Xylem (XYL) 10-K risk factor changes: FY2017 vs FY2016

Our competitors [added: or third parties from outside of our industry] may develop disruptive technologies or products that are superior to our products, or may develop more efficient or effective methods of providing products and services or may adapt more quickly than we do to new technologies or evolving customer requirements.

The failure of our technologies or products to [added: maintain and] gain market acceptance due to more attractive offerings [removed: by our competitors] could significantly reduce our revenues and adversely affect our competitive standing and prospects.

In [removed: 2016, 42%, 31%] [added: 2017, 46%, 26%] and 21% of our total revenue was from customers located in the United States, [added: western] Europe and emerging markets, respectively.

Important factors impacting our businesses include the overall strength of these economies and our customers’ confidence in both local and global macro-economic conditions; industrial and federal, state, local and municipal governmental fiscal and trade policies; the strength of the residential and commercial real estate markets; interest rates; availability of commercial financing for our customers and end-users; [added: the availability of funding for our public sector customers;] and unemployment rates.

In [removed: 2016, 58%] [added: 2017, 54%] of our total revenue was from customers outside the United States, with 21% of total revenue generated in emerging markets.

| • | possibility of unfavorable circumstances arising from host country laws or [removed: regulations;] [added: regulations, including those related to infrastructure and data transmission and privacy;] |

We may not achieve some or all of the expected benefits of our restructuring [added: and transformation] plans and our restructuring may adversely affect our business.

In recent fiscal years, we have initiated [removed: restructuring] [added: restructuring, realignment and transformation] plans in an effort to optimize our cost structure and improve our operational efficiency and effectiveness.

We may not be able to obtain the cost savings and benefits that were initially anticipated in connection with our [removed: restructuring.][added: restructuring and transformation plans.]

Additionally, as a result of [removed: our restructuring,] [added: these plans ,] we may experience a loss of continuity, loss of accumulated knowledge or inefficiency during transitional periods.

[removed: Reorganization] [added: Transformation, realignment] and restructuring can require a significant amount of management and other employees' time and focus, which may divert attention from operating and growing our business.

The successful implementation and execution of our [removed: restructuring and] [added: restructuring,] realignment [added: and transformation] actions [removed: is] [added: are] critical to achieving our expected cost savings as well as effectively competing in the [removed: marketplace.][added: marketplace and positioning us for future growth.]

Factors that may impede a successful implementation include the retention of key employees, the impact of regulatory [removed: matters,] [added: matters or matters involving certain third parties selected to assist us,] and adverse economic market conditions.

Regardless of protection measures, essentially all systems are susceptible to disruption due to failure, vandalism, [added: denial-of-service,] insider risk, computer viruses, security breaches, natural disasters, power outages and other events.

A successful attack may result in inappropriate access to our or our [removed: customer's] [added: customers'] information or an inability for our products to function properly.

We, and some of our third party vendors, have experienced cybersecurity attacks in the past and may experience them in the future, [removed: potentially] [added: likely] with more [removed: frequency.][added: frequency and involving a broader range of devices.]

We have adopted measures [added: designed] to mitigate potential risks associated with information technology disruptions and cybersecurity threats, however, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business or potential liability, regulatory enforcement actions, and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

We also have [added: or operate through] a concentration of operations on certain sites, such as production and shared services centers, where business interruptions could cause material damage and costs.

In the event that we believe or have reason to believe that our employees or [removed: agents] [added: business partners] have or may have violated applicable laws, including anti-corruption laws, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.

We conduct approximately [removed: 58%] [added: 54%] of our business in various locations outside the United States.

We are exposed to fluctuations in foreign currency transaction exchange rates, particularly with respect to the Euro, Swedish Krona, [added: Polish Zloty,] Canadian Dollar, British [removed: Pound, Polish Zloty] [added: Pound] and Australian Dollar.

The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, British Pound, Chinese Yuan, [removed: Swedish Krona,] Canadian [removed: Dollar] [added: Dollar, Swedish Krona] and Australian Dollar.

[removed: Continued strengthening] [added: Strengthening] of the U.S. Dollar relative to the Euro and the currencies of the other countries in which we do business, could materially and adversely affect our [removed: revenue] [added: sales] growth in future periods.

[removed: Although we have liability insurance, we cannot be certain that] this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any product liability claims.

Recalls, removals and product liability [added: and quality] claims can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and have a material adverse effect on our business, financial condition and results of operations.

On the other hand, drought conditions drive higher demand for pumps used in agricultural and turf irrigation applications, such as those provided by our Goulds Water [removed: Technology, Flowtronex] [added: Technology] and Lowara brands.

Our business is impacted by [removed: an increasing] [added: a substantial] amount of short cycle, and book-and-bill business, which we have limited insight into, particularly for the business that we transact through our distributors.

We sell our products in [removed: more than] [added: approximately] 150 countries and [removed: 58%] [added: 54%] of our revenue was generated outside the United States in [removed: 2016.][added: 2017.]

Our business relies on third-party suppliers, contract manufacturing and commodity markets to secure raw materials, parts and components used in our [removed: products.][added: products, and we expect that reliance to increase.]

Parts and raw materials commonly used in our products include motors, fabricated parts, castings, bearings, seals, nickel, copper, [removed: aluminum, and plastics.]

As of December 31, [removed: 2016,] [added: 2017,] our total outstanding indebtedness was [removed: $2,368] [added: $2,200] million as described under “Liquidity and Capital Resources." Our indebtedness could:

These proceedings may seek remedies relating to environmental matters, acquisitions or divestitures, product liability and personal injury claims, [added: privacy,] employment, labor and pension matters, and government contract issues and commercial or [added: contractual disputes.]

Our acquisition of Sensus [added: and technology focused companies] has increased our exposure to intellectual property litigation and we expect that this risk will continue to increase as we execute on our innovation and technology priorities.

The global and diverse nature of our [removed: operations] [added: operations, coupled with the increase in regulation and enforcement in many regions of the globe,] means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time.

[removed: In addition, subsequent developments in legal proceedings may affect our assessments and estimates of loss] contingencies recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our results of operations and financial condition.

A significant [removed: number] [added: portion] of our products [added: and offerings] in our [removed: Sensus] [added: Measurement & Control Solutions] segment are affected by the availability and regulation of radio spectrum and could be affected by interference with the radio spectrum that we use.

A significant [removed: number] [added: portion] of the [removed: products] [added: offering] in our [removed: Sensus] [added: Measurement & Control Solutions] segment use radio spectrum, which is subject to government regulation.

The regulations that govern our use of the radio spectrum may change and [removed: that] the changes may require us to modify our [removed: products,] [added: products or seen new partnerships,] either directly or due to interference caused by new consumer products allowed under the regulations.

Our advanced and smart metering systems [added: offering] typically transmit to (and receive information from, if applicable) handheld, mobile, or fixed network reading devices in licensed bands made available to us through strategic partnerships and are reliant to some extent on the licensed spectrum continuing to be available through our partners or our customers.

[removed: As of December 31, 2016, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $3 billion] The carrying value of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date.

In 2017, we undertook steps to advance a multi-year effort to transform many of our support functions and related technologies, including Finance, Human Resources and Procurement.

A material disruption to any of our facilities or operations may adversely affect our business.

If our facilities or operations were to be disrupted as a result of a significant equipment failure, natural disaster, power outage, fire, explosion, terrorism, cyber-based attack, labor disputes, work stoppages or slowdowns, adverse weather conditions or other reason, our financial performance could be adversely affected as a result of our inability to meet customer demand.

Interruptions could increase our costs and reduce our sales.

Any interruption in capability could require us to make substantial capital expenditures to remedy the situation, which could negatively affect our profitability and financial condition.

Any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could adversely affect our business, financial condition and results of operations.

Additionally, to conduct our operations, we regularly move data across national borders, and consequently are subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security.

The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws.

For example, the European Union’s General Data Protection Regulation (“GDPR”), which greatly increases the jurisdictional reach of European Union law and adds a broad array of requirements for handling personal data, including the public disclosure of significant data breaches, becomes effective in May 2018.

And other countries have enacted or are enacting data localization laws that require data to stay within their borders.

All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time.

For instance, our 2017 revenue increased by 0.9% due to favorable foreign currency impacts.

Although we have liability insurance, we cannot be certain that

Manufacturing, design, software or service defects or inadequacies may also result in contractual damages or credits being issued, which could impact our revenue.

For example, compliance with the 2017 United States Tax Cut and Jobs Act (“Tax Act”) may require the collection of information not regularly produced within our Company, the use of provisional estimates in our financial statements, and the exercise of significant judgment in accounting for its provisions.

Many aspects of the Tax Act are unclear and may not be clarified for some time.

As regulations and guidance evolve with respect to the Tax Act, and as we gather more information and perform more analysis, our results may differ from previous estimates and may materially affect our financial position.

Our non-U.S. operations will be subject to alternative tax regimes implemented under the Tax Act.

batteries, aluminum, and plastics.

In addition, subsequent developments in legal proceedings may affect our assessments and estimates of loss

In addition, suitable partners for co-development may not be able to be secured by us.

As of December 31, 2017, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $3 billion.

that are beyond our control.

| | |

| --- | --- |

For instance, our 2016 revenue decreased by

2.0% due to unfavorable foreign currency impacts.

| • | our decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes; |

contractual disputes.

any such developments, or financial insolvency of other responsible parties could in the future have a material adverse effect on our financial position and results of operations.

This discussion summarizes the significant factors affecting our results of operations and the financial condition of our business during each of the fiscal years in the three-year period ended* *December 31, [removed: 2016.][added: 2017.]

Our broad portfolio of solutions addresses customer needs across the water cycle, from the [removed: delivery] [added: delivery, measurement] and use of drinking water to the [removed: collection] [added: collection, test] and treatment of wastewater to the return of water to the environment.

Our product and service offerings are organized into three reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water and [removed: Sensus.][added: Measurement & Control Solutions (formerly Sensus & Analytics).]

| • | *Water Infrastructure* serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process. We [added: also] provide [removed: analytical instrumentation used to measure water quality, flow] [added: sales] and [removed: level in wastewater, surface water] [added: rental of specialty dewatering pumps] and [removed: coastal environments.] [added: related equipment and services.] In the Water Infrastructure segment, we provide the majority of our sales directly to customers with strong [removed: application] [added: applications] expertise, while the remaining amount is through distribution partners. |

| • | *Applied Water* serves the usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning and for fire protection systems to the residential and commercial building services markets. In addition, our pumps, heat exchangers, [removed: valves] and controls provide cooling to power plants and manufacturing facilities, as well as circulation for food and beverage processing. We also provide boosting systems for farming [removed: irrigation,] [added: irrigation and] pumps for dairy [removed: operations and rainwater reuse systems for small scale crop and turf irrigation.] [added: operations.] In the Applied Water segment, we provide the majority of our sales through long-standing relationships with many of the leading independent distributors in the markets we serve, with the remainder going directly to customers. |

| • | [removed: *Sensus*, which we acquired on October 31, 2016,] [added: *Measurement & Control Solutions* primarily] serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and services that allow customers to more effectively use their distribution networks for the delivery of critical resources such as water, electricity and natural gas. [added: In the Measurement & Control Solutions segment, we also provide analytical instrumentation used to measure water quality, flow and level in wastewater, surface water and coastal environments.] Additionally, we sell software and services including cloud-based analytics, remote monitoring and data management, [added: leak detection] and [added: pressure monitoring solutions. We] also sell smart lighting products and solutions that improve efficiency and public safety efforts across communities. In the [removed: Sensus segment] [added: Measurement & Control Solutions segment,] we generate [removed: the majority of] our sales [removed: in the U.S.] through [added: a combination of] long-standing relationships with leading distributors and dedicated channel [removed: partners, while we use a combination of] [added: partners as well as] direct sales [removed: and distribution channels internationally,] depending on the regional availability of distribution [removed: channels. The Sensus segment has approximately 3,300 employees across 28 locations on six continents.] [added: channels and the type of product.] |

Management reviews key performance indicators including revenue, gross [removed: margin,] [added: margins,] segment operating income and margins, [removed: earnings per share,] orders growth, working capital and backlog, among others.

In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and [removed: to] provide a tool for evaluating our ongoing operations, liquidity and management of assets.

