Good morning, everyone, and thank you for joining us today for Xylem's first quarter 2012 investor review. With us today are Gretchen McClain, our Chief Executive Officer; and Michael Speetzen, our Chief Financial Officer.

On today's call, they will provide their perspective on the first quarter of 2012 and full-year 2012 outlook. Following our prepared remarks, we will answer your questions related to the quarter and our 2012 outlook.

We expect that today's call will be completed within an hour. So we kindly request that you limit yourself to 1 question and 1 follow-up and then please get back on the queue so we can get to everyone.

Please note that our webcast is accompanied by a slide presentation available in the Investor section of our website at www.xyleminc.com. We will reference these slides throughout our prepared remarks.

All references today will be on an adjusted basis unless otherwise indicated for which non-GAAP financials are reconciled for you in the Appendix section of the presentation. The Appendix also include a number of user payables, which will help you understand our historical performance on an operating basis.

A replay of this call will be available until May 12, 2012. The replay number is (404) 537-3406 and the confirmation code is 65498424.

Additionally, the call will also be available for playback via the Investor section of our website under the heading Presentations.

Please turn to Slide 2. I remind you that any statements made about the company's anticipated financial results are subject to future risks and uncertainties, such as those outlined in Xylem's annual report on Form 10-K and those described from time to time and such kind of reports filed with the SEC.

These remarks constitute forward-looking statements for purposes of the Safe Harbor provision and are made out as of today. Please note that the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances and actual results could differ materially from those anticipated.

Now please turn to Slide 3. And I'll turn the call over to Gretchen.

Thank you, Phil. Good morning, everyone and thank you for joining the call.

We appreciate the interest you have in Xylem. I'm going to talk about Xylem's overall financial results, update you on our progress executing our strategic objectives and share my perspectives on our market, economic drivers and their impact on our performance.

Then I'll hand it over to Mike to walk through the details and cover our segment results.

Bottom line we're off to a solid start with our first quarter 2012 performance in line with our expectations. We are reporting first quarter revenue of $925 million reflecting growth of 6% on a constant currency basis.

Organic growth was 2% and our orders exceeded $1 billion in the quarter for the first time ever. Our book-to-bill ratio was 1.09 and was generally consistent across both of our segments and gives us confidence that revenue growth is accelerating exiting the first quarter.

This performance is in comparison to a strong first quarter 2011 when we grew 12% organically. Gross margin was 39.2%, up 130 basis points.

Operating margin was 12.3%, up 70 basis points, excluding the impact of recurring standalone costs. Earnings per share were $0.36, up 9% on a comparable or normalized year-over-year basis.

And free cash flow was solid at $41 million.

In addition today, we are affirming our previous 2012 guidance. All in all, first quarter was good and we're confident in our ability on our commitments to investors in 2012.

Please turn to Slide 4. As we discussed during our October Investor Day and February earnings call, our key focus areas for 2012 are advancing our strategic position, deploying innovative new product applications and services and continued strong execution.

We've made good progress in quarter 1 against these priorities as shown on the slide.

First, advancing our strategic position. We continue to invest in building our attractive dewatering and analytical instrumentation platforms.

You will recall we built our leadership position in these 2 rapidly growing, highly profitable markets over the past 2 years through a series of acquisitions. For example, Xylem Analytics was formed through the acquisition of Nova, Ondora , OI and YSI, each bringing strong regional brands.

YSI acquired in third quarter of 2011 was EPS accretive this quarter and is performing above our expectations demonstrating the value creation possible with our strategy. A critical element of our analytic strategy is cross branding and leveraging our distribution and geographic position.

Let me highlight just a few examples where we're making strides.

Our WTW IQ Sensor Net offering enables wastewater plant operators to monitor critical parameters in the wastewater treatment process online. This quarter, we rebranded this offering, YSI, and received our first orders in the U.S.

We also made the first major sale of YSI equipment into Germany, under the WTW brand. This installation will serve as the customer-reference site and was a critical win for the team.

We are now selling our Ondora products through our YSI Japan office. An area in which Ondora was not previously represented.

This is just the start of revenue synergies we expect to realize with this growing platform.

We're also investing and continue to expand our dewatering platform. During the first quarter, we won our first order of Godwin in China.

Demonstrating our ability to expand this business quickly into international markets. Another example of how we're advancing our strategic position is the work that we're doing to expand our emerging market footprint.

This quarter, we expanded our capabilities in Russia by opening a new distribution and customer service center in Moscow. Creating the capability to deliver application engineering, service and aftermarket support and training to one of our key growth markets.

Our second key focus is employing innovative new product applications and services to address our customers challenges around rising environmental standards and their need for more energy-efficient solution. Let me highlight just a few.

Xylem, through our Wedeco brand, was recently awarded a multimillion dollar contract in North America for a large industrial ozone project. At the customer's request, we're keeping the client's name and the project detail confidential.

However, this is a significant win that highlights and supports our strategy to expand in the industrial space where we can leverage our process expertise.

Our Bell & Gossett energy-efficient heating circulator and brazed plate heat exchanger won PM Engineer Magazine Product of the Year honors. And our Bell & Gossett training facility, the Little Red Schoolhouse, has been certified as a provider of continuing education for lead professionals.

