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): February 7, 2013

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 February 7, 2013, announcing the financial results for the quarter and fiscal year ended December 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 is an earnings presentation posted on Xylem Inc.’s website on February 7, 2013, summarizing Xylem Inc.’s financial results for the quarter and fiscal year ended December 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 8.01 Other Events

The Company’s Board of Directors declared a dividend in the amount of $0.1164 per share for the first quarter of 2013, an increase of 15 percent from the dividend paid in the fourth quarter in 2012. The declared dividend is payable on March 20, 2013 to shareholders of record on February 20, 2013.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

Exhibit No.	Description
99.1	News Release issued by Xylem Inc. on February 7, 2013.
99.2	Presentation summarizing fourth quarter and full year 2012 financial results posted by Xylem Inc. on February 7, 2013.

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: February 7, 2013	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 February 7, 2013.
99.2	Presentation summarizing fourth quarter and full year 2012 financial results posted by Xylem Inc. on February 7, 2013.

EX-99.1

Exhibit 99.1

Xylem

1133 Westchester Ave., White Plains, NY 10604

Tel +1.914.323.5700 Fax +1.914.696.2960

NEWS RELEASE

Contacts:	Media	Investors
	Tom Glover +1-914-323-5891	Phil DeSousa - +1-914-323-5930
	tom.glover@xyleminc.com	phil.desousa@xyleminc.com

Xylem Inc. reports fourth quarter and full year 2012 results,

announces 15 percent dividend increase

• Fourth quarter 2012 adjusted net income was $88 million or $0.47 per share, up 21 percent on a normalized¹ basis over fourth quarter 2011; GAAP EPS were $0.39 per share, up 39 percent; FY 2012 adjusted earnings were $1.77 per share, up 7 percent on a normalized basis; GAAP EPS were $1.59, up 6 percent

• Fourth quarter 2012 revenue was $969 million, down 3 percent; FY 2012 revenue was $3.8 billion, up 3 percent in constant currencies, flat as reported

• Fourth quarter 2012 adjusted operating margins up 140 basis points, up 70 points as reported

• Full year free cash flow was $312 million, 100 percent of adjusted net earnings

• Company issues full-year 2013 financial guidance, sees FY 2013 adjusted earnings of $1.80-$1.90 per share, earnings growth of 2 to 7 percent on revenue growth of 3 to 4 percent

• Xylem Board of Directors approves a 15 percent increase in the dividend for first quarter 2013

WHITE PLAINS, N.Y., February 7, 2013 – Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported fourth quarter 2012 net income of $73 million, or $0.39 per share, up 39 percent from the fourth quarter 2011. Excluding the impact of one-time separation costs and other adjustments associated with Xylem’s 2011 spinoff from ITT Corporation as well as restructuring and realignment costs, adjusted net income was $88 million or $0.47 per share, up 8 cents or 21 percent on a normalized basis from 2011. Fourth quarter revenue was $969 million, down 3 percent, reflective of weakness in industrial and public utility markets. Fourth quarter adjusted operating margins improved 140 basis points driven by efficiency and cost control measures.

¹  The 2011 normalized earnings per share reflect adjustments (including one-time separation costs, 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.

“Our fourth quarter results show the impact of strategic steps we’ve taken to improve our financial performance, streamlining operations and taking aggressive cost control measures in the face of challenging market conditions,” said Gretchen McClain, president and chief executive officer of Xylem Inc. “While recognizing and addressing uncertainties in the market, we stayed focused on the needs of our customers, as illustrated during our response to the flooding following Hurricane Sandy. We have continued to invest for future growth, deploying assets to accelerate new product technology and expanding our growth in emerging markets. We also continue to acquire attractive businesses to supplement our growth platforms of analytics, dewatering and services. Our most recent acquisition, PIMS Group of the U.K., is our third since becoming an independent company, and will strengthen our aftermarket and service offering.”

For the full year 2012, Xylem revenues were $3.8 billion, up 3 percent in constant currencies over 2011, flat as reported. Full year reported net income was $297 million, or $1.59 per share. Adjusted net income, excluding the impact of the spinoff and other one-time items, was $330 million or $1.77 per share. Full year 2012 adjusted operating margins were 12.9 percent, up 100 basis points on a normalized basis. Free cash flow was $312 million, 100 percent of adjusted net earnings.

Xylem forecasts full year 2013 revenue growth of 3 to 4 percent to approximately $3.9 billion. Full year 2013 adjusted net income is forecast to grow 2 to 7 percent to $335 to $354 million, for adjusted earnings per share of $1.80 to $1.90 per share. The company anticipates that restructuring and realignment costs will range from $60 to $70 million for the year.

“As a global company, we continually evaluate our actions based on end markets and regional economic conditions,” McClain said. “That’s why we’re taking action in Europe and elsewhere to best position our people and our facilities to meet the needs of our customers and provide economic benefit. Through these steps and with our applications expertise, market-leading brands, a large installed base and unmatched distribution in more than 150 countries around the world, our Xylem portfolio is well-positioned to deliver differentiated growth over the long term.”

Xylem today also announced that its Board of Directors declared a dividend in the amount of $0.1164 per share for the first quarter of 2013, an increase of 15 percent, payable on March 20, 2013 to shareholders of record on February 20, 2013.

“The increased cash dividend returns value to our shareholders, and is made possible through everything we’ve done to maintain a strong balance sheet, improve operating performance significantly and grow cash flow,” McClain said.

Fourth Quarter Segment Results

Water Infrastructure

Xylem’s Water Infrastructure segment consists of its businesses serving clean water delivery, wastewater transport and treatment, dewatering and analytical instrumentation.

• Fourth quarter 2012 revenue was $637 million, down 6 percent compared with the fourth quarter 2011, reflecting weakness in the public utility and industrial dewatering markets.

• Fourth quarter adjusted segment operating income, which excludes $1 million of one-time separation-related costs and $15 million of restructuring and realignment costs, was $105 million, up 1 percent over the same period in 2011. Adjusted operating margin for the quarter grew 120 basis points, though after factoring in separation, restructuring and realignment costs, posted a decline of 40 basis points.

