|
|
|
$
|
—
|
|
Total fair value
|
$
|
2
|
|
|
$
|
—
|
|
(in millions)
|
March 31,
2013 |
|
December 31,
2012 |
||||
Compensation and other employee-benefits
|
$
|
179
|
|
|
$
|
201
|
|
Customer-related liabilities
|
56
|
|
|
60
|
|
||
Accrued warranty costs
|
40
|
|
|
40
|
|
||
Accrued income taxes
|
34
|
|
|
50
|
|
||
Deferred income tax liability
|
2
|
|
|
—
|
|
||
Other accrued liabilities
|
95
|
|
|
92
|
|
||
Total accrued and other current liabilities
|
$
|
406
|
|
|
$
|
443
|
|
(in millions)
|
March 31,
2013 |
|
December 31,
2012 |
||||
Short-term borrowings and current maturities of long-term debt
|
$
|
6
|
|
|
$
|
6
|
|
|
|
|
|
||||
Long-term debt
|
|
|
|
||||
3.550% Senior Notes due 2016 (a)
|
$
|
600
|
|
|
$
|
600
|
|
4.875% Senior Notes due 2021 (a)
|
600
|
|
|
600
|
|
||
Unamortized discount (b)
|
(1
|
)
|
|
(1
|
)
|
||
Long-term debt
|
$
|
1,199
|
|
|
$
|
1,199
|
|
Total debt
|
$
|
1,205
|
|
|
$
|
1,205
|
|
(a)
|
The fair value of our Senior Notes (as defined below) was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2016 was
$639 million
as of both
March 31, 2013
and
December 31, 2012
. The fair value of our Senior Notes due 2021 was
$669 million
and
$680 million
as of
March 31, 2013
and
December 31, 2012
, respectively.
|
(b)
|
The unamortized discount is recognized as a reduction in the carrying value of the Senior Notes (as defined below) in the Condensed Consolidated Balance Sheets and is being amortized to interest expense in our Condensed Consolidated Income Statements over the expected remaining terms of the Senior Notes.
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2013
|
|
2012
|
||||
Domestic defined benefit pension plans:
|
|
|
|
||||
Net periodic benefit cost:
|
|
|
|
||||
Service cost
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
1
|
|
|
1
|
|
||
Expected return on plan assets
|
(1
|
)
|
|
(1
|
)
|
||
Amortization of net actuarial loss
|
1
|
|
|
—
|
|
||
Net periodic benefit cost
|
$
|
2
|
|
|
$
|
1
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
|
|
|
||||
Amortization of net actuarial loss
|
(1
|
)
|
|
—
|
|
||
Change recognized in other comprehensive income
|
$
|
(1
|
)
|
|
$
|
—
|
|
International defined benefit pension plans:
|
|
|
|
||||
Net periodic benefit cost:
|
|
|
|
||||
Service cost
|
$
|
3
|
|
|
$
|
3
|
|
Interest cost
|
7
|
|
|
7
|
|
||
Expected return on plan assets
|
(8
|
)
|
|
(8
|
)
|
||
Amortization of net actuarial loss
|
3
|
|
|
2
|
|
||
Settlement
|
—
|
|
|
2
|
|
||
Net periodic benefit cost
|
$
|
5
|
|
|
$
|
6
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
|
|
|
||||
Amortization of net actuarial loss
|
(3
|
)
|
|
(2
|
)
|
||
Settlement
|
—
|
|
|
(2
|
)
|
||
Change recognized in other comprehensive income
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
Totals:
|
|
|
|
||||
Net periodic benefit cost
|
$
|
7
|
|
|
$
|
7
|
|
Recognized in other comprehensive income
|
(4
|
)
|
|
(4
|
)
|
||
Total recognized in comprehensive income
|
$
|
3
|
|
|
$
|
3
|
|
(in thousands, except for per share amounts)
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at December 31, 2012
|
1,588
|
|
|
$
|
26.92
|
|
Granted
|
447
|
|
|
$
|
27.45
|
|
Vested
|
(209
|
)
|
|
$
|
30.00
|
|
Forfeited
|
(19
|
)
|
|
$
|
28.85
|
|
Outstanding at March 31, 2013
|
1,807
|
|
|
$
|
26.68
|
|
(in thousands, except for per share amounts)
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at December 31, 2012
|
—
|
|
|
$
|
—
|
|
Granted
|
119
|
|
|
$
|
27.49
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Outstanding at March 31, 2013
|
119
|
|
|
$
|
27.49
|
|
(in thousands, except for per share amounts)
|
Shares
|
|
Weighted
Average
Exercise
Price /Share
|
|
Weighted Average
Remaining
Contractual
Term (Years)
|
|||
Outstanding at December 31, 2012
|
4,083
|
|
|
$
|
26.46
|
|
|
6.4
|
Granted
|
813
|
|
|
$
|
27.43
|
|
|
10.0
|
Exercised
|
(23
|
)
|
|
$
|
20.03
|
|
|
3.4
|
Forfeited
|
(176
|
)
|
|
$
|
29.52
|
|
|
0.1
|
Outstanding at March 31, 2013
|
4,697
