Xylem Inc. reports fourth quarter and full-year 2011 results

February 28, 2012

Fourth quarter 2011 revenue of $1.0 billion, up 7 percent from fourth quarter 2010; full-year 2011 revenue of $3.8 billion, up 19 percent over prior year
Fourth quarter 2011 earnings per share of $0.28; adjusted earnings of $0.40 per share, up 5 percent over fourth quarter 2010 normalized earnings per share^*
Full-year 2011 earnings per share of $1.50; adjusted earnings of $1.93 per share, up 30 percent from 2010 normalized earnings per share
Strong full-year cash generation of $388 million, 111 percent conversion of adjusted net income

WHITE PLAINS, N.Y.--(BUSINESS WIRE)--Feb. 28, 2012-- Xylem Inc. (NYSE: XYL) today reported fourth quarter revenue of $1.0 billion, up 7 percent from the fourth quarter 2010, and net income of $52 million or $0.28 per share. Xylem, a leading global water technology company focused on solving the world’s most challenging water issues, was spun off from ITT Corporation on October 31, 2011. Excluding the impact of one-time separation costs and other special items, adjusted net income was $74 million or $0.40 per share, up 2 cents or 5 percent from the normalized earnings in the fourth quarter 2010.

"We drove solid business performance in 2011. We delivered revenue and earnings growth that reflected the strength of our core water and wastewater portfolio, as well as increased activity in the emerging markets, and solid returns from investments in our analytical instrumentation and dewatering businesses,” said Gretchen McClain, president and chief executive officer of Xylem. "All of this was accomplished as we worked through the successful launch of our new company. It is a testament to the dedication of our 12,500 employees who focus on solving our customers’ water challenges.”

For the fourth quarter, Xylem achieved adjusted operating margin of 12.0 percent, including incremental stand-alone costs of $5 million, which reduced margin by 50 basis points. Operating margin in the fourth quarter of 2010 was 11.9 percent.

For the full year 2011, Xylem revenue was $3.8 billion, up 19 percent over 2010. Excluding the impact of acquisitions and positive foreign currency translation, full-year organic revenue growth was 7 percent. Adjusted operating margin was 12.7 percent, up 60 basis points compared to 2010. The $5 million of incremental stand-alone cost incurred in the fourth quarter reduced full-year operating margin by 10 basis points. Full-year reported net income was $279 million, or $1.50 per share. Adjusted net income, excluding the impact of the spinoff and other special items, was $358 million or $1.93 per share, up 45 cents or 30 percent from the normalized earnings in 2010. Strong performance from acquired businesses and working capital improvements helped generate $388 million of free cash flow during the year, which excludes $65 million of cash paid for spinoff-related costs. This represents a 111 percent conversion of adjusted net income.

*The 2010 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 2010.

Fourth Quarter and Full-Year 2011 Segment Results

Water Infrastructure

Xylem’s Water Infrastructure businesses provide equipment and services to water and wastewater transport and treatment, dewatering and analytical instrumentation markets.

Fourth quarter 2011 revenue was $679 million, an increase of 9 percent compared with the fourth quarter 2010, up 6 percent organically. This reflects solid growth in dewatering and the emerging markets, particularly in treatment and analytical instrumentation.
Orders for the quarter increased 15 percent, 10 percent organically, to $589 million from the comparable period in 2010.
Fourth quarter segment operating income, which included $6 million of spinoff-related costs, was $98 million. Adjusted operating income for the period, excluding the impact of the spinoff costs, was $104 million, up $3 million relative to the same period in 2010.
Full-year segment revenue was $2.42 billion, up 25 percent over the prior year. Full-year reported segment operating income was $343 million. Full-year adjusted operating income for the Water Infrastructure segment was $359 million, an increase of 30 percent or $83 million over the full year 2010.

Applied Water

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

Fourth quarter 2011 Applied Water segment revenue was $336 million, up 3 percent compared with the fourth quarter 2010, with growth in sales of energy-efficient solutions like the e-SV pump used in a wide range of applications, more than offsetting relative weakness in building services in the developed markets.
Orders of $330 million were essentially flat vs. the comparable period in 2010.
Fourth quarter segment operating income, which included $4 million of spinoff-related expenses, was $27 million. Excluding the impact of these special items, segment operating income was $31 million, up 15 percent or $4 million relative to the same period in 2010.
Full-year segment revenue was $1.44 billion, up 9 percent over the prior year. Full-year reported segment operating income was $160 million, including $13 million of spinoff- related expenses. Full-year adjusted segment operating income was $173 million, an increase of 9 percent or $15 million over 2010.

