filings.toolsXylem 10-Q 2023-03-31
Filed 2023-05-04. 8 sections, 216K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2023
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-35229
Xylem Inc.
(Exact name of registrant as specified in its charter)
| Indiana | 45-2080495 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
301 Water Street SE, Washington, DC 20003
(Address of principal executive offices) (Zip code)
(202) 869-9150
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange of which registered | ||||||||||||
| Common Stock, par value $0.01 per share | XYL | New York Stock Exchange | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 28, 2023, there were 180,616,578 outstanding shares of the registrant’s common stock, par value $0.01 per share.
Xylem Inc.
Table of Contents
PART I
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(in millions, except per share data)
| For the three months ended March 31, | 2023 | 2022 | |||||||||||||||||||||
| Revenue | $ | 1,448 | $ | 1,272 | |||||||||||||||||||
| Cost of revenue | 902 | 805 | |||||||||||||||||||||
| Gross profit | 546 | 467 | |||||||||||||||||||||
| Selling, general and administrative expenses | 354 | 304 | |||||||||||||||||||||
| Research and development expenses | 53 | 52 | |||||||||||||||||||||
| Restructuring and asset impairment charges | 8 | — | |||||||||||||||||||||
| Operating income | 131 | 111 | |||||||||||||||||||||
| Interest expense | 9 | 13 | |||||||||||||||||||||
| Other non-operating income (expense), net | 4 | (1) | |||||||||||||||||||||
| Gain from sale of business | — | 1 | |||||||||||||||||||||
| Income before taxes | 126 | 98 | |||||||||||||||||||||
| Income tax expense | 27 | 16 | |||||||||||||||||||||
| Net income | $ | 99 | $ | 82 | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 0.55 | $ | 0.45 | |||||||||||||||||||
| Diluted | $ | 0.54 | $ | 0.45 | |||||||||||||||||||
| Weighted average number of shares: | |||||||||||||||||||||||
| Basic | 180.4 | 180.2 | |||||||||||||||||||||
| Diluted | 181.3 | 181.0 | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
| For the three months ended March 31, | 2023 | 2022 | |||||||||||||||||||||
| Net income | $ | 99 | $ | 82 | |||||||||||||||||||
| Other comprehensive income (loss), before tax: | |||||||||||||||||||||||
| Foreign currency translation adjustment | 22 | (3) | |||||||||||||||||||||
| Net change in derivative hedge agreements: | |||||||||||||||||||||||
| Unrealized gain (loss) | 4 | (6) | |||||||||||||||||||||
| Amount of loss reclassified into net income | 5 | 2 | |||||||||||||||||||||
| Net change in post-retirement benefit plans: | |||||||||||||||||||||||
| Amortization of actuarial (gain) loss into net income | (1) | 4 | |||||||||||||||||||||
| Other comprehensive income (loss), before tax | 30 | (3) | |||||||||||||||||||||
| Income tax (benefit) expense related to items of other comprehensive income (loss) | (5) | 3 | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 35 | (6) | |||||||||||||||||||||
| Comprehensive income | $ | 134 | $ | 76 | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
| March 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 837 | $ | 944 | |||||||
| Receivables, less allowances for discounts, returns and credit losses of $36 and $50 in 2023 and 2022, respectively | 1,123 | 1,096 | |||||||||
| Inventories | 857 | 799 | |||||||||
| Prepaid and other current assets | 193 | 173 | |||||||||
| Total current assets | 3,010 | 3,012 | |||||||||
| Property, plant and equipment, net | 631 | 630 | |||||||||
| Goodwill | 2,738 | 2,719 | |||||||||
| Other intangible assets, net | 915 | 930 | |||||||||
| Other non-current assets | 646 | 661 | |||||||||
| Total assets | $ | 7,940 | $ | 7,952 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 710 | $ | 723 | |||||||
| Accrued and other current liabilities | 784 | 867 | |||||||||
| Total current liabilities | 1,494 | 1,590 | |||||||||
| Long-term debt | 1,881 | 1,880 | |||||||||
| Accrued post-retirement benefits | 285 | 286 | |||||||||
| Deferred income tax liabilities | 215 | 222 | |||||||||
| Other non-current accrued liabilities | 476 | 471 | |||||||||
| Total liabilities | 4,351 | 4,449 | |||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Stockhold |
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the information concerning market risk as stated in our 2022 Annual Report.
