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): November 1, 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 principle executive offices, including 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 November 1, 2012, announcing the financial results for the quarter ended September 30, 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 November 1, 2012, summarizing Xylem Inc.’s financial results for the quarter ended September 30, 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 November 1, 2012.
99.2	Slides summarizing third quarter financial results posted by Xylem Inc. on November 1, 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: November 1, 2012	By:	/s/ Michael T. Speetzen
		Michael T. Speetzen
		Senior Vice President and Chief Financial Officer
		(Authorized Officer of Registrant)

EXHIBIT INDEX

Exhibit No.	Description
99.1	News Release issued by Xylem Inc. on November 1, 2012.
99.2	Slides summarizing third quarter financial results posted by Xylem Inc. on November 1, 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 Tom Glover +1-914-323-5891 Tom.Glover@xyleminc.com	Investors Phil De Sousa +1-914-323-5930 Phil.DeSousa@xyleminc.com

Xylem Inc. reports third quarter 2012 results

Third quarter adjusted net income was $83 million or $0.44 per share; $72 million or $0.38 per share as reported

Third quarter revenue up 3 percent in constant currencies to $931 million; down 1 percent as reported on negative impact of currency translation; emerging market revenue up 9 percent in constant currencies

Gross margin climbs 130 basis points to 40.2 percent as Customer Excellence and cost reduction initiatives drive profitability; adjusted operating margin was 12.9 percent

Company completes second acquisition in 2012 with the purchase of Heartland Pump, bolstering industrial dewatering portfolio

WHITE PLAINS, N.Y., November 1, 2012 – Xylem Inc. (NYSE: XYL), a leading global water technology company focused on solving the world’s most challenging water issues, today reported third quarter revenue of $931 million, up 3 percent on a constant currency basis, down 1 percent as reported from the third quarter 2011. Third quarter net income was $72 million or $0.38 per share, down $0.04 per share from the same period last year. Adjusting for one-time separation costs resulting from the Xylem spinoff from ITT Corporation on October 31, 2011, and special items, net income was $83 million or $0.44 per share, down $0.01 per share over the third quarter 2011 on a normalized basis.*

“As we mark our first anniversary as a stand-alone water company, our performance showcases both the strength of our global portfolio, with 9 percent constant currency revenue growth in the emerging markets, and our strategic focus on margin expansion through the execution of our Customer Excellence sales initiative and cost discipline,” said Gretchen McClain, President and Chief Executive Officer of Xylem. “We’re also seeing the benefit of our investments in acquisitions. Just last week we completed the purchase of Heartland Pump, which expands our

* 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.

U.S. reach in dewatering rental and service, and grows our presence in industrial markets. And our two other recent acquisitions, YSI and MJK Automation, both continue to perform well and help establish our Analytics business as a long-term growth platform.”

McClain said the company continues to move forward with restructuring and realignment initiatives, and now foresees approximately $20 million in aggregated costs during 2012 to position the business for future growth. The company maintains its outlook for full-year 2012 revenue of $3.8 billion, and has revised the mid-point of its 2012 earnings guidance to $1.76 from $1.77 per share to reflect the $0.01 per share dilutive impact of the Heartland Pump acquisition.

Business 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.

• Third quarter 2012 segment revenue was $595 million, up 7 percent in constant currencies, and up 2 percent as reported, with growth in public utility activity in all regions more than offsetting weakness in industrial.

• Third quarter adjusted segment operating margin was 15.0 percent. Stand-alone costs negatively impacted operating margin 50 basis points for the third quarter of 2012.

Applied Water

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

• Third quarter 2012 segment revenue was $350 million, down 2 percent in constant currencies, and 5 percent as reported, reflecting comparison to a particularly strong third quarter 2011, and ongoing weakness in commercial building services.

• Third quarter adjusted segment operating margin was 12.6 percent. Stand-alone costs negatively impacted operating margin 60 basis points for the third quarter of 2012.

More detail available

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

About Xylem

Xylem (NYSE: 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

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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. In 2012, Xylem was named to the Dow Jones Sustainability World Index for advancing sustainable business practices and solutions 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.

###

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XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

	Three Months				Nine Months
For the periods ended September 30,	2012		2011		2012		2011
Revenue	$	931	$	939	$	2,822	$	2,800
Cost of revenue		557		574		1,702		1,719
Gross profit		374		365		1,120		1,081
Selling, general and administrative expenses		231		215		682		643
Research and development expenses		24		23		80		73
Restructuring and asset impairment charges, net		4		2		4		2
Separation costs		4		46		15		67
Operating income		111		79		339		296
Interest expense		14		1		41		2
Other non-operating income, net		3		4		1		5
Income before taxes		100		82		299		299
Income tax expense		28		5		75		72
Net income	$	72	$	77	$	224	$	227
Earnings per share:
Basic	$	0.39	$	0.42	$	$1.20	$	1.23
Diluted	$	0.38	$	0.42	$	$1.20	$	1.23
Weighted average number of shares:
Basic		185.9		184.6		185.7		184.6
Diluted		186.3		184.6		186.2		184.6
Dividends declared per share	$	0.1012	$	—	$	0.3036	$	—

