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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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Three Months
|
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Nine Months
|
||||||||||||
For the periods ended September 30,
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2016
|
|
2015
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2016
|
|
2015
|
||||||||
Revenue
|
$
|
897
|
|
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$
|
902
|
|
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$
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2,676
|
|
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$
|
2,659
|
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Cost of revenue
|
540
|
|
|
551
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|
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1,621
|
|
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1,645
|
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||||
Gross profit
|
357
|
|
|
351
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|
|
1,055
|
|
|
1,014
|
|
||||
Selling, general and administrative expenses
|
219
|
|
|
207
|
|
|
665
|
|
|
631
|
|
||||
Research and development expenses
|
23
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|
|
23
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|
|
75
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|
|
71
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|
||||
Restructuring charges
|
6
|
|
|
1
|
|
|
18
|
|
|
5
|
|
||||
Operating income
|
109
|
|
|
120
|
|
|
297
|
|
|
307
|
|
||||
Interest expense
|
16
|
|
|
13
|
|
|
50
|
|
|
41
|
|
||||
Other non-operating income, net
|
2
|
|
|
—
|
|
|
3
|
|
|
—
|
|
||||
Gain from sale of businesses
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
||||
Income before taxes
|
95
|
|
|
107
|
|
|
250
|
|
|
275
|
|
||||
Income tax expense
|
22
|
|
|
19
|
|
|
40
|
|
|
49
|
|
||||
Net income
|
$
|
73
|
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$
|
88
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$
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210
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|
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$
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226
|
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Earnings per share:
|
|
|
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||||||||
Basic
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$
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0.41
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$
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0.48
|
|
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$
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1.17
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$
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1.25
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Diluted
|
$
|
0.41
|
|
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$
|
0.48
|
|
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$
|
1.17
|
|
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$
|
1.24
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
||||||||
Basic
|
179.3
|
|
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180.8
|
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179.0
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181.5
|
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||||
Diluted
|
180.3
|
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181.6
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179.8
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182.3
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||||
Dividends declared per share
|
$
|
0.1549
|
|
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$
|
0.1408
|
|
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$
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0.4647
|
|
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$
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0.4224
|
|
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Three Months
|
|
Nine Months
|
||||||||||||
For the periods ended September 30,
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Net income
|
$
|
73
|
|
|
$
|
88
|
|
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$
|
210
|
|
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$
|
226
|
|
Other comprehensive (loss) income, before tax:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment
|
(8
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)
|
|
(39
|
)
|
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(25
|
)
|
|
(142
|
)
|
||||
Foreign currency gain reclassified into net income
|
—
|
|
|
—
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|
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—
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|
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(8
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)
|
||||
Net change in derivative hedge agreements:
|
|
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|
|
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||||||||
Unrealized losses
|
—
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|
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—
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|
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—
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(5
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)
|
||||
Amount of (gain) loss reclassified into net income
|
(1
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)
|
|
5
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|
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(2
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)
|
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17
|
|
||||
Net change in postretirement benefit plans:
|
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|
|
|
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||||||||
Amortization of net actuarial loss into net income
|
3
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|
|
4
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|
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8
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|
|
12
|
|
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Other comprehensive loss, before tax
|
(6
|
)
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(30
|
)
|
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(19
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)
|
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(126
|
)
|
||||
Income tax impact related to items of other comprehensive income
|
(3
|
)
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|
1
|
|
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(2
|
)
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|
4
|
|
||||
Other comprehensive loss, net of tax
|
(3
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)
|
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(31
|
)
|
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(17
|
)
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(130
|
)
|
||||
Comprehensive income
|
$
|
70
|
|
|
$
|
57
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|
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$
|
193
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|
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$
|
96
|
|
|
September 30,
2016 |
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December 31,
2015 |
||||
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||||
ASSETS
|
|
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|
||||
Current assets:
|
|
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|
||||
Cash and cash equivalents
|
$
|
659
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|
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$
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680
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Receivables, less allowances for discounts and doubtful accounts of $29 and $33 in 2016 and 2015, respectively
|
792
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|
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749
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Inventories
|
488
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433
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Prepaid and other current assets
|
153
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|
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143
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||
Total current assets
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2,092
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|
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2,005
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Property, plant and equipment, net
|
440
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|
|
439
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Goodwill
|
1,621
|
|
|
1,584
|
|
||
Other intangible assets, net
|
444
|
|
|
435
|
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||
Other non-current assets
|
181
|
|
|
194
|
|
||
Total assets
|
$
|
4,778
|
|
|
$
|
4,657
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
341
|
|
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$
|
338
|
|
Accrued and other current liabilities
|
438
|
|
|
407
|
|
||
Short-term borrowings and current maturities of long-term debt
|
62
|
|
|
78
|
|
||
Total current liabilities
|
841
|
|
|
823
|
|
||
Long-term debt
|
1,148
|
|
|
1,196
|
|
||
Accrued postretirement benefits
|
335
|
|
|
335
|
|
||
Deferred income tax liabilities
|
114
|
|
|
118
|
|
||
Other non-current accrued liabilities
|
113
|
|
|
101
|
|
||
Total liabilities
|
2,551
|
|
|
2,573
|
|
||
Commitments and contingencies (Note 17)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Common Stock – par value $0.01 per share:
|
|
|
|
||||
Authorized 750.0 shares, issued 191.3 shares and 190.2 shares in 2016 and 2015, respectively
|
2
|
|
|
2
|
|
||
Capital in excess of par value
|
1,871
|
|
|
1,834
|
|
||
Retained earnings
|
1,011
|
|
|
885
|
|
||
Treasury stock – at cost 11.9 shares and 11.8 shares in 2016 and 2015, respectively
|
(402
|
)
|
|
(399
|
)
|
||
Accumulated other comprehensive loss
|
(255
|
)
|
|
(238
|
)
|
||
Total stockholders’ equity
|
2,227
|
|
|
2,084
|
|
||
Total liabilities and stockholders’ equity
|
$
|
4,778
|
|
|
$
|
4,657
|
|
For the nine months ended September 30,
|
2016
|
|
2015
|
||||
Operating Activities
|
|
|
|
||||
Net income
|
$
|
210
|
|
|
$
|
226
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation
|
61
|
|
|
69
|
|
||
Amortization
|
36
|
|
|
33
|
|
||
Share-based compensation
|
15
|
|
|
11
|
|
||
Restructuring charges
|
18
|
|
|
5
|
|
||
Gain from sale of businesses
|
—
|
|
|
(9
|
)
|
||
Other, net
|
8
|
|
|
10
|
|
||
Payments for restructuring
|
(11
|
)
|
|
(11
|
)
|
||
Changes in assets and liabilities (net of acquisitions):
|
|
|
|
||||
Changes in receivables
|
(27
|
)
|
|
(32
|
)
|
||
Changes in inventories
|
(42
|
)
|
|
(15
|
)
|
||
Changes in accounts payable
|
14
|
|
|
6
|
|
||
Other, net
|
(8
|
)
|
|
(33
|
)
|
||
Net Cash – Operating activities
|
274
|
|
|
260
|
|
||
Investing Activities
|
|
|
|
||||
Capital expenditures
|
(90
|
)
|
|
(78
|
)
|
||
Acquisition of business, net of cash acquired
|
(70
|
)
|
|
—
|
|
||
Proceeds from sale of businesses
|
—
|
|
|
1
|
|
||
Proceeds from the sale of property, plant and equipment
|
—
|
|
|
1
|
|
||
Other, net
|
5
|
|
|
2
|
|
||
Net Cash – Investing activities
|
(155
|
)
|
|
(74
|
)
|
||
Financing Activities
|
|
|
|
||||
Short-term debt issued
|
62
|
|
|
—
|
|
||
Short-term debt repaid
|
(80
|
)
|
|
(3
|
)
|
||
Long-term debt issued
|
540
|
|
|
—
|
|
||
Long-term debt repaid
|
(608
|
)
|
|
—
|
|
||
Repurchase of common stock
|
(3
|
)
|
|
(128
|
)
|
||
Proceeds from exercise of employee stock options
|
22
|
|
|
14
|
|
||
Dividends paid
|
(84
|
)
|
|
(77
|
)
|
||
Other, net
|
1
|
|
|
—
|
|
||
Net Cash – Financing activities
|
(150
|
)
|
|
(194
|
)
|
||
Effect of exchange rate changes on cash
|
10
|
|
|
(44
|
)
|
||
Net change in cash and cash equivalents
|
(21
|
)
|
|
(52
|
)
|
||
Cash and cash equivalents at beginning of year
|
680
|
|
|
663
|
|
||
Cash and cash equivalents at end of period
|
$
|
659
|
|
|
$
|
611
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid during the period for:
|
|
|
|
||||
Interest
|
$
|
34
|
|
|
$
|
37
|
|
Income taxes (net of refunds received)
|
$
|
60
|
|
|
$
|
57
|
|
•
|
The Company recorded tax benefits of $1 million and $3 million within income tax expense for the three and nine months ended September 30, 2016, respectively, related to the excess tax benefit on share-based awards. Prior to adoption this amount would have been recorded as an increase of capital in excess of par value. This change could create volatility in the Company's effective tax rate.
|
•
|
The Company no longer reflects the cash received from the excess tax benefit within cash flows from financing activities but instead now reflects this benefit within cash flows from operating activities in the
|
•
|
The Company elected not to change its policy on accounting for forfeitures and continues to estimate the total number of awards for which the requisite service period will not be rendered.
|
•
|
At this time, the Company has not changed its policy on statutory withholding requirements and will continue to allow the employee to withhold up to the Company's minimum statutory withholding requirements.
|
•
|
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the three and nine months ended September 30, 2016. This increased diluted weighted average common shares outstanding by less than 50,000 shares for each of the aforementioned periods.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
By component:
|
|
|
|
|
|
|
|
||||||||
Severance and other charges
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
18
|
|
|
$
|
6
|
|
Lease related charges
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
||||
Reversal of restructuring accruals
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Total restructuring charges
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
18
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
||||||||
By segment:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
12
|
|
|
$
|
5
|
|
Applied Water
|
1
|
|
|
—
|
|
|
4
|
|
|
—
|
|
||||
Corporate and other
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
(in millions)
|
|
2016
|
|
2015
|
||||
Restructuring accruals - January 1
|
|
$
|
3
|
|
|
$
|
12
|
|
Restructuring charges
|
|
18
|
|
|
5
|
|
||
Cash payments
|
|
(11
|
)
|
|
(11
|
)
|
||
Foreign currency and other
|
|
(1
|
)
|
|
(1
|
)
|
||
Restructuring accruals - September 30
|
|
$
|
9
|
|
|
$
|
5
|
|
|
|
|
|
|
||||
By segment:
|
|
|
|
|
||||
Water Infrastructure
|
|
$
|
4
|
|
|
$
|
2
|
|
Applied Water
|
|
—
|
|
|
—
|
|
||
Regional selling locations (a)
|
|
3
|
|
|
3
|
|
||
Corporate and other
|
|
2
|
|
|
—
|
|
(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.
|
|
|
2016
|
|
2015
|
||
Planned reductions - January 1
|
|
82
|
|
|
133
|
|
Additional planned reductions
|
|
364
|
|
|
87
|
|
Actual reductions
|
|
(296
|
)
|
|
(120
|
)
|
Planned reductions - September 30
|
|
150
|
|
|
100
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Net income (in millions)
|
$
|
73
|
|
|
$
|
88
|
|
|
$
|
210
|
|
|
$
|
226
|
|
Shares (in thousands):
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding
|
179,272
|
|
|
180,815
|
|
|
178,951
|
|
|
181,428
|
|
||||
Add: Participating securities (a)
|
36
|
|
|
30
|
|
|
37
|
|
|
43
|
|
||||
Weighted average common shares outstanding — Basic
|
179,308
|
|
|
180,845
|
|
|
178,988
|
|
|
181,471
|
|
||||
Plus incremental shares from assumed conversions: (b)
|
|
|
|
|
|
|
|
||||||||
Dilutive effect of stock options
|
593
|
|
|
424
|
|
|
462
|
|
|
489
|
|
||||
Dilutive effect of restricted stock units and performance share units
|
409
|
|
|
363
|
|
|
388
|
|
|
376
|
|
||||
Weighted average common shares outstanding — Diluted
|
180,310
|
|
|
181,632
|
|
|
179,838
|
|
|
182,336
|
|
||||
Basic earnings per share
|
$
|
0.41
|
|
|
$
|
0.48
|
|
|
$
|
1.17
|
|
|
$
|
1.25
|
|
Diluted earnings per share
|
$
|
0.41
|
|
|
$
|
0.48
|
|
|
$
|
1.17
|
|
|
$
|
1.24
|
|
(a)
|
Restricted stock unit 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 units 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 units and performance share units, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance or market conditions at the end of the reporting period. See Note 14, "Share-Based Compensation Plans" to the condensed consolidated financial statements for further detail on the performance share units.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||
|
September 30,
|
|
September 30,
|
||||||||
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||
Stock options
|
1,701
|
|
|
2,703
|
|
|
2,008
|
|
|
2,712
|
|
Restricted stock units
|
529
|
|
|
747
|
|
|
570
|
|
|
754
|
|
Performance share units
|
414
|
|
|
191
|
|
|
360
|
|
|
187
|
|
(in millions)
|
September 30,
2016 |
|
December 31,
2015 |
||||
Finished goods
|
$
|
220
|
|
|
$
|
188
|
|
Work in process
|
46
|
|
|
32
|
|
||
Raw materials
|
222
|
|
|
213
|
|
||
Total inventories
|
$
|
488
|
|
|
$
|
433
|
|
(in millions)
|
September 30,
2016 |
|
December 31,
2015 |
||||
Land, buildings and improvements
|
$
|
247
|
|
|
$
|
240
|
|
Machinery and equipment
|
649
|
|
|
650
|
|
||
Equipment held for lease or rental
|
225
|
|
|
205
|
|
||
Furniture and fixtures
|
81
|
|
|
79
|
|
||
Construction work in progress
|
61
|
|
|
46
|
|
||
Other
|
19
|
|
|
19
|
|
||
Total property, plant and equipment, gross
|
1,282
|
|
|
1,239
|
|
||
Less accumulated depreciation
|
842
|
|
|
800
|
|
||
Total property, plant and equipment, net
|
$
|
440
|
|
|
$
|
439
|
|
(in millions)
|
Water
Infrastructure
|
|
Applied Water
|
|
Total
|
||||||
Balance as of January 1, 2016
|
$
|
1,066
|
|
|
$
|
518
|
|
|
$
|
1,584
|
|
Activity in 2016
|
|
|
|
|
|
||||||
Acquired (a)
|
39
|
|
|
—
|
|
|
39
|
|
|||
Foreign currency and other
|
(2
|
)
|
|
|
|
|
(2
|
)
|
|||
Balance as of September 30, 2016
|
$
|
1,103
|
|
|
$
|
518
|
|
|
$
|
1,621
|
|
(a)
|
On February 1, 2016, we acquired Tideland and recorded $39 million of goodwill. Refer to Note 3, "Acquisitions and Divestitures" for additional information.
