Xylem Inc. - FORM 8-K - EX-99.2 - SLIDES SUMMARIZING FIRST QUARTER FINANCIAL POSTED BY XYLEM INC. ON AUGUST 2, 201

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EX-99.1 - NEWS RELEASE ISSUED BY XYLEM INC. ON AUGUST 2, 2012 - Xylem Inc.	d389267dex991.htm
8-K - FORM 8-K - Xylem Inc.	d389267d8k.htm

Q2 2012 Earnings Release

August 2, 2012

Forward Looking Statements

This

document

contains

information

that

may

constitute

“forward-looking

statements.”

Forward-looking

statements

their

nature

address

matters

that

are,

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, revenues, operating margins and earnings per share growth, and

statements

expressing

general

views

about

future

operating

results

—

are forward-looking statements.

Caution should be taken not to place undue reliance on any such forward-looking statements because they involve

risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied

in,

reasonably

inferred

from,

such

statements.

The Company undertakes no obligation to publicly update or revise

any forward-looking statements, whether as a result of new information, future events or otherwise, except as required

by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual

results to differ materially from the Company’s historical experience and our present expectations or projections. These

risks and uncertainties include, but are not limited to, those set forth in Item 1A of our Annual Report on Form 10-K, and

those described from time to time in subsequent reports filed with the Securities and Exchange Commission.

Q2’12 Xylem Results

Strong Operating Performance

* See Appendix for Non-GAAP Reconciliations

Financial Performance Summary

Orders

Revenue

Gross Margin

Operating Margin *

EPS *

Free Cash Flow *

$970M

$966M

39.6%

14.0%

54% Conversion

$0.49

$86M

Book to Bill 1.00

+4% (Constant Currency)*

+60 bps

14.8% ex. Stand-Alone Costs, +100 bps

+4% Normalized Growth

Business Update

Advancing Our Strategic Position

•

Growing the Analytical Instrumentation Platform

•

Expanding Dewatering Services into Attractive Markets in Brazil

Deploying Innovative New Product Applications and Services

•

Strong Order Rate for Treatment in Q2’12

•

New Generation YSI EXO Sonde

Continued Strong Execution

•

Q2’12 Emerging Markets Growth of 22% (Constant Currency Basis)

•

Driving Customer Excellence and Cost Reduction Initiatives

Strengthening Foundation & Positioning for Future Growth

•

MJK Automation Acquisition

Xylem Total Care - Energy Audits Identify Customer Savings & Retrofit Opportunities

•

1H’12 Organic Revenue Performance

End Market

(% of 2011 Revenue)

1H’12 Organic

Growth vs. PY

Industrial

(~40%)

Public Utility

(~36%)

Commercial

(~12%)

Residential

(~9%)

Agriculture

(~3%)

1H’12 Organic

Growth vs. PY

Mid

Single

Low

Single

Low

Single

Mid

Single

Major Geographic Region

(% of 2011 Revenue)

Organic

Growth vs. PY

U.S. (~36%)

Industrial & Residential Strength

Commercial Up (Moderating)

–

Public Utility (Dewatering & Projects)

Europe (~37%)

–

Industrial Down Slightly

–

Residential & Commercial Weakness

Public Utility Flat

Emerging Markets (19%)

Up Across All Regions

Total Growth

+3%

-1%

+11%

+1%

U.S.

Strength

Partially

Offset

Europe

…

Public

Utility

Stable

Full Year Outlook

Challenging Market Dynamics

•

Slower Growth in the Developed Markets

•

FX Headwinds Continue

Productivity & Strong Execution Continues While Investing for Growth

•

Disciplined Capital Deployment

•

Maintaining Operating Margin Expansion Target

Accelerating Restructuring & Realignment Actions In Face of Economic Uncertainty

Updating 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 $20M

Navigating Through a Tougher Macro Environment

Q2’12 Xylem Performance

Revenue Up 4%* …

Op Margin Before Stand Alone Costs + 100 Bps

•

*See appendix for non-GAAP reconciliations

(Dollars, In Millions)

+1%

Incremental Margin ~36%

(Ex. FX & Stand Alone Costs)

Q2 Growth

Organic

+1%

Acquisition

+3%

Constant Currency

+4%

-5%

Total

-1%

Cost Reductions

+3.1%

Price

+1.4%

Acquisitions

+0.4%

Vol/Mix/Invest

1.1%

Organic Performance

By End Market

By Geography

Industrial

U.S.

