ITEM 1A. RISK FACTORS

In evaluating our business ~~each of~~and investment in our securities, investors should carefully consider the following ~~risks should be carefully considered,~~discussion of material factors and events, along with all of the other information in this Report and in our other filings with the SEC. ~~Should any of these risks~~The events and ~~uncertainties develop into actual events,~~consequences discussed below could, in circumstances that we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, financial condition, orcash flows, results of operations ~~could be materially and adversely affected. The~~and/or market price of our common stock.

These risk factors do not identify all of the risks ~~and uncertainties described below are those~~we face. Our business is also subject to general risks that affect many other companies. In addition, we ~~have identified as material but are not the only risks and uncertainties we face and therefore may not be exhaustive. We~~ operate in a continually changing business, economic and geopolitical environment and as a result, new risk factors may emerge from time to time. ~~We can neither predict with certainty these new risk factors nor assess~~Risks not currently known to us, or that we currently believe are immaterial, may impact our business operations, financial condition or share price. The global economic and geopolitical climate, including the ~~extent~~impacts of the ongoing COVID-19 pandemic, amplifies many of the risks below. Risks in this section are grouped in the following categories: (1) Risks Related to ~~which any new factor,~~Macroeconomic and Industry Factors; (2) Risks Related to Our Business and Operations; (3) Risks Related to Legal, Regulatory and Tax; and (4) Risks Related to Ownership of Our Common Stock. Many risks affect more than one category, and as a result the risks are not in order of significance or ~~combination~~probability of ~~factors,~~occurrence.

Risks Related to Macroeconomic and Industry Factors

Industry and economic conditions may adversely ~~impact~~affect our markets and our customers’ operating conditions, which can in turn affect our business, results of operations and financial condition.

With sales in approximately 150 countries, we compete in a wide range of geographic and product markets. Material economic and industry factors impacting our businesses include: (i) the overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) overall strength of industrial, governmental and public and private sector spending; (iii) overall strength of the residential and commercial real estate markets; (iv) federal, state, local and municipal governmental fiscal, trade and procurement laws, regulations and policies, including with respect to domestic content; (v) the availability of commercial financing for our customers and end-users; and (vi) the degree of funding for our public sector customers, including with respect to water infrastructure investments. The macroeconomic impacts of the ongoing COVID-19 pandemic and broader economic dynamics, including with respect to supply chain shortages, logistics challenges, tight labor markets and inflation, have had, and continue to have, a material adverse effect on our business and results of operations. Future slowdowns or prolonged downturns in the global economy or our markets could have material adverse effects on our business, financial condition, cash flows and results of operations.

We are exposed to geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales and operations.

In 2021, 44% of our total revenue was from customers within the U.S. and 56% was from customers outside the U.S. We expect our sales from international operations and export sales to continue to be a significant portion of our revenue. Many of our manufacturing operations, employees and suppliers are located outside of the U.S. Our operations and sales both within the U.S. and internationally are subject, in varying degrees, to risks inherent in doing business globally, including:

•changes in trade protection measures, including embargoes, tariffs and other trade barriers, import and export regulations, licensing requirements, and new and existing domestic content requirements for projects receiving governmental funding;

•instability and uncertainties arising from the global geopolitical environment, including economic nationalism, populism, protectionism and anti-global sentiment;

•changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies;

•changes in other laws and regulations or how such provisions are interpreted or administered;

•disruptions in our global supply chain, including with respect to labor shortages, supply shortages, and freight and logistics challenges;

•unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy;

•shocks to the global financial system, including due to global health crises, the effects of climate change, or idiosyncratic events, such as a terrorist attack;

•theft, compromise or misappropriation of technology, intellectual property or data;

•foreign currency exchange rate fluctuations, restrictions on repatriation of earnings or payment of distributions, dividends, loans or advances to us by foreign subsidiaries;

•disruption of operations from labor, civil, political or other disturbances;

•regional safety and security considerations;

•increased costs and risks in developing, staffing and simultaneously managing a number of global operations as a result of distance, remote work arrangements, language and cultural differences; and

•threat, outbreak, uncertainty or escalation of political instability, insurrection, armed conflict, terrorism, epidemics, global health crises or pandemics, or war.

In 2021, 44% of our revenues were generated in the U.S, which included sales of products sold into federally funded projects. We expect our U.S. sales in 2022 and beyond to be similar. However, we may not be able to successfully compete for federally funded projects as some of our products may not comply with the domestic content requirements of the U.S. Buy American mandate applicable to the Infrastructure Investment and Jobs Act (“IIJA”) signed into law on November 15, 2021, as well as other federally funded projects. We are assessing the risks associated with the Buy America mandate, as well as related mitigation options around sourcing and manufacturing, but there is no guarantee that we will be able to meet applicable domestic content requirements. While governmental exemptions and waivers may in the future be issued that negate the application of the Buy America mandate to some or all of our potential sales into IIJA and other federally funded projects, it is uncertain whether and to what extent such exemptions or waivers may be issued. An inability to meet applicable domestic content requirements for U.S. federally funded projects could have a material adverse impact on our business, financial condition or results of operations.

We continue to monitor the impacts of the U.K.’s exit from the EU (“Brexit”) on our supply chain, operations and financial results. The U.K. and the EU's Trade and Cooperation Agreement (“TCA”) creates a number of risks and uncertainties for our businesses, including: 1) our services are subject to the World Trade Organization’s rules until the parties to the TCA agree on rules around trade in services, and 2) a delay in implementing final provisions on border checks, with some transitional arrangements for 2021 being continued into 2022. The U.K. will also need to negotiate its own trade treaties with countries around the world, which could take years to complete, and any disagreements on trade terms could result in supply chain delays or other disruptions. As a result, we face continued uncertainty and risks of disruption in our supply chain and increased costs.

In the year ended December 31, 2021, 21% of our total revenues were generated in emerging markets and we have placed a particular emphasis in our strategy on increasing our growth and presence in emerging markets. Beyond the general risks that we face outside the U.S., our operations in emerging markets are subject to additional risks and uncertainties, including: (i) governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such taxes may increase; (ii) governments may seek to nationalize our assets; (iii) governments may impose or increase investment barriers or other restrictions affecting our business; (iv) difficulty in enforcing agreements; (v) challenges collecting receivables, protecting our intellectual property and other assets; (vi) pressure on the pricing of our products and services; (vii) higher business conduct risks; and (viii) challenges in our ability to hire and retain qualified talent and labor. We cannot predict the impact that such factors might have on our business, financial condition, cash flows and results of operations.

The COVID-19 pandemic has adversely impacted, and continues to pose risks to, our business, results of operations and financial condition, the nature and extent of which are highly uncertain and unpredictable.

Our global operations expose us to risks associated with public health crises, including epidemics and pandemics. The ongoing COVID-19 pandemic has had, and may continue to have, an adverse impact on our employees, customers, supply chain, operations and sales. The COVID-19 pandemic has, and may in the future, curtail the movement of people, goods and services worldwide, including in many of the regions where we sell our products and services and conduct operations. Government-mandated precautions to mitigate the spread of COVID-19, including travel restrictions, quarantines, stay at home or similar measures in many of the areas in which we operate, resulted in temporary production impacts at several of our facilities in 2020 and 2021, curtailed, and may in the future curtail, the business and operations of some of our customers and suppliers, including our ability to access our customers’ sites. If the COVID-19 pandemic continues or worsens, including additional mutations of the virus, we may experience a decline in sales and customer orders in certain of our businesses. The COVID-19 pandemic and broader global market supply and demand dynamics also have impacted, and continue to impact our supply chain with unpredictable disruptions, due to component shortages, including with respect to key electronic components such as semiconductors, capacity constraints, delays in shipment of materials necessary to the manufacture of our products, freight and logistics challenges, tight labor markets and inflation. Different markets and parts of our business will recover from the COVID-19 pandemic at different rates depending on many factors,

including vaccination levels or new COVID-19 variants and related outbreaks. While we have taken measures to mitigate these impacts, as the pandemic continues, or if it worsens, our manufacturing facilities, supply chain and logistics may continue to be significantly impacted. Accordingly, the pandemic has negatively impacted our revenue growth in certain of our businesses. It is uncertain how materially the COVID-19 pandemic, including additional mutations of the virus, the corresponding rollout, efficacy or unanticipated consequences of vaccines, and the pace of recovery will affect our global operations and sales if these impacts persist, worsen or re-emerge throughout 2022 and beyond. The extent and duration of these impacts on us are dependent in part on demand for our products and services and, our ability to meet customer demand; customers’ budgets, spending, willingness to allow us access to their job sites and continuation of planned projects; continued funding for infrastructure investments, particularly water infrastructure; our suppliers’ ability to continue to supply us with parts, components and raw materials, and logistics providers' ability to continue shipment of our products and supplies in a timely manner.

The COVID-19 pandemic has caused significant volatility and uncertainty in the financial and capital markets. A further disruption of global financial markets or resulting economic downturn from the COVID-19 pandemic or other global health crises may reduce our ability to incur debt or access capital, or increase our cost of capital. There are no assurances that the credit markets or the capital markets will be available to us in the future or that the lenders participating in our credit facilities will be able to provide financing in accordance with their contractual obligations. Additionally, concerns over the economic impacts of COVID-19 have caused, and may continue to cause, volatility in our stock price. A sustained downturn may impact our liquidity position, including our ability to continue to pay dividends, or may impact our asset values resulting in the carrying value of our goodwill or other intangible assets exceeding their fair value, which may require us to recognize an impairment to those assets. The effects of the COVID-19 pandemic, including remote working arrangements for employees, has not to date impacted but could in the future impact our financial reporting systems and internal control over financial reporting.

We cannot reasonably estimate the length or severity of the ongoing COVID-19 pandemic or the associated macroeconomic impacts, including impacts on our markets and other impacts to our business, financial position, results of operations and cash flows. To the extent that COVID-19 conditions improve, the duration and sustainability of such improvements will be uncertain, and continuing adverse impacts or the degree of improvement may vary by business and/or geography. Actions we may take in response to improvements in conditions may also vary by business and/or geography, and may be made with incomplete information. There is a risk that such actions could be premature, insufficient or incorrect and could have a material adverse impact on our business and results of operations.

Inflation, tariffs, customs duties and other increases in manufacturing and operating costs could adversely affect our cash flows and results of operations.

Our operating costs are subject to fluctuations, particularly due to changes in prices for commodities, parts, raw materials, energy and related utilities, freight, and cost of labor which have been and may continue to be driven by inflation, tightening labor markets, prevailing price levels, exchange rates, changes in trade agreements and trade protection measures including tariffs, and other economic factors. Throughout 2021 our operating costs have been impacted by price inflation, including with respect to the cost of certain raw materials, electronic components, commodities, freight and logistics, and we expect this to continue for the foreseeable future. The U.S. has enacted various trade actions, including imposing tariffs on certain goods we import from China and other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S., or further retaliatory trade measures taken by China or other countries, could increase the cost of our products that we may not be able to offset. The TCA between the U.K. and EU imposes duties on goods traded between the U.K. and EU. In order to remain competitive, we may not be able to recover all or a portion of these higher costs from our customers through price increases. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method. Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected.

Our business is subject to foreign currency exchange rates fluctuations.

Sales outside of the U.S. for the year ended December 31, 2021 accounted for approximately 56% of our net sales. We also have significant operations in various locations outside of the U.S. We are therefore exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Swedish Krona, British Pound, Canadian Dollar, Australian Dollar, and Polish Zloty. Changes in the value of currencies of the countries in which we do business relative to the value of the U.S. Dollar or Euro could affect our ability to sell products competitively and control our cost structure, which has had and may continue to have a material adverse effect on our business, financial condition, cash flows and results of operations. Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar. The

translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, Chinese Yuan, British Pound, Canadian Dollar, Australian Dollar, Swedish Krona, and Indian Rupee. As the U.S. Dollar fluctuates against other currencies in which we transact business, revenue and income may be impacted. Strengthening of the U.S. Dollar relative to the Euro and the currencies of the other countries in which we do business, has materially and adversely affected and could in the future materially and adversely affect our sales growth and profitability in future periods. Refer to Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" for additional information on foreign exchange risk.

Our pension and other defined benefit plans are subject to financial market risks that could adversely impact our earnings, financial condition and cash flows in future periods.

Certain current and retired employees are covered by pension and other defined benefit plans (collectively, “post-retirement benefit plans”). We make contributions to fund our post-retirement benefit plans when we consider it necessary or advantageous to do so. Significant changes in market interest rates, decreases in fair value of or investment losses on plan assets, changes in discount rates, or changes in minimum funding requirements established by governments, taxing authorities or other agreements, could increase our funding obligations and adversely impact our earnings, financial condition and cash flows in future periods. In addition, the cost of our post-retirement benefit plans is incurred over long periods of time and involves factors that can be volatile and unpredictable, including rates of return on plan assets, discount rates used to calculate liabilities and expenses, change in laws and regulatory actions, and changes in actuarial experience and assumptions, which could adversely impact our earnings, results of operations, financial condition and cash flows.

Risks Related to ~~Operational~~Our Business and ~~External Factors~~Operations

Failure to compete successfully in our markets, including our ability to develop and commercialize innovative and disruptive technologies, could adversely affect our business.

We offer our technologies, products and services in highly competitive markets. We believe the principal points of competition ~~in our markets~~ are product and service performance, quality and reliability, innovation, speed to market with new or disruptive technologies and business models, application expertise, brand reputation, energy efficiency, product security, product life cycle cost, timeliness of delivery, proximity of our service centers to customers, effectiveness of our distribution channels, price and ~~price.~~customers’ experience in doing business with us. Maintaining and improving our competitive position will require successful management of these factors ~~including continued investment by us~~ in ~~manufacturing, technology~~a business environment with increasingly rapid rates of change and ~~innovation, research~~disruption.

Our competitive position and ~~development, engineering, marketing, customer service and support, and our distribution networks. Our~~ future growth rate ~~depends~~depend upon a number of factors, including our ability to successfully: (i) ~~identify emerging technological trends in our target end-markets, (ii)~~innovate, develop and maintain competitive products, services, ~~and~~ business models and customer experience to address emerging trends and meet customers’ needs (including those related to social, environmental and sustainability matters), (ii) defend our market share against an ever-expanding number of competitors, ~~including~~ many of which are new and non-traditional competitors from outside our industry, such as large technology firms, or those out of emerging markets, (iii) enhance our ~~products~~product and ~~services~~service offerings by adding innovative features or disruptive technologies that differentiate them from those of our competitors and prevent commoditization, (iv) develop, manufacture and bring compelling new products and services to market quickly and cost-effectively, (v) continue to cultivate, develop and ~~(v)~~maintain our distribution network of channel partners, (vi) attract, develop and retain individuals with the requisite innovation, digital and technical expertise and understanding of customers’ needs to develop and commercialize new technologies, ~~and introduce new~~ products and ~~services.~~services, (vii)continue to invest in our manufacturing, research and development, engineering, sales and marketing, customer service and support, and distribution networks, (viii) win large contracts, and (ix) compete for business subject to applicable governmental procurement laws, regulations and policies, including new and existing domestic content requirements in the U.S. and globally, as they may evolve over time.

We may not be successful in maintaining our competitive ~~position. Our competitors~~position, which could adversely affect our business, financial condition, cash flows or ~~third parties from outside~~results of our industry may develop disruptive technologies or products and services that are superior to ours, may develop more efficient or effective methods of providing products and services or may adapt more quickly than we do to new or disruptive technologies or evolving customer requirements.operations. The failure of our technologies, products or services to maintain and gain market acceptance due to more attractive offerings, or customers’ slower-than-expected adoption of and investment in our new and innovative technologies could significantly reduce our revenues or market share and adversely affect our competitive ~~standing and prospects.~~position. Pricing pressures ~~also~~ could cause us to adjust the prices of certain products to stay competitive, or we may not be able to continue to win large contracts, which could adversely affect our market share and ~~financial performance. Failure~~competitive position.

Cybersecurity incidents or other disruptions to ~~continue competing successfully or to win large contracts could adversely affect~~ our ~~business, financial condition or results of operations.~~

~~Our results of operations and financial condition may be adversely affected by global economic and financial market conditions.~~

We compete around the world in various geographic and product markets. In 2018, 47%, 25% and 20% of our total revenue was from customers located in the United States, western Europe and emerging markets, respectively. We expect revenue from these markets to be significant for the foreseeable future. Important factors impacting our businesses include the overall strength of these economies and our customers’ confidence in both local and global macro-economic conditions; industrial and private sector spending, federal, state, local and municipal governmental fiscal and trade policies; the strength of the residential and commercial real estate markets; interest rates; availability of commercial financing for our customers and end-users; the availability of funding for our public sector customers; and unemployment rates. A slowdown or prolonged downturn in our markets could have a material adverse effect on our business, financial condition and results of operations.

~~Economic and other risks associated with international sales~~information technology infrastructure, communications networks and operations could adversely affect our ~~business.~~

In 2018, 53% of our total revenue was from customers outside the United States, with 20% of total revenue generated in emerging markets. We expect our sales from international operations and export sales to continue to be a significant portion of our revenue. We have placed a particular emphasis on increasing our growth and presence in emerging markets. Many of our manufacturing operations, employees and suppliers are located

~~outside of the United States. Both our international operations and sales are subject, in varying degrees, to risks inherent in doing~~ business, ~~outside the United States. These risks include the following:~~

~~changes in trade protection measures, including embargoes, tariffs and other trade barriers, and import and export regulations and licensing requirements;~~

~~instability and uncertainties arising from the global geopolitical environment, such as economic nationalism, populism, protectionism and anti-global sentiment;~~

~~changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies;~~

~~unanticipated changes in other laws and regulations or in how such provisions are interpreted or administered;~~

~~potential disruptions in our global supply chain;~~

~~possibility of unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy;~~

~~currency exchange rate fluctuations and restrictions on currency repatriation;~~

~~disruption of operations from labor and political disturbances;~~

~~regional safety and security considerations;~~

~~increased costs and risks in developing, staffing and simultaneously managing a number of global operations as a result of distance as well as language and cultural differences; and~~

~~outbreak or escalation of insurrection, armed conflict, terrorism or war.~~

Changes in the geopolitical or economic environments in the countries in which we operate could have a material adverse effect on our financial condition, results of operations or cash flows. For example, changes in U.S. policy regarding international trade, including import and export regulation and international trade agreements, could also negatively impact our business. In 2018, the U.S. imposed tariffs on certain goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S. on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that we may not be able to offset or may otherwise adversely impact our financial condition and results of operations.

Additionally, we continue to monitor Brexit and its potential impacts on our results of operations and financial condition. Volatility in foreign currencies is expected to continue as the United Kingdom executes its exit from the European Union. If the United Kingdom's membership in the European Union terminates without an agreement (referred to as a “hard Brexit”), there could be increased costs from re-imposition of tariffs on trade between the United Kingdom and European Union, increased transportation costs, shipping delays because of the need for customs inspections and procedures and shortages of certain goods. The United Kingdom will also need to negotiate its own tax and trade treaties with countries all over the world, which could take years to complete. In the case of a “hard Brexit”, our exposure to disruptions to our supply chain, increased costs, the imposition of tariffs and currency devaluation in the United Kingdom could result in a material impact to our consolidated revenue, earnings and cash flow.

Further, any payment of distributions, loans or advances to us by our foreign subsidiaries could be subject to restrictions on, or taxation of, dividends on repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate. In addition to the general risks that we face outside the United States, our operations in emerging markets could involve additional uncertainties for us, including risks that governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such taxes may increase; governments may seek to nationalize our assets; or governments may impose or increase investment barriers or other restrictions affecting our business. In addition, emerging markets pose other uncertainties, including the difficulty of enforcing agreements, challenges collecting receivables, protection of our intellectual property and other assets, pressure on the pricing of our products and services, higher business conduct risks, ability to hire and retain qualified talent and risks of political instability. We cannot predict the impact such events might have on our business, financial condition and results of operations.

~~Our business could be adversely affected by cyber threats or other interruptions in information technology, communications networks and operations.~~

services.

Our business operations rely on information technology and communications networks, ~~including those~~some of which are operated by third parties, including cloud-based service providers, to process, transmit and store our electronic information, ~~or our customers’ electronic~~including sensitive data such as confidential business information and personal data relating to employees, customers or other business partners. We have, or operate through, a concentration of operations on certain sites, such as production and shared service centers. With the COVID-19 pandemic impacting our business since March 2020, a significant portion of our workforce transitioned to remote working, which we expect to be the case for the foreseeable future, and they are reliant on our information technology infrastructure and communication networks to perform their jobs, as well as access to reliable and safe communication networks in their communities. We also rely on third parties’ information technology systems to manage or support a variety of business processes ~~or activities.~~and activities, including with regard to remote work. Regardless of protection measures, essentially all systems are susceptible to damage, disruption or shut-down due to cybersecurity attacks, including ransomware, denial-of-service, computer viruses and security ~~breaches, insider risk,~~breaches; equipment or system failure, including due to maintenance, obsolescence or age; and other events or circumstances, such as human error or malfeasance, vandalism, natural ~~disasters,~~disaster, fire, power, ~~outages,~~communication or other utility outage, shutdown ~~telecommunication~~ or utility failure and other events. In any such circumstances, our system redundancy and other business continuity and disaster recovery planning and response may be ineffective or inadequate.

In addition, we ~~have designed~~offer certain services and products, including pumps, controllers and ~~services~~metersthat are digitally-enabled or that connect to and are part of the “Internet of ~~Things.”~~Things” (IoT), and are used by third parties for operational purposes or to collect data. Cybersecurity attacks may target hardware, software and information installed, stored or transmitted by our products after they have been purchased and incorporated into third parties’ products, facilities or infrastructure. While we attempt to provide ~~adequate~~ security measures to safeguard our products and services from cyber threats, the potential for an attack remains. A successful attack may result in ~~inappropriate~~the misappropriation, destruction, unauthorized access to ~~our~~ or ~~our customers'~~disclosure of third parties' confidential information, damage or ~~an inability for~~disruption to third parties’ operations, potentially with personal health and safety risks, recall of our products or increased costs for security and ~~services~~remediation, as well as damage to ~~function properly.~~our brand reputation.

