UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 2, 2012

XYLEM INC.
(Exact name of registrant as specified in its charter)

 
 	 	 	 	 	 	 	
Indiana	 	001-35229	 	45-2080495	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	
 	 	
1133 Westchester Avenue, Suite N200
White Plains, New York	 	10604	
(Address of principal executive offices)	 	(Zip Code)	
(914) 323-5700
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

Item 2.02	Results of Operations and Financial Condition	
Attached hereto as Exhibit 99.1 and incorporated herein by reference is the news release issued by Xylem Inc. on August 2, 2012, announcing the financial results for the quarter ended June 30, 2012. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
 
Item 7.01	Regulation FD Disclosure	
Attached hereto as Exhibit 99.2 and incorporated herein by reference are earnings slides posted on Xylem Inc.’s website on August 2, 2012, summarizing Xylem Inc.’s financial results for the quarter ended June 30, 2012. This information is furnished pursuant to Item 7.01 Regulation FD Disclosure. This information shall not be deemed filed for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
Item 9.01	Financial Statements and Exhibits.	
(d) Exhibits.

Exhibit No.	 	Description	
 	 	
99.1	 	News Release issued by Xylem Inc. on August 2, 2012.	
 	 	
99.2	 	Slides summarizing first quarter financial results posted by Xylem Inc. on August 2, 2012.	

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 	 	XYLEM INC.	
 	 	 	
Date: August 2, 2012	 	By:	 	/s/ Michael T. Speetzen	
 	 	 	 	Michael T. Speetzen	
 	 	 	 	Senior Vice President and Chief Financial
Officer
(Authorized Officer of Registrant)	

EXHIBIT INDEX

Exhibit No.	 	Description	
 	 	
99.1	 	News Release issued by Xylem Inc. on August 2, 2012.	
 	 	
99.2	 	Slides summarizing first quarter financial results posted by Xylem Inc. on August 2, 2012.	

Exhibit 99.1

Xylem
1133 Westchester Ave., White Plains, NY 10604
Tel +1.914.323.5700 Fax +1.914.696.2960

Contacts:	  	 	  	 	  	 	
Media	  	 	  	Investors	  	 	
Tom Glover	  	 	  	Phil De Sousa	  	 	
+1-914-323-5891	  	 	  	+1-914-323-5930	  	 	
Tom.Glover@xyleminc.com	  	 	  	Phil.DeSousa@xyleminc.com	  	 	
Xylem Inc. reports second quarter 2012 results
Second quarter adjusted net income is $92 million or $0.49 per share, up 4 percent on a normalized* basis; $89 million or $0.48 per share as reported, up 23 percent or $0.09 per share from Q2 2011
Second quarter revenue up 4 percent in constant currencies to $966 million; down 1 percent as reported, due to foreign currency translation impact
Gross and operating margins climb 60 and 100 basis points, respectively, on a normalized basis, continuing a three-year upward trend; sales program and cost reduction initiatives driving profitability
Company continues to execute growth strategy with MJK Automation acquisition; emerging markets post revenue growth of 22 percent in constant currencies
WHITE PLAINS, N.Y., August 2, 2012 – Xylem Inc. (NYSE: XYL), a leading global water technology company focused on solving the world’s most challenging water issues, today reported second quarter revenue of $966 million, up 4 percent on a constant currency basis, down 1 percent as reported from the second quarter 2011. Second quarter net income was $89 million or $0.48 per share, up $0.09 per share or 23 percent 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 tax items, net income was $92 million or $0.49 per share, up 4 percent or $0.02 per share over the second quarter 2011 on a normalized basis.* Recognizing soft economic conditions and the anticipated negative currency impact from the recent strengthening of the U.S. dollar, the company announced that it is revising its full-year revenue and earnings outlook downward.
“Our business operations continue to improve, even with lower than anticipated revenue, showing strong gross and operating margin improvement in this tough economy, extending a three-year positive trend: we’re seeing the benefit of disciplined cost control measures we’ve put in place,” said Gretchen McClain, president and chief executive officer of Xylem. “Our leadership team is committed to maximizing the benefit of our Customer Excellence sales initiatives to grow the top line, and we are driving operational excellence to grow the bottom line, as well as controlling costs.”
 
*	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.	

“We continue to enhance our portfolio, having just closed the acquisition of MJK Automation, a leading manufacturer of flow and level sensors, and measurement and control technology for water and wastewater applications, a business that complements our offerings in the attractive analytical instrumentation space,” McClain said. “Further, we’ve seen our business grow by 22 percent in constant currencies in the emerging markets, or 17 percent on an organic basis, enhancing our footprint, most recently with new sales and service centers in Panama and Vietnam.”
Full-year revenues are now expected to be approximately $3.8 billion, and adjusted net income is expected to be in the range of $321 to $338 million, or $1.72 to $1.82 per share, down from the earlier projection of adjusted net income of $1.80 to $1.95 per share. Full-year GAAP net income is now anticipated to be in the range of $292 to $317 million, or $1.57 to $1.70 per share, which includes $15 to $20 million of restructuring and realignment costs and $15 to $20 million of one-time separation costs. This is down from the earlier projection of GAAP net income of $1.72 to $1.89 per share.
Second Quarter 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.
 
 	•	 	Second quarter 2012 segment revenue was $609 million, up 1 percent as reported, and up 7 percent in constant currencies from the second quarter of 2011. A 58 percent increase in the test business, driven by the newly acquired YSI business and 38 percent growth in the emerging markets on a constant currency basis, more than offset weakness in treatment.	
 
 	•	 	Second quarter adjusted segment operating margin was down 50 basis points from the second quarter 2011 to 15.4 percent, driven by the impact of incremental stand-alone costs and inflation, which was partially offset by price and cost actions. Stand-alone costs negatively impacted operating margin by 70 basis points for the second quarter 2012.	
Applied Water
Xylem’s Applied Water businesses provide equipment and services in the residential and commercial building services, general industrial and agricultural markets.
 
 	•	 	Second quarter 2012 segment revenue was $373 million, flat on a constant currency basis and down 3 percent over the second quarter of 2011, attributable to slowing commercial and residential demand, which was partially offset by strength in the U.S. industrial business.	
 
 	•	 	Second quarter adjusted segment operating margin was 13.9 percent, up 90 basis points from the second quarter 2011, thanks to significant productivity and price initiatives which more than offset incremental stand-alone costs. Stand-alone costs negatively impacted operating margin 50 basis points for the second quarter of 2012.	
 
2

More detail available
Supplemental information on Xylem’s second quarter earnings, including 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.
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.
###
 
3

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED INCOME STATEMENTS (Unaudited)
(in millions, except per share data)

 	  	Three Months	 	  	Six Months	 	
For the periods ended June 30,	  	2012	 	 	2011	 	  	2012	 	 	2011	 	
Revenue	  	$	966	  	 	$	971	  	  	$	1,891	  	 	$	1,861	  	
Cost of revenue	  	 	583	  	 	 	592	  	  	 	1,145	  	 	 	1,145	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Gross profit	  	 	383	  	 	 	379	  	  	 	746	  	 	 	716	  	
Selling, general and administrative expenses	  	 	220	  	 	 	219	  	  	 	451	  	 	 	429	  	
Research and development expenses	  	 	28	  	 	 	26	  	  	 	56	  	 	 	50	  	
Separation costs	  	 	6	  	 	 	18	  	  	 	11	  	 	 	21	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Operating income	  	 	129	  	 	 	116	  	  	 	228	  	 	 	216	  	
Interest expense	  	 	13	  	 	 	1	  	  	 	27	  	 	 	1	  	
Other non-operating (expense) income, net	  	 	(1	) 	 	 	—  	  	  	 	(2	) 	 	 	1	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income before taxes	  	 	115	  	 	 	115	  	  	 	199	  	 	 	216	  	
Income tax expense	  	 	26	  	 	 	43	  	  	 	47	  	 	 	66	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net income	  	$	89	  	 	$	72	  	  	$	152	  	 	$	150	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Earnings per share:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Basic	  	$	0.48	  	 	$	0.39	  	  	$	0.82	  	 	$	0.82	  	
Diluted	  	$	0.48	  	 	$	0.39	  	  	$	0.82	  	 	$	0.82	  	
Weighted average number of shares:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Basic	  	 	185.8	  	 	 	184.6	  	  	 	185.6	  	 	 	184.6	  	
Diluted	  	 	186.2	  	 	 	184.6	  	  	 	186.1	  	 	 	184.6	  	
Dividends declared per share	  	$	0.1012	  	 	$	—  	  	  	$	0.2024	  	 	$	—  	  	