Public Utility

Europe

Commercial

Emerging Markets

Residential

Agriculture

Revenue

Operating Income *

971

966

134

135

Q2'11

Op Margin*

13.8%

3.8%

0.0%

2.8%

14.8%

0.8%

14.0%

Operations

Inflation

Q2'11

Op Margin

Before Stand-

Alone Costs*

Stand-

Alone

Costs

Q2’12

Op Margin*

Q2’12 Xylem Performance

Core Operations & YSI Drive Significant Earnings Growth

Interest

($0.06)

Stand-Alone

($0.03)

Separation Costs

$0.15

Special Tax

$0.02

Q2’12 EPS *

4% Normalized

EPS Growth

* See Appendix for Non-GAAP Reconciliations

Operational Performance:

Separation Costs

($0.02)

Special Tax

$0.01

$0.39

$0.08

$0.47

$0.02

$0.49

$0.48

Q2’11

GAAP EPS

Adjustments

Normalized

Q2’11 EPS

Operational

Performance

Adjusted

Q2’12EPS

Adjustments

Q2’12

GAAP EPS

$0.01

Core Operations

$0.04

YSI Acquisition

$0.03

Operating Tax Rate

($0.01)

FX Translation

($0.04)

Q2’12 Water Infrastructure Performance

Resilient Portfolio …

Outstanding YSI Performance

+1%

* See appendix for non-GAAP reconciliations

Revenue

Operating Income *

(Dollars, In Millions)

-2%

Price & Productivity More Than

Offset Inflation/Mix

(Constant

Currency)

•

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 Weaker

Q2 Growth

Organic

+2%

Acquisition

+5%

Constant Currency

+7%

-6%

Total

+1%

602

609

15.9%

2.4%

0.4%

2.6%

16.1%

0.7%

15.4%

Q2'11

Op Margin*

Operations

Inflation

Q2'11

Op Margin

Before

Stand-Alone

Stand-

Alone

Q2’12

Op Margin*

Cost Reductions

Price

Acquisitions

Vol/Mix/Invest

+2.6%

+1.0%

+0.5%

1.7%

Q2’12 Applied Water Performance

Productivity & Price Initiatives Drive Strong Op Margin Expansion

* See appendix for non-GAAP reconciliations

(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 Expansion

+140 bps before Stand Alone

Q2 Growth

Constant Currency

Flat

Organic

Acquisition

Total

-3%

Revenue

Operating Income *

Cost Reductions

+3.8%

Price

+2.1%

Vol/Mix/Invest

1.0%

385

373

Q2'11

Op Margin

Operations

Inflation

Q2'12

Op Margin

Before

Stand-Alone

Stand-

Alone

Q2'12

Op Margin *

13.0%

14.4%

13.9%

0.6%

2.9%

0.5%

4.9%

Building Services -2%

Industrial Water +4%

Irrigation -4%

Q2'11

Q2'12

Q2'11

Q2'12

Xylem Financial Position

Cash

Flow

Track

…

Strong Balance Sheet Provides Flexibility

•

Free Cash Flow $86M

•

‘12 Includes $36M and $26M of

Incremental 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

•

$600M

Revolving

Credit

Facility

Unutilized

•

Access

Commercial

Paper

Unutilized

FCF%

75%

54%

W/C%**

24.8%

23.6%

June 30, 2012

Cash

358

Debt

1,206

Net Debt

848

Stockholders’

Equity

1,948

Net Capital

2,796

Net Debt to Net Capital

30%

(Dollars, In Millions)