~~We,~~Like many multinational companies, we, and some ~~of our~~ third ~~party vendors,~~parties upon which we rely, have experienced cybersecurity attacks on information technology networks and systems, products and services in the past and may experience them in the future, likely with more frequency and involving a broader range of ~~devices.~~devices and modes of attack. To date, none have resulted in any material adverse impact to our business, operations, products, services or ~~operations.~~customers. We have adopted measures designed to mitigate potential risks associated with cybersecurity threats, breaches or other disruptions or damage to our information technology ~~disruptions~~networks and ~~cybersecurity threats, however, given~~systems, products and services but the unpredictability of the timing, nature and scope of such disruptions weand threats could ~~potentially be subject to production downtimes, operational delays, other detrimental impacts on~~impact our business, operations, ~~or ability to provide~~ products and services to our customers, the compromise of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business, liability to others, regulatory enforcement actions, and/or damage to our reputation. We also have or operate through a concentration of operations on certain sites, such as production and shared services centers, where business interruptions could cause material damage and costs. Transport of goods from suppliers and to customers could also be hampered for the reasons stated above.services. Disruption to ~~any of the~~ information technology and communications networks on which we rely, or an attack on our ~~IoT~~ products and services, could interfere with our operations, disrupt our supply chain and service to our customers, interrupt production and shipments, result in theft or compromise of our and our customers’ intellectual property and trade secrets, damage employee, customer and business partner relationships, ~~and~~ negatively impact our reputation, result in legal claims and proceedings or regulatory enforcement actions, and increase our costs for security and remediation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

Although we continue to assess these risks, implement ~~controls~~measures to mitigate these risks and perform business continuity and disaster recovery planning, we cannot be sure that cybersecurity attacks or other interruptions with material adverse effects will not ~~occur.~~occur, or that our business continuity and disaster recovery efforts will be effective and adequate.

Lack of or delay in availability of products, parts and raw materials from our supply chain or the inability of suppliers to meet delivery and other requirements, could adversely affect our business.

Our business relies on a large and complex network of suppliers (and their suppliers), including contract manufacturing, commodity markets and freight and logistics providers, to secure and ship finished goods and raw materials, parts, electronic components and other components that are used in our products. We expect that our reliance on, and the complexity of, the supply chain will continue to increase. Parts and raw materials commonly used in our products include electronic components, particularly semiconductors, motors, fabricated parts, castings, bearings, seals, batteries, and PCBs, as well as commodities, including steel, brass, nickel, copper, aluminum and plastics. We are exposed to the availability of these parts, components, materials and finished goods, which have been and may in the future be subject to delay, curtailment or change due to, among other things, macroeconomic factors including supply and demand dynamics, labor shortages, changes in the strategy or production planning of

suppliers including decisions to exit production of key components upon which we rely, interruptions in suppliers' production, labor disputes, the impaired financial condition of a particular supplier, suppliers’ capacity allocations to other purchasers, changes in trade agreements and trade protection measures including tariffs, exchange rates and prevailing price levels, ability to meet regulatory requirements, weather emergencies and associated effects of climate change, the ongoing effects of the COVID-19 pandemic or other public health crises or threatened or actual armed conflict, acts of war or terrorism. We have also experienced, and continue to experience, increased freight and logistics costs, delivery delays related to port congestion and other logistics- related challenges. Although we have insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any or all aspects of supply chain disruptions.

Some of our key components are available only from a sole or single source supplier or a limited group of suppliers and so we are subject to supply and pricing risk. In addition, if a sole or single source supplier were to cease or interrupt production or otherwise fail to supply a key component to us, it could adversely affect our product sales and operating results.

In addition, as a result of the ongoing COVID-19 pandemic and broader global market supply and demand dynamics, we have experienced and may continue to experience shortages, capacity constraints and delays with respect to the supply of components, including electronic components (in particular, semiconductors), and other parts and raw materials. We have and continue to take measures, including with respect to buffer stock, the use of alternative suppliers and re-design of certain products, to mitigate the impacts of the ongoing supply chain, freight and logistics issues. However, if these shortages and disruptions continue, if additional disruptions occur, or if our efforts to mitigate these shortages and disruptions are insufficient or unsuccessful, we may be unable to, or delayed in our ability to execute on our backlog, fill new customer orders or timely deliver products to our customers and therefore could have a material adverse effect on our business, financial condition or results of operations.

A material disruption to any of our facilities or operations, or that of third parties upon which we rely, may adversely affect our ~~business.~~business and financial performance.

IfOur facilities and operations rely on a complex global supply chain including suppliers (and their suppliers), distributors, contract manufacturers, and freight and logistics providers. In addition, we rely on certain third parties to supply critical business processes and activities, including in the areas of Finance, Human Resources, Procurement and Information Technology. We also have a concentration of operations at certain sites, such as production and shared services centers. Our facilities and operations and those of certain third parties on which we rely, have experienced, and may in the future experience, disruptions as a result of an actual or threatened event or circumstance, including due to a significant equipment or system failure, natural disaster, weather event, effects of climate change, power, water or communications outage, fire, explosion, critical supply chain failure, terrorism, cybersecurity attack, political disruption, the effects of COVID-19, outbreak of an epidemic, pandemic or other public health crisis, insurrection, armed conflict or war, labor dispute, work stoppage or slowdown, technology failure, adverse weather conditions or other reason. A significant disruption to any of our facilities or operations, or that of third parties upon which we rely, ~~in our supply chain and critical business operations, were~~could cause material adverse impacts to be disrupted as a result of a significant equipment or system failure, natural disaster, power, water or communications outage, fire, explosion, critical supply failure, terrorism, cyber-based attack, political disruption, labor dispute, work stoppage or slowdown, adverse weather conditions or other reason, our financial performance, ~~could be adversely affected. Interruptions could cause~~operations and business, including an inability to meet customer demand ~~increase our~~or contractual commitments, increased costs, ~~reduce our~~and reduced sales, and could impact our business processes and activities. We also have or operate through a concentration of operations on certain sites, such as production and shared services centers, where business interruptions could cause material damage and costs.activities, including our ability to timely report financial results. Any interruption in capability may be lengthy and have lasting effects, require a significant amount of management and other employees' time and focus, and require us to make substantial expenditures to remedy the situation, which could negatively affect our operations, business processes and activities, profitability and financial condition. Any recovery under our insurance policies may not offset the lost sales, or increased costs, or longer term loss of suppliers, sales or customers that we may ~~be experienced during the~~experience as a result of a disruption, ~~of operations,~~ which could adversely affect our business, financial condition, cash flow and results of operations. Although we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot be sure that interruptions with material adverse effects on our operational and financial performance will not occur.

Failure to retain our existing senior management, engineering, technology, sales, services and other key talents or the inability to attract new qualified and diverse talent could negatively impact our business.

Our success has depended, and will continue to depend to a significant extent on our ability to attract and retain highly qualified employees in senior management positions, and in strategic or core competencies, including engineering, innovation, digital technologies, sales excellence, service, and project management, as well as general production-related labor. The market for highly-skilled talent, leaders and labor in our industry is increasingly competitive. As a result, our success in attracting and retaining employees has depended, and will continue to depend on our ability to offer attractive career growth opportunities, compensation, and benefits, particularly in the areas of services, digital technologies, innovation and data science. In addition, advancing our culture, including with respect to diversity, equity and inclusion is critical to attract and retain talent to enable the continued execution of our strategy, while driving innovation, remaining competitive and creating long-term value. We also need to continue to develop qualified talent to support business growth and robust succession plans, both of which are

critical to our long-term success. A failure to attract or retain highly engaged and skilled talent and labor could adversely affect our ability to meet and exceed the needs of our customers, operate and grow our business and execute our strategy.

Our financial results can be difficult to predict.

Our business is impacted by a substantial amount of short cycle, and book-and-bill business, which we have limited insight into, particularly for the business that we transact through our significant distribution network. We are also impacted by our long cycle business, including large projects, which could be unexpectedly cancelled, or whose timing can change based upon customer requirements due to a number of factors affecting the project that are beyond our knowledge or control, such as funding, readiness of the project and regulatory approvals. Additionally, we rely on a complex global supply chain, which has been subject to dynamic conditions, unexpected changes and disruptions during 2021 and into 2022 due to macroeconomic factors associated with COVID-19. These supply chain challenges have affected, and may continue to affect, our production and ability to timely fill customer orders. We cannot predict when, or if, these conditions will ease or subside in the future. Accordingly, our financial results for any given period have been and will continue to be difficult to predict.

Defects, unanticipated use or inadequate disclosures with respect to our products could adversely affect our business, reputation and financial condition and results of operations.

Defects, inadequacies or quality issues in the manufacture, design, software, security or service of our products (including in products, parts or components that we source from third parties), unanticipated use, or inadequate disclosure of risks relating to the use of our products could result in product safety, product security, regulatory or environmental risks, including personal injury, death, property or environmental damage. These events could also lead to recalls, safety or security alerts relating to our products, result in the removal of a product from the market and/or result in warranty or liability claims against us. Although we have liability insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any or all aspects of liability claims. Manufacturing, design, software, security or service defects or inadequacies may also result in contractual damages against us, warranty expenses or issuance of credits, which could impact our profitability. Recalls, removals, and warranty, liability and quality claims can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and have a material adverse effect on our business, financial condition and results of operations.

A significant portion of our products and offerings in our Measurement & Control Solutions segment are affected by the availability, regulation of and interference with radio spectrum that we use.

A significant portion of the offerings in our Measurement & Control Solutions segment use radio spectrum, which is subject to government regulation. To the extent we introduce new products designed for use in the U.S. or another country, such products may require significant modification or redesign in order to meet frequency requirements and other regulatory specifications. Limitations on frequency availability or the cost of making necessary modifications may preclude us from selling our products in certain countries. The regulations that govern our use of radio spectrum may change, which may require us to modify our products or seek new partnerships, either directly or due to interference caused by new consumer products allowed under the regulations. The inability to modify our products to meet such requirements, the possible delays in completing or the cost of such modifications could have a material adverse effect on our business, financial condition, and results of operations. In addition, we may not be able to secure suitable partners for co-development of products.

In the U.S., our products are primarily designed to use FCC-licensed spectrum in the 900MHz range. If the FCC does not renew our existing spectrum licenses, or materially changes regulations affecting the use of these licenses, our business, financial condition, and results of operations could be adversely affected. In addition, there may be insufficient available frequencies in some markets to sustain or develop our planned operations at a commercially feasible price or at all.

Outside the U.S., certain of our products require the use of radio frequency and are subject to regulations. In some jurisdictions, radio station licenses may be granted for a fixed term and must be periodically renewed. Our advanced and smart metering systems offerings transmit to (and receive information from, if applicable) handheld, mobile, or fixed network reading devices in licensed bands made available to us through strategic partnerships and are reliant to some extent on the licensed spectrum continuing to be available through our partners or our customers. We may be unable to find partners or customers that have access to sufficient frequencies in some markets to sustain or develop our planned operations, or to find partners or customers that have access to sufficient frequencies in the relevant markets at a commercially feasible price or at all.

We may not achieve some or all of the expected benefits of our restructuring and ~~transformation~~realignment plans ~~and~~or our restructuring and realignment may adversely affect our business.

In recent fiscal years, we ~~have~~ initiated restructuring ~~realignment~~ and ~~transformation~~realignment plans in an effort to optimize our cost structure, ~~and~~ improve our operational efficiency and ~~effectiveness. In 2017,~~effectiveness, strengthen our competitive positioning and better serve our customers. Additionally, in 2020, in response to the business and economic conditions resulting from the COVID-19 pandemic, we ~~undertook steps to advance~~initiated additional restructuring and realignment activity. We are also engaged in a multi-year effort to transform many of our support functions and related technologies, including Finance, Human Resources and Procurement. WeChallenges with the enabling technologies and delays in implementing planned restructuring and realignment activities have delayed the realization of some of the expected operational and financial benefits from such actions. As such, we may not be able to obtain all of the cost savings and benefits that were initially anticipated in connection with our restructuring and ~~transformation~~realignment plans. ~~Implementing planned restructuring~~

~~activities could be delayed resulting in delayed realization of the operational and financial benefits from such actions.~~ Additionally, as a result of these plans, we may experience a loss of continuity ~~loss of~~or, accumulated knowledge or ~~inefficiency~~inefficiencies during transitional ~~periods. Transformation, realignment~~periods and ongoing operations. Realignment and restructuring ~~can~~ require a significant amount of management and other employees' time and focus, which may divert attention from operating and growing our business.

The successful implementation and execution of our restructuring ~~realignment~~ and ~~transformation~~realignment actions are critical to achieving our expected cost savings, as well as effectively competing in the marketplace and positioning us for future growth. Factors that may impede a successful implementation include the retention of key employees, the impact of regulatory matters including tax, matters involving certain ~~third party~~third-party service providers selected to assist us, including ~~their~~staffing, technology, and compliance of service providers with ~~the Company's~~our internal controls over financial reporting, and adverse economic market conditions. If our restructuring and realignment actions are not executed successfully, it could have a material adverse ~~effect~~impacts on the effectiveness of our internal controls over financial reporting, our competitive position, business, financial condition, cash flows and results of operations.

Our strategy includes acquisitions, and we may ~~not~~ be ~~able~~unable to successfully execute ~~acquisitions of suitable candidates~~ or effectively integrate ~~acquisitions successfully.~~acquisitions.

As part of our growth strategy, we plan to continue to pursue the acquisition of other companies, assets, technologies, ~~and~~ product lines and customer channels that ~~either~~ complement or expand our existing ~~business.~~business or improve our competitive position. We may not be able to ~~identify suitable candidates, negotiate appropriate acquisition~~complete acquisitions with favorable terms or timing, or at all, or obtain financing that may be needed to consummate ~~acquisitions, complete proposed acquisitions,~~acquisitions. In addition, our results of operations may be adversely impacted by: (i) the failure to successfully integrate acquired businesses into our ~~existing~~ operations, technology, and financial and other systems, (ii) the failure of acquired businesses to meet or ~~expand into new markets. In addition,~~exceed expected returns, which in the past has led to, and in the future may lead to, accounting impairments, (iii) the discovery of unanticipated liabilities, labor relations difficulties, cybersecurity concerns, control or compliance issues, or other issues for which we ~~cannot make assurances that any acquisition, once integrated, will perform as planned, be accretive to earnings,~~lack contractual protections, insurance or ~~prove to be beneficial to our operations or cash flow.~~indemnities.

Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: diversion of ~~management~~management’s attention from existing businesses and operations; ~~integration of technology, operations personnel, and financial and other systems; potentially insufficient cybersecurity controls or~~ insufficient internal controls over financial or compliance activities or financial ~~reporting at an acquired entity that could impact us on a combined basis;~~reporting; the failure to realize expected synergies; the ~~possibility that we become exposed to substantial undisclosed liabilities or~~assumption of new material risks associated with the acquired businesses; and the loss of key employees of the acquired businesses. Failure to successfully execute our ~~acquisition~~growth strategy via acquisitions and successfully integrate these acquisitions could adversely affect our competitive position, business, financial condition or results of operations.

~~Failure~~Weather conditions, including the effects of climate change and associated efforts by governmental or regulatory authorities to ~~comply with laws, regulations~~mitigate such effects, may cause volatility in our served markets, and ~~policies, including but not limited~~may affect our businesses, operations and financial results.

Globally, the frequency and severity of severe weather events due to the ~~U.S. Foreign Corrupt Practices Act~~effects of climate change is increasing and our facilities, operations and business face related risks and opportunities. The unpredictable nature of weather conditions, including heavy flooding, water stress due to prolonged droughts, and fluctuations in temperatures or ~~other applicable anti-corruption legislation~~weather patterns, including as a result of climate change, can positively or negatively impact portions of our business. For example, heavy flooding and ~~data privacy~~rain events attributable to the effects of global climate change may increase customer demand for some of our solutions that help manage water and ~~security laws, could~~storm water overflows, or remove and transfer excess or unwanted water. Prolonged drought conditions may increase demand for our pumping technology used in agriculture and turf irrigation applications. Demand for water reuse applications, including those provided by our treatment business, may also increase as communities look to address water scarcity challenges due to the effects of climate change. In addition, fluctuations in temperatures result in ~~fines, criminal penalties~~varying levels of demand for our products used in residential and ~~an adverse effect~~commercial hydronic applications, where homes and buildings use circulating water to heat and cool living spaces. Significant fluctuations in these weather conditions and climate changes can therefore result in volatility in our financial results.

Severe weather events and other effects of climate change have caused, and may in the future cause, disruptions to our facilities and operations, and those of our customers and suppliers. In 2021, a physical risk analysis using the Task Force on Climate Related Financial Disclosures (“TCFD”) framework indicated that certain of our ~~business.~~

Wefacilities are ~~subject~~at a moderate risk for exposure to ~~regulation under a wide variety of U.S. federal~~water stress, coldwave and ~~state and non-U.S. laws, regulations and policies, including laws related to anti-corruption, trade regulations, including export and import compliance, anti-trust and money laundering,~~wildfire impacts due to ~~our global operations. The U.S. Foreign Corrupt Practices Act (the "FCPA"),~~ the ~~U.K. Bribery Act~~effects of ~~2010~~climate change. While we continue to assess these risks, implement mitigation plans and ~~similar anti-bribery laws in~~perform business continuity and disaster recovery planning, we cannot be sure that disruptions with material adverse effects will not occur.

Governments may implement emissions trading schemes, carbon taxes, fuel taxes and other ~~jurisdictions generally prohibit companies and their intermediaries from making improper payments~~policies to ~~government officials or other persons for~~reduce the ~~purpose~~impacts of ~~obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world~~climate change that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal control policies and procedures will always protect us from improper conduct of our employees or business partners. In the event that we believe or have reason to believe that our employees or business partners have or may have violated applicable laws, regulations or policies, including anti-corruption laws, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Any such violation could ~~result in substantial fines, sanctions, civil and/or criminal penalties, and curtailment of operations in certain jurisdictions, and might materially and adversely affect~~impact our business ~~results~~and financial results. The timing, scope and effect of ~~operations or financial condition. In addition, actual or alleged violations~~governments’ implementation of carbon pricing and taxes are uncertain, but could ~~damage~~significantly increase our ~~reputation and ability to do business.~~

~~Additionally, to conduct our operations, we regularly move data across national borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations~~expenses in the ~~United States~~future and abroad regarding privacy, data protection and data security. The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws. For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increases the jurisdictional reach of European Union law and adds a broad array of requirements for handling personal data, including the public disclosure of significant data breaches. Other countries, such as China,therefore have ~~enacted or are~~

enacting data localization laws that require data to stay within their borders. All of these evolving compliance and operational requirements impose significant costs of compliance that are likely to increase over time. Any such violation could result in substantial fines, sanctions or civil penalties, damage to our reputation and might materially and adversely affect our business, results of operations or financial condition.

~~Our business could be adversely affected by significant movements in foreign currency exchange rates.~~

We conduct approximately 53% of our business in various locations outside the United States. We are exposed to fluctuations in foreign currency transaction exchange rates, particularly with respect to the Euro, Swedish Krona, Polish Zloty, Canadian Dollar, British Pound and Australian Dollar. Any significant change in the value of currencies of the countries in which we do business relative to the value of the U.S. Dollar or Euro could affect our ability to sell products competitively and control our cost structure, which could have a material adverse ~~effect~~impacts on our business, financial condition, ~~and~~cash flows, results of ~~operations. Additionally, we are subject to foreign exchange translation risk due to changes in the value~~operations and market price of ~~foreign currencies in relation to~~ our reporting currency, the U.S. dollar. The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, Chinese Yuan, British Pound, Canadian Dollar, Swedish Krona and Australian Dollar. As the U.S. Dollar fluctuates against other currencies in which we transact business, revenue and income can be impacted. For instance, our 2018 revenue increased by 0.5% due to favorable foreign currency impacts. Strengthening of the U.S. Dollar relative to the Euro and the currencies of the other countries in which we do business, could materially and adversely affect our sales growth in future periods. Refer to Item 7A "Quantitative and Qualitative Disclosures about Market Risk" for additional information on foreign exchange risk.

Failure to retain our existing senior management, engineering, technology, sales and other key personnel or the inability to attract and retain new qualified personnel could negatively impact our ability to operate or grow our business.common stock.

Our ~~success~~commitments, goals, targets, objectives and initiatives related to sustainability, and our public statements and disclosures regarding them, expose us to numerous risks.

We have developed, and will continue to ~~depend~~establish, goals, targets, and other objectives related to ~~a significant extent~~sustainability matters, including our sustainability goals as well as commitments to preliminary Science-Based Targets aligned to limiting global temperature increase to 1.5°C above pre-industrial level, in line with the Paris Agreement, by 2030 and net zero greenhouse gas (GHG) emissions (Scope 1, 2 and 3) before 2050. Achieving these goals and commitments will require evolving our business, capital investment and the development of technology that might not currently exist. We might incur additional expense or be required to recognize impairment charges in connection with our efforts. These commitments, goals, targets and other objectives reflect our current plans and there is no guarantee that they will be achieved. Our efforts to research, establish, accomplish, and accurately report on ~~our~~these commitments, goals, targets, and objectives expose us to operational, reputational, financial, legal, and other risks. Our ability to ~~retain~~achieve any stated commitment, goal, target, or ~~attract a significant number~~objective is subject to factors and conditions, many of ~~employees~~which are outside of our control, including the pace of changes in ~~senior management, engineering,~~ technology, ~~sales~~the availability of requisite financing, and the availability of suppliers that can meet our sustainability and other ~~key personnel. The~~standards.

Our business may face increased scrutiny from the investment community, other stakeholders, regulators, and the media related to our sustainability activities, including our commitments, goals, targets, and objectives, and our methodologies and timelines for pursuing them. If our sustainability practices do not meet investor or other stakeholder expectations and standards, which continue to evolve, our reputation, our ability to attract or retain employees, ~~will depend on~~and our ~~ability to offer competitive compensation, benefits, training and development and~~attractiveness as an ~~attractive culture. We will need to continue to develop a roster of qualified talent to support~~investment, business ~~growth and replace departing employees. Effective succession planning is also important to~~partner, or as an acquiror could be negatively impacted. Similarly, our ~~long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. A~~failure or perceived failure to ~~retain~~pursue or ~~attract highly skilled personnel could adversely affect~~fulfill our ~~operating results~~commitments, goals, targets, and objectives, to comply with ethical, environmental, or ~~ability~~other standards, regulations, or expectations, or to ~~operate or grow our business.~~

~~Product defects and unanticipated use or inadequate disclosure~~satisfy reporting standards with respect to ~~our products~~these matters, within the timelines we announce, or at all, could have operational, reputational, financial and legal impacts.

