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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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||
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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Three Months
|
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Six Months
|
||||||||||||
For the period ended June 30,
|
2015
|
|
2014
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|
2015
|
|
2014
|
||||||||
Revenue
|
$
|
920
|
|
|
$
|
1,005
|
|
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$
|
1,757
|
|
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$
|
1,911
|
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Cost of revenue
|
572
|
|
|
617
|
|
|
1,094
|
|
|
1,181
|
|
||||
Gross profit
|
348
|
|
|
388
|
|
|
663
|
|
|
730
|
|
||||
Selling, general and administrative expenses
|
218
|
|
|
242
|
|
|
424
|
|
|
466
|
|
||||
Research and development expenses
|
25
|
|
|
27
|
|
|
48
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|
|
54
|
|
||||
Restructuring charges
|
1
|
|
|
3
|
|
|
4
|
|
|
18
|
|
||||
Operating income
|
104
|
|
|
116
|
|
|
187
|
|
|
192
|
|
||||
Interest expense
|
14
|
|
|
13
|
|
|
28
|
|
|
27
|
|
||||
Other non-operating income, net
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
||||
Gain from sale of businesses
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
||||
Income before taxes
|
91
|
|
|
104
|
|
|
168
|
|
|
165
|
|
||||
Income tax expense
|
17
|
|
|
18
|
|
|
30
|
|
|
30
|
|
||||
Net income
|
$
|
74
|
|
|
$
|
86
|
|
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$
|
138
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|
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$
|
135
|
|
Earnings per share:
|
|
|
|
|
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|
||||||||
Basic
|
$
|
0.41
|
|
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$
|
0.47
|
|
|
$
|
0.76
|
|
|
$
|
0.74
|
|
Diluted
|
$
|
0.41
|
|
|
$
|
0.47
|
|
|
$
|
0.76
|
|
|
$
|
0.73
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
||||||||
Basic
|
181.5
|
|
|
183.4
|
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181.8
|
|
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184.0
|
|
||||
Diluted
|
182.3
|
|
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184.5
|
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182.7
|
|
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185.1
|
|
||||
Dividends declared per share
|
$
|
0.1408
|
|
|
$
|
0.1280
|
|
|
$
|
0.2816
|
|
|
$
|
0.2560
|
|
|
Three Months
|
|
Six Months
|
||||||||||||
For the period ended June 30,
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net income
|
$
|
74
|
|
|
$
|
86
|
|
|
$
|
138
|
|
|
$
|
135
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment
|
26
|
|
|
3
|
|
|
(103
|
)
|
|
1
|
|
||||
Foreign currency gain reclassified into net income
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
||||
Net change in cash flow hedges:
|
|
|
|
|
|
|
|
||||||||
Unrealized losses
|
—
|
|
|
(7
|
)
|
|
(5
|
)
|
|
(8
|
)
|
||||
Amount of loss (gain) reclassified into net income
|
7
|
|
|
(1
|
)
|
|
12
|
|
|
(1
|
)
|
||||
Net change in postretirement benefit plans:
|
|
|
|
|
|
|
|
||||||||
Net loss
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
||||
Amortization of net actuarial loss into net income
|
4
|
|
|
3
|
|
|
8
|
|
|
6
|
|
||||
Other comprehensive income (loss), before tax
|
37
|
|
|
(9
|
)
|
|
(96
|
)
|
|
(9
|
)
|
||||
Income tax impact related to items of other comprehensive income (loss)
|
2
|
|
|
(1
|
)
|
|
3
|
|
|
—
|
|
||||
Other comprehensive income (loss), net of tax
|
35
|
|
|
(8
|
)
|
|
(99
|
)
|
|
(9
|
)
|
||||
Comprehensive income
|
$
|
109
|
|
|
$
|
78
|
|
|
$
|
39
|
|
|
$
|
126
|
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
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|
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|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
600
|
|
|
$
|
663
|
|
Receivables, less allowances for discounts and doubtful accounts of $31 and $34 in 2015 and 2014, respectively
|
772
|
|
|
771
|
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||
Inventories
|
498
|
|
|
486
|
|
||
Prepaid and other current assets
|
149
|
|
|
144
|
|
||
Deferred income tax assets
|
37
|
|
|
38
|
|
||
Total current assets
|
2,056
|
|
|
2,102
|
|
||
Property, plant and equipment, net
|
431
|
|
|
461
|
|
||
Goodwill
|
1,592
|
|
|
1,635
|
|
||