|
|
September 30, 2016
|
|
December 31, 2015
|
||||||||||||||||||||
(in millions)
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
||||||||||||
Customer and distributor relationships
|
$
|
342
|
|
|
$
|
(159
|
)
|
|
$
|
183
|
|
|
$
|
320
|
|
|
$
|
(140
|
)
|
|
$
|
180
|
|
Proprietary technology and patents
|
119
|
|
|
(60
|
)
|
|
59
|
|
|
116
|
|
|
(54
|
)
|
|
62
|
|
||||||
Trademarks
|
43
|
|
|
(22
|
)
|
|
21
|
|
|
35
|
|
|
(19
|
)
|
|
16
|
|
||||||
Software
|
168
|
|
|
(119
|
)
|
|
49
|
|
|
155
|
|
|
(110
|
)
|
|
45
|
|
||||||
Other
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
8
|
|
|
(8
|
)
|
|
—
|
|
||||||
Indefinite-lived intangibles
|
132
|
|
|
—
|
|
|
132
|
|
|
132
|
|
|
—
|
|
|
132
|
|
||||||
|
$
|
811
|
|
|
$
|
(367
|
)
|
|
$
|
444
|
|
|
$
|
766
|
|
|
$
|
(331
|
)
|
|
$
|
435
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Cash Flow Hedges
|
|
|
|
|
|
|
|
||||||||
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
||||||||
Amount of (loss) recognized in OCI (a)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
Amount of (gain) loss reclassified from OCI into revenue (a)
|
(1
|
)
|
|
5
|
|
|
(1
|
)
|
|
16
|
|
||||
Amount of (gain) loss reclassified from OCI into cost of revenue (a)
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net Investment Hedges
|
|
|
|
|
|
|
|
||||||||
Cross Currency Swaps
|
|
|
|
|
|
|
|
||||||||
Amount of (loss) recognized in OCI (a)
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
Foreign Currency Denominated Debt
|
|
|
|
|
|
|
|
||||||||
Amount of (loss) recognized in OCI (a)
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
—
|
|
(a)
|
Effective portion
|
(in millions)
|
September 30,
2016 |
|
December 31,
2015 |
||||
Derivatives designated as hedging instruments
|
|
|
|
||||
Assets
|
|
|
|
||||
Cash Flow Hedges
|
|
|
|
||||
Other current assets
|
$
|
—
|
|
|
$
|
2
|
|
Liabilities
|
|
|
|
||||
Cash Flow Hedges
|
|
|
|
||||
Other current liabilities
|
$
|
(1
|
)
|
|
$
|
—
|
|
Net Investment Hedges
|
|
|
|
||||
Other non-current liabilities
|
$
|
(30
|
)
|
|
$
|
(18
|
)
|
(in millions)
|
September 30,
2016 |
|
December 31,
2015 |
||||
Compensation and other employee benefits
|
$
|
163
|
|
|
$
|
156
|
|
Customer-related liabilities
|
70
|
|
|
64
|
|
||
Accrued warranty costs
|
35
|
|
|
33
|
|
||
Accrued taxes
|
67
|
|
|
64
|
|
||
Other accrued liabilities
|
103
|
|
|
90
|
|
||
Total accrued and other current liabilities
|
$
|
438
|
|
|
$
|
407
|
|
(in millions)
|
September 30,
2016 |
|
December 31,
2015 |
||||
3.550% Senior Notes due 2016
|
$
|
—
|
|
|
$
|
600
|
|
4.875% Senior Notes due 2021 (a)
|
600
|
|
|
600
|
|
||
2.250% Senior Notes due 2023 (a)
|
560
|
|
|
—
|
|
||
Commercial paper
|
20
|
|
|
—
|
|
||
Research and development facility agreement
|
42
|
|
|
76
|
|
||
Other
|
—
|
|
|
2
|
|
||
Debt issuance costs and unamortized discount (b)
|
(12
|
)
|
|
(4
|
)
|
||
Total debt
|
1,210
|
|
|
1,274
|
|
||
Less: short-term borrowings and current maturities of long-term debt
|
62
|
|
|
78
|
|
||
Total long-term debt
|
$
|
1,148
|
|
|
$
|
1,196
|
|
(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 2021 was $654 million and $640 million as of September 30, 2016 and December 31, 2015, respectively. The fair value of our Senior Notes due 2023 was $608 million as of September 30, 2016.
|
(b)
|
The debt issuance costs and unamortized discount are recognized as a reduction in the carrying value of the Senior Notes in the Condensed Consolidated Balance Sheets and are being amortized to interest expense in our Condensed Consolidated Income Statements over the expected remaining terms of the Senior Notes.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Domestic defined benefit pension plans:
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest cost
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
|
||||
Expected return on plan assets
|
(2
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
(4
|
)
|
||||
Amortization of net actuarial loss
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Net periodic benefit cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
3
|
|
International defined benefit pension plans:
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
$
|
9
|
|
Interest cost
|
6
|
|
|
6
|
|
|
18
|
|
|
18
|
|
||||
Expected return on plan assets
|
(8
|
)
|
|
(8
|
)
|
|
(25
|
)
|
|
(25
|
)
|
||||
Amortization of net actuarial loss
|
2
|
|
|
3
|
|
|
6
|
|
|
10
|
|
||||
Net periodic benefit cost
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
12
|
|
Total net periodic benefit cost
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
10
|
|
|
$
|
15
|
|
|
Shares (in thousands)
|
|
Weighted
Average
Exercise
Price / Share
|
|
Weighted Average
Remaining
Contractual
Term (Years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
Outstanding at January 1, 2016
|
2,561
|
|
|
$
|
31.16
|
|
|
6.8
|
|
|
||
Granted
|
463
|
|
|
37.90
|
|
|
|
|
|
|||
Exercised
|
(797
|
)
|
|
27.91
|
|
|
|
|
|
|||
Forfeited and expired
|
(44
|
)
|
|
35.55
|
|
|
|
|
|
|||
Outstanding at September 30, 2016
|
2,183
|
|
|
$
|
33.68
|
|
|
7.2
|
|
$
|
41
|
|
Options exercisable at September 30, 2016
|
1,222
|
|
|
$
|
29.40
|
|
|
5.9
|
|
$
|
26
|
|
Vested and expected to vest as of September 30, 2016
|
2,098
|
|
|
$
|
33.53
|
|
|
7.1
|
|
$
|
40
|
|
Volatility
|
28.87
|
|
%
|
|
Risk-free interest rate
|
1.41
|
|
%
|
|
Dividend yield
|
1.63
|
|
%
|
|
Expected term (in years)
|
5.6
|
|
|
|
Weighted-average fair value / share
|
$
|
9.05
|
|
|
|
Shares (in thousands)
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at January 1, 2016
|
1,013
|
|
|
$
|
34.52
|
|
Granted
|
300
|
|
|
38.99
|
|
|
Vested
|
(291
|
)
|
|
29.61
|
|
|
Forfeited
|
(75
|
)
|
|
36.75
|
|
|
Outstanding at September 30, 2016
|
947
|
|
|
$
|
37.27
|
|
|
Shares (in thousands)
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at January 1, 2016
|
160
|
|
|
$
|
35.48
|
|
Granted
|
111
|
|
|
37.87
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited
|
(20
|
)
|
|
28.31
|
|
|
Outstanding at September 30, 2016
|
251
|
|
|
$
|
37.09
|
|
|
Shares (in thousands)
|
|
Weighted
Average
Grant Date
Fair Value /Share
|
|||
Outstanding at January 1, 2016
|
—
|
|
|
$
|
—
|
|
Granted
|
111
|
|
|
46.13
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited
|
(2
|
)
|
|
45.34
|
|
|
Outstanding at September 30, 2016
|
109
|
|
|
$
|
46.14
|
|
Volatility
|
31.7
|
%
|
Risk-free interest rate
|
0.88
|
%
|
Dividend yield
|
1.64
|
%
|
(in millions)
|
Foreign Currency Translation
|
|
Postretirement Benefit Plans
|
|
Derivative Instruments
|
|
Total
|
||||||||
Balance at July 1, 2016
|
$
|
(69
|
)
|
|
$
|
(183
|
)
|
|
$
|
—
|
|
|
$
|
(252
|
)
|
Foreign currency translation adjustment
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
||||
Tax on foreign currency translation adjustment
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
||||
Amortization of net actuarial loss on postretirement benefit plans into:
|
|
|
|
|
|
|
|
||||||||
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 gain on derivative hedge agreements into revenue
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Balance at September 30, 2016
|
$
|
(73
|
)
|
|
$
|
(181
|
)
|
|
$
|
(1
|
)
|
|
$
|
(255
|
)
|
(in millions)
|
Foreign Currency Translation
|
|
Postretirement Benefit Plans
|
|
Derivative Instruments
|
|
Total
|
||||||||
Balance at January 1, 2016
|
$
|
(43
|
)
|
|
$
|
(185
|
)
|
|
$
|
(10
|
)
|
|
$
|
(238
|
)
|
Foreign currency translation adjustment
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
||||
Tax on foreign currency translation adjustment
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
||||
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
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
||||
Reclassification of unrealized gain on derivative hedge agreements into cost of revenue
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Reclassification of unrealized gain on derivative hedge agreements into revenue
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Reclassification of unrealized loss on net investment hedge
|
(11
|
)
|
|
—
|
|
|
11
|
|
|
—
|
|
||||
Balance at September 30, 2016
|
$
|
(73
|
)
|
|
$
|
(181
|
)
|
|
$
|
(1
|
)
|
|
$
|
(255
|
)
|
(in millions)
|
2016
|
|
2015
|
||||
Warranty accrual – January 1
|
$
|
33
|
|
|
$
|
31
|
|
Net charges for product warranties in the period
|
20
|
|
|
21
|
|
||
Settlement of warranty claims
|
(21
|
)
|
|
(21
|
)
|
||
Foreign currency and other
|
3
|
|
|
—
|
|
||
Warranty accrual - September 30
|
$
|
35
|
|
|
$
|
31
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
554
|
|
|
$
|
551
|
|
|
$
|
1,634
|
|
|
$
|
1,602
|
|
Applied Water
|
343
|
|
|
351
|
|
|
1,042
|
|
|
1,057
|
|
||||
Total
|
$
|
897
|
|
|
$
|
902
|
|
|
$
|
2,676
|
|
|
$
|
2,659
|
|
Operating Income:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
79
|
|
|
$
|
83
|
|
|
$
|
203
|
|
|
$
|
195
|
|
Applied Water
|
50
|
|
|
46
|
|
|
140
|
|
|
143
|
|
||||
Corporate and other
|
(20
|
)
|
|
(9
|
)
|
|
(46
|
)
|
|
(31
|
)
|
||||
Total
|
$
|
109
|
|
|
$
|
120
|
|
|
$
|
297
|
|
|
$
|
307
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
65
|
|
|
$
|
70
|
|
Applied Water
|
6
|
|
|
7
|
|
|
18
|
|
|
19
|
|
||||
Regional selling locations (a)
|
2
|
|
|
3
|
|
|
8
|
|
|
8
|
|
||||
Corporate and other
|
2
|
|
|
1
|
|
|
6
|
|
|
5
|
|
||||
Total
|
$
|
32
|
|
|
$
|
33
|
|
|
$
|
97
|
|
|
$
|
102
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
||||||||
Water Infrastructure
|
$
|
19
|
|
|
$
|
12
|
|
|
$
|
53
|
|
|
$
|
49
|
|
Applied Water
|
4
|
|
|
5
|
|
|
15
|
|
|
15
|
|
||||
Regional selling locations (b)
|
4
|
|
|
3
|
|
|
19
|
|
|
9
|
|
||||
Corporate and other
|
1
|
|
|
1
|
|
|
3
|
|
|
5
|
|
||||
Total
|
$
|
28
|
|
|
$
|
21
|
|
|
$
|
90
|
|
|
$
|
78
|
|
(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.
|
(in millions)
|
September 30,
2016 |
|
December 31,
2015 |
||||
Water Infrastructure
|
$
|
2,107
|
|
|
$
|
2,024
|
|
Applied Water
|
1,042
|
|
|
1,054
|
|
||
Regional selling location (a)
|
1,021
|
|
|
905
|
|
||
Corporate and other (b)
|
608
|
|
|
674
|
|
||
Total
|
$
|
4,778
|
|
|
$
|
4,657
|
|
(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
|
•
|
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 $946 million, up 0.7% from $939 million in the prior year, up 1.3% on an organic basis
|
•
|
Earnings per share of $0.41, down 14.6% from the prior year ($0.54 on an adjusted basis, up 10.2%)
|
•
|
Cash flow from operating activities of $274 million for the nine months ended September 30, 2016, up 5.4% from prior year, and free cash flow of $184 million as compared to $182 million in the prior year, up 1.1%
|
•
|
"organic revenue" and "organic orders" defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation 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, tax-related special items and gain from sale of businesses. A reconciliation of adjusted net income is provided below.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(In millions, except for per share data)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Net income
|
$
|
73
|
|
|
$
|
88
|
|
|
$
|
210
|
|
|
$
|
226
|
|
Restructuring and realignment, net of tax benefit of $4 and $9 for 2016 $1 and $4 for 2015
|
8
|
|
|
3
|
|
|
23
|
|
|
12
|
|
||||
Special charges, net of tax benefit of $2 and $7 for 2016 and $0 for 2015
|
12
|
|
|
2
|
|
|
20
|
|
|
5
|
|
||||
Tax-related special items
|
4
|
|
|
(3
|
)
|
|
(7
|
)
|
|
(6
|
)
|
||||
Gain from sale of businesses, net of $0 tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
||||
Adjusted net income
|
$
|
97
|
|
|
$
|
90
|
|
|
$
|
246
|
|
|
$
|
228
|
|
Weighted average number of shares - Diluted
|
180.3
|
|
|
181.6
|
|
|
179.8
|
|
|
182.3
|
|
||||
Adjusted earnings per share
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
1.37
|
|
|
$
|
1.25
|
|
•
|
"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 operating income (loss)" defined as operating income (loss), adjusted to exclude restructuring and realignment costs and special charges, and "adjusted operating margin" defined as adjusted operating income divided by total 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 interest expense related to the early extinguishment of debt during Q2 2016, initial acquisition related costs (including financing costs related to the bridge loan entered into in Q3 2016 for the Sensus acquisition), costs incurred for the contractual indemnification of tax obligations to ITT and other special non-operating items.