Applied Water

Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, industrial and agricultural applications.

• Fourth quarter 2012 revenue was $346 million, up 3 percent compared with the fourth quarter 2011, with growth coming in residential and commercial building services and irrigation.

• Fourth quarter adjusted segment operating income, which excludes $5 million of restructuring and realignment costs, was $40 million, 29 percent higher than the comparable period last year. Adjusted operating margin grew 240 basis points; including separation costs, as well as restructuring and realignment costs, operating margin grew 210 basis points.

Supplemental information on Xylem’s fourth quarter and full year 2012 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 applications expertise with a strong focus on finding local solutions to the world’s most challenging water and wastewater problems. Xylem is headquartered in White Plains, N.Y., with 2012 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 in 2011, 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.

###

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Millions, except per share amounts)

December 31,	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	504		$	318
Receivables, less allowances for discounts and doubtful accounts of $34 and $37 in 2012 and 2011, respectively		776			756
Inventories, net		443			433
Prepaid and other current assets		110			97
Deferred income tax assets		41			45
Total current assets		1,874			1,649
Property, plant and equipment, net		487			463
Goodwill		1,647			1,610
Other intangible assets, net		484			505
Other non-current assets		187			170
Total assets	$	4,679		$	4,397
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	332		$	322
Accrued and other current liabilities		443			490
Short-term borrowings and current maturities of long-term debt		6			5
Total current liabilities		781			817
Long-term debt		1,199			1,201
Accrued postretirement benefits		400			316
Deferred income tax liabilities		173			165
Other non-current accrued liabilities		52			67
Total liabilities		2,605			2,566
Stockholders’ equity:
Common Stock — par value $0.01 per share:
Authorized 750.0 shares, issued 184.6 shares		2			2
Capital in excess of par value		1,706			1,663
Retained earnings		264			44
Treasury stock – at cost 0.5 shares and 0 shares in 2012 and 2011, respectively		(13	)		—
Accumulated other comprehensive income		115			122
Total stockholders’ equity		2,074			1,831
Total liabilities and stockholders’ equity	$	4,679		$	4,397

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED INCOME STATEMENTS

(In Millions, except per share data)

Year Ended December 31,	2012		2011		2010
Revenue	$	3,791	$	3,803	$	3,202
Cost of revenue		2,289		2,342		1,988
Gross profit		1,502		1,461		1,214
Selling, general and administrative expenses		914		877		737
Research and development expenses		106		100		74
Separation costs		22		87		—
Restructuring and asset impairments charges, net		17		2		15
Operating income		443		395		388
Interest expense		55		17		—
Other non-operating income, net		—		5		—
Income before taxes		388		383		388
Income tax expense		91		104		59
Net income	$	297	$	279	$	329
Earnings per share:
Basic	$	1.60	$	1.51	$	1.78
Diluted	$	1.59	$	1.50	$	1.78
Weighted average number of shares – Basic		185.8		185.1		184.6
Weighted average number of shares – Diluted		186.2		185.3		184.6

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(In Millions)

Year Ended December 31,	2012			2011			2010
Operating Activities
Net income	$	297		$	279		$	329
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		142			137			92
Deferred income taxes		1			8			(31	)
Share-based compensation		22			13			9
Non-cash separation costs		—			10			—
Restructuring and asset impairment charges, net		17			2			15
Payments of restructuring		(9	)		(7	)		(22	)
Contributions to postretirement benefit plans		(46	)		(16	)		(3	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		2			(61	)		(45	)
Changes in inventories		5			(18	)		7
Changes in accounts payable		(4	)		(9	)		41
Changes in accrued liabilities		(28	)		53			12
Changes in accrued taxes		(17	)		56			(17	)
Net changes in other assets and liabilities		14			2			8
Net Cash — Operating activities		396			449			395
Investing Activities
Capital expenditures		(112	)		(126	)		(94	)
Proceeds from the sale of property, plant and equipment		5			11			4
Acquisitions of businesses and assets, net of cash acquired		(41	)		(309	)		(1,004	)
Other, net		1			1			1
Net Cash — Investing activities		(147	)		(423	)		(1,093	)
Financing Activities
Net transfer to former parent		(9	)		(995	)		745
Issuance of short-term debt		13			5			—
Issuance of senior notes, net of discount		—			1,198			—
Principal payments of debt and capital lease obligations		(14	)		(8	)		—
Purchase of Xylem common stock		(13	)		—			—
Proceeds from exercise of employee stock options		24			1			—
Payments of debt issuance costs		—			(10	)		—
Dividends paid		(75	)		(19	)		—
Net Cash — Financing activities		(74	)		172			745
Effect of exchange rate changes on cash		11			(11	)		3
Net change in cash and cash equivalents		186			187			50
Cash and cash equivalents at beginning of year		318			131			81
Cash and cash equivalents at end of year	$	504		$	318		$	131
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	53		$	—		$	—
Income taxes (net of refunds received)	$	104		$	64		$	110

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
Year Ended December 31, 2012
Xylem Inc.		3,782		3,847		(65	)		-1.7	%		(95	)		114		—			(46	)		-1.2	%		1.3	%
Water infrastructure		2,421		2,454		(33	)		-1.3	%		(95	)		87		1			(40	)		-1.6	%		2.2	%
Applied Water		1,423		1,452		(29	)		-2.0	%		—			31		(8	)		(6	)		-0.4	%		0.1	%
Quarter Ended December 31, 2012
Xylem Inc.		926		905		21			2.3	%		(7	)		6		—			20			2.2	%		3.0	%
Water infrastructure		602		589		13			2.2	%		(7	)		5		1			12			2.0	%		3.1	%
Applied Water		337		330		7			2.1	%		—			1		—			8			2.4	%		2.4	%
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, 2012
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, 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	%

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
					Change			% Change			Acquisitions  / Divestitures								Change			% Change
	Revenue		Revenue		2012 v. 2011			2012 v. 2011						FX Contribution		Eliminations			Adj. 2012 v. 2011			Adj. 2012 v. 2011
	2012		2011
Year Ended December 31, 2012
Xylem Inc.		3,791		3,803		(12	)		-0.3	%		(94	)		108		—			2			0.1	%		2.5	%
Water infrastructure		2,425		2,416		9			0.4	%		(94	)		80		(1	)		(6	)		-0.2	%		3.7	%
Applied Water		1,424		1,444		(20	)		-1.4	%		—			32		(3	)		9			0.6	%		0.8	%
Quarter Ended December 31, 2012
Xylem Inc.		969		1,003		(34	)		-3.4	%		(7	)		7		—			(34	)		-3.4	%		-2.7	%
Water Infrastructure		637		679		(42	)		-6.2	%		(7	)		5		(1	)		(45	)		-6.6	%		-5.4	%
Applied Water		346		336		10			3.0	%		—			2		—			12			3.6	%		3.6	%
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, 2012
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, 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 the sum of segment amounts may not agree to Xylem totals.