[added: 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:

| • | "adjusted [added: operating income", "adjusted segment operating Income", "adjusted] net income" and [removed: "adjusted earnings per share"] [added: “adjusted EPS”] defined as [added: operating income, segment operating income,] net income and earnings per share, [removed: respectively,] adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs, [removed: special charges,] gain [added: or loss] from sale of [removed: business] [added: businesses, special charges] and tax-related special items, as applicable. A reconciliation of adjusted net income is provided below. |

| (in millions, except per share data) | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Net [removed: income] [added: Income] | | $ | [removed: 260] [added: 330] | | | $ | [removed: 340] [added: 260] | | | $ | [removed: 337] [added: 340] | |

| Restructuring and realignment, net of tax [removed: benefit] of $13, [removed: $5] [added: $13] and [removed: $12,] [added: $5,] respectively | | [removed: 34] [added: 28] | | | | [removed: 15] [added: 34] | | | | [removed: 31] [added: 15] | | |

| Sensus acquisition related costs, net of tax [removed: benefit] of [removed: $15] [added: $8 and $15, respectively] | | [removed: 38] [added: 14] | | | | [removed: —] [added: 38] | | | | — | | |

| Special charges, net of tax [removed: benefit] of [added: $4,] $7 and $0, respectively | | [removed: 11] [added: 8] | | | | [removed: 5] [added: 11] | | | | [removed: —] [added: 5] | | |

| Tax-related special items | | [removed: 21] [added: 40] | | | | [removed: (15] [added: 21] | | [removed: )] | | [removed: 5] [added: (15] | | [added: )] |

| [removed: Gain] [added: Loss (gain)] from sale of [removed: business, net of $0 tax in both years] [added: business] | | [removed: —] [added: 10] | | | | [removed: (9] [added: —] | | [removed: )] | | [removed: (11] [added: (9] | | ) |

| Adjusted net income | | $ | [removed: 364] [added: 433] | | | $ | [removed: 336] [added: 364] | | | $ | [removed: 362] [added: 336] | |

| Weighted average number of shares [removed: - Diluted] [added: diluted] | | [removed: 180.0] [added: 180.9] | | | | [removed: 181.7] [added: 180.0] | | | | [removed: 184.2] [added: 181.7] | | |

| Earnings per share [added: - diluted] | | $ | [removed: 1.45] [added: 1.83] | | | $ | [removed: 1.87] [added: 1.45] | | | $ | [removed: 1.83] [added: 1.87] | |

| Adjusted earnings per share | | $ | [removed: 2.03] [added: 2.40] | | | $ | [removed: 1.85] [added: 2.03] | | | $ | [removed: 1.97] [added: 1.85] | |

| [removed: •] [added: ▪] | "operating expenses excluding restructuring and realignment costs, Sensus acquisition related costs and special charges" defined as operating expenses, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs and special charges. |

[removed: | • | "adjusted operating income (loss)" defined as operating income (loss), adjusted to exclude restructuring and realignment costs,] [added: Operating margin was positively impacted by decreases in] Sensus acquisition related [added: costs, restructuring and realignment] costs and special [removed: charges,] [added: charges of $10 million, $5 million] and [removed: "adjusted operating margin" defined as adjusted operating income divided by total revenue. |][added: $3 million, respectively.]

| [removed: •] [added: ▪] | “realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs. |

| [removed: •] [added: ▪] | "Sensus acquisition related costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include [removed: transaction costs,] integration costs, [removed: costs related to the recognition of inventory step-up and amortization of the backlog intangible asset recorded in purchase accounting.] [added: acquisition] |

| [removed: •] [added: ▪] | “special charges" defined as costs incurred by the Company, such as [added: non-cash impairment charges, due diligence costs, initial acquisition and integration costs not related to Sensus and other special non-operating items, as well as] interest expense related to the early extinguishment of debt [removed: during Q2 2016,] [added: and] financing costs [removed: related to] [added: on] the bridge loan entered into [removed: in Q3 2016] for the Sensus [removed: acquisition, initial] acquisition [removed: costs not related to Sensus, costs incurred for the contractual indemnification of tax obligations to ITT and other special non-operating items.] [added: during 2016.] |

| [removed: •] [added: ▪] | "tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments. |

| [removed: •] [added: ▪] | "free cash flow" defined as net cash from operating activities, as reported in the [removed: statement] [added: Statement] of [removed: cash flow,] [added: Cash Flow,] less capital [removed: expenditures,] [added: 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 [added: flow does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.] |

| (in millions) | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Net cash provided by operating activities | | $ | [removed: 497] [added: 686] | | | $ | [removed: 464] [added: 497] | | | $ | [removed: 416] [added: 464] | |

| Capital expenditures | | [removed: (124] [added: (170] | | ) | | [removed: (117] [added: (124] | | ) | | [removed: (119] [added: (117] | | ) |

| Free cash flow | | $ | [removed: 373] [added: 516] | | | $ | [removed: 347] [added: 373] | | | $ | [removed: 297] [added: 347] | |

| Cash paid for Sensus [removed: related] acquisition [added: related] costs | | [removed: 13] [added: 28] | | | | [removed: —] [added: 13] | | | | — | | |

| Free cash flow, excluding Sensus acquisition related costs | | $ | [removed: 386] [added: 544] | | | $ | [removed: 347] [added: 386] | | | $ | [removed: 297] [added: 347] | |

| [removed: •] [added: ▪] | “EBITDA” defined as earnings before interest, taxes, [removed: depreciation, amortization expense, and share-based compensation] [added: depreciation] and [added: amortization expense.] “Adjusted EBITDA” reflects [removed: the adjustment] [added: adjustments] to EBITDA to exclude [added: share-based compensation charges,] restructuring and realignment costs, Sensus acquisition related costs, gain [added: or loss] from sale of [removed: business] [added: businesses] and special charges. |

| Income tax expense | | [removed: 80] [added: 136] | | | | [removed: 63] [added: 80] | | | | [removed: 84] [added: 63] | | |

| Interest expense (Income), net | | [removed: 68] [added: 79] | | | | [removed: 53] [added: 68] | | | | [removed: 52] [added: 53] | | |

| Depreciation | | [removed: 87] [added: 109] | | | | [removed: 88] [added: 87] | | | | [removed: 95] [added: 88] | | |

| Amortization | | [removed: 64] [added: 125] | | | | [removed: 45] [added: 64] | | | | [removed: 47] [added: 45] | | |

| Restructuring and realignment | | [removed: 47] [added: 41] | | | | [removed: 20] [added: 47] | | | | [removed: 43] [added: 20] | | |

As previously announced, in the second quarter of 2017 we implemented an organizational redesign by moving Xylem’s Analytics business from our Water Infrastructure segment to combine it with our Sensus and Visenti businesses, which were acquired in the fourth quarter of 2016, to form Measurement & Control Solutions.

We believe that the combination of these businesses will enhance our focus on advanced sensing technologies and will lead to operating efficiencies by integrating the supply chain process and moving to a leaner functional structure.

Accordingly, our reportable segments have changed.

Beginning with the second quarter of 2017, the Company now reports the financial position and results of operations of its Analytics, Sensus and Visenti businesses as one new reportable segment, which is called Measurement & Control Solutions.

Our Water Infrastructure reportable segment no longer includes the results of our Analytics business.

The Company has recast certain historical amounts between the Company's Water Infrastructure and Measurement & Control Solutions reportable segments, however this change had no impact on the Company's historical consolidated financial position or results of operations.

The recast financial information does not represent a restatement of previously issued financial statements.

Our Applied Water reportable segment remains unchanged.

| Net income attributable to Xylem | | $ | 331 | | | $ | 260 | | | $ | 340 | |

| Loss (gain) from sale of businesses, net of tax benefit of $2 and net of tax of $0, respectively | | 12 | | | | — | | | | (9 | | ) |

costs, costs related to the recognition of the backlog intangible asset amortization and inventory step-up recoded in purchase accounting.

| EBITDA | | $ | 779 | | | $ | 559 | | | $ | 589 | |

| Share-based compensation | | 21 | | | | 18 | | | | 15 | | |

Revenue increased 23.9% on a constant currency basis mostly due to $790 million of revenue related to acquisitions and organic revenue growth of $122 million driven by growth in all end markets.

The increase in operating margin was primarily due to cost reductions resulting from progress in our global procurement and productivity initiatives, a decrease in Sensus acquisition related costs, restructuring savings and a decrease in restructuring and realignment charges.

These favorable impacts on operating margin were partially offset by cost inflation increases, Sensus purchase accounting impacts and an increase in special charges.

Adjusted operating income was $630 million, with an adjusted operating margin of 13.4% in 2017 as compared to adjusted operating income of $511 million with an adjusted operating margin of 13.6% in 2016.

The decrease in adjusted operating margin was mostly due to cost inflation increases, increased spending on strategic investments and Sensus purchase accounting impacts, which were largely offset by cost savings from our global procurement and productivity initiatives and restructuring savings.

The non-cash Sensus purchase accounting impact on adjusted operating margin for the year was 50 basis points, which if excluded would bring the adjusted operating margin to 13.9%, a 30 basis point increase over the prior year.

| • | Net income attributable to Xylem of $331 million, or $1.83 per diluted share ($433 million or $2.40 per diluted share on an adjusted basis, up 19% from 2016) |

We anticipate total revenue growth in the range of 8% to 10% in 2018, with the recently announced acquisition of Pure Technologies contributing approximately 2% of that growth.

Organic revenue growth is anticipated to be 4% to 6%.

| • | Public utilities increased approximately 3% for 2017 on an organic basis driven by growth in the United States and Asia Pacific. For 2018, we expect organic growth in the mid-single-digit range driven by solid growth in the U.S. from water and wastewater spending and stable low-single-digit growth in Europe. Additionally, we expect high-single-digit growth from the smart meter market. A healthy infrastructure investment focus in the emerging markets will continue broadly in China and India. |

| • | Industrial increased by roughly 2% for 2017 on an organic basis driven by growth in the emerging markets, specifically in China and Latin America, and a recovery in global oil and gas and mining markets. For 2018, we expect organic growth in the low to mid-single-digits. We believe that market conditions in the U.S. and Europe will continue to improve modestly and oil and gas and mining markets will continue to stabilize in North America. We expect conditions in the emerging markets to be mixed as strength in China and India will be offset by softening conditions in the Middle East and Latin America. |

| • | In the commercial markets, organic growth was around 5% for 2017 primarily driven by strength in the United States. For 2018, we expect continued organic growth in the low to mid-single-digit range. The U.S. market is expected to see low, stable growth while growth in Europe is expected to moderate after strong performance. Strength in the emerging markets will be driven by initiatives in India, the building market in China and large project wins in the Middle East from product localization. |

| • | In residential markets, organic growth increased by about 12% in 2017 primarily driven by strength in Asia Pacific and the United States. For 2018, we expect mid-single-digit growth primarily driven by solid mid-single-digit growth in the U.S. market. Market share gains from an increased selling focus in Europe, along with an increased demand in China and other Asia Pacific countries for a secondary clean water source, are also expected to contribute to this growth. |

We expect additional incremental savings to be realized in 2019 and beyond as we complete these actions.

We plan to continue to take actions and focus spending in 2018 on actions that allow us to make progress on our top strategic priorities.

The priority of accelerating profitable growth encompass our initiatives to drive commercial excellence, grow in emerging markets and strengthen innovation and technology through creation of new centers of excellence, a streamlined approach to product development and smart acquisitions.

The priority of driving continuous improvement is an area where we will continue to work to create new opportunities to unlock savings by eliminating waste and increasing efficiencies, which is supported by efforts to expand and further deepen our talent pool.

We plan to continue to deploy capital in smart, disciplined ways to develop and acquire solutions to address our customers’ challenges.

Finally, we continue to work to improve cash performance and generate capital to return to our shareholders.

| Special charges | | (11 | | ) | | (5 | | ) | | (5 | | ) | | 120.0 | % | | — | % |

2017 versus 2016

Revenue generated for 2017 was $4,707 million, an increase of $936 million, or 24.8%, compared to $3,771 million in 2016.

This increase in revenue was primarily driven by additional revenue of $790 million from acquisitions.

There was also strong organic growth of $122 million during the year, driven primarily by North America as well as strength in the emerging markets, particularly in China and India.

