Welcome to the Xylem Fourth Quarter and Full Year 2015 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Phil De Sousa, Vice President of Investor Relations.

Well, thanks, Jacky, and good morning, everyone, and welcome to Xylem's fourth quarter 2015 earnings conference call. With me today are Chief Executive Officer, Patrick Decker; and Interim Chief Financial Officer, Shashank Patel. They will provide their perspective on Xylem's fourth quarter and full year 2015 results and discuss the full year outlook for 2016. Following our prepared remarks, we will address questions related to the information covered on the call. So with that – so that we will have enough time to address everyone on the call, I will ask that you please keep to one question and a follow-up and then return to the queue. We anticipate that today's call will last approximately one hour. As a reminder, this call and our webcast are accompanied by a slide presentation available on the Investors section of our website at www.xyleminc.com. A replay of today's call will be available until midnight, on March 6. Please note the replay number is 800-585-8367 and the confirmation ID number is 19530850. Additionally, the call will be available for playback via the Investors section of our website under the heading, Presentations. Please turn to slide two. We will make some forward-looking statements on today's call including references to future events or developments that we anticipate will or may occur. These statements are subject to future risks and uncertainties, such as those factors described in Xylem's most recent Annual Report on Form 10-K and in subsequent reports filed with the SEC. Please note the company undertakes no obligation to update any forward-looking statements publicly to reflect subsequent events or circumstances, and actual events or results could differ materially from those anticipated. Please turn to slide three. Just a few key notes for today's presentation. All references today will be on an adjusted basis, unless otherwise indicated. And non-GAAP financials are reconciled for you in the Appendix section of the presentation. Additionally, please note that references to 2016 metrics include the financial impact attributable to previously closed acquisitions and have been adjusted to exclude non-recurring transaction costs. Now, please turn to slide four. I'll turn the call over to our CEO, Partick Decker.

Thanks, Phil, and good morning everyone. Over the course of 2015, we faced a dynamic economic environment on a macro level and in key end markets. I'm quite pleased with our team's performance as we remained focused on executing against our long-term objectives. We responded effectively to changing conditions and ultimately closed out the year with another quarter of solid results. We delivered at or above our guidance on several key metrics. Organic revenue grew 2% in the quarter, resulting in 2% organic revenue growth for the full year as well. Adjusted earnings per share increased 3% to $0.60 in the quarter, excluding foreign exchange translation. This brought our full year adjusted earnings to $1.85 per share, a 5% increase year-over-year, excluding foreign exchange translation. And we delivered free cash flow conversion of 105% driven by working capital improvement. Importantly, I am encouraged by the fundamentals and underlying trends impacting our business today and in the years ahead. External factors such as steadily increasing spend on water infrastructure, growing demand for intelligent monitoring and control systems, and climate related initiatives that require our water expertise and ingenuity all bode well for sustained profitable growth at Xylem. As we continue to advance the key growth initiatives we laid out during our Investor Day last year, mainly stepping up our commercial leadership, driving accelerated growth in emerging markets and increasing our investment in R&D and innovation, I am confident that we are well positioned to deliver that growth. That work will be complemented by our ongoing focus on continuous improvement and business simplification, which will be significant levers for long-term value creation. Xylem has a balanced global portfolio that we expect will further benefit from a number of current and emerging trends. Here are a couple of examples. The perennial battle to…

Thanks, Patrick. And since you already covered some of these full year highlights, I will make some specific points and then dive further into our fourth quarter results. For the full year, revenue increased 2% on an organic basis, consistent with the midpoint of our guidance at the beginning of last year. We saw solid growth in the public utility, commercial and residential markets, all up 4% organically. Industrial was down 1% primarily due to the significant declines we saw in oil and gas over the second half of the year. Agriculture was down 8%, as unfavorable weather, namely the severe flooding conditions in the Southern U.S., wiped out this year's season. As a reminder, agriculture represents 2% of our revenues. Regionally, we generated the strongest growth in the emerging markets where we posted a 7% increase over the course of the year. China led the way here, growing 14%. Worth noting is that our Water Infrastructure segment grew 17%, driving 80% of the overall growth as the local trend to invest in and improve water quality and wastewater treatment continued. The U.S. and Western Europe markets each grew 1%. In the U.S., growth accelerated over the course of the year and hit a high for the year in the fourth quarter, whereas Europe was relatively stable throughout the year. Canada rounds out our geographic performance. There, significant declines in oil and gas resulted in a 13% decline in revenue. As for margins, productivity actions and volume leverage more than offset material, labor and overhead inflation and unfavorable mix. Excluding FX translation, gross margin expanded 40 basis points and led to a 30 basis point improvement in operating margins. Embedded in this operating margin performance is an investment in selling capabilities in key growth markets, partially offset by a reduction…