|
•
|
"tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments.
|
•
|
"free cash flow" defined as net cash from operating activities, as reported in the Condensed Consolidated Statements of Cash Flows, 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.
|
|
Nine Months Ended
|
||||||
|
September 30,
|
||||||
(In millions)
|
2016
|
|
2015
|
||||
Net cash provided by operating activities
|
$
|
274
|
|
|
$
|
260
|
|
Capital expenditures
|
(90
|
)
|
|
(78
|
)
|
||
Free cash flow
|
$
|
184
|
|
|
$
|
182
|
|
•
|
Industrial market performance decreased 5% through the third quarter due to continued decreases in the oil and gas market as well as weakness in the mining market driven by dewatering declines. We expect these trends to continue in the fourth quarter resulting in a decline of mid-single-digit performance for the year. This projection assumes flat to down low-single-digits in light industrial applications, and mid-single-digit declines in oil and gas, and mining applications.
|
•
|
Through September, public utilities increased 12%. We expect growth in the high-single to low-double-digits for 2016 due in part to tougher comparisons in the fourth quarter of the year. We anticipate continued strength in the United States and western Europe.
|
•
|
In the commercial markets, growth was 3% through the third quarter driven by growth in Europe which was partially offset by weakness in China. In the fourth quarter we expect this trend to continue and expect growth in the low-single-digit range for the year.
|
•
|
Residential markets declined 2% through September driven by Asia Pacific and the Middle East. While we do anticipate modest growth in the fourth quarter, we expect full year performance will be down in the low-single-digits.
|
•
|
Our agriculture markets, which is our smallest end market, declined 3% through September. We expect 2016 to be down in the mid-single-digits as we will likely continue to see unfavorable market conditions.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||||||||||
(In millions)
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||||
Revenue
|
$
|
897
|
|
|
$
|
902
|
|
|
(0.6
|
)
|
%
|
|
$
|
2,676
|
|
|
$
|
2,659
|
|
|
0.6
|
|
%
|
Gross profit
|
357
|
|
|
351
|
|
|
1.7
|
|
%
|
|
1,055
|
|
|
1,014
|
|
|
4.0
|
|
%
|
||||
Gross margin
|
39.8
|
%
|
|
38.9
|
%
|
|
90
|
|
bp
|
|
39.4
|
%
|
|
38.1
|
%
|
|
130
|
|
bp
|
||||
Operating expenses excluding restructuring and realignment costs and special charges
|
226
|
|
|
227
|
|
|
(0.4
|
)
|
%
|
|
711
|
|
|
690
|
|
|
3.0
|
|
%
|
||||
Expense to revenue ratio
|
25.2
|
%
|
|
25.2
|
%
|
|
—
|
|
bp
|
|
26.6
|
%
|
|
25.9
|
%
|
|
70
|
|
bp
|
||||
Restructuring and realignment costs
|
12
|
|
|
4
|
|
|
200.0
|
|
%
|
|
32
|
|
|
16
|
|
|
100.0
|
|
%
|
||||
Special charges
|
10
|
|
|
—
|
|
|
NM
|
|
|
|
15
|
|
|
1
|
|
|
NM
|
|
|
||||
Total operating expenses
|
248
|
|
|
231
|
|
|
7.4
|
|
%
|
|
758
|
|
|
707
|
|
|
7.2
|
|
%
|
||||
Operating income
|
109
|
|
|
120
|
|
|
(9.2
|
)
|
%
|
|
297
|
|
|
307
|
|
|
(3.3
|
)
|
%
|
||||
Operating margin
|
12.2
|
%
|
|
13.3
|
%
|
|
(110
|
)
|
bp
|
|
11.1
|
%
|
|
11.5
|
%
|
|
(40
|
)
|
bp
|
||||
Interest and other non-operating expense, net
|
14
|
|
|
13
|
|
|
7.7
|
|
%
|
|
47
|
|
|
41
|
|
|
14.6
|
|
%
|
||||
Gain on sale of businesses
|
—
|
|
|
—
|
|
|
NM
|
|
|
|
—
|
|
|
9
|
|
|
NM
|
|
|
||||
Income tax expense
|
22
|
|
|
19
|
|
|
15.8
|
|
%
|
|
40
|
|
|
49
|
|
|
(18.4
|
)
|
%
|
||||
Tax rate
|
22.9
|
%
|
|
17.4
|
%
|
|
550
|
|
bp
|
|
16.0
|
%
|
|
17.6
|
%
|
|
(160
|
)
|
bp
|
||||
Net income
|
$
|
73
|
|
|
$
|
88
|
|
|
(17.0
|
)
|
%
|
|
$
|
210
|
|
|
$
|
226
|
|
|
(7.1
|
)
|
%
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||
|
September 30,
|
|
September 30,
|
||||||||||
(In millions)
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
||||||
2015 Revenue
|
$
|
902
|
|
|
|
|
$
|
2,659
|
|
|
|
||
Organic growth
|
1
|
|
|
0.1
|
%
|
|
46
|
|
|
1.7
|
%
|
||
Acquisitions
|
8
|
|
|
0.9
|
%
|
|
25
|
|
|
1.0
|
%
|
||
Constant currency
|
9
|
|
|
1.0
|
%
|
|
71
|
|
|
2.7
|
%
|
||
Foreign currency translation (a)
|
(14
|
)
|
|
(1.6
|
)%
|
|
(54
|
)
|
|
(2.1
|
)%
|
||
Total change in revenue
|
(5
|
)
|
|
(0.6
|
)%
|
|
17
|
|
|
0.6
|
%
|
||
2016 Revenue
|
$
|
897
|
|
|
|
|
$
|
2,676
|
|
|
|
(a)
|
Foreign currency translation impact primarily due to fluctuations in the value of the British Pound, Argentine Peso, Chinese Yuan, South African Rand, Canadian Dollar and Norwegian Krone against the U.S. Dollar.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||||||||||||||
(In millions)
|
2016
|
|
2015
|
|
Change
|
|
Constant Currency
Change
|
|
2016
|
|
2015
|
|
Change
|
|
Constant
Currency
Change
|
||||||||||||
Water Infrastructure
|
$
|
554
|
|
|
$
|
551
|
|
|
0.5
|
%
|
|
2.2
|
%
|
|
$
|
1,634
|
|
|
$
|
1,602
|
|
|
2.0
|
%
|
|
4.6
|
%
|
Applied Water
|
343
|
|
|
351
|
|
|
(2.3
|
)%
|
|
(0.9
|
)%
|
|
1,042
|
|
|
1,057
|
|
|
(1.4
|
)%
|
|
(0.2
|
)%
|
||||
Total
|
$
|
897
|
|
|
$
|
902
|
|
|
(0.6
|
)%
|
|
1.0
|
%
|
|
$
|
2,676
|
|
|
$
|
2,659
|
|
|
0.6
|
%
|
|
2.7
|
%
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||||||||||
(In millions)
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||||
Selling, general and administrative expenses ("SG&A")
|
$
|
219
|
|
|
$
|
207
|
|
|
5.8
|
|
%
|
|
$
|
665
|
|
|
$
|
631
|
|
|
5.4
|
|
%
|
SG&A as a % of revenue
|
24.4
|
%
|
|
22.9
|
%
|
|
150
|
|
bp
|
|
24.9
|
%
|
|
23.7
|
%
|
|
120
|
|
bp
|
||||
Research and development expenses ("R&D")
|
23
|
|
|
23
|
|
|
—
|
|
%
|
|
75
|
|
|
71
|
|
|
5.6
|
|
%
|
||||
R&D as a % of revenue
|
2.6
|
%
|
|
2.5
|
%
|
|
10
|
|
bp
|
|
2.8
|
%
|
|
2.7
|
%
|
|
10
|
|
bp
|
||||
Restructuring charges
|
6
|
|
|
1
|
|
|
500.0
|
|
%
|
|
18
|
|
|
5
|
|
|
260.0
|
|
%
|
||||
Operating expenses
|
$
|
248
|
|
|
$
|
231
|
|
|
7.4
|
|
%
|
|
$
|
758
|
|
|
$
|
707
|
|
|
7.2
|
|
%
|
Expense to revenue ratio
|
27.6
|
%
|
|
25.6
|
%
|
|
200
|
|
bp
|
|
28.3
|
%
|
|
26.6
|
%
|
|
170
|
|
bp
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||||||||||
(In millions)
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||||
Water Infrastructure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income
|
$
|
79
|
|
|
$
|
83
|
|
|
(4.8
|
)
|
%
|
|
$
|
203
|
|
|
$
|
195
|
|
|
4.1
|
|
%
|
Operating margin
|
14.3
|
%
|
|
15.1
|
%
|
|
(80
|
)
|
bp
|
|
12.4
|
%
|
|
12.2
|
%
|
|
20
|
|
bp
|
||||
Restructuring and realignment costs
|
9
|
|
|
2
|
|
|
350.0
|
|
%
|
|
21
|
|
|
11
|
|
|
90.9
|
|
%
|
||||
Special charges
|
—
|
|
|
—
|
|
|
NM
|
|
|
|
5
|
|
|
1
|
|
|
400.0
|
|
%
|
||||
Adjusted operating income
|
$
|
88
|
|
|
$
|
85
|
|
|
3.5
|
|
%
|
|
$
|
229
|
|
|
$
|
207
|
|
|
10.6
|
|
%
|
Adjusted operating margin
|
15.9
|
%
|
|
15.4
|
%
|
|
50
|
|
bp
|
|
14.0
|
%
|
|
12.9
|
%
|
|
110
|
|
bp
|
||||
Applied Water
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income
|
$
|
50
|
|
|
$
|
46
|
|
|
8.7
|
|
%
|
|
$
|
140
|
|
|
$
|
143
|
|
|
(2.1
|
)
|
%
|
Operating margin
|
14.6
|
%
|
|
13.1
|
%
|
|
150
|
|
bp
|
|
13.4
|
%
|
|
13.5
|
%
|
|
(10
|
)
|
bp
|
||||
Restructuring and realignment costs
|
3
|
|
|
2
|
|
|
50.0
|
|
%
|
|
9
|
|
|
5
|
|
|
80.0
|
|
%
|
||||
Adjusted operating income
|
$
|
53
|
|
|
$
|
48
|
|
|
10.4
|
|
%
|
|
$
|
149
|
|
|
$
|
148
|
|
|
0.7
|
|
%
|
Adjusted operating margin
|
15.5
|
%
|
|
13.7
|
%
|
|
180
|
|
bp
|
|
14.3
|
%
|
|
14.0
|
%
|
|
30
|
|
bp
|
||||
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating loss
|
$
|
(20
|
)
|
|
$
|
(9
|
)
|
|
122.2
|
|
%
|
|
$
|
(46
|
)
|
|
$
|
(31
|
)
|
|
48.4
|
|
%
|
Restructuring and realignment costs
|
—
|
|
|
—
|
|
|
NM
|
|
|
|
2
|
|
|
—
|
|
|
NM
|
|
|
||||
Special charges
|
10
|
|
|
—
|
|
|
NM
|
|
|
|
10
|
|
|
—
|
|
|
NM
|
|
|
||||
Adjusted operating loss
|
$
|
(10
|
)
|
|
$
|
(9
|
)
|
|
11.1
|
|
%
|
|
$
|
(34
|
)
|
|
$
|
(31
|
)
|
|
9.7
|
|
%
|
Total Xylem
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income
|
$
|
109
|
|
|
$
|
120
|
|
|
(9.2
|
)
|
%
|
|
$
|
297
|
|
|
$
|
307
|
|
|
(3.3
|
)
|
%
|
Operating margin
|
12.2
|
%
|
|
13.3
|
%
|
|
(110
|
)
|
bp
|
|
11.1
|
%
|
|
11.5
|
%
|
|
(40
|
)
|
bp
|
||||
Restructuring and realignment costs
|
12
|
|
|
4
|
|
|
200.0
|
|
%
|
|
32
|
|
|
16
|
|
|
100.0
|
|
%
|
||||
Special charges
|
10
|
|
|
—
|
|
|
NM
|
|
|
|
15
|
|
|
1
|
|
|
NM
|
|
|
||||
Adjusted operating income
|
$
|
131
|
|
|
$
|
124
|
|
|
5.6
|
|
%
|
|
$
|
344
|
|
|
$
|
324
|
|
|
6.2
|
|
%
|
Adjusted operating margin
|
14.6
|
%
|
|
13.7
|
%
|
|
90
|
|
bp
|
|
12.9
|
%
|
|
12.2
|
%
|
|
70
|
|
bp
|
|
Nine Months Ended
|
||||||||||
|
September 30,
|
||||||||||
(In millions)
|
2016
|
|
2015
|
|
Change
|
||||||
Operating activities
|
$
|
274
|
|
|
$
|
260
|
|
|
$
|
14
|
|
Investing activities
|
(155
|
)
|
|
(74
|
)
|
|
(81
|
)
|
|||
Financing activities
|
(150
|
)
|
|
(194
|
)
|
|
44
|
|
|||
Foreign exchange (a)
|
10
|
|
|
(44
|
)
|
|
54
|
|
|||
Total
|
$
|
(21
|
)
|
|
$
|
(52
|
)
|
|
$
|
31
|
|
(a)
|
The impact is primarily due to the strengthening 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)
|
7/1/16 - 7/31/16
|
|
—
|
|
—
|
|
—
|
|
$432
|
8/1/16 - 8/31/16
|
|
—
|
|
—
|
|
—
|
|
$433
|
9/1/16 - 9/30/16
|
|
—
|
|
—
|
|
—
|
|
$433
|
(a)
|
Average price paid per share is calculated on a settlement basis.
|
(b)
|
On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during the three months ended September 30, 2016. There are up to $420 million in shares that may still be purchased under this plan as of September 30, 2016.
|
|
|
XYLEM INC.