Xylem Inc. Non-GAAP Reconciliation

Adjusted Diluted EPS

2012 and 2011

($ Millions, except per share amounts)

	Q1 2012		Q2 2012			Q3 2012			Q4 2012			YTD 2012
Net Income		63		89			72			73			297
Separation Costs, Net of Tax		4		4			3			5			16
Restructuring & Realignment, Net of Tax		—		—			4			13			17
Adjusted Net Income before Special Tax Items		67		93			79			91			330
Special Tax Items		—		(1	)		4			(3	)		—
Adjusted Net Income		67		92			83			88			330
Diluted Earnings per Share	$	0.34	$	0.48		$	0.38		$	0.39		$	1.59
Separation Costs per Share	$	0.02	$	0.02		$	0.02		$	0.03		$	0.09
Restructuring & Realignment Costs per Share	$	0.00	$	0.00		$	0.02		$	0.07		$	0.09
Adjusted Diluted EPS before Special Tax Items	$	0.36	$	0.50		$	0.42		$	0.49		$	1.77
Special Tax Items per Share	$	0.00	($	0.01	)	$	0.02		($	0.02	)	$	0.00
Adjusted Diluted EPS	$	0.36	$	0.49		$	0.44		$	0.47		$	1.77
	Q1 2011		Q2 2011			Q3 2011			Q4 2011			YTD 2011
Net Income		78		72			77			52			279
Separation Costs, Net of Tax		2		27			25			18			72
Adjusted Net Income before Special Tax Items		80		99			102			70			351
Special Tax Items		—		4			(1	)		4			7
Adjusted Net Income		80		103			101			74			358
Diluted Earnings per Share	$	0.42	$	0.39		$	0.42		$	0.28		$	1.50
Separation Costs per Share	$	0.01	$	0.15		$	0.13		$	0.10		$	0.39
Adjusted Diluted EPS before Special Tax Items	$	0.43	$	0.54		$	0.55		$	0.38		$	1.89
Special Tax Items per Share	$	0.00	$	0.02		($	0.01	)	$	0.02		$	0.04
Adjusted Diluted EPS	$	0.43	$	0.56		$	0.54		$	0.40		$	1.93

Note: YTD EPS amounts may not equal the sum of the quarterly EPS amounts due to rounding.

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

	Q4						YTD
	‘12			‘11			‘12			‘11
Total Revenue
• Total Xylem		969			1,003			3,791			3,803
• Water Infrastructure		637			679			2,425			2,416
• Applied Water		346			336			1,424			1,444
Operating Income
• Total Xylem		104			100			443			395
• Water Infrastructure		89			98			342			343
• Applied Water		35			27			170			160
Operating Margin
• Total Xylem		10.7	%		10.0	%		11.7	%		10.4	%
• Water Infrastructure		14.0	%		14.4	%		14.1	%		14.2	%
• Applied Water		10.1	%		8.0	%		11.9	%		11.1	%
Separation Costs
• Total Xylem		7			20			22			87
• Water Infrastructure		1			6			4			16
• Applied Water		—			4			2			13
Restructuring & Realignment Costs
• Total Xylem		19			—			24			—
• Water Infrastructure		15			—			19			—
• Applied Water		5			—			5			—
Adjusted Operating Income*
• Total Xylem		130			120			489			482
• Water Infrastructure		105			104			365			359
• Applied Water		40			31			177			173
Adjusted Operating Margin*
• Total Xylem		13.4	%		12.0	%		12.9	%		12.7	%
• Water Infrastructure		16.5	%		15.3	%		15.1	%		14.9	%
• Applied Water		11.6	%		9.2	%		12.4	%		12.0	%

* 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)

	Q4 2011															Q4 2012
	As Reported			Adjustments			Adjusted			Adjustments			Normalized			As Reported			Adjustments			Adjusted
Total Revenue		1,003						1,003						1,003			969						969
Operating Income		100			20	a		120			(2	)c		118			104			26	f		130
Operating Margin		10.0	%					12.0	%					11.8	%		10.7	%					13.4	%
Interest Expense		(15	)					(15	)					(15	)		(14	)					(14	)
Other Non-Operating Income (Expense)		—						—						—			(1	)					(1	)
Income before Taxes		85			20			105			(2	)		103			89			26			115
Provision for Income Taxes		(33	)		2	b		(31	)		0	e		(31	)		(16	)		(11	)g		(27	)
Net Income		52			22			74			(2	)		72			73			15			88
Diluted Shares		185.3						185.3						185.3			186.5						186.5
Diluted EPS	$	0.28		$	0.12		$	0.40		$	(0.01	)	$	0.39		$	0.39		$	0.08		$	0.47
	YTD 2011															YTD 2012
	As Reported			Adjustments			Adjusted			Adjustments			Normalized			As Reported			Adjustments			Adjusted
Total Revenue		3,803						3,803						3,803			3,791						3,791
Operating Income		395			87	a		482			(28	)c		454			443			46	f		489
Operating Margin		10.4	%					12.7	%					11.9	%		11.7	%					12.9	%
Interest Expense		(17	)					(17	)		(39	)d		(56	)		(55	)					(55	)
Other Non-Operating Income (Expense)		5						5						5			—						—
Income before Taxes		383			87			470			(67	)		403			388			46			434
Provision for Income Taxes		(104	)		(8	)b		(112	)		16	e		(96	)		(91	)		(13	)g		(104	)
Net Income		279			79			358			(51	)		307			297			33			330
Diluted Shares		185.3						185.3						185.3			186.2						186.2
Diluted EPS	$	1.50		$	0.43		$	1.93		$	(0.27	)	$	1.66		$	1.59		$	0.18		$	1.77

a One time separation costs

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

c Incremental stand alone costs incurred in 2012

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

e Incremental interest expense and stand alone costs incurred in 2012 tax affected using the 2011 effective tax rate, as adjusted

f One time separation, restructuring & realignment costs

g Tax impact of one time separation, restructuring & realignment costs and special tax items

