8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 3, 2012

XYLEM INC.

(Exact name of registrant as specified in its charter)

Indiana	001-35229		45-2080495
(State or other jurisdiction of incorporation)	(Commission File Number)		(IRS Employer Identification No.)
1133 Westchester Avenue, Suite N200 White Plains, New York		10604
(Address of principal executive offices)		(Zip Code)

(914) 323-5700

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

Attached hereto as Exhibit 99.1 and incorporated herein by reference is the news release issued by Xylem Inc. on May 3, 2012, announcing the financial results for the first quarter ended March 31, 2012. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.

Item 7.01 Regulation FD Disclosure

Attached hereto as Exhibit 99.2 and incorporated herein by reference are earnings slides posted on Xylem Inc.’s website on May 3, 2012, summarizing Xylem Inc.’s financial results for the quarter ended March 31, 2012. This information is furnished pursuant to Item 7.01 Regulation FD Disclosure. This information shall not be deemed filed for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
99.1	News Release issued by Xylem Inc. on May 3, 2012.
99.2	Slides summarizing first quarter financial results posted by Xylem Inc. on May 3, 2012.

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 hereunto duly authorized.

	XYLEM INC.
Date: May 3, 2012	By:	/s/ Frank R. Jimenez
		Frank R. Jimenez
		Senior Vice President, General Counsel and Corporate Secretary (Authorized Officer of Registrant)

EXHIBIT INDEX

Exhibit No.	Description
99.1	News Release issued by Xylem Inc. on May 3, 2012.
99.2	Slides summarizing first quarter financial results posted by Xylem Inc. on May 3, 2012.

EX-99.1

Exhibit 99.1

Xylem

1133 Westchester Ave., White Plains, NY 10604

Tel +1.914.323.5700 Fax +1.914.696.2960

FOR IMMEDIATE RELEASE

Contacts:
Media	Investors
Tom Glover	Phil De Sousa
+1-914-323-5891	+1-914-323-5930
Tom.Glover@xyleminc.com	Phil.DeSousa@xyleminc.com

Xylem Inc. reports solid first quarter 2012 results; affirms previous full-year guidance

• First quarter 2012 revenue up 6 percent in constant currencies to $925 million; up 4 percent as reported

• First quarter 2012 adjusted net income of $67 million or $0.36 per share, up 9 percent on a normalized basis; $63 million or $0.34 per share as reported

• Orders for the quarter exceed $1 billion for the first time; up 3 percent over Q1 2011

• YSI acquisition integration ahead of plan; accretive to earnings per share

WHITE PLAINS, N.Y., May 3, 2012 – Xylem Inc. (NYSE: XYL), a leading global water technology company focused on solving the world’s most challenging water issues, today reported first quarter revenue of $925 million, up 6 percent from the first quarter 2011 on a constant currency basis and up 4 percent on a reported basis. First quarter net income was $63 million or $0.34 per share. Adjusting for one-time separation costs resulting from the Xylem spinoff from ITT Corporation on October 31, 2011, net income was $67 million or $0.36 per share, up 9 percent or 3 cents per share over the first quarter 2011 on a normalized basis.*

“Our growth in revenue and operating earnings in the first quarter is a testament to the strength of our comprehensive water portfolio, particularly the investments we’ve made in expanding our analytics and dewatering platforms,” said Gretchen McClain, president and chief executive officer of Xylem. “We believe we are particularly well-positioned to capture growth opportunities from the diverse end markets we serve.”

“We continue to see strong growth in our businesses serving the industrial markets, our largest end market,” McClain continued. “We are gaining market share in commercial building services, bolstered by some of our new products including the energy-saving eSV multistage booster pump. Total orders for the quarter exceeded $1 billion for the first time. And our latest acquisition, YSI, is already contributing to earnings and its integration into the rest of the business is ahead of plan. Solid free cash flow performance allows us to continue to make strategic investments and drive future growth.”

Xylem achieved free cash flow of $41 million and an adjusted operating margin of 11.2 percent, excluding non-recurring separation costs. Operating margin was also impacted by incremental stand-alone costs of $10 million, which reduced margin by 110 basis points.

* The 2011 normalized earnings per share reflect adjustments (including interest expense, stand-alone costs, and special tax items) to our GAAP results to better illustrate year-over-year performance. The normalized earnings are intended to give a representation of our performance had Xylem been a stand-alone company in 2011.

First Quarter Segment Results

Water Infrastructure

Xylem’s Water Infrastructure businesses provide equipment and services focused on the transport, treatment and testing of water and wastewater in the public utility and industrial markets.

• First quarter 2012 segment revenue was $584 million, up 8 percent from the first quarter of 2011 on a constant currency basis, and up 6 percent on a reported basis. This reflects the YSI acquisition, growth in industrial applications and growth in emerging markets.

• Segment orders were $638 million for the quarter, up 4 percent over last year, reflecting the YSI acquisition.

• First quarter adjusted segment operating margin, excluding non-recurring separation costs but including the impact of stand-alone costs, expanded by 160 basis points from the first quarter 2011 to 13.2 percent, driven by price and productivity gains. Stand-alone costs impacted operating margin by 20 basis points for the first quarter 2012.

Applied Water

Xylem’s Applied Water businesses provide equipment and services in the residential and commercial building services, general industrial and agricultural markets.

• First quarter 2012 segment revenue and orders were $355 million and $382 million, respectively, both up 1 percent over the first quarter of 2011 on an organic basis. Solid growth in general industry, commercial building services, and food and beverage was mostly offset by residential market weakness in Europe and the Middle East.