Other intangible assets, net
|
442
|
|
|
470
|
|
||
Other non-current assets
|
198
|
|
|
192
|
|
||
Total assets
|
$
|
4,719
|
|
|
$
|
4,860
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
315
|
|
|
$
|
338
|
|
Accrued and other current liabilities
|
441
|
|
|
481
|
|
||
Short-term borrowings and current maturities of long-term debt
|
81
|
|
|
89
|
|
||
Total current liabilities
|
837
|
|
|
908
|
|
||
Long-term debt
|
1,196
|
|
|
1,195
|
|
||
Accrued postretirement benefits
|
377
|
|
|
388
|
|
||
Deferred income tax liabilities
|
152
|
|
|
158
|
|
||
Other non-current accrued liabilities
|
77
|
|
|
84
|
|
||
Total liabilities
|
2,639
|
|
|
2,733
|
|
||
Commitments and contingencies (Note 17)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Common Stock – par value $0.01 per share:
|
|
|
|
||||
Authorized 750.0 shares, issued 189.6 shares and 188.9 shares in 2015 and 2014, respectively
|
2
|
|
|
2
|
|
||
Capital in excess of par value
|
1,815
|
|
|
1,796
|
|
||
Retained earnings
|
734
|
|
|
648
|
|
||
Treasury stock – at cost 8.1 shares and 6.6 shares in 2015 and 2014, respectively
|
(273
|
)
|
|
(220
|
)
|
||
Accumulated other comprehensive loss
|
(198
|
)
|
|
(99
|
)
|
||
Total stockholders’ equity
|
2,080
|
|
|
2,127
|
|
||
Total liabilities and stockholders’ equity
|
$
|
4,719
|
|
|
$
|
4,860
|
|
For the six months ended June 30,
|
2015
|
|
2014
|
||||
Operating Activities
|
|
|
|
||||
Net income
|
$
|
138
|
|
|
$
|
135
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation
|
47
|
|
|
47
|
|
||
Amortization
|
22
|
|
|
25
|
|
||
Share-based compensation
|
8
|
|
|
9
|
|
||
Restructuring charges
|
4
|
|
|
18
|
|
||
Gain from sale of businesses
|
(9
|
)
|
|
—
|
|
||
Other, net
|
3
|
|
|
(1
|
)
|
||
Payments for restructuring
|
(9
|
)
|
|
(17
|
)
|
||
Changes in assets and liabilities (net of acquisitions):
|
|
|
|
||||
Changes in receivables
|
(28
|
)
|
|
(32
|
)
|
||
Changes in inventories
|
(27
|
)
|
|
(53
|
)
|
||
Changes in accounts payable
|
3
|
|
|
2
|
|
||
Other, net
|
(29
|
)
|
|
(35
|
)
|
||
Net Cash – Operating activities
|
123
|
|
|
98
|
|
||
Investing Activities
|
|
|
|
||||
Capital expenditures
|
(57
|
)
|
|
(48
|
)
|
||
Proceeds from sale of businesses
|
1
|
|
|
—
|
|
||
Proceeds from the sale of property, plant and equipment
|
—
|
|
|
1
|
|
||
Other, net
|
3
|
|
|
—
|
|
||
Net Cash – Investing activities
|
(53
|
)
|
|
(47
|
)
|
||
Financing Activities
|
|
|
|
||||
(Repayment) issuance of short-term debt
|
(2
|
)
|
|
1
|
|
||
Repurchase of common stock
|
(53
|
)
|
|
(102
|
)
|
||
Proceeds from exercise of employee stock options
|
9
|
|
|
17
|
|
||
Dividends paid
|
(51
|
)
|
|
(47
|
)
|
||
Other, net
|
1
|
|
|
1
|
|
||
Net Cash – Financing activities
|
(96
|
)
|
|
(130
|
)
|
||
Effect of exchange rate changes on cash
|
(37
|
)
|
|
(4
|
)
|
||
Net change in cash and cash equivalents
|
(63
|
)
|
|
(83
|
)
|
||
Cash and cash equivalents at beginning of year
|
663
|
|
|
533
|
|
||
Cash and cash equivalents at end of period
|
$
|
600
|
|
|
$
|
450
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid during the period for:
|
|
|
|
||||
Interest
|
$
|
26
|
|
|
$
|
26
|
|
Income taxes (net of refunds received)
|
$
|
42
|
|
|
$
|
50
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
(in millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
By component:
|
|
|
|
|
|
|
|
||||||||
Severance and other charges
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
18
|
|
Reversal of restructuring accruals
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
||||
Total restructuring charges
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
||||||||
By segment:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
12
|
|
Applied Water
|
—
|
|
|
1
|
|
|
—
|
|
|
6
|
|
(in millions)
|
|
2015
|
|
2014
|
||||
Restructuring accruals - January 1
|
|
$
|
12
|
|
|
$
|
13
|
|
Restructuring charges
|
|
4
|
|
|
18
|
|
||
Cash payments
|
|
(9
|
)
|
|
(17
|
)
|
||
Foreign currency and other
|
|
(1
|
)
|
|
—
|
|
||
Restructuring accruals - June 30
|
|
$
|
6
|
|
|
$
|
14
|
|
|
|
|
|
|
||||
By segment:
|
|
|
|
|
||||
Water Infrastructure
|
|
$
|
3
|
|
|
$
|
7
|
|
Applied Water
|
|
—
|
|
|
4
|
|
||
Regional selling locations (a)
|
|
3
|
|
|
3
|
|
(a)
|
Regional selling locations consist primarily of selling and marketing organizations that incurred restructuring expense which was allocated to the segments. The liabilities associated with restructuring expense were not allocated to the segments.
