Xylem Inc. - FORM 8-K - EX-99.2 - SLIDES SUMMARIZING THIRD QUARTER FINANCIAL RESULTS

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EX-99.1 - NEWS RELEASE - Xylem Inc.	d429180dex991.htm
8-K - FORM 8-K - Xylem Inc.	d429180d8k.htm

Q3 2012 Earnings Release

November 1, 2012

Exhibit 99.2

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

orders,

revenues,

operating

margins

and

earnings

per

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

obligation

publicly

update

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.

Q3’12 Xylem Results

Solid Operating Performance, Despite Continued Market Challenges

* See Appendix for Non-GAAP Reconciliations

Financial

Performance Summary

Orders

Revenue

Gross Margin

Operating Margin *

EPS *

$882M

$931M

40.2%

12.9%

$0.44

Book to Bill 0.95

+3% (Constant Currency Basis)*

+130 bps

+50 bps Adjusted for Stand-Alone Costs

Solid Performance from Core Operations & YSI

Business Update

Advancing Our Strategic Position

•

Executing Acquisition Strategy

MJK Integration into Analytics Platform Well Underway

Heartland Pump Acquisition … Increases Geographic Reach of Dewatering Platform

•

Selected to Dow Jones Sustainability Global and North America Indices

Deploying Innovative New Product Applications and Services

•

U.S. Launch of the Sanitaire Bioloop Oxidation Ditch

•

Launched Energy Efficient Lowara Ecocirc – Meeting New European Regulations

•

Recognized by The Coca-Cola Company as Supplier of the Year

Continued Strong Execution

•

Q3’12 Emerging Market Growth up 9% (Constant Currency Basis)

•

Gross Margin >40% … Record Performance

•

Executing on Restructuring & Realignment Actions

Advancing

Strategic

Position

Increasing

Profitability

Acquisition Overview

Overview

Purchase Price $29M

‘11 Rev $33M

100 Employees

4 locations

Industrial & Muni;

•

Mining

•

Energy

•

Disaster Recovery

Expands Geographic Reach

Increases Rental Opportunities

Leverage Xylem Portfolio

Cost Synergies

Capex Synergies

Sales

~60%

Rental

~40%

Revenue Mix

Strategic Rationale

Heartland Pump Rental & Sales, Inc.

Expands Xylem’s Dewatering Platform in Attractive U.S. Rental Markets

YTD Xylem Results

On Track to Deliver in 2012 …

Positioned for Long-Term Growth

* See Appendix for Non-GAAP Reconciliations

Orders

Revenue

Gross Margin

Operating Margin *

EPS *

Free Cash Flow *

$2.9B

$2.8B

39.7%

12.7%

$1.29

$171M

Book to Bill 1.01

+4% (Constant Currency Basis)*

+110 bps

Includes Impact from Stand-Alone Costs -90bps

Solid Performance from Core Operations & YSI

73% Conversion ... Typical Seasonality

Financial Performance Summary

Full Year Outlook

*See appendix for non-GAAP reconciliations

4th Quarter Execution Sets up 2013

•

Executing on Restructuring & Realignment Actions

•

Accelerating Additional Actions in 2012

•

Continued Disciplined Capital Deployment

•

Successful Integration of MJK & Heartland Acquisitions

2012 Guidance

•

Full Year Revenue ~$3.8B; Organic Growth ~1%

•

Delivering Solid Operating Margin Expansion

•

EPS Mid Point of $1.76* … Includes Heartland Pump Acquisition Impact ($0.01)

•

Solid Free Cash Flow Conversion*

•

Executing ~$20M Total Restructuring & Realignment Actions

Solid Execution in 2012 …

Positioning for Long-Term Growth

Q3’12 Xylem Performance

Op Margins +50 bps …

Cost Actions/Price Enable Investments for Growth

*See appendix for non-GAAP reconciliations

(Dollars, In Millions)

Revenue

Operating Income *

Organic

Acquisition

Constant Currency

Total

+1%

+2%

+3%

By End Market

By Geography

Industrial

Public Utility

Commercial

Residential

Agriculture

Europe

U.S.

