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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,
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2014
|
|
2013
|
||||
Revenue
|
$
|
906
|
|
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$
|
879
|
|
Cost of revenue
|
564
|
|
|
545
|
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Gross profit
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342
|
|
|
334
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Selling, general and administrative expenses
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224
|
|
|
237
|
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||
Research and development expenses
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27
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|
|
26
|
|
||
Restructuring charges
|
15
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|
|
5
|
|
||
Operating income
|
76
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|
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66
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|
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Interest expense
|
14
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|
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13
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||
Other non-operating (expense), net
|
(1
|
)
|
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(2
|
)
|
||
Income before taxes
|
61
|
|
|
51
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|
||
Income tax expense
|
12
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|
|
10
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Net income
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$
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49
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|
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$
|
41
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|
Earnings per share:
|
|
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|
||||
Basic
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$
|
0.27
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|
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$
|
0.22
|
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Diluted
|
$
|
0.27
|
|
|
$
|
0.22
|
|
Weighted average number of shares:
|
|
|
|
||||
Basic
|
184.5
|
|
|
185.8
|
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Diluted
|
185.8
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|
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186.4
|
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||
Dividends declared per share
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$
|
0.1280
|
|
|
$
|
0.1164
|
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For the three months ended March 31,
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2014
|
|
2013
|
||||
Net income
|
$
|
49
|
|
|
$
|
41
|
|
Other comprehensive income, before tax:
|
|
|
|
||||
Foreign currency translation adjustment
|
(2
|
)
|
|
(43
|
)
|
||
Net change in cash flow hedges:
|
|
|
|
||||
Unrealized losses
|
(1
|
)
|
|
(2
|
)
|
||
Amount of gain reclassified into net income
|
—
|
|
|
(1
|
)
|
||
Net change in postretirement benefit plans:
|
|
|
|
||||
Amortization of net actuarial loss
|
3
|
|
|
4
|
|
||
Other comprehensive loss, before tax
|
—
|
|
|
(42
|
)
|
||
Income tax expense related to items of other comprehensive income
|
1
|
|
|
1
|
|
||
Other comprehensive loss, net of tax
|
(1
|
)
|
|
(43
|
)
|
||
Comprehensive income (loss)
|
$
|
48
|
|
|
$
|
(2
|
)
|
|
March 31,
2014 |
|
December 31,
2013 |
||||
|
(Unaudited)
|
|
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
466
|
|
|
$
|
533
|
|
Receivables, less allowances for discounts and doubtful accounts of $25 and $31 in 2014 and 2013, respectively
|
803
|
|
|
817
|
|
||
Inventories, net
|
516
|
|
|
475
|
|
||
Prepaid and other current assets
|
166
|
|
|
143
|
|
||
Deferred income tax assets
|
40
|
|
|
41
|
|
||
Total current assets
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1,991
|
|
|
2,009
|
|
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Property, plant and equipment, net
|
476
|
|
|
488
|
|
||
Goodwill
|
1,719
|
|
|
1,718
|
|
||
Other intangible assets, net
|
480
|
|
|
488
|
|
||
Other non-current assets
|
221
|
|
|
193
|
|
||
Total assets
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$
|
4,887
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|
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$
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4,896
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
325
|
|
|
$
|
332
|
|
Accrued and other current liabilities
|
488
|
|
|
479
|
|
||
Short-term borrowings and current maturities of long-term debt
|
44
|
|
|
42
|
|
||
Total current liabilities
|
857
|
|
|
853
|
|
||
Long-term debt
|
1,199
|
|
|
1,199
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||
Accrued postretirement benefits
|
348
|
|
|
348
|
|
||
Deferred income tax liabilities
|
198
|
|
|
191
|
|
||
Other non-current accrued liabilities
|
56
|
|
|
64
|
|
||
Total liabilities
|
2,658
|
|
|
2,655
|
|
||
Commitments and contingencies (Note 17)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Common Stock – par value $0.01 per share:
|
|
|
|
||||
Authorized 750.0 shares, issued 188.2 shares and 187.6 shares in 2014 and 2013, respectively
|
2
|
|
|
2
|
|
||
Capital in excess of par value
|
1,768
|
|
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1,753
|
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Retained earnings
|
430
|
|
|
405
|
|
||
Treasury stock – at cost 4.4 shares and 3.0 shares in 2014 and 2013, respectively
|
(137
|
)
|
|
(86
|
)
|
||
Accumulated other comprehensive income
|
166
|
|
|
167
|
|
||
Total stockholders’ equity
|
2,229
|
|
|
2,241
|
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Total liabilities and stockholders’ equity
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$
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4,887
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$
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4,896
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For the three months ended March 31,
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2014
|
|
2013
|
||||
Operating Activities
|
|
|
|
||||
Net income
|
$
|
49
|
|
|
$
|
41
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation
|
23
|
|
|
25
|
|
||
Amortization
|
13
|
|
|
12
|
|
||
Share-based compensation
|
4
|
|
|
6
|
|
||
Restructuring charges
|
15
|
|
|
5
|
|
||
Other, net
|
4
|
|
|
—
|
|
||
Payments for restructuring
|
(9
|
)
|
|
(4
|
)
|
||
Changes in assets and liabilities (net of acquisitions):
|
|
|
|
||||
Changes in receivables
|
(5
|
)
|
|
1
|
|
||
Changes in inventories
|
(42
|
)
|
|
(29
|
)
|
||
Changes in accounts payable
|
(2
|
)
|
|
(8
|
)
|
||
Other, net
|
(28
|
)
|
|
(29
|
)
|
||
Net Cash – Operating activities
|
22
|
|
|
20
|
|
||
Investing Activities
|
|
|
|
||||
Capital expenditures
|
(25
|
)
|
|
(30
|
)
|
||
Acquisitions of businesses and assets, net of cash acquired
|
—
|
|
|
(78
|
)
|
||
Proceeds from the sale of property, plant and equipment
|
1
|
|
|
3
|
|
||
Net Cash – Investing activities
|
(24
|
)
|
|
(105
|
)
|
||
Financing Activities
|
|
|
|
||||
Issuance of short-term debt
|
2
|
|
|
—
|
|
||
Repurchase of common stock
|
(51
|
)
|
|
(15
|
)
|
||
Proceeds from exercise of employee stock options
|
11
|
|
|
—
|
|
||
Dividends paid
|
(24
|
)
|
|
(22
|
)
|
||
Excess tax benefit from share based compensation
|
1
|
|
|
—
|
|
||
Other, net
|
(1
|
)
|
|
1
|
|
||
Net Cash – Financing activities
|
(62
|
)
|
|
(36
|
)
|
||
Effect of exchange rate changes on cash
|
(3
|
)
|
|
(8
|
)
|
||
Net change in cash and cash equivalents
|
(67
|
)
|
|
(129
|
)
|
||
Cash and cash equivalents at beginning of year
|
533
|
|
|
504
|
|
||
Cash and cash equivalents at end of period
|
$
|
466
|
|
|
$
|
375
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid during the period for:
|
|
|
|
||||
Interest
|
$
|
11
|
|
|
$
|
11
|
|
Income taxes (net of refunds received)
|
$
|
18
|
|
|
$
|
27
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2014
|
|
2013
|
||||
By component:
|
|
|
|
||||
Severance and other charges
|
$
|
15
|
|
|
$
|
5
|
|
Reversal of restructuring accruals
|
—
|
|
|
—
|
|
||
Total restructuring charges
|
$
|
15
|
|
|
$
|
5
|
|
|
|
|
|
||||
By segment:
|
|
|
|
||||
Water Infrastructure
|
$
|
10
|
|
|
$
|
5
|
|
Applied Water
|
5
|
|
|
—
|
|
||
Corporate and other
|
—
|
|
|
—
|
|
(in millions)
|
|
2014
|
|
2013
|
||||
Restructuring accruals - January 1
|
|
$
|
13
|
|
|
$
|
9
|
|
Restructuring charges
|
|
15
|
|
|
5
|
|
||
Cash payments
|
|
(9
|
)
|
|
(4
|
)
|
||
Restructuring accruals - March 31
|
|
$
|
19
|
|
|
$
|
10
|
|
|
|
|
|
|
||||
By segment:
|
|
|
|
|
||||
Water Infrastructure
|
|
$
|
14
|
|
|
$
|
7
|
|
Applied Water
|
|
5
|
|
|
3
|
|
||
Corporate and other
|
|
—
|
|
|
—
|
|
|
|
2014
|
|
2013
|
||
Planned reductions - January 1
|
|
51
|
|
|
54
|
|
Additional planned reductions
|
|
170
|
|
|
99
|
|
Actual reductions
|
|
(109
|
)
|
|
(52
|
)
|
Planned reductions - March 31
|
|
112
|
|
|
101
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
|
2014
|
|
2013
|
||||
Net income (in millions)
|
$
|
49
|
|
|
$
|
41
|
|
Shares (in thousands):
|
|
|
|
||||
Weighted average common shares outstanding
|
184,505
|
|
|
185,573
|
|
||
Add: Participating securities (a)
|
42
|
|
|
234
|
|
||
Weighted average common shares outstanding — Basic
|
184,547
|
|
|
185,807
|
|
||
Plus incremental shares from assumed conversions: (b)
|
|
|
|
||||
Dilutive effect of stock options
|
659
|
|
|
178
|
|
||
Dilutive effect of restricted stock
|
563
|
|
|
450
|
|
||
Weighted average common shares outstanding — Diluted
|
185,769
|
|
|
186,435
|
|
||
Basic earnings per share
|
$
|
0.27
|
|
|
$
|
0.22
|
|
Diluted earnings per share
|
$
|
0.27
|
|
|
$
|
0.22
|
|
(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.
|
(b)
|
Incremental shares from stock options, restricted stock and performance share units are computed by the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock and performance share awards, reduced by the repurchase of shares with the proceeds from the assumed exercises, unrecognized compensation expense for outstanding awards and the estimated tax benefit of the assumed exercises. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance conditions. See
Note 14
, "Stock-Based Compensation Plans" for further detail on the performance share units.