Full-year 2012 Outlook

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

“We’ve begun 2012 in a strong competitive and financial position,” McClain said. “We remain mindful of the pockets of weak economic activity in Europe, and less rapid growth in some of the emerging markets. With our applications expertise, customer focus, market-leading brands, large installed base and superior distribution in more than 150 countries, our portfolio is fundamentally well-positioned to continue growing at a rate faster than the global market. Further, we will continue investing in attractive opportunities, deploying resources to continue growing our core businesses through new product development and innovative applications, while maintaining our ability to make attractive acquisitions.”

More detail available

Supplemental information on Xylem’s fourth quarter and full-year 2011 earnings, including reconciliations for certain non-GAAP items, is posted at investors.xyleminc.com.

About Xylem

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

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

Forward-Looking Statements

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

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

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


XYLEM INC. AND SUBSIDIARIES CONSOLIDATED AND COMBINED INCOME STATEMENTS (In Millions, except per share data)

Year Ended December 31,	2011		2010		2009

Revenue	$	3,803	$	3,202	$	2,849
Cost of revenue		2,342		1,988		1,812
Gross profit		1,461		1,214		1,037
Selling, general and administrative expenses		877		737		667
Research and development expenses		100		74		63
Separation costs		87	─		─
Restructuring and asset impairments charges, net		2		15		31
Operating income		395		388		276
Interest expense		17	─		─
Other non-operating income, net		5	─			1
Income before taxes		383		388		277
Income tax expense		104		59		14
Net income	$	279	$	329	$	263
Earnings per share:
Basic	$	1.51	$	1.78	$	1.42
Diluted	$	1.50	$	1.78	$	1.42
Weighted average number of shares – Basic		185.1		184.6		184.6
Weighted average number of shares – Diluted		185.3		184.6		184.6


XYLEM INC. AND SUBSIDIARIES CONSOLIDATED AND COMBINED BALANCE SHEETS (In Millions, except per share amounts)

December 31,	2011		2010
ASSETS

Current assets:
Cash and cash equivalents	$	318	$	131
Receivable, less allowances for discounts and doubtful accounts of $37 and $32 in 2011 and 2010, respectively		756		690
Inventories, net		426		389
Prepaid assets		97		79
Deferred income tax assets		45		47
Total current assets		1,642		1,336

Property, plant and equipment, net		463		454
Goodwill		1,610		1,437
Other intangible assets, net		505		416
Other non-current assets		173		92
Total assets	$	4,393	$	3,735

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	322	$	309
Accrued and other current liabilities		490		340
Short-term borrowings and current maturities of long-term debt		5	─
Total current liabilities		817		649

Long-term debt		1,201		4
Accrued postretirement benefits		316		163
Deferred income tax liabilities		165		99
Other non-current accrued liabilities		67		101
Total liabilities		2,566		1,016

Commitments and contingencies
Stockholders’ equity:
Common Stock - par value $0.01 per share:
Authorized 750.0 shares, issued 184.6 shares		2	─
Capital in excess of par value		1,663	─
Retained earnings		40	─
Parent company investment	─			2,682
Accumulated other comprehensive income		122		37
Total stockholders’ equity		1,827		2,719
Total liabilities and stockholders’ equity	$	4,393	$	3,735


XYLEM INC. AND SUBSIDIARIES CONSOLIDATED AND COMBINED CASH FLOWS (In Millions)

Year Ended December 31,	2011			2010			2009

Operating Activities
Net income	$	279		$	329		$	263
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		137			92			70
Deferred income taxes		8			(31	)		(36	)
Share-based compensation		13			9			9
Non-cash separation costs		10			—			—
Restructuring charges, net		2			15			31
Payments of restructuring		(7	)		(22	)		(40	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		(61	)		(45	)		45
Changes in inventories		(18	)		7			62
Changes in accounts payable		(9	)		41			(38	)
Changes in accrued liabilities		53			12			(11	)
Changes in accrued taxes		56			(17	)		(1	)
Net changes in other assets and liabilities		(14	)		5			16
Net Cash - Operating activities		449			395			370
Investing Activities
Capital expenditures		(126	)		(94	)		(62	)
Proceeds from the sale of property, plant and equipment		11			4			11
Acquisitions of businesses and assets, net of cash acquired		(309	)		(1,004	)		(33	)
Other, net		1			1			—
Net Cash - Investing activities		(423	)		(1,093	)		(84	)
Financing Activities
Net transfer (to)/from parent		(995	)		745			(292	)
Issuance of short-term debt		5			—			—
Issuance of senior notes, net of discount		1,198			—			—
Principal payments of debt and capital lease obligations		(8	)		—			—
Proceeds from exercise of employee stock options		1			—			—
Payments of debt issuance costs		(10	)		—			—
Dividends paid		(19	)		—			—
Net Cash - Financing activities		172			745			(292	)
Effect of exchange rate changes on cash		(11	)		3			6
Net change in cash and cash equivalents		187			50			—
Cash and cash equivalents at beginning of year		131			81			81
Cash and cash equivalents at end of year	$	318		$	131		$	81