Our debt obligations may adversely affect our business ~~reputation~~ and ~~financial statements.~~

~~Manufacturing or design defects in (including in products or components that we source from third parties), unanticipated use of, or inadequate disclosure of risks relating to the use of~~ our products could create product safety, regulatory or environmental risks, including personal injury, death or property damage. These events could lead to recalls or safety alerts relating to our products, result in the removal of a product from the market and result in product liability claims being brought against us. Although we have liability insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any product liability claims. Manufacturing, design, software or service defects or inadequacies may also result in contractual damages or credits being issued, which could impact our profitability. Recalls, removals and product liability and quality claims can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and have a material adverse effect on our business, financial condition and results of operations.

~~Our financial results can be difficult to predict.~~

Our business is impacted by a substantial amount of short cycle, and book-and-bill business, which we have limited insight into, particularly for the business that we transact through our distributors. We are also impacted by large projects, whose timing can change based upon customer requirements due to a number of factors affecting the project beyond our knowledge or control, such as funding, readiness of the project and regulatory approvals. Accordingly, our financial results for any given period can be difficult to predict.

~~Changes in our effective tax rates and tax expenses may adversely affect our financial results.~~

We sell our products in approximately 150 countries and 53% of our revenue was generated outside the United States in 2018. Given the global nature of our business, a number of factors may increase our effective tax rates and tax expense, including:

~~the geographic mix of jurisdictions in which profits are earned and taxed;~~

~~the statutory tax rates and tax laws in the jurisdictions in which we conduct business;~~

~~the resolution of tax issues arising from tax examinations by various tax authorities; and~~

~~the valuation of our deferred tax assets and liabilities.~~

Xylem is regularly examined by various tax authorities throughout the world and the resolutions of these examinations do not typically have a significant impact on our effective tax rates and tax expenses but they could. Additionally, in December 2017, the United States enacted tax reform legislation (“Tax Act”). The legislation implements many new U.S. domestic and international tax provisions. Many aspects of the Tax Act remain unclear, and although additional clarifying guidance is expected to be issued (by the Internal Revenue Service (“IRS”), the U.S. Treasury Department or via a technical correction law change), it may not be clarified for some time. In addition, many U.S. states have not yet updated their laws to take into account the new federal legislation. As a result, there may be further impacts of the new law on our results of operations and financial condition. It is possible that the Tax Act, or interpretations under it, could change and could have an adverse effect on us, and such effect could be material.

~~Our business could be adversely affected by inflation, tariffs and other manufacturing and operating cost increases.~~

Our operating costs are subject to fluctuations, particularly due to changes in prices for commodities, parts, raw materials, energy and related utilities, freight, and cost of labor which may be driven by prevailing price levels, exchange rates, changes in trade protection measures including tariffs, and other economic factors. In order to remain competitive, we may not be able to recuperate all or a portion of these higher costs from our customers through product price increases. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first- out method. Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition and results of operation could be materially and adversely affected.

~~Our business could be adversely affected by the availability of parts and raw materials or the inability of suppliers to meet delivery requirements.~~

Our business relies on third-party suppliers, contract manufacturing and commodity markets to secure raw materials, parts and components used in our products, and we expect that reliance to increase. Parts and raw materials commonly used in our products include motors, fabricated parts, castings, bearings, seals, batteries, PCBs and electronic components, as well as steel, brass, nickel, copper, aluminum and plastics. We are exposed to the availability of these materials, which may be subject to curtailment or change due to, among other things, interruptions in production by suppliers, labor disputes, the impaired financial condition of a particular supplier, suppliers’ allocations to other purchasers, changes in trade protection measures including tariffs, exchange rates and prevailing price levels, ability to meet ~~regulatory requirements, weather emergencies or acts of war or terrorism. Any delay in~~ our ~~suppliers’ abilities to provide us with necessary materials could impair our ability to deliver products to our customers~~obligations and ~~accordingly, could have a material adverse effect on our business, financial condition or results of operations.~~

~~Our indebtedness may affect our business and may restrict our operational flexibility.~~pay dividends.

As of December 31, ~~2018,~~2021, our total outstanding indebtedness was ~~$2,308~~$2,440 million as described under “Liquidity and Capital ~~Resources."~~Resources" and we may incur additional debt in the future. Our indebtedness ~~could:~~could have adverse consequences to us and our investors, including:

~~increase~~•increasing our vulnerability to general adverse economic and industry conditions;

~~limit~~•limiting our ability to obtain additional financing or borrow additional funds;

create uncertainty and complexity in managing debt that uses LIBOR as a reference rate, including as a result of the planned transition away from LIBOR to the Secured Overnight Financing Rate (“SOFR”);

~~limit~~•reducing or eliminating our ability to pay future ~~dividends;~~dividends or repurchase our common stock;

~~limit~~•limiting our flexibility in planning for, or reacting to, changes in our business and ~~the industry in which we operate;~~industry;

~~require that~~•requiring a substantial portion of our cash ~~flow~~flows from operations ~~be used for~~to make principal and interest payments;

•reducing the ~~payment of interest on our~~

~~indebtedness instead of funding~~cash flows available to fund working capital, capital expenditures, acquisitions or other ~~general corporate purposes; and~~investments to grow our business;

~~increase~~•increasing the amount of interest expense that we must pay because some of our borrowings are at variable interest rates, which, as interest rates increase, would result in higher interest ~~expense.~~expense; and

•increasing the risk of a future credit rating downgrade, which could increase future debt costs and limit the availability of debt financing.

In addition, there can be no assurance that future borrowings or equity financing will be available to us on favorable

terms or at all for the payment or refinancing of our indebtedness. If we incur additional debt or raise equity through the issuance of preferred stock, the terms of the debt or preferred stock issued may give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The terms of ~~the~~any future debt indentures may also impose additional and more stringent restrictions on our operations than we currently have.

Our ability to make scheduled principal payments of, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend on our future ~~operating performance,~~cash flows from operations, which may not be sufficient and may be affected by factors beyond our control. If we are unable to service our indebtedness, our business, financial condition and results of operations would be materially adversely affected.

We may incur additional impairment charges for our goodwill and other indefinite-lived intangible assets which would negatively impact our operating results.

We have a significant amount of goodwill and purchased intangible assets on our balance sheet as a result of acquisitions. As of December 31, 2021, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $3 billion. In accordance with generally accepted accounting principles, we evaluate these assets for impairment at least annually, or more frequently if changes in events or circumstances indicate it is more likely than not that a potential impairment could exist. Significant negative industry or economic trends, disruptions to our business or our customers’ business, inability to effectively integrate or scale acquired businesses, increases in cost of capital, unexpected significant changes or planned changes in use of the assets, failure of the FCC to renew radio spectrum licenses, and divestitures and market capitalization declines may cause impairment of our goodwill and other indefinite-lived intangible assets. For example, in 2020 we recorded goodwill impairment charges $58 million within our Measurement & Control Solutions segment primarily related to the performance of the business of the Pure Technologies Ltd. acquisition ("Pure") (as detailed in Note12, “Goodwill and Other Intangible Assets”). We did not record goodwill impairment charges within our Measurement & Control Solutions segment in 2021. Material impairment charges have in the past and could in the future adversely affect our results of operations and financial condition.

Risks Related to Legal, Regulatory and Tax

Failure to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act, other applicable anti-corruption laws, trade regulations, and data privacy and security laws, could have a material adverse impact on our business, results of operations, financial condition and reputation.

Given our global operations, we are subject to regulation under a wide variety of U.S. and non-U.S. laws, regulations and policies, including laws and regulations related to anti-corruption, trade including export and import compliance, anti-trust and money laundering. Our policies mandate compliance with these laws and regulations. The U.S. Foreign Corrupt Practices Act (the "FCPA"), the U.K. Bribery Act of 2010 and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-corruption laws may conflict with local business customs and practices. We cannot guarantee that our internal controls, policies and procedures will always prevent and protect us from improper conduct of our employees or business partners. In the event that we believe or have reason to believe that our employees or business partners have or may have violated applicable laws, regulations or policies, including anti-corruption laws, we are required to investigate the relevant facts and circumstances, which can be ~~negatively impacted~~expensive and require significant time and attention from senior management. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, termination of relationships with business partners and curtailment of operations in certain jurisdictions, and as a result might materially and adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business.

Additionally, to conduct our operations, we regularly move data across borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations regarding data privacy, data protection and data security, including the California Consumer Protection Act, the EU's GDPR and China’s Personal Information Protection Law (“PIPL”). The scope of the laws that may be applicable to us is evolving, often uncertain and may be conflicting, particularly with respect to foreign laws. GDPR greatly increases the jurisdictional reach of EU law and adds a broad array of requirements for handling personal data, including the enforcement of data subject rights, enhanced security requirements, obligations to guarantee EU data subject rights are not compromised in countries outside the EU, and public disclosure of significant data breaches. Other countries, such as China with its PIPL, have enacted or are enacting data localization and security laws that require data to stay within their borders. All of these evolving legal and operational requirements impose significant costs of compliance that are likely to increase over time. In addition, any such violation could result in substantial fines, sanctions and/or civil penalties, damage to our reputation and might materially and adversely affect our business, results of operations or financial condition.

Changes in our effective tax rates and tax expenses may adversely affect our financial results.

We sell our products in approximately 150 countries and 56% of our revenue was generated outside the U.S. in 2021. Given the global nature of our business, a number of factors may increase our effective tax rates and tax expense, including:

•the geographic mix of jurisdictions in which profits are earned and taxed;

•the statutory tax rates and tax laws in jurisdictions in which we conduct business;

•the resolution of tax issues arising from tax examinations by various tax authorities; and

•the valuation of our deferred tax assets and liabilities.

Additionally, tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. The recent agreement by countries in the Organization for Economic Cooperation and Development to implement additional legislative changes increases the uncertainty of future income tax positions, and such changes may result in additional tax expense and effective tax rate volatility.

Our businesses are regularly examined by various tax authorities throughout the world and the resolutions of these examinations do not typically have a significant impact on our effective tax rates and tax expenses but they could. For example, following an examination regarding aspects of the reorganization of our European business that occurred in 2013, the Swedish tax authority issued a tax assessment to Xylem’s Swedish subsidiary in 2019, which we are appealing as further described in Note 7, “Income Taxes.” This examination as well as other examinations can result in increased tax assessments, and settlement or litigation about the assessments and final resolution could be unfavorable to Xylem. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, including unrecognized tax benefits; however, developments in an audit or litigation could materially and adversely affect us. Although we believe our tax estimates and accruals are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in its historical income tax provisions, accruals and unrecognized tax benefits, which could materially and adversely affect our business, operating results, cash flows and financial condition.

We face risks related to legal and regulatory proceedings.

We are subject to various laws, ~~ordinances,~~ regulations and other requirements of government authorities in the U.S. and foreign countries, ~~and in the United States,~~ any violation of which could potentially create substantial liability for us and damage our reputation. Changes in laws, ordinances, regulations or other government policies, the nature, timing, and effect of which are uncertain, may significantly increase our expenses and liabilities.

From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of ~~previously owned~~previously-owned entities). These proceedings may seek remedies relating to environmental matters, tax, intellectual property, acquisitions or divestitures, product liability, ~~and~~property damage, personal injury, ~~claims,~~ privacy, employment, labor and ~~pension matters,~~pensions, government contract issues and commercial or contractual disputes. Our ~~continuing~~continued transition to connected orand digital technologies and solutions has increased our exposure to intellectual property litigation and we expect that this risk will continue to increase as we execute on our innovation and technology priorities.

It is not possible to predict with certainty the outcome of claims, investigations, regulatory proceedings and lawsuits, and we could in the future incur judgments, fines or penalties or enter into settlements and claims that could have an adverse effect on our reputation, our business, results of operations and financial ~~condition in any particular period.~~condition. Additionally, we may be required to change or cease operations at one or more facilities if a regulatory agency determines that we have failed to comply with laws, regulations or orders applicable to our business.

The global and diverse nature of our operations, coupled with the increase in regulation and enforcement in many regions of the globe, means that legal and compliance risks will continue to exist and additional legal and regulatory proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time. In addition, subsequent developments in legal and regulatory proceedings may affect our assessments and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our results of operations and financial condition.

~~Weather conditions and climate changes may adversely affect,~~

Infringement or ~~cause volatility in, our financial results.~~

~~Weather conditions, including heavy flooding, droughts and fluctuations in temperatures or weather patterns, including as a result~~expiration of climate change, can positively or negatively impact portions of our business. Within the dewatering space, pumps provided through our Godwin and Flygt brands are used to remove excess or unwanted water. Heavy flooding due to weather conditions drives increased demand for these applications. On the other hand, drought conditions drive higher demand for pumps used in agricultural and turf irrigation applications, such as those provided by our Goulds Water Technology and Lowara brands. Fluctuations to warmer and cooler temperatures result in varying levels of demand for products used in residential and commercial applications where homes and buildings are heated and cooled with HVAC units such as those provided by our B&G brand. The unpredictable nature of weather conditions and climate change may result in volatility for certain portions of our business, as well as the operations of certain of our customers and suppliers.

~~If we do not or cannot adequately protect our intellectual property, if third parties infringe~~ our intellectual property rights, or ~~if third parties claim~~allegations that we ~~are infringing or misappropriating their~~have infringed upon the intellectual property rights ~~we may suffer competitive injury, expend significant resources enforcing our rights or defending against such claims, or be prevented from selling products or services.~~of third parties could negatively affect us.

We own numerous patents, trademarks, copyrights, trade secrets and other intellectual property and licenses to intellectual property owned by others, ~~which in the aggregate~~that are important to our business. ~~The~~Our intellectual property rights ~~that we obtain, however,~~ may ~~not~~ provide us with ~~a significant~~ competitive advantage because they may help us differentiate our technologies, products and services, including our growing portfolio of data analytics and digitally-enabled offerings. However, our current or future intellectual property rights may not be sufficiently broad or may be challenged, invalidated, circumvented, misappropriated, independently developed, or designed-around, particularly given our operations in countries where laws governing intellectual property rights ~~laws~~ are not highly developed, protected or enforced. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property, or detect or prevent circumvention, misappropriation or unauthorized use of such property, ~~and~~as well as the cost of enforcing our intellectual property rights, could adversely impact our business, financial condition and results of operations.

From time to time, we receive notices from third parties alleging intellectual property infringement or misappropriation. Any dispute or litigation regarding intellectual property could be costly and time-consuming to defend due to the complexity and ~~the~~ uncertainty of intellectual property litigation. ~~Our intellectual property portfolio~~We may not be ~~useful~~successful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to use critical technology, be unable to license critical technology or sell critical products and services, be required to pay substantial damages or license fees with respect to the ~~infringed~~use of third-party intellectual property rights, or be required to redesign our products at substantial cost, any of which could adversely impact our competitive position, financial condition and results of operations. Even if we successfully defend against claims of infringement or misappropriation, we may incur significant costs and diversion of management attention and resources, which could adversely affect our business, financial condition and results of operations.

A significant portion of our products and offerings in our Measurement & Control Solutions segment are affected by the availability and regulation of radio spectrum and could be affected by interference with the radio spectrum that we use.

A significant portion of the offering in our Measurement & Control Solutions segment use radio spectrum, which is subject to government regulation. To the extent we introduce new products designed for use in the United States or another country into a new market, such products may require significant modification or redesign in order to meet frequency requirements and other regulatory specifications. In some countries, limitations on frequency availability or the cost of making necessary modifications may preclude us from selling our products in those countries. The regulations that govern our use of the radio spectrum may change and the changes may require us to modify our products or seek new partnerships, either directly or due to interference caused by new consumer products allowed under the regulations. The inability to modify our products to meet such requirements, the possible delays in completing such modifications, and the cost of such modifications all could have a material adverse effect on our business, financial condition, and results of operations. In addition, suitable partners for co-development may not be able to be secured by us.

In the United States, our products are primarily designed to use licensed spectrum in the 900MHz range. If the Federal Communications Commission (“FCC”) did not renew our existing spectrum licenses, our business could be adversely affected. In addition, there may be insufficient available frequencies in some markets to sustain or develop our planned operations at a commercially feasible price or at all.

Outside of the United States, certain of our products require the use of radio frequency and are subject to regulations. In some jurisdictions, radio station licenses may be granted for a fixed term and must be periodically renewed. Our advanced and smart metering systems offering transmits to (and receives information from, if applicable) handheld, mobile, or fixed network reading devices in licensed bands made available to us through strategic partnerships and are reliant to some extent on the licensed spectrum continuing to be available through our partners or our customers. We may be unable to find partners or customers that have access to sufficient frequencies in some markets to sustain or develop our planned operations or to find partners or customers that have access to sufficient frequencies in the relevant markets at a commercially feasible price or at all.

~~We may incur impairment charges for our goodwill and other indefinite-lived intangible assets which would negatively impact our operating results.~~

We have a significant amount of goodwill and purchased intangible assets on our balance sheet as a result of acquisitions we have completed. As of December 31, 2018, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $3 billion. The carrying value of goodwill represents the fair

value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of indefinite-lived intangible assets represents the fair value of trademarks, trade names and FCC licenses as of the acquisition date. We do not amortize goodwill and indefinite-lived intangible assets that we expect to contribute indefinitely to our cash flows, but instead we evaluate these assets for impairment at least annually, or more frequently if interim indicators suggest that a potential impairment could exist. A goodwill impairment charge will be recognized if the fair value of a reporting unit is less than its carrying amount. Significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, failure of the FCC to renew licenses, divestitures and market capitalization declines may impair our goodwill and other indefinite-lived intangible assets. Any charges relating to such impairments could adversely affect our results of operations and financial condition.

We cannot make assurances that we will pay dividends on our common stock or continue to repurchase our common stock under Board approved share repurchase plans, and likewise our indebtedness could limit our ability to pay dividends or make share repurchases.

The timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers relevant. There can be no assurance that we will pay a dividend in the future or continue to pay dividends.

Further, the timing and amount of the repurchase of our common stock under Board approved share repurchase plans has similar dependencies as the payment of dividends and accordingly, there can be no assurances that we will repurchase our common stock.

Additionally, if we cannot generate sufficient cash flow from operations to meet our debt payment obligations, then our ability to pay dividends, if so determined by the Board of Directors, or make share repurchases will be impaired and we may be required to attempt to restructure or refinance our debt, raise additional capital or take other actions such as selling assets, reducing or delaying capital expenditures, reducing our dividend or delaying or curtailing share repurchases. There can be no assurance, however, that any such actions could be effected on satisfactory terms, if at all, or would be permitted by the terms of our debt or our other credit and contractual arrangements.

Developments in, and compliance with, current and future environmental and climate change laws and regulations could impact our business, financial condition or results of operations.

Our business, operations, and product and service offerings are subject to and affected by many federal, state, local and foreign environmental laws and ~~regulations. In addition, we could be affected by future environmental laws or~~ regulations, including ~~for example,~~ those ~~imposed~~enacted in response to climate change concerns.

Increasing public and governmental awareness and concern regarding the effects of climate change has led to significant legislative and regulatory efforts to limit greenhouse gas emissions and will likely result in further environmental and climate change laws and regulations. Compliance with ~~current and future environmental~~existing laws and regulations currently requires, and compliance with future laws is expected to continue to require, increasing operating and capital ~~expenditures.~~

~~Environmental~~expenditures, including with respect to the design or re-design of our products in order to conform to changing environmental standards and regulations, which could impact our business, financial condition and results of operations. Furthermore, environmental laws and regulations may authorize substantial fines and criminal sanctions as well as facility shutdowns to address violations, and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations.

Developments such as the adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency of other responsible parties could in the future have a material adverse effect on our financial condition and results of operations.

~~The level~~Our Spin-off from ITT Corporation may expose us to potential liabilities.

Pursuant to the Distribution Agreement and certain other agreements with ITT (now ITT LLC; acquired by Delticus HoldCo, L.P., a portfolio company of ~~returns~~Warburg Pincus LLC, on ~~postretirement benefit plan assets, changes~~July 1, 2021) and Exelis (acquired by Harris Corporation, now L3Harris Technologies, Inc.), ITT and Exelis agreed to indemnify us for certain liabilities, and we agreed to indemnify ITT and Exelis for certain liabilities. Indemnities that we may be required to provide ITT and Exelis may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that ITT or Exelis agreed to retain. Further, there can be no assurance that the indemnities from ITT and Exelis will be sufficient to protect us against the full amount of such liabilities, or that ITT and Exelis will be able to fully satisfy their indemnification obligations. Moreover, even if we ultimately were to succeed in ~~interest rates~~recovering from ITT and ~~other factors~~Exelis any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our ~~earnings and cash flows in future periods.~~

Certain members of our current and retired employee population are covered by pension and other employee-related defined benefit plans (collectively, postretirement benefit plans). We may experience significant fluctuations in costs related to our postretirement benefit plans as a result of macro-economic factors, such as interest rates, that are beyond our control. The cost of our postretirement plans is incurred over long periods of time and involves factors and uncertainties during those periods which can be volatile and unpredictable, including rates of return on postretirement benefit plan assets, discount rates used to calculate liabilities and expenses and rates of future compensation increases. Management develops each assumption using relevant plan and Company experience and expectations in conjunction with market-related data. Our liquidity, financial position (including shareholders’

~~equity) and~~business, results of operations, ~~could be materially affected by significant changes in key economic indicators, actuarial experience,~~cash flow and financial ~~market volatility, future legislation and other governmental regulatory actions.~~condition.

~~We make contributions~~

Risks Related to fund our postretirement benefit plans when considered necessary or advantageous to do so. The macro-economic factors discussed above, including the return on postretirement benefit plan assets and the minimum funding requirements established by local government funding or taxing authorities, or established by other agreement, may influence future funding requirements. A significant decline in the fair valueOwnership of our plan assets, or other adverse changes to our overall pension and other employee-related benefit plans, could require us to make significant funding contributions and affect cash flows in future periods.Our Common Stock

The market price of our common stock may fluctuate significantly.