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

Years Ended December 31, 2012 and 2011

($ Millions)

	Year Ended
	2012			2011
Net Cash - Operating Activities		396			449
Capital Expenditures		(112	)		(126	)
Free Cash Flow, including separation costs		284			323
Cash Paid for Separation Costs (incl. Capex)		28			65
Free Cash Flow, excluding separation costs		312			388
Net Income		297			279
Separation Costs, net of tax (incl. tax friction)		16			72
Net Income, excluding separation costs		313			351
Free Cash Flow Conversion		100	%		111	%

Xylem Inc. Non-GAAP Reconciliation

Guidance

($ Millions, except per share amounts)

2013 Guidance										Illustration of Mid Point Guidance
	FY ‘12									FY ‘13
	As Reported			Adjustments			Adjusted			As Projected			Adjustments			Adjusted
Total Revenue		3,791						3,791			3,915						3,915
Segment Operating Income		512			30	a		542			487			65	d		552
Segment Operating Margin		13.5	%					14.3	%		12.4	%					14.1	%
Corporate Expense		69			(16	)b		53			59			—			59
Operating Income		443			46			489			428			65			493
Operating Margin		11.7	%					12.9	%		10.9	%					12.6	%
Interest Expense		(55	)					(55	)		(55	)					(55	)
Other Non-Operating Income (Expense)		—						—			(2	)					(2	)
Income before Taxes		388			46			434			371			65			436
Provision for Income Taxes		(91	)		(13	)c		(104	)		(73	)		(19	)c		(92	)
Net Income		297			33			330			298			46			344
Diluted Shares		186.2						186.2			186.4						186.4
Diluted EPS	$	1.59		$	0.18		$	1.77		$	1.60		$	0.25		$	1.85

a One time separation, restructuring and realignment costs incurred at the segment level

b One time separation, restructuring and realignment costs incurred at the corporate level

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

d Restructuring and realignment costs incurred at the segment level

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

																Mid Point Guidance
	2008			2009			2010			2011			2012			2013E
Revenue		3,291			2,849			3,202			3,803			3,791			3,915
Operating Income		315			276			388			395			443			428
Operating Margin		9.6	%		9.7	%		12.1	%		10.4	%		11.7	%		10.9	%
Restructuring & Realignment		41			31			15			—			24			65
Separation Costs		—			—			—			87			22			—
Adjusted Operating Income		356			307			403			482			489			493
Adjusted Operating Margin		10.8	%		10.8	%		12.6	%		12.7	%		12.9	%		12.6	%
Standalone Costs		—			—			—			5			28			—
Adj. Operating Income, excl. Standalone Costs		356			307			403			487			517			493
Adjusted Operating Margin, excl. Standalone Costs		10.8	%		10.8	%		12.6	%		12.8	%		13.6	%		12.6	%

EX-99.2

Q4 2012 Earnings Release

February 7, 2013

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 in 2011, 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.

Q4’12 Financial Highlights

•

Orders: $926 Million; up 3% (Constant Currency*)

•

Revenue: $969 Million, down 3%

•

Gross Margin: 39.4%, up 150 bps

•

Operating Margin: 13.4%*, up 140 bps

•

EPS:  $0.47*, up +21% on Normalized Basis

Full Year 2012 Financial Highlights

•

Orders: $3.8 Billion; Backlog $647 million

•

Revenue: $3.8 Billion, up 2.5% (Constant Currency*)

•

Gross Margin: 39.6%, up 120 bps

•

Operating Margin: 12.9%*, up 100 bps on a

Normalized Basis

•

EPS:  $1.77*, up +7% on Normalized Basis

•

FCF: $312 Million*, 100% Conversion

Business Update

3

Delivered Strong Operating Performance Despite Macro Challenges

Delivered Strong Operating Performance Despite Macro Challenges

* See Appendix for Non-GAAP Reconciliations

Advancing Our Strategic Position

•

PIMS Group Acquisition Enhances Global

Aftermarket & Services Business

•

MJK & Heartland Pump Integrations

Underway; EPS Neutral in 2012

•

Significant Restructuring & Realignment

Actions to Primarily Reposition European

Business +$0.13 EPS in 2013

Deploying Innovative New Product

Applications & Services

•

2012 Vitality Index +25%  from 2011

•

Middle East Expansion –

Transport,

Treatment, Dewatering & Analytics

Applications

Dividend Increase +15%

Acquisition Overview 

4

Overview

-

Purchase Price $57M

-

‘12 Rev $38M

-

220 Employees

-

Installation &

Private Sectors

Maintenance Services

-

Enhances Global AM&S

-

Accelerates Expansion into

Contract Services

-

Increases Regional Scale  &

Served Market

Strategic Rationale

PIMS Group

Enhances Xylem’s Global Aftermarket Services

-

24/7 Support >10K Sites

-

Municipal, Industrial &

Operating Income *

Q4 Growth

Organic

-3%

Acquisition

0%

Constant Currency

-3%

FX

0%

Total

-3%

Q4’12 Xylem Performance

5

-3%

* See appendix for non-GAAP reconciliations

(Dollars, In Millions)

(Dollars, In Millions)

Organic Performance

By End Market

By Geography

Industrial

Europe

Public Utility

U.S.