During the fourth quarter of 2011, we launched Flygt Experior, the most energy-efficient product line addressing the water infrastructure transport market. Recently, Flygt Experior was recognized in China for its intelligent control features and high operational effectiveness with the 2012 Ringier Technology Innovation Award.

Our third area is strong execution through commercial and operational excellence. While performance was in line with our expectations, we expect more from both of our reporting segments going forward.

You will see a solid first quarter year-over-year progress from our Water Infrastructure segment while Applied Water was more challenged. We're working a number of areas to ensure we achieve the growth and margin potentials these businesses are capable of delivering, independent of market conditions.

Our price focus is paying off, and we're delivering strong realization in our results. As we further rollout our commercial excellence management process across our global sales team, we will continue to gain momentum and improve profitability in the business.

We continue to drive factory lean initiatives and utilize our global sourcing reach to deliver a more competitive cost structure. In March, I visited our team in Hungary, where we manufacture energy-efficient circulators for heating, ventilation and air-conditioning.

Last year, we made investments in automation and drove lean processes throughout the factory. These actions are delivering strong order intake driven by shorter lead times and improved product quality.

We are targeting over $4 million in savings in 2012 from this facility. From there, I visited our Wedeco treatment facility in Herford, Germany where we are realizing similar savings from operational improvements in new product and process innovations.

And as we continue our global product platform development, we are driving product rationalization to deliver supply chain leverage and factory efficiencies.

And as you can see, we're making progress against our key priorities as evidenced by our expanding gross margin. And I see enormous opportunity for performance improvement as we move to 2012 and beyond.

Please turn to Slide 5 and I'll give you a little perspective of our performance by geographies and end markets.

Americas, was our strongest region for the quarter, with the U.S. up mid-single digits as the industrial market continues to provide strength, partially offset by continued softness in the public utilities sector.

Our outlook is for growth to continue in 2012.

Europe overall was flat year-over-year despite a very difficult compare to the first quarter of 2011 when conditions were still relatively strong in the region and our revenues grew high single digits organically. This performance highlights the stability of our large installed base and our strong position in Northern Europe where the Nordic regions remain healthy and we felt strong performance out of the U.K.

And as you would expect, the southern region continues to be challenged, but has less than an impact on our business. For reference, southern Europe represents less than 7% of our total revenue.

Overall, Europe was in line with our expectations and our teams remain cautiously optimistic about prospects for the remaining of 2012.

As we anticipated, emerging markets have moderated a bit overall. Latin America, Asia Pac and Eastern Europe posted good growth, ranging from high single digits to double digits during the quarter.

The Middle East was down year-over-year, reflecting the impact of political instability in the region. On a constant currency basis, we grew double-digits in emerging markets and our outlook is to grow mid-teens for the full year.

As for end market dynamics. Industrial is our largest end market and our performance reflects the strength in global mining, and growing opportunity for dewatering services.

It also reflects our global investments and ability to deliver application solutions to customers when and where they require them, anywhere in the world.

Additionally, we see a broad range of general industrial application growth where our products are critical to running our customers' base operations and in food and beverage, a market focused on product innovation and driven by consumer demand.

Overall, our revenue in industrial was up mid-single digits during the first quarter of 2012 and we expect this performance to continue for the full year.

Switching to public utilities, our second largest end market. In developed countries, our large installed base and leading market position has helped us weather the economic slowdown.

Given the majority of our revenue stems from operations and maintenance activities. As a reminder, public utilities spend over 70% of their budget on repairing, maintaining and operating infrastructure which is funded by stable flow of tariff.

Lead activity for capital projects has increased since the fourth quarter providing some positive signs but release of funding is key for growth in the longer term.

Our revenue from public utilities were in line with our expectations, down slightly year-over-year given the timing of a large project shift last year. We anticipate public utility revenue to grow low to mid-single digits for the full-year 2012.

Moving onto Commercial, our third largest end market. We continue to see gain -- share gains, globally, thanks to the success of our new product launches focused on delivering energy-efficient solutions, which are providing cost savings to our customers.

In commercial, we expect full-year revenue to be up low to mid-single digits.

In the residential market, most of our revenue is driven by replacement sales. Our large installed base, strong brand, applications knowledge and energy-efficient products have been and will continue to be our strength despite a market that remains down.

During the first quarter, we saw negative impact to our mix due to the warm weather in the U.S. given the high margin equipment we sell into the heating applications.

We do not anticipate a change in the market throughout 2012 as the rebound in housing does not have a strong effect on our business. For the full year, we expect low to mid single-digit growth in this market.

Finally, Agriculture, which represents roughly 3% of our annual revenue was down versus the first quarter of 2011 when the business delivered high teens growth. So in summary, our business performance and our end market are generally in line with our expectations.

With no significant changes to what we articulated a few months ago. Our view continues to be that we will see modest strengthening throughout the year and stronger performance as we execute our strategic and operational plans.

With 6 months behind us as an independent company, I feel good about our team's performance and the track record we are building. We are in pace to achieve our 2012 targets.

Now, let me turn the call over to our CFO, Mike Speetzen. Mike?

Thanks, Gretchen. Let's go to Slide 6.

In the first quarter, Xylem's revenues were $925 million, reflecting total growth of 4%. Organic revenue growth contributed 2 points to the total and acquisitions added another 4 points of growth.