Thanks, Shashank. As I said earlier, we believe we are well positioned to make significant progress against our top priorities in 2016 in order to drive long-term profitable growth at Xylem. We're driving substantial change at Xylem to strengthen our commercial capabilities, taking specific actions to improve our customers' experience at each touch point we have with them. This includes driving more expertise through industry vertical selling, and simplifying our commercial processes. We have focused plans to accelerate growth in emerging markets, targeting increased investment of about $30 million in the Middle East, China and India. We plan to increase our R&D investment in 2016 by 30 basis points to 50 basis points to advance innovation. And as we drive our continuous improvement work deeper into the organization, we expect our Lean and Global Procurement initiatives to generate gross savings of $120 million, an increase of roughly 20% year-over-year. The growth rates I refer to on this slide all exclude the anticipated negative foreign exchange impacts. Looking at the year ahead, we expect to generate faster than market growth, delivering 2016 organic revenue growth of 2% to 4%. The recently completed acquisitions are expected to add an additional 1% of revenue growth. Given that we expect stable conditions across roughly 90% of our portfolio, including growth across all geographic regions, we believe we are positioned to exceed market growth, despite the ongoing headwinds from oil and gas and mining. Our adjusted operating margin is expected to grow in the range of 50 basis points to 80 basis points overall, despite roughly 20 basis points of margin dilution from the acquisitions of HYPACK and Tideland. This dilution is driven by purchase price accounting impacts such as non-cash intangible amortization. Excluding the diluted impact of acquisitions, our operating margin is expected to…

Thanks, Patrick. As we have done in prior years, I'd like to highlight the seasonal profile of our business, which you can see on the left side of the slide and our perspective on 2016 on the right. As for the first quarter of 2016, we expect 2% organic growth coupled with approximately 1% growth from acquisition. Foreign exchange translation is anticipated to be a 4% headwind. As for operating margin, we anticipate it to be flat year-over-year as the oil and gas and mining headwinds will continue to offset volume leverage and cost savings. Our expectations also assume a modest level of increased investment for our growth initiatives. We are assuming that both Global Procurement and Lean savings accelerate through the year, whereby we realize about $20 million on gross savings in the first quarter and expect to deliver about $120 million for the full year. Now, I'll turn the call back over to Patrick for closing comments. Please turn to slide 15.

Thanks, Shashank. So, we had a strong finish in 2015 as we faced some challenging conditions. Again, I want to thank our team for their performance as their focused execution against our strategic priorities helped us to deliver on the commitments we set forth at the beginning of 2015. I am confident in their ability and commitment to deliver against our organic growth targets and margin expansion opportunities. Xylem is in a very strong financial position and we will continue to drive our balanced and accelerated capital deployment plans. I am very encouraged as I look ahead to 2016 and beyond. No doubt there are challenges in the near-term but I am confident that our team will continue to execute with operational discipline to drive our success. That commitment and focus will provide the foundation for future growth for Xylem and our shareholders. With that, operator, we are ready to open the line for questions. [Operator Instructions]

Thank you. Our first question comes from the line of Deane Dray with RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning, Deane.

Good morning, Deane.

Hey. So, you really checked all the boxes this quarter. If I look at it, you've got in line EPS, you've got free cash flow, you do a dividend boost, you do buybacks, you get a deal done, so hopefully you still got some feel-goods left for the rest of the quarters in 2016. So, anyway, the question I wanted to focus on first is, interested in hearing a bit more about this large shipment that you disclosed in the Applied Water business, because it sounds as though the order spanned both Applied and Water Infrastructure, which is good to see, that suggests you're doing cross-selling. But the way the P&L gets tallied, Applied ended up showing a negative margin. So, to kind of put this project into context, is this solution selling? Do you have other business like this? And how do you – if you net the two out, how does that project look?