|
|
|
(Registrant)
|
|
|
|
|
|
/s/ E. Mark Rajkowski
|
|
|
E. Mark Rajkowski
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
The European Investment Bank having its seat at 100 blvd Konrad Adenauer, Luxembourg, L-2950 Luxembourg, represented by Hanna Karczewska, Head of Division and Timo Kiiha, Deputy Head of Division
|
(the "Bank")
|
Xylem Holdings S.à r.l. a private company with limited liability (société à responsabilité limitée) incorporated under the laws of the Grand Duchy of Luxembourg, registered with the Luxembourg Register of Commerce and Companies under No. B 77 533 and having its registered office at 11, Breedewues, L-1259 Senningerberg, Grand Duchy of Luxembourg, represented by Samir Patel, Manager, and Pascale Wagner, Manager
|
("Borrower 1")
|
Xylem International S.à r.l., a private company with limited liability (société à responsabilité limitée) incorporated under the laws of the Grand Duchy of Luxembourg, registered with the Luxembourg Register of Commerce and Companies No. B 144132 and having its registered office at 11, Breedewues, L-1259 Senningerberg, Grand Duchy of Luxembourg, represented by Samir Patel, Manager, and Pascale Wagner, Manager
|
("Borrower 2")
|
Xylem Inc. a company incorporated in the State of Indiana, United States of America with its registered office at 1 International Drive Rye Brook, NY 10573
United States, represented by Samir Patel, Vice President & Treasurer
|
(the "Guarantor")
|
(1)
|
The Borrowers have stated that they are undertaking, through their direct and/or indirect subsidiaries, a project of research, development and innovation ("RDI") in the field of sustainable water and wastewater solutions over the period 2017-2019 at RDI units in Sweden, Germany, Italy, UK, Hungary and Austria, as more particularly described in the technical description (the "Technical Description") set out in Schedule A (the "Project").
|
(2)
|
The total cost of the Project, as estimated by the Bank, is EUR 214,600,000 (two hundred and fourteen million, six hundred thousand euros) and the Borrowers have stated that they intend to finance the Project as follows:
|
(3)
|
In order to fulfil the financing plan set out in Recital (2), the Borrowers have requested from the Bank a credit equivalent to EUR 105,000,000 (one hundred and five million euros) in aggregate.
|
(4)
|
The Bank, considering that the financing of the Project falls within the scope of its functions, and having regard to the statements and facts cited in these Recitals, has decided to give effect to the Borrowers’ request providing to them a credit in an amount equivalent to EUR 105,000,000 (one hundred and five million euros) in aggregate under this Finance Contract (the "Contract"); provided that the amount of the Bank loan shall not, in any case, exceed 50% (fifty per cent) of the total cost of the Project set out in Recital (2).
|
(5)
|
The board of managers of each of the Borrowers has authorised the borrowing of the sum of EUR 105,000,000 (one hundred and five million euros) in aggregate represented by this credit on the terms and conditions set out in this Contract and in Annex I.
|
(6)
|
The financial obligations of the Borrowers under this Contract are to be guaranteed by the Guarantor under a guarantee and indemnity (the "Guarantee") by execution of a guarantee and indemnity agreement in form and substance satisfactory to the Bank (the "Guarantee Agreement").
|
(7)
|
The Statute of the Bank provides that the Bank shall ensure that its funds are used as rationally as possible in the interests of the European Union; and, accordingly, the terms and conditions of the Bank's loan operations must be consistent with relevant policies of the European Union.
|
(8)
|
The Credit falls under a joint initiative between the Bank and the European Commission, which is intended as a new Bank financing instrument, to finance, inter alia, research projects and research infrastructure under the Horizon 2020 framework programme of the European Union for Research and Technological Development (2014-2020) ("Horizon 2020").
|
(9)
|
The Bank considers that access to information plays an essential role in the reduction of environmental and social risks, including human rights violations, linked to the projects it finances. The Bank has therefore established its transparency policy, the purpose of which is to enhance the accountability of the Bank's group companies towards its stakeholders and the citizens of the European Union in general, by giving access to the information that will enable them to understand its governance, strategy, policies, activities and practices.
|
(10)
|
The processing of personal data shall be carried out by the Bank in accordance with applicable European Union legislation on the protection of individuals with regard to the processing of personal data by the EC institutions and bodies and on the free movement of such data.
|
(a)
|
Interpretation
|
(i)
|
References in this Contract to Articles, Recitals, Schedules and Annexes are, save if explicitly stipulated otherwise, references respectively to articles of, and recitals, schedules and annexes to this Contract.
|
(ii)
|
References in this Contract to "law" mean any law (including any common or customary law) and any treaty, constitution, statute, legislation, decree, normative act, rule, regulation, judgement, order, writ, injunction, determination, award or other legislative or administrative measure or judicial or arbitral decision in any jurisdiction which has the force of law or the compliance with which is in accordance with general practice in such jurisdiction.
|
(iii)
|
References in this Contract to a provision of law are references to that provision as amended or re-enacted.
|
(iv)
|
References in this Contract to any other agreement or instrument are references to that other agreement or instrument as amended, novated, supplemented, extended or restated.
|
(v)
|
In this Contract "including" and "include" shall be deemed to be followed by "without limitation" where not so followed.
|
(vi)
|
In this Contract the headings and Table of Contents are inserted for convenience of reference only and shall not affect the interpretation of this Contract.
|
(vii)
|
Words imparting the plural shall include the singular and vice versa.
|
(viii)
|
In this Contract, references to "Subsidiary" and "Group" shall at all times include each of the Borrowers.
|
(ix)
|
In this Contract, references to the "relevant Borrower" in relation to a Tranche or proposed Tranche shall mean the borrower of, or proposed borrower of that Tranche or the proposed Tranche.
|
(b)
|
Definitions
|
(a)
|
16h00 Luxembourg time on the day of delivery, if the notice is delivered by 14h00 Luxembourg time on a Business Day; or
|
(b)
|
11h00 Luxembourg time on the next following day which is a Business Day, if the notice is delivered after 14h00 Luxembourg time on any such day or is delivered on a day which is not a Business Day.
|
(a)
|
without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of:
|
(i)
|
Consolidated Interest Expense for such period;
|
(ii)
|
consolidated income tax expense for such period;
|
(iii)
|
all amounts attributable to depreciation for such period and amortization of intangible and capitalized assets for such period;
|
(iv)
|
any losses during such period attributable to the disposition of assets other than in the ordinary course of business;
|
(v)
|
any other extraordinary non-cash charges for such period;
|
(vi)
|
any non-cash expenses for such period resulting from the grant of stock options or other equity-based incentives to any director, officer or employee of the Guarantor or any Subsidiary;
|
(vii)
|
any losses attributable to early extinguishment of Financial Indebtedness or obligations under any hedging agreement;
|
(viii)
|
any unrealised non-cash losses for such period attributable to accounting in respect of any hedging agreements;
|
(ix)
|
the cumulative effect of changes in accounting principles; and
|
(x)
|
any fees and expenses for such period in relation to the Finance Documents,
|
(b)
|
without duplication and to the extent included in determining such Consolidated Net Income:
|
(i)
|
any gains during such period attributable to the disposition of assets other than in the ordinary course of business;
|
(ii)
|
any other extraordinary non-cash gains for such period;
|
(iii)
|
any gains attributable to the early extinguishment of Financial Indebtedness or obligations under any hedging agreement;
|
(iv)
|
any unrealized non-cash gains for such period attributable to accounting in respect of hedging agreements;
|
(v)
|
the cumulative effect of changes in accounting principles; and
|
(vi)
|
any cash payments made during such period with respect to noncash items added back (or that would have been added back had the Contract been in effect) in computing Consolidated EBITDA for any prior period.
|
(a)
|
the book amount of all segregated intangible assets, including such items as goodwill, trademarks, trademark rights, trade names, trade name rights, copyrights, patents, patent rights and licenses and unamortized debt discount and expense less unamortized debt premium;
|
(b)
|
all depreciation, valuation and other reserves;
|
(c)
|
current liabilities;
|
(d)
|
any minority interest in the shares of stock (other than Preferred Stock) and surplus of Subsidiaries; and
|
(e)
|
deferred income and deferred liabilities.
|
(a)
|
the rating assigned to the Guarantor's most recent unsecured and unsubordinated medium or long term debt;
|
(b)
|
the Long Term Issuer Credit Rating (or equivalent) defined as such by Standard and Poor's Ratings Group or its successor;
|
(c)
|
the Corporate Credit Rating (or equivalent) defined as such by Standard and Poor's Ratings Group or its successor;
|
(d)
|
the Long Term Issuer Default Rating (or equivalent) defined as such by Fitch Ratings Limited or its successor; or
|
(e)
|
the Long Term Issuer Rating (or equivalent) defined as such by Moody's Investors Service, Inc. or its successor,
|
-
|
the Relevant Interbank Rate (one month rate) less 0.125% (12.5 basis points), unless this value is less than zero, in which case it will be set at zero.
|
(a)
|
a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with this Contract; or
|
(b)
|
the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of either the Bank or a Borrower preventing that party:
|
(i)
|
from performing its payment obligations under this Contract; or
|
(ii)
|
from communicating with other parties,
|
(a)
|
fauna and flora;
|
(b)
|
soil, water, air, climate and the landscape; and
|
(c)
|
cultural heritage and the built environment,
|
(a)
|
EU law, standards and principles;
|
(b)
|
national laws and regulations; and
|
(c)
|
applicable international treaties,
|
(a)
|
Payment Dates chosen in accordance with the provisions of Article 3.01A;
|
(b)
|
the preferred repayment schedule chosen in accordance with Article 4.01; and
|
(c)
|
any further Interest Revision/Conversion Date chosen in accordance with Article 3.01A.
|
(a)
|
there are, in the reasonable opinion of the Bank, events or circumstances adversely affecting the Bank's access to its sources of funding;
|
(b)
|
in the opinion of the Bank, funds are not available from its ordinary sources of funding in order to adequately fund a Tranche in the relevant currency and/or for the relevant maturity and/or in relation to the reimbursement profile of such Tranche;
|
(c)
|
in relation to a Tranche in respect of which interest is or would be payable at a Floating Rate:
|
(A)
|
the cost to the Bank of obtaining funds from its sources of funding, as determined by the Bank, for a period equal to the Floating Rate Reference Period of such Tranche (i.e. in the money market) would be in excess of the applicable Relevant Interbank Rate;
|
(B)
|
the Bank determines that adequate and fair means do not exist for ascertaining the applicable Relevant Interbank Rate for the relevant currency of such Tranche or it is not possible to determine the Relevant Interbank Rate in accordance with the definition contained in Schedule B.
|
(a)
|
the ability of a Borrower or respectively the Guarantor to perform its payment obligations under any Finance Document;
|
(b)
|
the business, operations or financial condition of the Group taken as a whole; or
|
(c)
|
the validity or enforceability of the rights or remedies of the Bank under any Finance Document.
|
(a)
|
for a Fixed Rate Tranche, the following Relevant Business Day, without adjustment to the interest due under Article 3.01B except for those cases where repayment is made in a single instalment according to Article 4.01B, when the preceding Relevant Business Day shall apply instead to this single instalment and last interest payment and only in this case, with adjustment to the interest due under Article 3.01B; and
|
(b)
|
for a Floating Rate Tranche, the next day, if any, of that calendar month that is a Relevant Business Day or, failing that, the nearest preceding day that is a Relevant Business Day, in all cases with corresponding adjustment to the interest due under Article 3.01C.
|
(a)
|
made in the ordinary course of trading of the disposing entity; or
|
(b)
|
of assets in exchange for other assets comparable or superior as to type, value and quality; or
|
(c)
|
made with the prior written consent of the Bank; or
|
(d)
|
where the disposal would not result or is not likely to result in a Material Adverse Change;
|
(a)
|
any netting or set-off arrangement entered into by any member of the Group in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances;
|
(b)
|
any payment or close out netting or set-off arrangement pursuant to any hedging transaction entered into by a member of the Group for the purpose of:
|
(i)
|
hedging any risk to which any member of the Group is exposed in its ordinary course of trading; or
|
(ii)
|
its interest rate or currency management operations which are carried out in the ordinary course of business and for non-speculative purposes only,
|
(c)
|
other than any lien imposed pursuant to Section 430(k) of the Code or Section 303(k) of ERISA or a violation of Section 436 of the Code, any lien arising by operation of law and in the ordinary course of trading;
|
(d)
|
any Security or Quasi Security over or affecting any asset acquired by a member of the Group after the date of this Contract if:
|
(i)
|
the Security or Quasi Security was not created in contemplation of the acquisition of that asset by a member of the Group; and
|
(ii)
|
the principal amount secured has not been increased in contemplation of or since the acquisition of that asset by a member of the Group;
|
(e)
|
any Security or Quasi Security over or affecting any asset of any company which becomes a member of the Group after the date of this Contract, where the Security or Quasi Security is created prior to the date on which that company becomes a member of the Group, if:
|
(i)
|
the Security or Quasi Security was not created in contemplation of the acquisition of that company; and
|
(ii)
|
the principal amount secured has not increased in contemplation of or since the acquisition of that company;
|
(f)
|
any Security or Quasi Security entered into pursuant to or to secure amounts arising under this Contract or the Guarantee;
|
(g)
|
any Security or Quasi Security arising under any retention of title, hire purchase or conditional sale arrangement or arrangements having similar effect in respect of goods supplied to a member of the Group in the ordinary course of trading and on the supplier's standard or usual terms and not arising as a result of any default or omission by any member of the Group;
|
(h)
|
any Security or Quasi Security created over the receivables transferred under a Permitted Securitisation; or
|
(i)
|
any Security or Quasi Security securing indebtedness the principal amount of which (when aggregated with the principal amount of any other indebtedness which has the benefit of Security or Quasi Security given by any member of the Group other than any permitted
|
(a)
|
the aggregate outstanding or principal value of the receivables transferred to the securitisation vehicle by all members of that Group under that securitisation, when aggregated with:
|
(i)
|
the aggregate outstanding value of all other receivables transferred under all other Permitted Securitisations which have been completed by that time; and
|
(ii)
|
the book value of any Security, sale, transfer or disposal permitted under Article 7.02(e)(z), does not exceed the greater of USD 150,000,000 (one hundred and fifty million dollars) (or its equivalent in another currency or currencies) and 10% of Consolidated Net Tangible Assets; and
|
(b)
|
that member of the Group receives at completion of the securitisation, as consideration for the receivables transferred, a cash sum of no less than the market value of the receivables transferred.
|
(a)
|
the interest net of the Margin that would accrue thereafter on such amount over the period from the Prepayment Date to the Interest Revision/Conversion Date, if any, or the Maturity Date, if it were not prepaid or cancelled; over
|
(b)
|
the interest that would so accrue over that period, if it were calculated at the Redeployment Rate, less 0.15% (fifteen basis points).
|
(a)
|
for EUR, a day on which the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007 (TARGET2) is open for the settlement of payments in EUR; and
|
(b)
|
for any other currency, a day on which banks are open for general business in the principal domestic financial centre of the relevant currency.
|
(a)
|
EURIBOR for a Tranche denominated in EUR;
|
(b)
|
LIBOR for a Tranche denominated in GBP or USD; and
|
(c)
|
the market rate and its definition chosen by the Bank and separately communicated to a Borrower, for a Tranche denominated in any other currency.