We cannot predict the prices at which our common stock may trade. The market price of our common stock may fluctuate ~~widely,~~significantly, depending on many factors, some of which may be beyond our control, including:

•actual or anticipated fluctuations in our operating results due to factors related to our business;

•success or failure of our business strategy;

•our ability to achieve long-term financial or non-financial, (including sustainability related) targets or commitments;

•our quarterly or annual earnings, or those of other companies in our industry;

•our ability to obtain financing as needed;

•stock repurchases or payment of dividends;

~~acquisitions and divestitures;~~

•announcements by us or our competitors of significant new business ~~awards;~~awards or technologies, product and service offerings;

•announcements by us or our competitors of significant acquisitions or divestitures;

•changes in accounting standards, policies, guidance, interpretations or principles;

•changes in earnings estimates or guidance by ~~securities~~us or analysts, or our ability to meet ~~those~~such guidance and estimates;

•our ability to successfully execute ~~transformation,~~ restructuring and realignment actions;

•the operating and stock price performance of other comparable companies;

•our ability to secure necessary parts, components and materials from our global supply chain;

•the impacts of inflation, including our ability to offset these impacts through pricing and productivity actions;

•natural or environmental disasters, as well as the effects of climate change or climate-related considerations that investors believe may affect us;

~~overall market fluctuations;~~•uncertainty or instability arising from the global geopolitical environment or events, the ongoing COVID-19 pandemic or other actual or potential epidemics, pandemics, or other idiosyncratic events;

•fluctuations in foreign currency impacts;

•fluctuations in the budgets or spending of federal, state and local governmental entities around the world;

•results from any material litigation, governmental or regulatory body investigation, or tax examination;

•changes in laws and regulations affecting our business;

•impact of trade protection measures including ~~tariffs;~~tariffs and new and existing domestic content requirements; and

•overall market fluctuations or general economic conditions and other external factors.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock.

~~Anti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change in control.~~

Certain provisions of our fourth amended and restated articles of incorporation and our amended and restated by-laws may delay or prevent a merger or acquisition of part or all of our business operations. For example, our articles of incorporation and our by-laws, among other things, require advance notice for shareholder proposals and nominations. In addition, our articles of incorporation authorize our Board of Directors to issue one or more series of preferred stock. These provisions may also discourage acquisition proposals of our business operations or delay or prevent a change in control, which could harm our stock price. Indiana law also imposes some restrictions on mergers and other business combinations between any holder of 10% or more of our outstanding common stock and us.

In connection with our Spin-off, ITT (now ITT LLC) and Exelis, acquired by Harris Inc., will indemnify us for certain liabilities and we will indemnify ITT (now ITT LLC) or Exelis for certain liabilities. If we are required to indemnify ITT (now ITT LLC) or Exelis, we may need to divert cash to meet those obligations and our financial results could be negatively impacted. In the case of ITT's or Exelis' indemnity, there can be no assurance that those indemnities will be sufficient to insure us against the full amount of such liabilities, or as to ITT's or Exelis' ability to satisfy its indemnification obligations in the future.

Pursuant to the Distribution Agreement and certain other agreements with ITT (now ITT LLC) and Exelis, ITT (now ITT LLC) and Exelis agreed to indemnify us from certain liabilities, and we agreed to indemnify ITT (now ITT LLC) and Exelis for certain liabilities. Indemnities that we may be required to provide ITT (now ITT LLC) and Exelis may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that ITT (now ITT LLC) or Exelis has agreed to retain. Further, there can be no assurance that the indemnities from ITT (now ITT LLC) and Exelis will be sufficient to protect us against the full amount of such liabilities, or that ITT (now ITT LLC) and Exelis will be able to fully satisfy their indemnification obligations. Moreover, even if we ultimately were to succeed in recovering from ITT (now ITT LLC) and Exelis any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES

We have approximately ~~385~~345 locations in more than 5250 countries. These properties total approximately ~~12.3~~13 million square feet, of which more than ~~345~~300 locations, or approximately ~~6.6~~7 million square feet, are leased. We consider the offices, plants, warehouses and other properties that we own or lease to be in good condition and generally suitable for the purposes for which they are used. The following table shows our significant locations by segment:

Location

State or

Country

Principal Business Activity

Approx.

Square

Feet

Owned or

Leased

Water Infrastructure

Emmaboda

Sweden

Administration and Manufacturing

1,197,000

Owned

~~Stockholm~~Vadodara

~~Sweden~~India

Manufacturing and Research & Development

254,000

Leased

Stockholm

Sweden

Administration and Research & Development

182,000

Leased

Bridgeport

Administration and Manufacturing

136,000

Leased

Shenyang

China

Manufacturing

125,000

Owned

~~Yellow Springs~~Quenington

OHUnited Kingdom

Manufacturing

86,000

Leased

Applied Water

Morton Grove

Administration and Manufacturing

~~112,000~~530,000

Owned

~~Quenington~~Montecchio

UKItaly

~~Manufacturing~~

~~86,000~~

~~Leased~~

~~Applied Water~~

~~Morton Grove~~

Administration and Manufacturing

~~530,000~~379,000

Owned

~~Montecchio~~Nanjing

~~Italy~~China

~~Administration and~~ Manufacturing

~~379,000~~363,000

Owned

~~Nanjing~~Auburn

~~China~~NY

Manufacturing

~~363,000~~273,000

Owned

~~Auburn~~Abony

NYHungary

Manufacturing

~~273,000~~250,000

~~Owned~~Leased

Stockerau

Austria

~~Administration~~Sales & Service Office

~~233,000~~234,000

Owned

~~Lubbock~~Strzelin

TXPoland

Manufacturing

~~229,000~~185,000

Owned

~~Strzelin~~Cheektowaga

~~Poland~~NY

Manufacturing

~~185,000~~147,000

Owned

~~Cheektowaga~~

~~Manufacturing~~

~~147,000~~

~~Owned~~

Measurement & Control Solutions

Ludwigshafen

Germany

Manufacturing

318,000

Owned

Texarkana

Manufacturing

254,000

Owned

Uniontown

Manufacturing

240,000

Leased

DuBois

Manufacturing

197,000

Owned

Durham

Administration and Research & Development

~~154,000~~172,000

Leased

~~DuBois~~Weilheim

PAGermany

Manufacturing

~~137,000~~160,000

Leased

DuBois

~~Regional Selling Locations~~Manufacturing

137,000

Leased

~~Dubai~~Yellow Springs

Administration and Manufacturing

112,000

Owned

Regional Locations

Dubai

United Arab Emirates

Manufacturing

144,000

Owned

Nottinghamshire

United Kingdom

~~Sales Office~~Administration

139,000

Leased

Nanterre

France

Sales & Service Office

139,000

Leased

Langenhagen

Germany

Sales & Service Office

134,000

~~Leased~~Owned

Corporate Headquarters

Rye Brook

Administration

67,000

Leased

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of ~~previously owned~~previously-owned entities). These proceedings may seek remedies relating to matters including environmental, ~~matters,~~ tax, intellectual property, ~~matters,~~ acquisitions or divestitures, product liability, ~~and~~property damage, personal injury, ~~claims,~~ privacy, employment, labor and pension, ~~matters,~~ government contract issues and commercial or contractual disputes. See Note 19,20, "Commitments and Contingencies", of the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding certain legal and regulatory proceedings we are involved in.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS ~~OF THE REGISTRANT~~

The following information is provided regarding the executive officers of Xylem as of ~~January 31, 2019:~~

February 7, 2022:

NAME

AGE

CURRENT TITLE

OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS

Patrick K. Decker

President and Chief Executive Officer (2014)

~~NAME~~Sandra E. Rowland

~~AGE~~50

~~CURRENT TITLE~~

~~OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS~~

~~Patrick K. Decker~~

~~President and Chief Executive Officer (2014)~~

~~• President and Chief Executive Officer, Harsco Corp. (diversified, worldwide industrial company) (2012)~~

~~E. Mark Rajkowski~~

Senior VP and Chief Financial Officer ~~(2016)~~(2020)

• Executive Vice President and Chief Financial Officer, Harman International Industries Inc. (2015)

Dorothy Capers

Senior VP, General Counsel (2022)

• Executive Vice President,Global General Counsel and Corporate Secretary, National Express Group (2015)

Franz Cerwinka

Senior VP and President, Emerging Markets (2020)

• Chief Executive Officer, Johnson Controls-Hitachi Air Conditioning (2015)

David Flinton

Senior VP and Chief ~~Financial~~Innovation, Technology & Product Management Officer ~~MeadWestvaco Corp. (worldwide packaging company) (2004)~~

(2019)

~~Tomas Brannemo~~

~~Senior VP and President, Transport and Treatment (2017)~~

• Senior VP and President, ~~Transport (2014)~~Dewatering

~~• VP, Transport (2013)~~

(2015)

~~David Flinton~~Geri McShane

~~Senior~~ VP, Controller and ~~President, Dewatering (2015)~~Chief Accounting Officer (2019)

• ~~VP, Engineering~~Controller, Accounting and ~~Marketing, Applied Water Systems (2013)~~

Reporting (2016)

~~Pak Steven Leung~~Matthew Pine

6250

~~Senior VP and President, Emerging Markets (2015)~~

•

~~VP, Global Sales, Valves and Controls, Pentair Plc (diversified, worldwide industrial manufacturing company) (2013)~~

~~Kenneth Napolitano~~

Senior VP and President, Applied Water Systems and Americas Commercial Team ~~(2017)~~(2020)

• ~~Senior~~ President, Carrier Residential, United Technologies Corporation (2018)

•VP and ~~President, Applied Water Systems (2012)~~

General Manager, Carrier Residential, United Technologies Corporation (2017)

Colin R. Sabol

5154

Senior VP and President, Measurement & Control Solutions (2017)

~~• Senior VP and President, Analytics and Treatment (2015)~~

~~• Senior VP and President, Dewatering (2013)~~

~~Paul A. Stellato~~Claudia S. Toussaint

4458

~~VP, Controller and Chief Accounting Officer (2017)~~

~~• VP, Financial Planning and Analysis (2014)~~

~~• Director, Financial Planning and Analysis (2011)~~

~~Kairus Tarapore~~

Senior VP, ~~and~~ Chief Human Resources and Sustainability Officer ~~(2015)~~(2021)

~~• Senior VP and Chief Administrative Officer, Babcock & Wilcox Company (energy and environmental technologies and services) (2013)~~

~~Claudia S. Toussaint~~

~~Senior VP, General Counsel and Corporate Secretary (2014)~~

• Senior VP, General Counsel - (2014)

Hayati Yarkadas

Senior VP and ~~Secretary, Barnes Group Inc. (international industrial~~President, Water Infrastructure and ~~aerospace manufacturing) (2012)~~

Europe Commercial Team (2020)

• Senior Vice President and President, Performance Materials, Trinseo S.A. (2015)

Note: Date in parentheses indicates the year in which the position was assumed.

BOARD OF DIRECTORS

The following information is provided regarding the Board of Directors of Xylem as of ~~January 31, 2019:~~

February 3, 2022:



NAME			TITLE
~~Markos I. Tambakeras~~Robert F. Friel			~~Chairman,~~Board Chair, Xylem Inc., Former Chairman, President and CEO, PerkinElmer, Inc.

Jeanne Beliveau-Dunn			Chief Executive Officer ~~Kennametal, Inc.~~and President of Claridad, LLC

~~Curtis J. Crawford, Ph.D.~~		~~President and Chief Executive Officer, XCEO, Inc.~~

~~Jeanne Beliveau-Dunn~~	~~Former Vice President and General Manager, Cisco Systems, Inc.~~

Patrick K. Decker		President and Chief Executive Officer, Xylem Inc.

~~Robert F. Friel~~Jorge M. Gomez			~~Chairman,~~Executive Vice President, ~~and~~ Chief ~~Executive~~Financial Officer, ~~PerkinElmer,~~Dentsply Sirona, Inc.

Victoria D. Harker			Executive Vice President and Chief Financial Officer, TEGNA, Inc.

~~Sten E. Jakobsson~~		~~Former President and Chief Executive Officer, ABB AB~~

Steven R. Loranger		Former Chairman, President and Chief Executive Officer, ITT Corporation

Mark D. Morelli			President and Chief Executive Officer, Vontier Corporation

Surya N. Mohapatra, Ph.D.			Former Chairman, President and Chief Executive Officer, Quest Diagnostics Incorporated

Jerome A. Peribere			Former President and Chief Executive Officer, Sealed Air Corporation

Markos I. Tambakeras			Former Chairman, President and Chief Executive Officer, Kennametal, Inc.

Lila Tretikov			Corporate Vice President & Deputy Chief Technology Officer, Microsoft Corporation

Uday Yadav			President and Chief Operating Officer, Electrical Sector, Eaton Corporation PLC

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price and Dividends

Our common stock trades publicly on the New York Stock Exchange under the trading symbol “XYL”. As of January 31, ~~2019,~~2022, there were ~~10,898~~8,875 holders of record of our common stock.

Dividends are declared and paid on the common stock at the discretion of our Board of Directors and depend on our profitability, financial condition, capital needs, future prospects and other factors deemed relevant by our Board. Therefore, there can be no assurance as to what level of dividends, if any, will be paid in the future. In the first quarter of ~~2019,~~2022, we declared a dividend of ~~$0.24~~$0.30 per share to be paid on March ~~14, 2019~~17, 2022 for shareholders of record on February ~~14, 2019.~~17, 2022.

There were no unregistered offerings of our common stock during ~~2018~~.2021.

Fourth Quarter ~~2018~~2021 Share Repurchase Activity

The following table summarizes our purchases of our common stock for the quarter ended December 31, ~~2018:~~

2021:

(in millions, except per share amounts)

Period

Total Number of Shares Purchased

Average Price Paid per Share (a)

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)

Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b)

10/1/1821 - 10/31/1821

—

$~~363~~228

11/1/1821 - 11/30/1821

—

$~~363~~228

12/1/1821 - 12/31/1821

—

$~~363~~228


~~(a)~~	~~Average price paid per share is calculated on a settlement basis.~~

~~(b)~~

On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. ~~There were no shares repurchased under this program during the three months ended~~ ~~December 31, 2018. There are up to $363 million in shares that may still be purchased under this plan as of December 31, 2018.~~

(a)Average price paid per share is calculated on a settlement basis.

(b)On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during the three months ended December 31, 2021. There are up to $228 million in shares that may still be purchased under this plan as of December 31, 2021.

PERFORMANCE GRAPH

CUMULATIVE TOTAL RETURN

The following graph compares the relative performance of our common stock, the S&P 500 Index and the S&P 500 Industrials Index. This graph covers the period from December 31, ~~2013~~2016 through December 31, ~~2018~~2021 and assumes that $100 was invested on December 31, ~~2013~~2016 in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.


					XYL	S&P 500	S&P 500 Industrials Index
	XYL	S&P 500	S&P 500 Industrials Index
December 31, 2013	100	100	100
December 31, 2014	112	114	110
December 31, 2015	109	115	107
December 31, 2016	150	129	127	December 31, 2016	100	100	100
December 31, 2017	209	157	153	December 31, 2017	140	122	121
December 31, 2018	206	150	132	December 31, 2018	138	116	105
December 31, 2019				December 31, 2019	165	153	136
December 31, 2020				December 31, 2020	216	181	150
December 31, 2021				December 31, 2021	257	233	182

The graph is not, and is not intended to be, indicative of future performance of our common stock.

This performance graph shall not be deemed “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and should not be deemed incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.

ITEM 6. ~~SELECTED FINANCIAL DATA~~[ Reserved ]

~~The following table sets forth selected consolidated financial data for the five years ended~~

~~December 31, 2018~~

. This selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included in this Report.

Year Ended
December 31,
(in millions, except per share data)
2018 (a)
2017 (b) (c) 2016 (b) (c) 2015 (c) 2014 (c)
Results of Operations Data:
Revenue $ 5,207
$ 4,707
$ 3,771
$ 3,653
$ 3,916
Gross profit 2,026
1,847
1,462
1,407
1,517
Gross margin 38.9 % 39.2 % 38.8 % 38.5 % 38.7 %
Operating income 654
552
408
454
469
Operating margin 12.6 % 11.7 % 10.8 % 12.4 % 12.0 %
Net income attributable to Xylem 549
331
260
340
337
Per Share Data:
Earnings per share:
Basic $ 3.05
$ 1.84
$ 1.45
$ 1.88
$ 1.84
Diluted 3.03
1.83
1.45
1.87
1.83
Basic shares outstanding 179.8
179.6
179.1
180.9
183.1
Diluted shares outstanding 181.1
180.9
180.0
181.7
184.2
Cash dividends per share $ 0.8400
$ 0.7200
$ 0.6196
$ 0.5632
$ 0.5120
Balance Sheet Data (at period end):
Cash and cash equivalents $ 296
$ 414
$ 308
$ 680
$ 663
Working capital* 988
873
878
810
882
Total assets 7,222
6,860
6,474
4,657
4,833
Total debt 2,308
2,200
2,368
1,274
1,284


*	~~The Company calculates Working capital as follows: net accounts receivable + inventories - accounts payable - customer advances.~~


~~(a)~~	The amounts for the year ended December 31, 2018 reflects the acquisitions of both Pure and Sensus. Refer to Note 3 to the Consolidated Financial Statements for further information regarding acquisitions.


~~(b)~~	The amounts for the years ended December 31, 2017 and December 31, 2016 reflect the acquisition of Sensus. Refer to Note 3 to the Consolidated Financial Statements for further information regarding acquisitions.


~~(c)~~	The amounts for the years ended December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2014 reflect a re-classification related to prior year pension and post retirement accounting. Refer to Note 2 to the Consolidated Financial Statements for further information regarding this prior year re-classification.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto. This discussion summarizes the significant factors affecting our results of operations and the financial condition of our ~~business during each of the fiscal years in the three-year period ended December 31, 2018.~~business. Except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries.

This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Overview

Xylem is a leading global water technology company. We design, manufacture and service highly engineered products and solutions ranging across a wide variety of critical applications in utility, industrial, residential and commercial building services settings. Our broad portfolio of solutions addresses customer needs across the water cycle, from the delivery, measurement and use of drinking water to the collection, test, treatment and ~~treatment~~analysis of wastewater to the return of water to the environment. Our product and service offerings are organized into three reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water and Measurement & Control Solutions.

•

•Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process. We also provide sales and rental of specialty dewatering pumps and related equipment and services. Additionally, our offerings use monitoring and control systems provide the primary functions in the treatment process. We also provide sales and rental of specialty dewatering pumps and related equipment and services. Additionally, our offerings use monitoring & control, smart and connected technologies to allow for remote monitoring of performance and enable products to self-optimize pump operations maximizing energy efficiency and minimizing unplanned downtime and maintenance for our customers. In the Water Infrastructure segment, we provide the majority of our sales directly to customers along with strong applications expertise, while the remaining amount is through distribution partners.

•

~~Applied Water~~ serves the usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning, and for fire protection systems to the residential and commercial building services markets. In addition, our pumps, heat exchangers and controls provide cooling to power plants and manufacturing facilities, circulation for food and beverage processing, as well as boosting systems for agricultural irrigation. In the Applied Water segment, we provide the majority of our sales through long-standing relationships with many of the leading independent distributors in the markets we serve, with the remainder going directly to customers.

•

~~Measurement & Control Solutions~~ ~~primarily~~serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure water quality, flow and level in clean water, wastewater, surface water and coastal environments. Additionally, we offer software and services including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management and pressure monitoring solutions. We also offer smart lighting solutions that improve efficiency and public safety efforts across communities. In the Measurement & Control Solutions segment, we generate our sales through a combination of long-standing relationships with leading distributors and dedicated channel partners as well as direct sales depending on the regional availability of distribution channels and the type of product.

•Applied Water serves the water usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning, and for fire protection systems to the residential and commercial building services markets. In addition, our pumps, heat exchangers and controls provide cooling to power plants and manufacturing facilities, circulation for food and beverage processing, as well as boosting systems for agricultural irrigation. In the Applied Water segment, we provide the majority of our sales through long-standing relationships with many of the leading independent distributors in the markets we serve, with the remainder going directly to customers.

•Measurement & Control Solutions primarilyserves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure and analyze water quality, flow and level in clean water, wastewater, surface water and coastal environments. Additionally, we offer software and services including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management and pressure monitoring solutions. In the Measurement & Control Solutions segment, we generate our sales through a combination of long-standing relationships with leading distributors and dedicated channel partners as well as direct sales depending on the regional availability of distribution channels and the type of product.

COVID-19 Pandemic Update

The global spread of COVID-19 has curtailed the movement of people, goods and services worldwide, including in many of the regions where we sell our products and services and conduct operations.

This section summarizes the most significant impacts related to the COVID-19 pandemic that we have experienced to date, and we have included additional details as applicable throughout other sections of this Annual Report. Xylem’s COVID-19 Response Team is responsible for Xylem's Pandemic Plan. The Pandemic Plan is designed to aid in prevention, preparedness, response and recovery at our sites and across the Company.

Given the magnitude and duration of the COVID-19 pandemic and its economic consequences, it has become more difficult to distinguish specific aspects of our operational and financial performance that are most directly related to the pandemic from those more broadly influenced by ongoing macroeconomic, market and industry dynamics that may be, to varying degrees, related to the pandemic and its consequences.

Public health officials have recommended, or governments have mandated, precautions to mitigate the spread of COVID-19, including travel restrictions, quarantine guidelines, or similar measures in many of the areas in which we operate. As a result, a number of our production facilities across the globe experienced reduced production levels due to such measures to varying degrees during the year, however our current overall operating capacity approximates normal levels globally. In order to maintain a safe work environment, our production facilities continue to spread operations over multiple shifts and implement other protective measures such as testing, temperature screening and social distancing, while maintaining operational capabilities.

The COVID-19 pandemic, as well as broader global market supply and demand dynamics, have adversely affected, and are expected to continue to adversely affect, our supply chains. We have experienced, and expect to continue experiencing shortages in the supply of components, including electronics, particularly semiconductors ("chips"), parts and raw materials. We have also experienced, and continue to experience, increased inflation, freight and logistics costs, issues with port congestion, delivery delays and labor. To help mitigate the effects of these challenges and increase the resilience of our supply chain, we continue to enhance and augment our risk management activities, including supplier pulsing and redundancy. Additionally, we have and continue to take measures with respect to buffer stock, the use of alternative suppliers or redesign of certain products to mitigate the impacts of the ongoing supply chain, freight and logistics delays and bolster our access to electronics, parts and raw materials. To some extent, we have been able to pass cost increases through to customers. If these shortages and interruptions continue, or if additional interruptions occur, they could have a negative impact on our results of operations.

These supply chain issues have also impacted our delivery times to customers. To some extent, mitigation strategies have alleviated these issues but our lead times continue to be impacted.

We have seen a recovery in demand for our products. At the end of 2021, total backlog increased 52.6% as compared to December 31, 2020. The severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, and the pandemic’s ongoing and future impacts on our business, financial condition, results of operations, and stock price remain uncertain and difficult to predict.

