When it comes to water, the math is uncomplicated - and unnerving.

The volume of fresh water available for drinking and other uses on our planet will stay the same forever. But the global population this water must serve and the ever-rising per capita demand for water are placing significant strain on this finite, precious resource.

The crisis point has already arrived in some parts of the world, and is fast approaching in many others. The situation is made more urgent by unsustainable consumption habits, pollution and aging infrastructure that allows clean water to leak out of the system at rates that in some areas exceed 30 percent. It's becoming increasingly clear that to avoid full-scale crisis, we need sustainable solutions that ensure an ongoing supply of water. We believe all communities deserve sustainable access to clean water in order to grow and prosper.

At Xylem, we are energized by our central role in creating a sustainable water future. Our products are part of the solution, and further, we understand that the issues our world faces can only be addressed through technology and behavior change.

This is where innovation, partnerships, education, citizenship and courage come into play.

Innovation.

We have to develop "new" sources of water. This means developing and

deploying water reuse technologies and practices, including closed-loop wastewater reclamation systems and desalination systems where they make sense. We offer those technologies - and use them. At our own pump production facility in Nanjing, China, we designed a water re-use system that transports, treats and recycles all 5,000 gallons of water and wastewater running through the plant each day. We can do more, and we're urging others to join us.

Partnerships.

Water is too big an issue to be solved alone. There's a need for public- private partnerships, with collaboration between businesses, non-governmental organizations and government agencies. Xylem has long-standing partnerships with many such groups, including the World Business Council for Sustainable Development and Singapore's Public Utilities Board, to name a few. And in the past year, we established a Water Advisory Board. This group of experts from across the industry brings new ideas and insights into our planning process and helps us enhance existing connections and build new ones around the world.

Education.

Xylem is a global sponsor of the Stockholm Junior Water Prize, which promotes innovation in water science research and education. By supporting this competition for outstanding high school students in more than 30 countries, we are creating a sustainable pool of water experts who

will contribute new ideas for years to come. We also share knowledge within the water industry. For example, our own Little Red Schoolhouse in Morton Grove, Illinois has trained tens of thousands of building designers, contractors and other professionals from around the world on efficient and effective water use in building services applications. The program was recently approved by the Green Building Certification Institute (GBCI) as a provider of continuing education for LEED professionals.

Citizenship.

Our corporate social investment program, Xylem Watermark, delivers safe water supplies to schools and communities in need, as well as disaster areas around the globe. In 2011, we made a three-year $10.5 million commitment to Xylem Watermark with the goal of reaching one million more people, in addition to the 500,000 who have already been helped since the program's launch in 2008. Xylem employees are engaged in the program, volunteering for trips to help build sustainable water systems in drought-stricken areas, erecting clean water towers for schools and communities, and organizing fundraisers to help Xylem Watermark and its partners support relief efforts. Employees' monetary gifts are matched by Xylem, further expanding our impact.

2011 results and highlights

In our quest to solve water, we started from a position of financial strength.

In 2011, Xylem reached $3.8 billion in revenue and $358 million in adjusted net income, excluding one-time separation costs and other special items. This represents an increase of 19 percent and 25 percent, respectively, when compared with our performance as part of ITT the year before. Adjusted operating margins grew 60 basis points to 12.7 percent, and we generated free cash flow of $388 million. These results set the stage for future growth.

• Our orders this year were also up 19 percent to $3.8 billion. The increase was propelled by our recent acquisitions in areas such as dewatering and analytical instrumentation, organic growth investments focused on providing energy-efficient solutions to our customers, and growth from emerging market regions.

• We continued to execute our strategy to build strong growth platforms in analytical instrumentation and dewatering. In 2011, we acquired YSI Incorporated - a global provider of analytical instruments for environmental water monitoring and a great complement to our Nova Analytics acquisition of the year before.

We also continued investing in our 2010 acquisition of Godwin Pumps by moving forward with plant expansions to meet the growing demand for dewatering pumps.

• We maintained our commitment to innovation, with a number of new products focused on energy efficiency, a critical element in helping our customers commit to systems that deliver more efficient use and reuse of water.