|
(in millions)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Finished goods
|
$
|
212
|
|
|
$
|
189
|
|
Work in process
|
35
|
|
|
31
|
|
||
Raw materials
|
269
|
|
|
255
|
|
||
Total inventories, net
|
$
|
516
|
|
|
$
|
475
|
|
(in millions)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Land, buildings and improvements
|
$
|
256
|
|
|
$
|
263
|
|
Machinery and equipment
|
686
|
|
|
685
|
|
||
Equipment held for lease or rental
|
197
|
|
|
192
|
|
||
Furniture and fixtures
|
94
|
|
|
93
|
|
||
Construction work in progress
|
50
|
|
|
49
|
|
||
Other
|
22
|
|
|
22
|
|
||
Total property, plant and equipment, gross
|
1,305
|
|
|
1,304
|
|
||
Less accumulated depreciation
|
829
|
|
|
816
|
|
||
Total property, plant and equipment, net
|
$
|
476
|
|
|
$
|
488
|
|
(in millions)
|
Water
Infrastructure
|
|
Applied Water
|
|
Total
|
||||||
Balance as of January 1, 2014
|
$
|
1,149
|
|
|
$
|
569
|
|
|
$
|
1,718
|
|
Activity in 2014
|
|
|
|
|
|
||||||
Foreign currency and other
|
2
|
|
|
(1
|
)
|
|
1
|
|
|||
Balance as of March 31, 2014
|
$
|
1,151
|
|
|
$
|
568
|
|
|
$
|
1,719
|
|
|
March 31, 2014
|
|
December 31, 2013
|
||||||||||||||||||||
(in millions)
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
||||||||||||
Customer and distributor relationships
|
$
|
350
|
|
|
$
|
(109
|
)
|
|
$
|
241
|
|
|
$
|
352
|
|
|
$
|
(104
|
)
|
|
$
|
248
|
|
Proprietary technology
|
109
|
|
|
(38
|
)
|
|
71
|
|
|
109
|
|
|
(36
|
)
|
|
73
|
|
||||||
Trademarks
|
35
|
|
|
(16
|
)
|
|
19
|
|
|
35
|
|
|
(16
|
)
|
|
19
|
|
||||||
Patents and other
|
23
|
|
|
(19
|
)
|
|
4
|
|
|
20
|
|
|
(17
|
)
|
|
3
|
|
||||||
Indefinite-lived intangibles
|
145
|
|
|
—
|
|
|
145
|
|
|
145
|
|
|
—
|
|
|
145
|
|
||||||
|
$
|
662
|
|
|
$
|
(182
|
)
|
|
$
|
480
|
|
|
$
|
661
|
|
|
$
|
(173
|
)
|
|
$
|
488
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2014
|
|
2013
|
||||
Derivatives in Cash Flow Hedges
|
|
|
|
||||
Foreign Exchange Contracts
|
|
|
|
||||
Amount of gain (loss) recognized in Other Comprehensive Income (a)
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
Amount of (gain) loss reclassified from Other Comprehensive Income into revenue (a)
|
(1
|
)
|
|
(1
|
)
|
||
Amount of (gain) loss reclassified from Other Comprehensive Income into cost of revenue (a)
|
1
|
|
|
—
|
|
(a)
|
Effective portion
|
(in millions)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Derivatives designated as hedging instruments
|
|
|
|
||||
Assets
|
|
|
|
||||
Other current assets
|
$
|
1
|
|
|
$
|
1
|
|
Liabilities
|
|
|
|
||||
Other current liabilities
|
(1
|
)
|
|
—
|
|
(in millions)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Compensation and other employee-benefits
|
$
|
197
|
|
|
$
|
215
|
|
Customer-related liabilities
|
60
|
|
|
63
|
|
||
Accrued warranty costs
|
34
|
|
|
36
|
|
||
Accrued taxes
|
70
|
|
|
45
|
|
||
Other accrued liabilities
|
127
|
|
|
120
|
|
||
Total accrued and other current liabilities
|
$
|
488
|
|
|
$
|
479
|
|
(in millions)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Short-term borrowings and current maturities of long-term debt
|
$
|
44
|
|
|
$
|
42
|
|
|
|
|
|
||||
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
|
$
|
1,243
|
|
|
$
|
1,241
|
|
(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 (as defined below) was
$633 million
and
$635 million
as of
March 31, 2014
and
December 31, 2013
, respectively. The fair value of our Senior Notes due 2021 (as defined below) was
$639 million
and
$629 million
as of
March 31, 2014
and
December 31, 2013
, respectively.
|
(b)
|
The unamortized discount is recognized as a reduction in the carrying value of the Senior Notes 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)
|
2014
|
|
2013
|
||||
Domestic defined benefit pension plans:
|
|
|
|
||||
Service cost
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost
|
1
|
|
|
1
|
|
||
Expected return on plan assets
|
(1
|
)
|
|
(1
|
)
|
||
Amortization of net actuarial loss
|
1
|
|
|
1
|
|
||
Net periodic benefit cost
|
$
|
1
|
|
|
$
|
2
|
|
International defined benefit pension plans:
|
|
|
|
||||
Service cost
|
$
|
4
|
|
|
$
|
3
|
|
Interest cost
|
7
|
|
|
7
|
|
||
Expected return on plan assets
|
(8
|
)
|
|
(8
|
)
|
||
Amortization of net actuarial loss
|
2
|
|
|
3
|
|
||
Net periodic benefit cost
|
$
|
5
|
|
|
$
|
5
|
|
Total net periodic benefit cost
|
$
|
6
|
|
|
$
|
7
|
|
(shares in thousands)
|
Shares
|
|
Weighted
Average
Exercise
Price / Share
|
|
Weighted Average
Remaining
Contractual
Term (Years)
|
|||
Outstanding at January 1, 2014
|
3,504
|
|
|
$
|
26.80
|
|
|
6.4
|
Granted
|
373
|
|
|
$
|
38.76
|
|
|
10.0
|
Exercised
|
(386
|
)
|
|
$
|
27.82
|
|
|
2.8
|
Forfeited
|
(37
|
)
|
|
$
|
23.40
|
|
|
4.0
|
Outstanding at March 31, 2014
|
3,454