Foreign exchange was a headwind of 2 points and on a constant currency basis revenue grew 6%. Our growth was driven by strength in the industrial and commercial end markets were we continue to see growth opportunities and have been able to capture share.

YSI had a very strong quarter adding 4 percentage points to our total top line. I think it's also important to note that YSI's organic growth was up double digits and is not included in our organic performance articulated earlier.

As Gretchen mentioned, our revenue to the public utility market is stable as most of our revenues derived from non-discretionary aftermarket and replacement equipment. Residential market conditions have not improved.

Year-over-year declines are primarily attributable to softening conditions in Europe and the impact of political instability on the Middle East.

As Gretchen highlighted, we booked record orders, hitting the $1 billion mark for the first time in the quarter. Organic order rates were up slightly year-over-year at 1%, a dynamic primarily driven by the timing of large project orders received during the first quarter of 2011.

Let me note that project order rates slowed to during 2011, so year-over-year comparisons are tougher in the first half of this year and then get easier.

Our first quarter book-to-bill ratio was 1.09, increasing our backlog position heading into the second quarter. Operating income adjusted for one-time separation cost, increased 1% in the first quarter and was up 11% when adjusted for incremental standalone ramp-up costs incurred in Q1 2012.

First quarter operating margins came in at 12.3%, up 70 basis points excluding separation costs and the impact of standalone ramp-up costs. Gross margin was 39.2% for the first quarter of 2012, up 130 basis points versus the prior year as price, cost improvements and YSI more than offset inflation and unfavorable volume and mix.

By driving gross margin performance, we were able to continue to invest in our business while expanding operating margins. Investments in the first quarter impacted operating margins by 50 basis points.

Foreign exchange favorability drove operating margins by 40 basis points. This favorability is driven primarily by the negative transaction impact of foreign exchange in the first quarter of 2011.

As the chart reflects, on an operating basis, we drove incremental margins of 18% excluding standalone costs and a favorable impact of foreign exchange.

I would add that this 18% incremental margin also reflects additional investments which will drive above market growth. These additional investments were a 10 point drag on our incremental margin.

For example, investments in the recent past have led to the successful launch of products like the e-SV pump and the Flygt Experior. Growth in the quarter enabled us to leverage and drive margin improvement of 30 basis points while absorbing 70 basis points in headwind mix and investment in the business.

Now turn to Slide #7. This slide shows our EPS walk for the first quarter.

This is a transition year for Xylem and as such there are a lot of moving parts, so I want to spend some time this morning as we did on the last call describing the components of our performance.

As the middle section of this chart depicts, we have adjusted both 2011 and 2012 EPS to a normalized basis to provide a clear picture of how we performed operationally versus last year. The walk starts with GAAP EPS for 2011 and ends with GAAP EPS for 2012.

In between, we make 2 sets of adjustments for the first quarter. On the left side of the chart, we reduced 2011 GAAP EPS of $0.42 by $0.09 to show how 2011 would have looked had Xylem been a standalone company with interest expense on debt and required independent company costs.

We have also adjusted the numbers to exclude the 2011 impact of onetime separation costs. For the first quarter of 2012, on the right-hand side of the chart, we adjusted GAAP EPS of $0.34 by adding back the negative impact of 2012 one-time separation costs.

Making these adjustments puts both first quarters on a comparable, normalized basis to allow for a better view of operational performance. This analysis shows that normalized EPS increased 9% or $0.03.

This improvement includes an increase in our core business of $0.03, partially offset by $0.02 of additional investment. YSI contributed operational benefits of $0.03 and our higher tax rate cost us a $0.01.

Now let me provide more details for each of our reporting segments. Please turn to Slide 8.

This slide shows the results of our Water Infrastructure segment. For the first quarter, this segment reported revenue of $584 million, up 6% over prior year, up 2% organically.

The YSI acquisition contributed 6 points to the top line growth and foreign exchange was a 2 point headwind. Transport grew 3% for the quarter driven by the global industrial market, particularly for dewatering applications.

A significant portion of transport is driven by the public utility market and here, we continue to benefit from the stability that comes from a large installed base and growing tariffs. Treatment declined, driven by the softening we saw in developed market project orders in 2011.

As a reminder, treatment orders for large projects slowed after the first quarter of 2011 and given the longer lead times associated with these projects, we are seeing impact in our year-over-year revenue performance. This decline is in line with our expectations and was included in our previous guidance.

We're encouraged by the higher quotation activity we've seen in the first quarter but we're not projecting a significant improvement at this time. Test revenues were down 2% organically, excluded from this result is the contribution from the YSI business which achieved double-digit growth this quarter and comes on top of the strong quarter we saw in the first quarter of 2011.

First quarter operating margins came in at 13.4%, up 180 basis points from 2011, excluding the impact of standalone costs. YSI contributed 60 basis points to the segment margin, highlighting the strong business that we have added to the portfolio.

In addition, as you can see from the chart, our operational and commercial excellence initiatives are more than offsetting the impacts of inflation and have provided flexibility to continue to invest in the business while still expanding margins. We drove 26% incremental margins reflecting strong underlying fundamentals in this segment.