|
|
|
$
|
26.54
|
|
|
7.3
|
Options exercisable at March 31, 2013
|
2,293
|
|
|
$
|
26.22
|
|
|
5.2
|
(in millions)
|
Foreign Currency Translation
|
|
Postretirement Benefit Plans
|
|
Derivative Instruments
|
|
Total
|
||||||||
Balance at December 31, 2012
|
$
|
336
|
|
|
$
|
(222
|
)
|
|
$
|
1
|
|
|
$
|
115
|
|
Foreign currency translation adjustment
|
(43
|
)
|
|
—
|
|
|
—
|
|
|
(43
|
)
|
||||
Amortization of net actuarial loss on postretirement benefit plans into:
|
|
|
|
|
|
|
|
||||||||
Cost of revenue
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Selling, general and administrative expenses
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
Other non-operating expense, net
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Income tax expense on amortization of postretirement benefit plan items
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
||||
Unrealized loss on foreign exchange agreements
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
||||
Reclassification of unrealized gain on foreign exchange agreements into revenue
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Balance at March 31, 2013
|
$
|
293
|
|
|
$
|
(219
|
)
|
|
$
|
(2
|
)
|
|
$
|
72
|
|
(in millions)
|
2013
|
|
2012
|
||||
Warranty accrual – January 1
|
$
|
40
|
|
|
$
|
42
|
|
Net changes for product warranties in the period
|
8
|
|
|
6
|
|
||
Settlement of warranty claims
|
(8
|
)
|
|
(8
|
)
|
||
Warranty accrual – March 31
|
$
|
40
|
|
|
$
|
40
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2013
|
|
2012
|
||||
Revenue:
|
|
|
|
||||
Water Infrastructure
|
$
|
551
|
|
|
$
|
584
|
|
Applied Water
|
345
|
|
|
355
|
|
||
Eliminations
|
(17
|
)
|
|
(14
|
)
|
||
Total
|
$
|
879
|
|
|
$
|
925
|
|
Operating Income:
|
|
|
|
||||
Water Infrastructure
|
$
|
42
|
|
|
$
|
75
|
|
Applied Water
|
40
|
|
|
40
|
|
||
Corporate and other
|
(16
|
)
|
|
(16
|
)
|
||
Total
|
$
|
66
|
|
|
$
|
99
|
|
Depreciation and Amortization:
|
|
|
|
||||
Water Infrastructure
|
$
|
28
|
|
|
$
|
26
|
|
Applied Water
|
8
|
|
|
7
|
|
||
Corporate and other
|
1
|
|
|
1
|
|
||
Total
|
$
|
37
|
|
|
$
|
34
|
|
Capital Expenditures:
|
|
|
|
||||
Water Infrastructure
|
$
|
18
|
|
|
$
|
20
|
|
Applied Water
|
11
|
|
|
10
|
|
||
Corporate and other
|
1
|
|
|
1
|
|
||
Total
|
$
|
30
|
|
|
$
|
31
|
|
|
Total Assets
|
||||||
(in millions)
|
March 31,
2013 |
|
December 31,
2012 |
||||
Water Infrastructure
|
$
|
2,885
|
|
|
$
|
2,844
|
|
Applied Water
|
1,263
|
|
|
1,253
|
|
||
Corporate and other
|
441
|
|
|
582
|
|
||
Total
|
$
|
4,589
|
|
|
$
|
4,679
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Water Infrastructure
serves the supply infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater to treatment facilities where our mixers, biological treatment, monitoring, and control systems provide the primary functions in the treatment process. We provide analytical instrumentation used to measure water quality, flow, and level in wastewater, surface water, and coastal environments.
|
•
|
Applied Water
serves the usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning and for fire protection systems to the residential and commercial building services markets. In addition, our pumps, heat exchangers, valves and controls provide cooling to power plants and manufacturing facilities, as well as circulation for food and beverage processing. We also provide boosting systems for farming irrigation, pumps for dairy operations, and rainwater reuse systems for small scale crop and turf irrigation.
|
•
|
Orders of
$962 million
|
•
|
Net income of
$41 million
, or
$0.22
per diluted share ($0.27 on an adjusted basis)
|
•
|
Cash flow from operating activities of
$20 million
|
•
|
“organic revenue” and “organic orders” defined as revenue and orders, respectively, excluding the impact of foreign currency fluctuations, intercompany transactions and contributions from acquisitions and divestitures. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period.