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)

 	  	June 30,
2012	 	 	December 31,
2011	 	
 	  	(Unaudited)	 	 	 	 	
ASSETS	  	 	 	 	 	 	 	 	
Current assets:	  	 	 	 	 	 	 	 	
Cash and cash equivalents	  	$	358	  	 	$	318	  	
Receivables, less allowances for discounts and doubtful accounts of $32 and $37 in 2012 and 2011, respectively	  	 	770	  	 	 	756	  	
Inventories, net	  	 	467	  	 	 	426	  	
Prepaid and other current assets	  	 	107	  	 	 	97	  	
Deferred income tax assets	  	 	47	  	 	 	45	  	
 	  	 	 	 	 	 	 	 	
Total current assets	  	 	1,749	  	 	 	1,642	  	
Property, plant and equipment, net	  	 	459	  	 	 	463	  	
Goodwill	  	 	1,601	  	 	 	1,610	  	
Other intangible assets, net	  	 	485	  	 	 	505	  	
Other non-current assets	  	 	188	  	 	 	173	  	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	4,482	  	 	$	4,393	  	
 	  	 	 	 	 	 	 	 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
Current liabilities:	  	 	 	 	 	 	 	 	
Accounts payable	  	$	327	  	 	$	322	  	
Accrued and other current liabilities	  	 	445	  	 	 	490	  	
Short-term borrowings and current maturities of long-term debt	  	 	7	  	 	 	5	  	
 	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	779	  	 	 	817	  	
Long-term debt	  	 	1,199	  	 	 	1,201	  	
Accrued postretirement benefits	  	 	313	  	 	 	316	  	
Deferred income tax liability	  	 	176	  	 	 	165	  	
Other non-current accrued liabilities	  	 	67	  	 	 	67	  	
 	  	 	 	 	 	 	 	 	
Total liabilities	  	 	2,534	  	 	 	2,566	  	
 	  	 	 	 	 	 	 	 	
Commitments and contingencies (Note 14)
Stockholders’ equity:	  	 	 	 	 	 	 	 	
Common Stock – authorized 750.0 shares, par value $0.01 per share:	  	 	 	 	 	 	 	 	
Issued 185.7 shares and 184.6 shares in 2012 and 2011, respectively	  	 	2	  	 	 	2	  	
Capital in excess of par value	  	 	1,690	  	 	 	1,663	  	
Retained earnings	  	 	153	  	 	 	40	  	
Treasury stock – at cost 0.1 shares and 0 shares in 2012 and 2011, respectively	  	 	(3	) 	 	 	—  	  	
Accumulated other comprehensive income	  	 	106	  	 	 	122	  	
 	  	 	 	 	 	 	 	 	
Total stockholders’ equity	  	 	1,948	  	 	 	1,827	  	
 	  	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	  	$	4,482	  	 	$	4,393	  	

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)

For the six months ended June 30,	  	2012	 	 	2011	 	
Operating Activities	  	 	 	 	 	 	 	 	
Net income	  	$	152	  	 	$	150	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation and amortization	  	 	67	  	 	 	68	  	
Share-based compensation	  	 	10	  	 	 	5	  	
Payments for restructuring	  	 	—  	  	 	 	(6	) 	
Changes in assets and liabilities (net of acquisitions):	  	 	 	 	 	 	 	 	
Changes in receivables	  	 	(16	) 	 	 	(54	) 	
Changes in inventories	  	 	(44	) 	 	 	(31	) 	
Changes in accounts payable	  	 	12	  	 	 	(14	) 	
Changes in accrued liabilities	  	 	(24	) 	 	 	3	  	
Changes in accrued taxes	  	 	(5	) 	 	 	26	  	
Net changes in other assets and liabilities	  	 	(20	) 	 	 	11	  	
Other, net	  	 	(7	) 	 	 	3	  	
 	  	 	 	 	 	 	 	 	
Net Cash—Operating activities	  	 	125	  	 	 	161	  	
 	  	 	 	 	 	 	 	 	
Investing Activities	  	 	 	 	 	 	 	 	
Capital expenditures	  	 	(57	) 	 	 	(53	) 	
Proceeds from the sale of property, plant and equipment	  	 	3	  	 	 	5	  	
Other, net	  	 	1	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	
Net Cash—Investing activities	  	 	(53	) 	 	 	(48	) 	
 	  	 	 	 	 	 	 	 	
Financing Activities	  	 	 	 	 	 	 	 	
Net transfer to former parent	  	 	(6	) 	 	 	(112	) 	
Issuance of short-term debt	  	 	3	  	 	 	—  	  	
Principal payments of debt and capital lease obligations	  	 	(3	) 	 	 	—  	  	
Purchase of common stock	  	 	(3	) 	 	 	—  	  	
Proceeds from exercise of employee stock options	  	 	16	  	 	 	—  	  	
Dividends paid	  	 	(39	) 	 	 	—  	  	
Other, net	  	 	1	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	
Net Cash—Financing activities	  	 	(31	) 	 	 	(112	) 	
 	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	  	 	(1	) 	 	 	6	  	
Net change in cash and cash equivalents	  	 	40	  	 	 	7	  	
Cash and cash equivalents at beginning of year	  	 	318	  	 	 	131	  	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents at end of year	  	$	358	  	 	$	138	  	
 	  	 	 	 	 	 	 	 	
Supplemental disclosure of cash flow information:	  	 	 	 	 	 	 	 	
Cash paid during the period for:	  	 	 	 	 	 	 	 	
Interest	  	$	26	  	 	$	—  	  	
Income taxes (net of refunds received)	  	$	54	  	 	$	18	  	

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 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 one-time separation costs associated with the Xylem spin-off from ITT Corporation.
“Operating Income * ”, “Adjusted Operating Income” and “Adjusted EPS” defined as operating income and earnings per share, adjusted to exclude restructuring and realignment and one-time separation costs associated with the Xylem spin-off from ITT Corporation and tax-related special items.
“Normalized EPS” defined as adjusted earnings per share, as well as adjustments to reflect the incremental current period amount of interest expense and stand alone costs in the prior comparable period.
“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flows does not consider non-discretionary cash payments, such as debt.

Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Order Growth
($ Millions)

 	 	(As Reported - GAAP)	 	 	(As Adjusted - Organic)	 	 	Constant Currency	 	
 	 	 	 	 	(A)	 	 	(B)	 	 	 	 	 	(C)	 	 	(D)	 	 	(E)	 	 	(F) = B+C+D+E	 	 	(G) = F/A	 	 	(H) = (B + D) / A	 	
 	 	Orders	 	 	Orders	 	 	Change
2012 v. 2011	 	 	% Change
2012 v. 2011	 	 	Acquisitions /
Divestitures	 	 	FX Contribution	 	 	Eliminations	 	 	Change
Adj. 2012 v.  2011	 	 	% Change
Adj. 2012 v. 2011	 	 	 	 	
 	 	2012	 	 	2011	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Six Months Ended June 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Xylem Inc.	 	 	1,974	  	 	 	1,976	  	 	 	(2	) 	 	 	-0.1	% 	 	 	(67	) 	 	 	69	  	 	 	—  	  	 	 	—  	  	 	 	0.0	% 	 	 	3.4	% 	
Water infrastructure	 	 	1,255	  	 	 	1,244	  	 	 	11	  	 	 	0.9	% 	 	 	(67	) 	 	 	53	  	 	 	—  	  	 	 	(3	) 	 	 	-0.2	% 	 	 	5.1	% 	
Applied Water	 	 	752	  	 	 	764	  	 	 	(12	) 	 	 	-1.6	% 	 	 	—  	  	 	 	18	  	 	 	(3	) 	 	 	3	  	 	 	0.4	% 	 	 	0.8	% 	
Quarter Ended June 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Xylem Inc.	 	 	970	  	 	 	998	  	 	 	(28	) 	 	 	-2.8	% 	 	 	(30	) 	 	 	51	  	 	 	—  	  	 	 	(7	) 	 	 	-0.7	% 	 	 	2.3	% 	
Water infrastructure	 	 	617	  	 	 	632	  	 	 	(15	) 	 	 	-2.4	% 	 	 	(30	) 	 	 	40	  	 	 	—  	  	 	 	(5	) 	 	 	-0.8	% 	 	 	4.0	% 	
Applied Water	 	 	370	  	 	 	383	  	 	 	(13	) 	 	 	-3.4	% 	 	 	—  	  	 	 	13	  	 	 	(2	) 	 	 	(2	) 	 	 	-0.5	% 	 	 	0.0	% 	
Quarter Ended March 31	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Xylem Inc.	 	 	1,004	  	 	 	978	  	 	 	26	  	 	 	2.7	% 	 	 	(37	) 	 	 	18	  	 	 	—  	  	 	 	7	  	 	 	0.7	% 	 	 	4.5	% 	
Water infrastructure	 	 	638	  	 	 	612	  	 	 	26	  	 	 	4.2	% 	 	 	(37	) 	 	 	13	  	 	 	—  	  	 	 	2	  	 	 	0.3	% 	 	 	6.4	% 	
Applied Water	 	 	382	  	 	 	381	  	 	 	1	  	 	 	0.3	% 	 	 	—  	  	 	 	5	  	 	 	(1	) 	 	 	5	  	 	 	1.3	% 	 	 	1.6	% 	
Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.

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

 	 	(As Reported - GAAP)	 	 	(As Adjusted - Organic)	 	 	Constant Currency	 	
 	 	 	 	 	(A)	 	 	(B)	 	 	 	 	 	(C)	 	 	(D)	 	 	(E)	 	 	(F) = B+C+D+E	 	 	(G) = F/A	 	 	(H) = (B + D) / A	 	
 	 	Revenue	 	 	Revenue	 	 	Change
2012 v. 2011	 	 	% Change
2012 v. 2011	 	 	Acquisitions /
Divestitures	 	 	FX Contribution	 	 	Eliminations	 	 	Change
Adj. 2012 v.  2011	 	 	% Change
Adj. 2012 v. 2011	 	 	 	 	
 	 	2012	 	 	2011	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Six Months Ended June 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Xylem Inc.	 	 	1,891	  	 	 	1,861	  	 	 	30	  	 	 	1.6	% 	 	 	(66	) 	 	 	63	  	 	 	—  	  	 	 	27	  	 	 	1.5	% 	 	 	5.0	% 	
Water infrastructure	 	 	1,193	  	 	 	1,153	  	 	 	40	  	 	 	3.5	% 	 	 	(66	) 	 	 	47	  	 	 	—  	  	 	 	21	  	 	 	1.8	% 	 	 	7.5	% 	
Applied Water	 	 	728	  	 	 	740	  	 	 	(12	) 	 	 	-1.6	% 	 	 	—  	  	 	 	18	  	 	 	(1	) 	 	 	5	  	 	 	0.7	% 	 	 	0.8	% 	
Quarter Ended June 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Xylem Inc.	 	 	966	  	 	 	971	  	 	 	(5	) 	 	 	-0.5	% 	 	 	(32	) 	 	 	49	  	 	 	—  	  	 	 	12	  	 	 	1.2	% 	 	 	4.5	% 	
Water infrastructure	 	 	609	  	 	 	602	  	 	 	7	  	 	 	1.2	% 	 	 	(32	) 	 	 	37	  	 	 	(1	) 	 	 	11	  	 	 	1.8	% 	 	 	7.3	% 	
Applied Water	 	 	373	  	 	 	385	  	 	 	(12	) 	 	 	-3.1	% 	 	 	—  	  	 	 	13	  	 	 	(1	) 	 	 	—  	  	 	 	0.0	% 	 	 	0.3	% 	
Quarter Ended March 31	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Xylem Inc.	 	 	925	  	 	 	890	  	 	 	35	  	 	 	3.9	% 	 	 	(34	) 	 	 	14	  	 	 	—  	  	 	 	15	  	 	 	1.7	% 	 	 	5.5	% 	
Water infrastructure	 	 	584	  	 	 	551	  	 	 	33	  	 	 	6.0	% 	 	 	(34	) 	 	 	10	  	 	 	1	  	 	 	10	  	 	 	1.8	% 	 	 	7.8	% 	
Applied Water	 	 	355	  	 	 	355	  	 	 	—  	  	 	 	0.0	% 	 	 	—  	  	 	 	5	  	 	 	—  	  	 	 	5	  	 	 	1.4	% 	 	 	1.4	% 	
Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.

Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
For The Three and Six Months Ended June 30, 2012 & 2011
($ Millions, except per share amounts)

 	  	Q1 2012	 	  	Q2 2012	 	 	YTD 2012	 	
Net Income	  	 	63	  	  	 	89	  	 	 	152	  	
Separation costs, net of tax	  	 	4	  	  	 	4	  	 	 	8	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted Net Income before Special Tax Items	  	 	67	  	  	 	93	  	 	 	160	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Special Tax Items	  	 	—  	  	  	 	(1	) 	 	 	(1	) 	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted Net Income	  	 	67	  	  	 	92	  	 	 	159	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Diluted Earnings per Share	  	$	0.34	  	  	$	0.48	  	 	$	0.82	  	
Separation costs per Share	  	$	0.02	  	  	$	0.02	  	 	$	0.04	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted diluted EPS before Special Tax Items	  	$	0.36	  	  	$	0.50	  	 	$	0.86	  	
Special Tax Items per Share	  	$	0.00	  	  	($	0.01	) 	 	($	0.01	) 	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted diluted EPS	  	$	0.36	  	  	$	0.49	  	 	$	0.85	  	

 	  	Q1 2011	 	  	Q2 2011	 	 	YTD 2011	 	
Net Income	  	 	78	  	  	 	72	  	 	 	150	  	
Separation costs, net of tax	  	 	2	  	  	 	27	  	 	 	29	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted Net Income before Special Tax Items	  	 	80	  	  	 	99	  	 	 	179	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Special Tax Items	  	 	—  	  	  	 	4	  	 	 	4	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted Net Income	  	 	80	  	  	 	103	  	 	 	183	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Diluted Earnings per Share	  	$	0.42	  	  	$	0.39	  	 	$	0.82	  	
Separation costs per Share	  	$	0.01	  	  	$	0.15	  	 	$	0.16	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted diluted EPS before Special Tax Items	  	$	0.43	  	  	$	0.54	  	 	$	0.97	  	
Special Tax Items per Share	  	$	0.00	  	  	$	0.02	  	 	$	0.02	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Adjusted diluted EPS	  	$	0.43	  	  	$	0.56	  	 	$	0.99	  	