Supplemental disclosure of cash flow information: Cash paid during the year for:
Income taxes (net of refunds received)	$	64		$	110		$	52

Xylem Inc. Non-GAAP Measures

Management views key performance indicators including revenue, segment operating income and margins, orders growth, and backlog, among others. In addition, we consider certain measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenues, operating income, net income or net cash from continuing 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.

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

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

“Normalized EPS” defined as earnings per share, adjusted to exclude one-time separation costs associated with the Xylem spin-off from ITT Corporation and tax-related special items, as well 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 and 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 Order Growth
($ Millions)

	(As Reported - GAAP)						(As Adjusted - Organic)
		(A)	(B)				(C)		(D)		(E)		(F) = B+C+D+E		(G) = F/A

	Orders	Orders	Change 2011 v. 2010		% Change 2011 v. 2010		Acquisitions / Divestitures		FX Contribution		Eliminations		Change Adj. 2011 v. 2010		% Change Adj. 2011 v. 2010
	2011	2010
Year Ended December 31, 2011

Xylem Inc.	3,847	3,237	610		18.8	%	(272	)	(120	)	-		218		6.7	%

Water infrastructure	2,454	1,941	513		26.4	%	(272	)	(96	)	1		146		7.5	%
Applied Water	1,452	1,352	100		7.4	%	-		(27	)	(1	)	72		5.3	%



Quarter Ended December 31, 2011

Xylem Inc.	905	836	69		8.3	%	(24	)	5		-		50		6.0	%

Water infrastructure	589	514	75		14.6	%	(24	)	4		(5	)	50		9.7	%
Applied Water	330	331	(1	)	-0.3	%	-		1		(1	)	(1	)	-0.3	%

Quarter Ended September 30, 2011

Xylem Inc.	966	810	156		19.3	%	(41	)	(42	)	-		73		9.0	%

Water infrastructure	621	504	117		23.2	%	(41	)	(33	)	5		48		9.5	%
Applied Water	358	322	36		11.2	%	-		(10	)	-		26		8.1	%

Quarter Ended June 30, 2011

Xylem Inc.	998	822	176		21.4	%	(91	)	(70	)	-		15		1.8	%

Water infrastructure	632	498	134		26.9	%	(91	)	(55	)	2		(10	)	-2.0	%
Applied Water	383	341	42		12.3	%	-		(17	)	1		26		7.6	%

Quarter Ended March 31, 2011

Xylem Inc.	978	769	209		27.2	%	(116	)	(13	)	-		80		10.4	%

Water infrastructure	612	425	187		44.0	%	(116	)	(12	)	(1	)	58		13.6	%
Applied Water	381	358	23		6.4	%	-		(1	)	(1	)	21		5.9	%

Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic Revenue
($ Millions)

	(As Reported - GAAP)					(As Adjusted - Organic)
		(A)	(B)			(C)		(D)		(E)		(F) = B+C+D+E	(G) = F/A

	Revenue	Revenue	Change 2011 v. 2010	% Change 2011 v. 2010		Acquisitions / Divestitures		FX Contribution		Eliminations		Change Adj. 2011 v. 2010	% Change Adj. 2011 v. 2010
	2011	2010
Year Ended December 31, 2011


Xylem Inc.	3,803	3,202	601	18.8	%	(264	)	(111	)	-		226	7.1	%

Water infrastructure	2,416	1,930	486	25.2	%	(264	)	(87	)	2		137	7.1	%
Applied Water	1,444	1,327	117	8.8	%	-		(28	)	(1	)	88	6.6	%


Quarter Ended December 31, 2011

Xylem Inc.	1,003	935	68	7.3	%	(27	)	6		-		47	5.0	%

Water Infrastructure	679	622	57	9.2	%	(27	)	5		1		36	5.8	%
Applied Water	336	327	9	2.8	%	-		1		(1	)	9	2.8	%

Quarter Ended September 30, 2011


Xylem Inc.	939	806	133	16.5	%	(42	)	(39	)	-		52	6.5	%

Water infrastructure	584	488	96	19.7	%	(42	)	(30	)	1		25	5.1	%
Applied Water	368	331	37	11.2	%	-		(10	)	1		28	8.5	%