|
(c)
|
Luxembourg Terms
|
(a)
|
a receiver, liquidator, administrator, administrative receiver or similar officer includes, without limitation, a juge délégué, commissaire, juge-commissaire, mandataire ad hoc, administrateur provisoire, liquidateur or curateur;
|
(b)
|
a lien or security interest includes, without limitation, any hypothèque, nantissement, gage, privilège, sûreté réelle, droit de rétention, and any type of security in rem (sûreté réelle) or agreement or arrangement having a similar effect and any transfer of title by way of security;
|
(c)
|
person being unable to pay its debts includes, without limitation, that person being in a state of cessation de paiements;
|
(d)
|
constitutional documents includes, without limitation, its up-to-date (restated) articles of association (statuts coordonnés).
|
1.01
|
Amount of Credit
|
1.02
|
Disbursement procedure
|
1.02A
|
Tranches
|
1.02B
|
Disbursement Offer
|
(a)
|
the amount and currency of the Tranche;
|
(b)
|
the Scheduled Disbursement Date, which shall be a Relevant Business Day, falling at least 10 (ten) days after the date of the Disbursement Offer and on or before the Final Availability Date;
|
(c)
|
the interest rate basis of the Tranche, being: (A) a Fixed Rate Tranche; or (B) a Floating Rate Tranche all pursuant to the relevant provisions of Article 3.01A;
|
(d)
|
the interest payment periodicity for the Tranche, in accordance with the provisions of Article 3;
|
(e)
|
the first Payment Date for the Tranche;
|
(f)
|
the terms for repayment of principal for the Tranche, in accordance with the provisions of Article 4.01;
|
(g)
|
the first and last repayment dates of principal for the Tranche;
|
(h)
|
the Interest Revision/Conversion Date, if requested by a Borrower, for the Tranche;
|
(i)
|
for a Fixed Rate Tranche, the Fixed Rate and for a Floating Rate Tranche the Spread, applicable until the Interest Revision/Conversion Date, if any, or until the Maturity Date; and
|
(j)
|
the Disbursement Acceptance Deadline.
|
1.02C
|
Disbursement Acceptance
|
(a)
|
by the IBAN code (and appropriate format in line with local banking practice) and SWIFT BIC of the relevant Borrower's bank account to which disbursement of the Tranche should be made in accordance with Article 1.02D; and
|
(b)
|
by evidence of the authority of the person or persons authorised to sign the Disbursement Acceptance and the specimen signature of such person or persons or a declaration by the relevant Borrower that no change has occurred in relation to the authority of the person or persons authorised to sign Disbursement Acceptances under this Contract.
|
1.02D
|
Disbursement Account
|
1.03
|
Currency of disbursement
|
1.04
|
Conditions of disbursement
|
1.04A
|
First Tranche
|
(a)
|
evidence that the execution of this Contract by each Borrower has been duly authorised and that the person or persons signing the Contract on behalf of each Borrower is/are duly authorised to do so together with the specimen signature of each such person or persons;
|
(b)
|
evidence that the Borrowers have obtained all necessary Authorisations required in connection with this Contract and the Project or, if none are required, a declaration by the Borrowers, signed by a person or persons duly authorised to act on behalf of the Borrowers, that no Authorisations are required in connection with this Contract or the Project;
|
(c)
|
the duly executed Guarantee Agreement;
|
(d)
|
evidence that the execution of the Guarantee Agreement by the Guarantor has been duly authorised and that the person or persons signing the Guarantee Agreement on behalf of the Guarantor is/are duly authorised to do so together with the specimen signature of each such person or persons (unless such specimen signatures are provided under paragraph (a) above);
|
(e)
|
the duly executed solvency certificate in the form set out in Schedule F, together with evidence that the execution of the solvency certificate by the Borrowers has been duly authorised and that the person or persons signing the solvency certificate on behalf of the Borrowers is/are duly authorised to do so together with the specimen signature of each such person or persons;
|
(f)
|
in respect of the Guarantor, a certificate of good standing (or equivalent) issued as of a recent date by the Secretary of State or other appropriate official of the Guarantor's jurisdiction of incorporation, organisation or formation and principal place of business;
|
(g)
|
an English law legal opinion of Allen & Overy LLP in relation to enforceability of the Finance Documents (as to English law), governmental consents, registration requirements, stamp duties and choice of law in a form satisfactory to the Bank;
|
(h)
|
a Luxembourg law legal opinion of Stibbe Avocats, Luxembourg in relation to the Borrowers covering, inter alia, status, powers and authority, non-conflict, governmental consents, registration requirements, stamp duties, choice of law and recognition of judgments opinion, in a form satisfactory to the Bank;
|
(i)
|
an Indiana law legal opinion of Barnes & Thornburg LLP in relation to the Guarantor covering, inter alia, status, powers and authority, non-conflict, governmental consents, registration requirements, stamp duties, choice of law, recognition of judgements; in a form satisfactory to the Bank;
|
(j)
|
a Delaware law legal opinion in relation to (i) choice of law (ii) recognition of judgements (iii) that it is not necessary under the laws of Delaware in order to enable the Bank to enforce its rights against the Guarantor under the Guarantee Agreement or this Contract or by reason of the execution of those documents or the performance by the Bank of its obligations under those documents, that the Bank should be licensed, qualified or otherwise entitled to carry on business in Delaware and (iv) the Bank is not and will not be deemed to be resident, domiciled or carrying on business in Delaware by reason only of the execution, performance and/or enforcement of the Guarantee Agreement or this Contract; in a form satisfactory to the Bank;
|
(k)
|
evidence of compliance with Article 6.10;
|
(l)
|
evidence that the process agents referred to in Article 11.03 and article 3.9 of the Guarantee Agreement have accepted their appointment; and
|
(m)
|
evidence that the Bank has received payment in full of all fees, costs and expenses then due from the Borrowers in relation to this Contract (including the Up-front Fee) and of all fees, costs and expenses then due from the Guarantor in relation to the Guarantee Agreement,
|
1.04B
|
All Tranches
|
(a)
|
receipt by the Bank in form and substance satisfactory to it, on or before the date falling 5 (five) Business Days before the Scheduled Disbursement Date for the proposed Tranche, of the following documents or evidence:
|
(i)
|
a certificate from both of the Borrowers in the form of Schedule E.1;
|
(ii)
|
a certificate from the Guarantor in the form of Schedule E.2;
|
(iii)
|
evidence of the authority of the person or persons authorised to sign the certificates under paragraphs (i) and (ii) above and the specimen signature of such person or persons;
|
(iv)
|
a copy of any other authorisation or other document, opinion or assurance which the Bank has notified the Borrowers is necessary or desirable in connection with the entry into, delivery and performance of, and the transactions contemplated by, the Contract or the Guarantee Agreement or the validity and enforceability of the same.
|
(b)
|
that on the Scheduled Disbursement Date for the proposed Tranche:
|
(i)
|
the representations and warranties which are repeated pursuant to Article 6.12 are correct in all material respects; and
|
(ii)
|
no event or circumstance which constitutes or would with the passage of time or giving of notice under this Contract constitute:
|
1.05
|
Deferment of disbursement
|
1.05A
|
Grounds for deferment
|
1.05B
|
Cancellation of a disbursement deferred by 6 (six) months
|
1.06
|
Cancellation and suspension
|
1.06A
|
Borrower's right to cancel
|
1.06B
|
Bank's right to suspend and cancel
|
(a)
|
The Bank may, by notice in writing to the Borrowers, suspend and/or cancel the undisbursed portion of the Credit in whole or in part at any time and with immediate effect, upon the occurrence of an event or circumstance mentioned in Article 4.03A and in Articles 10.01A and 10.01B or an event or circumstance which would with the passage of time or giving of notice under this Contract constitute an event under Article 4.03A or a Default.
|
(b)
|
The Bank may also suspend the portion of the Credit in respect of which it has not received a Disbursement Acceptance with immediate effect in the case that a Market Disruption Event occurs.
|
(c)
|
Any suspension shall continue until the Bank ends the suspension or cancels the suspended amount.
|
1.06C
|
Indemnity for suspension and cancellation of a Tranche
|
1.06C(1)
|
SUSPENSION
|
1.06C(2)
|
CANCELLATION
|
(a)
|
a Fixed Rate Tranche which is an Accepted Tranche, the relevant Borrower shall indemnify the Bank under Article 4.02B;
|
(b)
|
a Floating Rate Tranche which is an Accepted Tranche or any part of the Credit other than an Accepted Tranche, no indemnity is payable.
|
(i)
|
a Fixed Rate Tranche which is an Accepted Tranche upon an Indemnifiable Prepayment Event or pursuant to Article 1.05B, the relevant Borrower shall pay to the Bank the Prepayment Indemnity; or
|
(ii)
|
an Accepted Tranche upon an Event of Default, the relevant Borrower shall indemnify the Bank under Article 10.03.
|
1.07
|
Cancellation after expiry of the Credit
|
1.08
|
Up-front fee
|
1.09
|
Non-utilisation fee
|
(a)
|
on each March 31, June 30, September 30, December 31; and
|
(b)
|
on the Final Availability Date; or, if the Credit is cancelled in full under Article 1.06 prior to the Final Availability Date, on the date of cancellation.
|
1.10
|
Sums due under Article 1
|
2.01
|
Amount of Loan
|
2.02
|
Currency of repayment, interest and other charges
|
2.03
|
Confirmation by the Bank
|
3.01A
|
Rate of interest
|
3.01B
|
Fixed Rate Tranches
|
3.01C
|
Floating Rate Tranches
|
3.01D
|
Revision or Conversion of Tranches
|
3.02
|
Interest on overdue sums
|
(a)
|
for overdue sums related to Floating Rate Tranches, the applicable Floating Rate plus 2% (200 basis points);
|
(b)
|
for overdue sums related to Fixed Rate Tranches, the higher of (a) the applicable Fixed Rate plus 2% (200 basis points) or (b) the Relevant Interbank Rate plus 2% (200 basis points); and
|
(c)
|
for overdue sums other than under (i) or (ii) above, the Relevant Interbank Rate plus 2% (200 basis points),
|
3.03
|
Market Disruption Event
|
(a)
|
in the case of an Accepted Tranche to be disbursed in EUR, USD or GBP, the rate of interest applicable to such Accepted Tranche until the Maturity Date or the Interest Revision/Conversion Date, if any, shall be the percentage rate per annum which is the sum of:
|
-
|
the Margin; and
|
-
|
the rate (expressed as a percentage rate per annum) which is determined by the Bank to be the all-inclusive cost to the Bank for the funding of the relevant Tranche based upon the then applicable internally generated Bank reference rate or an alternative rate determination method reasonably determined by the Bank. The relevant Borrower shall have the right to refuse in writing such disbursement within the deadline specified in the notification and shall bear charges incurred as a result, if any, in which case the Bank shall not effect the disbursement and the corresponding Credit shall remain available for disbursement under Article 1.02B. If the relevant Borrower does not refuse the disbursement in time, the parties agree that the disbursement and the conditions thereof shall be fully binding for both parties.
|
(b)
|
in the case of an Accepted Tranche to be disbursed in a currency other than EUR, USD or GBP, the Bank shall notify to the relevant Borrower the EUR equivalent to be disbursed on the Scheduled Disbursement Date and the relevant percentage rate as described above under (a) applicable to the Tranche until the Maturity Date or the Interest Revision/Conversion Date if any. The relevant Borrower shall have the right to refuse in writing such disbursement within the deadline specified in the notification and shall bear charges incurred as a result, if any, in which case the Bank shall not effect the disbursement and the corresponding portion of the Credit shall remain available for disbursement under Article 1.02B. If the relevant Borrower does not refuse the disbursement in time, the parties agree that the disbursement in EUR and the conditions thereof shall be fully binding for both parties.
|
4.01
|
Normal repayment
|
4.01A
|
Repayment by instalments
|
(a)
|
The relevant Borrower shall repay each Tranche by instalments on the Payment Dates specified in the relevant Disbursement Offer in accordance with the terms of the amortisation table delivered pursuant to Article 2.03.
|
(b)
|
Each amortisation table shall be drawn up on the basis that:
|
(i)
|
in the case of a Fixed Rate Tranche without an Interest Revision/Conversion Date, repayment shall be made annually, semi-annually or quarterly by equal instalments of principal or constant instalments consisting of principal and interest;
|
(ii)
|
in the case of a Fixed Rate Tranche with an Interest Revision/Conversion Date or a Floating Rate Tranche, repayment shall be made by equal annual, semi-annual or quarterly instalments of principal;
|
(iii)
|
the first repayment date of each Tranche shall be a Payment Date falling not earlier than 60 days from the Scheduled Disbursement Date and not later than the first Payment Date immediately following the third anniversary of the Scheduled Disbursement Date of the Tranche; and
|
(iv)
|
the last repayment date of each Tranche shall be a Payment Date falling not earlier than 4 (four) years and not later than 11 years from the Scheduled Disbursement Date.
|
4.01B
|
Single instalment
|
4.02
|
Voluntary prepayment
|
4.02A
|
Prepayment option
|
4.02B
|
Prepayment indemnity
|
4.02B(1)
|
FIXED RATE TRANCHE
|
4.02B(2)
|
FLOATING RATE TRANCHE
|
4.02B(3)
|
NO INDEMNITY
|
4.02C
|
Prepayment mechanics
|
(a)
|
that it confirms the Prepayment Notice on the terms specified by the Bank; or
|
(b)
|
that it withdraws the Prepayment Request.
|
4.03
|
Compulsory prepayment
|
4.03A
|
Grounds for prepayment
|
4.03A(1)
|
PROJECT COST REDUCTION
|
4.03A(2)
|
PARI PASSU TO NON-EIB FINANCING
|
-
|
such prepayment is not made within a revolving credit facility (save for cancellation of the revolving credit facility); or
|
-
|
such prepayment is not made out of the proceeds of a loan having a term at least equal to the unexpired term of the Non-EIB Financing prepaid; or
|
-
|
following such prepayment the aggregate of the outstanding Loan and any other direct loans from the Bank constitutes more than 50% (fifty per cent.) of the aggregate outstanding Non-EIB Financing to the Group,
|
4.03A(3)
|
CHANGE OF CONTROL
|
(a)
|
a "Change-of-Control Event" occurs if:
|
(i)
|
any person or group of persons acting in concert shall have acquired beneficial ownership of more than 30% of the outstanding voting shares of the Guarantor;
|
(ii)
|
during any period of 12 consecutive months, commencing after the date of the Contract, individuals who on the first day of such period were directors of the Guarantor (together with any replacement or additional directors who were
|
(iii)
|
the Guarantor ceases to be the beneficial owner directly, or indirectly through wholly-owned subsidiaries, of the issued share capital of either of the Borrowers; and
|
(b)
|
"acting in concert" means acting together pursuant to an agreement or understanding (whether formal or informal).