|
|
|
$
|
28.01
|
|
|
7.0
|
Options exercisable at March 31, 2014
|
2,131
|
|
|
$
|
26.98
|
|
|
6.0
|
Vested and expected to vest as of March 31, 2014
|
3,339
|
|
|
$
|
27.81
|
|
|
6.9
|
Dividend yield
|
1.32
|
|
%
|
|
Volatility
|
28.80
|
|
%
|
|
Risk-free interest rate
|
1.79
|
|
%
|
|
Expected term (in years)
|
5.70
|
|
|
|
Weighted-average fair value / share
|
$
|
9.99
|
|
|
(shares in thousands)
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at January 1, 2014
|
1,275
|
|
|
$
|
27.67
|
|
Granted
|
286
|
|
|
$
|
38.74
|
|
Vested
|
(182
|
)
|
|
$
|
32.06
|
|
Forfeited
|
(24
|
)
|
|
$
|
27.45
|
|
Outstanding at March 31, 2014
|
1,355
|
|
|
$
|
29.45
|
|
(shares in thousands)
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at January 1, 2014
|
52
|
|
|
$
|
27.49
|
|
Granted
|
43
|
|
|
$
|
38.76
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Outstanding at March 31, 2014
|
95
|
|
|
$
|
32.54
|
|
(in millions)
|
Foreign Currency Translation
|
|
Postretirement Benefit Plans
|
|
Derivative Instruments
|
|
Total
|
||||||||
Balance at January 1, 2014
|
$
|
351
|
|
|
$
|
(186
|
)
|
|
$
|
2
|
|
|
$
|
167
|
|
Foreign currency translation adjustment
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
||||
Amortization of net actuarial loss on postretirement benefit plans into:
|
|
|
|
|
|
|
|
||||||||
Cost of revenue
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Selling, general and administrative expenses
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
Income tax expense on amortization of postretirement benefit plan items
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
||||
Loss on foreign exchange agreements
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Reclassification of gain on foreign exchange agreements into revenue
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Reclassification of loss on foreign exchange agreements into cost of revenue
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||
Balance at March 31, 2014
|
$
|
349
|
|
|
$
|
(184
|
)
|
|
$
|
1
|
|
|
$
|
166
|
|
(in millions)
|
2014
|
|
2013
|
||||
Warranty accrual – January 1
|
$
|
37
|
|
|
$
|
40
|
|
Net changes for product warranties in the period
|
5
|
|
|
8
|
|
||
Settlement of warranty claims
|
(8
|
)
|
|
(8
|
)
|
||
Warranty accrual – March 31
|
$
|
34
|
|
|
$
|
40
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(in millions)
|
2014
|
|
2013
|
||||
Revenue:
|
|
|
|
||||
Water Infrastructure
|
$
|
568
|
|
|
$
|
551
|
|
Applied Water
|
355
|
|
|
345
|
|
||
Eliminations
|
(17
|
)
|
|
(17
|
)
|
||
Total
|
$
|
906
|
|
|
$
|
879
|
|
Operating Income:
|
|
|
|
||||
Water Infrastructure
|
$
|
46
|
|
|
$
|
42
|
|
Applied Water
|
41
|
|
|
40
|
|
||
Corporate and other
|
(11
|
)
|
|
(16
|
)
|
||
Total
|
$
|
76
|
|
|
$
|
66
|
|
Depreciation and Amortization:
|
|
|
|
||||
Water Infrastructure
|
$
|
27
|
|
|
$
|
28
|
|
Applied Water
|
7
|
|
|
8
|
|
||
Corporate and other
|
2
|
|
|
1
|
|
||
Total
|
$
|
36
|
|
|
$
|
37
|
|
Capital Expenditures:
|
|
|
|
||||
Water Infrastructure
|
$
|
14
|
|
|
$
|
18
|
|
Applied Water
|
8
|
|
|
11
|
|
||
Corporate and other
|
3
|
|
|
1
|
|
||
Total
|
$
|
25
|
|
|
$
|
30
|
|
|
Total Assets
|
||||||
(in millions)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Water Infrastructure
|
$
|
2,986
|
|
|
$
|
2,989
|
|
Applied Water
|
1,379
|
|
|
1,340
|
|
||
Corporate and other (a)
|
522
|
|
|
567
|
|
||
Total
|
$
|
4,887
|
|
|
$
|
4,896
|
|
(a)
|
Corporate and other consists of items pertaining to our corporate headquarters function, which principally consist of cash, deferred tax assets, pension assets and certain property, plant and equipment.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Water Infrastructure
serves the water 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
|
•
|
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. In the Applied Water segment, we provide the majority of our sales through long-standing relationships with the world’s leading distributors, with the remainder going direct to customers.
|
•
|
Orders of
$993 million
, or 3.2% growth from $962 million in the
first quarter
of the prior year
|
•
|
Earnings per share of
$0.27
, up
22.7%
from prior year (
$0.34
on an adjusted basis, up
25.9%
)
|
•
|
Cash flow from operating activities of
$22 million
for the
three months ended March 31, 2014
|
•
|
"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
|
•
|
"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.
|
•
|
"adjusted net income" and "adjusted earnings per share" defined as net income and earnings per share, respectively, adjusted to exclude non-recurring restructuring and realignment costs, and tax-related special items. A reconciliation of adjusted net income is provided below.