Commercial

Emerging Markets

Residential

Agriculture

Operating Margin Expansion +140 Bps

Cost Reductions

Price

Acquisitions

Vol/Mix/Invest

Cost Reductions Drive

Cost Reductions Drive

Significant Margin Expansion

Significant Margin Expansion

Q4'11

Op Margin*

Operations

FX

Material,

Labor,

& OH

Inflation

Q4'12

Op Margin

Before Stand-

Alone Costs*

Stand-

Alone

Costs

Q4'12

Op Margin*

12.0%

13.6%

13.4%

2.9%

0.2%

4.3%

0.2%

Q4'11

Q4'12

1,003

969

Q4'11

Q4'12

120

130

+8%

+3.9%

+1.1%

-0.1%

-0.6%

Revenue

Q4’12 Xylem Performance

6

Operations Drives Strong EPS Performance +21%

Stand-Alone

Separation Costs

Special Tax

Q4’12 EPS *

+21% Normalized

+21% Normalized

EPS Performance

EPS Performance

* See Appendix for Non-GAAP Reconciliations

Operational Performance:

Core Operations

Acquisitions

FX Translation

Operating Tax Rate

Separation Costs

($0.03)

Restruct. &

Realign. Costs

($0.07)

Special Tax

$0.02

Q4'11

GAAP EPS

Adjustments

Normalized

Q4'11 EPS

Operational

Performance

Adjusted

Q4'12 EPS

Adjustments

Q4'12

GAAP EPS

$0.28

$0.39

$0.47

$0.39

$0.08

$0.11

$0.08

($0.01)

$0.10

$0.02

$0.08

$     -

$     -

$     -

7

Operating Income *

* See Appendix for Non-GAAP Reconciliations

(Dollars, In Millions)

(Dollars, In Millions)

Q4 Growth

Q4 Growth

Organic

-7%

Acquisition

+2%

Constant Currency

-5%

FX

-1%

Total

-6%

(Organic Performance)

Transport -5%

Public Utility …

Weak Capital Project Market

Industrial Dewatering Down …

U.S. Drought & Lower

Demand for Fracking Applications

Disaster Recovery for Super Storm Sandy

Public Utility …

Weak Capital Project Market

Industrial …

Tough PY Comp 

Cost Reductions

Price

Acquisition

Vol/Mix/Invest

Operating Margin Expansion +120 Bps

Q4’12 Water Infrastructure Performance

Q4'11

Op Margin*

Operations

FX

Material,

Labor,

& OH

Inflation

Q4'12

Op Margin*

15.3%

16.5%

2.7%

3.6%

0.3%

Cost Reductions Drive

Cost Reductions Drive

Significant Margin Expansion

Significant Margin Expansion

Q4'11

Q4'12

104

105

+1%

Q4'11

Q4'12

679

637

-6%

Treatment -18%

Test +1%

+3.8%

Revenue

+0.7%

-0.2%

-0.7%

8

Operating Margin Expansion +240 Bps

Operating Income *

* See Appendix for Non-GAAP Reconciliations

(Dollars, In Millions)

(Dollars, In Millions)

(Organic Performance)

•

Building Services 2%

+

U.S. Residential & Commercial

+

Super Storm Sandy

–

Europe/Middle East Market Weakness

•

Industrial Water +6%

+

Favorable Across Most Regions

+

Timing of Shipments …

F&B/O&G Strength

•

Irrigation +4%

+

Europe Improvement off of a Low Base

Q4 Growth

Organic

+4%

Acquisition

-%

Constant Currency

+4%

FX

-1%

Total

+3%

Cost Reductions

Price

Vol/Mix/Invest

Cost Reductions Drive

Cost Reductions Drive

Significant Margin Expansion

Significant Margin Expansion

Q4’12 Applied Water Performance

+4.0%

+1.8%

-

0.3%

Q4'11

Op Margin

Operations

FX

Material,

Labor,

& OH

Inflation

Q4'12

Op Margin *

9.2%

11.6%

3.2%

5.5%

0.1%

Q4'11

Q4'12

336

346

+3%

Q4'11

Q4'12

31

+29%

40

Revenue

2012 Xylem Financial Position

9

Strong Cash Flow Performance …

Healthy Balance Sheet Provides Flexibility

Free Cash Flow *

•

Free Cash Flow Growth

•

Higher Cash Taxes

•

Full Year of Interest

•

Stand-Alone Costs

•

Capex > 1 reinvestment ratio

Capital Summary/Liquidity

•

Strong cash position

•

No Significant Debt Maturities Until 2016

•

25% Net Debt to Net Capital

•

1.1x Net Debt/Adj. TTM EBITDA

•

$600M

Revolving

Credit

Facility

-

Unutilized

•

Access

to

Commercial

Paper

-

Unutilized

Working Capital as % Revenue **

FCF%

111%

100%

December 31, 2012

Cash

504

Debt

1,205

Net Debt

701

Shareholders’

Equity

2,074

Net Capital

2,775

Net Debt to Net Capital

25%

(Dollars, In Millions)

(Dollars, In Millions)

* See Appendix for Non-GAAP Reconciliations

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

2011

FX

Operations

2012

21.7%

22.5%

0.2%

1.0%

2011

2012

388

312

2013 Guidance

2013 Key Focus Areas

11

Drive

Growth

Initiatives

Improve

Business

Sustainability

Deliver

Customer

Value

•

Deploy Innovative

Solutions

•

Invest in Growth

Platforms

•

Accelerate

Geographic

Expansion

•

Cost Structure

Optimization

•

Business

Simplification

•

Operational

Excellence

•

Customer

Excellence

•

Xylem Total Care

•

Application

Expertise

Balanced Goals to Position Xylem for Sustained Profitable Growth

Balanced Goals to Position Xylem for Sustained Profitable Growth

Revenue Profile

12

•

Total Growth +19%

•

Organic Revenue +7%

•

Acquisitions +8%

•

Project Orders Start to Slow

•

Organic Revenue Flat

•

Weak End Markets

•

Europe Resilient

•

U.S. Industrial Slows in 2H

•

Cap Project Delays

•

1Q -

Down MSD

•

1H -

Down LSD; 2H -

Up LSD

•

Europe Remains Stable

•

U.S. Strengthening in 2H

•

Emerging Markets +HSD

•

European Crisis

•

Fiscal Cliff /

Super Storm Sandy

•

U.S. Industrial Slows

TTM Revenues

As Reported

* See Appendix for Non-GAAP Reconciliations

------------

Public Utility Large Capital Project Delays ------------

2011

2012

2013

Gaining Momentum Through 2013

•

U.S. Slight 2H Improvement

•

Europe Challenged 

End Markets

13

•

Stable OPEX Market

•

No Change in Capital Projects

•

U.S. Flat Through 3Q of ’13

•

Europe Challenged

•

Continued Slow Growth Environment

•

U.S. Driven by Replacement

•

Tough 2012 Compare in U.S.