Emerging Markets

Cost Reductions

+3.2%

Price

+1.3%

Vol/Mix/Invest

0.5%

120

125

Q3’11

Q3’12

Q3’11

Q3’12

13.3%

4.0%

0.6%

2.9%

13.8%

0.9%

12.9%

Q3’11

Op Margin*

Operations

Material,

Labor,

& OH

Inflation

Q3’12

Op Margin

Before Stand-

Alone Costs*

Stand-

Alone

Costs

Q3’12

Op Margin*

Q3 Growth

Organic Performance

931

939

Q3’12 Xylem Performance

EPS Growth Negatively Impacted by FX and Taxes

Interest

($0.06)

Stand-Alone

($0.03)

Separation Costs

$0.13

Special Tax

($0.01)

* See Appendix for Non-GAAP Reconciliations

Separation Costs

($0.02)

Restruct. &

Realign. Costs

($0.02)

Special Tax

($0.02)

-2% Normalized

-2% Normalized

2% Normalized

EPS Performance

Operational Performance:

Core Operations

Acquisitions

Operating Tax Rate

FX Translation

$0.01

($0.01)

($0.02)

$0.42

$0.03

$0.45

$0.01

$0.44

$0.06

$0.38

Q3’11

GAAP EPS

Adjustments

Normalized

Q3’11 EPS

Operational

Performance

Adjusted

Q3’12 EPS

Q3’12

GAAP EPS

Adjustments

Q3’12 EPS *

Q3’12 Water Infrastructure Performance

Revenue Up 7%* …

Operating Margin Impacted by Unfavorable Mix & FX

* See appendix for non-GAAP reconciliations

(Constant Currency)

•

Public Utility …

US & Europe Up, EM Strong

Industrial …

US Drought Impact on Dewatering

•

Global Public Utility Strength

Project Orders Continue to Delay

•

Strength in US & AP …

Europe Flat

+2%

-6%

Organic

Acquisition

Constant Currency

+3%

+4%

Operating Income *

Cost Reductions

+2.9%

Price

+0.7%

Vol/Mix/Invest

0.4%

Incremental Margin ~23%

(Ex. FX & Stand Alone Costs)

Q3 Growth

+2%

Revenue

+7%

-5%

Total

Transport +1%

Treatment +11%

Test +44%

Q3'11

Op Margin*

Operations

Material,

Labor,

& OH

Inflation

Q3'12

Op Margin

Before

Stand-Alone

Stand-

Alone

Q3'12

Op Margin*

Q3’12 Applied Water Performance

Price

Cost

Reduction

Initiatives

Offset

Challenging

Market

Conditions

* See appendix for non-GAAP reconciliations

Revenue

Operating Income *

(Dollars, In Millions)

-4%

(Constant Currency)

•

Building Services -6%

–

Commercial …

Lag in Major Projects, Tough PY Comp

–

Residential …

Tough PY Comp (U.S. Up Double Digit)

•

Industrial Water +1%

Favorable Across Most Regions

–

U.S. & Europe showing signs of weakness

•

Irrigation +9%

Double Digit U.S. Growth, Europe Improving

Preserving Profitability While

Investing for Growth

Organic

-2%

Acquisition

Constant Currency

-3%

Total

-5%

Q3'11

Op Margin

Operations

Material,

Labor,

& OH

Inflation

Q3'12

Op Margin

Before

Stand-Alone

Stand-

Alone

Q3'12

Op Margin *

12.5%

13.2%

12.6%

3.1%

0.6%

3.4%

0.4%

Q3'11

Q3'12

368

350

Q3'11

Q3'12

Cost Reductions

+3.7%

Price

+2.3%

Vol/Mix/Invest

2.6%

-5%

Q3 Growth

Xylem Financial Position

FY Cash Flow On Track …

Strong Balance Sheet Provides Flexibility

•

Free Cash Flow $171M

•

Higher Cash Taxes

•

Full Year of Interest

•

Stand

Alone Costs

•

Capex > 1 Reinvestment Ratio

•

Strong Cash Position

•

No Significant Debt Maturities Until 2016

•

28% Net Debt to Net Capital

•

1.2x Net Debt/Adj. TTM EBITDA

•

$600M

Revolving

Credit

Facility

Unutilized

•

Access

Commercial

Paper

Unutilized

FCF%

84%

73%

W/C%**

23.7%

24.8%

(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

September 30, 2012

Cash

Debt

Net Debt

Stockholders’