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(In millions, except for per share data)
|
2014
|
|
2013
|
||||
Net income
|
$
|
49
|
|
|
$
|
41
|
|
Restructuring and realignment, net of tax
|
15
|
|
|
9
|
|
||
Tax-related special items
|
(1
|
)
|
|
—
|
|
||
Adjusted net income
|
$
|
63
|
|
|
$
|
50
|
|
Weighted average number of shares - Diluted
|
185.8
|
|
|
186.4
|
|
||
Adjusted earnings per share
|
$
|
0.34
|
|
|
$
|
0.27
|
|
•
|
"operating expenses excluding restructuring and realignment costs" defined as operating expenses, adjusted to exclude restructuring and realignment costs.
|
•
|
"adjusted segment operating income" defined as segment operating income, adjusted to exclude restructuring and realignment costs, and "adjusted segment operating margin" defined as adjusted segment operating income divided by total segment revenue.
|
•
|
“realignment costs” defined as non-recurring costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, relocation, travel and other costs.
|
•
|
"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 flow does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(In millions)
|
2014
|
|
2013
|
||||
Net cash provided by operating activities
|
$
|
22
|
|
|
$
|
20
|
|
Capital expenditures
|
(25
|
)
|
|
(30
|
)
|
||
Free cash flow
|
$
|
(3
|
)
|
|
$
|
(10
|
)
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2014
|
|
2013
|
|
Change
|
||||||
Revenue
|
$
|
906
|
|
|
$
|
879
|
|
|
3.1
|
|
%
|
Gross Profit
|
342
|
|
|
334
|
|
|
2.4
|
|
%
|
||
Gross Margin
|
37.7
|
%
|
|
38.0
|
%
|
|
(30
|
)
|
bp
|
||
Operating expenses excluding restructuring and realignment costs
|
248
|
|
|
256
|
|
|
(3.1
|
)
|
%
|
||
Expense to revenue ratio
|
27.4
|
%
|
|
29.1
|
%
|
|
(170
|
)
|
bp
|
||
Restructuring and realignment costs
|
18
|
|
|
12
|
|
|
50.0
|
|
%
|
||
Total operating expenses
|
266
|
|
|
268
|
|
|
(0.7
|
)
|
%
|
||
Operating Income
|
76
|
|
|
66
|
|
|
15.2
|
|
%
|
||
Operating Margin
|
8.4
|
%
|
|
7.5
|
%
|
|
90
|
|
bp
|
||
Interest and other non-operating expense, net
|
15
|
|
|
15
|
|
|
—
|
|
%
|
||
Income tax expense
|
12
|
|
|
10
|
|
|
20.0
|
|
%
|
||
Tax rate
|
19.1
|
%
|
|
19.1
|
%
|
|
—
|
|
bp
|
||
Net Income
|
$
|
49
|
|
|
$
|
41
|
|
|
19.5
|
|
%
|
|
Three Months Ended
|
|||||
|
March 31,
|
|||||
(In millions)
|
Change
|
|
% Change
|
|||
2013 Revenue
|
$
|
879
|
|
|
|
|
Organic growth
|
26
|
|
|
3.0
|
%
|
|
Acquisitions
|
5
|
|
|
0.5
|
%
|
|
Constant Currency
|
31
|
|
|
3.5
|
%
|
|
Foreign currency translation (a)
|
(4
|
)
|
|
(0.4
|
)%
|
|
Total change in revenue
|
27
|
|
|
3.1
|
%
|
|
2014 Revenue
|
$
|
906
|
|
|
|
(a)
|
Foreign currency impact primarily due to fluctuations in the value of the Euro, British Pound, Australian Dollar, Canadian Dollar and South African Rand against the U.S. Dollar.
|
|
Three Months Ended
|
||||||||||||
|
March 31,
|
||||||||||||
(In millions)
|
2014
|
|
2013
|
|
As Reported
Change
|
|
Constant Currency
Change
|
||||||
Water Infrastructure
|
$
|
568
|
|
|
$
|
551
|
|
|
3.1
|
%
|
|
4.5
|
%
|
Applied Water
|
355
|
|
|
345
|
|
|
2.9
|
%
|
|
1.7
|
%
|
||
Eliminations
|
(17
|
)
|
|
(17
|
)
|
|
|
|
|
||||
Total
|
$
|
906
|
|
|
$
|
879
|
|
|
3.1
|
%
|
|
3.5
|
%
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2014
|
|
2013
|
|
Change
|
||||||
Selling, general and administrative expenses (SG&A)
|
$
|
224
|
|
|
$
|
237
|
|
|
(5.5
|
)
|
%
|
SG&A as a % of revenue
|
24.7
|
%
|
|
27.0
|
%
|
|
(230
|
)
|
bp
|
||
Research and development expenses (R&D)
|
27
|
|
|
26
|
|
|
3.8
|
|
%
|
||
R&D as a % of revenue
|
3.0
|
%
|
|
3.0
|
%
|
|
—
|
|
bp
|
||
Restructuring charges
|
15
|
|
|
5
|
|
|
200.0
|
|
%
|
||
Operating expenses
|
$
|
266
|
|
|
$
|
268
|
|
|
(0.7
|
)
|
%
|
Expense to revenue ratio
|
29.4
|
%
|
|
30.5
|
%
|
|
(110
|
)
|
bp
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2014
|
|
2013
|
|
Change
|
||||||
Water Infrastructure
|
$
|
46
|
|
|
$
|
42
|
|
|
9.5
|
|
%
|
Applied Water
|
41
|
|
|
40
|
|
|
2.5
|
|
%
|
||
Segment operating income
|
87
|
|
|
82
|
|
|
6.1
|
|
%
|
||
Corporate and other
|
(11
|
)
|
|
(16
|
)
|
|
(31.3
|
)
|
%
|
||
Total operating income
|
$
|
76
|
|
|
$
|
66
|
|
|
15.2
|
|
%
|
Operating margin
|
|
|
|
|
|
|
|||||
Water Infrastructure
|
8.1
|
%
|
|
7.6
|
%
|
|
50
|
|
bp
|
||
Applied Water
|
11.5
|
%
|
|
11.6
|
%
|
|
(10
|
)
|
bp
|
||
Total Xylem
|
8.4
|
%
|
|