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

 	  	Q2 2011	 	 	Q2 2012	 	
 	  	As Reported	 	 	Adjustments	 	 	Adjusted	 	 	Adjustments	 	 	Normalized	 	 	As Reported	 	 	Adjustments	 	 	Adjusted	 	
Total Revenue	  	 	971	  	 	 	 	 	 	 	971	  	 	 	 	 	 	 	971	  	 	 	966	  	 	 	 	 	 	 	966	  	
Operating Income	  	 	116	  	 	 	18	a 	 	 	134	  	 	 	(8	)c 	 	 	126	  	 	 	129	  	 	 	6	a 	 	 	135	  	
Operating Margin	  	 	11.9	% 	 	 	 	 	 	 	13.8	% 	 	 	 	 	 	 	13.0	% 	 	 	13.4	% 	 	 	 	 	 	 	14.0	% 	
Interest Expense	  	 	(1	) 	 	 	 	 	 	 	(1	) 	 	 	(13	)d 	 	 	(14	) 	 	 	(13	) 	 	 	 	 	 	 	(13	) 	
Other Non-Operating Income (Expense)	  	 	—  	  	 	 	 	 	 	 	—  	  	 	 	 	 	 	 	—  	  	 	 	(1	) 	 	 	 	 	 	 	(1	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before Taxes	  	 	115	  	 	 	18	  	 	 	133	  	 	 	(21	) 	 	 	112	  	 	 	115	  	 	 	6	  	 	 	121	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Provision for Income Taxes	  	 	(43	) 	 	 	13	b 	 	 	(30	) 	 	 	5	e 	 	 	(25	) 	 	 	(26	) 	 	 	(3	)b 	 	 	(29	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	  	 	72	  	 	 	31	  	 	 	103	  	 	 	(16	) 	 	 	87	  	 	 	89	  	 	 	3	  	 	 	92	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Shares	  	 	184.6	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	184.6	  	 	 	186.2	  	 	 	 	 	 	 	186.2	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted EPS	  	$	0.39	  	 	$	0.17	  	 	$	0.56	  	 	$	(0.09	) 	 	$	0.47	  	 	$	0.48	  	 	$	0.01	  	 	$	0.49	  	

a	One time separation 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
Segment Operating Income
($ Millions)
Adjusted Segment Operating Income

 	  	Q1	 	 	Q2	 	 	YTD	 	
 	  	‘12	 	 	‘11	 	 	‘12	 	 	‘11	 	 	‘12	 	 	‘11	 	
Total Revenue	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
• Water Infrastructure	  	 	584	  	 	 	551	  	 	 	609	  	 	 	602	  	 	 	1,193	  	 	 	1,153	  	
• Applied Water	  	 	355	  	 	 	355	  	 	 	373	  	 	 	385	  	 	 	728	  	 	 	740	  	
Operating Income	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
• Water Infrastructure	  	 	75	  	 	 	64	  	 	 	93	  	 	 	94	  	 	 	167	  	 	 	158	  	
• Applied Water	  	 	40	  	 	 	46	  	 	 	52	  	 	 	50	  	 	 	92	  	 	 	96	  	
Separation Costs	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
• Water Infrastructure	  	 	2	  	 	 	—  	  	 	 	1	  	 	 	2	  	 	 	3	  	 	 	2	  	
• Applied Water	  	 	1	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	1	  	 	 	—  	  	
Adjusted Operating Income*	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
• Water Infrastructure	  	 	77	  	 	 	64	  	 	 	94	  	 	 	96	  	 	 	170	  	 	 	160	  	
• Applied Water	  	 	41	  	 	 	46	  	 	 	52	  	 	 	50	  	 	 	93	  	 	 	96	  	
Operating Margin	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
• Water Infrastructure	  	 	12.8	% 	 	 	11.6	% 	 	 	15.2	% 	 	 	15.6	% 	 	 	14.0	% 	 	 	13.7	% 	
• Applied Water	  	 	11.3	% 	 	 	13.0	% 	 	 	13.9	% 	 	 	13.0	% 	 	 	12.6	% 	 	 	13.0	% 	
Adjusted Operating Margin*	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
• Water Infrastructure	  	 	13.2	% 	 	 	11.6	% 	 	 	15.4	% 	 	 	15.9	% 	 	 	14.2	% 	 	 	13.9	% 	
• Applied Water	  	 	11.5	% 	 	 	13.0	% 	 	 	13.9	% 	 	 	13.0	% 	 	 	12.8	% 	 	 	13.0	% 	
 
*	Adjusted Operating Income excludes non-recurring separation costs	

Xylem Inc. Non-GAAP Reconciliation
Net Cash—Operating Activities vs. Free Cash Flow
For The Six Months Ended June 30, 2012 & 2011
($ Millions)

 	  	Six Months Ended	 	
 	  	2012	 	 	2011	 	
Net Cash—Operating Activities	  	 	125	  	 	 	161	  	
Capital Expenditures	  	 	(57	) 	 	 	(53	) 	
 	  	 	 	 	 	 	 	 	
Free Cash Flow, including separation costs	  	 	68	  	 	 	108	  	
Separation Costs (Cash Paid incl. Capex)	  	 	18	  	 	 	26	  	
 	  	 	 	 	 	 	 	 	
Free Cash Flow, excluding separation costs	  	 	86	  	 	 	134	  	
 	  	 	 	 	 	 	 	 	
Net Income	  	 	152	  	 	 	150	  	
Separation Costs, net of tax (incl. tax friction)	  	 	8	  	 	 	29	  	
 	  	 	 	 	 	 	 	 	
Adjusted Net Income	  	 	160	  	 	 	179	  	
 	  	 	 	 	 	 	 	 	
Free Cash Flow Conversion	  	 	54	% 	 	 	75	% 	

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

 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Illustration of Mid Point Guidance	 	
2012 Guidance	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	FY ‘11	 	 	FY ‘12	 	
 	  	As Reported	 	 	Adjustments	 	 	Adjusted	 	 	Adjustments	 	 	Normalized	 	 	As Projected	 	 	Adjustments	 	 	Adjusted	 	
Total Revenue	  	 	3,803	  	 	 	 	 	 	 	3,803	  	 	 	 	 	 	 	3,803	  	 	 	3,800	  	 	 	 	 	 	 	3,800	  	
Segment Operating Income	  	 	503	  	 	 	29	a 	 	 	532	  	 	 	(10	)d 	 	 	522	  	 	 	524	  	 	 	25	h,i 	 	 	549	  	
Segment Operating Margin	  	 	13.2	% 	 	 	 	 	 	 	14.0	% 	 	 	 	 	 	 	13.7	% 	 	 	13.8	% 	 	 	 	 	 	 	14.4	% 	
Corporate Expense	  	 	108	  	 	 	(58	)b 	 	 	50	  	 	 	18	e 	 	 	68	  	 	 	66	  	 	 	(11	)h 	 	 	55	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Income	  	 	395	  	 	 	87	  	 	 	482	  	 	 	(28	) 	 	 	454	  	 	 	458	  	 	 	36	  	 	 	494	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Margin	  	 	10.4	% 	 	 	 	 	 	 	12.7	% 	 	 	 	 	 	 	11.9	% 	 	 	12.1	% 	 	 	 	 	 	 	13.0	% 	
Interest Expense	  	 	(17	) 	 	 	 	 	 	 	(17	) 	 	 	(39	)f 	 	 	(56	) 	 	 	(54	) 	 	 	 	 	 	 	(54	) 	
Other Non-Operating Income (Expense)	  	 	5	  	 	 	 	 	 	 	5	  	 	 	 	 	 	 	5	  	 	 	(2	) 	 	 	 	 	 	 	(2	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before Taxes	  	 	383	  	 	 	87	  	 	 	470	  	 	 	(67	) 	 	 	403	  	 	 	402	  	 	 	36	  	 	 	438	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Provision for Income Taxes	  	 	(104	) 	 	 	(8	)c 	 	 	(112	) 	 	 	16	g 	 	 	(96	) 	 	 	(99	) 	 	 	(10	)j 	 	 	(109	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	  	 	279	  	 	 	79	  	 	 	358	  	 	 	(51	) 	 	 	307	  	 	 	303	  	 	 	26	  	 	 	329	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Shares	  	 	185.3	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	185.3	  	 	 	186.3	  	 	 	 	 	 	 	186.3	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted EPS	  	$	1.50	  	 	$	0.43	  	 	$	1.93	  	 	$	(0.27	) 	 	 	1.66	  	 	 	1.63	  	 	 	0.14	  	 	 	1.77	  	

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 $7M and $11M to be incurred at the segments and headquarters, respectively.	
i	Restructuring & realignment costs of $18M 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 Q2 2012.	