Let me now turn to Slide #9 and talk through our Applied Water segment. Applied Water's first quarter revenues were up 1% on an organic basis.

Building services were up 2% as growth in commercial, more than offset lower residential volume. Commercial building services were up mid-single digits and a flat market reflecting market share gains driven by our new energy-efficient solutions.

Residential building services were down mid-single digits reflecting unfavorable impact of a warm winter season on our U.S. business, challenging economic conditions in Europe and instability in the Middle East region.

Industrial water was up 2% driven by favorable general industrial market conditions and strength in our food and beverage applications, offsetting a down marine market. And irrigation was down 4% against the very difficult compare versus the first quarter of 2011 when revenues were up in the high teens year-over-year.

First quarter operating margins came in at 12.1%, down 90 basis points from 2011 excluding standalone costs. Price and productivity actions more than offset the impact of inflation.

The margin decline is primarily driven by unfavorable mix, attributable to largely temporary factors such as the warm weather impact on our high-margin residential products as well as foreign exchange.

Looking at sequential performance versus the fourth quarter of 2011, operating margins increased by more than 200 basis points on 6% higher revenue, as well as cost and price actions. While the results are in line with our expectations, we know the business has more margin potential.

As a reminder, we took some actions in the fourth quarter and we have plans in place to ensure we achieve the operational improvements embedded in our guidance.

Now let me turn to Slide 10 and review our financial position. Slide 10 reflects the key elements of our balance sheet and capital structure.

We generated $41 million in free cash flow a conversion on adjusted net income of 61% reflecting typical seasonality for our business. Our cash flow is down from Q1 2011 as anticipated, driven primarily by incremental interest payments of $11 million related to the debt put in place as a result of the spin-off from ITT.

In addition, we incurred higher cash outlays associated with our continued investment in organic growth through the deployment of capital and the key strategic initiatives such as the continued expansion of our global dewatering [indiscernible] business. And we incurred additional cash outlays associated with the cost to operate as a stand-alone company.

As you can see from the slide, we also improved our working capital as a percent of revenue. All of these factors were included in our projected 95% cash flow conversion for the year.

As it relates to our capital structure, we ended Q1 in a strong position, our available cash on hand was $347 million, up from year end 2011. We have a solid net debt to net capital ratio of 31% and our credit metrics are in line with expectations and our credit ratings.

Our commercial paper and revolving credit facilities remain in place and undrawn. Bottom line, we continue to deliver strong cash flow and have a solid balance sheet.

Now, let me transition to Slide 12 and talk about our guidance for 2012. Our view of full year 2012 is relatively unchanged given our performance in the first quarter and trends that we've seen.

As Gretchen mentioned at the beginning of the call, we are maintaining our previous guidance. I do think it's important to spend a few minutes and walk back through the guidance and associated assumptions.

We anticipate 2012 revenue in the range of $3.9 billion to $4 billion. This reflects 2% growth from YSI, foreign exchange headwind of 3% and a 4% to 6% % organic growth.

One thing to keep in mind is that foreign-exchange will have a lumpy impact on our revenues. For example, the euro to dollar rate was $1.44 in the second quarter last year and we have assumed $1.31 in our guidance.

Based on this and other currency rate trends, the negative impact of foreign exchange on our second quarter revenues is likely to be in the range of 4% to 5% on a year-over-year basis. It's also worth noting that the organic growth in the second quarter will be at the lower end of our full-year guidance range.

Segment margins is anticipated to be in the range of 14.5% to 15% which is up 50 to 100 basis points versus 2011. We see Applied Water around the lower end and Water Infrastructure around the higher end of this basis point improvement.

Company operating margin is projected to be in the range of 12.7% to 13.3%, which is flat to up 60 basis points including incremental recurring standalone costs of $25 million to $30 million. These additional standalone costs include items associated with being an independent public company, as well as business level expenses related to being a standalone company.

These are consistent with our past projections and it's important to note these costs impact the comparison of operating margins primarily for the periods of Q1, Q2 and Q3.

We anticipate earnings per share in the range of $1.80 to $1.95 excluding pretax one-time separation cost of $15 million to $20 million. On an adjusted basis, the year-over-year change in EPS would be minus 7% to up 1% as a full year of interest expense and standalone costs are incurred versus a partial year in 2011.

Using the same approach we used on Slide 7 to make both years comparable, yields normalized EPS growth of 8% to 17% year-over-year.

Free cash flow conversion is targeted in the range of 95%, which is lower than our 2011 performance. Factors driving this lower conversion include higher pension cash contributions in 2012 and timing of interest payments and non-cash tax impacts from special items in 2011.

Additionally, we will continue to invest higher levels of capital in our organic growth initiatives.

Please turn to Slide 13 for a walk through of our 2012 EPS outlook.

This slide starts with 2011 adjusted EPS of $1.93. We've added $0.27 of incremental interest expense and incremental standalone costs, so the resulting EPS number, $1.66, shows what Xylem's earnings would have been if we had been a standalone company for the full year 2011.

As you saw in Slide 12, we are anticipating 2012 EPS of $1.80 to $1.95 excluding onetime separation costs. At the guidance midpoint of $1.87, EPS growth is 13%.

Organic revenue growth of 4% to 6% our commercial and operational excellence programs and accretive contribution from the YSI acquisition, all contribute to this performance while enabling us to invest in the business and expand margins.

