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Xylem Inc. reports fourth quarter and full year 2012 results, announces 15 percent dividend increase

  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 normalized^1 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

Business Wire

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 percentcompared 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,       776           756
respectively
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          6            5
long-term debt
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      (13     )     —
2012 and 2011, respectively
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            914         877         737
expenses
Research and development expenses              106         100         74
Separation costs                               22          87          —
Restructuring and asset impairments            17          2           15
charges, net
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 –            186.2       185.3       184.6
Diluted
                                                                       

                                                               
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            17          2           15
charges, net
Payments of restructuring                     (9    )     (7    )     (22    )
Contributions to postretirement benefit       (46   )     (16   )     (3     )
plans
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             14         2          8      
liabilities
Net Cash — Operating activities             396        449        395    
Investing Activities
Capital expenditures                          (112  )     (126  )     (94    )
Proceeds from the sale of property, plant     5           11          4
and equipment
Acquisitions of businesses and assets,        (41   )     (309  )     (1,004 )
net of cash acquired
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        (14   )     (8    )     —
lease obligations
Purchase of Xylem common stock                (13   )     —           —
Proceeds from exercise of employee stock      24          1           —
options
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   318        131        81     
year
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) =     (G) =      (H) = (B
                                                                                                                  B+C+D+E     F/A        + D) / A
                                                                                                                                         
                                                                                                               Change      %
                                                                                                                              Change
                                         Change     %                                                             Adj.        Adj.
                                                    Change
                                         2012       2012       Acquisitions     FX                                2012 v.     2012
                                         v.         v.         /                                                              v.
                   Orders     Orders     2011       2011       Divestitures     Contribution     Eliminations     2011        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              2,421      2,454      (33)       -1.3%      (95)             87               1                (40)        -1.6%      2.2%
infrastructure
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              602        589        13         2.2%       (7)              5                1                12          2.0%       3.1%
infrastructure
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              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, 2012
                                                                                                                                         
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, 2012
                                                                                                                                         
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       Acquisitions     FX                                Adj.        Adj.
                                       v.         v.         /                                                  2012        2012
               Revenue     Revenue     2011       2011       Divestitures     Contribution     Eliminations     v. 2011     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          2,425       2,416       9          0.4  %     (94     )        80               (1     )         (6   )      -0.2 %     3.7   %
infrastructure
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          637         679         (42  )     -6.2 %     (7      )        5                (1     )         (45  )      -6.6 %     -5.4  %
Infrastructure
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          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, 2012
                                                                                                                                       
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, 2012
                                                                                                                                       
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
2012 and 2011
($ Millions, except per share amounts)
                                                                          
                                                                          
                                                                      
                  Q1         Q2 2012        Q3 2012        Q4 2012        YTD
                  2012                                                    2012
                                                                          
Net Income          63         89             72             73             297
                                                                          
Separation
Costs, Net of       4          4              3              5              16
Tax
                                                                          
Restructuring
&                   -          -              4              13             17
Realignment,
Net of Tax
                                                                     
Adjusted Net
Income before     67        93           79           91           330
Special Tax
Items
                                                                          
Special Tax         -          (1     )       4              (3     )       -
Items
                                                                     
Adjusted Net       67        92           83           88           330
Income
                                                                          
Diluted
Earnings per      $ 0.34     $ 0.48         $ 0.38         $ 0.39         $ 1.59
Share
                                                                          
Separation
Costs per         $ 0.02     $ 0.02         $ 0.02         $ 0.03         $ 0.09
Share
                                                                          
Restructuring
& Realignment     $ 0.00     $ 0.00        $ 0.02        $ 0.07        $ 0.09
Costs per
Share
                                                                          
Adjusted
Diluted EPS
before            $ 0.36     $ 0.50         $ 0.42         $ 0.49         $ 1.77
Special Tax
Items
                                                                          
Special Tax
Items per         $ 0.00      ($0.01 )     $ 0.02         ($0.02 )     $ 0.00
Share
                                                                          
Adjusted          $ 0.36     $ 0.49        $ 0.44        $ 0.47        $ 1.77
Diluted EPS
                                                                      
                  Q1         Q2 2011        Q3 2011        Q4 2011        YTD
                  2011                                                    2011
                                                                          
Net Income          78         72             77             52             279
                                                                          
Separation
Costs, Net of       2          27             25             18             72
Tax
                                                                     
Adjusted Net
Income before     80        99           102          70           351
Special Tax
Items
                                                                          
Special Tax         -          4              (1     )       4              7
Items
                                                                     
Adjusted Net       80        103          101          74           358
Income
                                                                          
Diluted
Earnings per      $ 0.42     $ 0.39         $ 0.42         $ 0.28         $ 1.50
Share
                                                                          
Separation
Costs per         $ 0.01     $ 0.15        $ 0.13        $ 0.10        $ 0.39
Share
                                                                          
Adjusted
Diluted EPS
before            $ 0.43     $ 0.54         $ 0.55         $ 0.38         $ 1.89
Special Tax
Items
                                                                          
Special Tax
Items per         $ 0.00     $ 0.02         ($0.01 )     $ 0.02        $ 0.04
Share
                                                                          
Adjusted          $ 0.43     $ 0.56        $ 0.54        $ 0.40        $ 1.93
Diluted EPS
                                                                          
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               637              679             2,425           2,416
Infrastructure
• Applied Water       346              336             1,424           1,444
                                                             