|
•
|
“constant currency” defined as financial results adjusted for currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.
|
|
Three Months Ended
|
||||||
|
March 31, 2013
|
||||||
(In millions, except for per share data)
|
2013
|
|
2012
|
||||
Net income
|
$
|
41
|
|
|
$
|
63
|
|
Separation costs, net of tax (a)
|
—
|
|
|
4
|
|
||
Restructuring and realignment, net of tax
|
9
|
|
|
—
|
|
||
Tax-related special items
|
—
|
|
|
—
|
|
||
Adjusted net income
|
$
|
50
|
|
|
$
|
67
|
|
Weighted average number of shares - Diluted
|
186.4
|
|
|
185.9
|
|
||
Adjusted earnings per share
|
$
|
0.27
|
|
|
$
|
0.36
|
|
(a)
|
2013 costs of $1 million ($1 million, net of tax) associated with non-recurring separation activities are not excluded from adjusted net income.
|
•
|
“operating expenses excluding separation, restructuring and realignment costs” defined as operating expenses, adjusted to exclude non-recurring separation costs from the Spin-off (not excluded in 2013), restructuring and realignment costs.
|
•
|
“adjusted segment operating income” defined as segment operating income, adjusted to exclude non-recurring separation costs from the Spin-off (not excluded in 2013), restructuring and realignment costs and “adjusted segment operating margin” defined as adjusted segment operating income divided by total segment revenue.
|
•
|
“free cash flow” defined as net cash provided by operating activities less capital expenditures, as well as adjustments for other significant items that impact current results that management believes are not related to our ongoing operations and performance. Our definition of free cash
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(In millions)
|
2013
|
|
2012
|
||||
Net cash provided by operating activities
|
$
|
20
|
|
|
$
|
61
|
|
Capital expenditures
|
(30
|
)
|
|
(31
|
)
|
||
Separation cash payments (a)
|
—
|
|
|
11
|
|
||
Free cash flow
|
$
|
(10
|
)
|
|
$
|
41
|
|
(a)
|
2013 separation cash payments associated with non-recurring separation activities are not excluded from free cash flow. Separation cash payments in
2012
include capital expenditures associated with the Spin-off of
$1 million
.
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2013
|
|
2012
|
|
Change
|
||||||
Revenue
|
$
|
879
|
|
|
$
|
925
|
|
|
(5.0
|
)
|
%
|
Gross Profit
|
334
|
|
|
363
|
|
|
(8.0
|
)
|
%
|
||
Gross Margin
|
38.0
|
%
|
|
39.2
|
%
|
|
(120
|
)
|
bp
|
||
Operating expenses excluding separation, restructuring and realignment costs (a)
|
256
|
|
|
259
|
|
|
(1.2
|
)
|
%
|
||
Expense to revenue ratio
|
29.1
|
%
|
|
28.0
|
%
|
|
110
|
|
bp
|
||
Restructuring and realignment costs
|
12
|
|
|
—
|
|
|
NM*
|
|
|
||
Separation costs (b)
|
—
|
|
|
5
|
|
|
NM*
|
|
|
||
Total operating expenses
|
268
|
|
|
264
|
|
|
1.5
|
|
%
|
||
Operating Income
|
66
|
|
|
99
|
|
|
(33.3
|
)
|
%
|
||
Operating Margin
|
7.5
|
%
|
|
10.7
|
%
|
|
(320
|
)
|
bp
|
||
Interest and other non-operating expense, net
|
15
|
|
|
15
|
|
|
—
|
|
%
|
||
Income tax expense
|
10
|
|
|
21
|
|
|
(52.4
|
)
|
%
|
||
Tax rate
|
19.1
|
%
|
|
24.8
|
%
|
|
(520
|
)
|
bp
|
||
Net Income
|
$
|
41
|
|
|
$
|
63
|
|
|
(34.9
|
)
|
%
|
|
Three Months Ended
|
|||||
|
March 31,
|
|||||
(In millions)
|
Change
|
|
% Change
|
|||
2012 Revenue
|
$
|
925
|
|
|
|
|
Organic growth
|
(67
|
)
|
|
(7.2
|
)%
|
|
Acquisitions
|
23
|
|
|
2.5
|
%
|
|
Constant Currency
|
(44
|
)
|
|
(4.8
|
)%
|
|
Foreign currency translation (a)
|
(2
|
)
|
|
(0.2
|
)%
|
|
Total change in revenue
|
(46
|
)
|
|
(5.0
|
)%
|
|
2013 Revenue
|
$
|
879
|
|
|
|
(a)
|
Foreign currency impact primarily due to fluctuations in the value of the Euro against the U.S. Dollar.