Sure. Well, thanks for the comments opening there, Deane, as well, we appreciate it. On this project – this is a project actually that has been in backlog for multiple years. And there've been some delays in the customer job site, in terms of ultimately delivering it. So it's been in backlog for more than a couple of years. The margin was net positive and attractive for us. I wouldn't say we have other projects like this that are out there. I mean, it was fine. It was an element of some solution sale. It was a bundled offering for an LNG application. But, again, it's a bit of a one-off. It's a large project and it's going to span over a few quarters here in terms of shipping it out.

Got it. And then, the follow-up question is not so much Xylem-specific. But I'm really struck by and interested in hearing your comments on the ramifications for this water crisis unfolding in Flint, Michigan, and again, it's on the front page of the journal today...

Yes.

So, how do you feel? What's your sense of what happens and the response within the municipal water community? Is going to be further congressional pressure here? What went wrong? What does this mean for the need for smart water networks? I know that's been a big focus for you and...

Yes.

...just how you think this plays out? And what are the ramifications for spending on this backlog in U.S. Water Infrastructure?

Sure. It's a great question, Deane. And, as I had mentioned in my opening comments, I mean, it's obviously a tragic situation there in Flint. As you'll recall, we had similar situations, though maybe different causes in Toledo not long before that. And you've got a number of these flooding conditions that we see from a resilience standpoint. There is infrastructure that needs to be invested in. As you've been following the water space for a long time, it's always difficult for any of us to predict the timing of when this will unlock some of the pent-up demand that's out there. But, I do believe, that there will likely be increased regulatory scrutiny. I think that will also lead to some increase in backlog movement in various communities across the U.S. It always seems to happen slower than any of us think it should occur. And so, it's difficult to predict kind of over what timeframe, we think, it will begin to free up. But I do think this will be a collection of flash points that begins to move things forward.

That's really helpful. Just to sneak one last question in, the deal is another focus in the water analytics side, hydrology. What's the pipeline look for M&A?

Yeah. So, we're excited by both the HYPACK and the Tideland acquisitions. They are very nice additions to our portfolio and really tie in nicely with the capabilities we already have in the analytics space in that area of hydrology. The pipeline overall – I mean, that's only one vertical obviously that we're focusing in on. If I go back to Investor Day, we talked about smart water infrastructure or systems intelligence. We talked about advance treatment in industrial and we talked about making sure that we defended and protected some of our unassailable kind of core franchises. So, the pipeline continues to build. It's very attractive. It's pretty broad and deep. As you know, it's always difficult to predict the timing of when things come forward. It always takes two to tango. But I am very encouraged by the work the team has done to further build out that pipeline and lines up really nicely with the value mapping work that we shared at Investor Day.

Thank you.

Thank you, Deane.

Thanks, Deane.

Our next question comes from the line of David Rose with Wedbush Securities.

Good morning, both. Thank you for...

Good morning, David.

Good morning.

Just a couple follow-ups on the restructuring actions, the $25 million. Can you break this down? And is this incremental to 2017 and 2018? How should we think about it? And then second question is, is your mention of unlocking private capital, I mean, you're overall in it, and I was hoping that you can elaborate on that.

Sure.

Yeah. This is Shashank. I will take the first question. As far as the $25 million, it is incremental, and it generates about $8 million savings in 2016 probably back-end loaded towards the second half. As far as where those actions are, I mean, that is restructuring and realignment. And it's in the areas of footprint, it's in the areas of the G&A and business simplification initiatives we had outlined during the Investor Day.

And I'm sorry, how much is in Applied Water and how much is in Water Infrastructure?

Yeah. We don't – actually, we don't disclose how much of that is broken up by segment, but the total is $25 million.

One of the reasons for that, David, is some of these are shared locations, where it will impact both businesses.

Okay. Great. That's helpful.

Yeah. On your second question around unlocking private capital, our role there is not necessarily being actively involved in financing and those type of activities. What I'm really alluding to there is we're involved in – it's our role as the thought leader in the water space, we are involved in a couple of efforts with other organizations in helping further this movement around things like public/private partnerships, other models that exist in other parts of the world that are not quite as commonplace here in the U.S. We believe that there is a large role for the private sector to play in driving attractive investments there. And so, helping in some of the education effort in that area is really the role that I'm referring to.

Okay. That's helpful. Thank you.

Okay. Thank you.

Thanks, David.

Our next question comes from the line of Nathan Jones with Stifel.

Good morning, everyone.

Good morning.

Good morning.

