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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 June 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 July 29, 2022, there were 180,181,765 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 MonthsSix Months
For the period ended June 30,2022202120222021
Revenue$1,364 $1,351 $2,636 $2,607 
Cost of revenue844 831 1,649 1,597 
Gross profit520 520 987 1,010 
Selling, general and administrative expenses314 304 618 605 
Research and development expenses53 53 105 103 
Restructuring and asset impairment charges 7 3 7 9 
Operating income146 160 257 293 
Interest expense12 21 25 42 
Other non-operating income (expense), net2 (3)1 (1)
Gain from sale of business 2 1 2 
Income before taxes136 138 234 252 
Income tax expense24 25 40 52 
Net income$112 $113 $194 $200 
Earnings per share:
Basic$0.62 $0.63 $1.07 $1.11 
Diluted$0.62 $0.62 $1.07 $1.10 
Weighted average number of shares:
Basic180.2 180.1 180.2 180.2 
Diluted180.6 181.3 180.8 181.4 
See accompanying notes to condensed consolidated financial statements.

3


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
 
 Three MonthsSix Months
For the period ended June 30,2022202120222021
Net income$112 $113 $194 $200 
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment(41)19 (44)29 
Net change in derivative hedge agreements:
Unrealized gain (loss)(9)4 (15)(7)
Amount of loss (gain) reclassified into net income3 1 5 (2)
Net change in post-retirement benefit plans:
Amortization of prior service credit(1) (1)(1)
Amortization of net actuarial loss into net income4 5 8 11 
Other comprehensive income (loss), before tax(44)29 (47)30 
Income tax expense (benefit) related to items of other comprehensive income (loss)27 1 30 15 
Other comprehensive income (loss), net of tax(71)28 (77)15 
Comprehensive income$41 $141 $117 $215 


See accompanying notes to condensed consolidated financial statements.
4


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
June 30,
2022
December 31,
2021
  
ASSETS
Current assets:
Cash and cash equivalents$1,113 $1,349 
Receivables, less allowances for discounts, returns and credit losses of $41 and $44 in 2022 and 2021, respectively
1,024 953 
Inventories852 700 
Prepaid and other current assets185 158 
Total current assets3,174 3,160 
Property, plant and equipment, net608 644 
Goodwill2,714 2,792 
Other intangible assets, net975 1,016 
Other non-current assets718 664 
Total assets$8,189 $8,276 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$648 $639 
Accrued and other current liabilities782 752 
Short-term borrowings and current maturities of long-term debt521  
Total current liabilities1,951 1,391 
Long-term debt1,879 2,440 
Accrued post-retirement benefits408 438 
Deferred income tax liabilities292 287 
Other non-current accrued liabilities456 494 
Total liabilities4,986 5,050 
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 195.9 shares and 195.6 shares in 2022 and 2021, respectively
2 2 
Capital in excess of par value2,111 2,089 
Retained earnings2,238 2,154 
Treasury stock – at cost 15.8 shares and 15.2 shares in 2022 and 2021, respectively
(708)(656)
Accumulated other comprehensive loss(448)(371)
Total stockholders’ equity3,195 3,218 
Non-controlling interests8 8 
Total equity3,203 3,226 
Total liabilities and stockholders’ equity$8,189 $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 six months ended June 30,20222021
Operating Activities
Net income$194 $200 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation56 59 
Amortization62 65 
Share-based compensation18 17 
Restructuring and asset impairment charges7 9 
Gain from sale of business(1)(2)
Other, net6 6 
Payments for restructuring(5)(18)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables(119)(66)
Changes in inventories(189)(89)
Changes in accounts payable40 36 
Other, net(37)(11)
Net Cash – Operating activities32 206 
Investing Activities
Capital expenditures(95)(80)
Proceeds from sale of business1 2 
Proceeds from the sale of property, plant and equipment3  
Cash received from investments4  
Cash paid for investments(7) 
Other, net10 9 
Net Cash – Investing activities(84)(69)
Financing Activities
Repurchase of common stock(52)(68)
Proceeds from exercise of employee stock options3 9 
Dividends paid(110)(102)
Other, net1 (1)
Net Cash – Financing activities(158)(162)
Effect of exchange rate changes on cash(26)(10)
Net change in cash and cash equivalents(236)(35)
Cash and cash equivalents at beginning of year1,349 1,875 
Cash and cash equivalents at end of period$1,113 $1,840 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$40 $58 
Income taxes (net of refunds received)$42 $60 


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 17, "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 related macroeconomic impacts 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.


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Note 2. Revenue
Disaggregation of Revenue
The following table illustrates the sources of revenue:
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2022202120222021
Revenue from contracts with customers$1,312 $1,302 $2,534 $2,513 
Lease Revenue52 49 102 94 
Total$1,364 $1,351 $2,636 $2,607 

The following table reflects revenue from contracts with customers by application.
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2022202120222021
Water Infrastructure
     Transport$432 $414 $825 $784 
     Treatment104 106 194 200 
Applied Water*
     Commercial Building Services147 155 308 303 
Residential Building Services79 71 153 135 
     Industrial Water204 188 394 369 
Measurement & Control Solutions
     Water279 288 544 571 
     Energy67 80 116 151 
Total$1,312 $1,302 $2,534 $2,513 
*Items in the prior year footnote disclosures for Applied Water were reclassified to conform to the current classification.
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The following table reflects revenue from contracts with customers by geographical region.
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2022202120222021
Water Infrastructure
     United States$165 $142 $312 $265 
Western Europe190 190 376 363 
Emerging Markets (a)120 133 221 255 
Other61 55 110 101 
Applied Water
     United States219 202 440 396 
Western Europe101 99 195 191 
Emerging Markets (a)79 81 159 159 
Other31 32 61 61 
Measurement & Control Solutions
     United States212 224 393 437 
Western Europe59 69 128 143 
Emerging Markets (a)50 49 94 95 
Other25 26 45 47 
Total$1,312 $1,302 $2,534 $2,513 