So as you can see, on a comparable basis, adjusting for the partial year versus full year impacts of having become a standalone company, we are projecting that Xylem will deliver double-digit EPS growth. I'd also like to note we've included some additional slides in the Appendix to further illustrate our 2012 outlook.

Now turn to Slide 14 and I'll hand it back over to Gretchen for final remarks before the Q&A session.

In summary, we're off to a good start in 2012 with a solid first quarter. Our operational performance is in line with our internal expectations and on track for our goals for the full year.

And the end market conditions continue to support our 2012 growth target.

YSI in addition to Godwin, serve as excellent examples of our team's ability to acquire and effectively integrate acquisitions. Our strong financial position and cash flow generating ability, positions us well to execute on our growth strategies.

When I think about all that we've covered today, our first quarter performance, the end market diversity we have and our current views of these markets and how they plowed in 2012, coupled with the strong talented people we have in place across Xylem to execute our strategy, it reinforces my confidence in our ability to deliver in 2012 and beyond.

With that, I'll be happy to take your questions. Operator?

Two questions. First, I was hoping you might be able to give us a little bit of color as we're trying to understand the dynamic of the orders and backlog from a timing perspective.

I mean a 1.09 book-to-bill, very positive growing backlog, how does that book-to-bill translate into shipments as we think about the progression during the year?

Jim, let me give you some color there, just from our businesses. Our 2 segments, Water Infrastructure and Applied Water, when you look within Water Infrastructure, I would think about on an average when we get an order to when we ship around on an average 60 days.

So let me break that down a little bit further. You get use transport, a large portion today with a large of the funding coming out of the operation and maintenance side, it's a much quicker turn, take the order, and we deliver the parts.

It can be anywhere from a short cycle to 90 days. Now, if you're getting into the capital expenditure funding, where you're now into treatment or the transport of supporting a large project, that can be anywhere from 90 days to 18 months, so longer cycle when you're looking at large projects.

Our testing and site end market, quick turns but I would just hesitate with YSI as we've bought YSI and integrated it and looked at what they're doing. They support a lot of large projects which do take a little bit longer time, not a quick turn sale.

But overall, test is pretty quick get the order actually shipped. When you think of applied water, think of it around 30 to 60 days.

You've got some things that are 2 day turnarounds. But you've also got irrigation and some building services projects that you are working with the builders and take a little bit longer but on the average, 30 to 60 day turns there.

And Jim, the only the other points I'd make is we ended the quarter with about $740 million in backlog. A little over 80% of that will actually deliver in 2012 so clearly there's components in the backlog that are going to to go out end of 2013.

And obviously, there's going to be components in that backlog that are going go beyond just Q2. So you when you think about that 1.09, not all of that is going to translate into Q2 revenue but it's a good indicator and gives us confidence as we start moving into the second quarter.

Okay. That's very helpful.

And second question, could you just bring us up-to-date on your capital allocation strategy, given the strength of the balance sheet and the strong cash flow expected this year?

Sure, Jim. Let's just talk about the business first of all.

We got a great business and great foundation of our core business and then the new platforms, which we strategically have been building out. So our priority is our organic growth and continue to expand and invest in those opportunities where we can grow geographically as well as some attractive markets specifically in our core space.

As well in continuing to invest in our dewatering and our analytics business, both from an organic perspective as well through acquisitions. So we see a nice pipeline of candidates that we're looking at.

We are actively engaged in opportunities for us to quickly move. You've seen us actually have a very nice success with our acquisitions over the last 2 years.

And so that's where we'll be putting our first priority in terms of investing organically and acquisitively.

Jim, I guess that I also asked and -- I talked about a little bit on the margins. And we had about a 10 point drag on the incrementals.

Because of that organic investment we're making back in the business, so for example the expansion we made into Russia is a prime example of that where we'll continue to invest in the sales channel of the business as well as continue to invest in the organic growth initiatives like we've done in the past with e-SV and the Flygt Experior. So we see as we indicated investment being about a 50 basis point drag relative to operating margins, but that's where we're really focused on driving gross margin improvement to be able to fund continuing to invest in the business.

And Jim, just one other thing in terms of new price, we've been launching quite a new projects sort of the last couple of years. But we're also thinking about how we can do smart information, so we gotten into smart apps and making it much easier for our customer base to work with our sales teams out in the field configuring their applications and their solutions.

And that's another area where we've been investing as well.

Couple of questions. Gretchen in your prepared remarks you talked a little bit about what you guys have been doing from a pricing standpoint, I think back at your Analyst Day you'd indicated targeting about 150 basis points a year on price and it looks like you've already ramped to that kind of run rate.

So 2 things, does it make sense to move that bar higher or that goal or target? And then I guess the other question is how far through the organization have you rolled this pricing process or initiative out at this point?

Matt, great question. We've been driving this commercial excellence process for the last couple of years.

We're still in the process of doing it. We're about, at the end of 2012, we'll be 80% deployed across our global sales team.

If you think about that we're in 150 countries. We've got a lot of sales team around the globe.

I'd say we're further along in our Applied Water business, than we are in our Water Infrastructure. But in terms of where we are, we're getting great results, as you can see.