7.5
|
%
|
|
90
|
|
bp
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2014
|
|
2013
|
|
Change
|
||||||
Water Infrastructure
|
|
|
|
|
|
|
|||||
Operating income
|
$
|
46
|
|
|
$
|
42
|
|
|
9.5
|
|
%
|
Restructuring and realignment costs
|
12
|
|
|
10
|
|
|
20.0
|
|
%
|
||
Adjusted operating income
|
$
|
58
|
|
|
$
|
52
|
|
|
11.5
|
|
%
|
Adjusted operating margin
|
10.2
|
%
|
|
9.4
|
%
|
|
80
|
|
bp
|
||
Applied Water
|
|
|
|
|
|
|
|||||
Operating income
|
$
|
41
|
|
|
$
|
40
|
|
|
2.5
|
|
%
|
Restructuring and realignment costs
|
6
|
|
|
2
|
|
|
200.0
|
|
%
|
||
Adjusted operating income
|
$
|
47
|
|
|
$
|
42
|
|
|
11.9
|
|
%
|
Adjusted operating margin
|
13.2
|
%
|
|
12.2
|
%
|
|
100
|
|
bp
|
||
Total Xylem
|
|
|
|
|
|
|
|||||
Operating income
|
$
|
76
|
|
|
$
|
66
|
|
|
15.2
|
|
%
|
Restructuring and realignment costs
|
18
|
|
|
12
|
|
|
50.0
|
|
%
|
||
Adjusted operating income
|
$
|
94
|
|
|
$
|
78
|
|
|
20.5
|
|
%
|
Adjusted operating margin
|
10.4
|
%
|
|
8.9
|
%
|
|
150
|
|
bp
|
|
Three Months Ended
|
||||||||||
|
March 31,
|
||||||||||
(In millions)
|
2014
|
|
2013
|
|
Change
|
||||||
Operating activities
|
$
|
22
|
|
|
$
|
20
|
|
|
$
|
2
|
|
Investing activities
|
(24
|
)
|
|
(105
|
)
|
|
81
|
|
|||
Financing activities
|
(62
|
)
|
|
(36
|
)
|
|
(26
|
)
|
|||
Foreign exchange
|
(3
|
)
|
|
(8
|
)
|
|
5
|
|
|||
Total
|
$
|
(67
|
)
|
|
$
|
(129
|
)
|
|
$
|
62
|
|
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)
|
|
APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (b)
|
1/1/14 - 1/31/14
|
|
—
|
|
—
|
|
—
|
|
235.0
|
2/1/14 - 2/28/14
|
|
—
|
|
—
|
|
—
|
|
241.3
|
3/1/14 - 3/31/14
|
|
1.3
|
|
37.95
|
|
1.3
|
|
188.2
|
(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 2.0 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. There were no shares purchased under this program during the
three months ended March 31, 2014
and there are approximately 1.0 million shares (approximately $38 million) that may still be purchased under this plan.
|
|
|
XYLEM INC.
|
|
|
(Registrant)
|
|
|
|
|
|
/s/ John P. Connolly
|
|
|
John P. Connolly
|
|
|
Vice President, Controller and Chief Accounting Officer
|
|
|
(Principal Accounting Officer)
|
Exhibit
Number
|
Description
|
Location
|
(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, 2014, 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.
|
•
|
Annual Base Salary:
Your base salary will be $925,000 per year (“
Base Salary
”) payable in bi-weekly installments.
|
•
|
Annual Incentive:
You will be eligible to participate in the Executive Annual Incentive Program (the “
Annual Incentive Program
”) for the performance year 2014, according to the approved parameters of the program. Your annual incentive target will be calculated at 115% of your Base Salary (your “
Target Annual Incentive
”). The Annual Incentive Program is based on both Company and individual performance, as determined by the Xylem Leadership Development and Compensation Committee (the “
Committee
”). Approved incentive awards are paid no later than March 15 for performance from the previous calendar year. Your 2014 earned incentive will not be prorated as long as the Commencement Date occurs on or before March 31, 2014. The Annual Incentive Program is subject to shareholder approval of the performance-based provisions of the Xylem Annual Incentive Plan for Executive Officers. Additional details about the Annual Incentive Program will be provided later under separate cover.
|
•
|
Long-Term Incentive Award Grant:
You will be eligible to participate in Xylem’s Long-term Equity Incentive Program (“
LTI Program
”) with a target annual award value of $4,500,000. For 2014, your award under the LTI Program will be comprised of 34% stock options, 33% restricted stock units (“
RSUs
”) and 33% performance share units (“
PSUs
”). Your 2014 long-term incentive grant will not be pro-rated as long as the Commencement Date occurs on or before March 31, 2014. Your awards under the LTI Program will be subject to the terms and conditions of the award agreements, as approved from time to time by the Committee. The LTI Program is subject to shareholder approval of the performance-based provisions of Xylem’s 2011 Omnibus Incentive Plan (or any successor thereto). Additional details about the LTI Program will be provided later under separate cover.