* See Appendix for Non-GAAP Reconciliations

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

Free Cash Flow *

Working Capital

Capital Summary/Liquidity

134

900

910

Q2’11 YTD

Q2’12 YTD

Q2’11

Q2’12

2012 Guidance

End Market Performance

Challenging

Market

Dynamics

…

Europe

Weaker

Industrial

Public Utility

Commercial

Residential

Agriculture

Up Low -

Mid

Single Digit

Flat -

Up Low

Single Digit

Up Low

Single Digit

Up Low

Single Digit

Down Low

Single 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 Continue

vs. Previous

Outlook

2H Planning Assumptions

FY’

vs.

Guidance Roll-Forward

Lower

Revenue

Outlook

…

Cost

Savings

Plan

Mitigates

EPS

Impact

Mid-Point Roll-Forward

Revenue

EPS

Note

Previous Guidance

$3.95B

$1.87

Based 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 Guidance

Market Dynamics

($105M)

($0.16)

Organic Growth 1%-3%; -3 pt. Revision

Cost Savings Actions

Paced Investments, Discretionary Costs

$0.10

Revised Guidance

~3.8B

$1.77

3% Operational EPS Reduction

Guidance

Translation

MJK

Acquisition

Reset

FX & MJK

Operational

Performance

Revised

Guidance

$1.87

$1.83

$1.77

$0.03

$0.01

$0.06

EPS

Midpoint

Illustration

2012 Financial Guidance Summary

* See Appendix for Non-GAAP Reconciliations

Revenue

Xylem Consolidated

Water Infrastructure

Applied Water

Segment Margin *

Operating Margin *

EPS *

Free Cash Flow Conversion

Guidance Assumptions:

Stand-Alone Costs

Operating Tax Rate

Share Count

Items Excluded from Guidance:

(1) Separation Costs

(2) Restructuring &

Realignment Costs

~$3.8B

~$2.4B

~$1.4B

14.2% -

14.6%

12.7% -

13.3%

$1.72 -

$1.82

95%

$25M -

$30M

~25%

~186.3M

$15M -

$20M

$15M -

$20M

Constant Currency

Organic

Acquisition

3% 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 Basis

Excluding one-time separation costs

Included in EPS Guidance; In Line with Expectations

Excludes Special Tax Items

In Line with Expectations

$9M-$10M Annual Savings Beginning 2013

2012 Full Year

Financial Outlook

Growth

2012E vs. 2011

Resilient Portfolio, Discipline & Strategic Focus

…

Provides

Confidence

Execution

and

Ability

Position

For

2013

•

Resilient

Portfolio

…

Despite Challenging End Market Conditions

•

Management Discipline …Proactive Actions (~$100M of Restructuring & Realignment ‘08-’12)

•

Operational

Excellence

…

Driving Productivity Initiatives

•

Continued Investment Driving Growth in Core Business

•

(2012E At Mid-Point Guidance)

Revenue

Revenue Up ~$510M …

+15%

Op Income Up ~$165M …

~46%

Incremental Margin ~32%

Incl. Stand-

Alone Costs

12.7% 13.0%

Expansion +290 Bps On Comp Basis

2008

2009

2010

2011

2012E

2,849

3,202

3,803

~3.8B

3,291

2008

2009

2010

10.8%

12.6%

12.8%

13.7%

2011

2012E

Operating

Margin

* Excludes the impact of restructuring and stand alone costs for all periods. See Appendix for Non-GAAP Reconciliations

Key Acquisitions … Transitioning Portfolio to Higher Profitability Levels

Key Takeaways

Strong Q2 Operating Performance

Executing Long-Term Strategy …

MJK Bolt-On Acquisition & New Product

Applications

Stable Business Performance In Challenging Macro Environment

Top-Line

Challenges

…

Driven

Europe

Resilient Portfolio & Large Installed Base Dampens Unfavorable Macro Conditions

Positioning Cost Structure for Stronger Operating Leverage

Customer Excellence & Operational Discipline

Taking Actions and Investing for Future Growth

Strong Financial Position & Strong Cash Flow Generation

Flexibility to Execute Long-Term Strategy

Appendix

2012 EPS Outlook

Mid Point 7% Earnings Growth On Normalized Basis

Illustration of Mid Point Guidance

* See Appendix for Non-GAAP Reconciliations

Includes

unfavorable tax

rate change of 1%

Operational Performance:

Core Operations

$0.15

Acquisitions (YSI & MJK)

$0.08

–

Operating Tax Rate

($0.02)

–

FX Translation

($0.10)

Adjusted

FY'11 EPS*

Incremental

Interest

Expense

Incremental

Stand-

Alone Costs

Normalized

FY'11 EPS*

Operational

Performance

Adjusted

FY'12 EPS*

$1.93

$1.66

$1.77

$0.16

$0.11

7% Normalized

EPS Growth

Quarterly Financial Performance

($M, Except

EPS)

Q1’10

Q2’10

Q3’10

Q4’10

FY’10

Q1’11

Q2’11

Q3’11

Q4’11

FY’11

Q1’12

Q2’12

Revenue

686

775

806

935

3,202

890

971

939

1,003

3,803

925

966

COGS

431

484

497

576

1,988

553

592

574

623

2,342

562

583

Gross Profit

255

291

309

359

1,214

337

379

365

380

1,461

363

383

SG&A

164

170

183

220

737

210

219

215

233

877

231

220

R&D

100

Separation Costs

Restructuring &

Asset

Impairment

Charges, net

Op Income

101

107

111

388

100

116

100

395

129

Interest Expense

Other Non-Op

-2

-1

(1)

Income before

Tax

100

110

111

388

101

115

383

115

Tax

104

Net Income

329

279

EPS –

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. ITT

Corporation 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 Measures

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:

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.

“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 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

“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 not

consider 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 Growth

Constant Currency

(A)

(B)

(C)

(D)

(E)

(F) = B+C+D+E

(G) = F/A

(H) = (B + D) / A

Change

% Change

Change

% Change

Revenue

2012 v. 2011

FX Contribution

Eliminations

Adj. 2012 v. 2011

2012

2011

Six Months Ended June 30

Xylem Inc.

1,891

1,861

1.6%

(66)

1.5%

5.0%

Water infrastructure

1,193

1,153

3.5%

(66)

1.8%

7.5%

Applied Water

728

740

(12)

-1.6%

(1)

0.7%

0.8%

Quarter Ended June 30

Xylem Inc.

966

971

(5)

-0.5%

(32)

1.2%

4.5%

Water infrastructure

609

602

1.2%

(32)

(1)

1.8%

7.3%

Applied Water

373

385

(12)

-3.1%

(1)

0.0%

0.3%

Quarter Ended March 31

Xylem Inc.

925

890

3.9%

(34)

1.7%

5.5%

Water infrastructure

584

551

6.0%

(34)

1.8%

7.8%

Applied Water

355

0.0%

1.4%

Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.

Acquisitions /

Divestitures

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Revenue

($ Millions)

(As Reported -

GAAP)

(As Adjusted -

Organic)

Non-GAAP Reconciliation:

Organic & Constant Currency Order Growth

Constant Currency

(A)

(B)

(C)

(D)

(E)

(F) = B+C+D+E

(G) = F/A

(H) = (B + D) / A

Change

% Change

Change

% Change

Orders

2012 v. 2011

FX Contribution

Eliminations

Adj. 2012 v. 2011

2012

2011

Six Months Ended June 30

Xylem Inc.

1,974

1,976

(2)

-0.1%

(67)

0.0%

3.4%

Water infrastructure

1,255

1,244

0.9%

(67)

(3)

-0.2%

5.1%

Applied Water

752

764

(12)

-1.6%

(3)

0.4%

0.8%

Quarter Ended June 30

Xylem Inc.