Q2 2012 Earnings ReleaseAugust 2, 2012

Forward Looking Statements2Thisdocumentcontainsinformationthatmayconstitute“forward-lookingstatements.”Forward-lookingstatementsbytheirnatureaddressmattersthatare,todifferentdegrees,uncertain.Generally,thewords“anticipate,”“estimate,”“expect,”“project,”“intend,”“plan,”“believe,”“target”and similar expressions identify forward-looking statements, whichgenerally are not historical in nature. However, the absence of these words or similar expressions does not mean that astatement 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 businessstrategy, 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 inthefuture—including statements relating to orders, revenues, operating margins and earnings per share growth, andstatementsexpressinggeneralviewsaboutfutureoperatingresults—are forward-looking statements.Caution should be taken not to place undue reliance on any such forward-looking statements because they involverisks, uncertainties and other factors that could cause actual results to differ materially from those expressed or impliedin,orreasonablyinferredfrom,suchstatements.The Company undertakes no obligation to publicly update or reviseany forward-looking statements, whether as a result of new information, future events or otherwise, except as requiredby law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actualresults to differ materially from the Company’s historical experience and our present expectations or projections. Theserisks and uncertainties include, but are not limited to, those set forth in Item 1A of our Annual Report on Form 10-K, andthose described from time to time in subsequent reports filed with the Securities and Exchange Commission.

Q2’12 Xylem Results3Strong Operating PerformanceStrong Operating Performance* See Appendix for Non-GAAP ReconciliationsFinancial Performance SummaryFinancial Performance SummaryOrdersRevenueGross MarginOperating Margin *EPS *Free Cash Flow *$970M$966M39.6%14.0%54% Conversion$0.49$86MBook to Bill 1.00+4% (Constant Currency)*+60 bps14.8% ex. Stand-Alone Costs, +100 bps+4% Normalized Growth

Business Update4Advancing Our Strategic Position•Growing the Analytical Instrumentation Platform•Expanding Dewatering Services into Attractive Markets in BrazilDeploying Innovative New Product Applications and Services•Strong Order Rate for Treatment in Q2’12•New Generation YSI EXO SondeContinued Strong Execution•Q2’12 Emerging Markets Growth of 22% (Constant Currency Basis)•Driving Customer Excellence and Cost Reduction InitiativesStrengthening Foundation & Positioning for Future GrowthStrengthening Foundation & Positioning for Future Growth•MJK Automation AcquisitionXylem Total Care - Energy Audits Identify Customer Savings & Retrofit Opportunities•

1H’12 Organic Revenue Performance5End Market(% of 2011 Revenue)1H’12 OrganicGrowth vs. PYIndustrial(~40%)Public Utility(~36%)Commercial(~12%)Residential(~9%)Agriculture(~3%)1H’12 OrganicGrowth vs. PYMidSingleLowSingleLowSingleMidSingleMajor Geographic Region(% of 2011 Revenue)OrganicGrowth vs. PYU.S. (~36%)+Industrial & Residential Strength+Commercial Up (Moderating)–Public Utility (Dewatering & Projects)Europe (~37%)–Industrial Down Slightly–Residential & Commercial Weakness=Public Utility FlatEmerging Markets (19%)+Up Across All RegionsTotal Growth+3%-1%+11%+1%U.S.U.S.&&EMEMStrengthStrengthPartiallyPartiallyOffsetOffsetbybyEuropeEurope……PublicPublicUtilityUtilityStableStable

Full Year Outlook6Challenging Market Dynamics•Slower Growth in the Developed Markets•FX Headwinds ContinueProductivity & Strong Execution Continues While Investing for Growth•Disciplined Capital Deployment•Maintaining Operating Margin Expansion TargetAccelerating Restructuring & Realignment Actions In Face of Economic UncertaintyUpdating 2012 Guidance, Reflecting Lower Organic Growth•Full Year Revenue ~$3.8B; Organic Growth 1% to 3%•Adjusted EPS Mid Point of $1.77*•*See appendix for non-GAAP reconciliations•Investing $15M to $20MNavigating Through a Tougher Macro EnvironmentNavigating Through a Tougher Macro Environment

Q2’12 Xylem Performance7Revenue Up 4%* …Revenue Up 4%* …Op Margin Before Stand Alone Costs  + 100 BpsOp Margin Before Stand Alone Costs  + 100 Bps-1%•*See appendix for non-GAAP reconciliations(Dollars, In Millions)(Dollars, In Millions)+1%Incremental Margin ~36%(Ex. FX & Stand Alone Costs)Q2 GrowthOrganic+1%Acquisition+3%Constant Currency+4%FX-5%Total-1%Cost Reductions+3.1%Price+1.4%Acquisitions +0.4%Vol/Mix/Invest-1.1%Organic PerformanceBy End MarketBy Geography+Industrial+U.S.+Public UtilityEuropeCommercial+Emerging MarketsResidentialAgricultureRevenueOperating Income *971966134135Q2'11Op Margin*13.8%3.8%0.0%2.8%14.8%0.8%14.0%OperationsFXInflationQ2'11Op MarginBefore Stand-Alone Costs*Stand-AloneCostsQ2’12Op Margin*

Q2’12 Xylem Performance8Core Operations & YSI Drive Significant Earnings GrowthCore Operations & YSI Drive Significant Earnings GrowthInterest($0.06)Stand-Alone($0.03)Separation Costs $0.15Special Tax$0.02Q2’12 EPS *4% NormalizedEPS Growth* See Appendix for Non-GAAP ReconciliationsOperational Performance:++Separation Costs($0.02)Special Tax$0.01$0.39$0.08$0.47$0.02$0.49$0.48Q2’11GAAP EPSAdjustmentsNormalizedQ2’11 EPSOperationalPerformanceAdjustedQ2’12EPSAdjustmentsQ2’12GAAP EPS$0.01Core Operations$0.04YSI Acquisition$0.03Operating Tax Rate($0.01)FX Translation($0.04)

Q2’12 Water Infrastructure Performance9Resilient Portfolio …Resilient Portfolio …Outstanding YSI PerformanceOutstanding YSI Performance+1%* See appendix for non-GAAP reconciliationsRevenueOperating Income *Operating Income *(Dollars, In Millions)(Dollars, In Millions)-2%Price & Productivity More ThanOffset Inflation/Mix(ConstantCurrency)•Transport +6%+Public Utility …Emerging Markets Up, Europe Flat+Industrial …Up in Most Regions, U.S. Flat–Drought Condition Impact on Dewatering•Treatment -11%–Lower Project Deliveries; Key Wins for 2013•Test +58% (Incl. YSI Acquisition $32M)–Europe WeakerQ2 GrowthOrganic+2%Acquisition+5%Constant Currency+7%FX-6%Total+1%602609969415.9%2.4%0.4%2.6%16.1%0.7%15.4%Q2'11Op Margin*OperationsFXInflationQ2'11Op MarginBeforeStand-AloneStand-AloneQ2’12Op Margin*Cost ReductionsPriceAcquisitions Vol/Mix/Invest+2.6%+1.0%+0.5%-1.7%