Equity

Net Capital

Net Debt to Net Capital

424

1,212

788

2,054

2,842

28%

907

952

171

235

Q3’11 YTD

Q3’12 YTD

Q3’11

Q3’12

2012 Guidance

2012 EPS Guidance Walk

Mid Point 6% Earnings Growth Versus Prior Year On Normalized Basis

Illustration of Mid Point Guidance

* See Appendix for Non-GAAP Reconciliations

Offsetting Volume Reduction

Operational Performance:

FX Translation

Vol. Net of Cost Initiatives

$0.02

($0.02)

Heartland Pump

Acquisition

$(0.01) in 4Q

$1.77

$0.01

$1.76

Guidance

Before Heartlnd

Acquisition

Heartland

Acquisition

FY 2012

Guidance

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

Constant Currency

Organic

Acquisition

~$3.8B

~$2.4B

~$1.4B

14.1% -

14.3%

12.7% -

12.9%

$1.72 -

$1.79

95%

~186.2M

~$28M

~$25%

~$20M

+10 to +30 bps

+0 to +20 bps

$1.76 Mid Point incl. Heartland Pump Acq. impact -

$0.01

Excluding one-time separation costs

Included in EPS Guidance; In Line with Expectations

Excludes Special Tax Items

In Line with Expectations

Additional Actions Identified in 3Q’12

~$11MTotal Run Rate Savings Beginning 2013

~3% ~1% 2%

~5% ~1% 4%

~1% ~1% 0%

2012 Full Year

Financial Outlook

Growth

2012E vs. 2011

Key Takeaways

Positioning for Long-Term Growth

•

Investing in Strategic Growth Platforms

•

Executing M&A Strategy

•

Advancing Our Geographic Position

•

Launching New Products & Investing in Future Growth

•

Customer Excellence & Operational Discipline

Restructuring & Realignment Actions Underway

•

Executing Actions to Preserve Investments

•

Defending and Improving Our Competitive Advantage

•

Providing for Stronger Operating Leverage

Strong Financial Position

•

Flexibility to Execute Long-Term Strategy

Appendix

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

Q3’12

Revenue

686

775

806

935

3,202

890

971

939

1,003

3,803

925

966

931

COGS

431

484

497

576

1,988

553

592

574

623

2,342

562

583

557

Gross Profit

255

291

309

359

1,214

337

379

365

380

1,461

363

383

374

SG&A

164

170

183

220

737

210

219

215

233

877

231

220

231

R&D

100

Separation Costs

Restructuring &

Asset Impairment

Charges, net

Op Income

101

107

111

388

100

116

100

395

129

111

Interest Expense

Other Non-Op

-2

-1

(1)

Income before Tax

100

110

111

388

101

115

383

115

100

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

$0.38

* 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, we had 184.6 million shares of common stock outstanding and this share amount is being utilized to

calculate earnings per share for all periods presented prior to the spin-off.

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

measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted)

or net cash from operations as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled

measures reported by other companies, to be key performance indicators:

“Organic revenue" and "Organic orders”

defined as revenue and orders, respectively, excluding the impact of foreign currency fluctuations, intercompany transactions,

and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for classification as a discontinued

operation or insignificant portions of our business that we did not classify as a discontinued operation. The period-over-period change resulting from foreign currency

fluctuations assumes no change in exchange rates from the prior period.

“Constant currency”

defined as financial results adjusted for currency translation impacts by translating current period and prior period activity using the same currency

conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.

“EBITDA”

EBITDA to exclude for non-recurring separation costs associated with the Xylem spin-off from ITT Corporation as well as non-recurring restructuring and realignment costs.

"Adjusted Operating Income", "Adjusted Segment Operating Income", and “Adjusted EPS”

defined as operating income and earnings per share, adjusted to exclude

non-recurring separation costs associated with the Xylem spin-off from ITT Corporation, non-recurring restructuring and realignment costs and tax-related special items.

“Normalized EPS”

defined as adjusted earnings per share, as well as adjustments to reflect the incremental current period amount of interest expense and stand alone

costs in the prior comparable period.

“Free Cash Flow”

defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other

significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flows

does not consider non-discretionary cash payments, such as debt.

performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not

defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to

Non-GAAP Reconciliation:

Organic & Constant Currency Revenue Growth

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

Nine Months Ended September 30

Xylem Inc.

2,856

2,942

(86)

-2.9%

(88)

108

(66)

-2.2%

0.7%

Water infrastructure

1,819

1,865

(46)

-2.5%

(88)

(52)

-2.8%

1.9%

Applied Water

1,086

1,122

(36)

-3.2%

(8)

(14)

-1.2%

-0.5%

Quarter Ended September 30, 2012

Xylem Inc.