• First quarter adjusted segment operating margin, excluding non-recurring separation costs but including stand-alone costs, was 11.5 percent, down 150 basis points from the first quarter 2011, driven by lower volume in highly profitable HVAC products due to a warm winter in the U.S., lower marine volume and continued investment in the segment. Stand-alone costs impacted operating margin 60 basis points for the first quarter of 2012.

Affirming previous full-year 2012 guidance

Xylem is affirming previous guidance for full-year 2012 revenue in the range of $3.9 billion – $4.0 billion, representing year-over-year organic growth of 4 to 6 percent. Operating margins are anticipated to be in the range of 12.7 to 13.3 percent, excluding spinoff-related costs, but including incremental stand-alone costs of $25 to $30 million as Xylem completes its first full year as an independent company. These stand-alone costs will offset operating margin by 60 to 80 basis points. Full-year 2012 adjusted net income is forecast to be $334 million to $362 million, for adjusted earnings per share of $1.80 to $1.95 for the full year 2012, which reflects expected growth of 8 to 17 percent over normalized 2011. Reported net income, which includes one-time separation costs, is anticipated to range from $319 million to $350 million, or $1.72 to $1.89 per share.

2

More detail available

Supplemental information on Xylem’s first quarter earnings, including reconciliations for certain non-GAAP items, is posted at investors.xyleminc.com.

About Xylem

Xylem (XYL) is a leading global water technology provider, enabling customers to transport, treat, test and efficiently use water in public utility, residential and commercial building services, industrial and agricultural settings. The company does business in more than 150 countries through a number of market-leading product brands, and its people bring broad applications expertise with a strong focus on finding local solutions to the world’s most challenging water and wastewater problems. Launched in 2011 from the spinoff of the water-related businesses of ITT Corporation, Xylem is headquartered in White Plains, N.Y., with 2011 annual revenues of $3.8 billion and 12,500 employees worldwide.

The name Xylem is derived from classical Greek and is the tissue that transports water in plants, highlighting the engineering efficiency of our water-centric business by linking it with the best water transportation of all — that which occurs in nature. For more information, please visit us at www.xyleminc.com.

Forward-Looking Statements

This document contains information that may constitute “forward-looking statements.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements include, but are not limited to, statements about the separation of Xylem Inc. (the “Company”) from ITT Corporation, the terms and the effect of the separation, the nature and impact of the separation, capitalization of the Company, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to orders, sales, operating margins and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements.

Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those set forth in Item 1A in our Annual Report on Form 10-K, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission.

###

3

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

For the three months ended March 31,	2012			2011
Revenue	$	925		$	890
Cost of revenue		562			553
Gross profit		363			337
Selling, general and administrative expenses		231			210
Research and development expenses		28			24
Separation costs		5			3
Operating income		99			100
Interest expense		14			—
Other non-operating (expense) income, net		(1	)		1
Income before taxes		84			101
Income tax expense		21			23
Net income	$	63		$	78
Earnings per share:
Basic	$	0.34		$	0.42
Diluted	$	0.34		$	0.42
Weighted average number of shares – Basic		185.4			184.6
Weighted average number of shares – Diluted		185.9			184.6
Dividends declared per share	$	0.1012		$	—

4

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions)

For the three months ended March 31,	2012		2011
Net income	$	63	$	78
Other comprehensive income, before tax:
Foreign currency translation adjustment		49		86
Net change in cash flow hedges:
Unrealized gains (losses)		4		—
Net change in postretirement benefit plans:
Amortization of net actuarial loss		2		—
Settlement		2		—
Other comprehensive income, before tax		57		86
Income tax expense related to items of other comprehensive income		2		—
Other comprehensive income, net of tax		55		86
Comprehensive income	$	118	$	164

5

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

	March 31, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	347		$	318
Receivables, less allowances for discounts and doubtful accounts of $32 and $37 in 2012 and 2011, respectively		761			756
Inventories, net		465			426
Prepaid and other current assets		117			97
Deferred income tax assets		45			45
Total current assets		1,735			1,642
Property, plant and equipment, net		468			463
Goodwill		1,631			1,610
Other intangible assets, net		502			505
Other non-current assets		177			173
Total assets	$	4,513		$	4,393
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	329		$	322
Accrued and other current liabilities		486			490
Short-term borrowings and current maturities of long-term debt		4			5
Total current liabilities		819			817
Long-term debt		1,202			1,201
Accrued postretirement benefits		320			316
Deferred income tax liability		155			165
Other non-current accrued liabilities		68			67
Total liabilities		2,564			2,566
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common Stock – authorized 750.0 shares, par value $0.01 per share:
Issued 185.4 shares and 184.6 shares in 2012 and 2011, respectively		2			2
Capital in excess of par value		1,687			1,663
Retained earnings		84			40
Treasury stock – at cost 0.1 shares and 0 shares in 2012 and 2011, respectively		(1	)		—
Accumulated other comprehensive income		177			122
Total stockholders’ equity		1,949			1,827
Total liabilities and stockholders’ equity	$	4,513		$	4,393