|
|
|
2015
|
|
2014
|
||
Planned reductions - January 1
|
|
133
|
|
|
51
|
|
Additional planned reductions
|
|
80
|
|
|
233
|
|
Actual reductions
|
|
(106
|
)
|
|
(172
|
)
|
Planned reductions - June 30
|
|
107
|
|
|
112
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net income (in millions)
|
$
|
74
|
|
|
$
|
86
|
|
|
$
|
138
|
|
|
$
|
135
|
|
Shares (in thousands):
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding
|
181,422
|
|
|
183,328
|
|
|
181,735
|
|
|
183,917
|
|
||||
Add: Participating securities (a)
|
52
|
|
|
49
|
|
|
49
|
|
|
45
|
|
||||
Weighted average common shares outstanding — Basic
|
181,474
|
|
|
183,377
|
|
|
181,784
|
|
|
183,962
|
|
||||
Plus incremental shares from assumed conversions: (b)
|
|
|
|
|
|
|
|
||||||||
Dilutive effect of stock options
|
513
|
|
|
659
|
|
|
522
|
|
|
659
|
|
||||
Dilutive effect of restricted stock
|
326
|
|
|
483
|
|
|
382
|
|
|
523
|
|
||||
Weighted average common shares outstanding — Diluted
|
182,313
|
|
|
184,519
|
|
|
182,688
|
|
|
185,144
|
|
||||
Basic earnings per share
|
$
|
0.41
|
|
|
$
|
0.47
|
|
|
$
|
0.76
|
|
|
$
|
0.74
|
|
Diluted earnings per share
|
$
|
0.41
|
|
|
$
|
0.47
|
|
|
$
|
0.76
|
|
|
$
|
0.73
|
|
(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.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30,
|
|
June 30,
|
||||||||
(in thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||
Stock options
|
2,800
|
|
|
2,851
|
|
|
2,717
|
|
|
2,798
|
|
Restricted stock
|
633
|
|
|
614
|
|
|
612
|
|
|
531
|
|
Performance shares
|
213
|
|
|
136
|
|
|
186
|
|
|
102
|
|
(in millions)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Finished goods
|
$
|
213
|
|
|
$
|
194
|
|
Work in process
|
45
|
|
|
42
|
|
||
Raw materials
|
240
|
|
|
250
|
|
||
Total inventories
|
$
|
498
|
|
|
$
|
486
|
|
(in millions)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Land, buildings and improvements
|
$
|
247
|
|
|
$
|
252
|
|
Machinery and equipment
|
646
|
|
|
655
|
|
||
Equipment held for lease or rental
|
211
|
|
|
207
|
|
||
Furniture and fixtures
|
85
|
|
|
87
|
|
||
Construction work in progress
|
36
|
|
|
41
|
|
||
Other
|
22
|
|
|
23
|
|
||
Total property, plant and equipment, gross
|
1,247
|
|
|
1,265
|
|
||
Less accumulated depreciation
|
816
|
|
|
804
|
|
||
Total property, plant and equipment, net
|
$
|
431
|
|
|
$
|
461
|
|
(in millions)
|
Water
Infrastructure
|
|
Applied Water
|
|
Total
|
||||||
Balance as of January 1, 2015
|
$
|
1,098
|
|
|
$
|
537
|
|
|
$
|
1,635
|
|
Activity in 2015
|
|
|
|
|
|
||||||
Foreign currency and other
|
(29
|
)
|
|
(14
|
)
|
|
(43
|
)
|
|||
Balance as of June 30, 2015
|
$
|
1,069
|
|
|
$
|
523
|
|
|
$
|
1,592
|
|
|
June 30, 2015
|
|
December 31, 2014
|
||||||||||||||||||||
(in millions)
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
||||||||||||
Customer and distributor relationships
|
$
|
321
|
|
|
$
|
(130
|
)
|
|
$
|
191
|
|
|
$
|
331
|
|
|
$
|
(122
|
)
|
|
$
|
209
|
|
Proprietary technology and patents
|
113
|
|
|
(51
|
)
|
|
62
|
|
|
116
|
|
|
(49
|
)
|
|
67
|
|
||||||
Trademarks
|
34
|
|
|
(18
|
)
|
|
16
|
|
|
36
|
|
|
(17
|
)
|
|
19
|
|
||||||
Software (a)
|
131
|
|
|
(91
|
)
|
|
40
|
|
|
131
|
|
|
(92
|
)
|
|
39
|
|
||||||
Other
|
8
|
|
|
(8
|
)
|
|
—
|
|
|
9
|
|
|
(9
|
)
|
|
—
|
|
||||||
Indefinite-lived intangibles
|
133
|
|
|
—
|
|
|
133
|
|
|
136
|
|
|
—
|
|
|
136
|
|
||||||
|
$
|
740
|
|
|
$
|
(298
|
)
|
|
$
|
442
|
|
|
$
|
759
|
|
|
$
|
(289
|
)
|
|
$
|
470
|
|
(a)
|
The December 31, 2014 carrying amount of software was previously included within Other non-current assets on the Condensed Consolidated Balance Sheets and is now being reflected within Other intangible assets to conform to a current period change in balance sheet presentation.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
(in millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Derivatives in Cash Flow Hedges
|
|
|
|
|
|
|
|
||||||||
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
||||||||
Amount of loss recognized in Other Comprehensive Income (a)
|
$
|
—
|
|
|
$
|
(7
|
)
|
|
$
|
(5
|
)
|
|
$
|
(8
|
)
|
Amount of loss (gain) reclassified from Other Comprehensive Income into revenue (a)
|
7
|
|
|
—
|
|
|
11
|
|
|
(1
|
)
|
||||
Amount of (gain) loss reclassified from Other Comprehensive Income into cost of revenue (a)
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
(a)
|
Effective portion
|
(in millions)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Derivatives designated as hedging instruments
|
|
|
|
||||
Assets
|
|
|
|
||||
Other current assets
|
$
|
1
|
|
|
$
|
1
|
|
Liabilities
|
|
|
|
||||
Other current liabilities
|
(6
|
)
|
|
(13
|
)
|
||
Total fair value
|
$
|
(5
|
)
|
|
$
|
(12
|
)
|
(in millions)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Compensation and other employee benefits
|
$
|
159
|
|
|
$
|
186
|
|
Customer-related liabilities
|
66
|
|
|
66
|
|
||
Accrued warranty costs
|
30
|
|
|
31
|
|
||
Accrued taxes
|
70
|
|
|
77
|
|
||
Other accrued liabilities
|
116
|
|
|
121
|
|
||
Total accrued and other current liabilities
|
$
|
441
|
|
|
$
|
481
|
|
(in millions)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Short-term borrowings and current maturities of long-term debt
|
$
|
81
|
|
|
$
|
89
|
|
|
|
|
|
||||
Long-term debt
|
|
|
|
||||
3.550% Senior Notes due 2016 (a)
|
$
|
600
|
|
|
$
|
600
|
|