• We expanded our presence in emerging markets. In India - as part of a three-year, $22 million investment in the country - we began construction of a new manufacturing facility and engineering center to increase production of pumps for the booming building services market and to provide testing for irrigation pumps for Indian customers. Similar projects helped us achieve double-digit revenue growth in 2011 in Asia, Latin America, the Middle East and Africa.

• We entered into a first-ever partnership with General Electric (GE) to distribute its line of ZeeWeed™ advanced membrane technologies in selected global markets. We provide customers a product that completes our technology portfolio for the water and wastewater segment, and GE enjoys access to our unrivaled sales footprint and service know-how.

• Our pumps and systems provided the power and flow at the beautiful 9-11 memorial park in New York City. Nearly every one of the hundreds of heat exchangers, below-ground storm, sump, and wastewater pumps in Towers One, Two, Three and Four, and the World Trade Center transportation hub are also made by Xylem.

The Xylem spirit

Our 2011 accomplishments would have been impressive in a normal year. The fact that our people enabled this performance while preparing for and launching a new company was frankly amazing... but not surprising.

Xylem's people are everywhere around the world and speak many languages. They are familiar with local water issues and know they can draw on Xylem's resources as a global water leader. They understand and appreciate a disciplined approach to deliver value to shareowners through strong financial performance. They make the world more livable through sustainable water solutions. Our sales representative in the Middle East... our machine operator in Europe... our engineer in Asia... our business development administrator in America all possess the same passion and pride for our work in water.

Water matters much more than the cool drink or hot shower we often take for granted.

It enables our very way of life - from basic sanitation and health to the production of our food, the operation of every factory and even our recreation. Much of the world's electricity is used to move water from its source to your tap, remove it after you use it, and clean it so that it can be returned safely to the environment.

Take away water, degrade its quality so that it's not usable or make it prohibitively expensive to treat and reuse, and life as we know it quickly changes.

At Xylem, we have more than a century of experience and broad applications expertise in moving, treating and testing water to ensure it is available for generations to come. We are helping our customers to deliver water without wasting energy, adhere to stricter environmental regulations, improve water infrastructure, and raise awareness of the urgency for smart water use and reuse.

Xylem and our many market-leading product brands are known for innovation and reliability. Our people offer deep industry knowledge and new ways of thinking about how we can meet many of the world's most critical water needs.

Water Infrastructure

The Xylem businesses in our Water Infrastructure segment help customers collect water from a source, treat it, test it and distribute it to users. When it becomes wastewater, our equipment collects and moves it to the treatment plant, where our solutions filter, disinfect, and renew it before it is returned to the environment.

In 2011, Xylem provided a number of new solutions for customers on the Water Infrastructure side of the water cycle.

• Our Flygt Experior pump solutions for wastewater customers combine state-ofthe- art hydraulics, premium efficiency motors and intelligent controls into a single system that offers up to 50 percent energy savings compared to conventional pumps.

• Our newest acquisition, YSI Incorporated, allows us to offer customers more leading edge sensors, instruments and software for environmental water monitoring.

• Our Flygt Ready dewatering pumps now feature a removable top and replaceable components for easier servicing - and longer life.

• Our Godwin NC series of portable dewatering pumps includes Xylem's patented non-clogging technology to offer maximum uptime and effectiveness.

• Our WEDECO Spektron ultraviolet light disinfection units now include new lamps and power controls that enable plants to use 20 percent less energy for disinfecting drinking water.

Applied Water

The businesses in our Applied Water segment focus on how people use water in their daily lives. We create breakthrough technologies to enhance their experience in offices, homes, factories and farms. In 2011, we also made important advances for customers on this side of the water cycle.

• For building services customers, we continued to enhance our energy-efficient offerings, such as adding smart controls to our eSV multistage booster pump to provide best-in-class efficiency and up to 50 percent energy savings.

• For homeowners and boat owners, our new AquaCharge is a revolution in portable, rechargeable water pumping design - and winner of Popular Mechanics magazine's Editor's Choice award.

• For HVAC professionals, we introduced a mobile app that allows them to calculate flow rates and pressure drops in piping systems from their iPhone® or iPad®*, giving them the same functionality out in the field as they enjoy at their home or workplace.