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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number: 1-35229
Xylem Inc.
(Exact name of registrant as specified in its charter)
 
Indiana  45-2080495
(State or other jurisdiction of incorporation or
organization)
  (I.R.S. Employer Identification No.)
301 Water Street SE, Washington, DC 20003
(Address of principal executive offices) (Zip code)
(202) 869-9150
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange of which registered
Common Stock, par value $0.01 per shareXYLNew York Stock Exchange
2.250% Senior Notes due 2023XYL23New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company




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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
As of October 28, 2022, there were 180,221,532 outstanding shares of the registrant’s common stock, par value $0.01 per share.




Xylem Inc.
Table of Contents
ITEM
  
  
PAGE
PART I – Financial Information
Item 1-
Item 2-
Item 3-
Item 4-
PART II – Other Information
Item 1-
Item 1A-
Item 2-
Item 3-
Item 4-
Item 5-
Item 6-
2


PART I

ITEM 1.             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(in millions, except per share data)

 Three MonthsNine Months
For the periods ended September 30,2022202120222021
Revenue$1,380 $1,265 $4,016 $3,872 
Cost of revenue856 793 2,505 2,390 
Gross profit524 472 1,511 1,482 
Selling, general and administrative expenses294 273 912 878 
Research and development expenses47 49 152 152 
Restructuring and asset impairment charges (recoveries)15 (2)22 7 
Operating income168 152 425 445 
Interest expense12 21 37 63 
U.K. pension settlement expense140  140  
Other non-operating income, net1 2 2 1 
Gain from sale of business  1 2 
Income before taxes17 133 251 385 
Income tax expense5 19 45 71 
Net income$12 $114 $206 $314 
Earnings per share:
Basic$0.07 $0.63 $1.14 $1.74 
Diluted$0.07 $0.63 $1.14 $1.73 
Weighted average number of shares:
Basic180.2 180.2 180.2 180.2 
Diluted180.9 181.6 180.9 181.5 
See accompanying notes to condensed consolidated financial statements.

3


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
 
 Three MonthsNine Months
For the periods ended September 30,2022202120222021
Net income$12 $114 $206 $314 
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment(74)(19)(118)10 
Net change in derivative hedge agreements:
Unrealized gain (loss)(8)(1)(23)(8)
Amount of loss (gain) reclassified into net income8 2 13  
Net change in post-retirement benefit plans:
Amortization of prior service credit (1)(1)(2)
Amortization of net actuarial loss into net income3 6 11 17 
U.K. pension settlement expense137  137  
Foreign currency translation adjustment46  46  
Income tax expense (benefit) related to items of other comprehensive income (loss)63 11 93 26 
Other comprehensive income (loss), net of tax49 (24)(28)(9)
Comprehensive income$61 $90 $178 $305 


See accompanying notes to condensed consolidated financial statements.
4


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
September 30,
2022
December 31,
2021
  
ASSETS
Current assets:
Cash and cash equivalents$1,186 $1,349 
Receivables, less allowances for discounts, returns and credit losses of $46 and $44 in 2022 and 2021, respectively
1,018 953 
Inventories837 700 
Prepaid and other current assets150 158 
Total current assets3,191 3,160 
Property, plant and equipment, net585 644 
Goodwill2,637 2,792 
Other intangible assets, net933 1,016 
Other non-current assets760 664 
Total assets$8,106 $8,276 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$618 $639 
Accrued and other current liabilities828 752 
Short-term borrowings and current maturities of long-term debt483  
Total current liabilities1,929 1,391 
Long-term debt1,880 2,440 
Accrued post-retirement benefits361 438 
Deferred income tax liabilities260 287 
Other non-current accrued liabilities454 494 
Total liabilities4,884 5,050 
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 196.0 shares and 195.6 shares in 2022 and 2021, respectively
2 2 
Capital in excess of par value2,123 2,089 
Retained earnings2,197 2,154 
Treasury stock – at cost 15.8 shares and 15.2 shares in 2022 and 2021, respectively
(708)(656)
Accumulated other comprehensive loss(399)(371)
Total stockholders’ equity3,215 3,218 
Non-controlling interests7 8 
Total equity3,222 3,226 
Total liabilities and stockholders’ equity$8,106 $8,276 