|
|
Three Months Ended
|
||||||||||||
|
March 31,
|
||||||||||||
(In millions)
|
2013
|
|
2012
|
|
As Reported
Change
|
|
Constant Currency
Change
|
||||||
Water Infrastructure
|
$
|
551
|
|
|
$
|
584
|
|
|
(5.7
|
)%
|
|
(5.5
|
)%
|
Applied Water
|
345
|
|
|
355
|
|
|
(2.8
|
)%
|
|
(2.8
|
)%
|
||
Eliminations
|
(17
|
)
|
|
(14
|
)
|
|
|
|
|
||||
Total
|
$
|
879
|
|
|
$
|
925
|
|
|
(5.0
|
)%
|
|
(4.8
|
)%
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2013
|
|
2012
|
||||
Advisory fees and other
|
$
|
—
|
|
|
$
|
3
|
|
Rebranding and marketing costs
|
—
|
|
|
2
|
|
||
Information and technology costs
|
1
|
|
|
—
|
|
||
Total separation costs in operating income
|
1
|
|
|
5
|
|
||
Income tax (benefit) expense
|
—
|
|
|
(1
|
)
|
||
Total separation costs, net of tax
|
$
|
1
|
|
|
$
|
4
|
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2013
|
|
2012
|
|
Change
|
||||||
Water Infrastructure
|
$
|
42
|
|
|
$
|
75
|
|
|
(44.0
|
)
|
%
|
Applied Water
|
40
|
|
|
40
|
|
|
—
|
|
%
|
||
Segment operating income
|
82
|
|
|
115
|
|
|
(28.7
|
)
|
%
|
||
Corporate and other
|
(16
|
)
|
|
(16
|
)
|
|
—
|
|
%
|
||
Total operating income
|
$
|
66
|
|
|
$
|
99
|
|
|
(33.3
|
)
|
%
|
Operating margin
|
7.5
|
%
|
|
10.7
|
%
|
|
(320
|
)
|
bp
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2013
|
|
2012
|
|
Change
|
||||||
Water Infrastructure
|
|
|
|
|
|
|
|||||
Operating income
|
$
|
42
|
|
|
$
|
75
|
|
|
(44.0
|
)
|
%
|
Separation costs
|
—
|
|
|
2
|
|
|
NM*
|
|
|
||
Restructuring and realignment costs
|
10
|
|
|
—
|
|
|
NM*
|
|
|
||
Adjusted operating income**
|
$
|
52
|
|
|
$
|
77
|
|
|
(32.5
|
)
|
%
|
Adjusted operating margin**
|
9.4
|
%
|
|
13.2
|
%
|
|
(380
|
)
|
bp
|
||
Applied Water
|
|
|
|
|
|
|
|||||
Operating income
|
$
|
40
|
|
|
$
|
40
|
|
|
—
|
|
%
|
Separation costs
|
—
|
|
|
1
|
|
|
NM*
|
|
|
||
Restructuring and realignment costs
|
2
|
|
|
—
|
|
|
NM*
|
|
|
||
Adjusted operating income**
|
$
|
42
|
|
|
$
|
41
|
|
|
2.4
|
|
%
|
Adjusted operating margin**
|
12.2
|
%
|
|
11.5
|
%
|
|
70
|
|
bp
|
||
Total Xylem
|
|
|
|
|
|
|
|||||
Operating income
|
$
|
66
|
|
|
$
|
99
|
|
|
(33.3
|
)
|
%
|
Separation costs
|
—
|
|
|
5
|
|
|
|
|
|||
Restructuring and realignment costs
|
12
|
|
|
—
|
|
|
|
|
|||
Adjusted operating income**
|
$
|
78
|
|
|
$
|
104
|
|
|
(25.0
|
)
|
%
|
Adjusted operating margin**
|
8.9
|
%
|
|
11.2
|
%
|
|
(230
|
)
|
bp
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2013
|
|
2012
|
|
Change
|
||||||
Operating activities
|
$
|
20
|
|
|
$
|
61
|
|
|
$
|
(41
|
)
|
Investing activities
|
(105
|
)
|
|
(29
|
)
|
|
(76
|
)
|
|||
Financing activities
|
(36
|
)
|
|
(10
|
)
|
|
(26
|
)
|
|||
Foreign exchange
|
(8
|
)
|
|
7
|
|
|
(15
|
)
|
|||
Total
|
$
|
(129
|
)
|
|
$
|
29
|
|
|
$
|
(158
|
)
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PERIOD
|
|
TOTAL NUMBER OF SHARES PURCHASED
|
|
AVERAGE PRICE PAID PER SHARE (a)
|
|
TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS (b)
|
|
MAXIMUM NUMBER OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (b)
|
1/1/13 - 1/31/13
|
|
—
|
|
—
|
|
—
|
|
1.6
|
2/1/13 - 2/28/13
|
|
—
|
|
—
|
|
—
|
|
1.6
|
3/1/13 - 3/31/13
|
|
0.5
|
|
$28.55
|
|
0.5
|
|
1.1
|
(a)
|
Average price paid per share is calculated on a settlement basis.