|
4.03A(4)
|
CHANGE OF LAW
|
4.03A(5)
|
ILLEGALITY
|
4.03B
|
Prepayment mechanics
|
4.03C
|
Prepayment indemnity
|
4.4
|
General
|
5.01
|
Day count convention
|
(a)
|
in respect of interest and indemnities due under a Fixed Rate Tranche, a year of 360 (three hundred and sixty) days and a month of 30 (thirty) days;
|
(b)
|
in respect of interest and indemnities due under a Floating Rate Tranche, a year of 360 (three hundred and sixty) days but 365 (three hundred and sixty five) days (invariable) for GBP/PLN/ZAR and the number of days elapsed;
|
(c)
|
in respect of fees, a year of 360 (three hundred and sixty) days (but 365 (three hundred and sixty five) days (invariable) for fees due in GBP/PLN/ZAR) and the number of days elapsed.
|
5.02
|
Time and place of payment
|
5.03
|
Disruption to Payment Systems
|
(a)
|
the Bank may, and shall if requested to do so by a Borrower consult with that Borrower with a view to agreeing with that Borrower such changes to the operation or administration of the Contract as the Bank may deem necessary in the circumstances;
|
(b)
|
the Bank shall not be obliged to consult with either Borrower in relation to any changes mentioned in paragraph (a) if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to such changes; and
|
(c)
|
the Bank shall not be liable for any damages, costs or losses whatsoever arising as a result of a Disruption Event or for taking or not taking any action pursuant to or in connection with this Article 5.03.
|
5.04
|
Application of sums received
|
(a)
|
General
|
(b)
|
Partial payments
|
(i)
|
first, in or towards payment pro rata of any unpaid fees, costs, indemnities and expenses due under this Contract;
|
(ii)
|
secondly, in or towards payment of any accrued interest due but unpaid under this Contract;
|
(iii)
|
thirdly, in or towards payment of any principal due but unpaid under this Contract; and
|
(iv)
|
fourthly, in or towards payment of any other sum due but unpaid under this Contract.
|
(c)
|
Allocation of sums related to Tranches
|
(i)
|
In case of:
|
-
|
a partial voluntary prepayment of a Tranche that is subject to a repayment in several instalments, the Prepayment Amount shall be applied pro rata to each outstanding instalment or, at the request of the Borrower, in inverse order of maturity; and
|
-
|
a partial compulsory prepayment of a Tranche that is subject to a repayment in several instalments, the Prepayment Amount shall be applied in reduction of the outstanding instalments in inverse order of maturity.
|
(ii)
|
Sums received by the Bank following a demand under Article 10.01 and applied to a Tranche, shall reduce the outstanding instalments in inverse order of maturity. The Bank may apply sums received between Tranches at its discretion.
|
(iii)
|
In case of receipt of sums which cannot be identified as applicable to a specific Tranche, and on which there is no agreement between the Bank and
|
6.01
|
Use of Loan and availability of other funds
|
6.02
|
Completion of Project
|
6.03
|
Increased cost of Project
|
6.04
|
Procurement procedure
|
6.05
|
Continuing Project undertakings
|
(a)
|
Maintenance: maintain, repair and, if necessary, renew all material property forming part of the Project as required to keep it in good working order;
|
(b)
|
Project assets: unless the Bank shall have given its prior consent in writing retain title to and possession of all material assets comprising the Project or, as appropriate, replace and renew such assets and maintain the Project in substantially continuous operation in accordance with its original purpose; provided that the Bank may withhold its consent only where the proposed action would prejudice the Bank's interests as lender to either Borrower or would render the Project ineligible for financing by the Bank under its Statute or under Article 309 of the Treaty on the Functioning of the European Union;
|
(c)
|
Insurance: insure all works and property forming part of the Project with insurance companies that maintain a minimum A.M. Best rating of at least A-VIII, which insurance shall include limits and coverages that are usual and customary for business in the same industry and the like financial size and risk profile;
|
(d)
|
Rights and Permits: maintain in force all rights of way or use and all material permits, licenses, approvals or authorisations necessary for the execution and operation of the Project;
|
(e)
|
Environment:
|
(i)
|
implement and operate the Project in material compliance with Environmental Law;
|
(ii)
|
obtain and maintain requisite Environmental Approvals for the Project; and
|
(iii)
|
comply with any such Environmental Approvals; and
|
(f)
|
Integrity: take, within a reasonable timeframe, appropriate measures in respect of any member of its management bodies who has been convicted by a final and irrevocable court ruling of a Criminal Offence perpetrated in the course of the exercise of his/her professional duties, in order to ensure that such member is excluded from any Borrower’s or the Guarantor’s (as applicable) activity in relation to the Loan or the Project.
|
6.06
|
Disposal of assets
|
(a)
|
Except as provided below, a Borrower shall not, and the Guarantor shall procure that no other member of the Group will, either in a single transaction or in a series of transactions whether related or not and whether voluntarily or involuntarily dispose of any part of its assets.
|
(b)
|
Paragraph (a) above does not apply to any disposal of assets which is a Permitted Disposal.
|
6.07
|
Compliance with laws
|
(a)
|
Each Borrower shall, and shall procure that its Subsidiaries will, comply in all respects with all laws and regulations to which it or they or the Project is subject.
|
(b)
|
The Guarantor shall, and shall procure that each Material Subsidiary shall, comply in all material respects with all laws and regulations to which it or they is subject.
|
6.08
|
Change in business
|
6.09
|
Merger
|
6.10
|
Financial covenants
|
6.11
|
Books and records
|
6.12
|
General Representations and Warranties
|
6.12A
|
Representations and Warranties of each Borrower and the Guarantor
|
6.12B
|
General representations and warranties of the Borrowers
|
(a)
|
such Borrower is duly incorporated and validly existing with limited liability under the laws of Luxembourg and has power to carry on its business as it is now being conducted and to own its property and other assets;
|
(b)
|
such Borrower has the power to execute, deliver and perform its obligations under the Finance Documents to which it is a party and all necessary corporate, shareholder and other action has been taken to authorise the execution, delivery and performance of the same by it;
|
(c)
|
subject to due authorisation of the Bank to enter into and perform its obligations under the Finance Documents and the reservations as to matters of law set out in the legal opinions provided to the Bank under Article 1.04A, the Finance Documents to which it is a party constitutes its legally valid, binding and enforceable obligations;
|
(d)
|
the execution and delivery of, the performance of its obligations under and compliance with the provisions of the Finance Documents to which it is a party do not and will not:
|
(i)
|
contravene or conflict in any respect with any applicable law, statute, rule or regulation, or any judgement, decree or permit to which it is subject;
|
(ii)
|
contravene or conflict with any agreement or other instrument binding upon it which contravention or conflict is reasonably likely to result in a Material Adverse Change;
|
(iii)
|
contravene or conflict in any material respect with any provision of its constitutional documents;
|
(e)
|
there has been no Material Adverse Change since 12 July 2016;
|
(f)
|
no Default has occurred and is continuing unremedied or unwaived or would result from the disbursement of the Loan;
|
(g)
|
no litigation, arbitration, administrative proceedings or investigation against it or any of its subsidiaries is current or to its knowledge is threatened or pending before any court, arbitral body or agency which has resulted or if adversely determined would reasonably be expected to be likely to result in a Material Adverse Change, nor is there subsisting against it or any of its subsidiaries any unsatisfied judgement or award;
|
(h)
|
it has obtained all necessary Authorisations required by it in connection with this Contract and in order to lawfully comply with its obligations hereunder, and the Project and all such Authorisations are in full force and effect and admissible in evidence;
|
(i)
|
the entry into the Finance Documents to which it is a party is for its intérêt social;
|
(j)
|
the entry by such Borrower into the Finance Documents to which it is a party will not violate or infringe any thin capitalisation rules applicable to that Borrower;
|
(k)
|
at the date of this Contract, no Security exists over its assets other than Permitted Security;
|
(l)
|
its payment obligations under this Contract rank not less than pari passu in right of payment with all other present and future unsecured and unsubordinated obligations under any of its
|
(m)
|
it is in compliance with Article 6.05(e) and to the best of its knowledge and belief (having made due and careful enquiry) no material Environmental Claim has been commenced or is threatened against it;
|
(n)
|
it is in compliance with all undertakings under Article 6 and 7;
|
(o)
|
it is not required to make any deduction for or on account of tax from any payment it may make under the Finance Documents to the Bank;
|
(p)
|
neither it, nor any of its subsidiaries is or is required to be registered as an "investment company" under the US Investment Company Act of 1940;
|
(q)
|
it is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the FRB) as in effect from time to time, and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock;
|
(r)
|
no ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Change. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of FASB ASC Topic 715) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan by an amount that could reasonably be expected to result in a Material Adverse Change and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of FASB ASC Topic 715) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans by an amount that could reasonably be expected to result in a Material Adverse Change; and
|
(s)
|
subject to the reservations as to matters of law set out in the legal opinions provided to the Bank under Article 1.04A, the choice of English law as the governing law of the Finance Documents and the submission to the jurisdiction of the English courts will be recognised and enforced in England.
|
6.12C
|
General representations and warranties of the Guarantor
|
(a)
|
the Guarantor is a corporation, duly incorporated, organised or formed and in good standing under the laws of its jurisdiction of incorporation and it is duly qualified and in good standing in each other jurisdiction in which the character of its properties or the nature of its business requires such qualification except where the failure to be so qualified or in good standing would not result in a Material Adverse Change;
|
(b)
|
the Guarantor has the power to execute, deliver and perform its obligations under the Finance Documents to which it is a party and all necessary corporate, shareholder and other action has been taken to authorise the execution, delivery and performance of the same by it;
|
(c)
|
subject to due authorisation of the Bank to enter into and perform its obligations under the Finance Documents and the reservations as to matters of law set out in the legal opinions
|
(d)
|
the execution and delivery of, the performance of its obligations under and compliance with the provisions of the Finance Documents to which it is a party do not and will not:
|
(i)
|
contravene or conflict in any respect with any applicable law, statute, rule or regulation, or any judgement, decree or permit to which it is subject;
|
(ii)
|
contravene or conflict with any agreement or other instrument binding upon it which contravention or conflict is reasonably likely to result in a Material Adverse Change;
|
(iii)
|
contravene or conflict in any material respect with any provision of its constitutional documents;
|
(e)
|
the latest available consolidated audited accounts of the Group have been prepared in accordance with GAAP and have been approved by its auditors as representing a true and fair view in all material respects of the results of the Group's operations for that year and, as and from the end of the Guarantor's 2015 financial year, without any material change in accounting policies (other than where required by GAAP) from those applied in the immediately previous year;
|
(f)
|
there has been no Material Adverse Change since 12 July 2016;
|
(g)
|
no Default has occurred and is continuing unremedied or unwaived or would result from the disbursement of the Loan;
|
(h)
|
no litigation, arbitration, administrative proceedings or investigation against it or any of its Subsidiaries is current or to its knowledge is threatened or pending before any court, arbitral body or agency which has resulted or if adversely determined would reasonably be expected to be likely to result in a Material Adverse Change, nor is there subsisting against it or any of its Subsidiaries any unsatisfied judgement or award;
|
(i)
|
it has obtained all necessary Authorisations required by it in connection with this Contract and in order to lawfully comply with its obligations hereunder, and the Project and all such Authorisations are in full force and effect and admissible in evidence;
|
(j)
|
the entry into the Finance Documents to which it is a party is for its corporate benefit;
|
(k)
|
at the date of this Contract, no Security exists over its assets or over those of the Group other than Permitted Security;
|
(l)
|
its payment obligations under this Contract rank not less than pari passu in right of payment with all other present and future unsecured and unsubordinated obligations under any of its debt instruments except for obligations mandatorily preferred by law applying to companies generally;
|
(m)
|
it is in compliance with all undertakings under Article 6 and 7;
|
(n)
|
no loss of rating clause or financial covenants exist under any Principal Bank Facility which are more restrictive than the ones contained in the Contract;
|
(o)
|
it is not required to make any deduction for or on account of tax from any payment it may make under the Finance Documents to the Bank;
|
(p)
|
neither it, nor any of its Subsidiaries is or is required to be registered as an "investment company" under the US Investment Company Act of 1940;
|
(q)
|
no ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Change. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of FASB ASC Topic 715) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan by an amount that could reasonably be expected to result in a Material Adverse Change and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of FASB ASC Topic 715) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans by an amount that could reasonably be expected to result in a Material Adverse Change;
|
(r)
|
at the date the Guarantor enters into the Guarantee Agreement and after and giving effect to the incurrence of any of the Guarantor's obligations under the Guarantee Agreement, the Guarantor is Solvent; and
|
(s)
|
subject to the reservations as to matters of law set out in the legal opinions provided to the Bank under Article 1.04A, the choice of English law as the governing law of the Finance Documents and the submission to the jurisdiction of the English courts will be recognised and enforced in England.
|
6.12D
|
Acknowledgement
|
6.12E
|
Repetition
|
7.01
|
Guarantee
|
7.02
|
Negative pledge and sale / leasebacks
|
(a)
|
In this Contract "Quasi-Security" means an arrangement or transaction described in Article 7.02(c) below.
|
(b)
|
The Borrowers and the Guarantor shall not, and the Guarantor shall ensure that no other member of the Group will, create or permit to subsist any Security over any of its assets.
|
(c)
|
The Borrowers and the Guarantor shall not, and the Guarantor shall ensure that no other member of the Group will, enter into any arrangement or transaction on assets or receivables or money (such as the sale, transfer or other disposal of assets on terms whereby they are or may be leased to or re-acquired by the Borrowers, the Guarantor or any other member of the Group, the sale, transfer or otherwise dispose of any receivables on recourse terms or any arrangement under which money or the benefit of a bank account or other account may be applied or set-off or made subject to a combination of accounts or any preferential arrangement having a similar effect) in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset.
|
(d)
|
Paragraphs (b) and (c) above shall not apply to any Security (or, as the case may be, Quasi-Security), which is a Permitted Security.