882

966

(84)

-8.7%

(21)

(66)

-6.8%

-4.7%

Water infrastructure

564

621

(57)

-9.2%

(21)

(49)

-7.9%

-4.5%

Applied Water

334

358

(24)

-6.7%

(5)

(17)

-4.7%

-3.4%

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

Q3 2012

YTD 2012

Net Income

224

Separation Costs, Net of Tax

Restructuring & Realignment, Net of Tax

Adjusted Net Income before Special Tax Items

239

Special Tax Items

(1)

Adjusted Net Income

242

Diluted Earnings per Share

$0.34

$0.48

$0.38

$1.20

Separation Costs per Share

$0.02

$0.06

Restructuring & Realignment Costs per Share

$0.00

$0.02

Adjusted Diluted EPS before Special Tax Items

$0.36

$0.50

$0.42

$1.28

Special Tax Items per Share

$0.00

($0.01)

$0.02

$0.01

Adjusted Diluted EPS

$0.36

$0.49

$0.44

$1.29

Q1 2011

Q2 2011

Q3 2011

YTD 2011

Net Income

227

Separation Costs, Net of Tax

Adjusted Net Income before Special Tax Items

102

281

Special Tax Items

(1)

Adjusted Net Income

103

101

284

Diluted Earnings per Share

$0.42

$0.39

$0.42

$1.23

Separation Costs per Share

$0.01

$0.15

$0.13

$0.29

Adjusted Diluted EPS before Special Tax Items

$0.43

$0.54

$0.55

$1.52

Special Tax Items per Share

$0.00

$0.02

($0.01)

$0.01

Adjusted Diluted EPS

$0.43

$0.56

$0.54

$1.53

Adjusted Diluted EPS

For The Three and Nine Months Ended September 30, 2012 & 2011

($ Millions, except per share amounts)

Xylem Inc. Non-GAAP Reconciliation

Non-GAAP Reconciliation: Normalized and Adjusted EPS

Q3 2011

Q3 2012

As Reported

Adjustments

Adjusted

Adjustments

Normalized

As Reported

Adjustments

Adjusted

Total Revenue

939

931

Operating Income

125

(8)

117

111

120

Operating Margin

8.4%

13.3%

12.5%

11.9%

12.9%

Interest Expense

(1)

(13)

(14)

Other Non-Operating Income (Expense)

Income before Taxes

128

(21)

107

100

109

Provision for Income Taxes

(5)

(22)

(27)

(23)

(28)

(26)

Net Income

101

(17)

Diluted Shares

184.6

186.3

Diluted EPS

0.42

0.12

0.54

(0.09)

0.45

0.38

0.06

0.44

One time separation, restructuring & realignment 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 of incremental interest expense and stand alone costs incurred in 2012

Xylem Inc. Non-GAAP Reconciliation

Normalized and Adjusted Diluted EPS

($ Millions, except per share amounts)

Non-GAAP Reconciliation: Operating Income

YTD

'12

'11

'12

'11

Total Revenue

• Total Xylem

931

939

2,822

2,800

• Water Infrastructure

595

584

1,788

1,737

• Applied Water

350

368

1,078

1,108

Operating Income

• Total Xylem

111

339

296

• Water Infrastructure

253

245

• Applied Water

135

133

Operating Margin

• Total Xylem

11.9%

8.4%

12.0%

10.6%

• Water Infrastructure

14.3%

14.9%

14.1%

• Applied Water

12.3%

10.0%

12.5%

12.0%

Separation Costs

• Total Xylem

• Water Infrastructure

• Applied Water

Restructuring & Realignment Costs

• Total Xylem

• Water Infrastructure

• Applied Water

Adjusted Operating Income*

• Total Xylem

120

125

359

363

• Water Infrastructure

260

255

• Applied Water

137

142

Adjusted Operating Margin*

• Total Xylem

12.9%

13.3%

12.7%

13.0%

• Water Infrastructure

15.0%

16.3%

14.5%

14.7%

• Applied Water

12.6%

12.5%

12.7%

12.8%

*Adjusted Operating Income excludes non-recurring separation, restructuring & realignment costs

Xylem Inc. Non-GAAP Reconciliation

Adjusted Operating Income

($ Millions)