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

	September 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	424		$	318
Receivables, less allowances for discounts and doubtful accounts of $33 and $37 in 2012 and 2011, respectively		801			756
Inventories, net		467			426
Prepaid and other current assets		106			97
Deferred income tax assets		36			45
Total current assets		1,834			1,642
Property, plant and equipment, net		464			463
Goodwill		1,621			1,610
Other intangible assets, net		485			505
Other non-current assets		192			173
Total assets	$	4,596		$	4,393
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	316		$	322
Accrued and other current liabilities		456			490
Short-term borrowings and current maturities of long-term debt		13			5
Total current liabilities		785			817
Long-term debt		1,199			1,201
Accrued postretirement benefits		319			316
Deferred income tax liability		170			165
Other non-current accrued liabilities		69			67
Total liabilities		2,542			2,566
Commitments and contingencies Stockholders’ equity:
Common Stock – authorized 750.0 shares, par value $0.01 per share:
Issued 186.0 shares and 184.6 shares in 2012 and 2011, respectively		2			2
Capital in excess of par value		1,699			1,663
Retained earnings		206			40
Treasury stock – at cost 0.2 shares and 0 shares in 2012 and 2011, respectively		(6	)		—
Accumulated other comprehensive income		153			122
Total stockholders’ equity		2,054			1,827
Total liabilities and stockholders’ equity	$	4,596		$	4,393

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

For the nine months ended September 30,	2012			2011
Operating Activities
Net income	$	224		$	227
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		103			104
Share-based compensation		16			7
Non-cash separation costs		—			8
Restructuring and asset impairment charges		4			2
Payments for restructuring		—			(7	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		(33	)		(58	)
Changes in inventories		(33	)		(40	)
Changes in accounts payable		(7	)		(31	)
Changes in accrued liabilities		(30	)		14
Changes in accrued taxes		1			4
Net changes in other assets and liabilities		(14	)		18
Other, net		(1	)		4
Net Cash - Operating activities		230			252
Investing Activities
Capital expenditures		(81	)		(79	)
Acquisitions, net of cash required		(12	)		(309	)
Proceeds from the sale of property, plant and equipment		4			9
Other, net		—			2
Net Cash - Investing activities		(89	)		(377	)
Financing Activities
Net transfer to former parent		(9	)		(1,012	)
Issuance of short-term debt		12			5
Issuance of senior notes, net of discount		—			1,189
Principal payments of debt and capital lease obligations		(6	)		—
Purchase of common stock		(4	)		—
Proceeds from exercise of employee stock options		22			—
Dividends paid		(56	)		—
Net Cash - Financing activities		(41	)		182
Effect of exchange rate changes on cash		6			(4	)
Net change in cash and cash equivalents		106			53
Cash and cash equivalents at beginning of year		318			131
Cash and cash equivalents at end of year	$	424		$	184
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	38		$	—
Income taxes (net of refunds received)	$	76		$	37

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 revenue, 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 translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.

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

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

“Normalized EPS” defined as adjusted earnings per share, as well as adjustments 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.

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency 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
Nine Months Ended September 30
Xylem Inc.		2,856		2,942		(86	)		-2.9	%		(88	)		108		—			(66	)		-2.2	%		0.7	%
Water infrastructure		1,819		1,865		(46	)		-2.5	%		(88	)		82		—			(52	)		-2.8	%		1.9	%
Applied Water		1,086		1,122		(36	)		-3.2	%		—			30		(8	)		(14	)		-1.2	%		-0.5	%
Quarter Ended September 30, 2012
Xylem Inc.		882		966		(84	)		-8.7	%		(21	)		39		—			(66	)		-6.8	%		-4.7	%
Water infrastructure		564		621		(57	)		-9.2	%		(21	)		29		—			(49	)		-7.9	%		-4.5	%
Applied Water		334		358		(24	)		-6.7	%		—			12		(5	)		(17	)		-4.7	%		-3.4	%
Quarter Ended June 30
Xylem Inc.		970		998		(28	)		-2.8	%		(30	)		51		—			(7	)		-0.7	%		2.3	%
Water infrastructure		617		632		(15	)		-2.4	%		(30	)		40		—			(5	)		-0.8	%		4.0	%
Applied Water		370		383		(13	)		-3.4	%		—			13		(2	)		(2	)		-0.5	%		0.0	%
Quarter Ended March 31
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	%

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

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Revenue

($ 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
	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
Nine Months Ended September 30
Xylem Inc.		2,822		2,800		22			0.8	%		(87	)		101		—			36			1.3	%		4.4	%
Water infrastructure		1,788		1,737		51			2.9	%		(87	)		75		—			39			2.2	%		7.3	%
Applied Water		1,078		1,108		(30	)		-2.7	%		—			30		(3	)		(3	)		-0.3	%		0.0	%
Quarter Ended September 30, 2012
Xylem Inc.		931		939		(8	)		-0.9	%		(21	)		38		—			9			1.0	%		3.2	%
Water infrastructure		595		584		11			1.9	%		(21	)		28		—			18			3.1	%		6.7	%
Applied Water		350		368		(18	)		-4.9	%		—			12		(2	)		(8	)		-2.2	%		-1.6	%
Quarter Ended June 30
Xylem Inc.		966		971		(5	)		-0.5	%		(32	)		49		—			12			1.2	%		4.5	%
Water infrastructure		609		602		7			1.2	%		(32	)		37		(1	)		11			1.8	%		7.3	%
Applied Water		373		385		(12	)		-3.1	%		—			13		(1	)		—			0.0	%		0.3	%
Quarter Ended March 31
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 the sum of segment amounts may not agree to Xylem totals.