I think, Patrick, in your prepared remarks, you talked about the public utility market. And I think you commented that U.S., Middle East and Asia were up double digits, and did not make any reference to Europe. Given Europe is the biggest end market there, could you give us some color on what you're seeing in the public utility market in Europe and what your expectations are for 2016 there?

Sure. Yeah. So, it's – we saw Europe really stabilize over the back half of the year, and I would describe it as stable at this point. I mean, it is still a mixed – it's a mixed bag. I would say we have not seen the continued deterioration in the southern part of Europe that we'd experienced in the kind of first three quarters of the year. That stabilizes well. So, I think we're on fairly solid footing. One of the things that will benefit us in 2016, of course, is the impact in the UK of the AMP 6 infrastructure investments cycle there that you are all probably be quite familiar with in. That cycle was launched, I think, April 1 of this past year. It takes about 15 months or so for all of the engineering and design and spec work to happen on the part of our customers. And then, we really begin to see the revenue come our way in late 2016 through kind of 2018 or so. So, I think net-net, it's stable in Europe and kind of low-single digit growth for 2016.

Okay. Thanks. And if we just look at the light industrial, part of industrial, I think we're all fairly comfortable that oil and gas and mining are not going to be very good in 2016. You're talking about low-single digit growth there, which you need to get that flat or maybe up slightly. Can you talk about the different dynamics that are going on within that market that have you able to grow in what's probably a flat to may be slightly down global industrial market?

Sure. And that's a great question. I'd say, first of all, when you think about the nature of what the light industrial sector is, customers in that area are quite diverse. But across the board, they are very much focused in on energy efficiency to reduce their operating cost. Our volume there is not really like it would be in heavy industry. It's not really tied to the factory output, but it's rather more of an ongoing minimal operating cost. These are not large capital outlays that are required in the part of our customers. And so, it doesn't tend to be big on the radar screen, other than again, they play a role – these products play a role in helping them reduce their operating costs through energy efficiency. So, we think we're pretty resilient. I think that was demonstrated through 2015, when that part of the business again was up 2%, organically. And we've seen really nothing here in the latter part of 2015 or early 2016 that would change our view on that.

How much of that light industrial market is driven by the regulatory environment rather than the operating environment?

I wouldn't say it's a large driver in that area. I mean, I would say that as some of the energy efficiency regulations that have already been put in place in the EU come to the U.S. over the course of the next few years, then certainly there will be somewhat of a driver there. But I wouldn't say it's a big driver today. It's really more just, again, the managing their operating cost.

Okay. Thanks very much for the help.

Thank you.

Our next question comes from the line of Ryan Connors with Boenning & Scattergood.

Great. Thanks for taking my questions.

Sure.

Wanted to talk a little bit about the kind of price cost situation in this environment, if you might expand on that for us. Obviously, some of the raw material prices have come down and if you could talk about that impact on your P&L vis-à-vis what you're seeing on the pricing side, that'd be helpful.

Yeah. So, this is Shashank. From a pricing perspective, we expect fairly neutral conditions. So flattish pricing 2015 going into 2016. Clearly, we'd like to see more price in 2016, but it will be challenged based on current commodity environment. So that's a – so, as I said, it's flattish but, from a savings perspective, that does help because we do buy a lot of raw material, and the current environment helps drive more out of Global Procurement, and our target in 2016 is for higher cost-outs from Global Procurement perspective, as well as business simplification.

And I would just add, Ryan. I think that, as we've talked a little bit in the past, there's probably less than 10% of our revenue that is in end markets that are more challenged from a pricing standpoint that really being in the ag and resi part of the market. We continue to manage through that and maintain, I think, a very good discipline from a pricing standpoint. The area that we would suggest, over time, you would suspect the supply/demand favorability to work in our direction would be on the public utility sector. But we're still so early in the recovery there that we're not really counting on that kind of price dynamic in 2016.

Okay. And so, might you – I mean, would it be – would you hazard a guesstimate at what kind of a basis point tailwind raw materials could be to the margins, if you are able to say hold your price flat in aggregate?

I would suspect it's probably about 20 basis points to 30 basis points.

Okay. Okay. That's helpful. And then my other question, just real big picture, Patrick. I mean, you issued your 2016 guidance today and talked a lot about some of the puts and takes and some of the positives. But what do you view as kind of the biggest risk factor that could cause things to not play out the way you've laid out today as you look out over the next 11 months here?