6

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

For the three months ended March 31,	2012			2011
Operating Activities
Net income	$	63		$	78
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34			33
Share-based compensation		5			3
Payments of restructuring		—			(5	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		7			(3	)
Changes in inventories		(31	)		(16	)
Changes in accounts payable		14			(31	)
Changes in accrued liabilities		(25	)		(5	)
Changes in accrued taxes		3			11
Net changes in other assets and liabilities		(9	)		6
Net Cash - Operating activities		61			71
Investing Activities
Capital expenditures		(31	)		(19	)
Proceeds from the sale of property, plant and equipment		2			2
Other, net		—			(1	)
Net Cash - Investing activities		(29	)		(18	)
Financing Activities
Net transfer (to)/from former parent		(6	)		(33	)
Issuance of short-term debt		3			—
Principal payments of debt and capital lease obligations		(3	)		—
Purchase of common stock		(1	)		—
Proceeds from exercise of employee stock options		16			—
Tax impact from equity compensation activity		(1	)		—
Dividends paid		(19	)		—
Other, net		1			—
Net Cash - Financing activities		(10	)		(33	)
Effect of exchange rate changes on cash		7			3
Net change in cash and cash equivalents		29			23
Cash and cash equivalents at beginning of year		318			131
Cash and cash equivalents at end of year	$	347		$	154
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	11		$	—
Income taxes (net of refunds received)	$	18		$	9

7

Xylem Inc. Non-GAAP Measures

Management views key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, free cash flow, working capital, and backlog, among others. In addition, we consider certain measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenues, operating income, net income, earnings per share (basic and diluted) or net cash from operations as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

“Organic revenue” and “Organic orders” defined as revenue and orders, respectively, excluding the impact of foreign currency fluctuations, intercompany transactions, and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for classification as a discontinued operation or insignificant portions of our business that we did not classify as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period.

“Constant currency” defined as financial results adjusted for currency by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries where the functional currency is the local currency.

“EBITDA” defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude for one-time separation costs associated with the Xylem spin-off from ITT Corporation.

“Operating Income *” and “Adjusted EPS” defined as operating income and earnings per share, adjusted to exclude one-time separation costs associated with the Xylem spin-off from ITT Corporation and tax-related special items.

“Normalized EPS” defined as earnings per share, adjusted to exclude one-time separation costs associated with the Xylem spin-off from ITT Corporation and tax-related special items, as well as an adjustment to reflect the incremental current period amount of interest expense and stand-alone costs in the prior comparable period.

“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flows does not consider non-discretionary cash payments, such as debt.

8

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Revenue / Order Growth

($ Millions)

	(As reported - GAAP)									(As Adjusted - Organic)													Constant Currency
			(A)		(B)					(C)			(D)		(E)			(F) = B+C+D+E		(G) = F/A			(H) = (B + D) / A
	Orders		Orders		Change 2012 v. 2011		% Change 2012 v. 2011			Acquisitions / Divestitures			FX Contribution		Eliminations			Change Adj. 2012 v. 2011		% Change Adj. 2012 v. 2011
	2012		2011
Orders
Quarter Ended March 31, 2012
Xylem Inc.		1,004		978		26		2.7	%		(37	)		18		—			7		0.7	%		4.5	%
Water infrastructure		638		612		26		4.2	%		(37	)		13		—			2		0.3	%		6.4	%
Applied Water		382		381		1		0.3	%		—			5		(1	)		5		1.3	%		1.6	%
	Revenue		Revenue		Change 2012 v. 2011		% Change 2012 v. 2011			Acquisitions / Divestitures			FX Contribution		Eliminations			Change Adj. 2012 v.  2011		% Change Adj. 2012 v. 2011
	2012		2011
Revenue
Quarter Ended March 31, 2012
Xylem Inc.		925		890		35		3.9	%		(34	)		14		—			15		1.7	%		5.5	%
Water infrastructure		584		551		33		6.0	%		(34	)		10		1			10		1.8	%		7.8	%
Applied Water		355		355		—		0.0	%		—			5		—			5		1.4	%		1.4	%

Note: Due to rounding and intersegment eliminations the sum of segment amounts may not agree to Xylem totals.

9

Xylem Inc. Non-GAAP Reconciliation

Adjusted Diluted EPS

For The Three Months Ended 2012 & 2011

($ Millions, except per share amounts)

	Q1 2012		Q1 2011
Net Income		63		78
Separation costs, net of tax		4		2
Adjusted Net Income before Special Tax Items		67		80
Special Tax Items		—		—
Adjusted Net Income		67		80
Diluted Earnings per Share	$	0.34	$	0.42
Separation costs per Share	$	0.02	$	0.01
Adjusted diluted EPS before Special Tax Items	$	0.36	$	0.43
Special Tax Items per Share	$	0.00	$	0.00
Adjusted diluted EPS	$	0.36	$	0.43

10

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)

	Q1 2011															Q1 2012
	As Reported			Adjustments			Adjusted			Adjustments			Normalized			As Reported			Adjustments			Adjusted
Total Revenue		890						890						890			925						925
Operating Income		100			3a			103			(10	)c		93			99			5a			104
Operating Margin		11.2	%					11.6	%					10.4	%		10.7	%					11.2	%
Interest Expense		—						—			(13	)d		(13	)		(14	)					(14	)
Other Non-Operating Income (Expense)		1						1						1			(1	)					(1	)
Income before Taxes		101			3			104			(23	)		81			84			5			89
Provision for Income Taxes		(23	)		(1	)b		(24	)		5e			(19	)		(21	)		(1	)b		(22	)
Net Income		78			2			80			(18	)		62			63			4			67
Diluted Shares		184.6												184.6			185.9						185.9
Diluted EPS	$	0.42		$	0.01		$	0.43		$	(0.10	)	$	0.33		$	0.34		$	0.02		$	0.36

a One time separation costs

b Tax impact of one time separation costs

c Incremental stand alone costs incurred in 2012

d Incremental interest expense on long-term debt incurred in 2012

e Tax impact of incremental interest expense and stand alone costs incurred in 2012

11

Xylem Inc. Non-GAAP Reconciliation

Segment Operating Income

($ Millions)