Xylem Inc. Non-GAAP Reconciliation

Adjusted Diluted EPS

For The Three and Nine Months Ended September 30, 2012 & 2011

($ Millions, except per share amounts)

	Q1 2012		Q2 2012			Q3 2012			YTD 2012
Net Income		63		89			72			224
Separation Costs, Net of Tax		4		4			3			11
Restructuring & Realignment, Net of Tax		—		—			4			4
Adjusted Net Income before Special Tax Items		67		93			79			239
Special Tax Items		—		(1	)		4			3
Adjusted Net Income		67		92			83			242
Diluted Earnings per Share	$	0.34	$	0.48		$	0.38		$	1.20
Separation Costs per Share	$	0.02	$	0.02		$	0.02		$	0.06
Restructuring & Realignment Costs per Share	$	0.00	$	0.00		$	0.02		$	0.02
Adjusted Diluted EPS before Special Tax Items	$	0.36	$	0.50		$	0.42		$	1.28
Special Tax Items per Share	$	0.00	$	(0.01	)	$	0.02		$	0.01
Adjusted Diluted EPS	$	0.36	$	0.49		$	0.44		$	1.29
	Q1 2011		Q2 2011			Q3 2011			YTD 2011
Net Income		78		72			77			227
Separation Costs, Net of Tax		2		27			25			54
Adjusted Net Income before Special Tax Items		80		99			102			281
Special Tax Items		—		4			(1	)		3
Adjusted Net Income		80		103			101			284
Diluted Earnings per Share	$	0.42	$	0.39		$	0.42		$	1.23
Separation Costs per Share	$	0.01	$	0.15		$	0.13		$	0.29
Adjusted Diluted EPS before Special Tax Items	$	0.43	$	0.54		$	0.55		$	1.52
Special Tax Items per Share	$	0.00	$	0.02		$	(0.01	)	$	0.01
Adjusted Diluted EPS	$	0.43	$	0.56		$	0.54		$	1.53

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

	Q3						YTD
	‘12			‘11			‘12			‘11
Total Revenue
• Total Xylem		931			939			2,822			2,800
• Water Infrastructure		595			584			1,788			1,737
• Applied Water		350			368			1,078			1,108
Operating Income
• Total Xylem		111			79			339			296
• Water Infrastructure		85			87			253			245
• Applied Water		43			37			135			133
Operating Margin
• Total Xylem		11.9	%		8.4	%		12.0	%		10.6	%
• Water Infrastructure		14.3	%		14.9	%		14.1	%		14.1	%
• Applied Water		12.3	%		10.0	%		12.5	%		12.0	%
Separation Costs
• Total Xylem		4			46			15			67
• Water Infrastructure		—			8			3			10
• Applied Water		1			9			2			9
Restructuring & Realignment Costs
• Total Xylem		5			—			5			—
• Water Infrastructure		4			—			4			—
• Applied Water		—			—			—			—
Adjusted Operating Income*
• Total Xylem		120			125			359			363
• Water Infrastructure		89			95			260			255
• Applied Water		44			46			137			142
Adjusted Operating Margin*
• Total Xylem		12.9	%		13.3	%		12.7	%		13.0	%
• Water Infrastructure		15.0	%		16.3	%		14.5	%		14.7	%
• Applied Water		12.6	%		12.5	%		12.7	%		12.8	%

* Adjusted Operating Income excludes non-recurring separation, restructuring & realignment costs

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)

	Q3 2011																	Q3 2012
	As Reported			Adjustments				Adjusted			Adjustments				Normalized			As Reported			Adjustments			Adjusted
Total Revenue		939							939							939			931						931
Operating Income		79			46		a		125			(8	)	c		111			111			9	a		120
Operating Margin		8.4	%						13.3	%						12.5	%		11.9	%					12.9	%
Interest Expense		(1	)						(1	)		(13	)	d		(14	)		(14	)					(14	)
Other Non-Operating Income (Expense)		4							4							4			3						3
Income before Taxes		82			46				128			(21	)			107			100			9			109
Provision for Income Taxes		(5	)		(22	)	b		(27	)		4		e		(23	)		(28	)		2	b		(26	)
Net Income		77			24				101			(17	)			84			72			11			83
Diluted Shares		184.6														184.6			186.3						186.3
Diluted EPS	$	0.42		$	0.12			$	0.54		$	(0.09	)		$	0.45		$	0.38		$	0.06		$	0.44

a One time separation, restructuring & realignment costs

b Tax impact of one time separation costs and special tax items

c Incremental stand alone costs incurred in 2012

d Incremental interest expense on long-term debt entered into in conjunction with the spin

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

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

For The Nine Months Ended September 30, 2012 & 2011

($ Millions)

	Nine Months Ended
	2012			2011
Net Cash - Operating Activities		230			252
Capital Expenditures		(81	)		(79	)
Free Cash Flow, including separation costs		149			173
Cash Paid for Separation Costs (incl. Capex)		22			62
Free Cash Flow, excluding separation costs		171			235
Net Income		224			227
Separation Costs, net of tax (incl. tax friction)		11			54
Adjusted Net Income		235			281
Free Cash Flow Conversion		73	%		84	%

Xylem Inc. Non-GAAP Reconciliation

Guidance

($ Millions, except per share amounts)

																		Illustration of Mid Point Guidance
2012 Guidance
	FY ‘11																	FY ‘12
	As Reported			Adjustments				Adjusted			Adjustments				Normalized			As Projected			Adjustments				Adjusted
Total Revenue		3,803							3,803							3,803			3,800							3,800
Segment Operating Income		503			29		a		532			(10	)	d		522			516			25		h,i		541
Segment Operating Margin		13.2	%						14.0	%						13.7	%		13.6	%						14.2	%
Corporate Expense		108			(58	)	b		50			18		e		68			68			(15	)	h		53
Operating Income		395			87				482			(28	)			454			448			40				488
Operating Margin		10.4	%						12.7	%						11.9	%		11.8	%						12.8	%
Interest Expense		(17	)						(17	)		(39	)	f		(56	)		(54	)						(54	)
Other Non-Operating Income (Expense)		5							5							5			(1	)						(1	)
Income before Taxes		383			87				470			(67	)			403			393			40				433
Provision for Income Taxes		(104	)		(8	)	c		(112	)		16		g		(96	)		(99	)		(7	)	j		(106	)
Net Income		279			79				358			(51	)			307			294			33				327
Diluted Shares		185.3														185.3			186.2							186.2
Diluted EPS	$	1.50		$	0.43			$	1.93		$	(0.27	)			1.66			1.58			0.18				1.76

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 ($10M)

e Incremental stand alone costs to be incurred in 2012 at the corporate level ($18M)

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 $5M and $15M to be incurred at the segments and headquarters, respectively.

i Restructuring & realignment costs of $20M to be incurred at the segments.

j Tax impact of one time separation, restructuring & realignment costs expected to be incurred in 2012 and tax special items realized through Q3 2012.

