Xylem Inc. reports third quarter 2012 results

  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

Business Wire

WHITE PLAINS, N.Y. -- November 01, 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 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
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.

*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.


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      231        215       682        643
expenses
Research and development expenses        24         23        80         73
Restructuring and asset impairment       4          2         4          2
charges, net
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                                     801              756

of $33 and $37 in 2012 and 2011, respectively
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      13             5
long-term debt
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          2                2
and 2011, respectively
Capital in excess of par value                        1,699            1,663
Retained earnings                                     206              40
Treasury stock – at cost 0.2 shares and 0             (6     )    ─
shares in 2012 and 2011, respectively
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                (6  )     —
obligations
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) =    (G) =      (H) = (B
                                                                                                    B+C+D+E   F/A        + D) / A
                                                                                                                         
                                   Change   %                                                      Change    %
                                            Change                                                            Change
                                   2012     2012 v.    Acquisitions   FX                            Adj.      Adj.
                 Orders   Orders   v.       2011       /              Contribution   Eliminations   2012 v.   2012 v.
                                   2011                Divestitures                                 2011      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            1,819    1,865    (46  )   -2.5   %   (88     )      82             -              (52  )    -2.8   %   1.9   %
infrastructure
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            564      621      (57  )   -9.2   %   (21     )      29             -              (49  )    -7.9   %   -4.5  %
infrastructure
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            617      632      (15  )   -2.4   %   (30     )      40             -              (5   )    -0.8   %   4.0   %
infrastructure
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            638      612      26       4.2    %   (37     )      13             -              2         0.3    %   6.4   %
infrastructure
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) =     (G) =      (H) = (B
                                                                                                      B+C+D+E   F/A        + D) / A
                                                                                                                           
                                     Change   %                                                      Change    %
                                              Change                                                            Change
                                     2012     2012 v.    Acquisitions   FX                            Adj.      Adj.
                 Revenue   Revenue   v.       2011       /              Contribution   Eliminations   2012 v.   2012 v.
                                     2011                Divestitures                                 2011      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            1,788     1,737     51       2.9    %   (87     )      75             -              39        2.2    %   7.3   %
infrastructure
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            595       584       11       1.9    %   (21     )      28             -              18        3.1    %   6.7   %
infrastructure
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            609       602       7        1.2    %   (32     )      37             (1     )       11        1.8    %   7.3   %
infrastructure
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            584       551       33       6.0    %   (34     )      10             1              10        1.8    %   7.8   %
infrastructure
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,         -        -            4             4
Net of Tax
                                                                  
Adjusted Net Income before          67      93         79          239
Special Tax Items
                                                                      
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       $  0.00   $ 0.00      $ 0.02      $  0.02
Costs per Share
                                                                      
Adjusted Diluted EPS before       $  0.36   $ 0.50       $ 0.42       $  1.28
Special Tax Items
                                                                      
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          80      99         102         281
Special Tax Items
                                                                      
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       $  0.43   $ 0.54       $ 0.55       $  1.52
Special Tax Items
                                                                      
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                  595            584           1,788        1,737
  Infrastructure
  • Applied Water          350            368           1,078        1,108
                                                             
  Operating Income
  • Total Xylem            111            79            339          296
  • Water                  85             87            253          245
  Infrastructure
  • Applied Water          43             37            135          133
                                                                     
  Operating Margin
  • Total Xylem            11.9   %       8.4    %      12.0   %     10.6   %
  • Water                  14.3   %       14.9   %      14.1   %     14.1   %
  Infrastructure
  • Applied Water         12.3   %      10.0   %     12.5   %    12.0   %
                                                                     
  Separation Costs
  • Total Xylem            4              46            15           67
  • Water                  -              8             3            10
  Infrastructure
  • Applied Water          1              9             2            9
                                                                     
  Restructuring &
  Realignment Costs
  • Total Xylem            5              -             5            -
  • Water                  4              -             4            -
  Infrastructure
  • Applied Water          -              -             -            -
                                                             
  Adjusted Operating
  Income*
  • Total Xylem            120            125           359          363
  • Water                  89             95            260          255
  Infrastructure
  • Applied Water          44             46            137          142
                                                                     
  Adjusted Operating
  Margin*
  • Total Xylem            12.9   %       13.3   %      12.7   %     13.0   %
  • Water                  15.0   %       16.3   %      14.5   %     14.7   %
  Infrastructure
  • 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          Adjustments     Adjusted     Adjustments     Normalized   As          Adjustments     Adjusted
                    Reported                                                              Reported
    Total Revenue     939                         939                           939         931                         931
    Operating         79           46       a     125           (8     ) c      117         111            9      a     120
    Income
    Operating         8.4   %                     13.3 %                        12.5  %     11.9  %                     12.9  %
    Margin
    Interest          (1    )                     (1   )        (13    ) d      (14   )     (14   )                     (14   )
    Expense
    Other
    Non-Operating    4                        4                          4         3                        3     
    Income
    (Expense)
    Income before    82         46           128         (21    )       107        100            9            109
    Taxes
    Provision for    (5    )     (22   )  b    (27  )       4       e     (23   )    (28   )       2      b    (26   )
    Income Taxes
    Net Income       77         24           101         (17    )       84        72           11          83    
    Diluted         184.6                                         184.6    186.3                 186.3 
    Shares
    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          Adjustments     Adjusted    Adjustments     Normalized   As          Adjustments       Adjusted
                    Reported                                                             Projected
    Total Revenue     3,803                       3,803                     3,803        3,800                         3,800
    Segment
    Operating         503          29       a     532          (10    ) d   522          516         25          h,i   541
    Income
    Segment
    Operating         13.2  %                     14.0  %                   13.7    %    13.6   %                      14.2   %
    Margin
    Corporate        108        (58   )  b    50         18      e   68          68         (15     )   h     53     
    Expense
    Operating        395        87           482        (28    )     454         448        40               488    
    Income
    Operating         10.4  %                     12.7  %                   11.9    %    11.8   %                      12.8   %
    Margin
    Interest          (17   )                     (17   )      (39    ) f   (56     )    (54    )                      (54    )
    Expense
    Other
    Non-Operating    5                        5                       5           (1     )                     (1     )
    Income
    (Expense)
    Income before    383        87           470        (67    )     403         393         40                433
    Taxes
    Provision for    (104  )     (8    )  c    (112  )     16      g   (96     )    (99    )    (7      )   j     (106   )
    Income Taxes
    Net Income       279        79           358        (51    )     307         294        33               327    
    Diluted         185.3                                       185.3      186.2                    186.2  
    Shares
    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 &              41        31        15        -         20
Realignment
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,       356      307      403      487      516    
excl. Stand-alone Costs
                                                                     
Adjusted Operating Margin,   10.8  %   10.8  %   12.6  %   12.8  %   13.6   %
excl. Stand-alone Costs
                                                                            

Contact:

Xylem Inc.
Media
Tom Glover, +1-914-323-5891
Tom.Glover@xyleminc.com
or
Investors
Phil De Sousa, +1-914-323-5930
Phil.DeSousa@xyleminc.com
 
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