Non-GAAP Reconciliation: Free Cash Flow

2012

2011

Net Cash - Operating Activities

230

252

Capital Expenditures

(81)

(79)

Free Cash Flow, including separation costs

149

173

Cash Paid for Separation Costs (incl. Capex)

Free Cash Flow, excluding separation costs

171

235

Net Income

224

227

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

Adjusted Net Income

235

281

Free Cash Flow Conversion

73%

84%

Xylem Inc. Non-GAAP Reconciliation

Net Cash - Operating Activities vs. Free Cash Flow

For The Nine Months Ended September 30, 2012 & 2011

($ Millions)

Nine Months Ended

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

YTD

Income Before Taxes

115

100

299

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

136

166

154

456

Separation Costs

Restructuring & Realignment Costs

Adjusted EBITDA

141

172

163

476

Revenue

925

966

931

2,822

Adjusted EBITDA Margin

15.2%

17.8%

17.5%

16.9%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Total Xylem

($ Millions)

2012

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

Total

Pre-Tax Net Income

101

115

383

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

137

152

121

140

550

Separation Costs

Adjusted EBITDA

140

170

167

160

637

Revenues

890

971

939

1,003

3,803

Adjusted EBITDA Margin

15.7%

17.5%

17.8%

16.0%

16.7%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

($ Millions)

2011

Total Xylem

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

YTD

Income Before Taxes

254

Interest, net

(1)

Depreciation

Amortization

Stock Compensation

EBITDA

102

118

115

335

Separation Costs

Restructuring & Realignment Costs

Adjusted EBITDA

104

119

342

Revenue

584

609

595

1,788

Adjusted EBITDA Margin

17.8%

19.5%

20.0%

19.1%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

2012

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

Total

Pre-Tax Net Income

345

Interest, net

(1)

Depreciation

Amortization

Stock Compensation

EBITDA

121

116

123

450

Separation Costs

Adjusted EBITDA

123

124

129

466

Revenues

551

602

584

679

2,416

Adjusted EBITDA Margin

16.3%

20.4%

21.2%

19.0%

19.3%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Water Infrastructure

($ Millions)

2011

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

YTD

Income Before Taxes

135

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

159

Separation Costs

Restructuring & Realignment Costs

Adjusted EBITDA

161

Revenue

355

373

350

1,078

Adjusted EBITDA Margin

13.8%

15.8%

15.1%

14.9%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

2012

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

Total

Pre-Tax Net Income

159

Interest, net

Depreciation

Amortization

Stock Compensation

EBITDA

192

Separation Costs

Adjusted EBITDA

205

Revenues

355

385

368

336

1,444

Adjusted EBITDA Margin

15.2%

15.1%

14.9%

11.3%

14.2%

Xylem Inc. Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA by Quarter

Applied Water

($ Millions)

2011

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

516

h,i

541

Segment Operating Margin

13.2%

14.0%

13.7%

13.6%

14.2%

Corporate Expense

108

(58)

(15)

Operating Income

395

482

(28)

454

448

488

Operating Margin

10.4%

12.7%

11.9%

11.8%

12.8%

Interest Expense

(17)

(39)

(56)

(54)

Other Non-Operating Income (Expense)

(1)

Income before Taxes

383

470

(67)

403

393

433

Provision for Income Taxes

(104)

(8)

(112)

(96)

(99)

(7)

(106)

Net Income

279

358

(51)

307

294

327

Diluted Shares

185.3

186.2

Diluted EPS

1.50

0.43

1.93

(0.27)

1.66

1.58

0.18

1.76

One time separation costs incurred at the segment level

One time separation costs incurred at the corporate level

Net tax impact of above items, plus the addition of 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 of incremental interest expense and stand alone costs

to be incurred in 2012

Expected one time separation costs of $5M and $15M to be incurred at the segments and headquarters, respectively.

Restructuring & realignment costs of $20M 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 Q3 2012.

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

448

Operating Margin

9.6%

9.7%

12.1%

10.4%

11.8%

Restructuring & Realignment

Separation Costs

Adjusted Operating Income

356

307

403

482

488

Adjusted Operating Margin

10.8%

12.6%

12.7%

12.8%

Standalone Costs

Adj. Operating Income, excl. Standalone Costs

356

307

403

487

516

Adjusted Operating Margin, excl. Standalone Costs

10.8%

12.6%

12.8%

13.6%

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

NYSE: XYL

http://investors.xyleminc.com

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