|
(b)
|
On August 18, 2012, the Board of Directors authorized the repurchase of up to two million shares of common stock with no expiration date. The program's objective is to offset dilution associated with various Xylem employee stock plans by acquiring shares in the open market from time to time.
|
|
|
XYLEM INC.
|
|
|
(Registrant)
|
|
|
|
|
|
/s/ John P. Connolly
|
|
|
John P. Connolly
|
|
|
Vice President and Chief Accounting Officer
|
|
|
(Principal Accounting Officer)
|
Exhibit
Number
|
Description
|
Location
|
(31.2)
|
Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
Filed herewith.
|
|
|
|
(32.1)
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.
|
|
|
|
(32.2)
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.
|
|
|
|
(101.0)
|
The following materials from Xylem Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements
|
Submitted electronically with this Report.
|
1.
|
Grant of Options
. In accordance with, and subject to, the terms and conditions of the Plan and this Agreement, the Company hereby confirms the grant on
[Month] [day],
[year],
(the “
Grant Date
”) to the Optionee of the option to purchase from the Company all or any part of an aggregate of
[#,###]
shares (the “
Options
”), at the purchase price of [
$##.##]
per share (the “
Exercise Price
”). All Options shall be Nonqualified Stock Options.
|
2.
|
Terms and Conditions
. It is understood and agreed that the Options are subject to the following terms and conditions:
|
(a)
|
Expiration Date
. The Options shall expire on
March [day], [year+10],
or, if the Optionee’s employment terminates before that date, on the date specified in subsection 2(e) below.
|
(b)
|
Exercise of Options
. The Options may not be exercised until it has become vested.
|
(c)
|
Vesting
. Options may only vest while the Optionee is actively employed by the Company or an Affiliate. Subject to subsections 2(a), 2(d) and 2(e), the Options shall vest in three installments as follows:
|
(i)
|
1/3 of the Options shall vest on
March [day], [year+1],
|
(ii)
|
1/3 of the Options shall vest on
March [day], [year+2],
and
|
(iii)
|
1/3 of the Options shall vest on
March [day], [year+3].
|
(d)
|
Effect of Acceleration Event
. Subject to subsections 2(a) and 2(e), any unvested Options shall vest in full upon an Acceleration Event.
|
(e)
|
Effect of Termination of Employment
. Options may only vest while the Grantee is actively employed by the Company or an Affiliate. If the Optionee’s active employment is terminated before
[the Expiration Date],
the following would apply to any outstanding Options:
|
(i)
|
Termination due to Death or Disability (as defined below)
. Any unvested Options shall immediately become 100% vested upon the Optionee’s termination of employment. Any vested Options shall expire on the earlier of
[the Expiration Date]
, or the date
three years
after the Optionee’s termination of active employment.
|
(i)
|
Termination due to Retirement (as defined below)
. A prorated portion (as defined below) of any unvested Options shall immediately vest upon the Optionee’s termination of employment. Any vested Options shall expire on the earlier of
[the Expiration Date],
or the date
three years
after the Optionee’s termination of employment.
|
(ii)
|
Termination other than Death, Disability and Retirement
. Any unvested Options shall automatically expire upon the Optionee’s termination of employment. Any vested portion of the Options shall expire on the earlier of
[the Expiration Date]
, or the date
three months
after the Optionee’s termination of employment.
|
(iii)
|
Notwithstanding the foregoing, if an Optionee’s active employment is terminated on or within
two years
after an Acceleration Event (A) by the Company (or an Affiliate, as the case may be) for other than Cause (as determined by the Committee), and not because of the Optionee’s Death, Disability, or Retirement, or (B) by the Optionee because the Optionee in good faith believed that as a result of such Acceleration Event he or she was unable effectively to discharge his or her present duties or the duties of the position the Optionee occupied just prior to the occurrence of such Acceleration Event, any unvested Options shall immediately become 100% vested upon the Optionee’s termination of employment and any vested Options shall expire on the earlier of
[the Expiration Date]
, or the date
seven months
after the Optionee’s termination of employment.
|
(f)
|
Payment of Exercise Price
. Permissible methods for payment of the Exercise Price upon exercise of the Options are described in Section 6.6 of the Plan, or, if the Plan is amended, successor provisions. In addition to the methods of exercise permitted by Section 6.6 of the Plan, the Optionee may exercise all or part of the Options by way of (i) broker-assisted cashless exercise in a manner consistent with the Federal Reserve Board's Regulation T, unless the Committee determines that such exercise method is prohibited by law, or (ii) net-settlement, whereby the Optionee directs the Company to withhold shares that otherwise would be issued upon exercise of the Options having an aggregate Fair Market Value on the date of the exercise equal to the Exercise Price, or the portion thereof being exercised by way of net-settlement (rounding up to the nearest whole share).
|
(g)
|
Tax Withholding
. The Company shall have the power and the right to deduct or withhold, or require the Optionee to remit to the Company, all applicable federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to the exercise of the Options. The Optionee may elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares that otherwise would be issued upon exercise of the Options, with the number of shares withheld having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction (rounding up to the nearest whole share). Any such election shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
|
(h)
|
Compliance with Laws and Regulations.