Driven by Drought Conditions

(~ 43% of ’12 Revenue)

(~ 35% of ’12 Revenue)

(~ 11% of ’12 Revenue)

(~ 8% of ’12 Revenue)

(~ 3% of ’12 Revenue)

Industrial

Public Utility

Commercial

Residential

Agriculture

Flat

Flat to Up

Low Single

Digit

Flat to Up

Low Single

Digit

Flat

Flat to Up

Low Single

Digit

Projected ‘13

XYL Growth

Challenging Market Conditions Exiting 2012

2013 Financial Guidance Summary

14

2013 Full Year

2013 Full Year

Financial Outlook

Financial Outlook

Growth

Growth

2013E vs. 2012

2013E vs. 2012

Revenue

(Mid-Point)

Total Growth

Organic

Acquisition

FX

Xylem Consolidated

~$3,915M

~3 -

4%                   0 -

1%                   2%                  1%

Water Infrastructure

~$2,530M

~4 -

5%                   0 -

1%                   3%                  1%

Applied Water

~$1,450M

~1 -

2%                   0 -

1%                   0%                  1%

Segment Margin *

13.8% -

14.3%

-50 bps to Flat

Operating Margin *

12.3% -

12.8%

-60 to -10 bps

EPS * 

$1.80 -

$1.90

$1.85 Mid Point

Free Cash Flow Conversion

~95%

Restructuring Pmts, Realignment Capex, & CHQ Relocation

Guidance Assumptions:

Operating Tax Rate

~21%

1H’13 Rate: ~22%; 2H’13 Rate: ~20%

Share Count

~186.4M

Share Repurchase Program to Maintain Current Share Count

Items Excluded from EPS:

Restructuring &

Realignment Costs

~$60M -

$70M

Restructuring Costs: ~$40M to $50M

* See Appendix for Non-GAAP Reconciliations

2013 Guidance

15

OI%

12.9%

(10) bps

(40) bps

50 bps

(30) bps

12.6%

Run Rate

Costs

(Guidance Mid-Point)

* See Appendix for Non-GAAP Reconciliations

Higher

Pension

Costs $(0.02)

Net EPS

Benefit

Driven by

Tax Rate

Reduction

Cost Savings Initiatives & Productivity Drive

50 bps Core Margin Expansion

Realignment Delivers Additional EPS Growth …

Top Line Provides Upside

$1.77

$-

$0.07

$0.03

$1.85

EPS* & Operating Margin *

Remaining

1xSpin Costs

FX/Acq

Core

Operations

European

Realignment

Adjusted

FY’13 EPS

Adjusted

FY’12 EPS

$0.02

Summary

16

2012 Performance

•

Advanced Our Strategic Position

•

Deployed Innovative New Products & Services

•

Delivered Strong Financial Performance Despite Macro Challenges

Looking Ahead to 2013

•

Investing for Long-Term Growth

•

Restructuring & Realignment Actions Improve Competitive Position

& Increase Efficiency & Effectiveness

•

Strong Financial Position Provides Flexibility

Appendix

Quarterly Financial Performance

18

($M, Except

EPS)

FY’10

Q1’11

Q2’11

Q3’11

Q4’11

FY’11

Q1’12

Q2’12

Q3’12

Q4’12

FY’12

Revenue

3,202

890

971

939

1,003

3,803

925

966

931

969

3,791

COGS

1,988

553

592

574

623

2,342

562

583

557

587

2,289

Gross Profit

1,214

337

379

365

380

1,461

363

383

374

382

1,502

SG&A

737

210

219

215

233

877

231

220

231

232

914

R&D

74

24

26

23

27

100

28

28

24

26

106

Separation Costs

-

3

18

46

20

87

5

6

4

7

22

Restructuring &

Asset Impairment

Charges, net

15

-

-

2

-

2

-

-

4

13

17

Op Income

388

100

116

79

100

395

99

129

111

104

443

Interest Expense

-

-

1

1

15

17

14

13

14

14

55

Other Non-Op

-

1

-

4

-

5

(1)

(1)

3

(1)

-

Income before Tax

388

101

115

82

85

383

84

115

100

89

388

Tax

59

23

43

5

33

104

21

26

28

16

91

Net Income

329

78

72

77

52

279

63

89

72

73

297

EPS –

Diluted *

$1.78

$0.42

$0.39

$0.42

$0.28

$1.50

$0.34

$0.48

$0.38

$0.39

$1.59

* 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 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. 

Non-GAAP Reconciliation:

Organic & Constant Currency Revenue Growth

20

Constant Currency

(A)

(B)

(C)

(D)

(E)

(F) = B+C+D+E

(G) = F/A

(H) = (B + D) / A

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

Year Ended December 31, 2012

Xylem Inc.

3,791

3,803

(12)

-0.3%

(94)

108

-

2

0.1%

2.5%

Water infrastructure

2,425

2,416

9

0.4%

(94)

80

(1)

(6)

-0.2%

3.7%

Applied Water

1,424

1,444

(20)

-1.4%

-

32

(3)

9

0.6%

0.8%

Quarter Ended December 31, 2012

Xylem Inc.

969

1,003

(34)

-3.4%

(7)

7

-

(34)

-3.4%

-2.7%

Water Infrastructure

637

679

(42)

-6.2%

(7)

5

(1)

(45)

-6.6%

-5.4%

Applied Water

346

336

10

3.0%

-

2

-

12

3.6%

3.6%

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, 2012

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, 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 the sum of segment amounts may not agree to Xylem totals.