|
•
|
Sign-On RSU Grant:
You will also be eligible for a special new hire RSU grant of 45,000 RSUs upon the Commencement Date in recognition of equity awards you have forfeited upon accepting Xylem’s offer of employment (the “
Sign-On RSUs
”). The vesting schedule for the Sign-On RSUs will provide that, subject to your continued employment (except as provided below), 50% of the Sign-On RSUs will vest on the second anniversary of the grant date and the remaining 50% of the Sign-On RSUs will vest on the third anniversary of the grant date. Should your employment be terminated by Xylem other than for Cause (as defined in Appendix A) before your Sign-On RSUs vest in full, they will continue to vest over the Severance Pay Period (as defined in Appendix A) provided that you continue to comply with the Restrictive Covenants, as set forth in Appendix A. Any Sign-On RSUs that remain unvested at the cessation of the Severance Pay Period (or earlier if you breach the Restrictive
|
•
|
Benefits Plans:
You and your eligible dependents may enroll for coverage under the various plans comprising the Xylem Benefits Program for U.S. Salaried Employees when you satisfy participation conditions. Coverage begins on your first day of employment. Among those benefits are:
|
•
|
Xylem Retirement Savings Plan
|
•
|
Xylem Supplemental Retirement Savings Plan
|
•
|
Xylem Deferred Compensation Plan
|
•
|
Salaried Medical Plan through Empire BlueCross BlueShield
|
•
|
Medco Prescription Drug Coverage
|
•
|
Salaried Dental Plan through MetLife
|
•
|
Vision Care through EyeMed
|
•
|
Flexible Spending Accounts
|
•
|
Health Savings Account (coupled with High Deductible Health Plan)
|
•
|
Short- and Long-term Disability Plans
|
•
|
Salaried Life Insurance Plan
|
•
|
Accidental Death & Dismemberment Insurance Plan
|
•
|
Paid Time Off (PTO)
:
Xylem provides Paid Time Off (“PTO”) to benefits-eligible employees to enable time off from work. PTO includes holidays and a single bank of hours employees can use for sick, vacation and/or other personal reasons. You will be eligible for up to 23 days of PTO annually. PTO is accrued on a bi-weekly basis and actual PTO earned is based on total eligible hours worked and/or utilized during each pay period. In addition, Xylem recognizes 12 PTO holidays per year which includes a one-week office shut-down at the end of the year, between December 25th and New Year’s Day. Below is the PTO accrual schedule for completed years of service.
|
Completed Years of Service
|
|
Bi-Weekly Accrual Rate
(Full-Time)
|
|
Equivalent Days
Annually (Full-Time) |
Senior Exec New Hire
|
|
7.08 hours
|
|
23 days (184 hours)
|
15 through 24
|
|
7.70 hours
|
|
25 days (200 hours)
|
25 or more
|
|
9.24 hours
|
|
30 days (240 hours)
|
•
|
Relocation:
You (and your family) will be relocated to the New York area as per the terms of the Xylem U.S. Domestic Relocation Policy.
|
•
|
Termination of Employment:
You will not be eligible for Severance Pay if your employment is terminated by Xylem for Cause or if you voluntarily terminate your employment for any reason. Specific details are provided in Appendix A attached.
|
•
|
Legal Fees:
You will be eligible for a lump sum payment of up to a maximum of $20,000 (subject to applicable withholding taxes) to be applied towards attorney fees directly related to your acceptance of Xylem’s offer of employment.
|
•
|
Withholding:
Xylem may withhold from any payment any taxes that are required to be withheld under any law, rule or regulation.
|
Very truly yours,
|
|
|
|
/s/ Markos I. Tambakeras
|
|
Markos I. Tambakeras
|
|
Chairman, Xylem Board of Directors
|
|
/s/ Patrick K. Decker
|
|
2/28/2014
|
Patrick K. Decker
|
|
Date
|
1)
|
Termination of Employment for Cause
:
You will not be eligible for Severance Pay if your employment is terminated by the Company for Cause or if you terminate your employment for any reason (including as a result of your retirement after reaching the Normal Retirement Date (as defined below) or failing to return from an approved leave of absence, including a medical leave of absence).
|
a)
|
“
Cause
” shall mean action by you involving willful malfeasance or gross negligence, your willful and material breach of the Restrictive Covenants (defined in Section 5 below), your plea of nolo contendere to, or conviction of, a felony; or your failure to act involving material nonfeasance that would tend to have a materially adverse effect on the Company. No act or omission on your part shall be considered “willful” unless it is done or committed in bad faith or without reasonable belief that the action or omission was in the best interests of the Company.
|
b)
|
“
Normal Retirement Date
” shall mean the first day of the month which coincides with or follows your 65
th
birthday.
|
2)
|
Severance Pay Upon Termination of Employment Not for Cause
:
Subject to your participation in the Special Senior Executive Severance Pay Plan (below), if the Company terminates your employment other than for Cause and other than as a result of your death or disability, in any case prior to your Normal Retirement Date, you shall be provided cash severance pay in an amount equal to two (2) times the sum of (x) the annual Base Salary in effect on the effective date of termination of your employment (the “
Scheduled Termination Date
”) and (y) the greater of (i) the amount paid or payable to you under the Annual Incentive Program in respect of the fiscal year ending before the Scheduled Termination Date (which for such purpose shall be $1,063,750 if the Scheduled Termination Date occurs during the 2014 fiscal year or during the portion of the 2015 fiscal year before the first such amount becomes paid or payable) or (ii) the average of the amounts paid or payable to you under the Annual Incentive Program for the three (3) fiscal years ending before your termination of employment and such average will be calculated over a shorter number of fiscal years if your combined employment with Xylem is less than three (3) fiscal years (two times the sum of (x) and (y), together the “
Severance Pay
”).