4.875% Senior Notes due 2021 (a)
|
600
|
|
|
600
|
|
||
Debt issuance costs
|
(4
|
)
|
|
(4
|
)
|
||
Unamortized discount (b)
|
—
|
|
|
(1
|
)
|
||
Long-term debt
|
$
|
1,196
|
|
|
$
|
1,195
|
|
Total debt
|
$
|
1,277
|
|
|
$
|
1,284
|
|
(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
$616 million
and
$621 million
as of
June 30, 2015
and
December 31, 2014
, respectively. The fair value of our Senior Notes due 2021 (as defined below) was
$646 million
and
$653 million
as of
June 30, 2015
and
December 31, 2014
, 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
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
(in millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Domestic defined benefit pension plans:
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Expected return on plan assets
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(2
|
)
|
||||
Amortization of net actuarial loss
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||
Net periodic benefit cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
International defined benefit pension plans:
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
8
|
|
Interest cost
|
6
|
|
|
7
|
|
|
12
|
|
|
14
|
|
||||
Expected return on plan assets
|
(9
|
)
|
|
(9
|
)
|
|
(17
|
)
|
|
(17
|
)
|
||||
Amortization of net actuarial loss
|
4
|
|
|
2
|
|
|
7
|
|
|
4
|
|
||||
Net periodic benefit cost
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
9
|
|
Total net periodic benefit cost
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
10
|
|
|
$
|
11
|
|
(shares in thousands)
|
Shares
|
|
Weighted
Average
Exercise
Price / Share
|
|
Weighted Average
Remaining
Contractual
Term (Years)
|
|||
Outstanding at January 1, 2015
|
2,989
|
|
|
$
|
28.60
|
|
|
6.5
|
Granted
|
677
|
|
|
36.00
|
|
|
10.0
|
|
Exercised
|
(348
|
)
|
|
27.26
|
|
|
5.2
|
|
Forfeited
|
(49
|
)
|
|
33.14
|
|
|
8.5
|
|
Outstanding at June 30, 2015
|
3,269
|
|
|
$
|
30.22
|
|
|
6.9
|
Options exercisable at June 30, 2015
|
2,121
|
|
|
$
|
27.38
|
|
|
5.8
|
Vested and expected to vest as of June 30, 2015
|
3,107
|
|
|
$
|
29.96
|
|
|
6.8
|
Dividend yield
|
1.57
|
|
%
|
|
Volatility
|
27.77
|
|
%
|
|
Risk-free interest rate
|
1.64
|
|
%
|
|
Expected term (in years)
|
5.59
|
|
|
|
Weighted-average fair value / share
|
$
|
8.53
|
|
|
(shares in thousands)
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at January 1, 2015
|
1,171
|
|
|
$
|
31.80
|
|
Granted
|
388
|
|
|
36.04
|
|
|
Vested
|
(338
|
)
|
|
27.75
|
|
|
Forfeited
|
(51
|
)
|
|
32.04
|
|
|
Outstanding at June 30, 2015
|
1,170
|
|
|
$
|
34.40
|
|
(shares in thousands)
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at January 1, 2015
|
124
|
|
|
$
|
33.95
|
|
Granted
|
98
|
|
|
36.02
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited
|
(10
|
)
|
|
32.17
|
|
|
Outstanding at June 30, 2015
|
212
|
|
|
$
|
34.86
|
|
(in millions)
|
Foreign Currency Translation
|
|
Postretirement Benefit Plans
|
|
Derivative Instruments
|
|
Total
|
||||||||
Balance at April 1, 2015
|
$
|
8
|
|
|
$
|
(228
|
)
|
|
$
|
(13
|
)
|
|
$
|
(233
|
)
|
Foreign currency translation adjustment
|
26
|
|
|
—
|
|
|
—
|
|
|
26
|
|
||||
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 impact on amortization of postretirement benefit plan items
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
||||
Reclassification of unrealized loss on foreign exchange agreements into revenue
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
||||
Income tax benefit on reclassification of unrealized loss on foreign exchange agreements into revenue
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Balance at June 30, 2015
|
$
|
34
|
|
|
$
|
(225
|
)
|
|
$
|
(7
|
)
|
|
$
|
(198
|
)
|
(in millions)
|
Foreign Currency Translation
|
|
Postretirement Benefit Plans
|
|
Derivative Instruments
|
|
Total
|
||||||||
Balance at January 1, 2015
|
$
|
145
|
|
|
$
|
(231
|
)
|
|
$
|
(13
|
)
|
|
$
|
(99
|
)
|
Foreign currency translation adjustment
|
(103
|
)
|
|
—
|
|
|
—
|
|
|
(103
|
)
|
||||
Foreign currency gain reclassified into gain on sale of businesses
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
||||
Amortization of net actuarial loss on postretirement benefit plans into:
|
|
|
|
|
|
|
|
||||||||
Cost of revenue
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
Selling, general and administrative expenses
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
||||
Other non-operating expense, net
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Income tax impact on amortization of postretirement benefit plan items
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
||||
Unrealized loss on foreign exchange agreements
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
||||
Reclassification of unrealized loss on foreign exchange agreements into revenue
|
—
|
|
|
—
|
|
|
11
|
|
|
11
|
|
||||
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||
Income tax benefit on reclassification of unrealized loss on foreign exchange agreements into revenue
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Balance at June 30, 2015
|
$
|
34
|
|
|
$
|
(225
|
)
|
|
$
|
(7
|
)
|
|
$
|
(198
|
)
|
(in millions)
|
2015
|
|
2014
|
||||
Warranty accrual – January 1
|
$
|
31
|
|
|
$
|
37
|
|
Net changes for product warranties in the period
|
14
|
|
|
12
|
|
||
Settlement of warranty claims
|
(13
|
)
|
|
(15
|
)
|
||
Foreign currency and other