Sure. I would say that the area that we kind of called out in our prepared comments as clearly going to be – we've already built some of this into our outlook, and that is continued downward pressure in both oil and gas and mining. Again, those are now only 8% of our total revenue, so it's not a large portion of our business. But certainly, if we saw mining drop off dramatically, then that would put pressure on our top line. But we feel that we've reflected that in the bottom end of the organic growth range. In terms of profitability, again, as we mentioned in our comments, these businesses are very high profit margin for us. Again, we feel that we've taken it in consideration in our guidance, but obviously, there are other cost out actions that we would take in the event that we saw that. And that's certainly something we've learned from this past year in our dewatering business.

That's great. Thanks so much.

Thank you.

Our next question comes from the line of Chip Moore with Canaccord.

Good morning. Thanks.

Good morning, Chip.

So, you touched on muni trends in the U.S. and Europe. Maybe we can move to emerging markets a bit. What gives you the confidence, I guess, that infrastructure spending holds up over there? And then maybe to follow up, talk about some of the softness you've seen on the commercial side?

Sure, on the – so, on the public utility side for emerging markets, the real key drivers there certainly at the moment, and we're still seeing this in our quoting activity and bidding activity, is the – again the fact that in our largest emerging markets, the whole issue of access to water and sustainability there are top policy issues and concerns, whether it'd be in China, whether it'd be in the Middle East, whether it'd be in India. And so, we are certainly not seeing any significant downward pressure there or slowing down of those large projects. But that certainly is something we're keeping a very close mindful eye on. As we did indicate in our guidance around emerging markets and we saw it in the fourth quarter, certainly, a significant headwind and pressure on the commercial building side, especially in China, as well as some of the impact of lower commodity prices on the industrial business there in China as well as in Latin America. So, again, in our guide for 2016, we feel that we've taken a pretty balanced approach in that area. But again, we'll keep a close eye on that and modulate our cost base accordingly across the rest of the portfolio.

And just to add a little bit of color to that, for emerging markets in 2015, we delivered about 7% growth and it did slow down in Q4 primarily due to China. As we look towards 2016, we kind of moderated that to a mid-single digit growth. And certainly, we factored in the slowness in China especially on the commercial building side. But then, we got investments going in Middle East, South Africa as we've talked about, as well as we have some large project deliveries in India that help the overall emerging market picture.

That's great. That's helpful. And maybe just a follow-up on oil and gas. Dewatering comps get better in the second half, 40% decline this year. I think you called out double-digit decline next year. Maybe you can just talk about sensitivities and what you're baking in there for declines on oil and gas. Thanks, folks.

Sure. Yeah. So, we've built in about a 30% impact in decline in the first half, and then obviously that stabilizes over the course of the full year. And so, it blends out in that kind of low-teen decline for all of 2016. And we've also factored in about a 10% decline in mining in that outlook.

Great. Thanks.

Thank you.

Our next question comes from the line of Brent Thielman with D.A. Davidson.

Hi.

Good morning, Brent.

I think most of my questions have been answered. But a question on Canada, it's shown some pretty sharp declines for a couple of quarters now. How large is Canada for you? And when do we start to see those comparisons ease?

I'll give you guys – so this is Phil. I'm just going to just jump in here real quick. So just to put into perspective the declines that we've seen in Canada, both, fourth quarter and full year completely almost entirely tied to that oil and gas decline that we've got there. And so, for the year, of the top of my head, I want to say, it's down 13% – 15% or so for the year. And in terms of size, it's about $150 million in revenue.

Okay. Great.

And that's Canada overall, not the oil and gas within Canada, just to be clear.

Got it. Thanks, Phil.

Our next question comes from the line of Brian Konigsberg with Vertical Research.

Yes. Hi. Good morning.

Good morning, Brian.

Good morning, Brian.

This might sound like a little bit of a crazy question considering the backdrop, but under the scenario where oil prices do say improve just modestly, and you do get a supply response out of the U.S., I'm just curious, maybe two things. Where do you think that oil prices actually need to go to, to actually initiate a supply response? And how quickly would you guys benefit, if that was to happen?

Yeah, Brian. I would say – I mean, I wouldn't want to kind of put a dollar amount out there in terms of the oil price to go there. But, the key is, it needs to be substantial enough that there is a meaningful increase in oil rigs. That's really the high correlator for us. And I think also, given our heavy exposure on the fracking side, again, I think that we would need to see a pretty notable move upwards in oil prices for us to be able to see a meaningful recovery there. So, I don't want to sound too dour or sour on that because I do believe that, once we get a lift, and there will be a lift at some point down the road, the teams in that part of our business have done a fantastic job at managing the cost base, so we will certainly see a very healthy incremental leverage when we see any growth there. But we're not counting on any of that here in 2016.