In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, management committed to restructuring activities across our businesses and functions globally during the second quarter of 2020. These initiatives were designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers. Since the pandemic started, Xylem has taken measures to protect the health and safety of our employees, work with our customers to minimize potential disruptions and positively impact our communities. In the first quarter of 2020, we implemented a support pay program for employees impacted by COVID-19, which is in place through the second quarter of 2022 and will be evaluated for continuation, as necessary.

Xylem Watermark, our corporate social responsibility program, continues to support our communities in addressing the challenges posed by this global pandemic by strengthening access to Water, Sanitation and Hygiene (WASH) facilities in schools and health centers through its partnership with Americares and UNICEF, as well as the Partner Community Grants program and matching donations program for employees and partners, and other philanthropic commitments.

Many of our offices globally remain in a substantially remote work from home status, with no material disruption to operations, financial reporting systems, internal control over financial reporting or disclosure controls and procedures. Our COVID-19 Response Team applies a set of health and safety guidelines for employees working in Xylem offices.

We continue to assess the evolving nature of the pandemic and its possible implications to our business, employees, supply chain, customers and communities, and to take actions in an effort to mitigate adverse consequences.

Risks related to the impacts of COVID-19 as well as our supply chain are described in further detail under "Item 1A. Risk Factors" in the Company's 2021 Annual Report.

Key Performance Indicators and Non-GAAP Measures

Management reviews key performance indicators including revenue, gross margins, segment operating income and operating income margins, free cash flow, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, dividends, acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures ~~which~~to be key performance indicators, as well as the related reconciling items to the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures may not be comparable to ~~similarly titled~~similarly-titled measures reported by other ~~companies, to be key performance indicators:~~companies.

•"organic revenue" and "organic orders" defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales or discontinuance of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.

•"constant currency" defined as financial results adjusted for foreign currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. ~~dollar.~~Dollar.

•"adjusted net income" and "adjusted earnings per share" defined as net income and earnings per share, respectively, adjusted to exclude restructuring and realignment costs, ~~Sensus acquisition related costs,~~ special charges, gain or loss from sale of businesses and tax-related special items, ~~and gains and losses from the sale of businesses,~~ as applicable. A reconciliation of adjusted net income and adjusted earnings per share is provided below.


(in millions, except per share data)	2021				2020
Net income & Earnings per share	$	427	$	2.35	$	254	$	1.40
Restructuring and realignment, net of tax of $5 and $17	17		0.09		60		0.33
Special charges, net of tax of $2 and $10	10		0.06		76		0.42
Tax-related special items	—		—		(16)		(0.09)
(Gain) loss from sale of business, net of tax benefit of $0	(2)		(0.01)		—		—
Adjusted net income & Adjusted earnings per share	$	452	$	2.49	$	374	$	2.06

▪"adjusted operating expenses" and "adjusted gross profit" defined as operating expenses and gross profit, respectively, adjusted to exclude restructuring and realignment costs and special charges.

▪"adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs and special charges, and "adjusted operating margin" defined as adjusted operating income divided by total revenue.

▪“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense, "EBITDA margin" defined as EBITDA divided by total revenue, "adjusted EBITDA" reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, special charges and

(in millions, except per share data) 2018 2017 2016
Net income attributable to Xylem $ 549
$ 331
$ 260
Earnings per share - diluted $ 3.03
$ 1.83
$ 1.45
Restructuring and realignment, net of tax of $12, $13 and $13, respectively 36
28
34
Sensus acquisition related costs, net of tax of $8 and $15, respectively —
14
38
Special charges, net of tax of $1, $4 and $7, respectively 12
8
11
Tax-related special items (75 ) 40
21
Loss (gain) from sale of businesses, net of tax benefit of $2 —
12
—
Adjusted net income $ 522
$ 433
$ 364
Adjusted earnings per share $ 2.88
$ 2.40
$ 2.03


▪	"adjusted operating expenses" and "adjusted gross profit" defined as operating expenses and gross profit, respectively, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs and special charges.


▪	~~"adjusted operating income" defined as operating income, adjusted to exclude "adjusted operating expenses", and "adjusted operating margin" defined as adjusted operating income~~gain or loss from sale of businesses, and "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue.


▪	“realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.


▪	"Sensus acquisition related costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include integration costs, acquisition

▪“realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.

▪“special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges and both operating and non-operating adjustments for costs related to the ~~recognition~~UK pension plan buy-out.

▪"tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments.

▪"free cash flow" defined as net cash from operating activities, as reported in the Statement of ~~the backlog intangible asset amortization recorded in purchase accounting.~~


▪	“special charges" defined as costs incurred by the Company, such as acquisition and integration related costs not included in "Sensus acquisition related costs", non-cash impairment charges, due diligence costs and other special non-operating items.


▪	"tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments.

▪

"free cash flow" defined as net cash from operating activities less capital expenditures. Free cash flow is further adjusted for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.

Cash Flows, less capital expenditures. Our definition of "free cash flow" does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.

(in millions) 2018 2017 2016
Net cash provided by operating activities $ 586
$ 686
$ 497
Capital expenditures (237 ) (170 ) (124 )
Free cash flow $ 349
$ 516
$ 373
Cash paid for Sensus acquisition related costs 1
28
13
Free cash flow, excluding Sensus acquisition related costs $ 350
$ 544
$ 386


▪	“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense and "Adjusted EBITDA" reflects the adjustment to EBITDA to exclude share-based compensation, restructuring and realignment costs, Sensus acquisition related costs, special charges and gain or loss from sale of businesses.


(in millions)	2021		2020
Net cash provided by operating activities	$	538	$	824
Capital expenditures	(208)		(183)
Free cash flow	$	330	$	641
Net cash used in investing activities	$	(183)	$	(169)
Net cash provided (used) by financing activities	$	(855)	$	473

(in millions) 2018 2017 2016
Net Income $ 549
$ 330
$ 260
Income tax expense 36
136
80
Interest expense (Income), net 78
79
68
Depreciation 117
109
87
Amortization 144
125
64
EBITDA $ 924
$ 779
$ 559
Share-based compensation 30
21
18
Restructuring and realignment 47
41
47
Sensus acquisition related costs —
14
46
Special charges 12
13
5
Loss (gain) from sale of business —
10
—
Adjusted EBITDA $ 1,013
$ 878
$ 675

Executive Summary

Xylem reported revenue of ~~$5,207~~$5,195 million for ~~2018,~~2021, an increase of ~~$500~~$319 million, or ~~10.6%~~6.5%, from ~~$4,707~~$4,876 million reported in ~~2017.~~2020. On a constant currency basis, revenue increased by ~~$477~~$197 million, or ~~10.1%~~4.0%, ~~primarily consisting of~~during the year. The increase at constant currency was driven by an increase in organic revenue ~~growth~~ of ~~$390~~$210 million ~~or 8.3%, driven by~~reflecting strong organic growth in ~~all~~the industrial, commercial and residential end markets, ~~as well as across all major geographic regions. Acquisition revenue of $111 million also contributed to the increase,~~ partially offset by ~~revenue related to divestitures~~organic declines in utilities, largely as a result of ~~$24 million.~~component shortages in our Measurement & Controls Solutions segment.

Operating income for ~~2018~~2021 was ~~$654~~$585 million, reflecting an increase of ~~$102~~$218 million, or ~~18.5%~~59.4%, compared to ~~$552~~$367 million in ~~2017.~~2020. Operating margin was ~~12.6%~~11.3% for ~~2018~~2021 versus ~~11.7%~~7.5% for ~~2017,~~2020, an increase of 90380 basis points. ~~The increase~~Operating margin benefited from decreases in ~~operating income~~special charges of $77 million and ~~margin included favorable impacts from decreased Sensus acquisition related costs of $22 million, partially offset by an increase~~decreases in restructuring and realignment costs of $7$55 million ~~and increased special charges of $1 million.~~during the year. Excluding the impact of these items, adjusted operating income was ~~$714~~$611 million, with an adjusted operating margin of ~~13.7%~~11.8% in ~~2018~~2021 as compared to adjusted operating income of ~~$626~~$525 million with an adjusted operating margin of ~~13.3%~~10.8% in ~~2017.~~2020, an increase of 100 basis points. The increase in adjusted operating margin was primarily due to cost reductions from our ~~global procurement~~productivity, restructuring and ~~productivity~~other cost saving initiatives, favorable volume ~~impacts~~ and price ~~realization, which~~realization. These impacts were partially offset by cost inflation and increased spending on strategic ~~investments and unfavorable mix. Purchase accounting and currency impacts also negatively affected operating margin.~~investments.

Additional financial highlights for ~~2018~~2021 include the following:

•Net income ~~attributable to Xylem~~ of ~~$549~~$427 million, or ~~$3.03~~$2.35 per diluted share ($~~522~~452 million or ~~$2.88~~$2.49 per diluted share on an adjusted basis, up ~~20.6%~~20.9% from ~~2017)~~2020)

~~Cash from~~•Net cash provided by operating activities of ~~$586~~$538 million and free cash flow ~~excluding Sensus acquisition related costs,~~ of ~~$350~~$330 million, down ~~35.7%~~49% from ~~2017~~2020

•Orders of ~~$5,437~~$6,300 million, up ~~11.7%~~25.2% from ~~$4,868~~$5,033 million in ~~2017~~2020 (up ~~9.3%~~22.6% on an organic basis)

•Dividends paid to shareholders increased ~~17%~~8% in ~~2018.~~2021.

~~2019~~2022 Business Outlook

We anticipate total revenue growth in the range of 2%1% to 4%3% in ~~2019,~~2022, with organic revenue growth anticipated to be in the range of 4%3% to 6%5%. The following is a summary of our ~~2018~~2021 organic revenue performance and ~~2019~~2022 organic revenue outlook by end market.

•Utilities revenue decreased by approximately 3% for 2021 on an organic basis driven by weakness in United States, partially offset by strength in western Europe, with relatively flat growth in the emerging markets. For 2022, we expect organic revenue growth in the low-single-digit range as utilities remain

focused on mission-critical applications. We expect uneven growth from China and India as multi-year government funding programs are deployed. The timing of large clean water utility project deployments has been impacted by the global shortage of electronic components. We anticipate that these deployments will ramp up when supply constraints ease in the second half of 2022 based on our strong backlog position and orders momentum. Additionally, we expect healthy momentum in the global test and treatment markets with rising demand and focus on pipeline assessment services and increased demand for our smart water solution and digital offerings.

•Industrial revenue increased by approximately ~~10%~~14% for ~~2018~~2021 on an organic basis driven by strength across all ~~regions globally, particularly in North America and Asia Pacific.~~major geographic regions. For ~~2019,~~2022, we expect organic revenue growth in the mid-single-digit range ~~driven by~~as activity rebounds globally. We continue to see healthy ~~water and wastewater spending in the U.S., smart meter and infrastructure analytics growth opportunities and mixed but stable low-single-digit~~ growth in ~~Europe. We also anticipate a healthy infrastructure investment focus~~our dewatering business, especially in the emerging markets ~~will continue in China and India.~~

Industrial increased by roughly 6% for 2018 on an organic basis driven by strength in North America, western Europe and Latin America, partially offset by weakness in Asia Pacific. For 2019, we expect organic growth in the low to mid-single-digits driven by continued solid industrial conditionsfrom mining demand as well as in the U.S. ~~as the oil~~ and ~~gas markets begin to stabilize after a~~Europe reflecting our strong ~~2018. We also anticipate mixed emerging market conditions with strength in India~~orders and ~~Latin America, offset by softness in the Middle East and slowing growth in China.~~backlog.

•In the commercial markets, organic ~~growth was~~revenue in 2021 increased by approximately ~~11% for 2018 primarily~~7% driven ~~by strength in the United States and Asia Pacific.~~across all major geographic regions. For ~~2019,~~2022, we expect organic revenue growth in the ~~low to~~ mid-single-digit ~~range as the overall market will begin to moderate after two years of strong performance. Organic growth will be driven by~~range. We expect continued ~~strength~~solid replacement business in the U.S.~~, especially during the first half~~ and an acceleration of ~~the year, and the emerging markets led~~construction activity. In Europe we expect modest share gains, with demand for eco-friendly products supported by ~~initiatives~~increase in ~~the China and India building markets.~~funding for green buildings.

•In residential markets, organic ~~growth was~~revenue increased by approximately 2%10% in ~~2018~~2021 driven by strength across all major geographic regions. This market is primarily driven by ~~strength in western Europe which was partially offset by weakness in Asia Pacific.~~replacement revenue serviced through our distribution network. For ~~2019,~~2022, we expect organic revenue growth in the low-single-digit ~~growth primarily driven by continued competition~~to mid-single-digit range. We anticipate demand and activity to moderate and remain healthy from increased residential users in the U.S. ~~replacement market as the housing market begins~~and western Europe. Additionally, we continue to ~~stabilize. We also~~ anticipate ~~stability in Europe and modest growth opportunities~~strong demand in China ~~and other Asia Pacific countries~~ for secondary ~~clean~~ water ~~sources.~~supply product applications.

We will continue to strategically execute restructuring and realignment actions ~~primarily to reposition our European and North American businesses~~ in an effort to optimize our cost structure, ~~and~~ improve our operational efficiency and ~~effectiveness.~~effectiveness, strengthen our competitive positioning and better serve our customers. During ~~2018,~~2021, we incurred ~~$20~~$6 million and ~~$28~~$16 million in restructuring and realignment costs,

respectively. We realized approximately ~~$13~~$33 million of incremental net savings in ~~2018~~2021 from actions initiated in ~~2017,~~2020, and an additional $3$2 million of net savings from our ~~2018~~2021 actions. As a result of our ~~2017~~2020 and ~~2018~~2021 actions we expect to realize approximately $8 million of incremental net savings in ~~2019~~2022 and beyond. During ~~2019,~~2022, we currently expect to incur ~~approximately~~between $25 million and $30 million in restructuring and realignment costs.

We plan to continue to take actions and focus spending in ~~2019~~2022 on ~~actions~~areas that allow us to make progress on our strategic priorities as well on our top priorities for 2022, which include converting our strong demand momentum into top-line growth by maximizing chip allocation and price realization, continuing our commitment to deliver margin expansion by mitigating supply chain and inflation headwinds and executing on strategic priorities. The priority of accelerating profitable growth encompasses our initiatives to drive commercial excellence, grow in emerging markets and strengthen innovation and technology through creation of new centers of excellence, a streamlined approach to product development and strategic acquisitions. The priority of driving continuous improvement is an area where we will continue to work to create new opportunities to unlock savings by eliminating waste and increasing efficiencies, which is supported by efforts to expand and further deepen our talent pool. We plan to continue to deploy capital in smart, disciplined ways to develop and acquire solutions to address our customers’ challenges. Finally, we continue to work to improve cash performance and generate capital to return to our shareholders.deployment opportunities.

Results of Operations


(in millions)	2018			2017			2016			2018 v. 2017		2017 v. 2016		(in millions)	2021			2020			2021 v. 2020
Revenue	$	5,207		$	4,707		$	3,771		10.6	%	24.8	%	Revenue	$	5,195		$	4,876		6.5	%
Gross profit	2,026			1,847			1,462			9.7	%	26.3	%	Gross profit	1,975			1,830			7.9	%
Gross margin	38.9		%	39.2		%	38.8		%	(30	)bp	40	bp	Gross margin	38.0		%	37.5		%	50	bp
Restructuring and realignment costs	5			3			3			66.7	%	—	%
Sensus acquisition related charges	—			8			26			NM		(69.2	)%
Realignment costs														Realignment costs	4			6			(33.3)	%

Adjusted gross profit	2,031			1,858			1,491			9.3	%	24.6	%	Adjusted gross profit	1,979			1,836			7.8	%
Adjusted gross margin	39.0		%	39.5		%	39.5		%	(50	)bp	—		Adjusted gross margin	38.1		%	37.7		%	40	bp
Total operating expenses	1,372			1,295			1,054			5.9	%	22.9	%	Total operating expenses	1,390			1,463			(5.0)	%
Expense to revenue ratio	26.3		%	27.5		%	28.0		%	(120	)bp	(50	)bp	Expense to revenue ratio	26.8		%	30.0		%	(320)	bp
Restructuring and realignment costs	(43		)	(38		)	(44		)	13.2	%	(13.6	)%	Restructuring and realignment costs	(18)			(71)			(74.6)	%
Sensus acquisition related charges	—			(14		)	(27		)	NM		(48.1	)%

Special charges	(12		)	(11		)	(5		)	9.1	%	120.0	%	Special charges	(4)			(81)			(95.1)	%
Adjusted operating expenses	1,317			1,232			978			6.9	%	26.0	%	Adjusted operating expenses	1,368			1,311			4.3	%
Adjusted operating expense to revenue ratio	25.3		%	26.2		%	25.9		%	(90	)bp	30	bp
Adjusted operating expenses to revenue ratio														Adjusted operating expenses to revenue ratio	26.3		%	26.9		%	(60)	bp
Operating income	654			552			408			18.5	%	35.3	%	Operating income	585			367			59.4	%
Operating margin	12.6		%	11.7		%	10.8		%	90	bp	90	bp	Operating margin	11.3		%	7.5		%	380	bp
Interest and other non-operating expense (income), net	69			76			68			(9.2	)%	11.8	%
(Loss)/gain from sale of businesses	—			(10		)	—			NM		NM
Interest and other non-operating expense, net														Interest and other non-operating expense, net	76			82			(7.3)	%
Gain (loss) from sale of business														Gain (loss) from sale of business	2			—			NM
Income tax expense	36			136			80			(73.5	)%	70.0	%	Income tax expense	84			31			171.0	%
Tax rate	6.1		%	29.2		%	23.5		%	(2,310	)bp	570	bp	Tax rate	16.3		%	10.9		%	540	bp
Net income	$	549		$	330		$	260		66.4	%	26.9	%	Net income	$	427		$	254		68.1	%

NM Not Meaningful

~~2018~~

2021 versus ~~2017~~2020

Revenue

Revenue generated for ~~2018~~2021 was ~~$5,207~~$5,195 million, an increase of ~~$500~~$319 million, or ~~10.6%~~6.5%, compared to ~~$4,707~~$4,876 million in ~~2017.~~2020. On a constant currency basis, revenue grew ~~10.1%~~4.0% during ~~2018. This~~2021. The increase ~~in revenue~~ at constant currency was ~~primarily~~ driven by an increase in organic revenue of ~~$390~~$210 million reflecting strong organic growth ~~across all major regions, with~~in the ~~vast majority of growth coming from North America, the emerging~~industrial, commercial and residential end markets, ~~particularly in China and Latin America, as well as in western Europe. Acquisition revenue of $111 million also contributed to the increase,~~ partially offset by organic declines in utilities, largely as a ~~reduction~~result of component shortages in ~~revenue related to divestitures of $24 million during the period.~~our Measurement & Controls Solutions segment.

The following table illustrates the impact ~~on 2018 revenue~~ from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to ~~revenue:~~revenue during 2021:


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
2020 Revenue	$	2,079			$	1,434			$	1,363			$	4,876
Organic Impact	103		5.0	%	145		10.1	%	(38)		(2.8)	%	210		4.3	%
Acquisitions/(Divestitures)	—		—	%	—		—	%	(13)		(1.0)	%	(13)		(0.3)	%
Constant Currency	103		5.0	%	145		10.1	%	(51)		(3.7)	%	197		4.0	%
Foreign currency translation (a)	65		3.1	%	34		2.4	%	23		1.7	%	122		2.5	%
Total change in revenue	168		8.1	%	179		12.5	%	(28)		(2.1)	%	319		6.5	%
2021 Revenue	$	2,247			$	1,613			$	1,335			$	5,195

(a)Foreign currency translation impact for the year primarily due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, the Chinese Yuan, the British Pound, the Australian Dollar and the Canadian Dollar.

Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2017 Revenue $ 2,004
$ 1,421
$ 1,282
$ 4,707

Organic Growth 176
8.8 % 113
8.0 % 101
7.9 % 390
8.3 %
Acquisitions/(Divestitures) —
— % (10 ) (0.7 )% 97
7.6 % 87
1.8 %
Constant Currency 176
8.8 % 103
7.2 % 198
15.4 % 477
10.1 %
Foreign currency translation (a) (4 ) (0.2 )% 10
0.7 % 17
1.3 % 23
0.5 %
Total change in revenue 172
8.6 % 113
8.0 % 215
16.8 % 500
10.6 %
2018 Revenue $ 2,176
$ 1,534
$ 1,497
$ 5,207


~~(a)~~	Foreign currency translation impact for the year primarily due to strength in the value of the Euro, British Pound, Chinese Yuan and various other currencies against the U.S. Dollar. This impact was partially offset by the weakening in value of the Argentine Peso, Indian Rupee, Swedish Krona and Australian dollar against the U.S. Dollar.

Water Infrastructure

Water ~~Infrastructure’s~~Infrastructure revenue increased ~~$172~~$168 million, or ~~8.6%~~8.1%, to $2,247 million in ~~2018 (8.8%~~2021 (5.0% increase on a constant currency basis) compared to ~~2017.~~2020. Revenue benefited from $65 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $103 million. Organic growth during the year was ~~negatively impacted~~driven by $4the industrial end market across all of our major geographic regions, with particular strength across the emerging markets, especially in Africa where we had strong dewatering sales, and in Latin America, where prior year COVID-19 impacts caused significant project delays. Industrial also had strong growth in western Europe and Oceania from continued general industrial strength. Organic growth was partially offset by weakness in the utility end market, driven by softness in the dewatering business in the U.S., and weakness in the emerging markets partially offset by strength in western Europe, where operational spending and project execution was strong.

From an application perspective, organic revenue growth was driven by our transport applications. The transport applications had strong dewatering revenue growth across the emerging markets, where we experienced market recovery from COVID-19 impacts and strength in mining, and growth from aftermarket parts and services revenue in western Europe. Transport growth in these regions was partially offset by weakness in the U.S. driven by declines in the dewatering construction market. Organic revenue from our treatment applications also contributed to the segment's growth during the year, driven by market recovery in western Europe, and project orders in the emerging markets, which were partially offset by the timing of project deliveries Latin America.

Applied Water

Applied Water revenue increased $179 million, or 12.5%, in 2021 (10.1% increase on a constant currency basis) compared to 2020. Revenue benefited from $34 million of foreign currency translation, with the change at constant currency coming entirely from organic growth during the year of ~~$176 million, or 8.8%.~~$145 million. Organic growth for the year included growth across all three of the applications and end markets in the segment. The organic growth was ~~driven~~led by strength in the utility end market across all geographic regions, with particularly strong growth coming from the emerging markets, especially China, as well as from the United States. Organic growth during the year was also driven by strength in the industrial, end market, primarily in North America and Europe, while emerging market industrial strength in Latin America was partially offset by declines in Asia Pacific due to the lapping of a large ozone project delivery in China last year.