|
(1
|
)
|
|
—
|
|
||
Warranty accrual - June 30
|
$
|
31
|
|
|
$
|
34
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
(in millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
551
|
|
|
$
|
616
|
|
|
$
|
1,051
|
|
|
$
|
1,168
|
|
Applied Water
|
369
|
|
|
389
|
|
|
706
|
|
|
743
|
|
||||
Total
|
$
|
920
|
|
|
$
|
1,005
|
|
|
$
|
1,757
|
|
|
$
|
1,911
|
|
Operating Income:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
65
|
|
|
$
|
76
|
|
|
$
|
112
|
|
|
$
|
122
|
|
Applied Water
|
51
|
|
|
53
|
|
|
97
|
|
|
94
|
|
||||
Corporate and other
|
(12
|
)
|
|
(13
|
)
|
|
(22
|
)
|
|
(24
|
)
|
||||
Total
|
$
|
104
|
|
|
$
|
116
|
|
|
$
|
187
|
|
|
$
|
192
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
23
|
|
|
$
|
25
|
|
|
$
|
48
|
|
|
$
|
50
|
|
Applied Water
|
6
|
|
|
7
|
|
|
12
|
|
|
13
|
|
||||
Regional selling locations (a)
|
3
|
|
|
3
|
|
|
5
|
|
|
6
|
|
||||
Corporate and other
|
2
|
|
|
1
|
|
|
4
|
|
|
3
|
|
||||
Total
|
$
|
34
|
|
|
$
|
36
|
|
|
$
|
69
|
|
|
$
|
72
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
12
|
|
|
$
|
14
|
|
|
$
|
37
|
|
|
$
|
27
|
|
Applied Water
|
3
|
|
|
5
|
|
|
10
|
|
|
10
|
|
||||
Regional selling locations (b)
|
4
|
|
|
2
|
|
|
6
|
|
|
4
|
|
||||
Corporate and other
|
1
|
|
|
2
|
|
|
4
|
|
|
7
|
|
||||
Total
|
$
|
20
|
|
|
$
|
23
|
|
|
$
|
57
|
|
|
$
|
48
|
|
(a)
|
Depreciation and amortization expense incurred by the Regional selling locations was included in an overall allocation of Regional selling location costs to the segments; however, a certain portion of that expense was not specifically identified to a segment. That expense is captured in this Regional selling location line.
|
(b)
|
Represents capital expenditures incurred by the Regional selling locations not allocated to the segments.
|
|
Total Assets
|
||||||
(in millions)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Water Infrastructure
|
$
|
2,073
|
|
|
$
|
2,128
|
|
Applied Water
|
1,113
|
|
|
1,114
|
|
||
Regional selling location (a)
|
929
|
|
|
961
|
|
||
Corporate and other (b)
|
604
|
|
|
657
|
|
||
Total
|
$
|
4,719
|
|
|
$
|
4,860
|
|
(a)
|
The Regional selling locations have assets that consist primarily of cash, accounts receivable and inventory which are not allocated to the segments.
|
(b)
|
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 used to measure water quality, flow and level in wastewater, surface water and coastal environments. In the Water Infrastructure segment, we provide the majority of our sales directly to customers with strong application expertise, while the remaining amount is through distribution partners.
|
•
|
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 directly to customers.
|
•
|
Orders of
$944 million
, or
8.4%
decline from
$1,031 million
in the prior year, though up 1.0% on an organic basis
|
•
|
Earnings per share of
$0.41
, down
12.8%
from the prior year (
$0.43
on an adjusted basis, down 10.4%, though up 2.1% excluding $0.06 negative impact from currency translation)
|
•
|
Cash flow from operating activities of
$123 million
for the
six months ended June 30, 2015
, up
25.5%
from prior year, and free cash flow of
$66 million
as compared to
$50 million
in the prior year.
|
•
|
"organic revenue" and "organic orders" defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation, 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 translation assumes no change in exchange rates from the prior period.
|
•
|
"constant currency" defined as financial results adjusted for foreign 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 restructuring and realignment costs, special charges and tax-related special items. A reconciliation of adjusted net income is provided below.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
(In millions, except for per share data)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net income
|
$
|
74
|
|
|
$
|
86
|
|
|
$
|
138
|
|
|
$
|
135
|
|
Restructuring and realignment, net of tax
|
5
|
|
|
5
|
|
|
9
|
|
|
20
|
|
||||
Special charges, net of tax
|
1
|
|
|
—
|
|
|
3
|
|
|
—
|
|
||||
Tax-related special items
|
(2
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
(4
|
)
|
||||
Gain on sale of businesses, net of tax
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
||||
Adjusted net income
|
$
|
78
|
|
|
$
|
88
|
|
|
$
|
138
|
|
|
$
|
151
|
|
Weighted average number of shares - Diluted
|
182.3
|
|
|
184.5
|
|
|
182.7
|
|
|
185.1
|
|
||||
Adjusted earnings per share
|
$
|
0.43
|
|
|
$
|
0.48
|
|
|
$
|
0.76
|
|
|
$
|
0.82
|
|
•
|
"operating expenses excluding restructuring and realignment costs and special charges" defined as operating expenses, adjusted to exclude restructuring and realignment costs, and special charges.
|
•
|
"adjusted segment operating income" defined as segment operating income, adjusted to exclude restructuring and realignment costs, and special charges, and "adjusted segment operating margin" defined as adjusted segment operating income divided by total segment revenue.
|
•
|
“realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
|
•
|
“special charges” defined as costs incurred by the Company, such as legal and professional fees, associated with the Korea matters, as well as costs incurred for the contractual indemnification of tax obligations to ITT.
|
•
|
"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.