970

998

(28)

-2.8%

(30)

(7)

-0.7%

2.3%

Water infrastructure

617

632

(15)

-2.4%

(30)

(5)

-0.8%

4.0%

Applied Water

370

383

(13)

-3.4%

(2)

-0.5%

0.0%

Quarter Ended March 31

Xylem Inc.

1,004

978

2.7%

(37)

0.7%

4.5%

Water infrastructure

638

612

4.2%

(37)

0.3%

6.4%

Applied Water

382

381

0.3%

(1)

1.3%

1.6%

Note: Due to rounding the sum of segment amounts may not agree to Xylem totals.

Acquisitions /

Divestitures

Xylem Inc. Non-GAAP Reconciliation

Reported vs. Organic & Constant Currency Order Growth

($ Millions)

(As Reported -

GAAP)

(As Adjusted -

Organic)

Non-GAAP Reconciliation: Adjusted Diluted EPS

Q1 2012

Q2 2012

YTD 2012

Net Income

152

Separation costs, net of tax

Adjusted Net Income before Special Tax Items

160

Special Tax Items

(1)

Adjusted Net Income

159

Diluted Earnings per Share

$0.34

$0.48

$0.82

Separation costs per Share

$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)

Adjusted diluted EPS

$0.36

$0.49

$0.85

Q1 2011

Q2 2011

YTD 2011

Net Income

150

Separation costs, net of tax

Adjusted Net Income before Special Tax Items

179

Special Tax Items

Adjusted Net Income

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

Adjusted diluted EPS

$0.43

$0.56

$0.99

Adjusted Diluted EPS

For 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 EPS

Q2 2011

Q2 2012

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Reported

Adjustments

Adjusted

Total Revenue

971

966

Operating Income

116

134

(8)

126

129

135

Operating Margin

11.9%

13.8%

13.0%

13.4%

14.0%

Interest Expense

(1)

(13)

(14)

(13)

Other Non-Operating Income (Expense)

(1)

Income before Taxes

115

133

(21)

112

115

121

Provision for Income Taxes

(43)

(30)

(25)

(26)

(3)

(29)

Net Income

103

(16)

Diluted Shares

184.6

186.2

Diluted EPS

0.39

0.17

0.56

(0.09)

0.47

0.48

0.01

0.49

One time separation costs

Tax impact of one time separation costs and special tax items

Incremental stand alone costs incurred in 2012

Incremental interest expense on long-term debt entered into in conjunction with the spin.

Tax

impact

incremental

interest

expense

and

stand

alone

costs

incurred

2012

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)

Non-GAAP Reconciliation: Segment Operating Income

Adjusted Segment Operating Income

YTD

'12

'11

'12

'11

'12

'11

Total Revenue

•

Water Infrastructue

584

551

609

602

1,193

1,153

•

Applied Water

355

373

385

728

740

Operating Income

•

Water Infrastructue

167

158

•

Applied Water

Separation Costs

•

Water Infrastructue

•

Applied Water

Adjusted Operating Income*

•

Water Infrastructue

170

160

•

Applied Water

Operating Margin

•

Water Infrastructue

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 Infrastructue

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

Segment Operating Income

($ Millions)

Non-GAAP Reconciliation: Free Cash Flow

2012

2011

Net Cash - Operating Activities

125

161

Capital Expenditures

(57)

(53)

Free Cash Flow, including separation costs

108

Separation Costs (Cash Paid incl. Capex)

Free Cash Flow, excluding separation costs

134

Net Income

152

150

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

Adjusted Net Income

160

179

Free Cash Flow Conversion

54%

75%

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

Non-GAAP Reconciliation: 2012 Xylem EBITDA & Adj. EBITDA

YTD

Income Before Taxes

115

199

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

136

166

302

Separation Costs

Adjusted EBITDA

141

172

313

Revenue

925

966

1,891

Adjusted EBITDA Margin

15.2%

17.8%

16.6%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Total Xylem

($ Millions)