Adjusted Segment Operating Income

	Q1						Q2					Q3					Q4
	’12			’11			’12		’11			’12		’11			’12		’11
Total Revenue
• Water Infrastructue		584			551			—		602			—		584			—		679
• Applied Water		355			355			—		385			—		368			—		336
Operating Income
• Water Infrastructue		75			64			—		94			—		87			—		98
• Applied Water		40			46			—		50			—		37			—		27
Separation Costs
• Water Infrastructue		2			—			—		2			—		8			—		6
• Applied Water		1			—			—		—			—		9			—		4
Adjusted Operating Income*
• Water Infrastructue		77			64			—		96			—		95			—		104
• Applied Water		41			46			—		50			—		46			—		31
Operating Margin
• Water Infrastructue		12.8	%		11.6	%				15.6	%				14.9	%				14.4	%
• Applied Water		11.3	%		13.0	%				13.0	%				10.0	%				8.0	%
Adjusted Operating Margin*
• Water Infrastructue		13.2	%		11.6	%				15.9	%				16.3	%				15.3	%
• Applied Water		11.5	%		13.0	%				13.0	%				12.5	%				9.2	%

* Adjusted Operating Income excludes non-recurring separation costs

12

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

For The Three Months Ended 2012 & 2011

($ Millions)

	Three Months Ended
	2012			2011
Net Cash - Operating Activities		61			71
Capital Expenditures		(31	)		(19	)
Free Cash Flow, including separation costs		30			52
Separation Costs (Cash Paid incl. Capex)		11			2
Free Cash Flow, excluding separation costs		41			54
Net Income		63			78
Separation Costs, net of tax		4			2
Adjusted Net Income		67			80
Free Cash Flow Conversion		61	%		68	%

13

EX-99.2

Q1 2012 Earnings Release

May 3, 2012

Exhibit 99.2

Forward Looking Statements

2

This document contains information that may constitute “forward-looking statements.” Forward-looking statements by their

nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,”

“intend,” “plan,” “believe,” “target” and similar expressions identify forward-looking statements, which generally are not historical

in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. 

These forward-looking statements include, but are not limited to, statements about the separation of Xylem Inc. (the “Company”)

from ITT Corporation, the terms and the effect of the separation, the nature and impact of the separation, capitalization of the

Company, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans

intentions or goals, and any discussion of future operating or financial performance. All statements that address operating

performance, events or developments that we expect or anticipate will occur in the future — including statements relating to

orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future

operating results — are forward-looking statements.  

Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks,

uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or

reasonably inferred from, such statements. The Company undertakes no obligation to publicly update or revise any forward-

looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition,

forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from

the Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are

not limited to, those set forth in Item 1A of our Annual Report on Form 10-K, and those described from time to time in

subsequent reports filed with the Securities and Exchange Commission.

Q1’12 Financial Performance Summary

3

* See Appendix for Non-GAAP Reconciliations

Orders

> $1B

Record Milestone; Book to Bill 1.09

Revenue

$925M

+6%  (Constant Currency Basis)*

Gross Margin

39.2%

+130 bps

Operating Margin *

11.2%

12.3% ex. Stand-Alone Costs; +70 bps

EPS *

$0.36

+9% Normalized Growth

Free Cash Flow *

$41M

61% Conversion …

Typical Seasonality

Solid Q1 Performance … Confident in Ability to Deliver a Strong 2012

Q1’12 Performance Summary

4

Making Significant Progress on Key Focus Priorities

Advancing Our Strategic Position

•

YSI Acquisition …

EPS Accretive …

Integration Ahead of Plan, Launched Cross Branded Products

•

Recognizing Revenue Synergies Across Analytics

•

Opened New Distribution and Customer Service Center in Russia

Deploying Innovation & New Product Applications and Services

•

Bell & Gossett Awarded the PM Engineer Magazine Product of the Year Award

•

Bell & Gossett Little Red School House®

Recognized as a Certified LEED (Leading Energy and Engineering

Design) Education Provider

•

Flygt Experior -

2012 Ringier Technology Innovation Award

Continued Strong Execution

•

Deployment of Commercial Excellence ... Continued Strong Price Realization

•

Operational Initiatives Underway To Drive a More Competitive Cost Structure

Geographic and End Market Q1’12 Performance

5

Performance In-Line With Expectations

Geographic Region

End Market

(% of 2011 Revenue)

+

Emerging Markets

+

Lat. Am., Asia Pac., E. Europe

-

Middle East

+

U.S.

=

Europe

+

Industrial

(~40%)

=

Public

Utility

(~36%)

+

Commercial

(~12%)

-

Residential

(~9%)

-

Agriculture

(~3%)

6

See appendix for non-GAAP reconciliations

* Excludes non-recurring separation costs of $5M and $3M in Q1 2012 and Q1 2011, respectively

Q1 Performance Drivers

+

Industrial & Commercial Strength

+

YSI Acquisition Adds 4%

=

Public Utility Stable

–

Residential Market Headwind

+

Building Backlog …

Record Orders $1B

(Dollars, In Millions)

(Dollars, In Millions)

Q1 Growth

Q1 Growth

Organic

+2%

FX

-2%

Acquisition

+4%

Total

Total

+4%

+4%

Cost Reductions

+2.7%

Price

+1.5%

Acquisitions 

+0.5%

Vol/Mix/Invest

-

1.8%

Delivered

Mid-Single

Digit

Top

Line

Growth

…

Solid

Operating

Performance

890

925

+4%

103

104

+1%

Incremental Margin ~18%

Incremental Margin ~18%

(Ex. FX & Stand Alone Costs)

(Ex. FX & Stand Alone Costs)