Additionally, to a lesser extent, Europe contributed to this organic growth despite ongoing weakness in the United Kingdom during the year.

| Organic Growth | 56 | | | 2.9 | % | | 34 | | | 2.4 | % | | 32 | | | 7.2 | % | | 122 | | | 3.2 | % |

| Acquisitions/(Divestitures) | — | | | — | % | | (10 | | ) | (0.7 | )% | | 790 | | | 177.1 | % | | 780 | | | 20.7 | % |

| | |

| --- | --- |

We consider the following non-GAAP

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

The following table provides a reconciliation of free cash flow.

| Stock compensation | | 18 | | | | 15 | | | | 18 | | |

| EBITDA | | $ | 577 | | | $ | 604 | | | $ | 633 | |

Revenue increased 5.3% on a constant currency basis due to increased revenue of $163 million from acquisitions and organic revenue growth of $29 million driven primarily by a robust public utility end market and a relatively stable commercial business.

| • | Net income of $260 million, or $1.45 per diluted share ($364 million or $2.03 per diluted share on an adjusted basis) |

We anticipate total revenue growth in the range of 20% to 22% in 2017 with organic revenue growth in the low-single-digits and Sensus contributing the additional revenue growth.

| • | Industrial was down 4% for 2016, including agriculture which will be included within industrial going forward, as general industrial strength was more than offset by oil and gas declines in Canada and the United States. For 2017, we expect growth to be flat to up in the low-single-digits. We believe the soft market conditions in general industrial that occurred in the U.S. during 2016 will carry into at least the first half of 2017, with modest growth returning over the second half. We continue to expect that the oil and gas markets will be down year-over-year, despite some pockets of higher activity. We expect Emerging Market performance to continue to be mixed with some strength in China and Latin America, offset by continued weakness in the Middle East. |

| • | Public utilities increased 8% for 2016 driven by the United States recovery and continued emerging markets investments. We expect growth to be moderate but still increase low to mid-single-digits. In the U.S., which represents approximately one-quarter of our public utility base, we anticipate solid repair and replacement, or opex, activity coupled with some acceleration of project activity later in the year. In Emerging Markets, we expect large project activities to drive growth particularly in China and India. We also anticipate continued growth in Europe, particularly in the United Kingdom with the third year of positive impacts from the AMP 6 cycle. Additionally, we anticipate Sensus public utility revenue to continue to grow at mid-to-high single digits over their historical performance driven by expected growth in the United States within smart metering applications. |

| • | Commercial experienced growth of 2% for 2016 driven by strength in the European market which was partially offset by weakness in the United States. We expect continued growth in the low-single-digit range for 2017. Market data suggests a low-growth environment in the U.S. where we have a leading market position and more than half of our total Commercial exposure. Beyond the U.S., the global outlook is mixed. We believe Europe will be closer to flat with lower construction activity and funding uncertainty in certain countries. Also, our business in Europe will face a tough prior year comparison to this year's 10% growth. China appears to be stabilizing and we expect the market to grow over a weak 2016 performance. |

| • | Residential markets were down 3% in 2016 with weakness across most regions. For 2017 we expect low- single-digit growth. In the U.S. we expect relatively flat year over year volumes given the competitive landscape and replacement nature of the sector we serve. The European market looks to be modestly stronger as residential building permitting, which is an indicator of sales, increased during the fourth quarter. |

Additional strategic actions we are taking include strategic initiatives to drive above-market growth, advance continuous improvement activities to increase productivity, focus on improving cash performance and drive a disciplined capital deployment strategy.

Additionally, with the acquisition of Sensus, we anticipate increased spending on research and development as a percentage of revenue as Sensus brings a higher profile of R&D given the investment required to support growth and new product launches.

| Gain from sale of business | | — | | | | 9 | | | | 11 | | | | (100.0 | )% | | (18.2 | )% |

*Sensus*

The Sensus segment, which we acquired in the fourth quarter of 2016, generated $132 million revenue during the final two months of the year.

The Sensus segment had orders of $147 million for the last two months of 2016.

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

These charges were incurred primarily in an effort to realign our organizational structure in Europe and North America to optimize our cost structure, including shutting down certain facilities.

The charges relate to the reduction in structural costs, including a decrease in headcount and consolidation of facilities.

These costs primarily comprise severance charges.

This increase in adjusted operating income was driven by strong progress in our productivity initiatives and cost saving

actions, which more than offset cost inflation, spending on strategic investments in new products and technologies and unfavorable mix.

| Adjusted operating margin | 15.2 | | % | | *14.2* | | *%* | | *100* | | *bp* |

| Sensus | | | | | | | | | | | |

Sensus had an operating loss of $17 million for the last two months of 2016.

This operating loss included $25 million of Sensus acquisition related costs and $1 million of restructuring charges.

Excluding these costs, adjusted operating income was $9 million.

2015 versus 2014

Revenue generated for 2015 was $3,653 million, a decrease of $263 million, or 6.7%, compared to $3,916 million in 2014.

This increase included strong organic revenue growth within emerging markets, particularly in China and India.

The United States and western Europe also grew organically, which was partially offset by declines in Canada.

In addition, the organic growth was partially offset by the divestiture of the Wolverhampton valves business early in the third quarter of 2014.

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 2014 Revenue | $ | 2,442 | | | | | $ | 1,474 | | | | | $ | 3,916 | | | |

We conduct approximately [removed: 58%] [added: 54%] of our business in various locations outside the United States.

Our principal foreign currency transaction exposures primarily relate to the [added: Euro,] Swedish Krona, Polish Zloty, Canadian Dollar, British Pound, and Australian Dollar.

The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, British Pound, Chinese Yuan, [removed: Swedish Krona,] Canadian [removed: Dollar] [added: Dollar, Swedish Krona] and Australian Dollar.

We estimate that a hypothetical 10% movement of the U.S. Dollar to the various foreign currency exchange rates we translate from, in the aggregate, could have approximately a 5% and [removed: 8%] [added: 6%] impact on Xylem's consolidated revenue and income, respectively, as reported in U.S. Dollars.

As of December 31, [removed: 2016,] [added: 2017,] our long term debt portfolio is primarily comprised of four series of fixed-rate senior notes that total [removed: $2.0] [added: $2.1] billion.

We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when it is cost effective to do so, though we continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities and reassess whether there is a need repatriate funds held internationally to support our U.S. operations.

Accordingly, we do not expect translation risk to have a material economic impact on our financial position and results of operations.

We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when it is cost effective to do so, though our intent is to indefinitely reinvest most of these funds outside of the U.S. As such, we do not expect translation risk to have a material economic impact on our financial position and results of operations.

Until the Company closes the refinancing of the notes due, we are exposed to interest rate risk that can potentially impact the planned issuance of debt instruments.

Xylem, with [removed: 2016] [added: 2017] revenue of [removed: $3.8] [added: $4.7] billion and approximately [removed: 16,000] [added: 16,200] employees, is a leading global water technology company.

We design, manufacture and service highly engineered solutions ranging across a wide variety of critical [removed: applications.][added: applications primarily in the water sector, but also in electric and gas.]

[removed: For example, our] [added: Our] broad portfolio of solutions addresses customer needs across the water cycle, from the [removed: delivery] [added: delivery, measurement] and use of drinking water to the [removed: collection] [added: collection, test] and treatment of wastewater to the return of water to the environment.

We have differentiated market positions in core application areas including transport, treatment, test, smart metering, [added: smart infrastructure analytics, condition assessment and leak detection,] building [removed: services, industrial processing] [added: services] and [removed: irrigation.][added: industrial processing.]

| • | Fortress brands with leading [removed: market] positions, some of which have been [removed: operating] [added: in use] for more than 100 years |

| • | Far-reaching global distribution networks consisting of direct sales forces and independent channel [removed: partners that collectively serve a diverse customer base in more than 150 countries] |

| • | A strong financial position and cash generation profile that [removed: enable] [added: enables] us to fund strategic organic and inorganic growth initiatives, and consistently return capital to shareholders |

Key [removed: tenets] [added: pillars] of our long-term strategy include (1) accelerate profitable growth; (2) increase profitability by driving continuous improvement initiatives; (3) leadership and talent development; and (4) focus on execution and accountability.

In the United States, deteriorating pipe [removed: systems lose] [added: systems, theft or inaccurate meters result in] approximately one out of every six gallons of water [added: being lost] between the treatment plant and the end [removed: customer part of a national (and global) problem of ‘non-revenue water’ that is a major financial challenge of many utilities.][added: customer.]

These [added: and other] challenges create opportunities for growth in the global water [removed: industry, which we estimate to have a total market size of approximately $550 billion.][added: industry.]

[removed: The Company’s] [added: Our] customers often face all three of these challenges, ranging from inefficient and aging water distribution networks (which require increases in “water productivity”); energy-intensive or unreliable wastewater management systems (which require increases in “water quality”); or exposure to natural disasters such as floods or droughts (which require increases in “resilience”).

Additionally, through the [removed: recent] [added: 2016] acquisition of Sensus, we [removed: now] also provide solutions to enhance efficiency, improve safety and conserve resources to customers in the [removed: electric] [added: electric, gas,] and [removed: gas] [added: lighting] sectors.

The water industry value chain [removed: is comprised of] [added: includes] Equipment and Services companies, like Xylem, which address the unique challenges and demands of a diverse customer base.

This customer base includes utilities that supply water through an infrastructure network, and engineering, procurement and construction or [removed: "EPC"] [added: (EPC)] firms, which work with utilities to design and build water and wastewater infrastructure networks, as depicted below.

In addition to utilities and EPC customers, Equipment and Service providers also provide distinct technologies to a wide array of entities, including farms, mines, power plants, industrial facilities and residential [removed: buildings.][added: and commercial customers seeking to address similar trends.]

[removed: ][added: ]

| ▪ | Innovation & Technology \- We seek to enhance [removed: the Company’s] [added: our] innovation efforts with increased focus on [added: smart] technologies and innovation that can significantly improve customers’ productivity, quality and resilience. |

| • | Drive Continuous Improvement. We seek to embed continuous improvement into our culture and simplify our organization to make the Company more agile, more profitable and create room to reinvest in growth. To accomplish this, we will continue to strengthen our lean six sigma and global procurement [removed: capabilities and continue] [added: capabilities, while also continuing] to optimize our cost structure through business simplification, [removed: eliminating] [added: which aims to eliminate] structural, process and product complexity. |

We have three reportable business segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied [removed: Water] [added: Water,] and [removed: Sensus.][added: Measurement & Control Solutions.]

[removed: See Note 20, “Segment and] Geographic Data,” in our consolidated financial statements for financial information about segments and geographic areas.

| | | Market Applications | | [removed: 2016] [added: 2017] Revenue (in millions) | | | | % Revenue | | | Major Products | | Primary Brands |

| Water Infrastructure | | Transport | | $ | [removed: 1,599] [added: 1,660] | | | [removed: 71] [added: 83] | % | | • Water and wastewater pumps • Filtration, disinfection and biological treatment equipment [removed: • Test equipment • Controls] | | • Flygt • [removed: Wedeco •] Godwin • [removed: WTW] [added: Wedeco] • Sanitaire • [removed: YSI •] Leopold |

| Applied Water | | [removed: Building Services] [added: Industrial Water] | | $ | [removed: 764] [added: 593] | | | [removed: 55] [added: 42] | % | | • Pumps • Valves • Heat exchangers • Controls • Dispensing equipment systems | | • Goulds Water Technology • Bell & Gossett • A-C Fire Pump • Standard Xchange • Lowara • Jabsco • Flojet [removed: • Flowtronex] |

| | [added: |] Electric | | [removed: 27] [added: 132] | | | | [removed: 20] [added: 10] | % | | | | | [removed: |]

| | Gas | | [removed: 16] [added: 134] | | | | [removed: 12] [added: 11] | % | | | | | |

Our Water Infrastructure segment supports the process that collects water from a [removed: source] [added: source, treats it] and distributes it to users, and then [added: treats and] returns the wastewater responsibly to the environment through [removed: three] [added: two] closely linked applications: [removed: *Transport*, *Treatment* and *Test*.][added: *Transport and* *Treatment*.]

The *Transport* application also includes sales and rental of specialty dewatering pumps and related equipment and services, which provide the safe removal or draining of groundwater and surface water from a riverbed, construction [removed: site] or [removed: mine shaft] [added: other industrial sites] and bypass pumping for the repair of aging public utility infrastructure, as well as emergency water removal during severe weather events.

The customer base consists of two primary end markets: [removed: public] [added: water] utility and industrial.

The [removed: public] [added: water] utility market includes public, private and public-private entities that support water and wastewater networks.