And I think it's going to stay about that level, obviously we drive internal targets as aggressively as we can. But you also have inflation coming down and being able to pass on price to customers.

Our main thing here is we want to make sure we maintain our shares in those attractive markets that we want to continue to grow. And we have a good process around our pricing policy where we look at our wins and losses and we think about our product strategy and our differentiation and what we've done with our sales team is really get them out there selling on a value proposition as compared to on price.

And it's working but there's still more to do.

Matt, the only other piece I would add to that is you have to remember we're lapping 2011 where we put -- took some pretty significant price actions in light of the environment we had on inflation. So you have a little bit of that dynamic that plays out.

So I think as Gretchen indicated, we're kind of right in the range that we anticipate being for the year.

But the culture is building and that's the positive in that I feel good about. It's becoming part of our day-to-day process and we're really seeing it in the results.

So that should continue.

Got it. And then just a follow-up.

Can you talk a little bit about your incoming order rates in the quarter in terms of linearity and if you can provide any comments on what you saw in April, that would be helpful as well.

Yes, I would say, as I laid out the market dynamics and so forth, it's consistent with what I've been talking about. I'd say the one area we're most challenged with is, we've got a lot of activity going on in treatment and the larger projects around capital expenditures.

A lot of bidding taking place but what we don't see yet is the release of funding at this point in time. Not an impact right now, but obviously something we're watching very closely coming out of quarter 2 and beyond.

Yes and I'd say, in the latter part of March and April, we did see improvement in a couple of the areas. We mentioned the Middle East giving us some headwind year-over-year.

We did see order rates improving there and we did see orders improving in some parts of Europe. So again, that's been consistent with the level of guidance that we provided and consistent with what we see going into the month of April.

At the interest of hearing about the investment in your Analytics business with regard to these growth investments, you're trying to add more capacity or add more test offerings and you believe you're gaining share on this business?

Yes, Deane, good question. I would say we're tackling it from all fronts.

What we want to do is continue to make sure we've got the reach into the market so it is through our channels and through our distribution and make sure we're represented across the board. It's also investments to make sure that we can take the products that today are very strong from a regional perspective and brand them into the other regions as I described in kind of my opening remarks.

But we are also producing new products as we go forward. As we think about some of the attractive end markets that will develop as the water issues get more and more addressed.

You think about sustainable water infrastructure and our ability to take our instrumentation and work for example and work with our wastewater treatment team and we have an opportunity to bring energy efficient solutions and have real-time information for the wastewater treatment plant operators so they can effectively do that. So we are investing there as well as some attractive areas that we see coming up.

That's really helpful. And just one of the comments is that since it's your second quarter and you've been hitting your targets in terms of expectations on EPS on the separation costs.

And I just looked at -- yes, versus our expectations. The only thing that looked a little bit higher versus what we were looking for was the R&D expense, looks like that's up more year-over-year, is that part of the growth investment or what's driving that?

It's clearly part of our strategy. If you want a be a leader in the market and the markets are tougher today since they're growing slower, you've got to have innovation, you got to be able to have differentiation with your customer.

And we see clear areas where that has played out and where our investments are playing very, very well. I'll use the example of our e-SV and our Applied Water business.

Last year, the commercial market was flat, still flat this year, and it's continuing to give us nice revenue and nice growth because we're bringing energy-efficient solutions to our customers. So we're focused there.

We're also focused on in terms of the environmental standards as people become more and more concerned about the quality of water and making sure that the water they're using is at the right level of quality, not necessarily over clean, so that it can be applied appropriately and then we can maximize and more efficiently use the water that we have.

Yes and Deane, one other factor that plays in is our R&D investment in the Analytics businesses is typically higher than average for the company and with YSI being added in the first quarter, that's obviously had an impact. When we gave our guidance we talked about 3% for the full year.

So we're in line with that overall expectation.

I was wondering if you could give a little more color on your strategy and expectations in sort of the dewatering platform in China now that you've announced your first order there, where you see the investment's going?

Sure. What we've done in taking -- stepping back again from the investment that we've made in dewatering.

We started out as a company with just the products that went into dewatering. We weren't into the rental and the services business to speak of.

When we bought Godwin, that really gave us a #1 position in the U.S. and really a #1 position around the market, where we can actually take a proven business model and we can actually deploy that internationally very quickly.

We saw that happen in Australia and we're growing very nicely. We've had some nice orders in China, and we're looking at where to play in China and really how big of a depot that we need to set there to ultimately support our sales.

But we see that as a real opportunity going forward, as well as other markets internationally. What's key in terms of dewatering, is it is a capital intensive business, so you've got to make sure you've got many markets that you can support.

And so you look at is there opportunities for the public utilities, are there opportunities for construction, are there opportunities around mining, so that you can have a nice investment and you can ultimately support the markets even when the ups and downs take place from an economic perspective.

Just wondering if you could speak of any specific water quality regulatory developments that are having an outsized impact currently on the treatment or test side or if there may be any regulations that you're expecting to come down the pipe that would drive those 2 businesses?.

Sure. With the EPA, there's many standards obviously with the regulations around water.