Operating Income *

Operating Income *

Revenue

Revenue

Q1’12 EPS *

Q1’12 Xylem Performance

7

9% Normalized EPS Growth

Interest

($0.06)

Stand-Alone

($0.04)

Separation Costs  $0.01

* See Appendix for Non-GAAP Reconciliations

Operational Performance:

+

Base Business / –

Investments

+

YSI Acquisition …

EPS Accretive

–

Operating Tax Rate

Spin Related:

–

Interest Expense

–

Stand-Alone Costs

–

Separation Costs

9%

9%

Normalized

Normalized

EPS Growth

EPS Growth

Q1'11

GAAP EPS

Adjustments

Normalized

Q1'11 EPS

Operational

Performance

Adjusted

Q1'12 EPS

Separation

Costs

Q1'12

GAAP EPS

$0.42

$0.33

$0.36

$0.34

$0.03

$0.09

$0.02 

Q1’12 Water Infrastructure Performance

8

Significant Margin Expansion Driven by Strategic Acquisitions & Initiatives

See appendix for non-GAAP reconciliations

* Excludes Q1 2012 non-recurring separation costs of $2M

+6%

(Dollars, In Millions)

(Dollars, In Millions)

+20%

Incremental Margin ~26%

(Ex. FX & Stand Alone Costs)

Q1 Organic Growth Drivers

•

Transport +3%

+

Global Industrial …

Dewatering Strong

=

Public Utility Flat

•

Treatment -3%

–

Developed Markets Soft …

Project Timing

+

Double-Digit Emerging Markets Growth

•

Test -2% (Excludes YSI, Double-Digit Growth)

–

Exceptionally Strong Q1’11

Cost Reductions

+2.7%

Price

+0.9%

Acquisitions 

+0.6%

Vol/Mix/Invest

-

0.7%

Operating Income *

Revenue

Q1 Growth

Q1 Growth

Organic

+2%

FX

-2%

Acquisition

+6%

Q1'11

Q1'12

551

Q1'11

Q1'12

64

Q1'11

Op Margin

Operations

FX

Inflation

Q1'12

Op Margin

Before

Stand-

Alone*

Stand-

Alone

Q1'12

Op Margin*

11.6%

13.4%

13.2%

2.4%

0.2%

3.5%

0.7%

77

584

Total

Total

+6%

+6%

Q1’12 Applied Water Performance

9

Results As Expected …

Confident in Delivering Operational Improvement

Flat

See appendix for non-GAAP reconciliations

* Excludes Q1 2012 non-recurring separation costs of $1M

(Dollars, In Millions)

(Dollars, In Millions)

-11%

•

Building Services +2%

+

Commercial Market Share Gains

–

Residential Weakness …

Europe & Warm US Winter

–

Emerging Markets Down …

Middle East Instability

•

Industrial Water +2%

+

General Industrial and Food & Beverage Strength

–

Leisure Marine

•

Irrigation -4%

=

Continued Strength in US …

Strong Q1’11

Cost Reductions

+2.5%

Price

+2.6%

Vol/Mix/Invest

-

3.1%

Unfavorable Mix

•

Marine Down …

Q2’12 Improvement Opportunity

•

Warm US Winter Drove Lower High Margin Business

Revenue

Operating Income *

Q1 Growth

Q1 Growth

Organic

+1%

FX

-1%

Acquisition

-

Total

Total

Flat

Flat

Q1'11

Q1'12

355

Q1'11

Q1'12

46

Q1'11

Op Margin

Operations

FX

Inflation

Q1'12

Op Margin

Before

Stand-Alone*

Stand-

Alone

Q1'12

Op Margin*

13.0%

12.1%

11.5%

0.1%

2.8%

0.6%

2.0%

41

355

Xylem Financial Position

10

•

Free Cash Flow $41M

•

Typical Seasonality

•

Impact of Stand-Alone Costs & Interest

•

Working Capital Investment

•

Increased Capex for Growth Initiatives

•

Capex > 1 Reinvestment Ratio

•

Strong Cash Position

•

No Significant Debt Maturities Until 2016

•

31% Net Debt to Net Capital

•

1.3x Net Debt/Adj. TTM EBITDA

•

$600M Revolving Credit Facility Undrawn

•

Access to Commercial Paper

FCF%

68%

61%

W/C%**

24.1%

23.1%

March 31, 2012

Cash

347

Debt

1,206

Net Debt

859

Shareholders’

Equity

1,949

Net Capital

2,808

Net Debt to Net Capital

31%

(Dollars, In Millions)

(Dollars, In Millions)

(Dollars, In Millions)

* See Appendix for Non-GAAP Reconciliations

** (AR+INV-AP)/ TTM Revenue (Adjusted for Acquisitions)

Free Cash Flow *

Free Cash Flow *

Working Capital

Working Capital

Capital Summary/Liquidity

Capital Summary/Liquidity

Strong

Cash

Flow

…

Healthy

Balance

Sheet

...