Both [removed: public] [added: water] utility and industrial facility customers increasingly require our teams’ global but locally proficient expertise to use our equipment in their specific applications.

Several trends are increasing [removed: the need] [added: demand] for this application expertise: (i) the increase in both the type and amount of contaminants found in the water supply, (ii) increasing environmental regulations, (iii) the need to increase system efficiencies to optimize energy costs, (iv) the retirement of a largely aging water industry workforce that has not been systematically replaced at utilities and other end-user customers, and (v) the build-out of water infrastructure in the [added: emerging markets.]

We estimate our served market size in this sector to be approximately [removed: $23] [added: $17] billion.

[removed: We differentiate ourselves in the market by focusing on product performance, reliability] and innovation, application expertise, brand reputation, energy efficiency, product life-cycle cost, timeliness of delivery, proximity of service centers, effectiveness of our distribution channels and price.

In the sale [added: or rental] of products and [added: provision of] services, we benefit from our large installed base, which requires maintenance, repair and replacement parts due to the critical application and nature of the products and the conditions under which they operate.

Our key competitors within the Water Infrastructure segment include KSB Inc., Sulzer Ltd., Evoqua Water [removed: Technologies] [added: Technologies, United Rentals] and Danaher Corporation.

Applied Water encompasses the uses of water and serves a diverse set of end markets including: residential, commercial, [removed: industrial] and [removed: agricultural.][added: industrial.]

In the Applied Water [removed: segment end-use areas] [added: segment, end markets] vary widely [removed: so] [added: and, as a result,] specialized distribution partners are often preferred.

[removed: Our products in] [added: As such,] the Applied Water segment [removed: are sold through our global direct] [added: provides the majority of its] sales [removed: and] [added: through] strong indirect channels with the [removed: majority of revenue] [added: remaining sales] going through [removed: indirect] [added: our global direct sales] channels.

Our ability to deliver innovative product offerings has [removed: allowed] [added: enabled] us to compete effectively, to cultivate and maintain customer relationships and to serve and expand into many niche and new markets.

[removed: Sensus] [added: Measurement & Control Solutions] develops advanced technology solutions that enable intelligent use and conservation of critical water and energy resources.

partners that collectively serve a diverse customer base in approximately 150 countries

The aggregate consideration paid for the acquisition was approximately $$1,766 million ($1,710 million net of cash acquired).

This problem of "non-revenue" water is a major financial challenge of many utilities globally, especially in developing markets where non-revenue water can represent 15% to 60% or more of net water produced.

We estimate the total addressable market size to be approximately $550 billion.

See Note 20, “Segment and

| | Treatment | | 344 | | | | 17 | % | | | | | |

| | | | | $ | 2,004 | | | 100 | % | | | | |

| | Commercial Building Services | | 568 | | | | 40 | % | | | | | |

| | Residential Building Services | | 260 | | | | 18 | % | | | | | |

| | | | | $ | 1,421 | | | 100 | % | | | | |

| Measurement & Control Solutions | | Water | | $ | 573 | | | 45 | % | | • Smart meters • Networked communication devices • Data analytics • Test equipment • Controls • Sensor Devices • Software & managed services | | • Sensus • Smith Blair • WTW • Visenti • YSI |

| | Test | | 325 | | | | 25 | % | | | | | |

| | | Software as a Service/Other | | 118 | | | | 9 | % | | | | |

| | | | | $ | 1,282 | | | 100 | % | | | | |

We differentiate ourselves in the market by focusing on product performance, reliability

Measurement & Control Solutions

We also provide analytical instrumentation used to measure water quality, flow and level in wastewater, surface water and coastal environments.

more developed markets.

| (in millions) | 2017 | | | | | | | 2016 | | | | | | | 2015 | | | | | |

Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts.

As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors.

The December 31, 2016 backlog balance has been revised to include contractual agreements that Sensus has with customers that do not have minimum commitments but which we believe will be executed upon over the terms of the contracts.

We continue to increase our R&D investments as a percentage of revenue year over year, with 3.8% in 2017 when compared to 2.9% in 2016 and 2.6% in 2015.

*Capitalized Software*

We capitalize software developed for sale to external customers, which is included within "Other intangible assets, net" on our Consolidated Balance Sheets.

As of December 31, 2017 and 2016 we had net capitalized software for sale to external customers of $89 million and $54 million, respectively.

As the portfolio of our patents, patent applications, and license

Commitment to Sustainability

At Xylem, sustainability is at the very center of who we are and what we do.

As a leading global water technology company, we deal with one of the world’s most urgent sustainability issues on a daily basis; responsible stewardship of our shared water resources.

We believe that technology is a key link in how the world can solve water.

We have a long history of innovation, but today, we’re focusing more than ever on the powerful capabilities of smart technology, integrated management and big data.

These solutions will allow us to transport, treat, test and use water smarter, and more sustainably, than in the past.

Our link to this enormous challenge informs how we think about sustainability and drives us to become a more sustainable company.

We have approximately 5,400 employees in the United States, of whom approximately 16% are represented by labor unions.

In certain foreign countries, our employees are represented by work councils.

The aggregate consideration paid for the acquisition was approximately $1.7 billion in cash, subject to certain adjustments as provided in the Purchase Agreement.

The consideration was funded with a combination of cash on hand, proceeds from issuances under the Company’s existing commercial paper program, borrowings under a new euro-denominated term loan and the issuance of $500 million aggregate principal amount of 3.250% Senior Notes due 2026 and $400 million aggregate principal amount of 4.375% Senior Notes due 2046.

| | | | | | | | | | | | | | |

| | Treatment | | 333 | | | | 15 | % | | | | | |

| | Test | | 314 | | | | 14 | % | | | | | |

| | | | | $ | 2,246 | | | 100 | % | | | | |

| | Industrial Water | | 540 | | | | 39 | % | | | | | |

| | Irrigation | | 89 | | | | 6 | % | | | | | |

| | | | | $ | 1,393 | | | 100 | % | | | | |

| Sensus | | Water | | $ | 74 | | | 56 | % | | • Smart meters • Networked communications software • Base stations • Regulators • Data analytics | | • Sensus • Smith Blair |

| | | Software and Services/Other | | 15 | | | | 11 | % | | | | |

| | | (a) | | $ | 132 | | | 100 | % | | | | |

| (a) | | Includes revenue from November 1, 2016 through December 31, 2016 | | | | | | | | | | | |

emerging markets.

Agricultural end users include owners and operators of crop and livestock farms, aquaculture, golf courses, and other turf applications.

Sensus

combination of blanket and scheduled purchase orders to support our materials requirements.

This increase is primarily attributable to the addition of Sensus who had a backlog balance of $385 million at December 31, 2016.

We invested $110 million, $95 million, and $104 million in R&D in 2016, 2015 and 2014, respectively.

protection.

We have more than 5,200 employees in the United States, of whom approximately 17% are represented by labor unions, and in certain foreign countries, some of our employees are represented by work councils.

| | | For the fiscal year ended December 31, [removed: 2016] [added: 2017] | | |

See definitions of “large accelerated filer,” “accelerated filer,” [removed: and] “smaller reporting [removed: company”] [added: company,” and "emerging growth company"] in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ Accelerated Filer ¨ Non-Accelerated Filer ¨ [added: (do not check if a smaller reporting company)] Smaller reporting company ¨ [added: Emerging growth company ¨]

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant as of June 30, [removed: 2016] [added: 2017] was approximately [removed: $8.0] [added: $10.0] billion.

As of February [removed: 17, 2017,] [added: 16, 2018,] there were [removed: 179,471,405] [added: 179,893,045] outstanding shares of the registrant’s common stock, par value $0.01 per share.

Portions of the registrant’s definitive proxy statement for its [removed: 2017] [added: 2018] Annual Meeting of Shareowners, to be held in May [removed: 2017,] [added: 2018,] are incorporated by reference into Part II and Part III of this Report.

For the fiscal year ended December 31, [removed: 2016][added: 2017]

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| 11 | [Executive [removed: Compensation](#s2D169B36FC4157DF93E701E49E533F35)] [added: Compensation](#s945A4B1C74E9556CB7EA223000BC236E)] | [removed: [98](#s2D169B36FC4157DF93E701E49E533F35)] [added: [108](#s945A4B1C74E9556CB7EA223000BC236E)] |

| 12 | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s64E1D2F790925DE68B1B7B2976677C98)] [added: Matters](#s669BEFF421EA5BF8AD4C87B5A12C2BAF)] | [removed: [98](#s64E1D2F790925DE68B1B7B2976677C98)] [added: [108](#s669BEFF421EA5BF8AD4C87B5A12C2BAF)] |

| 13 | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sC4093DFC354C5A6190AE40F2FD2A7B9F)] [added: Independence](#s0447ECBAFC5056ADBFCB5E41624062D3)] | [removed: [98](#sC4093DFC354C5A6190AE40F2FD2A7B9F)] [added: [108](#s0447ECBAFC5056ADBFCB5E41624062D3)] |

| 14 | [Principal Accounting Fees and [removed: Services](#s74A335E53E995BDEAB5BB0456EE4AAC1)] [added: Services](#s1CD3F401D7525081BF23A2D51F7B4740)] | [removed: [98](#s74A335E53E995BDEAB5BB0456EE4AAC1)] [added: [108](#s1CD3F401D7525081BF23A2D51F7B4740)] |

| 15 | [Exhibits, Financial Statement [removed: Schedules](#sCC4702A7D49C5ED0A7E89C57B11EB9AF)] [added: Schedules](#s92A82F47A32256EA9479BEE0BCB4B907)] | [removed: [99](#sCC4702A7D49C5ED0A7E89C57B11EB9AF)] [added: [109](#s92A82F47A32256EA9479BEE0BCB4B907)] |

Factors that could cause results to differ materially from those anticipated include: overall economic and business conditions, political and other risks associated with our international operations, including military actions, economic sanctions or trade embargoes that could affect customer markets, and non-compliance with laws, including foreign corrupt practice laws, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; [added: weather conditions;] ability to retain and attract key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate [removed: acquisitions, including the integration of Sensus;] [added: acquisitions;] our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; governmental investigations; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth below under “Item 1A.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

| 1 | [Business](#sF0A99F1F45625CDF91F60D34863B5823) | [3](#sF0A99F1F45625CDF91F60D34863B5823) |

| 2 | [Properties](#sCBD15BB37FBD5F24A48D6C2728618107) | [21](#sCBD15BB37FBD5F24A48D6C2728618107) |

| 16 | [Form 10-K Summary](#sAC0C8A600C1D5AC3BB4CBD795CB87E07) | [114](#sf3df5b8d625347209288b53f89b694d2) |

| | [Signatures](#s4DA93DDE96285249A786C66728000D97) | [114](#s4DA93DDE96285249A786C66728000D97) |

(Do not check if a smaller reporting company)

| 1 | [Business](#s4FD81B86532353F19E25835E87165D36) | [3](#s4FD81B86532353F19E25835E87165D36) |

| 2 | [Properties](#s3C7627A725D55B849E7EAA57A34CD9A2) | [20](#s3C7627A725D55B849E7EAA57A34CD9A2) |

| 16 | [Form 10-K Summary](#s2a5c0d89d4bc4fc999dfd303d0f5de62) | [99](#s2a5c0d89d4bc4fc999dfd303d0f5de62) |

| | [Signatures](#s7A832C6CA56C586B8A41F50765771F61) | [100](#s7A832C6CA56C586B8A41F50765771F61) |

| | [Exhibit Index](#s87149CD36DA0522AA67926931D58FB2D) | [101](#s87149CD36DA0522AA67926931D58FB2D) |

We have approximately [removed: 380] [added: 355] locations in more than [removed: 48] [added: 51] countries.