From an application perspective, organic revenue growth for the year was largely attributable to our transport application. The transport application grew due to strength across all geographic regions. Growth in North America was driven by modest share gains and continued focus by utility customers on improving infrastructure, as well as strong dewatering rental sales and oil and gas growth. Project deliveries in western Europe and product localization in China also contributed to the transport application growth during the period with China having 35.6% organic growth for the year. Organic revenue from our treatment application also contributed significantly to the segment's growth across all regions, particularly from strong utility project deliveries in China, with 42.1% growth for the year.

~~Applied Water~~

Applied Water’s revenue increased $113 million, or 8.0%, in 2018, with revenue benefiting from $10 million of foreign currency translation during the year. The revenue growth at constant currency was $103 million, or 7.2%, and consisted of organic growth of $113 million, or 8.0%, partially offset by $10 million of reduction in revenue related to divestitures. Organic growth for the year was driven primarily by strength in the commercial and industrial end markets, primarily in the United States and Asia Pacific, as well as modest growth in the residential end market.

~~From an application perspective, commercial building services revenue~~which was primarily driven by ~~distributor strength~~market recovery and commercial building construction growth, coupled with price realization, in the United States and project deployments in China and India. Organic revenue growth in the industrial water application was driven primarily by recovery in large project business and healthy general industrial demand in the United States, as well as strong strengthgood backlog execution in the emerging markets, particularly in China and ~~Latin America.~~India, as well as strength in specialty flow control applications in both the U.S. and western Europe. Commercial building services had strong organic growth as we executed on healthy backlog coming into the year in the U.S., saw good COVID-19 recovery in western Europe and growth in the emerging markets, driven by project and backlog execution in China. Residential building services also had ~~modest~~strong organic growth ~~primarily from strength~~ in ~~western Europe, partially offset by declines~~the U.S. as we executed on healthy backlog coming into the year, as well as in ~~Asia Pacific.~~the emerging markets, where we experienced strong second water supply business in China.

Measurement & Control Solutions

Measurement & Control Solutions revenue ~~increased $215~~decreased $28 million, or ~~16.8%~~2.1%, in ~~2018 (15.4% increase~~2021 (3.7% decrease on a constant currency basis)~~, with revenue benefiting~~ compared to 2020. Revenue benefited from ~~$17~~$23 million of foreign currency translation during the ~~year. Revenue growth~~year, with the change at constant currency ~~consisted~~driven by an organic decline of ~~revenue contributed by acquisitions of $111 million and organic revenue growth of $101~~$38 million, or ~~7.9%~~2.8%, ~~which was partially offset by $14~~and to a lesser extent, $13 million of ~~reduction in~~reduced revenue related to ~~divestitures~~divestiture impacts during the year. Organic ~~revenue growth~~weakness for the year was ~~primarily~~ driven by ~~strength~~declines in the utility end market, primarily in North ~~America.~~America, partially offset by modest strength in western Europe and the emerging markets. Strength in the industrial end market, across all major geographies, partially offset revenue declines in the segment.

In order to simplify and focus the application discussion, beginning with the first quarter of 2021, have been aggregating the test application into the water application and the software as a service and other application into the water and energy applications, as applicable, as both of these sub-applications provide products and services to the broader, ultimate applications of water and energy. From an application perspective, organic revenue ~~from~~decline during the ~~gas application contributed the most organic growth for the segment,~~year was driven entirely by large project deployments in North America. The water application also drove organic growth, with large project deployments and increased water shipments in the Unites States and Asia Pacific, partially offset by declines in Europe. Software as a service & other also had significant growth from large deployments in the United States and the United Kingdom. Additional organic revenue growth came from the test application, which saw growth in both the utility and industrial end markets, primarily in western Europe and the United States, partially offset by declines in the ~~emerging markets.~~electric business within the energy application in North America due to electronic component shortages. The ~~electric~~water application ~~also~~ had modest organic growth in ~~North America during~~western Europe largely attributable to our test business and growth in the ~~year.~~

emerging markets. This growth was largely offset by declines in our metrology business in the U.S. due to deployment constraints as a result of chip shortages.

~~Orders/Backlog~~

Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2017 Orders $ 2,112
$ 1,476
$ 1,280
$ 4,868

Organic Growth 140
6.6 % 83
5.6 % 231
18.0 % 454
9.3 %
Acquisitions/(Divestitures) —
— % (12 ) (0.8 )% 100
7.8 % 88
1.8 %
Constant Currency 140
6.6 % 71
4.8 % 331
25.9 % 542
11.1 %
Foreign currency translation (a) 3
0.1 % 10
0.7 % 14
1.1 % 27
0.6 %
Total change in revenue 143
6.8 % 81
5.5 % 345
27.0 % 569
11.7 %
2018 Orders $ 2,255
$ 1,557
$ 1,625
$ 5,437

Orders/Backlog


~~(a)~~	Foreign currency translation impact for the year primarily due to strength in the value of the Euro, British Pound, Chinese Yuan and various other currencies against the U.S. Dollar. This impact was partially offset by the weakening in value of the Argentine Peso, Indian Rupee, Swedish Krona and Australian dollar against the U.S. Dollar.

An order represents a legally enforceable, written document that includes the scope of work or services to be performed or equipment to be supplied to a customer, the corresponding price and the expected delivery date for the applicable products or services to be provided. An order often takes the form of a customer purchase order or a signed quote from a Xylem business. Orders received during ~~2018~~2021 increased by ~~$569~~$1,267 million, or ~~11.7%~~25.2%, to ~~$5,437~~$6,300 million ~~(11.1%~~(22.4% increase on a constant currency basis). Order ~~growth was favorably impacted by $27~~intake during the year benefited from $140 million of foreign currency translation. The increase on a constant currency basis primarily consisted of organic order growth of $1,139 million, or 22.6%, over the prior year.

The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during 2021:


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
2020 Orders	$	2,134			$	1,483			$	1,416			$	5,033
Organic Impact	261		12.2	%	338		22.8	%	540		38.1	%	1,139		22.6	%
Acquisitions/(Divestitures)	—		—	%	—		—	%	(12)		(0.8)	%	(12)		(0.2)	%
Constant Currency	261		12.2	%	338		22.8	%	528		37.3	%	1,127		22.4	%
Foreign currency translation (a)	76		3.6	%	39		2.6	%	25		1.8	%	140		2.8	%
Total change in orders	337		15.8	%	377		25.4	%	553		39.1	%	1,267		25.2	%
2021 Orders	$	2,471			$	1,860			$	1,969			$	6,300

Water Infrastructure

Water Infrastructure segment orders increased $337 million, or 15.8%, to $2,471 million (12.2% increase on a constant currency basis). Order intake during the ~~year.~~year benefited from $76 million of foreign currency translation. The order increase on a constant currency basis consisted of organic order growth in both the transport and treatment applications. Organic growth in the transport application was driven by healthy market conditions in the U.S. and strong order intake in western Europe, as well as increased demand for dewatering applications in the emerging markets. Organic orders for the treatment application also increased during the year due to strong order intake in the first half of the year, driven by strength in the U.S. and western Europe.

Applied Water

Applied Water segment orders increased $377 million, or 25.4% to $1,860 million (22.8% increase on a constant currency bases). Order intake during the year benefited from $39 million of foreign currency translation. The order increase on a constant currency basis was driven by organic order growth in the U.S. across all end markets and applications, where we benefited from strong demand, amplified by early ordering to mitigate longer lead times, as well as strength in the specialty flow control applications; in western Europe, where we benefited from strong order intake; and in the emerging markets, driven by China, as markets conditions recovered from the COVID-19 pandemic.

Measurement & Control Solutions

Measurement & Control Solutions segment orders increased $553 million, or 39.1%, to $1,969 million (37.3% increase on a constant currency basis). Order intake during the year benefited from $25 million of foreign currency translation. The order increase on a constant currency basis included organic order growth of ~~$454~~$540 million, or ~~9.3%, over the prior year. Orders from acquisitions of $115 million also contributed to the growth at constant currency,~~38.1% which was partially offset by a $12 million reduction in orders related to ~~divestitures of $27 million~~divestiture impacts during the year.

Water Infrastructure segment orders increased $143 million, or 6.8%, to $2,255 million (6.6% increase on a constant currency basis). Orders growth for the segment benefited from $3 million of foreign currency translation for the year. The order increase on a constant currency basis consisted entirely of an increase in organic orders. Organic ~~orders grew in both of the segment applications. The treatment application had very strong order intake, driven by orders in China, the United States and India. Transport~~ order growth was ~~driven~~led by ~~increased strength~~the water application, primarily in ~~North America, primarily~~our metrology business, but also from ~~dewatering rental and equipment orders along with overall strong market conditions, and order strength~~our test business. Order intake in ~~Europe. Transport order growth~~the energy application also grew organically during the year, ~~was partially offset by custom pump project timing in India.~~

~~Orders increased in our Applied Water segment by $81 million, or 5.5%, to $1,557 million (4.8% increase on a constant currency basis). Orders growth for~~where the ~~segment~~electric and gas businesses benefited from ~~$10 million of foreign currency translation for~~COVID-19 recovery, coupled with increased order intake due to the year. The order increase on a constant currency basis included organic order growth of $83 million, or 5.6%, driven by strong commercial and industrial performance in the United States, as well as modest strength in Europe and the emerging markets, partially offset by the reduction in orders from divestitures of $12 million.known chip shortages.

Orders increased in our Measurement & Control Solutions segment by $345 million, or 27.0%, to $1,625 million (25.9% increase on a constant currency basis). Orders growth for the segment benefited from $14 million of foreign currency translation for the year. The order increase on a constant currency basis included orders from recent acquisitions of $115 million, partially offset by the reduction of orders from divestitures of $15 million, and organic order growth of $231 million, or 18.0%. Organic order growth primarily driven by orders within the water application in North America and a large order in India. The gas and software as a service & other applications also had strong organic order growth in North America as well as Asia Pacific, while electric orders were only slightly up for the year.

Backlog

Backlog includes ~~contractual customer commitments as well as~~ orders on hand as ofwell as contractual customer agreements at the end of the period. Delivery schedules vary from customer to customer based ~~upon~~on their requirements. Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors. Typically, large projects require longer lead production cycles and deployment schedules and delays ~~can~~ occur from time to time. Total backlog was ~~$1,689~~$3,240 million at December 31, ~~2018~~2021 and ~~$1,513~~$2,124 million at December 31, ~~2017,~~2020, an increase of ~~11.6%~~52.6%. ~~This year over year increase in backlog of $176 million includes approximately $42 million of backlog from 2018 acquisitions.~~ We anticipate that approximately ~~65%~~60% of our total backlog at December 31, ~~2018~~2021 will be recognized as revenue during ~~2019.~~

2022.

Gross Margin

Gross ~~margins~~margin as a percentage of consolidated revenue ~~decreased 30~~increased 50 basis points to ~~38.9%~~38.0% in ~~2018~~2021 as compared to ~~39.2%~~37.5% in ~~2017.~~2020. The gross margin decrease was primarily driven by the negative impact of cost inflation, unfavorable mix, increased amortization of external sale software, net negative currency impacts and purchase accounting impacts. These unfavorable impacts were partially offset by cost reductions from global procurement and productivity improvement initiatives, price realization, and reductions in Sensus acquisition related costs and realignment costs.

~~Operating Expenses~~

(in millions) 2018 2017 Change
Selling, general and administrative expenses ("SG&A") $ 1,161
$ 1,089
6.6 %
SG&A as a % of revenue 22.3 % 23.1 % (80 )bp
Research and development expenses ("R&D") 189
181
4.4 %
R&D as a % of revenue 3.6 % 3.8 % (20 )bp
Restructuring and asset impairment charges 22
25
(12.0 )%
Operating expenses $ 1,372
$ 1,295
5.9 %
Expense to revenue ratio 26.3 % 27.5 % (120 )bp

~~Selling, General and Administrative Expenses~~

~~SG&A increased by $72 million (increase of 6.6%) to 22.3% of revenue in 2018, as compared to 23.1% of revenue in 2017. The improvement in SG&A as a percent of revenue~~increase for the year was primarily driven by cost reductions from our productivity, restructuring and other cost saving initiatives, price realization and favorable volume, ~~impacts,~~ partially offset by ~~the absence of Sensus acquisition related charges that did not recur in 2018. Additional~~ inflation.

Operating Expenses


(in millions)	2021			2020			Change
Selling, general and administrative expenses	$	1,179		$	1,143		3.1	%
SG&A as a % of revenue	22.7		%	23.4		%	(70)	bp
Research and development expenses	204			187			9.1	%
R&D as a % of revenue	3.9		%	3.8		%	10	bp
Restructuring and asset impairment charges	7			75			(90.7)	%
Goodwill impairment charge	—			58			(100.0)	%
Operating expenses	$	1,390		$	1,463		(5.0)	%
Expense to revenue ratio	26.8		%	30.0		%	(320)	bp

Selling, General and Administrative ("SG~~&A from recent acquisitions also added to the increase in~~ &A") Expenses

SG&A expenses increased by $36 million (increase of 3.1%) to 22.7% of revenue in 2021, as compared to ~~the prior year.~~23.4% of revenue in 2020. Revenue growth was higher than SG&A increases resulting in a lower SG&A as a percentage of sales. Cost increases were driven by increased investments in strategic growth initiatives and inflation, partially offset by cost reductions from our productivity, restructuring and other cost saving initiatives.

Research and Development ("R&D") Expenses

R&D ~~spending~~expense was ~~$189~~$204 million, or ~~3.6%~~3.9% of revenue, in ~~2018~~2021 as compared to ~~$181~~$187 million, or 3.8% of revenue, in ~~2017. Additionally,~~2020. The increase in R&D as a percent of revenue for year was primarily driven by the Company's continued focus on strategic investments during the year.

Restructuring and Asset Impairment Charges

Restructuring

In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, on June 2, 2020 management committed to a restructuring plan that includes actions across our businesses and functions globally. The plan was designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers.

As a result of this action, during 2021, we ~~capitalized R&D on external sale software~~recognized restructuring charges of ~~$60~~$4 million and $2 million in ~~2018 as compared to $46~~our Water Infrastructure and Applied Water segments, respectively. These charges included reduction of headcount across both segments. Other, less significant, restructuring actions taken in 2021 resulted in $3 million of charges during 2021 and are included in ~~2017. Our increased spending on R&D is driven by our continued commitment to innovation and technology development.~~the information presented below.

~~Restructuring Charges and Asset Impairment~~

~~Restructuring Charges~~

~~During 2018,~~As a result of this action, during 2020, we ~~incurred~~recognized restructuring ~~costs~~charges of $9$19 million, $2$4 million and $9$30 million in our Water Infrastructure, Applied Water and Measurement & Control Solutions segments, respectively. ~~We incurred these~~These charges related to actions taken in 2018 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 and ~~consolidation of facilities~~asset impairments within our Measurement & Control Solutions segment. Immaterial restructuring charges incurred during the first quarter of 2020 are included in the 2020 plan information presented below.

The following is a roll-forward of employee position eliminations associated with restructuring activities for the years ended December 31, 2021 and 2020:


	2021	2020
Planned reductions - January 1	319	196
Additional planned reductions	83	811
Actual reductions and reversals	(342)	(688)
Planned reductions - December 31	60	319

The following table presents the total costs expected to be incurred, the amount incurred in the period, and the cumulative costs incurred to date for our 2020 and 2021 restructuring actions:


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Corporate		Total
Actions Commenced in 2021:
Total expected costs	$	4	$	—	$	1	$	—	$	5
Costs incurred during 2021	3		—		—		—		3
Total expected costs remaining	$	1	$	—	$	1	$	—	$	2

Actions Commenced in 2020:
Total expected costs	$	23	$	6	$	30	$	—	$	59
Costs incurred during 2020	19		4		30		—		53
Costs incurred during 2021	4		2		—		—		6
Total expected costs remaining	$	—	$	—	$	—	$	—	$	—

During the third quarter of 2021, we recorded an adjustment of $3 million to decrease the liability within the Measurement & Control Solutions segment, related to actions commenced in 2019. As a result of this adjustment, the estimated total cost of the actions commenced in 2019 decreased to $24 million for the Measurement & Control Solutions segment. The actions commenced in 2019 are complete.

The Water Infrastructure ~~segments, as well as headcount reductions within our Applied Water segment.~~

~~During 2017, we recognized restructuring costs of $7 million, $8 million and $5 million in our Water Infrastructure, Applied Water~~ and Measurement & Control Solutions ~~respectively.~~actions commenced in 2021 consist primarily of severance charges. These ~~charges were incurred primarily in an effort~~actions are expected to ~~realign our organizational structure in Europe and North America to optimize our cost structure. The charges included~~continue through the ~~reduction~~end of ~~headcount and consolidation of facilities within our Applied Water and Water Infrastructure segments, as well as headcount reductions within our Measurement & Control Solutions segment.~~

~~The following table presents expected restructuring spend:~~

(in millions) Water Infrastructure Applied Water Measurement & Control Solutions Corporate Total
Actions Commenced in 2018:
Total expected costs $ 9
$ 1
$ 7
$ —
$ 17
Costs incurred during 2018 7
1
7
—
15
Total expected costs remaining $ 2
$ —
$ —
$ —
$ 2

Actions Commenced in 2017:
Total expected costs $ 18
$ 12
$ 3
$ —
$ 33
Costs incurred during 2017 5
4
2
—
11
Costs incurred during 2018 2
1
1
—
4
Total expected costs remaining $ 11
$ 7
$ —
$ —
$ 18

Actions Commenced in 2016:
Total expected costs $ 13
$ 14
$ 10
$ 2
$ 39
Costs incurred during 2016 11
10
6
2
29
Costs incurred during 2017 2
4
3
—
9
Costs incurred during 2018 —
—
1
—
1
Total expected costs remaining $ —
$ —
$ —
$ —
$ —
2022.

The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in ~~2018~~2020 consist primarily of severance charges across segments and ~~are expected to continue through the third quarter of 2019. The Water Infrastructure, Applied Water, and~~asset impairment charges in our Measurement & Control Solutions segment. These actions ~~commenced in 2017 consist primarily of severance charges and~~ are ~~expected to continue through~~complete.

During the second quarter of ~~2020. The Water Infrastructure, Applied Water,~~2020 the discontinuance of a product line resulted in $17 million of asset impairments, primarily related to customer relationships, trademarks and fixed assets within our Measurement & Control Solutions ~~and Corporate actions commenced in 2016 consist primarily of severance charges and are complete.~~ segment.

As a result of the actions initiated in ~~2018,~~2021, we achieved savings of approximately $2$1 million in ~~2018~~2021 and estimate annual future net savings beginning in ~~2019~~2022 of approximately $7$2 million, resulting in $5$1 million of incremental savings from ~~the 2018~~2021 actions.

Asset Impairment ~~Charges~~

During the ~~fourth quarter~~second and third quarters of ~~2018 we determined that certain software assets within our Water Infrastructure segment were impaired. Accordingly we recognized an impairment charge of $2 million.~~

~~During the first quarter of 2017~~2020, we determined that certain assets within our ~~Applied Water~~Measurement & Control Solutions segment, including ~~a tradename,~~software, proprietary technology, and internally developed in-process software, were impaired. Accordingly we recognized animpairment charges of $21 million during the year. Refer to Note 12, "Goodwill and Other Intangible Assets," for additional information.

Goodwill Impairment Charge

During the third quarter of 2020, the Company recorded a goodwill impairment charge of ~~$5 million.~~$58 million related to the Advanced Infrastructure Analytics (“AIA”) goodwill reporting unit within our Measurement & Control Solutions segment. The AIA goodwill reporting unit is comprised of our assessment services business (primarily the Pure acquisition) as well as our decision intelligence solutions business. The impairment resulted from management's updated forecast of future cash flows for the AIA businesses, which reflected significant negative volume impacts, primarily on our assessment services business, due to travel restrictions and site closures as a result of the COVID-19 pandemic. These factors drove a decrease in the fair value, based on a discounted cash flow valuation,

of the AIA goodwill reporting unit that was below its carrying value, requiring an impairment charge. Refer to Note ~~11,~~12, "Goodwill and Other Intangible Assets," for additional information.

Operating Income and Adjusted EBITDA

~~We generated operating~~Operating income ~~of $654~~was $585 million (operating margin of ~~12.6%~~11.3%) ~~for 2018, reflecting~~during 2021, an increase of ~~$102~~$218 million, or ~~18.5%~~59.4%, when compared to operating income of ~~$552~~$367 million (operating margin of ~~11.7%~~7.5%) during the prior year. ~~The increase~~Operating margin benefited from decreases in ~~operating margin was primarily due to cost reductions resulting from our global procurement~~special charges of $77 million and productivity initiatives, favorable volume impacts and price realization and a decrease in Sensus acquisition related costs. These favorable impacts on operating margin were partially offset by cost inflation increases, increased spending on strategic investments, unfavorable mix, an increasedecreases in restructuring and realignment costs of $55 million as compared to the prior year. Excluding these special charges and ~~an increase in special charges. Purchase accounting impacts also negatively affected operating margin.~~

~~Adjusted~~restructuring and realignment costs, adjusted operating income was ~~$714~~$611 million (adjusted operating margin of ~~13.7%~~11.8%) for ~~2018, reflecting an increase of $88 million, or 14.1%, when~~2021 as compared to adjusted operating income of ~~$626~~$525 million (adjusted operating margin of ~~13.3%~~10.8%) during the prior year. The increase in adjusted operating margin was ~~mostly~~primarily due to cost reductions from our productivity, restructuring and other cost saving initiatives, favorable volume and price realization. These impacts were partially offset by cost inflation and increased spending on strategic investments.

Adjusted EBITDA was $890 million (Adjusted EBITDA margin of 17.1%) during 2021, an increase of $95 million, or 11.9%, when compared to Adjusted EBITDA of $795 million (Adjusted EBITDA margin of 16.3%) during the prior year. The increase in Adjusted EBITDA margin was primarily due to the same factors impacting operating income, except for the decrease in Sensus acquisition related costs, the increase in restructuring and realignment costs and the increase in special charges as these costs were not included in adjusted operating income.margin noted above.