Q2’12 Applied Water Performance10Productivity & Price Initiatives Drive Strong Op Margin ExpansionProductivity & Price Initiatives Drive Strong Op Margin Expansion* See appendix for non-GAAP reconciliations(Dollars, In Millions)(Dollars, In Millions)(Constant Currency)•–Commercial …Slowing Institutional Spend–Residential …Europe Down+U.S. Up Mid Single Digits•+Double-Digit U.S. Growth–Europe Weaker•+U.S. Up Double Digits-3%+4%Significant Margin ExpansionSignificant Margin Expansion+140 bps before Stand Alone+140 bps before Stand AloneQ2 GrowthQ2 GrowthQ2 GrowthQ2 GrowthConstant CurrencyFlatFlatOrganicAcquisitionFXTotal-%-3%-3%RevenueRevenueOperating Income *Operating Income *Cost Reductions+3.8%Price+2.1%Vol/Mix/Invest-1.0%5052385373Q2'11Op MarginOperationsFXInflationQ2'12Op MarginBeforeStand-AloneStand-AloneQ2'12Op Margin *13.0%14.4%13.9%0.6%2.9%0.5%4.9%Building Services -2%Industrial Water +4%Irrigation -4%Q2'11Q2'12Q2'11Q2'12

Xylem Financial Position11FYFYCashCashFlowFlowOnOnTrackTrack……Strong Balance Sheet Provides FlexibilityStrong Balance Sheet Provides Flexibility•Free Cash Flow $86M•‘12 Includes $36M and $26M ofIncremental Tax & Interest Pmts•Working Capital Investment $10M•Capex > 1 Reinvestment Ratio•Strong Cash Position•No Significant Debt Maturities Until 2016•30% Net Debt to Net Capital•1.3x Net Debt/Adj. TTM EBITDA•$600MRevolvingCreditFacility-Unutilized•AccesstoCommercialPaper-UnutilizedFCF%75%54%W/C%**24.8%23.6%June 30, 2012Cash358Debt1,206Net Debt848Stockholders’Equity1,948Net Capital2,796Net Debt to Net Capital30%(Dollars, In Millions)(Dollars, In Millions)(Dollars, In Millions)* See Appendix for Non-GAAP Reconciliations** (AR+INV-AP)/ TTM Revenue (Adjusted for Acquisitions)Free Cash Flow *Free Cash Flow *Working CapitalWorking CapitalCapital Summary/LiquidityCapital Summary/Liquidity1348686900910910Q2’11 YTDQ2’12 YTDQ2’11Q2’12

2012 Guidance

End Market Performance13ChallengingChallengingMarketMarketDynamicsDynamics……EuropeEuropeWeakerWeakerIndustrialPublic UtilityCommercialResidentialAgricultureUp Low -MidSingle DigitFlat -Up LowSingle DigitUp LowSingle DigitUp LowSingle DigitDown LowSingle Digit -Flat•Weaker Europe•Drought Conditions Continue•Moderate Sequential Growth (2H vs. 1H)•US/Europe MRO Stable•Shippable 2012 project backlog down (Capex)•Moderate Sequential Growth (2H vs. 1H)•Energy Efficient Solutions•Flat  to Up Slightly (2H vs. 1H)•U.S. Stable …Weaker Europe•Flat  to Up Slightly (2H vs. 1H)•Favorable U.S. Conditions Continuevs. Previousvs. PreviousOutlookOutlook2H Planning Assumptions2H Planning AssumptionsFY’12vs.PY

Guidance Roll-Forward14LowerRevenueOutlook…CostSavingsPlanMitigatesEPSImpactMid-Point Roll-ForwardRevenueEPSNotePrevious Guidance$3.95B$1.87Based on Organic Growth 4%-6%FX Translation($50M)($0.03)Euro Rate at $1.22 (Previously $1.31)MJK Acquisition$6M($0.01)Not Included in Prior GuidanceMarket Dynamics($105M)($0.16)Organic Growth 1%-3%; -3  pt. RevisionCost Savings Actions-Paced Investments, Discretionary Costs$0.10Revised Guidance~3.8B$1.773% Operational EPS ReductionPreviousGuidanceFXTranslationMJKAcquisitionResetFX & MJKOperationalPerformanceRevisedGuidance$1.87$1.83$1.77$0.03$0.01$0.06EPSMidpointIllustration--3%3%

2012 Financial Guidance Summary15* See Appendix for Non-GAAP ReconciliationsRevenueXylem ConsolidatedWater InfrastructureApplied WaterSegment Margin *Operating Margin *EPS * Free Cash Flow ConversionGuidance Assumptions:Stand-Alone CostsOperating Tax RateShare CountItems Excluded from Guidance:(1) Separation Costs(2) Restructuring &Realignment Costs~$3.8B~$2.4B~$1.4B14.2% -14.6%12.7% -13.3%$1.72 -$1.8295%$25M -$30M~25%~186.3M$15M -$20M$15M -$20MConstant CurrencyOrganic Acquisition3% to 5%                      1% to 3%                   2%5% to 7%                      1% to 3%                   4%0% to 3%                      0% to 3%                   0%+20 to +60 bps+0 to +60 bps+4% to +10% on Normalized BasisExcluding one-time separation costsIncluded in EPS Guidance; In Line with ExpectationsExcludes Special Tax ItemsIn Line with Expectations$9M-$10M Annual Savings Beginning 20132012 Full Year2012 Full YearFinancial OutlookFinancial OutlookGrowthGrowth2012E vs. 20112012E vs. 2011

Resilient Portfolio, Discipline & Strategic Focus……ProvidesProvidesConfidenceConfidenceinin2H2HExecutionExecutionandandAbilityAbilitytotoPositionPositionForFor2013201316•ResilientPortfolio…Despite Challenging End Market Conditions•Management Discipline …Proactive Actions (~$100M of Restructuring & Realignment ‘08-’12)•OperationalExcellence…Driving Productivity Initiatives•Continued Investment Driving Growth in Core Business•(2012E At Mid-Point Guidance)RevenueRevenueRevenue Up ~$510M …+15%Op Income Up ~$165M …~46%Incremental Margin ~32%Incl. Stand-Alone Costs12.7%     13.0%Expansion +290 Bps On Comp Basis20082009201020112012E2,8493,2023,803~3.8B3,29120082009201010.8%10.8%12.6%12.8%13.7%20112012EOperatingMargin** Excludes the impact of restructuring and stand alone costs for all periods. See Appendix for Non-GAAP ReconciliationsKey Acquisitions … Transitioning Portfolio to Higher Profitability Levels

Key Takeaways17Strong Q2 Operating PerformanceExecuting Long-Term Strategy …MJK Bolt-On Acquisition & New ProductApplicationsStable Business Performance In Challenging Macro EnvironmentTop-LineChallenges…DrivenbyEuropeResilient Portfolio & Large Installed Base Dampens Unfavorable Macro ConditionsPositioning Cost Structure for Stronger Operating LeverageCustomer Excellence & Operational DisciplineTaking Actions and Investing for Future GrowthStrong Financial Position & Strong Cash Flow GenerationFlexibility to Execute Long-Term Strategy

Appendix

2012 EPS Outlook19Mid Point 7% Earnings Growth On Normalized BasisIllustration of Mid Point Guidance* See Appendix for Non-GAAP ReconciliationsIncludesunfavorable taxrate change of 1%Operational Performance:+Core Operations$0.15+Acquisitions (YSI & MJK)$0.08–Operating Tax Rate($0.02)–FX Translation($0.10)AdjustedFY'11 EPS*IncrementalInterestExpenseIncrementalStand-Alone CostsNormalizedFY'11 EPS*OperationalPerformanceAdjustedFY'12 EPS*$1.93$1.66$1.77$0.16$0.11$0.117% Normalized7% NormalizedEPS GrowthEPS Growth