These properties total approximately [removed: 12.7] [added: 12.2] million square feet, of which more than [removed: 300] [added: 315] locations, or approximately [removed: 6.6] [added: 6.1] million square feet, are leased.

| Location | | State or Country | | Principal Business Activity | | Approx. Square Feet | | | Owned or [removed: Expiration Date of Lease] [added: Leased] |

| [removed: Water Infrastructure] | | | | [added: Water Infrastructure] | | | | | |

| [removed: Applied Water] | | | | [added: Applied Water] | | | | | |

| [removed: Regional Selling Locations] | | | | [added: Regional Selling Locations] | | | | | |

| [removed: Corporate Headquarters] | | | | [added: Corporate Headquarters] | | | | | |

| Stockerau | | Austria | | Administration | | 233,000 | | | Owned |

| Strzelin | | Poland | | Manufacturing | | 185,000 | | | Owned |

| | | | | Measurement & Control Solutions | | | | | |

| Sensus | | | | | | | | | |

The following information is provided regarding the executive officers of Xylem as of February 1, [removed: 2017:][added: 2018:]

| Patrick K. Decker | | [removed: 52] [added: 53] | | President and Chief Executive Officer (2014) | | • President and Chief Executive Officer, Harsco Corp. (diversified, worldwide industrial company) (2012) [removed: • President, Flow Control Segment, Tyco International Ltd. (industrial products and services company) (2003)] |

| E. Mark Rajkowski | | [removed: 58] [added: 59] | | Senior VP and Chief Financial Office (2016) | | • Senior VP and Chief Financial Officer, MeadWestvaco Corp. (worldwide packaging company) (2004) |

| Tomas Brannemo | | [removed: 45] [added: 46] | | Senior VP and President, Transport [removed: (2014)] [added: and Treatment (2017)] | | • [added: Senior VP and President, Transport (2014) •] VP, Transport (2013) [removed: • VP and Director of Business Unit Aftermarket and Service (2010)] |

| David Flinton | | [removed: 46] [added: 47] | | Senior VP and President, Dewatering (2015) | | • VP, Engineering and Marketing, Applied Water Systems (2013) [removed: • VP, Global Product Management, Applied Water Systems (2012) • VP, Strategy and Integrated Management System (former Water Solutions division) (2010)] |

| Pak Steven Leung | | [removed: 60] [added: 61] | | Senior VP and President, Emerging Markets (2015) | | • VP, Global Sales, Valves and Controls, Pentair Plc (diversified, worldwide industrial manufacturing company) (2013) [removed: • VP and General Manager, Global Process, Tyco International Ltd. (industrial products and services company) (2010)] |

| Kenneth Napolitano | | [removed: 54] [added: 55] | | Senior VP and President, Applied Water Systems [removed: (2012)] [added: and Americas Commercial Team (2017)] | | • Senior VP and President, [removed: Residential and Commercial] [added: Applied] Water [removed: (2011)] [added: Systems (2012)] |

| Colin R. Sabol | | [removed: 49] [added: 50] | | Senior VP and President, [removed: Analytics and Treatment (2015)] [added: Measurement & Control Solutions (2017)] | | • Senior VP and President, [removed: Dewatering (2013)] [added: Analytics and Treatment (2015)] • Senior VP and [removed: Chief Strategy and Growth Officer (2011)] [added: President, Dewatering (2013)] |

| Kairus Tarapore | | [removed: 55] [added: 56] | | Senior VP and Chief Human Resources Officer (2015) | | • Senior VP and Chief Administrative Officer, Babcock & Wilcox Company (energy and environmental technologies and services) (2013) [removed: • Executive VP, Human Resources, Ceridian Corporation (2006)] |

| Claudia S. Toussaint | | [removed: 53] [added: 54] | | Senior VP, General Counsel and Corporate Secretary (2014) | | • Senior VP, General Counsel and Secretary, Barnes Group Inc. (international industrial and aerospace manufacturing) (2012) [removed: • General Counsel, Flow Control Segment, Tyco International Ltd. (industrial products and services company) (2012) • Senior VP, General Counsel and Secretary, Barnes Group Inc. (international industrial and aerospace manufacturing) (2010)] |

The following information is provided regarding the Board of Directors of Xylem as of February 1, [removed: 2017:][added: 2018:]

| Jerome A. Peribere | | [added: Former] President and Chief Executive Officer, Sealed Air Corporation |

| Jeanne Beliveau-Dunn | | Vice President and General Manager, Cisco Systems, Inc. |

| | | | | | | |

| D. Randall Bays | | 61 | | Senior VP and President, Sensus (2016) | | • President, Sensus (worldwide smart meter company) (2013) • President and Chief Executive Officer, Kinetek Inc. (diversified, worldwide industrial company) (2004) |

| Edward J. Ludwig | | Former Chairman, President and Chief Executive Officer, Becton, Dickinson and Company |

[removed: *2016*] [added: *2017*] *and* [removed: *2015*] [added: *2016*] *Market Price and Dividends*

| Fiscal Year ended December 31, [removed: 2015] [added: 2017] | | | | | | | | | | | |

The closing price of our common stock on the NYSE on January 31, [removed: 2017] [added: 2018] was [removed: $49.31] [added: $72.26] per share.

As of January 31, [removed: 2017,] [added: 2018,] there were [removed: 12,632] [added: 11,681] holders of record of our common stock.

In the first quarter of [removed: 2017,] [added: 2018,] we declared a dividend of [removed: $0.18] [added: $0.21] per share to be paid on March 15, [removed: 2017] [added: 2018] for shareholders of record on February [removed: 16, 2017.][added: 15, 2018.]

There were no unregistered offerings of our common stock during [removed: 2016.][added: 2017.]

*Fourth Quarter* [removed: *2016*] [added: *2017*] *Share Repurchase Activity*

The following table summarizes our purchases of our common stock for the quarter ended December 31, [removed: 2016:][added: 2017:]

| (b) | On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during the three months ended December 31, [removed: 2016.] [added: 2017.] There are up to [removed: $420] [added: $413] million in shares that may still be purchased under this plan as of December 31, [removed: 2016.] [added: 2017.] |

[removed: ][added: ]

| First Quarter | $ | 50.66 | | | $ | 46.67 | | | $ | 0.1800 | |

| Second Quarter | 55.68 | | | | 48.81 | | | | 0.1800 | | |

| Third Quarter | 64.80 | | | | 54.08 | | | | 0.1800 | | |

| Fourth Quarter | 69.88 | | | | 62.24 | | | | 0.1800 | | |

| 10/1/17 - 10/31/17 | | — | | — | | — | | $413 |

| 11/1/17 - 11/30/17 | | — | | — | | — | | $413 |

| 12/1/17 - 12/31/17 | | — | | — | | — | | $413 |

This graph covers the period from December 31, 2012 through December 31, 2017 and assumes that $100 was invested on December 31, 2012 in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.

| December 31, 2012 | 100 | | | 100 | | | 100 | |

| December 31, 2013 | 130 | | | 132 | | | 141 | |

| December 31, 2014 | 145 | | | 150 | | | 154 | |

| December 31, 2015 | 141 | | | 153 | | | 150 | |

| December 31, 2016 | 194 | | | 171 | | | 179 | |

| December 31, 2017 | 271 | | | 208 | | | 215 | |

| First Quarter | $ | 38.59 | | | $ | 33.54 | | | $ | 0.1408 | |

| Second Quarter | 37.70 | | | | 34.80 | | | | 0.1408 | | |

| Third Quarter | 37.32 | | | | 29.90 | | | | 0.1408 | | |

| Fourth Quarter | 38.00 | | | | 32.16 | | | | 0.1408 | | |

| 10/1/16 - 10/31/16 | | — | | — | | — | | $432 |

| 11/1/16 - 11/30/16 | | — | | — | | — | | $433 |

| 12/1/16 - 12/31/16 | | — | | — | | — | | $432 |

On August 18, 2012, the Board of Directors authorized the repurchase of up to 2.0 million shares of common stock with no expiration date.

The program's objective is to offset dilution associated with various Xylem employee stock plans by acquiring shares in the open market from time to time.

There were no shares purchased under this program during the three months ended December 31, 2016 and there are 0.3 million shares (approximately $12 million based on the closing share price on December 31, 2016) that may still be purchased under this plan.

This graph covers the period from December 31, 2011 through December 31, 2016.

| December 31, 2011 | 106 | | | 105 | | | 108 | |

| December 31, 2012 | 114 | | | 121 | | | 124 | |

| December 31, 2013 | 148 | | | 161 | | | 175 | |

| December 31, 2014 | 165 | | | 183 | | | 192 | |

| December 31, 2015 | 161 | | | 186 | | | 187 | |

| December 31, 2016 | 221 | | | 208 | | | 222 | |

The following table sets forth selected consolidated financial data for the five years ended December 31, [removed: 2016.][added: 2017.]

| (in millions, except per share data) | [removed: 2016] [added: 2017] (a) | | | | [removed: 2015] [added: 2016 (a)] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| Revenue | $ | [removed: 3,771] [added: 4,707] | | | $ | [removed: 3,653] [added: 3,771] | | | $ | [removed: 3,916] [added: 3,653] | | | $ | [removed: 3,837] [added: 3,916] | | | $ | [removed: 3,791] [added: 3,837] | |

| Gross profit | [removed: 1,461] [added: 1,851] | | | | [removed: 1,404] [added: 1,461] | | | | [removed: 1,513] [added: 1,404] | | | | [removed: 1,499] [added: 1,513] | | | | [removed: 1,502] [added: 1,499] | | |

| *Gross margin* | [removed: 38.7] [added: 39.3] | | % | | [removed: *38.4*] [added: *38.7*] | | *%* | | [removed: *38.6*] [added: *38.4*] | | *%* | | [removed: *39.1*] [added: *38.6*] | | *%* | | [removed: *39.6*] [added: *39.1*] | | *%* |

| Operating income | [removed: 406] [added: 556] | | | | [removed: 449] [added: 406] | | | | [removed: 463] [added: 449] | | | | [removed: 363] [added: 463] | | | | [removed: 443] [added: 363] | | |

| *Operating margin* | [removed: 10.8] [added: 11.8] | | % | | [removed: *12.3*] [added: *10.8*] | | *%* | | [removed: *11.8*] [added: *12.3*] | | *%* | | [removed: *9.5*] [added: *11.8*] | | *%* | | [removed: *11.7*] [added: *9.5*] | | *%* |

| Net income [added: attributable to Xylem] | [removed: 260] [added: 331] | | | | [removed: 340] [added: 260] | | | | [removed: 337] [added: 340] | | | | [removed: 228] [added: 337] | | | | [removed: 297] [added: 228] | | |

| Basic | $ | [removed: 1.45] [added: 1.84] | | | $ | [removed: 1.88] [added: 1.45] | | | $ | [removed: 1.84] [added: 1.88] | | | $ | [removed: 1.23] [added: 1.84] | | | $ | [removed: 1.60] [added: 1.23] | |

| Diluted | [removed: 1.45] [added: 1.83] | | | | [removed: 1.87] [added: 1.45] | | | | [removed: 1.83] [added: 1.87] | | | | [removed: 1.22] [added: 1.83] | | | | [removed: 1.59] [added: 1.22] | | |

| Basic shares outstanding | [removed: 179.1] [added: 179.6] | | | | [removed: 180.9] [added: 179.1] | | | | [removed: 183.1] [added: 180.9] | | | | [removed: 185.2] [added: 183.1] | | | | [removed: 185.8] [added: 185.2] | | |

| Diluted shares outstanding | [removed: 180.0] [added: 180.9] | | | | [removed: 181.7] [added: 180.0] | | | | [removed: 184.2] [added: 181.7] | | | | [removed: 186.0] [added: 184.2] | | | | [removed: 186.2] [added: 186.0] | | |

| Cash dividends per share | $ | [removed: 0.6196] [added: 0.7200] | | | $ | [removed: 0.5632] [added: 0.6196] | | | $ | [removed: 0.5120] [added: 0.5632] | | | $ | [removed: 0.4656] [added: 0.5120] | | | $ | [removed: 0.4048] [added: 0.4656] | |

| Cash and cash equivalents | $ | [removed: 308] [added: 414] | | | $ | [removed: 680] [added: 308] | | | $ | [removed: 663] [added: 680] | | | $ | [removed: 533] [added: 663] | | | $ | [removed: 504] [added: 533] | |

| Working capital* | [removed: 878] [added: 873] | | | | [removed: 810] [added: 878] | | | | [removed: 882] [added: 810] | | | | [removed: 930] [added: 882] | | | | [removed: 859] [added: 930] | | |

| Total assets | [removed: 6,474] [added: 6,860] | | | | [removed: 4,657] [added: 6,474] | | | | [removed: 4,833] [added: 4,657] | | | | [removed: 4,857] [added: 4,833] | | | | [removed: 4,639] [added: 4,857] | | |

| Total debt | [removed: 2,368] [added: 2,200] | | | | [removed: 1,274] [added: 2,368] | | | | [removed: 1,284] [added: 1,274] | | | | [removed: 1,235] [added: 1,284] | | | | [removed: 1,197] [added: 1,235] | | |