|
|
Six Months Ended
|
||||||
|
June 30,
|
||||||
(In millions)
|
2015
|
|
2014
|
||||
Net cash provided by operating activities
|
$
|
123
|
|
|
$
|
98
|
|
Capital expenditures
|
(57
|
)
|
|
(48
|
)
|
||
Free cash flow
|
$
|
66
|
|
|
$
|
50
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||||||||||
(In millions)
|
2015
|
|
2014
|
|
Change
|
|
2015
|
|
2014
|
|
Change
|
||||||||||||
Revenue
|
$
|
920
|
|
|
$
|
1,005
|
|
|
(8.5
|
)
|
%
|
|
$
|
1,757
|
|
|
$
|
1,911
|
|
|
(8.1
|
)
|
%
|
Gross profit
|
348
|
|
|
388
|
|
|
(10.3
|
)
|
%
|
|
663
|
|
|
730
|
|
|
(9.2
|
)
|
%
|
||||
Gross margin
|
37.8
|
%
|
|
38.6
|
%
|
|
(80
|
)
|
bp
|
|
37.7
|
%
|
|
38.2
|
%
|
|
(50
|
)
|
bp
|
||||
Operating expenses excluding restructuring and realignment costs and special charges
|
238
|
|
|
263
|
|
|
(9.5
|
)
|
%
|
|
463
|
|
|
511
|
|
|
(9.4
|
)
|
%
|
||||
Expense to revenue ratio
|
25.9
|
%
|
|
26.2
|
%
|
|
(30
|
)
|
bp
|
|
26.4
|
%
|
|
26.7
|
%
|
|
(30
|
)
|
bp
|
||||
Restructuring and realignment costs
|
6
|
|
|
9
|
|
|
(33.3
|
)
|
%
|
|
12
|
|
|
27
|
|
|
(55.6
|
)
|
%
|
||||
Special charges
|
—
|
|
|
—
|
|
|
NM
|
|
|
|
1
|
|
|
—
|
|
|
NM
|
|
|
||||
Total operating expenses
|
244
|
|
|
272
|
|
|
(10.3
|
)
|
%
|
|
476
|
|
|
538
|
|
|
(11.5
|
)
|
%
|
||||
Operating income
|
104
|
|
|
116
|
|
|
(10.3
|
)
|
%
|
|
187
|
|
|
192
|
|
|
(2.6
|
)
|
%
|
||||
Operating margin
|
11.3
|
%
|
|
11.5
|
%
|
|
(20
|
)
|
bp
|
|
10.6
|
%
|
|
10.0
|
%
|
|
60
|
|
bp
|
||||
Interest and other non-operating expense, net
|
13
|
|
|
12
|
|
|
8.3
|
|
%
|
|
28
|
|
|
27
|
|
|
3.7
|
|
%
|
||||
Gain on sale of businesses
|
—
|
|
|
—
|
|
|
NM
|
|
|
|
9
|
|
|
—
|
|
|
NM
|
|
|
||||
Income tax expense
|
17
|
|
|
18
|
|
|
(5.6
|
)
|
%
|
|
30
|
|
|
30
|
|
|
—
|
|
%
|
||||
Tax rate
|
18.1
|
%
|
|
17.2
|
%
|
|
90
|
|
bp
|
|
17.8
|
%
|
|
17.9
|
%
|
|
(10
|
)
|
bp
|
||||
Net income
|
$
|
74
|
|
|
$
|
86
|
|
|
(14.0
|
)
|
%
|
|
$
|
138
|
|
|
$
|
135
|
|
|
2.2
|
|
%
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||
|
June 30,
|
|
June 30,
|
||||||||||
(In millions)
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
||||||
2014 Revenue
|
$
|
1,005
|
|
|
|
|
$
|
1,911
|
|
|
|
||
Organic growth
|
10
|
|
|
1.0
|
%
|
|
19
|
|
|
1.0
|
%
|
||
Acquisitions/(Divestitures)
|
(6
|
)
|
|
(0.6
|
)%
|
|
(11
|
)
|
|
(0.6
|
)%
|
||
Constant currency
|
4
|
|
|
0.4
|
%
|
|
8
|
|
|
0.4
|
%
|
||
Foreign currency translation (a)
|
(89
|
)
|
|
(8.9
|
)%
|
|
(162
|
)
|
|
(8.5
|
)%
|
||
Total change in revenue
|
(85
|
)
|
|
(8.5
|
)%
|
|
(154
|
)
|
|
(8.1
|
)%
|
||
2015 Revenue
|
$
|
920
|
|
|
|
|
$
|
1,757
|
|
|
|
(a)
|
Foreign currency translation impact primarily due to fluctuations in the value of the Euro, Swedish Krona, British Pound, Norwegian Krone, Australian Dollar and Canadian Dollar against the U.S. Dollar.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||||||||||||||
(In millions)
|
2015
|
|
2014
|
|
As Reported Change
|
|
Constant Currency
Change
|
|
2015
|
|
2014
|
|
As Reported
Change
|
|
Constant
Currency
Change
|
||||||||||||
Water Infrastructure
|
$
|
551
|
|
|
$
|
616
|
|
|
(10.6
|
)%
|
|
—
|
%
|
|
$
|
1,051
|
|
|
$
|
1,168
|
|
|
(10.0
|
)%
|
|
0.2
|
%
|
Applied Water
|
369
|
|
|
389
|
|
|
(5.1
|
)%
|
|
1.0
|
%
|
|
706
|
|
|
743
|
|
|
(5.0
|
)%
|
|
0.8
|
%
|
||||
Total
|
$
|
920
|
|
|
$
|
1,005
|
|
|
(8.5
|
)%
|
|
0.4
|
%
|
|
$
|
1,757
|
|
|
$
|
1,911
|
|
|
(8.1
|
)%
|
|
0.4
|
%
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||||||||||
(In millions)
|
2015
|
|
2014
|
|
Change
|
|
2015
|
|
2014
|
|
Change
|
||||||||||||
Selling, general and administrative expenses ("SG&A")
