Related Party Transactions and Parent Company Equity

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions and Parent Company Investment

Transactions with Unconsolidated Affiliates

We recorded sales to unconsolidated affiliates during 2013, 2012 and 2011 totaling $15 million, $12 million and $14 million, respectively. Additionally, we purchased $20 million, $20 million and $21 million of products from unconsolidated affiliates during 2013, 2012 and 2011, respectively.

Transactions with Former Parent

Net transfers from/(to) parent are included within parent company investment on the Consolidated and Combined Statements of Changes in Stockholders’ Equity representing activity with ITT, Xylem's former parent company, prior to the Spin-off. The components of the net transfers from/(to) parent for 2011 are as follows:

	Year Ended December 31,
(in millions)	2011
Intercompany dividends	$	(87	)
Cash pooling and general financing activities	(1,355		)
Corporate allocations including income taxes	182
Contribution of assets and liabilities upon Spin-off	20
Total net transfers from/(to) parent	$	(1,240	)

All significant intercompany transactions between us and ITT have been included in these consolidated and combined financial statements and are considered to be effectively settled for cash at the time the transaction is recorded, when the underlying transaction is to be settled in cash by ITT. The total net effect of the settlement of these intercompany transactions is reflected in the Consolidated and Combined Statements of Cash Flow as a financing activity.

During 2011, we sold inventory to other ITT business in the aggregate amount of $10 million, which is included in revenue in our consolidated and combined financial statements. In addition, we recognized cost of revenue from the inventory purchased from other ITT businesses of $10 million for 2011.

The consolidated and combined financial statements include expense allocations for certain functions provided by ITT as well as other ITT employees not solely dedicated to Xylem, including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, communications, ethics and compliance, shared services, employee benefits and incentives, and share-based compensation. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, headcount or other measure. We were allocated $129 million, which includes $44 million of separation costs, of general corporate expenses incurred by ITT which is included within selling, general and administrative expenses in the Consolidated and Combined Income Statements for 2011.

The expense allocations have been determined on a basis that we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented. The allocations may not, however, reflect the expense we would have incurred as an independent, publicly traded company for the periods presented. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.