| (a) | The amounts for the [removed: year] [added: years] ended December 31, [added: 2017 and December 31,] 2016 reflect the acquisition of Sensus. Refer to Notes 3 and 20 to Consolidated Financial Statements for further information regarding Sensus. |

| [Report of Independent Registered Public Accounting [removed: Firm](#sA5D3EE3A91F95A828A88C3050438A871)] [added: Firm](#sD5BE97A9961550C2BDA1C57E6DEB26F9)] | [removed: [49](#sA5D3EE3A91F95A828A88C3050438A871)] [added: [55](#sD5BE97A9961550C2BDA1C57E6DEB26F9)] |

| [Consolidated Income Statements for the Years Ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#s34FCFFFD30685C969E807A1823193568)] [added: 2015](#sA4D02D3884DC5E8AA454589646E2BB36)] | [removed: [50](#s34FCFFFD30685C969E807A1823193568)] [added: [56](#sA4D02D3884DC5E8AA454589646E2BB36)] |

| [Consolidated Statements of Comprehensive Income for the Years Ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#s34F91FC2A7EB573C808CFF6AD74C96E9)] [added: 2015](#sB84EF03E059D593288E603E5E42DACC5)] | [removed: [51](#s34F91FC2A7EB573C808CFF6AD74C96E9)] [added: [57](#sB84EF03E059D593288E603E5E42DACC5)] |

| [Consolidated Balance Sheets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015](#s640AB909468F5ED0A105C0C290DB22FF)] [added: 2016](#sBC5FE5F6349B59D687FE145A4CF530A2)] | [removed: [52](#s640AB909468F5ED0A105C0C290DB22FF)] [added: [58](#sBC5FE5F6349B59D687FE145A4CF530A2)] |

| [Consolidated Statements of Cash Flows for the Years Ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#s416B9B906AC15CF69383DCFF5EB078C8)] [added: 2015](#s1FBA40F2BF8B5EE791E0CB9E5AE05CA1)] | [removed: [53](#s416B9B906AC15CF69383DCFF5EB078C8)] [added: [59](#s1FBA40F2BF8B5EE791E0CB9E5AE05CA1)] |

| [Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#s8EA38DEABF435B93B0AFC9696D9768AE)] [added: 2015](#sD5EF6D6603805B7B9CDFF943CD8BD394)] | [removed: [54](#s8EA38DEABF435B93B0AFC9696D9768AE)] [added: [60](#sD5EF6D6603805B7B9CDFF943CD8BD394)] |

| [Note 1 Summary of Significant Accounting [removed: Policies](#sDFACBC5A67C55F16BAA23F9623CF559E)] [added: Policies](#sF01D79EE16385C7281C06120DA7381F5)] | [removed: [55](#sDFACBC5A67C55F16BAA23F9623CF559E)] [added: [61](#sF01D79EE16385C7281C06120DA7381F5)] |

| [Note 2 Recently Issued Accounting [removed: Pronouncements](#s481CE855D6785211A9B5959639530DB4)] [added: Pronouncements](#sA16F80E71DC1513498CCAED88512854C)] | [removed: [61](#s481CE855D6785211A9B5959639530DB4)] [added: [67](#sA16F80E71DC1513498CCAED88512854C)] |

| [Note 3 Acquisitions and [removed: Divestitures](#sBA81A5D9113A556F9D4085598F94E13D)] [added: Divestitures](#s958EF5B737095BD284096D18C439C4DA)] | [removed: [63](#sBA81A5D9113A556F9D4085598F94E13D)] [added: [70](#s958EF5B737095BD284096D18C439C4DA)] |

| [Note 4 Restructuring and Asset Impairment [removed: Charges](#sC28810EE892E5DFF9DB6B4AF90B1A538)] [added: Charges](#sF122F52A3C265A3084C928A9652FA31C)] | [removed: [66](#sC28810EE892E5DFF9DB6B4AF90B1A538)] [added: [73](#sF122F52A3C265A3084C928A9652FA31C)] |

| [Note 5 Other Non-Operating Income, [removed: Net](#sE4BDF3D43D145509A95CCD79E9144A60)] [added: Net](#s4F62C4DEDBD45DA19A6B5E12FB8FFC2A)] | [removed: [68](#sE4BDF3D43D145509A95CCD79E9144A60)] [added: [75](#s4F62C4DEDBD45DA19A6B5E12FB8FFC2A)] |

| [Note 6 Income [removed: Taxes](#s86B88437A22E5BD6BFE4D6EEFC8CEC9E)] [added: Taxes](#s56741BFAB8245CC58B643DA1B2E4307E)] | [removed: [68](#s86B88437A22E5BD6BFE4D6EEFC8CEC9E)] [added: [75](#s56741BFAB8245CC58B643DA1B2E4307E)] |

| [Note 7 Earnings Per [removed: Share](#sCF67D5CA246851E7A49A4B0072831536)] [added: Share](#s98DB4F2A053A52F4BC793BE252BFB91E)] | [removed: [70](#sCF67D5CA246851E7A49A4B0072831536)] [added: [80](#s98DB4F2A053A52F4BC793BE252BFB91E)] |

| [Note 8 [removed: Inventories](#s88C111118B4B5E0CA668C13A09504E1F)] [added: Inventories](#s5F9411F8E30B52D39466FBFDE325EFBA)] | [removed: [71](#s88C111118B4B5E0CA668C13A09504E1F)] [added: [80](#s5F9411F8E30B52D39466FBFDE325EFBA)] |

| [Note 9 Property, Plant and [removed: Equipment](#sEB2D0A0E8590531FBA216BD96AE69068)] [added: Equipment](#s8F6AE80956C75C6B88E4F2977B089418)] | [removed: [72](#sEB2D0A0E8590531FBA216BD96AE69068)] [added: [81](#s8F6AE80956C75C6B88E4F2977B089418)] |

| [Note 10 Goodwill and Other Intangible [removed: Assets](#sF00053D58E66548494BC5BBDB36866C2)] [added: Assets](#s3D6C071F73055757801BEED43B3F37CF)] | [removed: [72](#sF00053D58E66548494BC5BBDB36866C2)] [added: [81](#s3D6C071F73055757801BEED43B3F37CF)] |

| [Note 11 Derivative Financial [removed: Instruments](#sB9E9D01CC7C55EB8AC0B7742EA892414)] [added: Instruments](#s765A13E9D60254D6B7C475ACB7AD0E9B)] | [removed: [73](#sB9E9D01CC7C55EB8AC0B7742EA892414)] [added: [82](#s765A13E9D60254D6B7C475ACB7AD0E9B)] |

| [Note 12 Accrued and Other Current [removed: Liabilities](#s334BC5995A155127915C4C1B8CB51A04)] [added: Liabilities](#s52C41E5C5C73501481785B0004F89153)] | [removed: [75](#s334BC5995A155127915C4C1B8CB51A04)] [added: [85](#s52C41E5C5C73501481785B0004F89153)] |

| [Note 13 Credit Facilities and Long-Term [removed: Debt](#s0E9FC05475A85FC98B5573D3CE5A7E40)] [added: Debt](#sBE26C4F0F41D55C49C20BF85E774EBA8)] | [removed: [76](#s0E9FC05475A85FC98B5573D3CE5A7E40)] [added: [85](#sBE26C4F0F41D55C49C20BF85E774EBA8)] |

| [Note 14 Postretirement Benefit [removed: Plans](#s1EF719D127505340B78C2C68231CF44D)] [added: Plans](#s3C64903031A858DEBF53EA4E9194DBDE)] | [removed: [78](#s1EF719D127505340B78C2C68231CF44D)] [added: [87](#s3C64903031A858DEBF53EA4E9194DBDE)] |

| [Note 15 Stock-Based Compensation [removed: Plans](#sED5C7A544BCE575AA8FF7D65442254B4)] [added: Plans](#sB90ABF74CAE95BCAA5851414CDEF9CF2)] | [removed: [85](#sED5C7A544BCE575AA8FF7D65442254B4)] [added: [95](#sB90ABF74CAE95BCAA5851414CDEF9CF2)] |

| [Note 16 Capital [removed: Stock](#sA3D7EE389E3C58FD8193EFF8BC339C1B)] [added: Stock](#sC51AC9178DD55DE3B9497F6802FF2ED9)] | [removed: [88](#sA3D7EE389E3C58FD8193EFF8BC339C1B)] [added: [97](#sC51AC9178DD55DE3B9497F6802FF2ED9)] |

| [Note 17 Accumulated Other Comprehensive Income [removed: (Loss)](#sBAFA57DABD0C54AAAF473FA21C7CE797)] [added: (Loss)](#s2E17BFFD08FB522ABCF4D0C49C825142)] | [removed: [89](#sBAFA57DABD0C54AAAF473FA21C7CE797)] [added: [99](#s2E17BFFD08FB522ABCF4D0C49C825142)] |

| [Note 18 Commitment and [removed: Contingencies](#s855B580C830D5514976D5D38DD1F50D0)] [added: Contingencies](#s0B66B044751F5E91AD2305ADED48BC8E)] | [removed: [90](#s855B580C830D5514976D5D38DD1F50D0)] [added: [100](#s0B66B044751F5E91AD2305ADED48BC8E)] |

| [Note 19 Related Party [removed: Transactions](#sCE3A115F0F58586B9BA040BE86754255)] [added: Transactions](#s02EDDAC6B62C5CAA8FE41D5BCD471728)] | [removed: [92](#sCE3A115F0F58586B9BA040BE86754255)] [added: [102](#s02EDDAC6B62C5CAA8FE41D5BCD471728)] |

| [Note 20 Segment and Geographic [removed: Data](#s7F03AE93508259D883094FB7294E7692)] [added: Data](#sFAEBC5CF3D645963B3122BD84BFCD05A)] | [removed: [93](#s7F03AE93508259D883094FB7294E7692)] [added: [103](#sFAEBC5CF3D645963B3122BD84BFCD05A)] |

| [Note 21 Valuation and Qualifying [removed: Accounts](#s799D7ECDE4145E25A47DC4BAF3FE47A6)] [added: Accounts](#s5B99217E6EDD5D159C23B361BC12F66C)] | [removed: [95](#s799D7ECDE4145E25A47DC4BAF3FE47A6)] [added: [105](#s5B99217E6EDD5D159C23B361BC12F66C)] |

| [Note 22 Quarterly Financial [removed: Data](#s78008460685457E4A2D2222B034EF1CF)] [added: Data](#sE0834642E95C50C7A8C4AFE1CA015FFF)] | [removed: [95](#s78008460685457E4A2D2222B034EF1CF)] [added: [105](#sE0834642E95C50C7A8C4AFE1CA015FFF)] |

We have audited the accompanying consolidated balance sheets of Xylem Inc. and subsidiaries (the "Company") as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of income, comprehensive income, stockholders' equity, and cash [removed: flows] [added: flows,] for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, and the related notes (collectively referred to as the “financial statements”).]

Our responsibility is to express an opinion on the [added: Company’s] financial statements based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, [removed: such consolidated] [added: the] financial statements present fairly, in all material respects, the financial position of [removed: Xylem Inc. and subsidiaries] [added: the Company] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of their operations and their cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the Company's internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on the criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, [removed: 2017] [added: 2018,] expressed an unqualified opinion on the Company's internal control over financial reporting.

| Year Ended December 31, | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Revenue | $ | [removed: 3,771] [added: 4,707] | | | $ | [removed: 3,653] [added: 3,771] | | | $ | [removed: 3,916] [added: 3,653] | |

| Cost of revenue | [removed: 2,310] [added: 2,856] | | | | [removed: 2,249] [added: 2,310] | | | | [removed: 2,403] [added: 2,249] | | |

| Gross profit | [removed: 1,461] [added: 1,851] | | | | [removed: 1,404] [added: 1,461] | | | | [removed: 1,513] [added: 1,404] | | |

| [Note 23 Subsequent Events](#s5277FDEEC7AA5EB480A4B489350439F9) | [105](#sE0834642E95C50C7A8C4AFE1CA015FFF) |

Opinion on the Financial Statements

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We have served as the Company's auditor since 2010.

| Restructuring and asset impairment charges | 25 | | | | 30 | | | | 6 | | |

| Less: Net loss attributable to non-controlling interests | (1 | | ) | | — | | | | — | | |

| Net income attributable to Xylem | $ | 331 | | | $ | 260 | | | $ | 340 | |

| Unrealized gain (loss) | 9 | | | | — | | | | (22 | | ) |

| December 31, | 2017 | | | | 2016 | | |

| Year Ended December 31, | 2017 | | | | 2016 | | | | 2015 | | |

| Restructuring and asset impairment charges | 25 | | | | 30 | | | | 6 | | |

| Cash received from investments | 10 | | | | — | | | | — | | |

| Cash paid for investments | (11 | | ) | | — | | | | — | | |

| Cumulative effect of change in accounting principle | | | | | | | | | (7 | | ) | | | | | | | | | | | | | | (7 | | ) |

| Balance at December 31, 2017 | $ | 2 | | | $ | 1,912 | | | $ | 1,227 | | | $ | (210 | ) | | $ | (428 | ) | | $ | 16 | | | $ | 2,519 | |

As previously announced, in the second quarter of 2017 we implemented an organizational redesign by moving Xylem’s Analytics business from our Water Infrastructure segment to combine it with our Sensus and Visenti businesses, which were acquired in the fourth quarter of 2016, to form Measurement & Control Solutions.