|
$
|
218
|
|
|
$
|
242
|
|
|
(9.9
|
)
|
%
|
|
$
|
424
|
|
|
$
|
466
|
|
|
(9.0
|
)
|
%
|
SG&A as a % of revenue
|
23.7
|
%
|
|
24.1
|
%
|
|
(40
|
)
|
bp
|
|
24.1
|
%
|
|
24.4
|
%
|
|
(30
|
)
|
bp
|
||||
Research and development expenses ("R&D")
|
25
|
|
|
27
|
|
|
(7.4
|
)
|
%
|
|
48
|
|
|
54
|
|
|
(11.1
|
)
|
%
|
||||
R&D as a % of revenue
|
2.7
|
%
|
|
2.7
|
%
|
|
—
|
|
bp
|
|
2.7
|
%
|
|
2.8
|
%
|
|
(10
|
)
|
bp
|
||||
Restructuring charges
|
1
|
|
|
3
|
|
|
(66.7
|
)
|
%
|
|
4
|
|
|
18
|
|
|
(77.8
|
)
|
%
|
||||
Operating expenses
|
$
|
244
|
|
|
$
|
272
|
|
|
(10.3
|
)
|
%
|
|
$
|
476
|
|
|
$
|
538
|
|
|
(11.5
|
)
|
%
|
Expense to revenue ratio
|
26.5
|
%
|
|
27.1
|
%
|
|
(60
|
)
|
bp
|
|
27.1
|
%
|
|
28.2
|
%
|
|
(110
|
)
|
bp
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||||||||||
(In millions)
|
2015
|
|
2014
|
|
Change
|
|
2015
|
|
2014
|
|
Change
|
||||||||||||
Water Infrastructure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income
|
$
|
65
|
|
|
$
|
76
|
|
|
(14.5
|
)
|
%
|
|
$
|
112
|
|
|
$
|
122
|
|
|
(8.2
|
)
|
%
|
Restructuring and realignment costs
|
4
|
|
|
5
|
|
|
(20.0
|
)
|
%
|
|
9
|
|
|
17
|
|
|
(47.1
|
)
|
%
|
||||
Special charges
|
—
|
|
|
—
|
|
|
NM
|
|
|
|
1
|
|
|
—
|
|
|
NM
|
|
|
||||
Adjusted operating income
|
$
|
69
|
|
|
$
|
81
|
|
|
(14.8
|
)
|
%
|
|
$
|
122
|
|
|
$
|
139
|
|
|
(12.2
|
)
|
%
|
Adjusted operating margin
|
12.5
|
%
|
|
13.1
|
%
|
|
(60
|
)
|
bp
|
|
11.6
|
%
|
|
11.9
|
%
|
|
(30
|
)
|
bp
|
||||
Applied Water
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income
|
$
|
51
|
|
|
$
|
53
|
|
|
(3.8
|
)
|
%
|
|
$
|
97
|
|
|
$
|
94
|
|
|
3.2
|
|
%
|
Restructuring and realignment costs
|
2
|
|
|
4
|
|
|
(50.0
|
)
|
%
|
|
3
|
|
|
10
|
|
|
(70.0
|
)
|
%
|
||||
Adjusted operating income
|
$
|
53
|
|
|
$
|
57
|
|
|
(7.0
|
)
|
%
|
|
$
|
100
|
|
|
$
|
104
|
|
|
(3.8
|
)
|
%
|
Adjusted operating margin
|
14.4
|
%
|
|
14.7
|
%
|
|
(30
|
)
|
bp
|
|
14.2
|
%
|
|
14.0
|
%
|
|
20
|
|
bp
|
||||
Total Xylem
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income
|
$
|
104
|
|
|
$
|
116
|
|
|
(10.3
|
)
|
%
|
|
$
|
187
|
|
|
$
|
192
|
|
|
(2.6
|
)
|
%
|
Restructuring and realignment costs
|
6
|
|
|
9
|
|
|
(33.3
|
)
|
%
|
|
12
|
|
|
27
|
|
|
(55.6
|
)
|
%
|
||||
Special charges
|
—
|
|
|
—
|
|
|
NM
|
|
|
|
1
|
|
|
—
|
|
|
NM
|
|
|
||||
Adjusted operating income
|
$
|
110
|
|
|
$
|
125
|
|
|
(12.0
|
)
|
%
|
|
$
|
200
|
|
|
$
|
219
|
|
|
(8.7
|
)
|
%
|
Adjusted operating margin
|
12.0
|
%
|
|
12.4
|
%
|
|
(40
|
)
|
bp
|
|
11.4
|
%
|
|
11.5
|
%
|
|
(10
|
)
|
bp
|
|
Six Months Ended
|
||||||||||
|
June 30,
|
||||||||||
(In millions)
|
2015
|
|
2014
|
|
Change
|
||||||
Operating activities
|
$
|
123
|
|
|
$
|
98
|
|
|
$
|
25
|
|
Investing activities
|
(53
|
)
|
|
(47
|
)
|
|
(6
|
)
|
|||
Financing activities
|
(96
|
)
|
|
(130
|
)
|
|
34
|
|
|||
Foreign exchange (a)
|
(37
|
)
|
|
(4
|
)
|
|
(33
|
)
|
|||
Total
|
$
|
(63
|
)
|
|
$
|
(83
|
)
|
|
$
|
20
|
|
(a)
|
2015 impact is primarily due to the weakness of the Euro against the U.S. Dollar.
|
(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)
|
4/1/15 - 4/30/15
|
|
—
|
|
—
|
|
—
|
|
$59
|
5/1/15 - 5/31/15
|
|
—
|
|
—
|
|
—
|
|
$58
|
6/1/15 - 6/30/15
|
|
—
|
|
—
|
|
—
|
|
$59
|
(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 June 30, 2015
and there are approximately
1.0 million
shares (approximately $39 million in value) 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
|
|
|
(Duly Authorized Officer)
|
Exhibit
Number
|
Description
|
Location
|
|
|
|
(3.1)
|
Third Amended and Restated Articles of Incorporation of Xylem Inc.