See accompanying notes to condensed consolidated financial statements.
5


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)
For the nine months ended September 30,20222021
Operating Activities
Net income$206 $314 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation83 90 
Amortization93 96 
Share-based compensation28 25 
Restructuring and asset impairment charges22 7 
U.K. pension settlement expense140  
Gain from sale of business(1)(2)
Other, net(9)3 
Payments for restructuring(7)(21)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables(145)(78)
Changes in inventories(214)(135)
Changes in accounts payable47 19 
Changes in accrued taxes(12) 
Other, net3  
Net Cash – Operating activities234 318 
Investing Activities
Capital expenditures(148)(127)
Proceeds from sale of business1 2 
Proceeds from the sale of property, plant and equipment3 1 
Cash received from investments5  
Cash paid for investments(9) 
Cash received from cross-currency swaps24 11 
Other, net1  
Net Cash – Investing activities(123)(113)
Financing Activities
   Long-term debt repaid (600)
Repurchase of common stock(52)(68)
Proceeds from exercise of employee stock options6 15 
Dividends paid(163)(152)
Other, net(1)(1)
Net Cash – Financing activities(210)(806)
Effect of exchange rate changes on cash(64)(19)
Net change in cash and cash equivalents(163)(620)
Cash and cash equivalents at beginning of year1,349 1,875 
Cash and cash equivalents at end of period$1,186 $1,255 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$67 $83 
Income taxes (net of refunds received)$57 $71 

See accompanying notes to condensed consolidated financial statements.
6


XYLEM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Background and Basis of Presentation
Background
Xylem Inc. (“Xylem” or the “Company”) is a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment.
Xylem operates in three segments, Water Infrastructure, Applied Water and Measurement & Control Solutions. See Note 18, "Segment Information," to the condensed consolidated financial statements for further segment background information.
Except as otherwise indicated or unless the context otherwise requires, "Xylem," "we," "us," "our" and the "Company" refer to Xylem Inc. and its subsidiaries.
Basis of Presentation
The interim condensed consolidated financial statements reflect our financial position and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions between our businesses have been eliminated.
The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair statement of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Annual Report") in preparing these unaudited condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our 2021 Annual Report.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, post-retirement obligations and assets, revenue recognition, income taxes, valuation of intangible assets, goodwill and indefinite-lived intangible impairment testing and contingent liabilities. Actual results could differ from these estimates. The global outbreak of the novel coronavirus ("COVID-19") disease in March 2020, declared a pandemic by the World Health Organization, has created significant global volatility, uncertainty and related macroeconomic disruption. The COVID-19 pandemic and macroeconomic conditions have also caused increased uncertainty in estimates and assumptions affecting the condensed consolidated financial statements. Actual results could differ from these estimates.
Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the condensed consolidated financial statements included herein are described as ending on the last day of the calendar quarter.

7


Note 2. Recently Issued Accounting Pronouncements
Pronouncements Not Yet Adopted
In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-04, "Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." This guidance requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. The ASU becomes effective January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2024. Early adoption is permitted. We will reflect the impact of these disclosure updates in our Form 10-Q for the quarterly period ended March 31, 2023.

Note 3. Revenue
Disaggregation of Revenue
The following table illustrates the sources of revenue:
Three Months EndedNine Months Ended
September 30,September 30,
(in millions)2022202120222021
Revenue from contracts with customers$1,319 $1,214 $3,852 $3,726 
Lease Revenue61 51 164 146 
Total$1,380 $1,265 $4,016 $3,872 

The following table reflects revenue from contracts with customers by application.
Three Months EndedNine Months Ended
September 30,September 30,
(in millions)2022202120222021
Water Infrastructure
     Transport$410 $390 $1,235 $1,173 
     Treatment103 106 297 306 
Applied Water
     Commercial Building Services171 152 479 454 
Residential Building Services82 71 233 211 
     Industrial Water205 177 600 542 
Measurement & Control Solutions
     Water278 253 822 824 
     Energy70 65 186 216 
Total$1,319 $1,214 $3,852 $3,726 