|
(e)
|
The Borrowers and the Guarantor shall not, and the Guarantor shall ensure that no other member of the Group will:
|
(i)
|
sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by either of the Borrowers or the Guarantor or any other member of the Group; or
|
(ii)
|
enter into any other preferential arrangement having a similar effect,
|
(x)
|
any such sale, transfer or disposal approved by the Bank;
|
(y)
|
any such sale, transfer or disposal made to another member of the Group;
|
(z)
|
any such sale, transfer or disposal (other than those set out in paragraph (x) or (y) above) of such assets the book value of which (when aggregated with (i) the aggregate book value of Security created or subsisting under paragraph (i) of the definition of Permitted Security; and (ii) the book value of any other such sale, transfer or disposal of such assets not allowed under the subparagraphs (x) or (y) above), does not exceed the greater of USD 150,000,000 (one hundred and fifty million dollars) (or its equivalent in another currency or currencies) and 10% of Consolidated Net Tangible Assets.
|
7.03
|
Pari passu ranking
|
7.04
|
Clauses by inclusion
|
8.01
|
Information concerning the Project
|
(a)
|
deliver to the Bank:
|
(i)
|
the information in content and in form, and at the times, specified in Schedule A.2 or otherwise as agreed from time to time by the parties to this Contract; and
|
(ii)
|
any such information or further document concerning the financing, procurement, implementation, operation and environmental matters of or for the Project as the Bank may reasonably require within a reasonable time,
|
(b)
|
submit for the approval of the Bank without delay any material change to the Project, also taking into account the disclosures made to the Bank in connection with the Project prior to the signing of this Contract, in respect of, inter alia, the price, design, plans, timetable or to the expenditure programme or financing plan for the Project;
|
(c)
|
promptly inform the Bank of:
|
(i)
|
any action or protest initiated or any objection raised by any third party or any genuine complaint received by a Borrower or any material Environmental Claim that is to its knowledge commenced, pending or threatened against it with regard to environmental or other matters affecting the Project;
|
(ii)
|
any fact or event known to a Borrower, after due enquiry, which may substantially prejudice or affect the conditions of execution or operation of the Project;
|
(iii)
|
any genuine allegation, complaint or information with regard to Criminal Offences related to the Project;
|
(iv)
|
any non-compliance by it with any applicable Environmental Law relevant to the Project; and
|
(v)
|
any suspension, revocation or modification of any Environmental Approval known to a Borrower, after due enquiry,
|
(d)
|
A Borrower need not provide information to the Bank under Articles 8.01 or 8.02 if that information has already been provided to the Bank by the other Borrower.
|
8.02
|
Information concerning the Borrowers
|
(a)
|
deliver to the Bank:
|
(i)
|
as soon as they become available but in any event within 90 days after the end of each of the Guarantor's financial years:
|
(A)
|
the Guarantor's consolidated annual report, balance sheet, profit and loss account and auditor's report for that financial year; and
|
(B)
|
a Compliance Certificate as set out in Schedule E.3 signed by two managers confirming compliance with Article 6.10 and with evidence of such compliance and related calculations;
|
(ii)
|
as soon as they become available but in any event within 45 days after the end of each of the relevant accounting periods:
|
(A)
|
the Guarantor's interim consolidated quarterly report, balance sheet and profit and loss account for each of the first three quarters of each of its financial years; and
|
(B)
|
a Compliance Certificate as set out in Schedule E.3 signed by two managers confirming compliance with Article 6.10 and with evidence of such compliance and related calculations;
|
(iii)
|
as soon as possible but in any event within 210 days after the end of each of the Borrower's financial years a Compliance Certificate as set out in Schedule E.3 signed by two managers confirming compliance with Article 6.10 and with evidence of such compliance and related calculations and, upon request by the Bank, each Borrower's annual report, balance sheet and profit and loss account for that financial year;
|
(iv)
|
within 45 days of 30 June and 31 December in each financial year, confirmation from the Borrower or Guarantor of the Group’s current outstanding debt financing, including a breakdown of figures in respect of each borrower;
|
(v)
|
promptly upon the issuance thereof, copies of all reports, if any, to or other documents filed by any member of the Group with the SEC under the US
|
(vi)
|
from time to time, such further information on its general financial situation as the Bank may reasonably require,
|
(b)
|
inform the Bank immediately of:
|
(i)
|
any material alteration to its articles of association;
|
(ii)
|
any fact which obliges it to prepay any Financial Indebtedness;
|
(iii)
|
any event or decision that constitutes or may result in the events described in Article 4.03A;
|
(iv)
|
any change in any Credit Rating;
|
(v)
|
any decision on its part to grant any Security over any of its assets in favour of a third party other than Permitted Security;
|
(vi)
|
any relinquishment on its part of any material component of the Project;
|
(vii)
|
any fact or event that is reasonably likely to prevent the substantial fulfilment of any obligation of the Borrowers or Guarantor under any Finance Document;
|
(viii)
|
any Default having occurred;
|
(ix)
|
to the extent permitted by law, any material litigation, arbitration, administrative proceedings or investigation carried out by a court, administration or similar public authority, which, to the best of its knowledge and belief, is current, imminent or pending against such Borrower or the Guarantor or such Borrower’s or the Guarantor’s or controlling entities or members of such Borrower’s or the Guarantor’s management bodies in connection with Criminal Offences related to the Loan or the Project;
|
(x)
|
any measure taken by such Borrower or the Guarantor pursuant to Article 6.05(f) of this Contract; and
|
(xi)
|
any litigation, arbitration or administrative proceedings or investigation which is current, or to its knowledge threatened or pending against any member of the Group which might if adversely determined result in a Material Adverse Change.
|
8.03
|
Visits by the Bank
|
(a)
|
to visit the sites, installations and works comprising the Project;
|
(b)
|
to interview representatives of the Borrower and the Guarantor, and not obstruct contact with any other person involved in or affected by the Project; and
|
(c)
|
to conduct such on the spot audits and checks as they may wish and review the Borrowers’ and/or Guarantor’s books and records in relation to the execution of the Project and to be able to take copies of related documents to the extent permitted by law.
|
(a)
|
the Bank may be obliged to communicate information relating the Borrowers and the Project to any competent institution or body of the European Union in accordance with the relevant mandatory provisions of EU law. European Union law or pursuant to the Horizon 2020 Legal Basis; and
|
(b)
|
the Bank may publish in its website or produce press releases containing information related to the financing provided pursuant to this Contract, including the name, address and country of establishment of the Borrowers, and the type of financial support received under this Contract.
|
9.01
|
Taxes, duties and fees
|
9.02
|
Other charges
|
9.03
|
Increased costs, indemnity and set-off
|
(a)
|
Each Borrower shall pay to the Bank any sums or expenses incurred or suffered by the Bank as a consequence of the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation or compliance with any law or regulation made after the date of signature this Contract, in accordance with which (i) the Bank is obliged to incur additional costs in order to fund or perform its obligations under this Contract, or (ii) any amount owed to the Bank under this Contract or the financial income resulting from the granting of the Credit or the Loan by the Bank to the relevant Borrower is reduced or eliminated.
|
(b)
|
Without prejudice to any other rights of the Bank under this Contract or under any applicable law, the relevant Borrower shall indemnify and hold the Bank harmless from and against any loss incurred as a result of any payment or partial discharge that takes place in a manner other than as expressly set out in this Contract.
|
(c)
|
The Bank may set off any matured obligation due from a Borrower as appropriate, under this Contract (to the extent beneficially owned by the Bank) against any obligation (whether or not matured) owed by the Bank to that Borrower regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Bank may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. If either obligation is unliquidated or unascertained, the Bank may set off in an amount estimated by it in good faith to be the amount of that obligation.
|
9.4
|
Currency indemnity
|
(a)
|
making or filing a claim or proof against that Borrower; or
|
(b)
|
obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,
|
10.01
|
Right to demand repayment
|
10.01A
|
Immediate demand
|
(a)
|
if either Borrower or the Guarantor does not pay on the due date any amount payable pursuant to the Finance Documents at the place and in the currency in which it is expressed to be payable, unless (i) its failure to pay is caused by an administrative or technical error or a Disruption Event and (ii) payment is made within 3 (three) Business Days of its due date;
|
(b)
|
if any information or document given to the Bank by or on behalf of either Borrower or the Guarantor or any representation or statement made or deemed to be made by either Borrower or the Guarantor in application of the Finance Documents, or in connection with the negotiation or performance of the Finance Documents is, or proves to have been, incorrect, incomplete or misleading in any material respect;
|
(c)
|
if, following any default of a Borrower or the Guarantor or any other member of the Group in relation to any loan, or any obligation arising out of any financial transaction, other than the Loan:
|
(i)
|
a Borrower or the Guarantor or any other member of the Group is required or is capable of being required or will, following expiry of any applicable contractual grace period, be required or be capable of being required to prepay, discharge, close out or terminate ahead of maturity such other loan or obligation; or
|
(ii)
|
any financial commitment for such other loan or obligation is cancelled or suspended,
|
(d)
|
if a Borrower or the Guarantor or any Material Subsidiary is unable to pay its debts as they fall due, or suspends its debts, or makes or, without prior written consent of the Bank, seeks to make a composition with its creditors;
|
(e)
|
if any corporate action, legal proceedings or other procedure or step is taken in relation to or an order is made or an effective resolution is passed for the winding up of a Borrower or the Guarantor or any Material Subsidiary, or if a Borrower or the Guarantor or any Material Subsidiary takes steps towards a substantial reduction in its capital, is declared insolvent or suspends or ceases or resolves or threatens to suspend or to cease to carry on the whole or any substantial part of its business or activities;
|
(f)
|
if an encumbrancer takes possession of, or a receiver, liquidator, administrator, administrative receiver or similar officer is appointed, whether by a court of competent
|
(g)
|
if a Borrower or Guarantor or any Material Subsidiary defaults in the performance of any obligation in respect of any other loan granted by the Bank or financial instrument entered into with the Bank;
|
(h)
|
if any distress, expropriation, attachment, execution, sequestration or other process is levied or enforced upon:
|
(i)
|
the property (other than property forming part of the Project) of the Borrower or the Guarantor or any Material Subsidiary and is not discharged or stayed within 60 (sixty) days and the book value of the property is in excess of USD 50,000,000 (fifty million dollars); or
|
(ii)
|
any property forming part of the Project and is not discharged or stayed within 30 (thirty) days;
|
(i)
|
if a Material Adverse Change occurs, as compared with either Borrower’s or the Guarantor's condition at the date of this Contract;
|
(j)
|
if it is or becomes unlawful for a Borrower or the Guarantor to perform any of its obligations under Finance Documents or any Finance Documents are not effective in accordance with its terms or is alleged by the Borrower or the Guarantor to be ineffective in accordance with its terms;
|
(k)
|
if an ERISA Event shall have occurred that, in the opinion of the Bank, when taken together with all other such ERISA Events, could reasonably be expected to result in a Material Adverse Change; and/or
|
(l)
|
if a Borrower or the Guarantor or any member of the Group defaults in the performance of any obligation in respect of any other loan made to it from the resources of the Bank or the European Union.
|
10.01B
|
Demand after notice to remedy
|
(a)
|
if a Borrower fails to comply with any obligation under this Contract not being an obligation mentioned in Article 10.01A or the Guarantor fails to comply with any obligation under the Finance Documents; or
|
(b)
|
if any fact related to a Borrower or the Project stated in the Recitals materially alters and is not materially restored and if the alteration either prejudices the interests of the Bank as lender to the Borrower or Borrowers or adversely affects the implementation or operation of the Project,
|
10.02
|
Other rights at law
|
10.03
|
Indemnity
|
10.03A
|
Fixed Rate Tranches
|
10.03B
|
Floating Rate Tranches
|
10.03C
|
General
|
10.04
|
Non-Waiver
|
11.01
|
Governing Law
|
11.02
|
Jurisdiction
|
11.03
|
Agent of Service
|
11.04
|
Forum conveniens and enforcement abroad
|
(a)
|
waives any objection it may have to the English courts on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Contract; and
|
(b)
|
agrees that a judgment or order of an English court in connection with this Contract is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction.
|
11.05
|
Place of performance
|
11.06
|
Evidence of sums due
|
12.01
|
Notices to either party
|
12.02
|
Form of notice
|
12.03
|
Contracts (Rights of Third Parties) Act 1999
|
12.04
|
Counterparts
|
12.05
|
Invalidity
|
(a)
|
the legality, validity or enforceability in that jurisdiction of any other term of this Contract or the effectiveness in any other respect of this Contract in that jurisdiction; or
|
(b)
|
the legality, validity or enforceability in other jurisdictions of that or any other term of this Contract or the effectiveness of this Contract under the laws of such other jurisdictions.
|
12.06
|
Amendments
|
12.07
|
Recitals, Schedules and Annex
|
Schedule A
|
Technical Description and Reporting
|
Schedule B
|
Definition of EURIBOR and LIBOR
|
Schedule C
|
Forms for Borrower
|
Schedule D
|
Interest Rate Revision and Conversion
|
Schedule E
|
Conditions Precedent and Certificates of the Borrower and the Guarantor
|
Schedule F
|
Form of Solvency Certificate
|
Annex
|
Borrower's written resolutions of the managers and authorisation of signatory
|
Signed for and on behalf of
EUROPEAN INVESTMENT BANK
|
||
|
|
|
/s/HANNA KARCZEWSKA
|
|
/s/TIMO KIIHA
|
HANNA KARCZEWSKA
|
|
TIMO KIIHA
|
Head of Division
|
|
Deputy Head of Division
|
Signed for and on behalf of
XYLEM HOLDINGS S.À R.L.
as Borrower 1
|
||
/s/SAMIR PATEL
|
|
/s/PASCALE WAGNER
|
SAMIR PATEL
|
|
PASCALE WAGNER
|
Manager
|
|
Manager
|
|
|
|
Signed for and on behalf of
XYLEM INTERNATIONAL S.À R.L.
as Borrower 2
|
||
/s/SAMIR PATEL
|
|
/s/PASCALE WAGNER
|
SAMIR PATEL
|
|
PASCALE WAGNER
|
Manager
|
|
Manager
|
|
|
|
Signed for and on behalf of
XYLEM INC.
as Guarantor
|
||
/s/SAMIR PATEL
|
|
|
SAMIR PATEL
Vice President & Treasurer
|
|
|
•
|
Transport: RDE activities focusing on efficiency and functionality improvements in equipment and services involved in the movement of wastewater. Main objective is the development of non-clogging highly energy efficient wastewater submersible pumps equipped with integrated sensors and monitoring systems.
|
•
|
Treatment: RDE activities focusing on improved water productivity and water quality and on developing advanced water solutions. Main objectives are:
|
o
|
Development and field testing of reuse systems for the agricultural and industrial sector, with focus on the reduction of micro-pollutants (pharma and viruses) and nutrients.
|
o
|
Integrating auto-control functions as well as interconnecting mixers and blowers to create self-adaptable/adjustable units.