|
Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 10-Q filed on July 29, 2014 (CIK No. 1524472, File No. 1-35229).
|
|
|
|
(3.2)
|
Amended and Restated By-laws of Xylem Inc.
|
Incorporated by reference to Exhibit 3.2 of Xylem Inc.’s Form 10-Q filed on July 29, 2014 (CIK No. 1524472, File No. 1-35229).
|
|
|
|
(10.1)
|
Form of Non-Employee Director Restricted Stock Unit Award Agreement
|
Filed herewith.
|
|
|
|
(10.2)
|
Amendment to R&D Facility Agreement
|
Filed herewith.
|
|
|
|
(11.0)
|
Statement Re-Computation of Per Share Earnings
|
Information required to be presented in Exhibit 11 is provided under “Earnings Per Share” in Note 6 to the Condensed Consolidated Financial Statements in Part I, Item 1 “Condensed Consolidated Financial Statements” of this Report in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification 260,
Earnings Per Share
.
|
|
|
|
(31.1)
|
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.
|
|
|
|
(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.
|
|
|
|
Exhibit
Number
|
Description
|
Location
|
(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 June 30, 2015, 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.
|
DIRECTOR
|
[Non-Employee Director Name]
|
|
RESTRICTED STOCK UNITS GRANTED
|
[ #,#### ]
|
|
DATE OF GRANT
|
[ ]
|
|
|
Except as provided in Section 3 of this Agreement, the Restricted Stock Units will vest on the following date(s), subject to the Director’s continued service as a director of the Company:
|
|
|
Vesting Date(s)
|
Restricted Stock Units
Vesting
|
The Business Day immediately prior to the Xylem Inc. _____ Annual Meeting.
|
100% of Award
|
1.
|
Grant of Award
. The Company hereby grants to the Director the Restricted Stock Units, subject to the terms, definitions and provisions of the Plan and this Agreement. All terms, provisions, and conditions applicable to the Restricted Stock Units set forth in the Plan and not set forth herein are incorporated by reference. To the extent any provision hereof is inconsistent with a provision of the Plan the provisions of the Plan will govern. All capitalized terms that are used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Plan.
|
a.
|
Right to Award
. This Award shall vest in accordance with the vesting schedule set forth above (the “Vesting Schedule”) and with the applicable provisions of the Plan and this Agreement.
|
b.
|
Settlement of Award
. Except as otherwise provided in a deferral agreement duly executed by the Director on a form prescribed by the Company for such elections and timely filed with the Company, the vested portion of this Award shall be settled (and any related dividend equivalents shall be paid) on or as soon as practicable following the vesting date set forth in the Vesting Schedule or in Section 3 of this Agreement, as the case may be.
|
c.
|
Method of Settlement
. The Company shall deliver to the Director one Share for each vested Restricted Stock Unit in book entry form
|
d.
|
Dividend Equivalents
. If a cash dividend is declared on the Shares, the Director shall be credited with a dividend equivalent in an amount of cash equal to the number of Restricted Stock Units held by the Director as of the dividend payment date, multiplied by the amount of the cash dividend paid per Share. Any such dividend equivalents shall be paid if and when the underlying Restricted Stock Units are settled. Dividend equivalents shall not accrue interest.
|
2.
|
Separation from Service
. The Award shall become 100% vested prior to the vesting date set forth in the Vesting Schedule above upon the Director's separation from service for any of the following reasons:
|
a.
|
the Director's death;
|
b.
|
the Director's Disability (as defined below);
|
c.
|
the Director's retirement from the Board at or after age 72; or
|
d.
|
the Director's separation from service on account of the acceptance by the Director of a position (other than an honorary position) in the government of the United States, any State or any municipality or any subdivision thereof or any organization performing any quasi-governmental function.
|
3.
|
Transferability of Award
.
|
4.
|
Miscellaneous Provisions
.
|
a.
|
Rights as a Stockholder
. The Director shall have no rights as a stockholder with respect to any Shares subject to this Award, except as provided in Paragraph 2(d), until the Award has vested and Shares, if any, have been issued.
|
b.
|
Compliance with Federal Securities Laws and Other Applicable Laws
.
|
c.
|
Choice of Law
. This Agreement shall be governed by, 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.
|
d.
|
Modification or Amendment
. This Agreement may only be modified or amended by written agreement executed by the parties hereto; provided, however, that the adjustments permitted pursuant to Section 4.2 of the Plan may be made without such written agreement.
|
e.
|
Severability
. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included.
|
f.
|
References to Plan
. All references to the Plan shall be deemed references to the Plan as may be amended from time to time.
|
g.
|
Headings
. The captions used in this Agreement are inserted for convenience and shall not be deemed a part of this Award for construction or interpretation.
|
h.
|
Interpretation
. Any dispute regarding the interpretation of this Agreement shall be submitted by the Director or by the Company forthwith to the Committee, which shall review such dispute at its next regular meeting. If the Director is a member of the Committee, the Director shall not participate in such review. The resolution of such dispute by the Committee shall be final and binding on all persons.
|
i.
|
Section 409A of the Code
. The provisions of this Agreement and any payments made herein are intended to comply with, and should be interpreted consistent with, the requirements of Section 409A of the Code, and any related regulations or other effective guidance promulgated thereunder by the U.S. Department of the Treasury or the Internal Revenue Service.
|
j.
|
Signature in Counterparts
. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
|
Subject:
|
XYLEM WATER TECHNOLOGIES (RSFF) (Serapis Nº 2012-0216, FI N° 81.921)
|
•
|
Amendment
|
1.
|
Amendments
|
2.
|
Governing law
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended
June 30, 2015
;
|
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
June 30, 2015
;
|
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
|
|
July 30, 2015
|
|
(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
|
|
July 30, 2015
|
|