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

													Mid Point Guidance
	2008			2009			2010			2011			2012E
Revenue		3,291			2,849			3,202			3,803			3,800
Operating Income		315			276			388			395			448
Operating Margin		9.6	%		9.7	%		12.1	%		10.4	%		11.8	%
Restructuring & Realignment		41			31			15			—			20
Separation Costs		—			—			—			87			20
Adjusted Operating Income		356			307			403			482			488
Adjusted Operating Margin		10.8	%		10.8	%		12.6	%		12.7	%		12.8	%
Stand alone Costs		—			—			—			5			28
Adj. Operating Income, excl. Stand alone Costs		356			307			403			487			516
Adjusted Operating Margin, excl. Stand alone Costs		10.8	%		10.8	%		12.6	%		12.8	%		13.6	%

EX-99.2

Q3 2012 Earnings Release

November 1, 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.

Q3’12 Xylem Results

3

Solid Operating Performance, Despite Continued Market Challenges

Solid Operating Performance, Despite Continued Market Challenges

* See Appendix for Non-GAAP Reconciliations

Financial

Financial

Performance Summary

Performance Summary

Orders

Revenue

Gross Margin

Operating Margin *

EPS *

$882M

$931M

40.2%

12.9%

$0.44

Book to Bill 0.95

+3% (Constant Currency Basis)*

+130 bps

+50 bps Adjusted for Stand-Alone Costs

Solid Performance from Core Operations & YSI

Business Update

4

Advancing Our Strategic Position

•

Executing Acquisition Strategy

MJK Integration into Analytics Platform Well Underway

Heartland  Pump Acquisition … Increases Geographic Reach of Dewatering Platform    

•

Selected to Dow Jones Sustainability Global and North America Indices

Deploying Innovative New Product Applications and Services

•

U.S. Launch of the Sanitaire Bioloop Oxidation Ditch

•

Launched Energy Efficient Lowara Ecocirc – Meeting New European Regulations

•

Recognized by The Coca-Cola Company as Supplier of the Year

Continued Strong Execution

•

Q3’12 Emerging Market Growth up 9% (Constant Currency Basis)

•

Gross Margin >40% … Record Performance

•

Executing on Restructuring & Realignment Actions

Advancing

Advancing

Strategic

Strategic

Position

Position

&

&

Increasing

Increasing

Profitability

Profitability

Acquisition Overview 

5

Overview

-

Purchase Price $29M

-

‘11 Rev $33M

-

100 Employees

-

4 locations

-

Industrial & Muni;

•

Mining

•

Energy

•

Disaster Recovery

-

Expands Geographic Reach

-

Increases Rental Opportunities

-

Leverage Xylem Portfolio

-

Cost Synergies

-

Capex Synergies

Sales

~60%

Rental

~40%

Revenue Mix

Strategic Rationale

Heartland Pump Rental & Sales, Inc.

Expands Xylem’s Dewatering Platform in Attractive U.S. Rental Markets

Expands Xylem’s Dewatering Platform in Attractive U.S. Rental Markets

YTD Xylem Results

6

On Track to Deliver in 2012 …

On Track to Deliver in 2012 …

Positioned for Long-Term Growth

Positioned for Long-Term Growth

* See Appendix for Non-GAAP Reconciliations

Orders

Revenue

Gross Margin

Operating Margin *

EPS *

Free Cash Flow *

$2.9B

$2.8B

39.7%

12.7%

$1.29

$171M

Book to Bill 1.01

+4% (Constant Currency Basis)*

+110 bps

Includes Impact from Stand-Alone Costs -90bps

Solid Performance from Core Operations & YSI

73% Conversion ... Typical Seasonality

Financial Performance Summary

Financial Performance Summary

Full Year Outlook

7

*See appendix for non-GAAP reconciliations

4th Quarter Execution Sets up 2013 

•

Executing on Restructuring & Realignment Actions

•

Accelerating Additional Actions in 2012

•

Continued Disciplined Capital Deployment

•

Successful Integration of MJK & Heartland Acquisitions

2012 Guidance

•

Full Year Revenue ~$3.8B; Organic Growth ~1%

•

Delivering Solid Operating Margin Expansion

•

EPS Mid Point of $1.76* … Includes Heartland Pump Acquisition Impact  ($0.01)

•

Solid Free Cash Flow Conversion*

•

Executing ~$20M  Total Restructuring & Realignment Actions

Solid Execution in 2012 …

Solid Execution in 2012 …

Positioning for Long-Term Growth 

Positioning for Long-Term Growth 

Q3’12 Xylem Performance

8

Op Margins +50 bps …

Op Margins +50 bps …

Cost Actions/Price Enable Investments for Growth

Cost Actions/Price Enable Investments for Growth

*See appendix for non-GAAP reconciliations

(Dollars, In Millions)

(Dollars, In Millions)

Revenue

Revenue

Operating Income *

Operating Income *

Organic

Acquisition

Constant Currency

FX

Total

+1%

+2%

+3%

-

4%

-

1%

By End Market

By Geography

Industrial

+

Public Utility

Commercial

Residential

+

Agriculture

+

Europe

U.S.