Those continue to support our Analytical business. When you think about some of the more aggressive areas, think about Dallas water, there are standards that are being put in place right now, it's really only been adopted by the U.S.

taking on some IMO standards that require a certain level of requirement when the ships come in to be able to test the water. That's an opportunity for us to play both in our instrumentation as well as in our treatment solutions.

In terms of another area that we get cautions around is in the shale gas right now. They are not significant regulations we think that's going to be at the local and state level, more so than at a federal level.

But we track that pretty aggressively to make sure that we understand where things are going and where we can play.

Okay, okay. That's helpful.

And then on the Applied Water side, you mentioned the end market, the share gains and the commercial end market, can you speak to what may have been behind that and what the competitive response has been?

That was commercial?

Yes. I think you mentioned the...

Yes, I go back to really it's the launch of our new products. We spend a lot of time with our customers working with them and trying to really understand what their needs are.

And it's not only in the commercial but you talk to the customer and their first question is, how do I reduce my energy cost? How do I ensure that my overall cost of operations is coming down?

And how do I ensure that I have a reliable application that's going to run consistently? When we launched our e-SV, we obviously came out with a very energy efficient solution as well as something that could be serviced very quickly, and it met the needs of our customers.

So were taking share here as well as we're using that to expand and open ourselves in position geographically.

I was hoping that maybe you could provide some of the operational differences in your KPIs between Applied Water and Water Infrastructure that is providing some metrics such as on time delivering, sourcing, waste quality that can help us close the gap between these 2 businesses over time and what margin, how we get to those, that gap is closed, how we close that gap in 2013?

Let me just talk about that a little bit and see if I can get after. We have KBMs that we're driving across our businesses and they do differ a little bit based upon the end markets that we serve and the dynamics in terms of the business.

When you think about Applied Water, you have a product line which is, quicker turnaround so on-time delivery is absolutely critical when a customer calls, you need to be able to deliver very, very rapidly so a focus on on time delivery is critical there. As we think about in terms of cost, productivity -- productivity across the board in the bulk of our businesses are driven aggressively and equally because I do believe across our procedures, there's no reason why we can't expect improvements in leaning our factories and deliver each and every time.

So those drive across the board from a productivity perspective. What's more difficult is when we go through a distribution so there's different dynamics in our business.

Our Applied Water, goes through distribution. Our Water Infrastructure is more of a direct sale.

So you're working different dynamics in terms of your parameters as you go forward.

Yes, and I'd say that that plays into the gross margin levels between the 2 businesses and I wouldn't characterize as them coming together at the same operating margin level. When you look at Water Infrastructure, where we've put a pretty concerted effort around our acquisition focus and it's been in the high gross margin businesses and we're getting nice leverage off of that, I think both businesses will continue to expand as Gretchen indicated but I think you can expect to see a differential between the 2 just given the nature of the channel they use, as well as the margin profile and growth profile.

Yes, and I'd say that's part of the portfolio and management that we have. When you look at how attractive are the end markets and where you want to invest and the ones that we're investing a little bit more aggressively we'd like to see some top line growth.

In other areas you're investing to expand your gross margin or your operating margin. So there's different strategies we play out in each different end markets.

So going back I mean I can understand the distribution differences and so when we get back to the productivity measures, what has to be done on Applied Water to get to the productive hitting levels that Water Infrastructure has, is it a function of volume? Is it a function of sourcing?

So volume definitely has an impact when you get a higher volume, you're going to see the leverage. We actually saw that in fourth quarter to first quarter in Applied Water with additional volume.

You saw it come to the bottom line. We need to continue to get our factory productivity.

And as I mentioned in a couple of my opening comments, we are making sure we're leaning our facilities as I mentioned our line facility over in Hungary. The automation that we put in play has actually produced better quality products so you don't have to drag on any type of quality issues and you also have an opportunity to have more throughput to the factory.

As we see in that business specifically, Europe has got regulatory requirements requiring us to be able to deliver high-quality and high volume and the factory is now positioned to be able to capture that volume.

Okay. That's helpful.

And then the follow up question is on the Xenon, the relationship that you have with them has been largely on the municipal water side I would think. Are you giving any leverage in industrial given that your Wedeco is starting to pick up some traction in the U.S.

on the ozone side? Can you combine these two, filtration and ozone?

Wedeco is doing well in both the ozone and in the UV Treatment. When we think of our treatment business we think of it basically in 3 areas biological.

We think of it in filtration and we think it in terms of the UV/ozone business. We actually look at projects where we can combine technology and be able to bring the equipment necessary to help our customer base, so there is integration taking place where it makes sense.

When you talk also about our agreement with GE where we're taking the GE product -- their membrane and being able to distribute that and sell it through our world-class channel, that's an opportunity again with the public utilities to combine our treatment activities together and again be able to meet our customers' needs.

I'm sorry, but it wasn't clear. Can you leverage that in the industrial space?

Yes you can. It's by a case-by-case basis.

I mean in some areas, other areas it's not that quickly you can -- you can't bring it directly over.

You mentioned that you're actively engaged in acquisition opportunities. Are you encountering much competition for acquisitions of your target size and are evaluations at levels where you think you can extract enough value?

So acquisition at -- the market right now, I'd say is active. You've got a lot of buyers, you've got a lot of sellers, and there's a lot of cash in the market.