Providing

Flexibility

54

41

843

897

2012 Guidance

2012 Financial Guidance Summary

12

2012 Full Year

Financial Outlook

Growth

2012E vs. 2011

Total Revenue

$3.9B -

$4.0B

4% -

6% (Organic)

Water Infrastructure

$2.5B -

$2.6B

5% -

7% (Organic)

Applied Water

$1.4B -

$1.5B

2% -

6% (Organic)

Segment Margin*

14.5% -

15.0%

+50 to +100 bps

Operating Margin*

12.7% -

13.3%

Flat to +60 bps (incl. incremental

stand-alone costs $25M-$30M)

EPS * 

$1.80 -

$1.95

-7% to +1% on Adjusted Basis

+8% to +17% on Normalized Basis

Free Cash Flow Conversion

95%

Excluding one-time separation costs

* See Appendix for Non-GAAP Reconciliations

Solid

Q1’12

Performance

…

Affirming

Full

Year

Guidance

2012 Xylem Performance

13

Affirming 2012 EPS Outlook

Illustration of Mid Point Guidance

•

Operational performance $0.21, includes YSI contribution, FX and

tax headwind

•

Projected structural tax rate ~25%

•

Nine months incremental interest expense normalization

•

Full year impact of stand alone costs …

in line with expectations

* See Appendix for Non-GAAP Reconciliations

Includes

unfavorable tax

rate change of 1%

13%

13%

Normalized

Normalized

EPS Growth

EPS Growth

2012 EPS * Outlook

Adjusted

FY'11 EPS

Incremental

Interest

Expense

Incremental

Stand-

Alone Costs

Normalized

FY'11 EPS

Operational

Performance

Adjusted

FY'12 EPS

$1.93

$1.66

$1.87

$0.16

$0.11

$0.21

Key Takeaways

14

•

Solid

Q1

Performance

…

As

Expected

•

End Market Conditions Consistent with 2012 Guidance

Assumptions

•

YSI …

Further Demonstrates Inorganic Growth Capabilities, and

Our Ability to Acquire & Effectively Integrate

•

Strong Financial Position & Strong Cash Flow Generation

•

Confident in Ability to Deliver a Strong 2012

Appendix

2012 Revenue Outlook

16

Strong

Underlying

Growth

…

FX

Shift

from

Tailwind

to

Headwind

Xylem

Xylem

Xylem

3.9 -

4.0

(Dollars, In Billions)

2011

2012

Comments

Organic

Growth

7%

4-6%

-

1H’12 tough compare vs. strong 1H’11

-

2H’12 stronger than 1H

FX

(Translation)

4%

(3)%

~65% international revenues

Top foreign currencies:

Euro, CAD, AUD, GBP, SEK

Acquisition

8%

2%

2012 represents YSI

2011 represents incremental Godwin,

Nova, OI Analytics and YSI

Total Growth

19%

3-5%

Quarterly

Revenue Profile

(% of FY Revenue)

Q1

Q2

Q3

Q4

2009-2011

Composite

22%

25%

25%

28%

3.8

2011

2012 Outlook

2012 Margin Outlook

17

Solid Margin Performance …

On Track to Meet Long Term Objective

Includes Stand-Alone

Costs of ~70 bps

Includes Stand-Alone

Costs  of ~10 bps

Op Margin Expansion (Ex. Stand Alone Costs) **

Op Margin Expansion (Ex. Stand Alone Costs) **

•

Segment Op Margin 14.5% -

15.0%

•

Comm’l & Oper’l Excellence Initiatives

•

Acquisition margin accretive

•

Organic growth investments

•

Inflation ~3%

•

Operating Margin 12.7% -

13.3%

•

Includes stand-alone costs ~$25M-$30M

Segment Margin *

Segment Margin *

Operating Margin *

Operating Margin *

12.7% -

13.3%

See appendix for non-GAAP reconciliations

*Excludes non-recurring separation costs of $87M and $15M-$20M for 2011 and 2012, respectively

** Adjusted for non recurring separation costs and stand alone costs

9.6%

14.5% -15.0%

14.0%

2012

Outlook

2011

2012

Outlook

2011

12.7%

9.7%

12.1%

12.8%

13.7%

2011

2010

2009

2008

2012

Midpoint

Driving Consistent

Improvements

…

On

Track to Meet Long

Term Objective

Quarterly Financial Performance

18

($M, Except

EPS)

Q1’10

Q2’10

Q3’10

Q4’10

FY’10

Q1’11

Q2’11

Q3’11

Q4’11

FY’11

Q1’12

Revenue

686

775

806

935

3,202

890

971

939

1,003

3,803

925

COGS

431

484

497

576

1,988

553

592

574

623

2,342

562

Gross Profit

255

291

309

359

1,214

337

379

365

380

1,461

363

SG&A

164

170

183

220

737

210

219

215

233

877

231

R&D

18

17

18

21

74

24

26

23

27

100

28

Separation Costs

-

-

-

-

-

3

18

46

20

87

5

Restructuring &

Asset Impairment

Charges, net

4

3

1

7

15

-

-

2

-

2

-

Op Income

69

101

107

111

388

100

116

79

100

395

99

Interest Expense

-

-

-

-

-

-

1

1

15

17

14

Other Non-Op

-2

-1

3

-

-

1

-

4

-

5

(1)

Income before Tax

67

100

110

111

388

101

115

82

85

383

84

Tax

11

15

19

14

59

23

43

5

33

104

21

Net Income

56

85

91

97

329

78

72

77

52

279

63

EPS –

Diluted *

$0.30

$0.46

$0.49

$0.53

$1.78

$0.42

$0.39

$0.42

$0.28

$1.50

$0.34

* On October 31, 2011, Xylem Inc. completed the spin-off through a tax-free stock dividend to ITT Corporation’s shareholders.  ITT

Corporation shareholders received one share of our common stock for each share of ITT common stock.  As a result on October 31, 2011,

we

had

184.6

million

shares

of

common

stock

outstanding

and

this

share

amount

is

being

utilized

to

calculate

earnings

per

share

for

all

periods presented prior to the spin-off.