+

Emerging Markets

Cost Reductions

+3.2%

Price

+1.3%

Vol/Mix/Invest

-

0.5%

120

125

-

4%

Q3’11

Q3’12

Q3’11

Q3’12

13.3%

4.0%

0.6%

2.9%

13.8%

0.9%

12.9%

Q3’11

Op Margin*

Operations

FX

Material,

Labor,

& OH

Inflation

Q3’12

Op Margin

Before Stand-

Alone Costs*

Stand-

Alone

Costs

Q3’12

Op Margin*

Q3 Growth

Q3 Growth

Organic Performance

Organic Performance

931

939

-

1%

Q3’12 Xylem Performance

9

EPS Growth Negatively Impacted by FX and Taxes

EPS Growth Negatively Impacted by FX and Taxes

Interest

($0.06)

Stand-Alone

($0.03)

Separation Costs

$0.13

Special Tax

($0.01)

* See Appendix for Non-GAAP Reconciliations

Separation Costs

($0.02)

Restruct. &

Realign. Costs

($0.02)

Special Tax

($0.02)

-2% Normalized

-2% Normalized

2% Normalized

EPS Performance

EPS Performance

Operational Performance:

Core Operations

Acquisitions

Operating Tax Rate

FX Translation

$0.01

$0.01

($0.01)

($0.02)

$0.42

$0.03

$0.45

$0.01

$0.44

$0.06

$0.38

Q3’11

GAAP EPS

Adjustments

Normalized

Q3’11 EPS

Operational

Performance

Adjusted

Q3’12 EPS

Q3’12

GAAP EPS

Adjustments

Q3’12 EPS *

Q3’12 Water Infrastructure Performance

10

Revenue Up 7%* …

Revenue Up 7%* …

Operating Margin Impacted by Unfavorable Mix & FX

Operating Margin Impacted by Unfavorable Mix & FX

* See appendix for non-GAAP reconciliations

(Constant Currency)

•

+

Public Utility …

US & Europe Up, EM Strong

Industrial …

US Drought Impact on Dewatering

•

+

Global Public Utility Strength

Project Orders Continue to Delay

•

+

Strength in US & AP …

Europe Flat

+2%

-6%

Organic

Acquisition

Constant Currency

+3%

+4%

Operating Income *

Operating Income *

Cost Reductions

+2.9%

Price

+0.7%

Vol/Mix/Invest

-

0.4%

Incremental Margin ~23%

Incremental Margin ~23%

(Ex. FX & Stand Alone Costs)

(Ex. FX & Stand Alone Costs)

Q3 Growth

Q3 Growth

+2%

Revenue

Revenue

+7%

-5%

FX

Total

Transport +1%

Treatment +11%

Test +44%

Q3'11

Op Margin*

Operations

FX

Material,

Labor,

& OH

Inflation

Q3'12

Op Margin

Before

Stand-Alone

Stand-

Alone

Q3'12

Op Margin*

Q3’12 Applied Water Performance

11

Price

&

Cost

Reduction

Initiatives

Offset

Challenging

Market

Conditions

* See appendix for non-GAAP reconciliations

Revenue

Operating Income *

(Dollars, In Millions)

(Dollars, In Millions)

-4%

(Constant Currency)

•

Building Services -6%

–

Commercial …

Lag in Major Projects, Tough PY Comp

–

Residential …

Tough PY Comp (U.S. Up Double Digit)

•

Industrial Water +1%

+

Favorable Across Most Regions

–

U.S. & Europe showing signs of weakness

•

Irrigation +9%

+

Double Digit U.S. Growth, Europe Improving

Preserving Profitability While

Investing for Growth

Organic

-2%

Acquisition

-%

Constant Currency

2%

FX

-3%

Total

-5%

Q3'11

Op Margin

Operations

FX

Material,

Labor,

& OH

Inflation

Q3'12

Op Margin

Before

Stand-Alone

Stand-

Alone

Q3'12

Op Margin *

12.5%

13.2%

12.6%

3.1%

0.6%

3.4%

0.4%

Q3'11

Q3'12

368

350

Q3'11

Q3'12

46

44

Cost Reductions

+3.7%

Price

+2.3%

Vol/Mix/Invest

-

2.6%

-5%

Q3 Growth

Xylem Financial Position

12

FY Cash Flow On Track …

FY Cash Flow On Track …

Strong Balance Sheet Provides Flexibility

Strong Balance Sheet Provides Flexibility

•

Free Cash Flow $171M

•

Higher Cash Taxes

•

Full Year of Interest

•

Stand

Alone Costs

•

Capex > 1 Reinvestment Ratio

•

Strong Cash Position

•

No Significant Debt Maturities Until 2016

•

28% Net Debt to Net Capital

•

1.2x Net Debt/Adj. TTM EBITDA

•

$600M

Revolving

Credit

Facility

-

Unutilized

•

Access

to

Commercial

Paper

-

Unutilized

FCF%

84%

73%

W/C%**

23.7%

24.8%

(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

September 30, 2012

Cash

Debt

Net Debt

Stockholders’

Equity

Net Capital

Net Debt to Net Capital

424

1,212

788

2,054

2,842

28%

907

952

171

235

Q3’11 YTD

Q3’12 YTD

Q3’11

Q3’12

-

2012 Guidance

2012 EPS Guidance Walk

14

Mid Point 6% Earnings Growth Versus Prior Year On Normalized Basis

Illustration of Mid Point Guidance

* See Appendix for Non-GAAP Reconciliations

Offsetting Volume Reduction

Operational Performance:

FX Translation

Vol. Net of Cost Initiatives

$0.02

($0.02)

Heartland Pump

Heartland Pump

Acquisition

Acquisition

$(0.01) in 4Q

$(0.01) in 4Q

$1.77

$1.77

$0.01

$1.76

Previous

Guidance

Guidance

Before Heartlnd

Acquisition

Heartland

Acquisition

FY 2012

Guidance

2012 Financial Guidance Summary

15

* See Appendix for Non-GAAP Reconciliations

Revenue

Xylem Consolidated

Water Infrastructure

Applied Water

Segment Margin *

Operating Margin *

EPS * 

Free Cash Flow Conversion

Guidance Assumptions:

Stand-Alone Costs

Operating Tax Rate

Share Count

Items Excluded from Guidance:

(1) Separation Costs

(2) Restructuring &

Realignment Costs

Constant Currency

Organic 

Acquisition

~$3.8B

~$2.4B

~$1.4B

14.1% -

14.3%

12.7% -

12.9%

$1.72 -

$1.79

95%

~186.2M

~$28M

~$25%

~$20M

~$20M

+10 to +30 bps

+0 to +20 bps

$1.76 Mid Point incl. Heartland Pump Acq. impact -

$0.01

Excluding one-time separation costs

Included in EPS Guidance; In Line with Expectations

Excludes Special Tax Items

In Line with Expectations

Additional Actions Identified in 3Q’12

~$11MTotal Run Rate Savings Beginning 2013

~3%                                  ~1%                         2%

~5%                                  ~1%                         4%

~1%                                  ~1%                         0%

2012 Full Year

2012 Full Year

Financial Outlook

Financial Outlook

Growth

Growth

2012E vs. 2011

2012E vs. 2011

Key Takeaways

16

Positioning for Long-Term Growth

•

Investing in Strategic Growth Platforms 

•

Executing M&A Strategy

•

Advancing Our Geographic Position

•

Launching New Products & Investing in Future Growth

•

Customer Excellence & Operational Discipline

Restructuring & Realignment Actions Underway

•

Executing Actions to Preserve Investments

•

Defending  and Improving Our Competitive Advantage

•

Providing for Stronger Operating Leverage

Strong Financial Position

•

Flexibility to Execute Long-Term Strategy

Appendix

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

Q2’12

Q3’12

Revenue

686

775

806

935

3,202

890

971

939

1,003

3,803

925

966

931

COGS

431

484

497

576

1,988

553

592

574

623

2,342

562

583

557

Gross Profit

255

291

309

359

1,214

337

379

365

380

1,461

363

383

374

SG&A

164

170

183

220

737

210

219

215

233

877

231

220

231

R&D

18

17

18

21

74

24

26

23

27

100

28

28

24

Separation Costs

-

-

-

-

-

3

18

46

20

87

5

6

4

Restructuring &

Asset Impairment

Charges, net

4

3

1

7

15

-

-

2

-

2

-

-

4

Op Income

69

101

107

111

388

100

116

79

100

395

99

129

111

Interest Expense

-

-

-

-

-

-

1

1

15

17

14

13

14

Other Non-Op

-2

-1

3

-

-

1

-

4

-

5

(1)

(1)

3

Income before Tax

67

100

110

111

388

101

115

82

85

383

84

115

100

Tax

11

15

19

14

59

23

43

5

33

104

21

26

28

Net Income

56

85

91

97

329

78

72

77

52

279

63

89

72

EPS –

Diluted *

$0.30

$0.46

$0.49

$0.53

$1.78

$0.42

$0.39

$0.42

$0.28

$1.50

$0.34

$0.48

$0.38

* 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

measures of financial performance under GAAP and should not be considered a substitute for revenue, 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 translation impacts by translating current period and prior period activity using the same currency

conversion rate.  This approach is used for countries whose functional currency is not the U.S. dollar.

“EBITDA”

EBITDA to exclude for non-recurring separation costs associated with the Xylem spin-off from ITT Corporation as well as non-recurring restructuring and realignment costs.

"Adjusted Operating Income", "Adjusted Segment Operating Income", and “Adjusted EPS”

defined as operating income and earnings per share, adjusted to exclude

non-recurring separation costs associated with the Xylem spin-off from ITT Corporation, non-recurring restructuring and realignment costs and tax-related special items.

“Normalized EPS”

defined as adjusted earnings per share, as well as adjustments 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. 

performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives.  These metrics, however, are not

defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA”reflects the adjustment to

Non-GAAP Reconciliation:

Organic & Constant Currency Revenue Growth

20

Non-GAAP Reconciliation:

Organic & Constant Currency Order Growth

21

Constant Currency

(A)

(B)

(C)

(D)

(E)

(F) = B+C+D+E

(G) = F/A

(H) = (B + D) / A

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

Nine Months Ended September 30

Xylem Inc.

2,856

2,942

(86)

-2.9%

(88)

108

-

(66)

-2.2%

0.7%

Water infrastructure

1,819

1,865

(46)

-2.5%

(88)

82

-

(52)

-2.8%

1.9%

Applied Water

1,086

1,122

(36)

-3.2%

-

30

(8)

(14)

-1.2%

-0.5%

Quarter Ended September 30, 2012

Xylem Inc.

882

966

(84)

-8.7%

(21)

39

-

(66)

-6.8%

-4.7%

Water infrastructure

564

621

(57)

-9.2%

(21)

29

-

(49)

-7.9%

-4.5%

Applied Water

334

358

(24)

-6.7%

-

12

(5)

(17)

-4.7%

-3.4%

Quarter Ended June 30

Xylem Inc.