The Options shall not be exercised at any time when the exercise or the delivery of shares hereunder would be in violation of any law, rule, or regulation that the Company may find to be valid and applicable.
|
(h)
|
Optionee Bound by Plan and Rules
. The Optionee hereby acknowledges receipt of a copy of the Plan and this Agreement and agrees to be bound by the terms and provisions thereof as amended from time to time. The Optionee agrees to be bound by any rules and regulations for administering the Plan as may be adopted by the Committee during the life of the Options. Terms used herein and not otherwise defined shall be as defined in the Plan.
|
(i)
|
Governing Law
. This Agreement is issued, and the Options evidenced hereby are granted, in White Plains, New York and shall be governed and construed in accordance with the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
|
1.
|
Grant of Restricted Stock Units
. In accordance with, and subject to, the terms and conditions of the Plan and this Agreement, the Company hereby confirms the grant on
[Month] [day], [year]
(the “
Grant Date
”) to the Grantee of
[#,###]
Restricted Stock Units. For Named Executive Officers disclosed in the Company’s Proxy Statement, Restricted Stock Units granted hereunder are intended to be Performance-Based Awards (as defined in the Plan) that satisfy the conditions for the Performance-Based Exception under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “
Code
”).
The Restricted Stock Units are notional units of measurement denominated in shares of common stock (
i.e
., one Restricted Stock Unit is equivalent in value to one share of common stock).
|
2.
|
Terms and Conditions
. It is understood and agreed that the Restricted Stock Units are subject to the following terms and conditions:
|
(a)
|
Restrictions
. Except as otherwise provided in the Plan and this Agreement, neither this Award nor any Restricted Stock Units subject to this Award may be sold, assigned, pledged, exchanged, transferred, hypothecated or encumbered, other than to the Company as a result of forfeiture of the Restricted Stock Units.
|
(b)
|
Voting and
Dividend Equivalent Rights.
The
Grantee shall not have any privileges of a stockholder of the Company with respect to the Restricted Stock Units or any shares that may be delivered hereunder, including without limitation any right to vote such shares or to receive dividends, unless and until such shares are delivered upon vesting of the Restricted Stock Units. Dividend equivalents shall be earned with respect to each Restricted Stock Unit that vests and the amount shall equal to the total dividends declared on a share, where the record date of the dividend is between the Grant Date
|
(c)
|
Vesting and Payment
. Restricted Stock Units may only vest while the Grantee is actively employed by the Company or an Affiliate. The Restricted Stock Units shall vest (meaning the restriction period shall lapse and the Restricted Stock Units shall become free of the forfeiture provisions in this Agreement) on
March [day], [year+3].
For Named Executive Officers disclosed in the Company’s Proxy Statement at any time during the vesting period, the vesting would also be contingent upon achievement of a three-year cumulative Adjusted Net Income performance target as approved by the Committee (
Adjusted Net Income is defined as Xylem US GAAP Net Income adjusted for items as identified in the AIP& LTIP Default Guidelines for Potential Adjustments
). Except as provided in subsection 2(i), upon vesting of the Restricted Stock Units, including vesting pursuant to subsections 2(d) or 2(e), the Company will deliver to the Grantee (i) one share for each vested Restricted Stock Unit, with any fractional shares resulting from proration pursuant to subsection 2(e) to be rounded to the nearest whole share, and (ii) an amount in cash attributable to dividend equivalents earned in accordance with subsection 2(b), less shares withheld in accordance with subsection 2(f).
|
(d)
|
Effect of Acceleration Event
. Any unvested Restricted Stock Units shall vest in full upon an Acceleration Event.
|
(e)
|
Effect of Termination of Employment
. Restricted Stock Units may only vest while the Grantee is actively employed by the Company or an Affiliate. If the Grantee's active employment is terminated for any reason, and such termination constitutes a “separation from service” within the meaning of Section 409A of the Code and any related regulations or other effective guidance promulgated thereunder (“Section 409A”), the following would apply to any unvested Restricted Stock Units on the date of the Grantee’s termination of employment:
|
(i)
|
Separation from Service due to Death or Disability (as defined below).