Quarterly Financial Performance20($M, ExceptEPS)Q1’10Q2’10Q3’10Q4’10FY’10Q1’11Q2’11Q3’11Q4’11FY’11Q1’12Q2’12Revenue6867758069353,2028909719391,0033,803925966COGS4314844975761,9885535925746232,342562583Gross Profit2552913093591,2143373793653801,461363383SG&A164170183220737210219215233877231220R&D1817182174242623271002828Separation Costs-----31846208756Restructuring &AssetImpairmentCharges, net431715--2-2--Op Income691011071113881001167910039599129Interest Expense------1115171413Other Non-Op-2-13--1-4-5(1)(1)Income beforeTax67100110111388101115828538384115Tax111519145923435331042126Net Income56859197329787277522796389EPS –Diluted *$0.30$0.46$0.49$0.53$1.78$0.42$0.39$0.42$0.28$1.50$0.34$0.48* On October 31, 2011, Xylem Inc. completed the spin-off through a tax-free stock dividend to ITT Corporation’s shareholders.  ITTCorporation shareholders received one share of our common stock for each share of ITT common stock.  As a result on October 31, 2011,periods presented prior to the spin-off.we had 184.6 million shares of common stock outstanding and this share amount is being utilized to calculate earnings per share for all

Non-GAAP Measures21Xylem Inc. Non- GAAP MeasuresManagement views key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, free cash flow, working capital, andbacklog, 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 andmeasures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financialperformance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash fromoperations as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported byother companies, to be key performance indicators: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 operationor insignificant portions of our business that we did not classify as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations assumesno change in exchange rates from the prior period. “Organic revenue" and "Organic orders”“Constant currency”defined as financial results adjusted for currency 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” “Operating Income * ”, "Adjusted Operating Income" and “Adjusted EPS”defined as operating income and earnings per share, adjusted to exclude restructuring and “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 inthe 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 “Adjusted EBITDA”defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation.reflects the adjustment to EBITDA to exclude for one-time separation costs associated with the Xylem spin-off from ITT Corporation. items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flows does notconsider non- discretionary cash payments, such as debt.  realignment and one- time separation costs associated with the Xylem spin- off from ITT Corporation and tax- related special items.

Non-GAAP Reconciliation:Organic & Constant Currency Revenue Growth22Constant Currency(A)(B)(C)(D)(E)(F) = B+C+D+E(G) = F/A(H) = (B + D) / AChange% ChangeChange% ChangeRevenueRevenue2012 v. 20112012 v. 2011FX ContributionEliminationsAdj. 2012 v. 2011Adj. 2012 v. 201120122011Six Months Ended June 30Xylem Inc.1,8911,861301.6%(66)63-271.5%5.0%Water infrastructure1,1931,153403.5%(66)47-211.8%7.5%Applied Water728740(12)-1.6%-18(1)50.7%0.8%Quarter Ended June 30Xylem Inc.966971(5)-0.5%(32)49-121.2%4.5%Water infrastructure60960271.2%(32)37(1)111.8%7.3%Applied Water373385(12)-3.1%-13(1)-0.0%0.3%Quarter Ended March 31Xylem Inc.925890353.9%(34)14-151.7%5.5%Water infrastructure584551336.0%(34)101101.8%7.8%Applied Water355355-0.0%-5-51.4%1.4%Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.Acquisitions /DivestituresXylem Inc. Non-GAAP ReconciliationReported vs. Organic & Constant Currency Revenue($ Millions)(As Reported -GAAP)(As Adjusted -Organic)

Non-GAAP Reconciliation:Organic & Constant Currency Order Growth23Constant Currency(A)(B)(C)(D)(E)(F) = B+C+D+E(G) = F/A(H) = (B + D) / AChange% ChangeChange% ChangeOrdersOrders2012 v. 20112012 v. 2011FX ContributionEliminationsAdj. 2012 v. 2011Adj. 2012 v. 201120122011Six Months Ended June 30Xylem Inc.1,9741,976(2)-0.1%(67)69--0.0%3.4%Water infrastructure1,2551,244110.9%(67)53-(3)-0.2%5.1%Applied Water752764(12)-1.6%-18(3)30.4%0.8%Quarter Ended June 30Xylem Inc.970998(28)-2.8%(30)51-(7)-0.7%2.3%Water infrastructure617632(15)-2.4%(30)40-(5)-0.8%4.0%Applied Water370383(13)-3.4%-13(2)(2)-0.5%0.0%Quarter Ended March 31Xylem Inc.1,004978262.7%(37)18-70.7%4.5%Water infrastructure638612264.2%(37)13-20.3%6.4%Applied Water38238110.3%-5(1)51.3%1.6%Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.Acquisitions /DivestituresXylem Inc. Non-GAAP ReconciliationReported vs. Organic & Constant Currency Order Growth($ Millions)(As Reported -GAAP)(As Adjusted -Organic)

Non-GAAP Reconciliation: Adjusted Diluted EPS24Q1 2012Q2 2012YTD 2012Net Income6389152Separation costs, net of tax448Adjusted Net Income before Special Tax Items6793160Special Tax Items-(1)(1)Adjusted Net Income6792159Diluted Earnings per Share$0.34$0.48$0.82Separation costs per Share$0.02$0.02$0.04Adjusted diluted EPS before Special Tax Items$0.36$0.50$0.86Special Tax Items per Share$0.00($0.01)($0.01)Adjusted diluted EPS$0.36$0.49$0.85Q1 2011Q2 2011YTD 2011Net Income7872150Separation costs, net of tax22729Adjusted Net Income before Special Tax Items8099179Special Tax Items-44Adjusted Net Income80103183Diluted Earnings per Share$0.42$0.39$0.82Separation costs per Share$0.01$0.15$0.16Adjusted diluted EPS before Special Tax Items$0.43$0.54$0.97Special Tax Items per Share$0.00$0.02$0.02Adjusted diluted EPS$0.43$0.56$0.99Adjusted Diluted EPSFor The Three and Six Months Ended June 30, 2012 & 2011($ Millions, except per share amounts)Xylem Inc. Non-GAAP Reconciliation

Non-GAAP Reconciliation: Normalized and Adjusted EPS25Q2 2011Q2 2012As ReportedAdjustmentsAdjustedAdjustmentsNormalizedAs ReportedAdjustmentsAdjustedTotal Revenue971971971966966Operating Income11618a134(8)c1261296a135Operating Margin11.9%13.8%13.0%13.4%14.0%Interest Expense(1)(1)(13)d(14)(13)(13)Other Non-Operating Income (Expense)---(1)(1)Income before Taxes11518133(21)1121156121Provision for Income Taxes(43)13b(30)5e(25)(26)(3)b(29)Net Income7231103(16)8789392Diluted Shares184.6184.6186.2186.2Diluted EPS0.39$             0.17$              0.56$              (0.09)$             0.47$            0.48$             0.01$              0.49$            aOne time separation costsbTax impact of one time separation costs and special tax itemscIncremental stand alone costs incurred in 2012dIncremental interest expense on long-term debt entered into in conjunction with the spin.eTaximpactofincrementalinterestexpenseandstandalonecostsincurredin2012Xylem Inc. Non-GAAP ReconciliationNormalized and Adjusted Diluted EPS($ Millions, except per share amounts)

26Non-GAAP Reconciliation: Segment Operating IncomeAdjusted Segment Operating IncomeQ1Q2YTD'12'11'12'11'12'11Total Revenue•Water Infrastructue5845516096021,1931,153•Applied Water355355373385728740Operating Income•Water Infrastructue75649394167158•Applied Water404652509296Separation Costs•Water Infrastructue2-1232•Applied Water1---1-Adjusted Operating Income*•Water Infrastructue77649496170160•Applied Water414652509396Operating Margin•Water Infrastructue12.8%11.6%15.2%15.6%14.0%13.7%•Applied Water11.3%13.0%13.9%13.0%12.6%13.0%Adjusted Operating Margin*•Water Infrastructue13.2%11.6%15.4%15.9%14.2%13.9%•Applied Water11.5%13.0%13.9%13.0%12.8%13.0%*Adjusted Operating Income excludes non-recurring separation costsXylem Inc. Non-GAAP ReconciliationSegment Operating Income($ Millions)