The table below provides a reconciliation of total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin:


(In millions)	2018			2017			Change			(In millions)	2021			2020			Change
Water Infrastructure										Water Infrastructure
Operating income	$	359		$	312		15.1		%	Operating income	$	387		$	318		21.7	%
Operating margin	16.5		%	15.6		%	90		bp	Operating margin	17.2		%	15.3		%	190	bp
Restructuring and realignment costs	20			16			25.0		%	Restructuring and realignment costs	12			28			(57.1)	%
Special charges	2			—			NM

Adjusted operating income	$	381		$	328		16.2		%	Adjusted operating income	$	399		$	346		15.3	%
Adjusted operating margin	17.5		%	16.4		%	110		bp	Adjusted operating margin	17.8		%	16.6		%	120	bp
Applied Water										Applied Water
Operating income	$	236		$	194		21.6		%	Operating income	$	240		$	205		17.1	%
Operating margin	15.4		%	13.7		%	170		bp	Operating margin	14.9		%	14.3		%	60	bp
Restructuring and realignment costs	10			17			(41.2	)	%	Restructuring and realignment costs	7			9			(22.2)	%
Special charges	—			5			(100.0	)	%	Special charges	1			—			NM	%
Adjusted operating income	$	246		$	216		13.9		%	Adjusted operating income	$	248		$	214		15.9	%
Adjusted operating margin	16.0		%	15.2		%	80		bp	Adjusted operating margin	15.4		%	14.9		%	50	bp
Measurement & Control Solutions										Measurement & Control Solutions
Operating income	$	118		$	110		7.3		%
Operating income (loss)										Operating income (loss)	$	12		$	(106)		(111.3)	%
Operating margin	7.9		%	8.6		%	(70	)	bp	Operating margin	0.9		%	(7.8)		%	870	bp
Sensus acquisition related costs	—			15			(100.0	)	%

Restructuring and realignment costs	18			8			125.0		%	Restructuring and realignment costs	3			40			(92.5)	%
Special charges	5			—			NM			Special charges	—			79			(100.0)	%
Adjusted operating income	$	141		$	133		6.0		%	Adjusted operating income	$	15		$	13		15.4	%
Adjusted operating margin	9.4		%	10.4		%	(100	)	bp	Adjusted operating margin	1.1		%	1.0		%	10	bp
Corporate and other										Corporate and other
Operating loss	$	(59	)	$	(64	)	(7.8	)	%	Operating loss	$	(54)		$	(50)		8.0	%
Sensus acquisition related costs	—			7			(100.0	)	%

Special charges	5			6			(16.7	)	%	Special charges	3			2			NM
Adjusted operating loss	$	(54	)	$	(51	)	5.9		%	Adjusted operating loss	$	(51)		$	(48)		6.3	%
Total Xylem										Total Xylem
Operating income	$	654		$	552		18.5		%	Operating income	$	585		$	367		59.4	%
Operating margin	12.6		%	11.7		%	90		bp	Operating margin	11.3		%	7.5		%	380	bp
Restructuring and realignment costs	48			41			17.1		%	Restructuring and realignment costs	22			77			(71.4)	%
Sensus acquisition related costs	—			22			(100.0	)	%

Special charges	12			11			9.1		%	Special charges	4			81			(95.1)	%
Adjusted operating income	$	714		$	626		14.1		%	Adjusted operating income	$	611		$	525		16.4	%
Adjusted operating margin	13.7		%	13.3		%	40		bp	Adjusted operating margin	11.8		%	10.8		%	100	bp

NM Not Meaningful

The table below provides a reconciliation of total and each segment's adjusted EBITDA to Consolidated EBITDA and net income:


2021

Net Income								$427
Net Income margin								8.2	%
Depreciation								118
Amortization								127
Interest expense, net								69
Income tax expense								84
EBITDA								$825
	Water Infrastructure		Applied Water		Measurement & Control Solutions		Other*	Total
EBITDA	$433		$261		$155		$(24)	$825
Restructuring and realignment	12		7		3		0	22
Share-based compensation	2		4		6		21	33
Special charges	0		1		0		11	12
(Gain) loss from sale of business	0		(2)				0	(2)
Adjusted EBITDA	$447		$271		$164		$8	$890
Adjusted EBITDA margin	19.9	%	16.8	%	12.3	%	NM	17.1	%

* Other includes Regional selling locations, corporate and other items.


2020

Net Income								$254
Net Income margin								5.2	%
Depreciation								117
Amortization								134
Interest expense, net								70
Income tax expense								31
EBITDA								$606
	Water Infrastructure		Applied Water		Measurement & Control Solutions		Other*	Total
EBITDA	$365		$228		$35		$(22)	$606
Restructuring and realignment	28		9		40		0	77
Share-based compensation	2		3		5		16	26
Special charges	0		0		79		7	86

Adjusted EBITDA	$395		$240		$159		$1	$795
Adjusted EBITDA margin	19.0	%	16.7	%	11.7	%	NM	16.3	%

* Other includes Regional selling locations, corporate and other items.


2021 versus 2020
	Water Infrastructure		Applied Water		Measurement & Control Solutions		Other*	Total
Adjusted EBITDA	$52		$31		$5		$7	$95
Adjusted EBITDA margin	0.9	%	0.1	%	0.6	%	NM	0.8	%
Restructuring and realignment	(16)		(2)		(37)		0	(55)
Share-based compensation	0		1		1		5	7
Special charges	0		1		(79)		4	(74)
(Gain) loss from sale of business	0		(2)		0		0	(2)
EBITDA	$68		$33		$120		$(2)	$219

* Other includes Regional selling locations, corporate and other items.

Water Infrastructure

Operating income for our Water Infrastructure segment increased ~~$47~~$69 million, or ~~15.1%~~21.7%, during 2021 as compared to the prior year, with operating margin also increasing from ~~15.6%~~15.3% to ~~16.5%, a 90 basis point increase as compared to the prior year.~~17.2%. Operating margin ~~was negatively impacted year over year by increased~~benefited from a decrease in restructuring and realignment costs of $4$16 million ~~and special charges of $2 million incurred~~ in ~~2018.~~2021. Excluding these ~~items,~~restructuring and realignment costs, adjusted operating income increased $53 million, or ~~16.2%~~15.3%, with adjusted operating margin increasing from ~~16.4%~~16.6% to ~~17.5%, a 110 basis point increase as compared to the prior year.~~17.8%. The increase in adjusted operating margin during the year was primarily due to cost reductions from our ~~global procurement~~productivity, restructuring and ~~productivity~~other cost saving initiatives and favorable ~~volume and price realization, which~~volume. These impacts were partially offset by cost inflation ~~unfavorable mix,~~and increased spending on strategic ~~investments~~investments.

Adjusted EBITDA was $447 million (Adjusted EBITDA margin of 19.9%) during 2021, an increase of $52 million, or 13%, when compared to Adjusted EBITDA of $395 million (Adjusted EBITDA margin of 19.0%) during the prior year. The increase in Adjusted EBITDA margin was primarily due to the same factors impacting the increase in adjusted operating margin; however, Adjusted EBITDA margin did not benefit from the year over year reduction in depreciation and ~~negative currency impacts.~~amortization expense.

Applied Water

Operating income for our Applied Water segment increased ~~$42~~$35 million, or ~~21.6%~~17.1%, during 2021 as compared to the prior year, with operating margin also increasing from ~~13.7%~~14.3% to ~~15.4%, a 170 basis point increase as compared to the prior year.~~14.9%. Operating margin ~~was positively impacted by special charges of $5 million incurred~~benefited from a decrease in ~~2017 that did not recur and decreased~~ restructuring and realignment costs of $7$2 million in ~~2018.~~2021, partially offset by an increase in special charges of $1 million. Excluding these items, adjusted operating income increased ~~$30~~$34 million, or ~~13.9%~~15.9%, with adjusted operating margin increasing from ~~15.2%~~14.9% to ~~16.0%, an 80 basis point increase as compared to the prior year.~~15.4%. The increase in adjusted operating margin during the year was primarily due to cost reductions from our ~~global procurement~~productivity, restructuring and ~~productivity~~other cost saving initiatives, favorable volume, and price ~~realization, which~~realization. These impacts were partially offset by cost inflation ~~negative transactional currency impacts~~ and ~~unfavorable mix.~~increased logistics cost, increased spending on strategic investments, increased inventory management costs.

Adjusted EBITDA was $271 million (Adjusted EBITDA margin of 16.8%) during 2021, an increase of $31 million, or 13%, when compared to Adjusted EBITDA of $240 million (Adjusted EBITDA margin of 16.7%) during the prior year. The increase in Adjusted EBITDA margin was primarily due to the same factors impacting the increase in adjusted operating margin; however, Adjusted EBITDA margin did not benefit from the year over year reduction in depreciation and amortization expense.

Measurement & Control Solutions

Operating income for our Measurement & Control Solutions segment increased $8$118 million, or ~~7.3%~~111.3%, ~~with operating margin decreasing from 8.6% to 7.9%, a 70 basis point decrease~~during 2021 as compared to the prior ~~year.~~year, resulting in an operating income of $12 million, with operating margin increasing from (7.8)% to 0.9%. Operating margin ~~was negatively impacted by an increase~~benefited from a decrease in special charges of ~~$10~~$79 million, and a decrease in restructuring and realignment costs ~~and $5~~of $37 million in ~~special charges incurred in 2018. This impact was offset by $15 million of Sensus acquisition related costs incurred during the year in 2017 that did not recur.~~2021. Excluding these items, adjusted operating income increased $8$2 million, or 6.0%, with adjusted operating margin decreasing from 10.4% to 9.4%, a 100 basis point decrease as compared to the prior year. The decrease in adjusted operating margin was primarily due to increases in cost inflation, spending on strategic investments and unfavorable mix impacts due to large energy project deployments. Purchase accounting impacts also negatively affected operating margin. These impacts were partially offset by favorable volume and price realization and cost reductions from our global procurement and productivity initiatives.

~~Corporate and other~~

Operating expense for corporate and other decreased $5 million, or 7.8%, compared to the prior year, primarily due to a reduction of Sensus acquisition related costs and special charges. Excluding these costs, adjusted operating expense increased $3 million, or 5.9%, compared to the prior year, mostly driven by an increase in employee related, non-cash share-based compensation costs.

~~Interest Expense~~

Interest expense remained constant at $82 million for both 2018 and 2017. See Note 14, "Credit Facilities and Debt" of our consolidated financial statements for a description of our credit facilities and long-term debt and related interest.

~~Income Tax Expense~~

~~Tax Act~~

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code. As noted at 2017 year end, we reasonably estimated certain effects and, therefore, as permitted by SAB 118, recorded provisional estimates associated with the reduction of U.S. federal corporate tax rate and deemed repatriation transition tax. Our accounting for the reduction of U.S. federal corporate tax rate is complete. We recorded a provisional tax benefit for corporate tax rate reduction of $107 million as of December 31, 2017. Upon further analysis of our deferred tax assets and liabilities, we recognized a measurement-period adjustment of $1.5 million as an additional decrease of the net deferred tax liabilities and recorded a corresponding deferred tax benefit of $1.5 million during the period ended December 31, 2018. The effect of this measurement period adjustment on the 2018 effective tax rate was about 0.3%. A total decrease of the net deferred tax liabilities of $108 million has been recorded for the corporate rate reduction, with a corresponding deferred tax benefit of $108 million.

Our accounting for the Deemed Repatriation Transition Tax ("Transition Tax") is complete. We made an estimate of the Transition Tax and recorded a provisional Transition Tax liability of $153 million as of December 31, 2017. On the basis of revised E&P computations that were completed and additional guidance, we recognized a measurement-period adjustment of a $9 million decrease to the income tax expense in 2018. The effect of the measurement-period adjustment on the 2018 effective tax rate was approximately 1.6%. A total Transition Tax obligation to date of $144 million has been recorded, with a corresponding adjustment of $144 million to income tax expense.

The income tax provision for 2018 was $36 million at an effective tax rate of 6.1% compared to $136 million at an effective tax rate of 29.2% in 2017. The 2018 effective tax rate is lower than 2017 primarily due to the impact of an intercompany sale of assets, the reduction of the Transition Tax and the reduction of the U.S. federal corporate rate in 2018, partially offset by the 2017 benefit from the remeasurement of deferred tax assets and liabilities.

~~See Note 7, "Income Taxes" of our consolidated financial statements for further discussion of the Tax Act.~~

~~Other Comprehensive (Loss) Income~~

Other comprehensive loss was $111 million in 2018 as compared to income of $108 million in 2017. This decrease was primarily driven by unfavorable foreign currency translation impacts due to the weakening of the Euro, Great British Pound, Canadian Dollar, South African rand, Polish Zloty, Swedish Krona, amongst other various currencies, against the U.S. Dollar in the current year versus strengthening for the same period in the prior year. These decreases were partially offset by the favorable impact from movement in our Euro net investment hedges. The tax impact on the movement in the net investment hedges also contributed to the year over year decrease.

~~2017 versus 2016~~

~~Revenue~~

Revenue generated for 2017 was $4,707 million, an increase of $936 million, or 24.8%, compared to $3,771 million in 2016. On a constant currency basis, revenue grew 23.9%. This increase in revenue was primarily driven by additional revenue of $790 million from acquisitions. There was also strong organic growth of $122 million during the year, driven primarily by North America as well as strength in the emerging markets, particularly in China and India. Additionally, to a lesser extent, Europe contributed to this organic growth despite ongoing weakness in the United Kingdom during the year.

~~The following table illustrates the impact on 2017 revenue from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue.~~

Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2016 Revenue $ 1,932
$ 1,393
$ 446
$ 3,771

Organic Growth 56
2.9 % 34
2.4 % 32
7.2 % 122
3.2 %
Acquisitions/(Divestitures) —
— % (10 ) (0.7 )% 790
177.1 % 780
20.7 %
Constant Currency 56
2.9 % 24
1.7 % 822
184.3 % 902
23.9 %
Foreign currency translation (a) 16
0.8 % 4
0.3 % 14
3.1 % 34
0.9 %
Total change in revenue 72
3.7 % 28
2.0 % 836
187.4 % 936
24.8 %
2017 Revenue $ 2,004
$ 1,421
$ 1,282
$ 4,707


~~(a)~~	Foreign currency translation impact primarily due to strength in the value of the Euro, Canadian dollar, Russian Ruble, Australian dollar, South African Rand and various other currencies, partially offset by weakness in the British Pound against the U.S. Dollar.

~~Water Infrastructure~~

Water Infrastructure’s revenue increased $72 million, or 3.7%, in 2017 (2.9% increase on a constant currency basis) compared to 2016. Revenue benefited from $16 million of foreign currency translation for the year and included organic growth of $56 million, or 2.9%.

Organic growth for the year was driven by strength in the industrial end market, and to a lesser extent in the utility end market. The growth in both of these end markets was driven by strength from Asia Pacific and North America.

From an application perspective, organic revenue growth was driven primarily by our transport application. The transport application grew in the industrial end market due to strength in the dewatering business which benefited from the recovery of the industrial construction market, particularly within the distribution channel and recovery of oil and gas and mining markets in North America and Latin America. The transport application also grew in the utility end market driven by increased municipal spending in North America and increased projects in the Middle East and India. Organic revenue from our treatment application also contributed to the segment's growth primarily from growth in China from industrial treatment project deliveries as well as growth in Europe from municipal treatment projects.

~~Applied Water~~

Applied Water’s revenue increased $28 million, or 2.0%, in 2017 (1.7% increase on a constant currency basis) compared to 2016. Revenue benefited from $4 million of foreign currency translation for the year and the constant currency increase included organic growth of $34 million, or 2.4%.

Organic growth for the year was driven by strength in the residential and commercial end markets in the United States, Asia Pacific and western Europe, which were partially offset by declines in the industrial market.

From an application perspective, growth in residential building services was primarily driven by strength in the United States, where we benefited from the timing of promotions and market share gains, and continued strength in Asia Pacific. Commercial building services also grew, primarily in North America, western Europe and Asia Pacific, driven by new product traction and sales channel investments. This growth was partially offset by a decline in industrial applications, primarily driven by unfavorable weather conditions impacting the agriculture business in the United States, partially offset by strength in western Europe.

~~Measurement & Control Solutions~~

Measurement & Control Solutions revenue increased $836 million, or 187.4%, in 2017 (184.3% on a constant currency basis) compared to 2016. The revenue increase for the year was almost entirely from $790 million of revenue related to acquisitions that we did not have in the prior year. Most of the additional revenue contributed by the Sensus business was generated in the United States with additional revenue coming primarily from western Europe and China. The majority of the Sensus business revenue came from water applications with gas and electric applications making up most of the remaining sales for the year. Organic revenue growth in the Measurement & Control Solutions segment was $32 million, or 7.2%, for the year. Organic growth was driven primarily by growth across all applications, except electric which had slight declines. Much of the organic revenue increase was in the water application, which had increased AMI deployments in North America as well as higher demand for iPerl product in eastern Europe and the Middle East. Organic revenue also increased in the gas application, primarily due to AMI deployments in North America, as well as in the software and services application, primarily driven by a couple of major contract upgrades. The test application also contributed to the increase in organic revenue as a result of strength from the environmental monitoring business in the United States.

~~Orders/Backlog~~

Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2016 Orders $ 1,957
$ 1,405
$ 462
$ 3,824

Organic Growth 139
7.1 % 79
5.6 % 42
9.1 % 260
6.8 %
Acquisitions/(Divestitures) —
— % (11 ) (0.8 )% 762
164.9 % 751
19.6 %
Constant Currency 139
7.1 % 68
4.8 % 804
174.0 % 1,011
26.4 %
Foreign currency translation (a) 16
0.8 % 3
0.2 % 14
3.0 % 33
0.9 %
Total change in revenue 155
7.9 % 71
5.1 % 818
177.1 % 1,044
27.3 %
2017 Orders $ 2,112
$ 1,476
$ 1,280
$ 4,868


~~(a)~~	Foreign currency translation impact primarily due to strength in the value of the Euro, Canadian dollar, Russian Ruble, Australian dollar, South African Rand and various other currencies, partially offset by weakness in the British Pound against the U.S. Dollar.

Orders received during 2017 increased by $1,044 million, or 27.3%, to $4,868 million (26.4% increase on a constant currency basis). The order growth on a constant currency basis was primarily driven by additional orders from recent acquisitions, primarily Sensus, of $762 million. Organic order growth was $260 million, or 6.8%, over the prior year.

Water Infrastructure segment orders increased $155 million, or 7.9%, to $2,112 million (7.1% growth on a constant currency basis). Orders benefited from $16 million of foreign currency translation for the year and included organic growth of $139 million, or 7.1%. The majority of the organic order growth for the segment came from the transport application, driven by the utility sector in the United States, as well as strong project orders in China and India. Additionally, dewatering distributor orders increased driven by storm related activity and the strengthening of the oil and gas markets. Treatment applications also had strong order intake, primarily from projects in the emerging markets, Latin America and North America.

Orders increased in our Applied Water segment by $71 million, or 5.1%, to $1,476 million (4.8% increase on a constant currency basis). The order increase was primarily due to organic order growth of $79 million, or 5.6%, driven by strength in the emerging markets and strong commercial building and industrial performance in North America, which was partially offset by the loss of orders related to divested businesses of $11 million.

Orders increased in our Measurement & Control Solutions segment by $818 million, or 177.1%, to $1,280 million (174.0% growth on a constant currency basis). This increase included orders from recent acquisitions, primarily Sensus, of $762 million and organic order growth of $42 million, or 9.1%, primarily from Sensus order increases in North America for most applications, as well as increased orders from test application strength in the United States and China.

Backlog includes contractual customer commitments as well as orders on hand as of the end of the period. Delivery schedules vary from customer to customer based upon their requirements. Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. As such, beginning total backlog, plus orders, minus revenues will not equal ending total backlog due to contract adjustments, foreign currency fluctuations and other factors. Typically, large projects require longer lead production cycles and deployment schedules, and delays can occur from time to time. Total backlog was $1,513 million at December 31, 2017 and $1,292 million at December 31, 2016, an increase of 17%. The December 31, 2016 backlog balance has been revised to include contractual agreements that Sensus has with customers that do not have minimum commitments but which we believe will be executed upon over the terms of the contracts. This year over year increase in backlog of $221 million is due to strong order growth in the fourth quarter across all of our segments as well as benefits from currency translation impacts. We anticipate that over 60% of our total backlog at December 31, 2017 will be recognized as revenue during 2018.

~~Gross Margin~~

Gross margins as a percentage of consolidated revenue increased to 39.2% in 2017 from 38.8% in 2016. The gross margin increase was primarily due to the benefits realized from cost reductions from global procurement and continuous improvement initiatives, as well as a decrease in the inventory step-up charge for Sensus in 2017. These positive impacts on gross margin were partially offset by cost inflation and unfavorable product mix.

~~Operating Expense~~

(in millions) 2017 2016 Change
Selling, general and administrative expenses $ 1,089
$ 914
19.1 %
SG&A as a % of revenue 23.1 % 24.2 % (110 )bp
Research and development expenses 181
110
64.5 %
R&D as a % of revenue 3.8 % 2.9 % 90 bp
Restructuring and asset impairment charges 25
30
(16.7 )%
Operating expenses $ 1,295
$ 1,054
22.9 %
Expense to revenue ratio 27.5 % 28.0 % (50 )bp

~~Selling, General and Administrative Expenses~~

SG&A increased by $175 million (increase of 19.1%) to 23.1% of revenue in 2017, as compared to 24.2% of revenue in 2016. The increase in SG&A expenses includes approximately $160 million of incremental SG&A spending for the Sensus business that we did not have prior to the acquisition in the fourth quarter of 2016. The remaining increases in SG&A expenses were primarily due to inflation, investments in regional sales channels and operational capabilities and foreign currency impacts, which were partially offset by savings from restructuring and other cost actions.

~~Research and Development Expenses~~

R&D spending increased $71 million or 64.5% to 3.8% of revenue in 2017 as compared to 2.9% of revenue in 2016 primarily due to additional R&D spend from our recent acquisitions and investments in new products and technologies.

~~Restructuring Charges~~

During 2017, we incurred restructuring costs of $7 million, $8 million and $5 million in our Water Infrastructure, Applied Water and Measurement & Control Solutions segments, respectively. We incurred these charges related to actions taken in 2017 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 and consolidation of facilities within our Applied Water and Water Infrastructure segments, as well as headcount reductions within our Measurement & Control Solutions segment.

During 2016, we recognized restructuring costs of $12 million, $10 million, $6 million and $2 million in our Water Infrastructure, Applied Water, Measurement & Control Solutions and Corporate, respectively. These charges were incurred primarily in an effort to realign our organizational structure in Europe and North America to optimize our cost structure. The charges relate to the reduction in structural costs, including a decrease in headcount and consolidation of facilities.