2012

Non-GAAP Reconciliation: 2011 Xylem EBITDA & Adj. EBITDA

YTD

Income Before Taxes

101

115

216

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

137

152

289

Separation Costs

Adjusted EBITDA

140

170

310

Revenue

890

971

1,861

Adjusted EBITDA Margin

15.7%

17.5%

16.7%

2011

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Total Xylem

($ Millions)

Non-GAAP Reconciliation: 2012 Water Infrastructure EBITDA & Adj. EBITDA

YTD

Income Before Taxes

168

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

102

118

220

Separation Costs

Adjusted EBITDA

104

119

223

Revenue

584

609

1,193

Adjusted EBITDA Margin

17.8%

19.5%

18.7%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

2012

Non-GAAP Reconciliation: 2011 Water Infrastructure EBITDA & Adj. EBITDA

YTD

Income Before Taxes

158

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

121

211

Separation Costs

Adjusted EBITDA

123

213

Revenue

551

602

1,153

Adjusted EBITDA Margin

16.3%

20.4%

18.5%

2011

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

Non-GAAP Reconciliation: 2012 Applied Water EBITDA & Adj. EBITDA

YTD

Income Before Taxes

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

107

Separation Costs

Adjusted EBITDA

108

Revenue

355

373

728

Adjusted EBITDA Margin

13.8%

15.8%

14.8%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

2012

Non-GAAP Reconciliation: 2011 Applied Water EBITDA & Adj. EBITDA

YTD

Income Before Taxes

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

112

Separation Costs

Adjusted EBITDA

112

Revenue

355

385

740

Adjusted EBITDA Margin

15.2%

15.1%

2011

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

Non-GAAP Reconciliation: Guidance

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

3,800

Segment Operating Income

503

532

(10)

522

524

h,i

549

Segment Operating Margin

13.2%

14.0%

13.7%

13.8%

14.4%

Corporate Expense

108

(58)

(11)

Operating Income

395

482

(28)

454

458

494

Operating Margin

10.4%

12.7%

11.9%

12.1%

13.0%

Interest Expense

(17)

(39)

(56)

(54)

Other Non-Operating Income (Expense)

(2)

Income before Taxes

383

470

(67)

403

402

438

Provision for Income Taxes

(104)

(8)

(112)

(96)

(99)

(10)

(109)

Net Income

279

358

(51)

307

303

329

Diluted Shares

185.3

186.3

Diluted EPS

1.50

0.43

1.93

(0.27)

1.66

1.63

0.14

1.77

One time separation costs incurred at the segment level

One time separation costs incurred at the corporate level

Net

tax

impact

above

items,

plus

the

addition

2011

special

tax

items

Incremental stand alone costs to be incurred in 2012 at the segment level ($10M)

Incremental stand alone costs to be incurred in 2012 at the corporate level ($18M)

Incremental interest expense on long-term debt to be incurred in 2012

Tax

impact

incremental

interest

expense

and

stand

alone

costs

incurred

2012

Expected one time separation costs of $7M and $11M to be incurred at the segments and headquarters, respectively.

Restructuring & realignment costs of $18M to be incurred at the segments.

Tax 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 Reconciliation

Guidance

($ Millions, except per share amounts)

Non-GAAP Reconciliation: Adj. Operating Income & Margin

Mid Point Guidance

2008

2009

2010

2011

2012E

Revenue

3,291

2,849

3,202

3,803

3,800

Operating Income

315

276

388

395

458

Operating Margin

9.6%

9.7%

12.1%

10.4%

12.1%

Restructuring & Realignment

Separation Costs

Adjusted Operating Income

356

307

403

482

494

Adjusted Operating Margin

10.8%

12.6%

12.7%

13.0%

Standalone Costs

Adj. Operating Income, excl. Standalone Costs

356

307

403

487

522

Adjusted Operating Margin, excl. Standalone Costs

10.8%

12.6%

12.8%

13.7%

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

Phil De Sousa, Investor Relations Officer

(914) 323-5930

Janice Tedesco, Investor Relations Coordinator

(914) 323-5931

http://investors.xyleminc.com

NYSE: XYL

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Xylem Inc. Reports