970

998

(28)

-2.8%

(30)

51

-

(7)

-0.7%

2.3%

Water infrastructure

617

632

(15)

-2.4%

(30)

40

-

(5)

-0.8%

4.0%

Applied Water

370

383

(13)

-3.4%

-

13

(2)

(2)

-0.5%

0.0%

Quarter Ended March 31

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%

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

Acquisitions /

Divestitures

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Order Growth

($ Millions)

(As Reported - GAAP)

(As Adjusted - Organic)

Non-GAAP Reconciliation: Adjusted Diluted EPS

22

Q1 2012

Q2 2012

Q3 2012

YTD 2012

Net Income

63

89

72

224

Separation Costs, Net of Tax

4

4

3

11

Restructuring & Realignment, Net of Tax

-

-

4

4

Adjusted Net Income before Special Tax Items

67

93

79

239

Special Tax Items

-

(1)

4

3

Adjusted Net Income

67

92

83

242

Diluted Earnings per Share

$0.34

$0.48

$0.38

$1.20

Separation Costs per Share

$0.02

$0.02

$0.02

$0.06

Restructuring & Realignment Costs per Share

$0.00

$0.00

$0.02

$0.02

Adjusted Diluted EPS before Special Tax Items

$0.36

$0.50

$0.42

$1.28

Special Tax Items per Share

$0.00

($0.01)

$0.02

$0.01

Adjusted Diluted EPS

$0.36

$0.49

$0.44

$1.29

Q1 2011

Q2 2011

Q3 2011

YTD 2011

Net Income

78

72

77

227

Separation Costs, Net of Tax

2

27

25

54

Adjusted Net Income before Special Tax Items

80

99

102

281

Special Tax Items

-

4

(1)

3

Adjusted Net Income

80

103

101

284

Diluted Earnings per Share

$0.42

$0.39

$0.42

$1.23

Separation Costs per Share

$0.01

$0.15

$0.13

$0.29

Adjusted Diluted EPS before Special Tax Items

$0.43

$0.54

$0.55

$1.52

Special Tax Items per Share

$0.00

$0.02

($0.01)

$0.01

Adjusted Diluted EPS

$0.43

$0.56

$0.54

$1.53

Adjusted Diluted EPS

For The Three and Nine Months Ended September 30, 2012 & 2011

($ Millions, except per share amounts)

Xylem Inc. Non-GAAP Reconciliation

Non-GAAP Reconciliation: Normalized and Adjusted EPS

23

Q3 2011

Q3 2012

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Reported

Adjustments

Adjusted

Total Revenue

939

939

939

931

931

Operating Income

79

46

a

125

(8)

c

117

111

9

a

120

Operating Margin

8.4%

13.3%

12.5%

11.9%

12.9%

Interest Expense

(1)

(1)

(13)

d

(14)

(14)

(14)

Other Non-Operating Income (Expense)

4

4

4

3

3

Income before Taxes

82

46

128

(21)

107

100

9

109

Provision for Income Taxes

(5)

(22)

b

(27)

4

e

(23)

(28)

2

b

(26)

Net Income

77

24

101

(17)

84

72

11

83

Diluted Shares

184.6

184.6

186.3

186.3

Diluted EPS

0.42

$              

0.12

$               

0.54

$               

(0.09)

$             

0.45

$             

0.38

$              

0.06

$               

0.44

$             

a

One time separation, restructuring & realignment costs

b

Tax impact of one time separation costs and special tax items

c

Incremental stand alone costs incurred in 2012

d

Incremental interest expense on long-term debt entered into in conjunction with the spin

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)

24

Non-GAAP Reconciliation: Operating Income

Q3

YTD

'12

'11

'12

'11

Total Revenue

• Total Xylem

931

939

2,822

2,800

• Water Infrastructure

595

584

1,788

1,737

• Applied Water

350

368

1,078

1,108

Operating Income

• Total Xylem

111

79

339

296

• Water Infrastructure

85

87

253

245

• Applied Water

43

37

135

133

Operating Margin

• Total Xylem

11.9%

8.4%

12.0%

10.6%

• Water Infrastructure

14.3%

14.9%

14.1%

14.1%

• Applied Water

12.3%

10.0%

12.5%

12.0%

Separation Costs

• Total Xylem

4

46

15

67

• Water Infrastructure

-

8

3

10

• Applied Water

1

9

2

9

Restructuring & Realignment Costs

• Total Xylem

5

-

5

-

• Water Infrastructure

4

-

4

-

• Applied Water

-

-

-

-

Adjusted Operating Income*

• Total Xylem

120

125

359

363

• Water Infrastructure

89

95

260

255

• Applied Water

44

46

137

142

Adjusted Operating Margin*

• Total Xylem

12.9%

13.3%

12.7%

13.0%

• Water Infrastructure

15.0%

16.3%

14.5%

14.7%

• Applied Water

12.6%

12.5%

12.7%

12.8%

*Adjusted Operating Income excludes non-recurring separation, restructuring & realignment costs

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

Non-GAAP Reconciliation: Free Cash Flow

25

2012

2011

Net Cash - Operating Activities

230

252

Capital Expenditures

(81)

(79)

Free Cash Flow, including separation costs

149

173

Cash Paid for Separation Costs (incl. Capex)

22

62

Free Cash Flow, excluding separation costs

171

235

Net Income

224

227

Separation Costs, net of tax (incl. tax friction)

11

54

Adjusted Net Income

235

281

Free Cash Flow Conversion

73%

84%

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

For The Nine Months Ended September 30, 2012 & 2011

($ Millions)

Nine Months Ended

26

Non-GAAP Reconciliation: 2012 Xylem EBITDA & Adj. EBITDA

Q1

Q2

Q3

YTD

Income Before Taxes

84

115

100

299

Interest, net

13

13

12

38

Depreciation

23

21

24

68

Amortization

11

12

12

35

Stock Compensation

5

5

6

16

EBITDA

136

166

154

456

Separation Costs

5

6

4

15

Restructuring & Realignment Costs

-

-

5

5

Adjusted EBITDA

141

172

163

476

Revenue

925

966

931

2,822

Adjusted EBITDA Margin

15.2%

17.8%

17.5%

16.9%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Total Xylem

($ Millions)