Where we're looking at in our acquisition strategy is a line strategically where we're going. When you think about the acquisitions we've just gone through, let's say analytics and dewatering, there's still significant opportunities.

Both fragmented markets, so there's lots of opportunities where we you can continue to grow. What we look at traditionally really has been strategically does it fit, culturally does it fit and then obviously it needs to meet the financial hurdles that we addressed.

Right now in terms of valuations, I'd say the markets -- the targets that we've got are reasonable. Most of them are focused around a bolt-on where you're looking at anywhere from a $25 million to a $100 million type of acquisition and we make the numbers work.

Typically, a lot of these companies are private companies and so forth but there is a demand. Many people are asking from it too much but if the valuation clearly is a key hurdle we're not going to pay too much.

Yes and I'd add, we have a very strict set of criteria that we judge the acquisitions against. So as I've typically do in the past we look for returns in the mid-teens.

We look for cash returns of 7 to 9 years and so we make sure that the acquisitions are going to fit right into that category and if they don't, then we move onto the next one. But I've referenced you back to the way we talked about our capital deployment strategy during Investor Day, and I'd say that we're continuing forward with that process.

Okay great. That's helpful.

And are you feeling good about your 2015 targets and what macro assumptions are you making there?.

On the long-term, is that what you said?

Yes. Your 2015 revenue and margin, ROIC targets that you've previously laid out?

We're right on track to the plan that we laid out. So I feel good about where we are both from a couple of perspectives.

One we're advancing our strategic objectives as we have laid out and those we're seeing pay off and some will be paying off in the years to come. What we said we would do this year, so far we're on track and the market seems to be playing aligned with where we want to go so I feel good both from the strategic aspect, from the operational aspect of the business, and then ultimately what we've got to do in the years to come.

Yes, I think one of the areas that we articulated that's critical is the gross margin performance. I think when you see us in the 39 plus percent range in Q1 on relatively low organic volume growth, that gives us great confidence relative to getting gross margins above the 40% range and given the pipeline we have from the acquisition standpoint, the success we've had with integration, gives us a lot of confidence relative to those full long-term targets.

And that's, assuming I guess a macro environment of a slow growth in U.S., little to no growth in Europe and then continued strength in the emerging markets, is that right?

Yes, I'd say it's consistent with what we articulated. Kind of 1% to 3% in developed markets, 8% to 10 plus percent in the emerging markets.

And we're seeing those conditions play up pretty consistent relative to those thoughts that we had back in October.

Regarding your emerging markets just roughly 18% of total revenues. In the Middle East, there's some unrest and I'm just wondering what your focus is on?

What areas you're looking to grow there? Is that preventing you from pursuing some strategic expansion there in Middle East region or just break that down a little bit?

Sure. Well, I'll give you some color on the Middle East.

So our Water Infrastructure, is still performing well. Again, when you think about the infrastructure, the operations of your public utilities and so forth, that continues to play nicely for us.

The Applied Water was more challenged in the Middle East. We still see opportunities there and actually, coming into April, we saw some orders coming in.

So we see that will rebound but it is a choppy area right now that we're just watching. And we'll continue to play in opportunities that play out.

Our teams are aggressively working very strategic objectives by end markets. That does not change.

But I do see stability around the Water Infrastructure. And I guess I'll just pull out one other point which is when you think about our emerging markets and you step back, Middle East is a small percentage of our overall revenue.

We got 19% of our sales are coming from the emerging markets, and we've talked about before that's kind of evenly split around the different regions. And across the emerging markets, we saw a nice growth and we see that continuing to play and there's plenty of opportunity when you look at where we are in the markets and the opportunity to penetrate with our products and our applications solutions that I think will continue to keep the emerging market growing aggressively.

So our strategy is still intact and our teams are aggressively working on it.

Okay. And on YSI, what's the accretion and what are you expecting for the year?

It was $0.03 accretive. And as we've articulated, we'll see that accretion for the full year being in the general range of about $0.02 in the second quarter, $0.03 in the third quarter, and at that point we will have lapped the acquisition.

Okay. And is there any impact from the equipment that you have regarding lead free new regulations that would be coming into effect in 2014?

Great question. Actually in April, just this last month, we actually launched our Bell and Gossip lead-free circuits setter.

They are valves for the heating ventilation and air-conditioning markets. And we've been working over the last several years to make sure that we are moving into lead-free solution.

So we're ahead of that game, the team's off launching the products and we feel good at our position. The lead-free requirements, some regulatory requirements don't completely turn in until a few more years.

First, I think California is the one that's put it in place but we feel good that we're ahead of the game and the teams are off executing and selling appropriately.

Yes, I think California and Vermont first but do you have to bring appropriate change to any of production based on preproduction or customers needing to get the products ahead of time, trying to be ahead of the curve as far as inventory, customers possibly being stuck with inventory?

So, we're well into that. We are in production today with our lead-free products.

So that transitioning from the lead products to lead-free has been taking place and we are in full production of our new products.

I'd just like to thank you for your interest and continued interest in watching of the business. We feel very good about the results that we have today.

The team has been working very, very strong and you think about as I mentioned earlier, the 6 months that we've be an independent company to be able to deliver our strategic objectives, our operational objectives and look forward to where we're going. We feel very, very good and very strong and so we look forward to talking to you again and continuing to build our record of delivery.