Quarter Ended June 30, 2011


Xylem Inc.	971	775	196	25.3	%	(85	)	(65	)	-		46	5.9	%

Water infrastructure	602	443	159	35.9	%	(85	)	(50	)	1		25	5.6	%
Applied Water	385	346	39	11.3	%	-		(18	)	-		21	6.1	%

Quarter Ended March 31, 2011

Xylem Inc.	890	686	204	29.7	%	(110	)	(13	)	-		81	11.8	%

Water infrastructure	551	377	174	46.2	%	(110	)	(12	)	(1	)	51	13.5	%
Applied Water	355	323	32	9.9	%	-		(1	)	(1	)	30	9.3	%

Xylem Inc. Non-GAAP Reconciliation
Normalized and Adjusted Operating Income and Earnings Per Share (EPS)
($ Millions, except per share amounts)



	Q4 '10										Q4 '11
	As Reported			Adjustments				Normalized			As Reported			Adjustments				Adjusted
Total Revenue		935							935			1,003							1,003
Operating Income		111			(5	)	a		106			100			20		g		120
Operating Margin		11.9	%				b		11.4	%		9.9	%						11.9	%
Interest Income (Expense)		-			(14	)			(14	)		(13	)						(13	)
Other Income (Expense)		-							-			(1	)						(1	)
Income before Taxes		111			(19	)			92			85			20				105
Provision for Income Taxes		(14	)		(9	)	f		(23	)		(33	)		2		h		(31	)
Net Income		97			(28	)			69			52			22				74
Diluted Shares		184.6							184.6			185.3							185.3
Diluted EPS	$	0.53		$	(0.15	)		$	0.38		$	0.28		$	0.12			$	0.40




	FY '10										FY '11
	As Reported			Adjustments				Normalized			As Reported			Adjustments				Adjusted
		3,202							3,202			3,803							3,803
Operating Income		388			(5	)	a		383			395			87		d		482
		12.1	%				b		11.9	%		10.4	%						12.7	%
Interest Income (Expense)		-			(14	)			(14	)		(17	)						(17	)
Other Income (Expense)		-							-			5							5
Income before Taxes		388			(19	)			369			383			87				470
Provision for Income Taxes		(59	)		(37	)	c		(96	)		(104	)		(7	)	e		(111	)
Net Income		329			(56	)			273			279			80				359
Diluted Shares		184.6							184.6			185.3							185.3
Diluted EPS	$	1.78		$	(0.30	)		$	1.48		$	1.50		$	0.43			$	1.93

a Equals incremental stand alone costs incurred in 2011 of $5M
b Represents incremental interest expense on long-term debt that was incurred in 2011
c Represents net tax impact of above items, less 2010 special tax items of $43M
d Represents one-time separation costs incurred in 2011
e Represents the tax benefit on one time separation costs of $15M, less special tax items of $7M
f Represents net tax impact on stand alone and interest expenses, less Q4 2010 special tax items of $15M
g One time separation costs incurred in Q4 2010
h Represents net tax impact of one time separation costs

Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
2011 and 2010
($ Millions, except per share amounts)


	Q1 2011			Q2 2011			Q3 2011			Q4 2011			FY 2011

Net Income		78			72			77			52			279

Separation costs, net of tax		2			27			25			18			72

Adjusted Net Income before Special Tax Items		80			99			102			70			351

Special Tax Items					4			(1	)		4			7

Adjusted Net Income		80			103			101			74			358

Diluted Earnings per Share	$	0.42		$	0.39		$	0.42		$	0.28		$	1.50

Separation costs per Share	$	0.01		$	0.15		$	0.13		$	0.10		$	0.39

Adjusted diluted EPS before Special Tax Items	$	0.43		$	0.54		$	0.55		$	0.38		$	1.89

Special Tax Items per Share	$	0.00		$	0.02			($0.01	)	$	0.02		$	0.04

Adjusted diluted EPS	$	0.43		$	0.56		$	0.54		$	0.40		$	1.93


	Q1 2010			Q2 2010			Q3 2010			Q4 2010			FY 2010

Net Income		56			85			91			97			329

Separation costs, net of tax		-			-			-			-			-

Adjusted Net Income before Special Tax Items		56			85			91			97			329

Special Tax Items		(6	)		(11	)		(11	)		(15	)		(43	)

Adjusted Net Income		50			74			80			82			286

Diluted Earnings per Share	$	0.30		$	0.46		$	0.49		$	0.53		$	1.78

Adjusted diluted EPS before Special Tax Items	$	0.30		$	0.46		$	0.49		$	0.53		$	1.78