Non-GAAP Reconciliation: Free Cash Flow2720122011Net Cash - Operating Activities125                     161                 Capital Expenditures(57)                      (53)                  Free Cash Flow, including separation costs68                        108                 Separation Costs (Cash Paid incl. Capex)18                        26                    Free Cash Flow, excluding separation costs86                        134                 Net Income152150Separation Costs, net of tax (incl. tax friction)829Adjusted Net Income160179Free Cash Flow Conversion54%75%Xylem Inc. Non-GAAP ReconciliationNet Cash - Operating Activities vs. Free Cash FlowFor The Six Months Ended June 30, 2012 & 2011($ Millions)Six Months Ended

28Non-GAAP Reconciliation: 2012 Xylem EBITDA & Adj. EBITDAQ1Q2YTDIncome Before Taxes84115199Interest, net131326Depreciation232144Amortization111223Stock Compensation5510EBITDA136166302Separation Costs5611Adjusted EBITDA141172313Revenue9259661,891Adjusted EBITDA Margin15.2%17.8%16.6%Xylem Inc. Non-GAAP ReconciliationEBITDA and Adjusted EBITDA by QuarterTotal Xylem($ Millions)2012

29Non-GAAP Reconciliation: 2011 Xylem EBITDA & Adj. EBITDAQ1Q2YTDIncome Before Taxes101                    115                    216                         Interest, net-                    -                    -                          Depreciation22                      25                      47                            Amortization11                      10                      21                            Stock Compensation3                        2                        5                              EBITDA137                    152                    289                         Separation Costs3                        18                      21                            Adjusted EBITDA140                    170                    310                         Revenue890                    971                    1,861                      Adjusted EBITDA Margin15.7%17.5%16.7%2011Xylem Inc. Non-GAAP ReconciliationEBITDA and Adjusted EBITDA by QuarterTotal Xylem($ Millions)

30Non-GAAP Reconciliation: 2012 Water Infrastructure EBITDA & Adj. EBITDAQ1Q2YTDIncome Before Taxes75                      93                      168                         Interest, net-                    -                    -                          Depreciation16                      15                      31                            Amortization10                      9                        19                            Stock Compensation1                        1                        2                              EBITDA102                    118                    220                         Separation Costs2                        1                        3                              Adjusted EBITDA104                    119                    223                         Revenue584                    609                    1,193                      Adjusted EBITDA Margin17.8%19.5%18.7%Xylem Inc. Non-GAAP ReconciliationEBITDA and Adjusted EBITDA by QuarterWater Infrastructure($ Millions)2012

31Non-GAAP Reconciliation: 2011 Water Infrastructure EBITDA & Adj. EBITDAQ1Q2YTDIncome Before Taxes65                      93                      158                         Interest, net-                    -                    -                          Depreciation16                      19                      35                            Amortization9                        9                        18                            Stock Compensation-                    -                    -                          EBITDA90                      121                    211                         Separation Costs-                    2                        2                              Adjusted EBITDA90                      123                    213                         Revenue551                    602                    1,153                      Adjusted EBITDA Margin16.3%20.4%18.5%2011Xylem Inc. Non-GAAP ReconciliationEBITDA and Adjusted EBITDA by QuarterWater Infrastructure($ Millions)

32Non-GAAP Reconciliation: 2012 Applied Water EBITDA & Adj. EBITDAQ1Q2YTDIncome Before Taxes40                      52                      92                            Interest, net-                    -                    -                          Depreciation6                        6                        12                            Amortization1                        1                        2                              Stock Compensation1                        -                    1                              EBITDA48                      59                      107                         Separation Costs1                        -                    1                              Adjusted EBITDA49                      59                      108                         Revenue355                    373                    728                         Adjusted EBITDA Margin13.8%15.8%14.8%Xylem Inc. Non-GAAP ReconciliationEBITDA and Adjusted EBITDA by QuarterApplied Water($ Millions)2012

33Non-GAAP Reconciliation: 2011 Applied Water EBITDA & Adj. EBITDAQ1Q2YTDIncome Before Taxes46                      51                      97                            Interest, net-                    -                    -                          Depreciation6                        6                        12                            Amortization2                        1                        3                              Stock Compensation-                    -                    -                          EBITDA54                      58                      112                         Separation Costs-                    -                    -                          Adjusted EBITDA54                      58                      112                         Revenue355                    385                    740                         Adjusted EBITDA Margin15.2%15.1%15.1%2011Xylem Inc. Non-GAAP ReconciliationEBITDA and Adjusted EBITDA by QuarterApplied Water($ Millions)

Non-GAAP Reconciliation: Guidance34Illustration of Mid Point Guidance2012 GuidanceFY '11FY '12As ReportedAdjustmentsAdjustedAdjustmentsNormalizedAs ProjectedAdjustmentsAdjustedTotal Revenue3,8033,8033,8033,8003,800Segment Operating Income50329a532(10)d52252425h,i549Segment Operating Margin13.2%14.0%13.7%13.8%14.4%Corporate Expense108(58)b5018e6866(11)h55Operating Income39587482(28)45445836494Operating Margin10.4%12.7%11.9%12.1%13.0%Interest Expense(17)(17)(39)f(56)(54)(54)Other Non-Operating Income (Expense)555(2)(2)Income before Taxes38387470(67)40340236438Provision for Income Taxes(104)(8)c(112)16g(96)(99)(10)j(109)Net Income27979358(51)30730326329Diluted Shares185.3185.3186.3186.3Diluted EPS1.50$             0.43$              1.93$              (0.27)$             1.661.630.141.77aOne time separation costs incurred at the segment levelbOne time separation costs incurred at the corporate levelcNettaximpactofaboveitems,plustheadditionof2011specialtaxitemsdIncremental stand alone costs to be incurred in 2012 at the segment level ($10M)eIncremental stand alone costs to be incurred in 2012 at the corporate level ($18M)fIncremental interest expense on long-term debt to be incurred in 2012gTaximpactofincrementalinterestexpenseandstandalonecoststobeincurredin2012hExpected one time separation costs of $7M and $11M to be incurred at the segments and headquarters, respectively.iRestructuring & realignment costs of $18M to be incurred at the segments.jTax impact of one time separation, restructuring & realignment costs expected to be incurred in 2012 and tax special items realized through Q2 2012.Xylem Inc. Non-GAAP ReconciliationGuidance($ Millions, except per share amounts)

Non-GAAP Reconciliation: Adj. Operating Income & Margin35Mid Point Guidance20082009201020112012ERevenue3,291               2,849               3,202                      3,803                      3,800                    Operating Income315                    276                    388                         395                         458                        Operating Margin9.6%9.7%12.1%10.4%12.1%Restructuring & Realignment41                      31                      15                            -                          18                          Separation Costs-                    -                    -                          87                            18                          Adjusted Operating Income356                    307                    403                         482                         494                        Adjusted Operating Margin10.8%10.8%12.6%12.7%13.0%Standalone Costs-                    -                    -                          5                              28                          Adj. Operating Income, excl. Standalone Costs356                    307                    403                         487                         522                        Adjusted Operating Margin, excl. Standalone Costs10.8%10.8%12.6%12.8%13.7%Xylem Inc. Non-GAAP ReconciliationAdjusted Operating Income($ Millions)

36Phil De Sousa, Investor Relations Officer(914) 323-5930Janice Tedesco, Investor Relations Coordinator(914) 323-5931http://investors.xyleminc.comNYSE: XYL