Non-GAAP Measures

19

Management views key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, free

cash flow, working capital, and backlog, among others. In addition, we consider certain measures to be useful to management and investors

evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and

management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital

for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financial performance under

GAAP and should not be considered a substitute for revenues, operating income, net income, earnings per share (basic and diluted) or net cash

from operations as determined in accordance with GAAP. We consider the following non- GAAP measures, which may not be comparable to

similarly titled measures reported by other companies, to be key performance indicators:

“Organic revenue" and "Organic orders” 

transactions, and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the

criteria for classification as a discontinued operation or insignificant portions of our business that we did not classify as a discontinued operation.

The period-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period. 

“Constant currency”

conversion rate. This approach is used for countries where the functional currency is the local currency.

“EBITDA”  defined

adjustment to EBITDA to exclude for one-time separation costs associated with the Xylem spin-off from ITT Corporation. 

“Operating Income *” and “Adjusted EPS”

with the Xylem spin-off from ITT Corporation and tax- related special items.

“Normalized EPS”

tax- related special items, as well as an adjustment to reflect the incremental current period amount of interest expense and stand alone costs in

the prior comparable period.  

“Free Cash Flow”

other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our

definition of free cash flows does not consider non-discretionary cash payments, such as debt. 

as

revenue

and

orders,

respectively,

excluding

the

impact

of

foreign

currency

fluctuations,

intercompany

defined

as

financial

results

adjusted

for

currency

by

translating

current

period

and

prior

period

activity

using

the

same

currency

as

earnings

before

interest,

taxes,

depreciation,

amortization

expense,

and

share

-based

compensation.

“Adjusted

EBITDA”

reflects

the

defined as operating income and earnings per share, adjusted to exclude one-time separation costs associated

as

earnings

per

share,

adjusted

to

exclude

one

-time

separation

costs

associated

with

the

Xylem

spin-off

from

ITT

Corporation

and

defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for

defined

defined

Non-GAAP Reconciliation:

Organic & Constant Currency Revenue / Order Growth

20

Constant Currency

(A)

(B)

(C)

(D)

(E)

(F) = B+C+D+E

(G) = F/A

(H) = (B + D) / A

Orders

Change

% Change

Change

% Change

Orders

Orders

2012 v. 2011

2012 v. 2011

FX Contribution

Eliminations

Adj. 2012 v. 2011

Adj. 2012 v. 2011

2012

2011

Quarter Ended March 31, 2012

Xylem Inc.

1,004

978

26

2.7%

(37)

18

-

7

0.7%

4.5%

Water infrastructure

638

612

26

4.2%

(37)

13

-

2

0.3%

6.4%

Applied Water

382

381

1

0.3%

-

5

(1)

5

1.3%

1.6%

Revenue

Change

% Change

Change

% Change

Revenue

Revenue

2012 v. 2011

2012 v. 2011

FX Contribution

Eliminations

Adj. 2012 v. 2011

Adj. 2012 v. 2011

2012

2011

Quarter Ended March 31, 2012

Xylem Inc.

925

890

35

3.9%

(34)

14

-

15

1.7%

5.5%

Water infrastructure

584

551

33

6.0%

(34)

10

1

10

1.8%

7.8%

Applied Water

355

355

-

0.0%

-

5

-

5

1.4%

1.4%

Note: Due to rounding and intersegment eliminations the sum of segment amounts may not agree to Xylem totals.

Acquisitions /

Divestitures

Acquisitions /

Divestitures

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Revenue / Order Growth

($ Millions)

(As reported -

GAAP)

(As Adjusted -

Organic)

Non-GAAP Reconciliation: Adjusted Diluted EPS

21

Q1 2012

Q1 2011

Net Income

63

78

Separation costs, net of tax

4

2

Adjusted Net Income before Special Tax Items

67

80

Special Tax Items

-

-

Adjusted Net Income

67

80

Diluted Earnings per Share

$0.34

$0.42

Separation costs per Share

$0.02

$0.01

Adjusted diluted EPS before Special Tax Items

$0.36

$0.43

Special Tax Items per Share

$0.00

$0.00

Adjusted diluted EPS

$0.36

$0.43

Adjusted Diluted EPS

For The Three Months Ended 2012 & 2011

($ Millions, except per share amounts)

Xylem Inc. Non-GAAP Reconciliation

Non-GAAP Reconciliation: Normalized EPS

22

Q1 2011

Q1 2012

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Reported

Adjustments

Adjusted

Total Revenue

890

890

890

925

925

Operating Income

100

3

a

103

(10)

c

93

99

5

a

104

Operating Margin

11.2%

11.6%

10.4%

10.7%

11.2%

Interest Expense

-

-

(13)

d

(13)

(14)

(14)

Other Non-Operating Income (Expense)

1

1

1

(1)

(1)

Income before Taxes

101

3

104

(23)

81

84

5

89

Provision for Income Taxes

(23)

(1)

b

(24)

5

e

(19)

(21)

(1)

b

(22)

Net Income

78

2

80

(18)

62

63

4

67

Diluted Shares

184.6

184.6

185.9

185.9

Diluted EPS

0.42

$              

0.01

$               

0.43

$               

(0.10)

$              

0.33

$             

0.34

$              

0.02

$               

0.36

$             

a

One time separation costs

b

Tax impact of one time separation costs

c

Incremental stand alone costs incurred in 2012

d

Incremental interest expense on long-term debt  incurred in 2012

e

Tax impact of incremental interest expense and stand alone costs incurred in 2012

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)