We believe that the combination of these businesses will enhance our focus on advanced sensing technologies and will lead to operating efficiencies by integrating the supply chain process and moving to a leaner functional structure.

Accordingly, our reportable segments have changed.

Beginning with the second quarter of 2017, the Company now reports the financial position and results of operations of its Analytics, Sensus and Visenti businesses as one new reportable segment, which is called Measurement & Control Solutions.

Our Water Infrastructure reportable segment no longer includes the results of our Analytics business.

The Company has recast certain historical amounts between the Company's Water Infrastructure and Measurement & Control Solutions reportable segments, however this change had no impact on the Company's historical consolidated financial position or results of operations.

The recast financial information does not represent a restatement of previously issued financial statements.

Our Applied Water reportable segment remains unchanged.

The Measurement & Control Solutions segment focuses on developing advanced technology solutions that enable intelligent use and conservation of critical water and energy resources as well as analytical instrumentation used in the testing of water.

The Measurement & Control Solutions segment's major products include smart metering, networked communications, measurement and control technologies, software and services including cloud-based analytics, remote monitoring and data management, leak detection and pressure monitoring solutions and testing equipment.

For performance awards, the calculated compensation cost is adjusted based on an estimate of awards ultimately expected to vest and

Due to U.S. Tax Reform, we have recorded provisional amounts of foreign withholding taxes and state income taxes on earnings that are expected to be repatriated to the U.S. parent.

The Company intends to distribute a portion of the earnings taxed under the Tax Cuts and Jobs Act (the "Tax Act").

We have not recorded any deferred taxes on the amounts that the Company currently does not intend to distribute as the determination of any deferred taxes on this amount is not practicable.

The liability

Intangible assets include customer relationships, proprietary technology,

In February 2018, the Financial Accounting Standards Board (“FASB”) issued amended guidance on the reclassification of certain tax impacts from Accumulated Other Comprehensive Income ("AOCI").

The amendment allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act.

The guidance also requires certain disclosures related to stranded tax effects.

This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods.

The guidance may be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized.

In August 2017, the FASB issued amended guidance on hedging activities.

The amendment better aligns a company’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying for hedging relationships and the presentation of hedge results.

February 23, 2017

| Unrealized losses | — | | | | (22 | | ) | | (22 | | ) |

| Balance at December 31, 2013 | $ | 2 | | | $ | 1,753 | | | $ | 405 | | | $ | 167 | | | $ | (86 | ) | | $ | — | | | $ | 2,241 | |

In 2014, we implemented an organizational redesign to integrate our commercial teams within geographical regions.

While this organizational redesign did not change our reportable segments, it had implications on how we manage our business.

These changes and the related measurement system were effective in the fourth quarter 2014 and as a result, we commenced reporting our financial performance at such time based on the new organizational design.

ice volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features.

Our effective tax rate reflects the impact of certain undistributed foreign earnings for which we have not provided U.S. taxes because we plan to reinvest such earnings indefinitely outside the United States.

We plan foreign earnings remittance amounts based on projected cash flow needs, as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations.

Based on these assumptions, we estimate the amount we will distribute to the United States and provide the U.S. federal taxes due on these amounts.

Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate.

For goodwill, the impairment test is a two-step test.

The amended guidance eliminates step two of the impairment test and allows an entity to record an impairment charge equal to the amount that the fair value of the applicable reporting unit exceeds its carrying amount, up to the value of the recorded goodwill.

The impact of this guidance on our financial condition and results of operations will only apply if the Company’s goodwill is determined to be impaired in future annual tests.

not been issued or made available for issuance.

Sensus is a leading, global technology provider of advanced utility infrastructure solutions and services.

The Company delivers communications, metering, measurement, control and analysis technology that enables companies to more effectively use their distribution networks for the delivery of resources such as water, electricity and natural gas.

In addition, Sensus produces pipe joining and repair products for water and natural gas utilities and is a supplier of precision-manufactured thin-wall, low-porosity aluminum die castings.

| | | | |

| --- | --- | --- | --- |

| Receivables | 105 | | |

| Goodwill | 1,062 | | |

| (a) | Total consideration includes $1,760 million paid at closing and $6 million payable to former owners. |

The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation.

These adjustments will primarily relate to property, plant and equipment, intangible assets, certain liabilities, and income tax related items.

The final determination of the fair value of certain assets and liabilities will be completed as soon as the necessary information is available but no later than one year from the acquisition date.

| Total | | | | $ | 787 | |

2014 Divestiture

On July 2, 2014, we divested our Wolverhampton, U.K.-based pneumatic and hydraulic valves business for approximately $30 million.

| Fixed asset write-offs | | 1 | | | | — | | | | — | | |

| Sensus | | 1 | | | | — | | | | — | | |

| Sensus | | 1 | | | | — | | |

Total expected costs associated with actions that commenced during 2016 are approximately $19 million for

Water Infrastructure, these costs primarily consist of severance charges.

Approximately $16 million of the expected cost was incurred in 2016.

We currently expect activity related to these actions to continue through the end of 2017.

Total expected costs associated with actions that commenced during 2016 are approximately $13 million for Applied Water, these costs primarily consist of severance charges.

Approximately $10 million of the expected cost was incurred in 2016.

Total expected costs associated with actions commenced during 2016 are approximately $2 million for Sensus, these costs primarily consist of severance charges.

Approximately $1 million of the expected cost was incurred in 2016.

Our management, with the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the Company, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the year ended December 31, [removed: 2016] [added: 2017] pursuant to Rule 13a-15(b) and 15d-15(e) of the Securities Exchange Act of 1934 (“the Exchange Act”).

Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures as of the year ended December 31, [removed: 2016] [added: 2017] were effective, in all material respects, and designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

The Company's management, including the CEO and CFO, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, [removed: 2016] [added: 2017] based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission (2013).

Based on our assessment, the Company's management has concluded that our internal control over financial reporting was effective as of December 31, [removed: 2016.][added: 2017.]

The effectiveness of the Company's internal control over financial reporting as of December 31, [removed: 2016] [added: 2017] has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears following Item 9B of this Annual Report on Form 10-K.

There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended December 31, [removed: 2016] [added: 2017] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2016 excluded Sensus Worldwide ("Sensus"), which was acquired by the Company on October 31, 2016.

Sensus is a wholly-owned subsidiary of the Company whose total assets and total net sales represented less than 36% of consolidated total assets and less than 4% of consolidated net sales, respectively, of the Company as of and for the year ended December 31, 2016.

As permitted by guidelines established by the Securities and Exchange Commission, companies are allowed to exclude certain acquisitions from their assessments of internal control over financial reporting during the first year of an acquisition while integrating the acquired companies.

[removed: We have audited the internal control over financial reporting of Xylem Inc. and subsidiaries (the "Company") as of] December 31, [removed: 2016,] [added: 2017,] based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission.][added: Commission (COSO).]

The [removed: Company's] [added: Company’s] management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying [removed: *Management's Annual] [added: Management’s] Report on Internal Control Over Financial [removed: Reporting*.][added: Reporting.]

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

A [removed: company's] [added: company’s] internal control over financial reporting is a process designed [removed: by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Also, projections of any evaluation of [removed: the] effectiveness [removed: of the internal control over financial reporting] to future periods are subject to the risk that [removed: the] controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on [removed: the] criteria established in *Internal Control - Integrated Framework (2013)* issued by [removed: the Committee of Sponsoring Organizations of the Treadway Commission.][added: COSO.]

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the consolidated financial statements as of and for the year ended December 31, [removed: 2016] [added: 2017, and the related notes (collectively referred to as the “financial statements”),] of the Company and our report dated February 23, [removed: 2017] [added: 2018,] expressed an unqualified opinion on those financial statements.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Xylem Inc. and subsidiaries (the "Company") as of

Basis of Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

February 23, 2018

As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Sensus Worldwide (“Sensus”), which was acquired by the Company on October 31, 2016.

Sensus is a wholly-owned subsidiary of the Company whose total assets and total net sales represented less than 36% of consolidated total assets and less than 4% of consolidated net sales, respectively, of the Company as of and for the year ended December 31, 2016.

Accordingly, our audit did not include the internal control over financial reporting at Sensus.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.

February 23, 2017

The information required by this Item is incorporated herein by reference to the information in our Definitive Proxy Statement to be filed with the SEC in connection with our [removed: 2017] [added: 2018] Annual Meeting of Shareholders (the [removed: “2017] [added: “2018] Proxy Statement”) under the captions “Proposal 1 - Election of Directors,” "Identifying and Evaluating Director Nominees," "Board Committees - Audit Committee" and “Section 16(a) Beneficial Ownership Reporting Compliance.”

The information required by this Item is incorporated herein by reference to the information in our [removed: 2017] [added: 2018] Proxy Statement set forth under captions “Executive Compensation," "Director Compensation", "Board Committees - Leadership Development and Compensation Committee" and “Leadership Development and Compensation Committee Report.”

The information required by this Item is incorporated herein by reference to the information in our [removed: 2017] [added: 2018] Proxy Statement set forth under the captions “Stock Ownership of Directors, Executive Officers and Certain Beneficial Owners” and "Equity Compensation Plan Information."

The information required by this Item is incorporated herein by reference to the information in our [removed: 2017] [added: 2018] Proxy Statement set forth under the captions "Governance - Director Independence" and “Governance - Related Party Transactions.”

The information required by this Item is incorporated herein by reference to the information in our [removed: 2017] [added: 2018] Proxy Statement set forth under the captions “Fees of Audit and Other Services Fees” and "Pre-Approval of Audit and Non-Audit Services."