|
•
|
Dewatering: RDE activities focusing on reliable, efficient and compact draining technologies. Main objective is development of small-sized intelligent drainage pump systems - with lower weight, improved wear resistance, and integrated snoring sensors.
|
•
|
Analytics: The activities focus on intelligent and connected (IoT based) monitoring and control devices and related services. The main objective is the development of advanced sensors and meters to enable built-in digital control, wireless communications and diagnostic capabilities.
|
•
|
Applied Water Systems (“AWS”): The R&D activities focus on superior energy efficient clean water pumping systems. Main objectives are:
|
o
|
Development of a full line of new high efficiency motors in the bigger capacity range (up to 22kw)
|
o
|
Further development of smart compact and modular clean water systems
|
•
|
Corporate R&D (Technology Council): These R&D activities focus on longer term, higher risk projects to build the core for future developments by the relevant divisions. The main subjects are:
|
o
|
nanotechnology-enabled sensors (lab-on-chip and biosensors);
|
o
|
additive manufacturing;
|
o
|
cloud-connectivity;
|
o
|
new business models – pay-per-use.
|
1.
|
Dispatch of information: designation of the person responsible
|
|
Contact
|
Company
|
Xylem Inc.
|
Contact person
|
Vikram Nanwani
|
Title
|
Technology Director
|
Function / Department financial and technical
|
-
|
Address
|
11 Breedewues, L-1259 Senningerberg, Luxembourg
|
Phone
|
352 261 568 57
|
Fax
|
-
|
Email
|
Vikram.nanwani|xyleminc.com
|
2.
|
Information on the Project’s implementation
|
Document / information
|
Deadline
|
Frequency of reporting
|
Project Progress Report
- A brief update on the Technical Description, explaining the reasons for significant changes vs. initial scope;
- Update on the date of completion of each of the main project’s components, explaining reasons for any possible delay;
- Update on the cost of the Project, explaining reasons for any possible cost variations vs. initial budgeted cost;
- A description of any major issue with impact on the environment;
- Any significant issue that has occurred and any significant risk that may affect the Project’s operation;
- Any legal action concerning the Project that may be on-going.
|
31st March 2018
|
Mid-term review
|
3.
|
Information on the end of works and first year of operation
|
Document / information
|
Date of delivery
to the Bank |
Project Completion Report, including:
- A final Technical Description of the Project as completed, explaining the reasons for any significant change compared to the Technical Description in A.1.;
- The date of completion of each of the main project’s components, explaining reasons for any possible delay;
- The final cost of the Project, explaining reasons for any possible cost variations vs. initial budgeted cost;
- Employment effects of the Project: person-days required during implementation as well as permanent new jobs created;
- A description of impact on the environment or social impacts
- Update on the Project’s results/applications and comments;
- Any significant issue that has occurred and any significant risk that may affect the Project’s operation;
- Any legal action concerning the Project that may be on-going.
- An update on the following Monitoring Indicators.
|
31st March 2021
|
Outputs
|
Units
|
National or international patents applications
|
nr/yr
|
National or international patents granted
|
nr/yr
|
Outcomes
|
|
% of sales and services from new products (vitality index)
|
%
|
Return on Investment of RDI
|
%
|
Project specific indicators
|
|
Total sales of the promoter
|
EUR m
|
Percentage of promoter’s sales supported by the project
|
%
|
Total employment of the promoter
|
FTEs
|
Percentage of promoter’s employment supported by the project
|
%
|
Portfolio balance (Support/VE/NP/Breakthrough
|
Split in % of total EU R&D
|
Core result indicators
|
|
Improved energy efficiency of products
|
%
|
Improved life-cycle-cost
|
%
|
Sustained Employment in R&D
|
FTEs
|
Language of reports
|
English
|
A.
|
EURIBOR
|
(a)
|
in respect of a relevant period of less than one month, the Screen Rate (as defined below) for a term of one month;
|
(b)
|
in respect of a relevant period of one or more months for which a Screen Rate is available, the applicable Screen Rate for a term for the corresponding number of months; and
|
(c)
|
in respect of a relevant period of more than one month for which a Screen Rate is not available, the rate resulting from a linear interpolation by reference to two Screen Rates, one of which is applicable for a period next shorter and the other for a period next longer than the length of the relevant period,
|
B.
|
LIBOR USD
|
(a)
|
in respect of a relevant period of less than one month, the Screen Rate for a term of one month;
|
(b)
|
in respect of a relevant period of one or more months for which a Screen Rate is available, the applicable Screen Rate for a term for the corresponding number of months; and
|
(c)
|
in respect of a relevant period of more than one month for which a Screen Rate is not available, the rate resulting from a linear interpolation by reference to two Screen Rates, one of which is applicable for a period next shorter and the other for a period next longer than the length of the relevant period,
|
C.
|
LIBOR GBP
|
(a)
|
in respect of a relevant period of less than one month, the Screen Rate for a term of one month;
|
(b)
|
in respect of a relevant period or of one or more months for which a Screen Rate is available, the applicable Screen Rate for a term for the corresponding number of months; and
|
(c)
|
in respect of a relevant period of more than one month for which a Screen Rate is not available, the rate resulting from a linear interpolation by reference to two Screen Rates, one of which is applicable for a period next shorter and the other for a period next longer than the length of the relevant period,
|
D.
|
General
|
(a)
|
"London Business Day" means a day on which banks are open for normal business in London and "New York Business Day" means a day on which banks are open for normal business in New York.
|
(b)
|
All percentages resulting from any calculations referred to in this Schedule will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with halves being rounded up.
|
(c)
|
The Bank shall inform the Borrower without delay of the quotations received by the Bank.
|
(d)
|
If any of the foregoing provisions becomes inconsistent with provisions adopted under the aegis of:
|
(i)
|
EMMI and EURIBOR ACI (or any successor to that function of EMMI and EURIBOR ACI as determined by the Bank) in respect of EURIBOR; or
|
(ii)
|
the ICE Benchmark Administration Limited (or any successor to that function of the ICE Benchmark Administration Limited, as determined by the Bank) in respect of LIBOR,
|
Subject:
|
Disbursement Offer/Acceptance for the Finance Contract between European Investment Bank Xylem Holdings S.à r.l. and Xylem International S.à r.l. dated [l] (the "Finance Contract")
|
(a)
|
Currency and amount to be disbursed and its EUR equivalent:
|
(b)
|
Scheduled Disbursement Date:
|
(c)
|
Interest rate basis:
|
(d)
|
Interest payment periodicity:
|
(e)
|
Payment Dates:
|
(f)
|
Terms for repayment of principal:
|
(g)
|
The first and last principal repayment dates:
|
(h)
|
The Interest Revision/Conversion Date2:
|
(i)
|
The Fixed Rate or Spread, applicable until the Interest Revision/Conversion Date, if any, or until the Maturity Date:
|
(a)
|
A Borrower: [Xylem Holdings S.à r.l.]/[Xylem International S.à r.l.]3
|
(i)
|
the indication of the Borrower's bank account (with the appropriate format for the relevant currency in line with local banking practice, including the IBAN and BIC) where disbursement of the Tranche should be made; and
|
(ii)
|
evidence of the authority of the person or persons authorised to sign it on behalf of the Borrower and the specimen signature of such person or persons.
|
A.
|
Mechanics of Interest Revision/Conversion
|
(a)
|
the Fixed Rate and/or Spread that would apply to the Tranche, or the part thereof indicated in the Interest Revision/Conversion Request pursuant to Article 3 ; and
|
(b)
|
that such rate shall apply until the Maturity Date or until a new Interest Revision/Conversion Date, if any, and that interest is payable quarterly, semi-annually or annually in arrear on designated Payment Dates.
|
B.
|
Effects of Interest Revision/Conversion
|
C.
|
Non-fulfilment of Interest Revision/Conversion
|
Subject:
|
Finance Contract between European Investment Bank, Xylem Inc., Xylem Holdings S.à r.l. and Xylem International S.à r.l. dated [l] (the "Finance Contract")
|
(a)
|
we are in compliance with Article 6.10 and attached is evidence of such compliance and related calculations;
|
(b)
|
no Security of the type prohibited under Article 7.02 has been created or is in existence;
|
(c)
|
we have sufficient funds available to ensure the timely completion and implementation of the Project in accordance with the Technical Schedule;
|
(d)
|
there has been no material change to any aspect of the Project or in respect of which we are obliged to report under Article 8.01, save as previously communicated by us;
|
(e)
|
no Default or Compulsory Prepayment Event has occurred and is continuing unremedied or unwaived;
|
(f)
|
no litigation, arbitration administrative proceedings or investigation is current or to our knowledge is threatened or pending before any court, arbitral body or agency which has resulted or if adversely determined is reasonably likely to result in a Material Adverse Change, nor is there subsisting against us or any of our subsidiaries any unsatisfied judgement or award;
|
(g)
|
the representations and warranties to be made or repeated by us under Article 6.12 are true in all material respects; and
|
(h)
|
no Material Adverse Change has occurred, as compared with our condition at the date of the Finance Contract.
|
Subject:
|
Disbursement Offer/Acceptance for the Finance Contract between European Investment Bank, Xylem Inc., Xylem Holdings S.à r.l. and Xylem International S.à r.l. dated l (the "Finance Contract") and Deed of Guarantee and Indemnity between European Investment Bank and Xylem Inc. dated [l] (the "Guarantee Agreement")
|
(a)
|
no Security of the type prohibited under Article 7.02 of the Finance Contract has been created or is in existence;
|
(b)
|
there has been no material change to any aspect of the Project or in respect of which we are obliged to report under the Finance Documents, save as previously communicated by us in writing;
|
(c)
|
no Default or Compulsory Prepayment Event has occurred and is continuing unremedied or unwaived;
|
(d)
|
the representations and warranties to be made or repeated by us under the Finance Documents are true in all material respects;
|
(e)
|
no litigation, arbitration, administrative proceedings or investigation is current or to our knowledge is threatened or pending before any court, arbitral body or agency which has resulted or if adversely determined is reasonably likely to result in a Material Adverse Change, nor is there subsisting against us or any of our Subsidiaries any unsatisfied judgement or award which has resulted or is reasonably likely to result in a Material Adverse Change;
|
(f)
|
no Material Adverse Change has occurred; and
|
(g)
|
no event of the type prohibited under Articles 6.06 or 6.09 of the Finance Contract has occurred.
|
Subject:
|
Finance Contract between European Investment Bank, Xylem Inc., Xylem Holdings S.à r.l. and Xylem International S.à r.l. dated [l] (the "Finance Contract")
|
(i)
|
we are in compliance with Article 6.10. Evidence of such compliance and related calculations are attached to this Compliance Certificate;
|
(ii)
|
[insert information regarding asset disposal];
|
(iii)
|
no Security of the type prohibited under Article 7.02 has been created or is in existence;
|
(iv)
|
[insert table of the Group’s current outstanding debt financing, indicating a breakdown of figures by legal entity.]
|
(v)
|
[no Default or Compulsory Prepayment Event has occurred and is continuing unremedied or unwaived. [If this statement cannot be made, this certificate should identify any potential event of default that is continuing and the steps, if any, being taken to remedy it].
|
1.
|
the Company is not subject to bankruptcy (faillite), insolvency, voluntary or judicial liquidation (liquidation volontaire on judiciaire), composition with creditors (concordat préventif de faillite), reprieve from payment (sursis de paiement), controlled management (gestion contrôlée), fraudulent conveyance (actio pauliana), general settlement with creditors, reorganisation or similar laws affecting the rights of creditors generally;
|
2.
|
the Company is not, on the date hereof and will not, as a result of its entry into the Loan Agreement be in a state of cessation of payments (cessation de paiements) and has not lost and will not, as a result of its entry into the Loan Agreement lose its commercial creditworthiness (ébranlement de credit);
|
3.
|
the transactions contemplated by the Loan Agreement are not caught by articles 445, 446 and 448 of the Luxembourg code of commerce and article 1167 of the Luxembourg civil code (actio pauliana);
|
4.
|
no application has been made by the Company or, as far as the Company is aware, by any other person for the appointment of a commissaire, commissaire surveillant, juge-commissaire, liquidateur, curateur or similar officer pursuant to any insolvency or similar proceedings; and
|
5.
|
no application has been made by the Company for a voluntary or judicial winding-up or liquidation.
|
(i)
|
the Company is entering into the Loan Agreement in good faith and for the purposes of carrying on its business and there are reasonable grounds for believing that the performance by the Company of the transactions brought into effect or contemplated by the Loan Agreement will be in the best interest and for the corporate benefit of the Company; and
|
(ii)
|
the entry into the Loan Agreement by the Company has been made at fair market value and on an arm's length basis.
|
By:
|
|
|
|
|
|
<>
|
<>
|
Manager
|
Manager
|
1.
|
the Company is not subject to bankruptcy (faillite), insolvency, voluntary or judicial liquidation (liquidation volontaire on judiciaire), composition with creditors (concordat préventif de faillite), reprieve from payment (sursis de paiement), controlled management (gestion contrôlée), fraudulent conveyance (actio pauliana), general settlement with creditors, reorganisation or similar laws affecting the rights of creditors generally;
|
2.
|
the Company is not, on the date hereof and will not, as a result of its entry into the Loan Agreement be in a state of cessation of payments (cessation de paiements) and has not lost and will not, as a result of its entry into the Loan Agreement lose its commercial creditworthiness (ébranlement de credit);
|
3.
|
the transactions contemplated by the Loan Agreement are not caught by articles 445, 446 and 448 of the Luxembourg code of commerce and article 1167 of the Luxembourg civil code (actio pauliana);
|
4.
|
no application has been made by the Company or, as far as the Company is aware, by any other person for the appointment of a commissaire, commissaire surveillant, juge-commissaire, liquidateur, curateur or similar officer pursuant to any insolvency or similar proceedings; and
|
5.
|
no application has been made by the Company for a voluntary or judicial winding-up or liquidation.
|
(i)
|
the Company is entering into the Loan Agreement in good faith and for the purposes of carrying on its business and there are reasonable grounds for believing that the performance by the Company of the transactions brought into effect or contemplated by the Loan Agreement will be in the best interest and for the corporate benefit of the Company; and
|
(ii)
|
the entry into the Loan Agreement by the Company has been made at fair market value and on an arm's length basis.
|
By:
|
|
|
|
|
|
<>
|
<>
|
Manager
|
Manager
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended September 30, 2016;
|
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 September 30, 2016;
|
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/ E. Mark Rajkowski
|
|
E. Mark Rajkowski
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
|
|
November 1, 2016
|
|
(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/ E. Mark Rajkowski
|
|
E. Mark Rajkowski
|
|
Senior Vice President and Chief Financial Officer
|
|
November 1, 2016
|
|