8


The following table reflects revenue from contracts with customers by geographical region.
Three Months EndedNine Months Ended
September 30,September 30,
(in millions)2022202120222021
Water Infrastructure
     United States$155 $137 $467 $402 
Western Europe172 175 548 538 
Emerging Markets (a)135 137 356 391 
Other51 47 161 148 
Applied Water
     United States235 197 675 593 
Western Europe90 90 285 281 
Emerging Markets (a)100 81 258 240 
Other33 32 94 93 
Measurement & Control Solutions
     United States221 189 614 625 
Western Europe55 59 183 202 
Emerging Markets (a)48 46 142 141 
Other24 24 69 72 
Total$1,319 $1,214 $3,852 $3,726 

(a)Emerging Markets includes results from the following regions: Eastern Europe, the Middle East and Africa, Latin America and Asia Pacific (excluding Japan, Australia and New Zealand, which are presented in "Other")

9


Contract Balances
We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Changes in contract assets and liabilities are due to our performance under the contract. The table below provides contract assets, contract liabilities, and significant changes in contract assets and liabilities:
(in millions)Contract Assets (a)Contract Liabilities
Balance at January 1, 2021$117 $166 
  Additions, net99 109 
  Revenue recognized from opening balance— (106)
  Billings transferred to accounts receivable (85)— 
  Foreign currency and other(1)(2)
Balance at September 30, 2021$130 $167 
Balance at January 1, 2022$125 $164 
  Additions, net91 110 
  Revenue recognized from opening balance (94)
  Billings transferred to accounts receivable(71) 
  Foreign currency and other(8)(12)
Balance at September 30, 2022$137 $168 
(a)Excludes receivable balances, which are disclosed on the Condensed Consolidated Balance Sheets

Performance obligations
Delivery schedules vary from customer to customer based upon their requirements. Typically, large projects require longer lead production cycles and delays can occur from time to time. As of September 30, 2022, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to $567 million. We expect to recognize the majority of revenue upon the completion of satisfying these performance obligations in the following three years. The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations that are part of a contract whose original expected duration is less than one year.

Note 4. Restructuring and Asset Impairment Charges
Restructuring
From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position itself. During the three and nine months ended September 30, 2022, we incurred restructuring costs of $3 million and $9 million, respectively. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount across all segments.
During the three and nine months ended September 30, 2021, we recognized net restructuring (recoveries) expense of $(2) million and charges of $6 million, respectively, of which $(2) million and $4 million, respectively, relate to actions previously announced in 2020 and earlier. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment and accrual recoveries in our Measurement & Control Solutions segment.
10


The following table presents the components of restructuring expense and asset impairment charges:
Three Months EndedNine Months Ended
September 30,September 30,
(in millions)2022202120222021
By component:
Severance and other charges$3 $1 $9 $9 
Asset impairment   1 
Reversal of restructuring accruals (3) (4)
Total restructuring costs$3 $(2)$9 $6 
Asset impairment charges12  13 1 
Total restructuring and asset impairment charges$15 $(2)$22 $7 
By segment:
Water Infrastructure$2 $ $4 $7 
Applied Water 1 1 2 
Measurement & Control Solutions13 (3)17 (2)
The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within "Accrued and other current liabilities" and "Other non-current accrued liabilities", for the nine months ended September 30, 2022 and 2021:
(in millions)20222021
Restructuring accruals - January 1$7 $29 
Restructuring costs, net9 6 
Cash payments(7)(21)
Asset impairment (1)
Foreign currency and other(1)(2)
Restructuring accruals - September 30$8 $11 
By segment:
Water Infrastructure$1 $1 
Applied Water 2 
Measurement & Control Solutions3 6 
Regional selling locations (a)2 2 
Corporate and other2  
(a)Regional selling locations consist primarily of selling and marketing organizations and related support services that incurred restructuring expense that was allocated to the segments. The liabilities associated with restructuring expense were not allocated to the segments.
11