Sure. Understood. And next, can you maybe touch a little bit more on the free cash flow. You're looking for 100% plus conversion. Maybe you just give us the outlook as far as what are the kind of meaningful contributors. Obviously, you've got D&A. I mean, are you counting on working capital coming through or are there other items we should be thinking about?

Yeah. I can take that one. And it is over 100% and the drivers there are the normal generation of cash plus, on the working capital side, we showed good progress in second half. That momentum continues and that momentum will continue for the full year so we expect – that's why we expect over 100% is all the working capital areas such as we had good progress on inventory and accounts payable. On the AR side, we actually got hurt a little bit with the heavy shipment in December. But that's an area we continue to attack as far as pass-through receivables and we saw a good progress there in the fourth quarter as well.

Great. If I could just sneak one last in, what's the update on status on CFO search?

Sure. Yeah. So, we've had a lot of interest in the role. Interviewed a large number of experienced public company CFO candidates. We're down now to the short strokes. And so, I'm confident we're going to be announcing something here in the very near future here.

Great. Thank you very much.

Okay. Thank you.

Our next question comes from the line of Nick Prendergast with BB&T.

Hi. Good morning.

Good morning.

I just had a quick question about your emerging markets. And I know you touched on this in the prepared remarks, but I'm not sure I entirely got it. You noted that growth was 7% in the year. It slowed down to, I believe, around 2% in Q4. What exactly drove that again?

Yeah. That was predominantly the sharp decline that we had in commercial building and industrial in China in the quarter, and we also had a tough prior year comp as well. We had quite a large growth in the fourth quarter last year in emerging markets.

Okay. And then, if I heard correctly, in the Q&A, I think you said you've kind of moderated your view in emerging markets from the 7% in 2015 to somewhere around mid-single digits in 2016. Is that correct? And then, I guess, what gives you confidence that that will continue, and you don't continue to suffer from this China slowdown or whatever?

Sure. Yeah. That is correct in terms of what we laid out. And I think the – again, what we see there is confidence. I mean, first of all, I would say, I wouldn't focus too much on any one quarter because, again, the large of our business in emerging markets is still projects given these new greenfield things that are being invested and those can be choppy in terms of quarter-to-quarter movement or year-over-year comparisons. But again, we think that it's continued strength in public utility in China over the course of the full year, and it's the benefits that we're seeing from the investments we're making in the Middle East. And then, lastly, you may recall that last year we announced a $40 million project win in India. And a large piece of that ships out in 2016.

Got it. Okay. Thank you very much.

Thank you.

Our next question comes from the line of Joe Giordano with Cowen.

Hey, guys.

Good morning.

I actually can't believe I'm asking this question, but can you kind of refresh everyone on weak dollar implications for your business as expectations seem to be shifting a little bit here?

Yeah. I will take that one. As far as, from a euro perspective, which was a big headline about a year ago, the euro today is trading roughly what it was on the average for last year. Where we see the foreign exchange impact in 2016 is probably the British pound, the Aussie dollar and the Canadian dollar impacting us as well as emerging market currencies. There's some softness there which kind of blessed during the fourth quarter, still is there, and we've baked all of that in. And that's where we see the challenge. We do not – as long as the euro holds, we don't see the headwind from the euro like we did a year ago.

No. I mean, if we're getting into a situation where people think the dollar is going to weaken going forward and – weaken versus the euro, how is that going to benefit you guys?

Joe, let me just jump in here. Last year, we kind of gave the – a better rule-of-thumb schedule, if you would. If you want to kind of do it based on the outlook or based on where we are here in terms of the calendar, you basically think about it net-net, about for every [ph] cent (57:36) move in the euro, you got about $0.01, if you would, benefit to us or, if you would, headwind to us at the bottom line. So, it's about a penny for penny.

That's for the full year.

For the full year.

Yeah, and I – obviously , as you well know, Joe, and everybody on the call knows, it's such an uncertain environment right now from a currency standpoint that we simply snap the rates here based on where we are today. And we'll continue to be transparent on moves either direction on EPS impact.