Operating Income
• Total Xylem         104              100             443             395
• Water               89               98              342             343
Infrastructure
• Applied Water       35               27              170             160
                                                                       
Operating Margin
• Total Xylem         10.7%            10.0%           11.7%           10.4%
• Water               14.0%            14.4%           14.1%           14.2%
Infrastructure
• Applied Water       10.1%          8.0%          11.9%         11.1%
                                                                       
Separation Costs
• Total Xylem         7                20              22              87
• Water               1                6               4               16
Infrastructure
• Applied Water       -                4               2               13
                                                                       
Restructuring &
Realignment Costs
• Total Xylem         19               -               24              -
• Water               15               -               19              -
Infrastructure
• Applied Water       5                -               5               -
                                                             
Adjusted Operating
Income*
• Total Xylem         130              120             489             482
• Water               105              104             365             359
Infrastructure
• Applied Water       40               31              177             173
                                                                       
Adjusted Operating
Margin*
• Total Xylem         13.4%            12.0%           12.9%           12.7%
• Water               16.5%            15.3%           15.1%           14.9%
Infrastructure
• 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            Adjustments       Adjusted      Adjustments       Normalized     As            Adjustments       Adjusted
                    Reported                                                                       Reported
                                                                                                                                           
  Total Revenue       1,003                           1,003                            1,003         969                             969
  Operating           100            20       a       120            (2     ) c        118           104            26       f       130
  Income
  Operating           10.0  %                         12.0  %                          11.8  %       10.7  %                         13.4  %
  Margin
  Interest            (15   )                         (15   )                          (15   )       (14   )                         (14   )
  Expense
  Other
  Non-Operating      -                            -                             -           (1    )                       (1    )
  Income
  (Expense)
  Income before      85           20             105          (2     )         103          89             26               115
  Taxes
  Provision for      (33   )       2       b      (31   )       0       e       (31   )      (16   )       (11   )  g      (27   )
  Income Taxes
  Net Income         52           22             74           (2     )         72          73           15             88    
 Diluted          185.3                   185.3                    185.3     186.5                   186.5 
  Shares
 Diluted EPS     $ 0.28     $  0.12       $ 0.40     $  (0.01  )    $  0.39     $ 0.39     $  0.08       $ 0.47  
                                                                                                                                   
                                                                                                                                   
                                                                                                  
                    YTD 2011                                                                       YTD 2012
                    As            Adjustments       Adjusted      Adjustments       Normalized     As            Adjustments       Adjusted
                    Reported                                                                       Reported
                                                                                                                                           
  Total Revenue       3,803                           3,803                            3,803         3,791                           3,791
  Operating           395            87       a       482            (28    ) c        454           443            46       f       489
  Income
  Operating           10.4  %                         12.7  %                          11.9  %       11.7  %                         12.9  %
  Margin
  Interest            (17   )                         (17   )        (39    ) d        (56   )       (55   )                         (55   )
  Expense
  Other
  Non-Operating      5                            5                             5           -                            -     
  Income
  (Expense)
  Income before      383          87             470          (67    )         403         388          46             434   
  Taxes
  Provision for      (104  )       (8    )  b      (112  )       16      e       (96   )      (91   )       (13   )  g      (104  )
  Income Taxes
  Net Income         279          79             358          (51    )         307         297          33             330   
 Diluted          185.3                   185.3                    185.3     186.2                   186.2 
  Shares
 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)
                                                                                                
                                                                                                
                                                                Illustration of Mid Point Guidance
2013 Guidance
                                                               
                  FY '12                                        FY '13
                  As            Adjustments       Adjusted      As            Adjustments       Adjusted
                  Reported                                      Projected
Total Revenue       3,791                           3,791         3,915                           3,915
Segment
Operating           512            30       a       542           487             65      d       552
Income
Segment
Operating           13.5  %                         14.3  %       12.4  %                         14.1  %
Margin
Corporate          69           (16   )  b      53          59            -             59    
Expense
Operating          443          46             489         428           65            493   
Income
Operating           11.7  %                         12.9  %       10.9  %                         12.6  %
Margin
Interest            (55   )                         (55   )       (55   )                         (55   )
Expense
Other
Non-Operating      -                            -           (2    )                       (2    )
Income
(Expense)
Income before      388          46             434          371             65              436
Taxes
Provision for      (91   )       (13   )  c      (104  )      (73   )        (19  )  c      (92   )
Income Taxes
Net Income         297          33             330         298           46            344   
Diluted          186.2                   186.2     186.4                   186.4 
Shares
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         315        276        388        395        443        428    
Income
                                                                              
Operating         9.6   %     9.7   %     12.1  %     10.4  %     11.7  %     10.9   %
Margin
                                                                              
Restructuring     41          31          15          -           24          65
& Realignment
Separation        -           -           -           87          22          -
Costs
                                                                         
Adjusted
Operating         356        307        403        482        489        493    
Income
                                                                              
Adjusted
Operating         10.8  %     10.8  %     12.6  %     12.7  %     12.9  %     12.6   %
Margin
                                                                              
Standalone        -           -           -           5           28          -
Costs
                                                                         
Adj.
Operating
Income, excl.     356        307        403        487        517        493    
Standalone
Costs
                                                                              
Adjusted
Operating
Margin, excl.     10.8  %     10.8  %     12.6  %     12.8  %     13.6  %     12.6   %
Standalone
Costs
                                                                              

Contact:

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