The following table presents expected restructuring spend in 2022 and thereafter:
(in millions)Water InfrastructureApplied WaterMeasurement & Control SolutionsCorporateTotal
Actions Commenced in 2022:
Total expected costs$4 $1 $3 $ $8 
Costs incurred during Q1 2022     
Costs incurred during Q2 20222 1 2  5 
Costs incurred during Q3 20222  1  3 
Total expected costs remaining$ $ $ $ $ 
Actions Commenced in 2021:
Total expected costs$3 $ $1 $ $4 
Costs incurred during 20213    3 
Costs incurred during Q1 2022     
Costs incurred during Q2 2022     
Costs incurred during Q3 2022     
Total expected costs remaining$ $ $1 $ $1 
During the second quarter of 2022, we also incurred charges of $1 million within the Measurement & Control Solutions segment, related to actions commenced prior to 2021.
The Water Infrastructure, Applied Water and Measurement & Control Solutions actions commenced in 2022 consist primarily of severance charges. The actions commenced in 2022 are complete.
The Water Infrastructure and Measurement & Control Solutions actions commenced in 2021 consist primarily of severance charges. The Water Infrastructure actions are complete and the Measurement & Control Solutions actions are expected to continue through the first quarter of 2023.
Asset Impairment
During the third quarter of 2022, we determined that certain assets including software and customer relationships within our Measurement & Control Solutions segment were impaired. Accordingly, we recognized an impairment charge of $12 million. Refer to Note 8, "Goodwill and Other Intangible Assets," for additional information.

Note 5. Income Taxes
Our quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items within periods presented. The comparison of our effective tax rate between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction and discrete items.
The income tax provision for the three months ended September 30, 2022 was $5 million resulting in an effective tax rate of 27.8%, compared to a $19 million expense resulting in an effective tax rate of 13.9% for the same period in 2021. The income tax provision for the nine months ended September 30, 2022 was $45 million resulting in an effective tax rate of 17.8%, compared to a $71 million expense resulting in an effective tax rate of 18.3% for the same period in 2021. The effective tax rate for the three month period ended September 30, 2022 was higher than the U.S. federal statutory rate primarily due to the impact of earnings mix. The effective tax rate for the nine month period ended September 30, 2022 was lower than the U.S. federal statutory rate primarily due to favorable earnings mix, partially offset by the Global Intangible Low Taxed Income ("GILTI") inclusion.
12


Unrecognized Tax Benefits
During 2019, Xylem’s Swedish subsidiary received a tax assessment for the 2013 tax year related to the tax treatment of an intercompany transfer of certain intellectual property that was made in connection with a reorganization of our European businesses. Xylem filed an appeal with the Administrative Court of Vaxjo, which rendered a decision adverse to Xylem in June 2022 for SEK788 million (approximately $70 million USD), consisting of the full tax assessment amount plus penalties and interest. Xylem has appealed this decision with the intermediate appellate court, the Administrative Court of Appeal (the “Court”). At this time, management, in consultation with external legal advisors, continues to believe it is more likely than not that Xylem will prevail on the proposed assessment and will continue to vigorously defend our position through the appellate process. The appeal to the Court is expected to take approximately one year; however, there can be no assurance as to the timing of the Court’s decision. Both parties will have the ability to seek appeal of the Court’s decision to the Supreme Administrative Court of Sweden. There can be no assurance that the final determination by the authorities will not be materially different than our position. As of September 30, 2022, we have not recorded any unrecognized tax benefits related to this uncertain tax position.

Note 6. Earnings Per Share
The following is a reconciliation of the shares used in calculating basic and diluted net earnings per share:
Three Months EndedNine Months Ended
 September 30,September 30,
2022202120222021
Net income (in millions)$12 $114 $206 $314 
Shares (in thousands):
Weighted average common shares outstanding180,191 180,221 180,173 180,182 
Add: Participating securities (a)26 15 28 21 
Weighted average common shares outstanding — Basic180,217 180,236 180,201 180,203 
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options523 949 516 880 
Dilutive effect of restricted stock units and performance share units199 457 153 405 
Weighted average common shares outstanding — Diluted180,939 181,642 180,870