PART IV

| Exhibit Number | [added: |] Description | Location |

| [removed: (2.1)] [added: [2.1](http://www.sec.gov/Archives/edgar/data/216228/000095012311093025/y92712exv10w1.htm)] | [added: |] Distribution Agreement, dated as of October 25, 2011, among ITT Corporation, Exelis Inc. and Xylem Inc. | Incorporated by reference to Exhibit 10.1 of ITT Corporation’s Form 10-Q Quarterly Report filed on October 28, 2011 (CIK No. 216228, File No. 1-5672). |

| [removed: (2.2)] [added: [2.2](http://www.sec.gov/Archives/edgar/data/1524472/000119312516681898/d242351dex21.htm)] | [added: |] Share Purchase Agreement, dated as of August 15, 2016, by and among Xylem Inc., Xylem Luxembourg S.à r.l., Sensus Worldwide Limited, Sensus Industries Limited, and Sensus USA Inc. | Incorporated by reference to Exhibit 2.1 to Xylem Inc.’s Current Report on Form 8-K filed on August 15, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (2.3)] [added: [2.3](http://www.sec.gov/Archives/edgar/data/1524472/000119312516754536/d284307dex22.htm)] | [added: |] First Amendment to Share Purchase Agreement, dated as of October 31, 2016, by and among Xylem Inc., Xylem Luxembourg S.à r.l., Sensus Worldwide Limited, Sensus Industries Limited, and Sensus USA Inc. | Incorporated by reference to Exhibit 2.2 to Xylem Inc.’s Current Report on Form 8-K filed on October 31, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (3.1)] [added: [3.1](http://www.sec.gov/Archives/edgar/data/1524472/000152447217000027/a8-k31xcharter.htm)] | [removed: Third] [added: | Fourth] Amended and Restated Articles of Incorporation of Xylem Inc. | Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form [removed: 10-Q] [added: 8-K] filed on [removed: July 29, 2014] [added: May 15, 2017] (CIK No. [removed: 131190969,] [added: 1524472,] File No. 1-35229). |

| [removed: (3.2)] [added: [3.2](http://www.sec.gov/Archives/edgar/data/1524472/000152447217000027/a8-k31xcharter.htm)] | [added: | Fourth] Amended and Restated By-laws of Xylem Inc. | Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 8-K filed on [removed: February 25, 2016] [added: May 15, 2017] (CIK No. 1524472, File No. 1-35229). |

| [removed: (4.1)] [added: [4.1](http://www.sec.gov/Archives/edgar/data/216228/000095012311085776/y92722exv4w2.htm)] | [added: |] Indenture, dated as of September 20, 2011, between Xylem Inc., ITT Corporation, as initial guarantor, and Union Bank, N.A., as trustee. | Incorporated by reference to Exhibit 4.2 of ITT Corporation’s Form 8-K Current Report filed on September 21, 2011 (CIK No. 216228, File No. 1-5672). |

| [removed: (4.2)] [added: [4.2](http://www.sec.gov/Archives/edgar/data/1524472/000119312516501188/d161514dex41.htm)] | [added: |] Senior Indenture, dated March 11, 2016, by and between the Company and Deutsche Bank Trust Company Americas, as trustee. | Incorporated by reference to Exhibit 4.1 of Xylem Inc.’s Form 8-K filed on March 11, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (4.3)] [added: [4.3](http://www.sec.gov/Archives/edgar/data/1524472/000119312516501188/d161514dex41.htm)] | [added: |] First Supplemental Indenture, dated March 11, 2016, by and between the Company and Deutsche Bank Trust Company Americas, as trustee. | Incorporated by reference to Exhibit 4.1 of Xylem Inc.’s Form 8-K filed on March 11, 2016 (CIK No. 1524472, File No. 1-35229) |

| [removed: (4.4)] [added: [4.4](http://www.sec.gov/Archives/edgar/data/1524472/000119312516501188/d161514dex41.htm)] | [added: |] Second Supplemental Indenture, dated March 11, 2016, by and between the Company and Deutsche Bank Trust Company Americas, as trustee. | Incorporated by reference to Exhibit 4.1 of Xylem Inc.’s Form 8-K filed on March 11, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (4.5)] [added: [4.5](http://www.sec.gov/Archives/edgar/data/1524472/000119312516735781/d271767dex41.htm)] | [added: |] Third Supplemental Indenture, dated October 11, 2016, by and between the Company and Deutsche Bank Trust Company Americas, as trustee. | Incorporated by reference to Exhibit 4.1 of Xylem Inc.’s Form 8-K filed on October 11, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (4.6)] [added: [4.6](http://www.sec.gov/Archives/edgar/data/1524472/000119312512246735/d349882ds4.htm)] | [added: |] Form of Xylem Inc. 4.875% Senior Notes due 2021. | Incorporated by reference to Exhibit 4.6 of Xylem Inc.'s Form S-4 Registration Statement filed on May 24, 2012 (CIK No. 1524472, File No. 333-181643). |

| [removed: (4.7)] [added: [4.7](http://www.sec.gov/Archives/edgar/data/1524472/000119312516501188/d161514dex43.htm)] | [added: |] Form of Xylem Inc. 2.250% Senior Notes due 2023. | Incorporated by reference to Exhibit 4.3 of Xylem Inc.’s Current Report on Form 8-K dated March 11, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (4.8)] [added: [4.8](http://www.sec.gov/Archives/edgar/data/1524472/000119312516735781/d271767dex41.htm)] | [added: |] Form of Xylem Inc. 3.250% Senior Notes due 2026. | Incorporated by reference to Exhibit 4.1 of Xylem Inc.’s Form 8-K filed on October 11, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (4.9)] [added: [4.9](http://www.sec.gov/Archives/edgar/data/1524472/000119312516735781/d271767dex41.htm)] | [added: |] Form of Xylem Inc. 4.375% Senior Notes due 2046. | Incorporated by reference to Exhibit 4.1 of Xylem Inc.’s Form 8-K filed on October 11, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.1)] [added: [10.1](http://www.sec.gov/Archives/edgar/data/1524472/000152447215000006/xyl12312014ex101.htm)] | [added: # |] Form of Xylem 2011 Omnibus Incentive Plan Non-Qualified Stock Option Award Agreement (2015). | Incorporated by reference to Exhibit 10.1 of Xylem Inc.’s Form 10-K Annual Report filed on February 26, 2015 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.2)] [added: [10.2](http://www.sec.gov/Archives/edgar/data/216228/000095012311093025/y92712exv10w2.htm)] | [added: # |] Benefits and Compensation Matters Agreement, dated as of October 25, 2011, among ITT Corporation, Exelis Inc. and Xylem Inc. | Incorporated by reference to Exhibit 10.2 of ITT Corporation’s Form 10-Q Quarterly Report filed on October 28, 2011 (CIK No. 216228, File No. 1-5672). |

| [removed: (10.3)] [added: [10.3](http://www.sec.gov/Archives/edgar/data/216228/000095012311093025/y92712exv10w3.htm)] | [added: |] Tax Matters Agreement, dated as of October 25, 2011, among ITT Corporation, Exelis Inc. and Xylem Inc. | Incorporated by reference to Exhibit 10.3 of ITT Corporation’s Form 10-Q Quarterly Report filed on October 28, 2011 (CIK No. 216228, File No. 1-5672). |

| [removed: (10.5)] [added: [10.5](http://www.sec.gov/Archives/edgar/data/1524472/000119312515113011/d898772dex101.htm)] | [added: |] Five-Year Revolving Credit Facility Agreement, dated as of March 27, 2015, among Xylem Inc., the Lenders Named Therein, Citibank, N.A., as Administrative Agent and J.P. Morgan Chase Bank, N.A., as Syndication Agent. | Incorporated by reference to Exhibit 10.1 of Xylem Inc.'s Form 8-K filed on March 31, 2015 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.6)] [added: [10.6](http://www.sec.gov/Archives/edgar/data/1524472/000152447216000027/xyl12312015ex106.htm)] | [added: # |] Xylem 2011 Omnibus Incentive Plan (Amended as of February 24, 2016). | Incorporated by reference to Exhibit 10.6 of Xylem Inc.'s Form 10-K filed on February 26, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.7)] [added: [10.7](http://www.sec.gov/Archives/edgar/data/1524472/000152447216000027/xyl12312015ex107.htm)] | [added: # |] Form of Xylem Non-Qualified Stock Option Award Agreement (Amended as of February 24, 2016). | Incorporated by reference to Exhibit 10.7 of Xylem Inc.'s Form 10-K filed on February 26, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.8)] [added: [10.8](http://www.sec.gov/Archives/edgar/data/1524472/000152447216000027/xyl12312015ex108.htm)] | [added: # |] Form of Xylem Restricted Stock Unit Agreement (Amended as of February 24, 2016). | Incorporated by reference to Exhibit 10.8 of Xylem Inc.'s Form 10-K filed on February 26, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.9)] [added: [10.9](http://www.sec.gov/Archives/edgar/data/1524472/000152447216000027/xyl12312015ex109.htm)] | [added: # |] Form of Xylem Performance Share Unit Agreement (Amended as of February 24, 2016). | Incorporated by reference to Exhibit 10.9 of Xylem Inc.'s Form 10-K filed on February 26, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.10)] [added: [10.10](http://www.sec.gov/Archives/edgar/data/1524472/000152447213000011/xyl06302013ex101.htm)] | [added: # |] Xylem Retirement Savings Plan. | Incorporated by reference to Exhibit 10.1 of Xylem Inc.’s Form 10-Q filed on July 30, 2013 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.11)] [added: [10.11](http://www.sec.gov/Archives/edgar/data/1524472/000095012311099774/y93003exv10w11.htm)] | [added: # |] Xylem Supplemental Retirement Savings Plan. | Incorporated by reference to Exhibit 10.11 of Xylem Inc.’s Form 10-Q Quarterly Report filed on November 21, 2011 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.13)] [added: [10.13](http://www.sec.gov/Archives/edgar/data/1524472/000095012311099774/y93003exv10w13.htm)] | [added: # |] Xylem Deferred Compensation Plan for Non-Employee Directors. | Incorporated by reference to Exhibit 10.13 of Xylem Inc.’s Form 10-Q Quarterly Report filed on November 21, 2011 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.14)] [added: [10.14](http://www.sec.gov/Archives/edgar/data/1524472/000152447215000015/xyl06302015ex101.htm)] | [added: # |] Form of Non-Employee Director Restricted Stock Unit Award Agreement. | Incorporated by reference to Exhibit 10.1 of Xylem Inc.’s Form 10-Q Quarterly Report filed on July 30, 2015 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.15)] [added: [10.15](http://www.sec.gov/Archives/edgar/data/1524472/000152447216000027/xyl12312015ex1015.htm)] | [added: # |] Xylem Special Senior Executive Severance Pay Plan (Amended as of February 24, 2016). | Incorporated by reference to Exhibit 10.15 of Xylem Inc.'s Form 10-K filed on February 26, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.16)] [added: [10.16](http://www.sec.gov/Archives/edgar/data/1524472/000152447217000039/xyl06302017ex101.htm)] | [added: # |] Xylem Senior Executive Severance Pay Plan (Amended as of [removed: February 24, 2016).] [added: May 10, 2017).] | Incorporated by reference to Exhibit [removed: 10.16] [added: 10.1] of Xylem Inc.'s Form [removed: 10-K] [added: 10-Q] filed on [removed: February 26, 2016] [added: August 1, 2017] (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.17)] [added: [10.17](http://www.sec.gov/Archives/edgar/data/1524472/000095012311099774/y93003exv10w17.htm)] | [added: # |] Form of Xylem 2011 Omnibus Incentive Plan 2011 Non-Qualified Stock Option Award Agreement — Founders Grant. | Incorporated by reference to Exhibit 10.17 of Xylem Inc.’s Form 10-Q Quarterly Report filed on November 21, 2011 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.18)] [added: [10.18](http://www.sec.gov/Archives/edgar/data/1524472/000095012311099774/y93003exv10w18.htm)] | [added: # |] Form of Xylem 2011 Omnibus Incentive Plan Non-Qualified Stock Option Award Agreement — General Grant. | Incorporated by reference to Exhibit 10.18 of Xylem Inc.’s Form 10-Q Quarterly Report filed on November 21, 2011 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.19)] [added: [10.19](http://www.sec.gov/Archives/edgar/data/1524472/000152447216000027/xyl12312015ex1016.htm)] | [added: # |] Xylem Annual Incentive Plan for Executive Officers (Amended as of February 24, 2016). | Incorporated by reference to Exhibit 10.16 of Xylem Inc.'s Form 10-K filed on February 26, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.20)] [added: [10.20](http://www.sec.gov/Archives/edgar/data/1524472/000152447216000027/xyl12312015ex1016.htm)] | [added: # |] Form of Director’s Indemnification Agreement. | Incorporated by reference to Exhibit 10.16 of Xylem Inc.'s Form 10-K filed on February 26, 2016 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.21)] [added: [10.21](http://www.sec.gov/Archives/edgar/data/1524472/000152447213000006/xyl03312013ex101.htm)] | [added: # |] Form of Xylem 2011 Omnibus Incentive Plan Non-Qualified Stock Option Award Agreement (2013). | Incorporated by reference to Exhibit 10.1 of Xylem Inc.'s Form 10-Q Quarterly Report filed on April 30, 2013 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.22)] [added: [10.22](http://www.sec.gov/Archives/edgar/data/1524472/000152447214000007/xyl03312014ex101.htm)] | [added: # |] Letter Agreement between Xylem Inc. and Patrick K. Decker. | Incorporated by reference to Exhibit 10.1 of Xylem Inc.'s Form 10-Q Quarterly Report filed on April 29, 2014 (CIK No. 1524472, File No. 1-35229). |

| [removed: (10.23)] [added: [10.23](http://www.sec.gov/Archives/edgar/data/1524472/000119312514108281/d696342dex101.htm)] | [added: # |] Restricted Stock Unit Grant Agreement between Xylem Inc. and Patrick K. Decker. | Incorporated by reference to Exhibit 10.1 of Xylem Inc.'s Form 8-K Current Report filed on March 20, 2014 (CIK No. 1524472, File No. 1-35229). |