Item 4. CONTROLS AND PROCEDURES
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of previously-owned entities). These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government contract issues and commercial or contractual disputes. See Note 17, "Commitments and Contingencies," to the condensed consolidated financial statements for further information and any updates.
Item 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in "Item 1A. Risk Factors" of our 2022 Annual Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents information with respect to purchases of the Company's common stock by the Company during the three months ended March 31, 2023:
| (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PERIOD | TOTAL NUMBER OF SHARES PURCHASED | AVERAGE PRICE PAID PER SHARE (a) | TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS (b) | APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (b) | ||||||||||||||||||||||
| 1/1/23 - 1/31/23 | — | — | — | $182 | ||||||||||||||||||||||
| 2/1/23 - 2/28/23 | — | — | — | $182 | ||||||||||||||||||||||
| 3/1/23 - 3/31/23 | — | — | — | $182 |
This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.
(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 stockholders and maintains our focus on growth. There were no shares repurchased under this program for the three months ended March 31, 2023. There are up to $182 million in shares that may still be purchased under this plan as of March 31, 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
See the Exhibit Index for a list of exhibits filed as part of this report and incorporated herein by reference.
XYLEM INC.
EXHIBIT INDEX
| Exhibit Number | Description | Location | |||||||||
| 2.1 | Agreement and Plan of Merger, dated as of January 22, 2023, among Xylem Inc., Fore Merger Sub, Inc. and Evoqua Water Technologies Corp. | Incorporated by reference to Exhibit 2.1 of Xylem Inc.’s Form 8-K filed on January 23, 2023 (CIK No. 1524472, File No. 1-24339) | |||||||||
| 3.1 | Fourth Amended and Restated Articles of Incorporation of Xylem Inc. | Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 8-K filed on May 15, 2017 (CIK No. 1524472, File No. 1-35229). | |||||||||
| 3.2 | Fifth Amended and Restated By-laws of Xylem Inc. | Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 8-K filed on November 15, 2022 (CIK No. 1524472, File No. 1-35229). | |||||||||
| 10.1 | Letter Agreement between Xylem Inc. and Dorothy Capers | Filed herewith. | |||||||||
| 10.2 | Letter Agreement between Xylem Inc. and Matthew Pine | Filed herewith. | |||||||||
| 10.3 | Form of 2011 Omnibus Incentive Plan Non-Qualified Stock Option Award Agreement (2023) | Filed herewith. | |||||||||
| 10.4 | Form of 2011 Omnibus Incentive Plan Performance Share Unit Agreement (2023) | Filed herewith. | |||||||||
| 10.5 | Form of 2011 Omnibus Incentive Plan Restricted Stock Unit Agreement (2023) | Filed herewith. | |||||||||
| 10.6 | Five-Year Revolving Credit Facility Agreement, dated as of March 1, 2023 among Xylem Inc. and the Lenders party thereto. | Incorporated by reference to Exhibit 10.1 of Xylem Inc.’s Form 8-K filed on March 2, 2023 (CIK No. 1524472, File No. 1-35229) | |||||||||
| 31.1 | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | |||||||||
| 31.2 | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | |||||||||
| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference. | |||||||||
| 32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference. | |||||||||
| Exhibit Number | Description | Location | |||||||||
| 101.0 | The following materials from Xylem Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | |||||||||
| 104.0 | The cover page from Xylem Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2023 formatted in Inline XBRL and contained in Exhibit 101.0. | ||||||||||
| # Management contract or compensatory plan or arrangement |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| XYLEM INC. | ||||||||
| (Registrant) | ||||||||
| /s/ Geri McShane | ||||||||
| Geri McShane | ||||||||
| Vice President, Controller and Chief Accounting Officer | ||||||||
May 4, 2023