2012

27

Non-GAAP Reconciliation: 2011 Xylem EBITDA & Adj. EBITDA

Q1

Q2

Q3

Q4

Total

Pre-Tax Net Income

101

115

82

85

383

Interest, net

-

-

1

16

17

Depreciation

22

25

25

21

93

Amortization

11

10

11

12

44

Stock Compensation

3

2

2

6

13

EBITDA

137

152

121

140

550

Separation Costs

3

18

46

20

87

Adjusted EBITDA

140

170

167

160

637

Revenues

890

971

939

1,003

3,803

Adjusted EBITDA Margin

15.7%

17.5%

17.8%

16.0%

16.7%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

($ Millions)

2011

Total Xylem

28

Non-GAAP Reconciliation: 2012 Water Infrastructure EBITDA & Adj. EBITDA

Q1

Q2

Q3

YTD

Income Before Taxes

75

93

86

254

Interest, net

-

-

(1)

(1)

Depreciation

16

15

17

48

Amortization

10

9

10

29

Stock Compensation

1

1

3

5

EBITDA

102

118

115

335

Separation Costs

2

1

-

3

Restructuring & Realignment Costs

-

-

4

4

Adjusted EBITDA

104

119

119

342

Revenue

584

609

595

1,788

Adjusted EBITDA Margin

17.8%

19.5%

20.0%

19.1%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

2012

29

Non-GAAP Reconciliation: 2011 Water Infrastructure EBITDA & Adj. EBITDA

Q1

Q2

Q3

Q4

Total

Pre-Tax Net Income

65

93

88

99

345

Interest, net

(1)

-

(1)

Depreciation

16

19

19

14

68

Amortization

9

9

9

9

36

Stock Compensation

-

-

1

1

2

EBITDA

90

121

116

123

450

Separation Costs

-

2

8

6

16

Adjusted EBITDA

90

123

124

129

466

Revenues

551

602

584

679

2,416

Adjusted EBITDA Margin

16.3%

20.4%

21.2%

19.0%

19.3%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

2011

30

Non-GAAP Reconciliation: 2012 Applied Water EBITDA & Adj. EBITDA

Q1

Q2

Q3

YTD

Income Before Taxes

40

52

43

135

Interest, net

-

-

-

-

Depreciation

6

6

6

18

Amortization

1

1

1

3

Stock Compensation

1

-

2

3

EBITDA

48

59

52

159

Separation Costs

1

-

1

2

Restructuring & Realignment Costs

-

-

-

-

Adjusted EBITDA

49

59

53

161

Revenue

355

373

350

1,078

Adjusted EBITDA Margin

13.8%

15.8%

15.1%

14.9%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

2012

31

Non-GAAP Reconciliation: 2011 Applied Water EBITDA & Adj. EBITDA

Q1

Q2

Q3

Q4

Total

Pre-Tax Net Income

46

51

37

25

159

Interest, net

-

-

-

-

-

Depreciation

6

6

6

7

25

Amortization

2

1

2

1

6

Stock Compensation

-

-

1

1

2

EBITDA

54

58

46

34

192

Separation Costs

-

-

9

4

13

Adjusted EBITDA

54

58

55

38

205

Revenues

355

385

368

336

1,444

Adjusted EBITDA Margin

15.2%

15.1%

14.9%

11.3%

14.2%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

2011

Non-GAAP Reconciliation: Guidance

32

Illustration of Mid Point Guidance

2012 Guidance

FY '11

FY '12

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Projected

Adjustments

Adjusted

Total Revenue

3,803

3,803

3,803

3,800

3,800

Segment Operating Income

503

29

a

532

(10)

d

522

516

25

h,i

541

Segment Operating Margin

13.2%

14.0%

13.7%

13.6%

14.2%

Corporate Expense

108

(58)

b

50

18

e

68

68

(15)

h

53

Operating Income

395

87

482

(28)

454

448

40

488

Operating Margin

10.4%

12.7%

11.9%

11.8%

12.8%

Interest Expense

(17)

(17)

(39)

f

(56)

(54)

(54)

Other Non-Operating Income (Expense)

5

5

5

(1)

(1)

Income before Taxes

383

87

470

(67)

403

393

40

433

Provision for Income Taxes

(104)

(8)

c

(112)

16

g

(96)

(99)

(7)

j

(106)

Net Income

279

79

358

(51)

307

294

33

327

Diluted Shares

185.3

185.3

186.2

186.2

Diluted EPS

1.50

$             

0.43

$              

1.93

$              

(0.27)

$            

1.66

1.58

0.18

1.76

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 ($10M)

e

Incremental stand alone costs to be incurred in 2012 at the corporate level ($18M)

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 $5M and $15M to be incurred at the segments and headquarters, respectively.

i

Restructuring & realignment costs of $20M to be incurred at the segments.

j

Tax impact of one time separation, restructuring & realignment costs expected to be incurred in 2012 and tax special items realized through Q3 2012.

Non-GAAP Reconciliation: Adj. Operating Income & Margin

33

Mid Point Guidance

2008

2009

2010

2011

2012E

Revenue

3,291

2,849

3,202

3,803

3,800

Operating Income

315

276

388

395

448

Operating Margin

9.6%

9.7%

12.1%

10.4%

11.8%

Restructuring & Realignment

41

31

15

-

20

Separation Costs

-

-

-

87

20

Adjusted Operating Income

356

307

403

482

488

Adjusted Operating Margin

10.8%

10.8%

12.6%

12.7%

12.8%

Standalone Costs

-

-

-

5

28

Adj. Operating Income, excl. Standalone Costs

356

307

403

487

516

Adjusted Operating Margin, excl. Standalone Costs

10.8%

10.8%

12.6%

12.8%

13.6%

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

34

Phil De Sousa, Investor Relations Officer

(914) 323-5930

Janice Tedesco, Investor Relations Coordinator

(914) 323-5931

NYSE: XYL

http://investors.xyleminc.com