Perfect. And then on the utility side, can you kind of talk about what you're seeing in larger CapEx-type projects versus what you are seeing in repair and replacement? More on – I guess, more on the order side, probably more on the forward look.

Sure. Yeah. I mean, we continue to see very attractive increase in quoting and bidding activity. We're seeing some increase in our win rates in that area as well. We are – we aren't seeing a major shift in the mix of our business just yet in terms of project versus more of the repair and maintenance. And part of the reason is the fact that as we still see that some customers kind of kicking the can down the road. We've seen a nice uptick in our break and fix part of the market as well. And so, that piece continues to grow quite nicely. I would again reiterate, although it's a small portion of our revenue in a given year, our backlog shippable in 2017 and beyond is up 48%. And so, again, a small portion of revenue, but it's historically been a leading indicator as to what the growth should look like in terms of momentum two years, three years out. And so, I would be concerned if I saw that trend going the other direction. It just continued to build over the course of the last year as we've given you those numbers.

And just to add a little bit – yeah. On the treatment side of our business, in the fourth quarter, we did see plus 20% on the order side. Granted that's longer lead time and that's also leading into the 2017 backlog, but we did see strength in treatment.

Yeah. Okay. And if I can sneak one more, on the deal that you've done on the analytic side, outside of near term dilution from the purchase price and allocation and things like that, how do you see margins of those businesses at scale kind of comparing to the segment average before this?

Yeah. Sure. So, without giving specifics on any one deal, I would say that to your point, as we get to the noise of the non-cash items that go through EPS, these deals we've done will be in line with our operating margins as a company, once we factor in synergies and other benefits. And those margins become even more accretive quite frankly, as we do further deals in the space because of the knock-on synergies and blended margins that we obtain.

Great. Thanks, guys.

Okay. Thank you.

Our next question comes from the line of Ryan Cassil with Seaport Global Securities.

Good morning, guys.

Good morning.

Most of my questions have been answered, but maybe you could talk about the book-and-ship business. It looks like you're anticipating that being a higher percentage of sale in 2016 or at least in the first quarter. And it's at a time when customers are being cautious on inventories and visibility as well. What gives you the confidence there on the short lead times stuff?

So I think – and you're right we are counting on a high level book-and-ship business and that's tied to the 2% to 4% growth we expect. And specifically the areas that we have a high book-and-ship for example, the Applied Water segment and that's driven by new products that we've actually launched and introduced over the last couple of years, and those affect both the European market and the U.S. market. So, that's going to drive that higher level of book-and-ship activity in the year.

Okay. Thanks, guys.

Thank you.

Thanks, Ryan.

Our final question comes from the line of Robert Barry with Susquehanna.

Hey, guys. Good morning.

Good morning.

Good morning.

Thanks for taking the question. Just a couple of things, one on the tax rate. I think at the Analyst Day, you guided that it should be 21% kind of through 2020. I saw it was 18% in the quarter and you're guiding it to 20% for 2016. Is there anything to comment there? Is there more progress being made on tax initiatives? Or how should we think about that and in the context of the long-term guide too?

Yeah. The overall tax rate, and we are guiding to the 20% range realizing that any quarter is impacted by the mix of where the profit is from a global perspective because the tax rates do move around. But based on the tax structure we have and based on the mix that we projected in 2016, we're basically guiding to the same roughly 20%, it's on average 20%. As I said, it moves. It does move slightly quarter-to-quarter.

Right. I mean, is the driver just based on the planned mix of business this year or should we now be thinking based on initiatives that the tax rate ought to track better?

It's the mix of the – the regional mix of the business is the driver.

Got you. And then just finally, maybe if you could unpack the mid-single digit growth that you see in the public utility, how that's kind of shaped out between the transport treatment versus test verticals?

Sure. So, I would say that, on a relative basis, to that mid-single digit, we would expect that there be a slightly higher growth rate than that in transport and treatment. And I would say that the – thinking about the test side of the business, that would be kind of in line with what we guided to there. And then obviously, what kind of pulls that down a bit would be the dewatering piece of the business, which is still going to be dealing with the oil and gas and mining lap.

Got you. Okay. Great. Thank you.

Thank you.

That was our final question. And now, I'd like to turn the call back over to Patrick Decker for any additional or closing remark.

Great. Thank you. Well, we appreciate the continued interest by everybody. Thanks for joining on the call today. Safe travels between now and the next time we see you, all. And we look forward to updating you on the next earnings call. Thank you, all.