(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")

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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, net78 99 
  Revenue recognized from opening balance— (93)
  Billings transferred to accounts receivable (74)— 
  Other (1)
Balance at June 30, 2021$121 $171 
Balance at January 1, 2022$125 $164 
  Additions, net63 97 
  Revenue recognized from opening balance (75)
  Billings transferred to accounts receivable(61) 
  Other(4)(3)
Balance at June 30, 2022$123 $183 
(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 June 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 $498 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 3. 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 six months ended June 30, 2022, we incurred restructuring charges of $6 million. 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 six months ended June 30, 2021, we recognized restructuring charges of $3 million and $8 million, respectively, of which $2 million and $6 million relate to actions previously announced in 2020. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment.
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The following table presents the components of restructuring expense and asset impairment charges:
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2022202120222021
By component:
Severance and other charges$6 $4 $6 $8 
Asset impairment   1 
Reversal of restructuring accruals (1) (1)
Total restructuring charges$6 $3 $6 $8 
Asset impairment charges1  1 1 
Total restructuring and asset impairment charges$7 $3 $7 $9 
By segment:
Water Infrastructure$2 $3 $2 $7 
Applied Water1  1 1 
Measurement & Control Solutions4  4 1 
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 six months ended June 30, 2022 and 2021:
(in millions)20222021
Restructuring accruals - January 1$7 $29 
Restructuring charges, net6 8 
Cash payments(5)(18)
Asset impairment (1)
Restructuring accruals - June 30$8 $18 
By segment:
Water Infrastructure$1 $3 
Applied Water 1 
Measurement & Control Solutions4 11 
Regional selling locations (a)1 3 
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.
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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$2 $1 $3 $ $6 
Costs incurred during Q1 2022     
Costs incurred during Q2 20222 1 2  5 
Total expected costs remaining$ $ $1 $ $1 
Actions Commenced in 2021:
Total expected costs$3 $ $1 $ $4 
Costs incurred during 20213    3 
Costs incurred during Q1 2022     
Costs incurred during Q2 2022     
Total expected costs remaining$ $ $1 $ $1 
The Water Infrastructure, Applied Water and Measurement & Control Solutions actions commenced in 2022 consist primarily of severance charges. The Water Infrastructure and Applied Water actions are complete and the Measurement & Control Solutions actions are expected to continue through the end of 2022.
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 end of 2022.
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.

Note 4. 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 June 30, 2022 was $24 million resulting in an effective tax rate of 17.5%, compared to a $25 million expense resulting in an effective tax rate of 18.5% for the same period in 2021. The income tax provision for the six months ended June 30, 2022 was $40 million resulting in an effective tax rate of 17.0%, compared to a $52 million expense resulting in an effective tax rate of 20.7% for the same period in 2021. The effective tax rate for the three and six month periods ended June 30, 2022 was lower than the U.S. federal statutory rate primarily due to favorable earnings mix and tax settlement benefits, partially offset by the Global Intangible Low Taxed Income ("GILTI") inclusion.
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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 $80 million, consisting of the full tax assessment amount plus penalties and interest. Xylem intends to appeal 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 June 30, 2022, we have not recorded any unrecognized tax benefits related to this uncertain tax position.

Note 5. Earnings Per Share
The following is a reconciliation of the shares used in calculating basic and diluted net earnings per share:
Three Months EndedSix Months Ended
 June 30,June 30,
2022202120222021
Net income (in millions)$112 $113 $194 $200 
Shares (in thousands):
Weighted average common shares outstanding180,123 180,072 180,164 180,162 
Add: Participating securities (a)33 34 29 24 
Weighted average common shares outstanding — Basic180,156 180,106 180,193 180,186 
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options438 897 513 845 
Dilutive effect of restricted stock units and performance share units56 346 129 380 
Weighted average common shares outstanding — Diluted180,650 181,349 180,835 181,411 
Basic earnings per share$0.62 $0.63 $1.07 $1.11 
Diluted earnings per share$0.62 $0.62 $1.07 $1.10 
(a)Restricted stock unit awards containing rights to non-forfeitable dividends that participate in undistributed earnings with common stockholders are considered participating securities for purposes of computing earnings per share.
(b)Incremental shares from stock options, restricted stock units and performance share units are computed by the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock units and performance share units, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance or market conditions at the end of the reporting period. See Note 13, "Share-Based Compensation Plans", to the condensed consolidated financial statements for further detail on the performance share units.
Three Months EndedSix Months Ended
 June 30,June 30,
(in thousands)2022202120222021
Stock options1,647 1,227 1,491 1,238 
Restricted stock units362 318 346 302 
Performance share units270 345 252 349 
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Note 6. Inventories
The components of total inventories are summarized as follows:
(in millions)June 30,
2022
December 31,
2021
Finished goods$318 $236 
Work in process71 58 
Raw materials463 406 
Total inventories$852 $700 

Note 7. Goodwill and Other Intangible Assets
Goodwill    
Changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 2022 are as follows:
(in millions)
Water
Infrastructure
Applied WaterMeasurement & Control SolutionsTotal
Balance as of January 1, 2022$656 $515 $1,621 $2,792 
Activity in 2022
Foreign currency and other(19)(15)(44)(78)
Balance as of June 30, 2022$637 $500