23

Non-GAAP Reconciliation: Segment Operating Income

Adjusted Segment Operating Income

Q1

'12

'11

Total Revenue

• Water Infrastructue

584

551

• Applied Water

355

355

Operating Income

• Water Infrastructue

75

64

• Applied Water

40

46

Separation Costs

• Water Infrastructue

2

-

• Applied Water

1

-

Adjusted Operating Income*

• Water Infrastructue

77

64

• Applied Water

41

46

Operating Margin

• Water Infrastructue

12.8%

11.6%

• Applied Water

11.3%

13.0%

Adjusted Operating Margin*

• Water Infrastructue

13.2%

11.6%

• Applied Water

11.5%

13.0%

*Adjusted Operating Income excludes non-recurring separation costs

Xylem Inc. Non-GAAP Reconciliation

Segment Operating Income

($ Millions)

Non-GAAP Reconciliation: Free Cash Flow

24

2012

2011

Net Cash - Operating Activities

61

71

Capital Expenditures

(31)

(19)

Free Cash Flow, including separation costs

30

52

Separation Costs (Cash Paid incl. Capex)

11

2

Free Cash Flow, excluding separation costs

41

54

Net Income

63

78

Separation Costs, net of tax

4

2

Adjusted Net Income

67

80

Free Cash Flow Conversion

61%

68%

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

For The Three Months Ended 2012 & 2011

($ Millions)

Three Months Ended

25

Non-GAAP Reconciliation: Xylem EBITDA & Adj. EBITDA

2012

Q1

Q1

Q2

Q3

Q4

Total

Pre-Tax Net Income

84

101

115

82

85

383

Interest, net

13

-

-

1

16

17

Depreciation

23

22

25

25

21

93

Amortization

11

11

10

11

12

44

Stock Compensation

5

3

2

2

6

13

EBITDA

136

137

152

121

140

550

Separation Costs

5

3

18

46

20

87

Adjusted EBITDA

141

140

170

167

160

637

Revenues

925

890

971

939

1,003

3,803

Adjusted EBITDA Margin

15.2%

15.7%

17.5%

17.8%

16.0%

16.7%

2011

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Total Xylem

($ Millions)

26

Non-GAAP Reconciliation: Water Infrastructure EBITDA & Adj. EBITDA

2012

Q1

Q1

Q2

Q3

Q4

Total

Pre-Tax Net Income

75

65

93

88

99

345

Interest, net

-

-

-

(1)

-

(1)

Depreciation

16

16

19

19

14

68

Amortization

10

9

9

9

9

36

Stock Compensation

1

-

-

1

1

2

EBITDA

102

90

121

116

123

450

Separation Costs

2

-

2

8

6

16

Adjusted EBITDA

104

90

123

124

129

466

Revenues

584

551

602

584

679

2,416

Adjusted EBITDA Margin

17.8%

16.3%

20.4%

21.2%

19.0%

19.3%

2011

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

27

Non-GAAP Reconciliation: Applied Water EBITDA & Adj. EBITDA

2012

Q1

Q1

Q2

Q3

Q4

Total

Pre-Tax Net Income

40

46

51

37

25

159

Interest, net

-

-

-

-

-

-

Depreciation

6

6

6

6

7

25

Amortization

1

2

1

2

1

6

Stock Compensation

1

-

-

1

1

2

EBITDA

48

54

58

46

34

192

Separation Costs

1

-

-

9

4

13

Adjusted EBITDA

49

54

58

55

38

205

Revenues

355

355

385

368

336

1,444

Adjusted EBITDA Margin

13.8%

15.2%

15.1%

14.9%

11.3%

14.2%

2011

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

Non-GAAP Reconciliation: Guidance

28

Illustration of Mid Point Guidance

2012 Guidance

FY '11

FY '12

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Reported

Adjustments

Adjusted

Total Revenue

3,803

3,803

3,803

3,950

3,950

Segment Operating Income

503

29

a

532

(8)

d

524

577

8

h

585

Segment Operating Margin

13.2%

14.0%

13.8%

14.6%

14.8%

Corporate Expense

108

(58)

b

50

20

e

70

81

(10)

h

71

Operating Income

395

87

482

(28)

454

496

18

514

Operating Margin

10.4%

12.7%

11.9%

12.6%

13.0%

Interest Expense

(17)

(17)

(39)

f

(56)

(51)

(51)

Other Non-Operating Income (Expense)

5

5

5

-

-

Income before Taxes

383

87

470

(67)

403

445

18

463

Provision for Income Taxes

(104)

(7)

c

(111)

16

g

(95)

(111)

(5)

i

(116)

Net Income

279

80

359

(51)

308

334

13

347

Diluted Shares (j)

185.3

185.3

185.9

185.9

Diluted EPS

1.50

$              

0.43

$               

1.93

$               

(0.27)

$              

1.66

1.80

0.07

1.87

a

One time separation costs incurred at the segment level

b

One time separation costs incurred at the corporate level

c

Net tax impact of above items, plus the addition of 2011 special tax items

d

Incremental stand alone costs to be incurred in 2012 at the segment level ($8M)

e

Incremental stand alone costs to be incurred in 2012 at the corporate level ($20M)

f

Incremental interest expense on long-term debt to be incurred in 2012

g

Tax impact of incremental interest expense and stand alone costs to be incurred in 2012

h

Expected one time separation costs of $8M and $10M to be incurred at the segments and headquarters, respectively.

i

Tax impact of one time separation costs expected to be incurred in 2012.

j

Full year 2012 diluted shares outstanding are based on diluted shares outstanding for quarter ended March 31, 2012

($ Millions, except per share amounts)

Guidance

Xylem Inc. Non-GAAP Reconciliation

29

NYSE: XYL

http://investors.xyleminc.com

Phil De Sousa, Investor Relations Officer

(914) 323-5930

Janice Tedesco, Investor Relations Coordinator

(914) 323-5931