Any unvested Restricted Stock Units shall immediately become 100% vested.
|
(ii)
|
Separation from Service due to Retirement (as defined below).
A prorated portion (as defined below) of any unvested Restricted Stock Units shall immediately vest.
|
(iii)
|
Separation from Service other than Death, Disability and Retirement.
Any unvested Restricted Stock Units shall automatically be forfeited.
|
(f)
|
Tax Withholding
. In accordance with Article 15 of the Plan, the Company may make such provisions and take such actions as it may deem necessary for the withholding of all applicable taxes attributable to the Restricted Stock Units and any related dividend equivalents. Unless the Committee determines otherwise, the minimum statutory tax withholding required to be withheld upon delivery of the shares and payment of dividend equivalents shall be satisfied by withholding a number of shares having an aggregate Fair Market Value equal to the minimum statutory tax required to be withheld. If such withholding would result in a fractional share being withheld, the number of shares so withheld shall be rounded up to the nearest whole share. Notwithstanding the foregoing, the Grantee may elect to satisfy such tax withholding requirements by timely remittance of such amount by cash or check or such other method that is acceptable to the Company, rather than by withholding of shares, provided such election is made in accordance with such conditions and restrictions as the Company may establish. If FICA taxes are required to be withheld while the Award is outstanding, such withholding shall be made in a manner determined by the Company.
|
(g)
|
Grantee Bound by Plan and Rules
. The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement and agrees to be bound by the terms and provisions thereof. The Grantee agrees to be bound by any rules and regulations for administering the Plan as may be adopted by the Committee prior to the date the Restricted Stock Units vest. Terms used herein and not otherwise defined shall be as defined in the Plan.
|
(h)
|
Governing Law
. This Agreement is issued, and the Restricted Stock Units evidenced hereby are granted, in White Plains, New York, and shall be governed and construed in accordance with the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
|
(i)
|
Section 409A Compliance
. To the extent applicable, it is intended that the Plan and this Agreement comply with the requirements of Section 409A, and the Plan and this Agreement shall be interpreted accordingly.
|
(i)
|
If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, and if the Grantee is a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of the Code, at the time of the Grantee’s separation from service, then, to the extent required under Section 409A, any shares that would otherwise be distributed (along with the cash value of all dividend equivalents that would be payable) upon the Grantee’s separation
|
(ii)
|
If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, upon an Acceleration Event that does not constitute a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of a corporation’s assets” (as those terms are used in Section 409A), the Restricted Stock Units shall vest at the time of the Acceleration Event, but distribution of any Restricted Stock Units (or related dividend equivalents) that constitute deferred compensation for the purposes of Section 409A shall not be accelerated (
i.e
., distribution shall occur when it would have occurred absent the Acceleration Event).
|
1.
|
Grant of Performance Share Units
. In accordance with, and subject to, the terms and conditions of the Plan and this Agreement, the Company hereby confirms the grant on
March [day],
[year]
(the “
Grant Date
”) to the Grantee, the target number of
[#,###]
Performance Share Units. All Performance Share Units granted hereunder are intended to be Performance-Based Awards (as defined in the Plan) that satisfy the conditions for the Performance-Based Exception under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “
Code
”). The Performance Share Units are notional units of measurement denominated in shares of common stock (
i.e
., one Performance Share Unit is equivalent in value to one share of common stock).
|
2.
|
Terms and Conditions
. It is understood and agreed that the Performance Share Units are subject to the following terms and conditions:
|
(a)
|
Restrictions
. Except as otherwise provided in the Plan and this Agreement, neither this Award nor any Performance Share Units subject to this Award may be sold, assigned, pledged, exchanged, transferred, hypothecated or encumbered, other than to the Company as a result of forfeiture of the Performance Share Units.
|
(b)
|
Voting and Dividend Equivalent Rights
. The Grantee shall not have any privileges of a stockholder of the Company with respect to the Performance Share Units or any shares that may be delivered hereunder, including without limitation any right to vote such shares or to receive dividends, unless and until such shares are delivered upon vesting of the Performance Share Units. Dividend equivalents shall be earned with respect to each Performance Share Unit that vests and the amount shall equal to the
|
(c)
|
Earning of Performance Share Units
.