Acquisitions /

Divestitures

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Revenue

($ Millions)

(As Reported -

GAAP)

(As Adjusted -

Organic)

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

Year Ended December 31, 2012

Xylem Inc.

3,782

3,847

(65)

-1.7%

(95)

114

-

(46)

-1.2%

1.3%

Water infrastructure

2,421

2,454

(33)

-1.3%

(95)

87

1

(40)

-1.6%

2.2%

Applied Water

1,423

1,452

(29)

-2.0%

-

31

(8)

(6)

-0.4%

0.1%

Quarter Ended December 31, 2012

Xylem Inc.

926

905

21

2.3%

(7)

6

-

20

2.2%

3.0%

Water infrastructure

602

589

13

2.2%

(7)

5

1

12

2.0%

3.1%

Applied Water

337

330

7

2.1%

-

1

-

8

2.4%

2.4%

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, 2012

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, 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%

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

Q4 2012

YTD 2012

Net Income

63

89

72

73

297

Separation Costs, Net of Tax

4

4

3

5

16

Restructuring & Realignment, Net of Tax

-

-

4

13

17

Adjusted Net Income before Special Tax Items

67

93

79

91

330

Special Tax Items

-

(1)

4

(3)

-

Adjusted Net Income

67

92

83

88

330

Diluted Earnings per Share

$0.34

$0.48

$0.38

$0.39

$1.59

Separation Costs per Share

$0.02

$0.02

$0.02

$0.03

$0.09

Restructuring & Realignment Costs per Share

$0.00

$0.00

$0.02

$0.07

$0.09

Adjusted Diluted EPS before Special Tax Items

$0.36

$0.50

$0.42

$0.49

$1.77

Special Tax Items per Share

$0.00

($0.01)

$0.02

($0.02)

$0.00

Adjusted Diluted EPS

$0.36

$0.49

$0.44

$0.47

$1.77

Q1 2011

Q2 2011

Q3 2011

Q4 2011

YTD 2011

Net Income

78

72

77

52

279

Separation Costs, Net of Tax

2

27

25

18

72

Adjusted Net Income before Special Tax Items

80

99

102

70

351

Special Tax Items

-

4

(1)

4

7

Adjusted Net Income

80

103

101

74

358

Diluted Earnings per Share

$0.42

$0.39

$0.42

$0.28

$1.50

Separation Costs per Share

$0.01

$0.15

$0.13

$0.10

$0.39

Adjusted Diluted EPS before Special Tax Items

$0.43

$0.54

$0.55

$0.38

$1.89

Special Tax Items per Share

$0.00

$0.02

($0.01)

$0.02

$0.04

Adjusted Diluted EPS

$0.43

$0.56

$0.54

$0.40

$1.93

Adjusted Diluted EPS

2012 and 2011

($ Millions, except per share amounts)

Xylem Inc. Non-GAAP Reconciliation

Note: YTD EPS  amounts may not equal the sum of the quarterly EPS amounts due to rounding.

Non-GAAP Reconciliation: Normalized and Adjusted EPS

23

Q4 2011

Q4 2012

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Reported

Adjustments

Adjusted

Total Revenue

1,003

1,003

1,003

969

969

Operating Income

100

20

a

120

(2)

c

118

104

26

f

130

Operating Margin

10.0%

12.0%

11.8%

10.7%

13.4%

Interest Expense

(15)

(15)

(15)

(14)

(14)

Other Non-Operating Income (Expense)

-

-

-

(1)

(1)

Income before Taxes

85

20

105

(2)

103

89

26

115

Provision for Income Taxes

(33)

2

b

(31)

0

e

(31)

(16)

(11)

g

(27)

Net Income

52

22

74

(2)

72

73

15

88

Diluted Shares

185.3

185.3

185.3

186.5

186.5

Diluted EPS

0.28

$              

0.12

$               

0.40

$               

(0.01)

$             

0.39

$             

0.39

$              

0.08

$               

0.47

$             

YTD 2011

YTD 2012

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Reported

Adjustments

Adjusted

Total Revenue

3,803

3,803

3,803

3,791

3,791

Operating Income

395

87

a

482

(28)

c

454

443

46

f

489

Operating Margin

10.4%

12.7%

11.9%

11.7%

12.9%

Interest Expense

(17)

(17)

(39)

d

(56)

(55)

(55)

Other Non-Operating Income (Expense)

5

5

5

-

-

Income before Taxes

383

87

470

(67)

403

388

46

434

Provision for Income Taxes

(104)

(8)

b

(112)

16

e

(96)

(91)

(13)

g

(104)

Net Income

279

79

358

(51)

307

297

33

330

Diluted Shares

185.3

185.3

186.2

186.2

Diluted EPS

1.50

$              

0.43

$               

1.93

$               

(0.27)

$             

1.66

$             

1.59

$              

0.18

$               

1.77

$             

a

One time separation costs

b

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

c

Incremental stand alone costs incurred in 2012

d

Incremental interest expense on long-term debt incurred in 2012

e

Incremental interest expense and stand alone costs incurred in 2012 tax affected using the 2011 effective tax rate, as adjusted

f

One time separation, restructuring & realignment costs

g

Tax impact of one time separation, restructuring & realignment costs and special tax items

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)

185.3

24

Non-GAAP Reconciliation: Operating Income

Q4

YTD

'12

'11

'12

'11

Total Revenue

• Total Xylem

969

1,003

3,791

3,803

• Water Infrastructure

637

679

2,425

2,416

• Applied Water

346

336

1,424

1,444

Operating Income

• Total Xylem

104

100

443

395

• Water Infrastructure

89

98

342

343

• Applied Water

35

27

170

160

Operating Margin

• Total Xylem

10.7%

10.0%

11.7%

10.4%

• Water Infrastructure

14.0%

14.4%

14.1%

14.2%

• Applied Water

10.1%

8.0%

11.9%

11.1%

Separation Costs

• Total Xylem

7

20

22

87

• Water Infrastructure

1

6

4

16

• Applied Water

-

4

2

13

Restructuring & Realignment Costs

• Total Xylem

19

-

24

-

• Water Infrastructure

15

-

19

-

• Applied Water

5

-

5

-

Adjusted Operating Income*

• Total Xylem

130

120

489

482

• Water Infrastructure

105

104

365

359

• Applied Water

40

31

177

173

Adjusted Operating Margin*

• Total Xylem

13.4%

12.0%

12.9%

12.7%

• Water Infrastructure

16.5%

15.3%

15.1%

14.9%

• Applied Water

11.6%

9.2%

12.4%

12.0%

*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

396

449

Capital Expenditures

(112)