a) Terms and Conditions Applicable to Severance Pay. Severance Pay shall be paid in the form of periodic payments over a period of 24 months after the Scheduled Termination Date according to the |
3)
|
Benefits During Severance Pay
:
During the Severance Pay Period, to the extent permitted by law and the terms of the applicable plans, you will continue to be eligible for participation in Xylem’s group health, dental
|
4)
|
Excluded Executive Compensation Plans, Programs, and Arrangements
:
During the Severance Pay Period, you will not be eligible to accrue any PTO or participate in or receive any awards except as specifically provided in this Appendix. Without limiting the foregoing statement, you will specifically not be eligible to participate in any (i) bonus or incentive program, (ii) special termination programs, (iii) stock option or stock related plans for executives (provided that you will be eligible to exercise any outstanding stock options in accordance with the terms of any applicable stock option plan and to continue to vest, as applicable, in your Sign-On RSUs), (iv) new or revised executive compensation programs that may be introduced after the Scheduled Termination Date or (v) other executive compensation program, plan, arrangement, practice, policy or perquisites, unless specifically authorized by Xylem in writing.
|
5)
|
Restrictive Covenants
:
If during the Severance Pay Period, you (i) engage in any activity which is inimical to the best interests of the Company; (ii) disparage either Xylem or any of its employees; (iii) fail to comply with any Company Covenant Against Disclosure and Assignment of Rights to Intellectual Property; (iv) without Xylem’s prior written consent, induce any employee of Xylem to leave his or her Company employment; (v) without Xylem’s prior written consent, engage in, become affiliated with, or become employed by any business competitive with Xylem; or (vi) materially fail to comply with applicable provisions of Xylem’s Code of Conduct or applicable Xylem Corporate Policies or any applicable subsidiary of Xylem Code or policies, then Xylem will have no further obligation to provide Severance Pay (the restrictions described in clauses (i)-(iv) being defined as the “
Restrictive Covenants
”). Xylem agrees to use reasonable efforts to prevent its Section 16 officers and its directors not to disparage you during the Severance Pay Period and Xylem will not authorize public statements or public filings to disparage you during the Severance Pay Period.
|
6)
|
Release
:
Xylem shall not be required to pay or continue any installments of Severance Pay or provide any termination benefits in accordance with this agreement unless you execute and deliver to Xylem a release of claims, in a form provided by Xylem, pursuant to which you discharge and release Xylem, its affiliates, and their respective directors, officers, employees and employee benefit plans from all claims (other than for benefits to which you are entitled under any Xylem employee benefit plans) arising out of your employment or termination of employment (the “
Release
”), and the Release is not revoked by you within the seven-day statutory revocation period. You will also be required to resign your officership and any directorship upon your last day of active service with Xylem.
|
7)
|
Treatment of Severance Pay and Other Compensation
:
Any Severance Pay or other compensation, including but not limited to any equity awards provided to you under this agreement, are intended to be treated in a manner consistent with the provisions of Section 409A of the Code. Coordination of Severance Pay with any pay or benefits provided by any applicable Company short-term or long-term disability plan shall be in accordance with the provisions of those plans.
|
8)
|
Miscellaneous
:
Except as provided in this agreement, you shall not be entitled to any notice of termination or pay in lieu thereof.
a) In cases where Severance Pay is provided under this agreement, pay in lieu of any unused current year |
9)
|
Termination in Connection with or Following an Acceleration Event
:
If your employment is terminated due to a “Qualifying Termination” under the terms of the Special Senior Executive Severance Pay Plan (see most recent publicly filed plan document), you will be entitled to receive the severance benefits provided under the terms of the Special Senior Executive Severance Pay Plan, subject to the offset provisions set forth therein. For purposes of the Special Senior Executive Severance Pay Plan, you will be a “Band A” executive.
|
10)
|
Compliance with Section 409A of the Code
:
This agreement is intended to comply with Section 409A of the Code and will be interpreted in a manner intended to comply with Section 409A of the Internal Revenue Code (the “
Code
”). Notwithstanding anything herein to the contrary, (i) any payments that qualify for the “short-term deferral” exception or another exception under Section 409A of the Code shall be paid under the applicable exception, (ii) to the extent necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, all payments made and benefits provided upon your termination of employment shall only be made and provided upon a “separation from service” within the meaning of Section 409A of the Code, (iii) if at the time of your termination of employment with the Company you are a “specified employee” as defined in Section 409A of the Code and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the date that is six months following your termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code without any accelerated or additional tax under Section 409A of the Code), at which point all payments deferred pursuant to such six-month delay shall be paid to you in a lump sum, and (iv) if any other payments of money or other benefits due hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral would avoid such accelerated or additional tax under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due under this letter agreement constitute “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under this letter agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code. The Company shall consult with you in good faith regarding the implementation of the provisions of this section; provided that neither the Company nor any of its employees or representatives shall have any liability to you with respect thereto.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended
March 31, 2014
;
|
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 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;
|
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 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.
|
|
/s/ Patrick K. Decker
|
|
Patrick K. Decker
President and Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended
March 31, 2014
;
|
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 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;
|
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 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.
|
|
/s/ Michael T. Speetzen
|
|
Michael T. Speetzen
Senior Vice President and
Chief Financial Officer
|
(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
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Patrick K. Decker
|
|
Patrick K. Decker
|
|
President and Chief Executive Officer
|
|
April 29, 2014
|
|
(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
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Michael T. Speetzen
|
|
Michael T. Speetzen
|
|
Senior Vice President and Chief Financial Officer
|
|
April 29, 2014
|
|