The Grantee can earn between 0% and 200% of the target number of Performance Share Units granted hereunder, based on the achievement of the 2013-2015 three-year average Xylem adjusted Return on Invested Capital (“ROIC”) performance target pursuant to the performance scale and the Committee negative discretion set forth on Exhibit A. Funding of the Performance Shares Units to be paid out is contingent upon achievement of a three-year cumulative Adjusted Net Income performance target as approved by the Committee. The Committee shall determine and certify the results of the level of achievement of such targets and the associated number of Performance Share Units earned.
|
(d)
|
Vesting and Payment
. Performance Share Units may only vest while the Grantee is actively employed by the Company or an Affiliate. The Performance Share Units shall vest (meaning the restriction period shall lapse and the Performance Share Units shall become free of the forfeiture provisions in this Agreement in accordance with subsection 2(c)) on
March [day], [year+3]
. Except as provided in subsection 2(j), upon vesting of the Performance Share Units, including vesting pursuant to subsections 2(e) or 2(f), the Company will deliver to the Grantee (i) one share for each vested Performance Share Unit, with any fractional shares resulting from proration pursuant to subsection 2(e) and 2(f) to be rounded to the nearest whole share, and (ii) an amount in cash attributable to dividend equivalents earned in accordance with subsection 2(b), less shares withheld in accordance with subsection 2(g).
|
(e)
|
Effect of Acceleration Event
.
A prorated portion of any unvested Performance Share Units shall vest based on actual performance upon an Acceleration Event. The prorated portion shall be determined by multiplying the total target number of unvested Performance Share Units at the time of Acceleration Event by a fraction, of which the numerator is the number of full calendar months the Grantee has been continually employed since the beginning of the performance cycle and the denominator is 36.
|
(f)
|
Effect of Termination of Employment
. Performance Share Units may only vest while the Grantee is actively employed by the Company or an Affiliate. If the Grantee's active employment is terminated for any reason, and such termination constitutes a “separation from service” within the meaning of Section 409A of the Code and any related regulations or other effective guidance promulgated thereunder (“Section 409A”), any unvested Performance Share Units shall be immediately forfeited on the date of the Grantee’s termination or employment except for separation from service due to Death, Disability
|
(g)
|
Tax Withholding
. In accordance with Article 15 of the Plan, the Company may make such provisions and take such actions as it may deem necessary for the withholding of all applicable taxes attributable to the Performance Share Units and any related dividend equivalents. Unless the Committee determines otherwise, the minimum statutory tax withholding required to be withheld upon delivery of the shares and payment of dividend equivalents shall be satisfied by withholding a number of shares having an aggregate Fair Market Value equal to the minimum statutory tax required to be withheld. If such withholding would result in a fractional share being withheld, the number of shares so withheld shall be rounded up to the nearest whole share. Notwithstanding the foregoing, the Grantee may elect to satisfy such tax withholding requirements by timely remittance of such amount by cash or check or such other method that is acceptable to the Company, rather than by withholding of shares, provided such election is made in accordance with such conditions and restrictions as the Company may establish. If FICA taxes are required to be withheld while the Award is outstanding, such withholding shall be made in a manner determined by the Company.
|
(h)
|
Grantee Bound by Plan and Rules
. The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement and agrees to be bound by the terms and provisions thereof. The Grantee agrees to be bound by any rules and regulations for administering the Plan as may be adopted by the Committee prior to the date the Performance Share Units vest. Terms used herein and not otherwise defined shall be as defined in the Plan.
|
(i)
|
Governing Law
. This Agreement is issued, and the Performance Share Units evidenced hereby are granted, in White Plains, New York, and shall be governed and construed in accordance with the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
|
(j)
|
Section 409A Compliance
. To the extent applicable, it is intended that the Plan and this Agreement comply with the requirements of Section 409A, and the Plan and this Agreement shall be interpreted accordingly.
|
(i)
|
If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, and if the Grantee is a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of the Code, at the time of the Grantee’s separation from service, then, to the extent required under Section 409A, any shares that would otherwise be distributed (along with the cash value of all dividend equivalents that would be payable) upon the Grantee’s separation from service, shall instead be delivered (and, in the case of the dividend equivalents, paid) on the earlier of (x) the first business day of the seventh month following the date of the Grantee’s separation from service or (y) the Grantee’s death.
|
(ii)
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If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, upon an Acceleration Event that does not constitute a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of a corporation’s assets” (as those terms are used in Section 409A), the Performance Share Units shall vest at the time of the Acceleration Event, but distribution of any Performance Share Units (or related dividend equivalents) that constitute deferred compensation for the purposes of Section 409A shall not be accelerated (
i.e
., distribution shall occur when it would have occurred absent the Acceleration Event).
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1.
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I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant) for the registrant and have:
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a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
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b)
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Gretchen W. McClain
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Gretchen W. McClain
President and Chief Executive Officer
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1.
|
I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc.;
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2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
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/s/ Michael T. Speetzen
|
|
Michael T. Speetzen
Senior Vice President and
Chief Financial Officer
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(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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/s/ Gretchen W. McClain
|
|
Gretchen W. McClain
|
|
President and Chief Executive Officer
|
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April 30, 2013
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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/s/ Michael T. Speetzen
|
|
Michael T. Speetzen
|
|
Senior Vice President and Chief Financial Officer
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April 30, 2013
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