(126)

Free Cash Flow, including separation costs

284

323

Cash Paid for Separation Costs (incl. Capex)

28

65

Free Cash Flow, excluding separation costs

312

388

Net Income

297

279

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

16

72

Adjusted Net Income

313

351

Free Cash Flow Conversion

100%

111%

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

Years Ended December 31, 2012 and 2011

($ Millions)

Year Ended

26

Non-GAAP Reconciliation: Xylem EBITDA & Adj. EBITDA

Q1

Q2

Q3

Q4

YTD

Income Before Taxes

84

115

100

89

388

Interest Expense (Income), net

13

13

12

13

51

Depreciation

23

21

24

26

94

Amortization

11

12

12

13

48

Stock Compensation

5

5

6

6

22

EBITDA

136

166

154

147

603

Separation Costs

5

6

4

7

22

Restructuring & Realignment Costs

-

-

5

19

24

Adjusted EBITDA

141

172

163

173

649

Revenue

925

966

931

969

3,791

Adjusted EBITDA Margin

15.2%

17.8%

17.5%

17.9%

17.1%

Q1

Q2

Q3

Q4

YTD

Income Before Taxes

101

115

82

85

383

Interest Expense (Income), 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

Revenue

890

971

939

1,003

3,803

Adjusted EBITDA Margin

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)

2012

27

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

Q1

Q2

Q3

Q4

YTD

Income Before Taxes

75

93

86

88

342

Interest Expense (Income), net

-

-

(1)

-

(1)

Depreciation

16

15

17

20

68

Amortization

10

9

10

10

39

Stock Compensation

1

1

3

-

5

EBITDA

102

118

115

118

453

Separation Costs

2

1

-

1

4

Restructuring & Realignment Costs

-

-

4

15

19

Adjusted EBITDA

104

119

119

134

476

Revenue

584

609

595

637

2,425

Adjusted EBITDA Margin

17.8%

19.5%

20.0%

21.1%

19.6%

Q1

Q2

Q3

Q4

YTD

Income Before Taxes

65

93

88

99

345

Interest Expense (Income), 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

Revenue

551

602

584

679

2,416

Adjusted EBITDA Margin

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)

2012

28

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

Q1

Q2

Q3

Q4

YTD

Income Before Taxes

40

52

43

35

170

Interest Expense (Income), net

-

-

-

-

-

Depreciation

6

6

6

5

23

Amortization

1

1

1

2

5

Stock Compensation

1

-

2

(1)

2

EBITDA

48

59

52

41

200

Separation Costs

1

-

1

-

2

Restructuring & Realignment Costs

-

-

-

5

5

Adjusted EBITDA

49

59

53

46

207

Revenue

355

373

350

346

1,424

Adjusted EBITDA Margin

13.8%

15.8%

15.1%

13.3%

14.5%

Q1

Q2

Q3

Q4

YTD

Income Before Taxes

46

51

37

25

159

Interest Expense (Income), 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

Revenue

355

385

368

336

1,444

Adjusted EBITDA Margin

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)

2012

Non-GAAP Reconciliation: Guidance

29

Illustration of Mid Point Guidance

2013 Guidance

FY '12

FY '13

As Reported

Adjustments

Adjusted

As Projected

Adjustments

Adjusted

Total Revenue

3,791

3,791

3,915

3,915

Segment Operating Income

512

30

a

542

487

65

d

552

Segment Operating Margin

13.5%

14.3%

12.4%

14.1%

Corporate Expense

69

(16)

b

53

59

-

59

Operating Income

443

46

489

428

65

493

Operating Margin

11.7%

12.9%

10.9%

12.6%

Interest Expense

(55)

(55)

(55)

(55)

Other Non-Operating Income (Expense)

-

-

(2)

(2)

Income before Taxes

388

46

434

371

65

436

Provision for Income Taxes

(91)

(13)

c

(104)

(73)

(19)

c

(92)

Net Income

297

33

330

298

46

344

Diluted Shares

186.2

186.2

186.4

186.4

Diluted EPS

1.59

$             

0.18

$              

1.77

$              

1.60

0.25

1.85

a

One time separation, restructuring and realignment costs incurred at the segment level

b

One time separation, restructuring and realignment costs incurred at the corporate level

c

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

d

Restructuring and realignment costs incurred at the segment level

Xylem Inc. Non-GAAP Reconciliation

Guidance

($ Millions, except per share amounts)

$              

$              

$              

Non-GAAP Reconciliation: Adj. Operating Income & Margin

30

Mid Point Guidance

2008

2009

2010

2011

2012

2013E

Revenue

3,291

2,849

3,202

3,803

3,791

3,915

Operating Income

315

276

388

395

443

428

Operating Margin

9.6%

9.7%

12.1%

10.4%

11.7%

10.9%

Restructuring & Realignment

41

31

15

-

24

65

Separation Costs

-

-

-

87

22

-

Adjusted Operating Income

356

307

403

482

489

493

Adjusted Operating Margin

10.8%

10.8%

12.6%

12.7%

12.9%

12.6%

Standalone Costs

-

-

-

5

28

-

Adj. Operating Income, excl. Standalone Costs

356

307

403

487

517

493

Adjusted Operating Margin, excl. Standalone Costs

10.8%

10.8%

12.6%

12.8%

13.6%

12.6%

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

31

NYSE: XYL

Phil De Sousa, Investor Relations Officer

(914) 323-5930

Janice Tedesco, Investor Relations Coordinator

(914) 323-5931

http://investors.xyleminc.com

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