Special Tax Items per Share		($0.03	)		($0.06	)		($0.05	)		($0.09	)		($0.23	)

Adjusted diluted EPS	$	0.27		$	0.40		$	0.44		$	0.44		$	1.55

Xylem Inc. Non-GAAP Reconciliation
Segment Operating Income
($ Millions)


Adjusted Segment Operating Income

	Q1				Q2				Q3				Q4				FY
	'11		'10		'11		'10		'11		'10		'11		'10		'11		'10
Total Revenue
• Water Infrastructue	551		377		602		443		584		488		679		622		2,416		1,930
• Applied Water	355		323		385		346		368		331		336		327		1,444		1,327

Operating Income
• Water Infrastructue	64		45		94		57		87		73		98		101		343		276
• Applied Water	46		40		50		51		37		40		27		27		160		158

Separation Costs
• Water Infrastructue	-		-		2		-		8		-		6		-		16		-
• Applied Water	-		-		-		-		9		-		4		-		13		-

Adjusted Operating Income*
• Water Infrastructue	64		45		96		57		95		73		104		101		359		276
• Applied Water	46		40		50		51		46		40		31		27		173		158

Operating Margin
• Water Infrastructue	11.6	%	11.9	%	15.6	%	12.9	%	14.9	%	14.9	%	14.4	%	16.2	%	14.2	%	14.3	%
• Applied Water	13.0	%	12.4	%	13.0	%	14.7	%	10.0	%	12.0	%	8.0	%	8.3	%	11.1	%	11.9	%

Adjusted Operating Margin*
• Water Infrastructue	11.6	%	11.9	%	15.9	%	12.9	%	16.3	%	14.9	%	15.3	%	16.2	%	14.9	%	14.3	%
• Applied Water	13.0	%	12.4	%	13.0	%	14.7	%	12.5	%	12.0	%	9.2	%	8.3	%	12.0	%	11.9	%

*Adjusted Operating Income excludes non-recurring separation costs

Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
Years ended 2011 & 2010
($ Millions)


	Year Ended
	2011		2010

Net Cash - Operating Activities	449		395

Capital Expenditures	(126	)	(94	)

Free Cash Flow, including separation costs	323		301

Separation Costs (Cash Paid incl. Capex)	65		-

Free Cash Flow, excluding separation costs	388		301

Net Income	279		329

Separation Costs, net of tax	72		-

Adjusted Net Income	351		329

Free Cash Flow Conversion	111	%	91	%

Xylem Inc. Non-GAAP Reconciliation
Guidance
($ Millions, except per share amounts)


																	Illustration of Mid Point Guidance
2012 Guidance

	FY '11																FY '12
	As Reported			Adjustments				Adjusted			Adjustments				Normalized		As Reported		Adjustments			Adjusted
Total Revenue		3,803							3,803						3,803		3,950					3,950
Segment Operating Income		503			29		a		532			(8	)	d	524		577		8		h	585
Segment Operating Margin		13.2	%						14.0	%					13.8	%	14.6	%				14.8	%
Corporate Expense		108			(58	)	b		50			20		e	70		81		(10	)	h	71
Operating Income		395			87				482			(28	)		454		496		18			514
Operating Margin		10.4	%						12.7	%					11.9	%	12.6	%				13.0	%
Interest Expense		(17	)						(17	)		(39	)	f	(56	)	(51	)				(51	)
Other Non-Operating Income (Expense)		5							5						5		-					-
Income before Taxes		383			87				470			(67	)		403		445		18			463
Provision for Income Taxes		(104	)		(7	)	c		(111	)		16		g	(95	)	(111	)	(5	)	i	(116	)
Net Income		279			80				359			(51	)		308		334		13			347
Diluted Shares		185.3													185.3		185.8					185.8
Diluted EPS	$	1.50		$	0.43			$	1.93		$	(0.27	)		1.66		1.80		0.07			1.87

a One time separation costs incurred at the segment level
b One time separation costs incurred at the corporate level
c Net tax impact of above items, plus the addition of 2011 special tax items
d Incremental stand alone costs to be incurred in 2012 at the segment level ($8M)
e Incremental stand alone costs to be incurred in 2012 at the corporate level ($20M)
f Incremental interest expense on long-term debt to be incurred in 2012
g Tax impact of incremental interest expense and stand alone costs to be incurred in 2012
h Expected one time separation costs of $8M and $10M to be incurred at the segments and headquarters, respectively.
i Tax impact of one time separation costs expected to be incurred in 2012.

Source: Xylem Inc.

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

Press Release

Xylem Inc. reports fourth quarter and full-year 2011 results