~~The following table presents expected restructuring spend:~~

(in millions) Water Infrastructure Applied Water Measurement & Control Solutions Corporate Total
Actions Commenced in 2017:
Total expected costs $ 18
$ 12
$ 3
$ —
$ 33
Costs incurred during 2017 5
4
2
—
11
Total expected costs remaining $ 13
$ 8
$ 1
$ —
$ 22

Actions Commenced in 2016:
Total expected costs $ 13
$ 14
$ 10
$ 2
$ 39
Costs incurred during 2016 11
10
6
2
29
Costs incurred during 2017 2
4
3
—
9
Total expected costs remaining $ —
$ —
$ 1
$ —
$ 1

The Water Infrastructure, Applied Water, Measurement & Control Solutions, and Corporate actions commenced in 2017 consist primarily of severance charges and are expected to continue through the end of 2018. The Water Infrastructure, Applied Water, Measurement & Control Solutions and Corporate actions commenced in 2016 consist primarily of severance charges and are largely complete. The Water Infrastructure, Applied Water and Measurement & Control Solutions actions commenced in 2015 consist primarily of severance charges and are complete. As a result of these actions initiated in 2017, we achieved savings of approximately $4 million in 2017 and estimate annual future net savings beginning in 2018 of approximately $15 million, resulting in $11 million of incremental savings from the 2017 actions.

~~Asset Impairment Charges~~

During the first quarter of 2017 we determined that certain assets within our Applied Water segment, including a tradename, were impaired. Accordingly we recognized an impairment charge of $5 million. Refer to Note 11, "Goodwill and Other Intangible Assets," for additional information.

~~Operating Income~~

We generated operating income of $552 million (operating margin of 11.7%) during 2017, reflecting an increase of $144 million, or 35.3%, when compared to operating income of $408 million (operating margin of 10.8%) during the prior year. This increase in operating income was largely driven by the inclusion of Sensus operating income for the full year in 2017. Sensus acquisition related costs and restructuring and realignment costs decreased $31 million and $6 million, respectively, while special charges increased $6 million when compared to the prior year period. Excluding these costs, adjusted operating income was $626 million (adjusted operating margin of 13.3%) for 2017 as compared to $513 million (adjusted operating margin of 13.6%) for 2016. The decrease in adjusted operating margin was mostly due to cost inflation increases, increased spending on strategic investments and Sensus purchase accounting impacts, which were largely offset by cost savings from our global procurement and productivity initiatives and restructuring savings. The non-cash Sensus purchase accounting impact on adjusted operating margin for the year was 50 basis points.

~~The table below provides a reconciliation of the total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin:~~

(In millions) 2017 2016 Change
Water Infrastructure
Operating income $ 312
$ 295
5.8
%
Operating margin 15.6 % 15.3 % 30
bp
Restructuring and realignment costs 16
16
—
%
Special charges —
2
(100.0 ) %
Adjusted operating income $ 328
$ 313
4.8
%
Adjusted operating margin 16.4 % 16.2 % 20
bp
Applied Water
Operating income $ 194
$ 188
3.2
%
Operating margin 13.7 % 13.5 % 20
bp
Restructuring and realignment costs 17
16
6.3
%
Special charges 5
—
NM

Adjusted operating income $ 216
$ 204
5.9
%
Adjusted operating margin 15.2 % 14.6 % 60
bp
Measurement & Control Solutions
Operating income $ 110
$ —
NM

Operating margin 8.6 % — % NM

Sensus acquisition related costs 15
25
(40.0 ) %
Restructuring and realignment costs 8
13
(38.5 ) %
Special charges —
$ 3
(100.0 ) %
Adjusted operating income $ 133
$ 41
224.4
%
Adjusted operating margin 10.4 % 9.2 % 120
bp
Corporate and other
Operating loss $ (64 ) $ (75 ) (14.7 ) %
Restructuring and realignment costs —
2
(100.0 ) %
Sensus acquisition related costs 7
28
(75.0 ) %
Special charges 6
—
NM

Adjusted operating loss $ (51 ) $ (45 ) 13.3
%
Total Xylem
Operating income $ 552
$ 408
35.3
%
Operating margin 11.7 % 10.8 % 90
bp
Restructuring and realignment costs 41
47
(12.8 ) %
Sensus acquisition related costs 22
53
(58.5 ) %
Special charges 11
5
120.0
%
Adjusted operating income $ 626
$ 513
22.0
%
Adjusted operating margin 13.3 % 13.6 % (30 ) bp

~~NM Not Meaningful~~

~~Water Infrastructure~~

Operating income for our Water Infrastructure segment increased $17 million, or 5.8%, with operating margin also increasing from 15.3% to 15.6%, a 30 basis point increase as compared to the prior year. Operating margin was positively impacted year over year by special charges of $2 million in 2016 that did not recur, while restructuring and realignment costs remained flat. Excluding these items, adjusted operating income increased $15 million, or 4.8%15.4%, with adjusted operating margin increasing from ~~16.2%~~1.0% to ~~16.4%~~1.1%. The increase in adjusted operating margin during the year was driven by cost reductions from our productivity, restructuring and other cost saving initiatives and improved quality management costs, primarily due to a specific warranty charge recorded during the prior year that did not recur related to a firmware issue that was identified and addressed timely. These impacts were partially offset by cost inflation, unfavorable volume and increased spending on strategic investments.

Adjusted EBITDA was $164 million (Adjusted EBITDA margin of 12.3%) during 2021, an increase of $5 million, or 3%, ~~a 20 basis point~~when compared to Adjusted EBITDA of $159 million (Adjusted EBITDA margin of 11.7%) during the prior year. The increase in Adjusted EBITDA margin was due to the same factors as those impacting the increase in adjusted operating margin; however year over year increases in depreciation and amortization did not negatively impact Adjusted EBITDA margin.

Corporate and other

Operating loss for corporate and other increased $4 million, or 8.0%, compared to the prior year. The increase in ~~adjusted operating margin was~~cost is primarily ~~due to cost reductions from global procurement and continuous improvement initiatives as well as restructuring savings and favorable volume. These drivers were partially offset~~driven by ~~increases in cost inflation and~~increased spending on strategic ~~investments, as well as unfavorable transactional foreign currency impacts.~~

~~Applied Water~~

Operating income for our Applied Water segment increased $6 million, or 3.2%, with operating margin also increasing from 13.5% to 13.7%, a 20 basis point increase as compared to the prior year. Operating margin was negatively impacted by higher special charges for a non-cash impairment of $5 million and a $1 million increase in restructuring and realignment costs. Excluding these items, adjusted operating income increased $12 million, or 5.9%, with adjusted operating margin increasing from 14.6% to 15.2%, an 60 basis point increase as compared to the prior year. The increase in adjusted operating margin was primarily due to cost reductions from global procurement and continuous improvement initiatives and restructuring savings, which were partially offset by increases in cost inflation, unfavorable mix and the impact from the change in accounting for pension costs.

~~Measurement & Control Solutions~~

Operating income for our Measurement & Control Solutions segment increased $110 million (operating margin of 8.6%) for the year as compared to operating income and margin of zero in 2016. Operating margin was positively impacted by decreases in Sensus acquisition related costs, restructuring and realignment costs and special charges of $10 million, $5 million and $3 million, respectively. Excluding these items, adjusted operating income increased $92 million, or 224.4%, with most of the increase coming from the inclusion of the incremental adjusted operating income for Sensus in 2017. Adjusted operating margin increased from 9.2% to 10.4%, a 120 basis point increase as compared to the prior year. The increase in adjusted operating margin was primarily due to cost reductions from global procurement and continuous improvement initiatives, restructuring savings and favorable volume impacts. These drivers were partially offset by the inclusion of Sensus margins, which were negatively impacted by purchase accounting. Non-cash Sensus purchase accounting negatively impacted the segment's full year adjusted operating margin by 200 basis points.

~~Corporate and other~~

Operating expense for corporate and other decreased $11 million, or 14.7%, compared to the prior year, primarily due to a $21 million decrease in Sensus acquisition related costs and a $2 million decrease in restructuring and realignment costs. This was partially offset by $6 million of special charges incurred during the year which we did not have in the prior year. Excluding these costs, adjusted operating expense increased $6 million compared to the prior year, driven mostly by employee related costs as well as the impact from the change in accounting for pension costs.initiatives.

Interest Expense

Interest expense was ~~$82~~$76 million and ~~$70~~$77 million for ~~2017~~2021 and ~~2016,~~2020, respectively. The ~~increased interest expense for the year includes additional interest expense in 2017 related to debt entered into in the fourth quarter of 2016 to fund our acquisition of Sensus. The increase~~decrease in interest expense ~~was partially offset by~~reflects the ~~reduction in special interest charges incurred in 2016 of $8 million in connection with the early extinguishment~~settlement of our Senior Notes due 2021 and lower short term borrowings during 2021, partially offset by a full year of interest expense associated with our Green Bond issuance during the second quarter of 2020 (as defined in ~~2016~~"Funding and $5 million of financing charges on the bridge loan related to the Sensus acquisition, neither of which recurred in 2017, as well as a lower interest rate on the Senior Notes due 2023 which effectively replaced the Senior Notes due in 2016.Liquidity Strategy"). See Note ~~14,~~15, "Credit Facilities and Debt", of our consolidated financial statements for a description of our credit facilities and long-term debt and related interest.

Income Tax Expense

The income tax provision for ~~2017~~2021 was ~~$136~~$84 million at an effective tax rate of ~~29.2%~~16.3% as compared to ~~$80~~$31 million at an effective tax rate of ~~23.5%~~10.9% in ~~2016.~~2020. The ~~2017~~2021 effective tax rate ~~is higher than 2016 due to the provisional one time deemed repatriation transition tax under the newly enacted Tax Cuts and Jobs Act, partially offset by the benefit~~differs from ~~the remeasurement~~that of ~~deferred tax assets and liabilities and the release of valuation allowances.~~

~~See Note 7, "Income Taxes" of our consolidated financial statements for further discussion of the Tax Act.~~

~~Other Comprehensive Income~~

~~Other comprehensive income was $108 million in 2017 as compared to an $80 million loss in 2016. This increase was driven primarily by favorable foreign currency translation impacts,~~2020 primarily due to the ~~strengthening~~tax benefits recorded for releases of uncertain tax positions in 2020. In addition, in 2021 the Euro, Great British Pound, Chinese Yuan, Polish Zloty, amongst other various currencies, against the U.S. Dollar as compared to the weakening of these same currencies in the prior year. Partially offsetting these favorable movements, was the Euro movement on the Company's net investment hedge as compared to the prior year. TheCompany recorded a lower tax impact on the foreign currency translation related to the net investment hedge also contributed to the year over year increase. Finally, year over year movement in foreign currency translation on postretirement benefit ~~plans partially offset the increase in other comprehensive income.~~for excess stock compensation deductions.

Liquidity and Capital Resources

The following table summarizes our sources and uses of cash:


	Year Ended December 31,										Year Ended December 31,
(in millions)	2018			2017			2016			(in millions)	2021		2020		Change
Operating activities	$	586		$	686		$	497		Operating activities	$	538	$	824	$	(286)
Investing activities	(643		)	(181		)	(1,886		)	Investing activities	(183)		(169)		(14)
Financing activities	(40		)	(421		)	1,034			Financing activities	(855)		473		(1,328)
Foreign exchange (a)	(21		)	22			(17		)	Foreign exchange (a)	(26)		23		(49)
Total	$	(118	)	$	106		$	(372	)	Total	$	(526)	$	1,151	$	(1,677)


~~(a)~~	2018 impact is primarily due to the weakness of the Chinese Yuan, Argentine Peso, Indian Rupee and various other currencies against the U.S. Dollar. 2017 impact is primarily due to the strengthening of the Euro and the Chinese Yuan against the U.S. Dollar. 2016 impact is primarily due to the weakness of the Euro and the Chinese Yuan against the U.S. dollar.

(a)2021 impact is primarily due to weakening of the Euro, and Chilean Peso against the U.S. Dollar.

Sources and Uses of Liquidity

Operating Activities

During ~~2018,~~2021, net cash provided by operating activities was ~~$586~~$538 million, compared to ~~$686~~$824 million in ~~2017.~~2020. The ~~$100~~$286 million year-over-year decrease was primarily driven by ~~an increased use of~~higher working capital ~~for inventory, which was built up at year end to maintain service~~ levels, impacted by ~~component shortages as well as~~increased safety stock to ~~make strategic purchases~~mitigate supply chain volatility. Also contributing to ~~manage tariff impacts. Operating~~the decrease were higher interest payments, and increased cash ~~also decreased during~~used for income, payroll and other taxes, partially from the ~~period as a result~~delayed timing of ~~increased receivables from higher growth levels. These negative impacts~~payments in the prior year related to ~~operating~~COVID-19 tax relief programs. Increased cash ~~flow were~~earnings partially offset ~~by increased cash from earnings during the year.~~

During 2017, net cash provided by operating activities was $686 million, compared to $497 million in 2016. The $189 million year-over-year increase was primarily driven by increased cash from operating activities of the Sensus business acquired in the fourth quarter of 2016 and strong operating cash performance across the rest of the business.these items.

Investing Activities

Cash used in investing activities was ~~$643~~$183 million in ~~2018,~~2021, compared to ~~$181~~$169 million in ~~2017.~~2020. This increase in cash used of ~~$462~~$14 million was mainly driven by higher spending on capital expenditures compared to the prior year, partially offset by proceeds received from the sales of businesses in 2021.

Financing Activities

Cash used in financing activities was $855 million in 2021, compared to cash generated from financing activities of $473 million in 2020. This change was primarily driven by the $433 million spent on 2018 acquisitions, primarily the acquisition of Pure Technologies Ltd., versus the $33 million spent for various acquisition activities in the prior year. Spending on capital expenditures also increased by $67 million over the prior year, primarily due to increased spending on software development, building up of the dewatering rental fleet, as well as increased spending on other strategic capital investments to meet increasing demand.

Cash used in investing activities was $181 million in 2017 compared to $1,886 million in 2016. The decrease of $1,705 million was primarily driven by the $1,782 million spent on the acquisition of Sensus and two other businesses in 2016 as compared to the $33 million spent for acquisitions in 2017. This impact is partially offset by increased spending of $46 million over the prior year on capital projects, including spending on capitalized software in the Sensus business.

~~Financing Activities~~

Cash used by financing activities was $40 million in 2018, compared to cash used by financing activities of $421 in 2017. The decrease in cash used during the year was primarily due to the net issuance of $335 million in short term debt in the current year, which was largely used for acquisition financing. Additionally, short term debt repaid during the year was $52 million versus $282 million during the prior year period (see Note 14, "Credit Facilities and Long-Term Debt" of our consolidated financial statements for a full discussion of debt activities). These drivers are partially offset by the higher net repayment of ~~$120 million of long-term debt~~Senior Notes in ~~the current year, an increase in share repurchase activity of $34 million~~2021 and ~~an increase in dividends paid of $22 million as compared to the prior year.~~

~~Cash generated by financing activities was $421 million in 2017, compared to cash generated by financing activities of $1,034 in 2016. In 2017, the net decrease in cash provided was primarily due to~~proceeds received from the issuance of ~~long-term~~our Green Bond (as defined in "Funding and Liquidity Strategy") and other short-term ~~debt related to acquisition financing~~financings in ~~2016 versus~~2020 that did not reoccur in 2021. Partially offsetting these items was the ~~net~~ repayment of short-term debt in 2017 (see Note 14, "Credit Facilities and Long-Term Debt" of our consolidated financial statements for a full discussion of debt activities). Also contributing to the decrease in cash generated by financing activities were increased share repurchases and higher dividend payments in 2017.2020.

Funding and Liquidity Strategy

Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to bank financing and the capital markets. We continually evaluate aspects of our spending, including capital expenditures, strategic investments and dividends.

In both 2021 and 2020, we elected to utilize certain federal, state and foreign COVID-19 tax relief programs related to timing of tax payments, deductions and credits to further manage our liquidity.

Historically, we have generated operating cash flow sufficient to fund our primary cash ~~needs centered~~needs. Xylem issued Senior Notes of $1 billion in aggregate principal ("Green Bond") on June 26, 2020 to further manage our liquidity. The primary long-term intention of incurring this debt is to fund green projects across our business segments, as well as manage liquidity risk and increase flexibility, as the duration of the economic effects of the pandemic are uncertain. See Note 15, "Credit Facilities and Debt", of our consolidated financial statements for a description of our credit facilities and long-term debt. Xylem's liquidity position has continued to evolve favorably during 2021, and we will continue to monitor the economic effects of the COVID-19 pandemic and its impact on the Company's future operating ~~activities, working capital, capital expenditures, strategic investments and dividends.~~cash flows going forward. If our cash flows from operations are less than we expect, we may need to incur debt or issue equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing. Our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (i) our credit ratings or absence of a credit rating, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy. There can be no assurance that such financing will be available to us on acceptable terms or that such financing will be available at all. Our securities are rated investment grade. A significant change in credit rating could impact our ability to borrow at favorable rates. Refer to Note 15, "Credit Facilities and Debt", of our consolidated financial statements for a description of limitations on obtaining additional funding.

We monitor our global funding requirements and seek to meet our liquidity needs on a ~~cost effective~~cost-effective basis. As of December 31, 2021, the COVID-19 pandemic has not materially impacted our borrowing costs or other costs of capital, however the future impact of the COVID-19 pandemic is uncertain and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity.

We have considered the impacts of the COVID-19 pandemic on our liquidity and capital resources and do not currently expect them to impact our ability to meet future liquidity needs or continue to comply with debt covenants. To provide for continued access to the full capacity of our credit facilities going forward, Xylem entered into Amendment No. 1 to the 2019 Credit Facility (as defined in Note 15, "Credit Facilities and Debt") on June 22, 2020 which modified the covenant calculation methodology through the quarter ending September 30, 2021 and restricted stock repurchases until March 31, 2021, except for shares of common stock in an amount not to exceed the number of shares issued after the date of the Amendment, subject to customary exceptions. See Note 15, "Credit Facilities and Debt", of our consolidated financial statements for a description of our credit facilities and long-term debt.

Based on our current global cash positions, cash flows from operations and access to the ~~commercial paper~~capital markets, we believe there is sufficient liquidity to meet our funding ~~requirements.~~requirements and service debt and other obligations in both the U.S. and outside of the U.S. over the next 12 months. In addition, we believe our existing committed credit facilities and access to the public debt markets would provide further liquidity if required. Currently, we have available liquidity of approximately $2.1 billion, consisting of $1.3 billion of cash and $800 million of available credit facilities as disclosed in Note 15, "Credit Facilities and Debt", of our consolidated financial statements. Our debt repayment obligations in 2021 consisted of $600 million in Senior Notes which we paid out of cash. Our next long-term debt maturity is March 2023.

~~We anticipate that~~Risk related to these items are described in our ~~present sources~~risk factor disclosures referenced under “Item 1A. Risk Factors".

Contractual Obligations

Material contractual obligations arising in the normal course of ~~funds, including funds from operations~~business primarily consist of debt obligations and ~~additional borrowings, will provide us with sufficient liquidity~~related interest payments, lease obligations and ~~capital resources to meet our liquidity~~unconditional purchase obligations. Refer Note 15, “Credit Facilities and ~~capital needs in both the United States~~Debt” and ~~outside~~Note 11, “Leases” of the ~~United States over~~consolidated financial statements for related to these matters.

The Company has future unconditional purchase commitments which are legally binding and that specify all significant terms including price and/or quantity. Total future commitments within the next twelve ~~months.~~months for these obligations is $326 million, excluding contracts that can be canceled without penalty.

Credit Facilities & Long-Term Contractual Commitments

See Note ~~14,~~15, "Credit Facilities and ~~Long-Term~~ Debt" of our consolidated financial statements for a description of our credit facilities and long-term debt.

Non-U.S. Operations

For ~~2018~~2021 and ~~2017,~~2020, we generated ~~53%~~56% and ~~54%~~53% of our revenue from non-U.S. operations, respectively. As we continue to grow our operations in the emerging markets and elsewhere outside of the ~~United States,~~U.S., we expect to continue to generate significant revenue from non-U.S. operations and expect that a substantial portion of our cash will be predominately held by our foreign subsidiaries. We expect to manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when we believe it is ~~cost effective~~cost-effective to do so. We continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities and reassess whether there is a need to repatriate funds held internationally to support our U.S. operations. As of December 31, ~~2018,~~2021, we have provided a deferred tax liability of ~~$13~~$4 million for net foreign withholding taxes and state income taxes on ~~$1.9 billion~~$591 million of earnings expected to be repatriated to the U.S. ~~parent.~~

~~Contractual Obligations~~

~~The following table summarizes our contractual commitments~~parent as ~~of December 31, 2018:~~

(in millions) 2019 2020 - 2021 2022 - 2023 Thereafter Total
Debt and capital lease obligations (1) $ 257
$ 600
$ 570
$ 900
$ 2,327
Interest payments (1) (2) 76
152
93
451
772
Operating lease obligations 76
104
55
64
299
Purchase obligations (3) 154
2
—
—
156
Other long-term obligations reflected on the balance sheet 1
16
17
27
61
Total commitments $ 564
$ 874
$ 735
$ 1,442
$ 3,615

~~In addition to the amounts presented~~deemed necessary in the ~~table above, we have recorded liabilities for net investment hedges~~future.

Off-Balance Sheet Arrangements

We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of ~~$46 million~~these arrangements, see Note 20, “Commitments and employee severance indemnity of $16 million. These amounts have been excluded from the contractual obligations table due to an inability to reasonably estimate the timing or amounts of such payments in individual years. Further, benefit payments which reflect expected future service related to the Company's pension and other postretirement employee benefit obligations are presented in ~~Note 15, “Postretirement Benefit Plans”~~Contingencies” of the consolidated financial statements and deferred income tax liabilities and uncertain tax positions are presented in Note 7, "Income Taxes" of the consolidated financial statements, and as such, these obligations are not included in the above table. Finally, estimated environmental payments and workers' compensation and general liability reserves are excluded from the table above. We estimate, based on historical experience, that we will spend approximately $2 million to $3 million per year on environmental investigation and remediation and approximately $4 million to $5 million per year on workers' compensation and general liability. At December 31, 2018, we had estimated and accrued $4 million and $21 million related to environmental matters, and workers' compensation and general liability, respectively.


~~(1)~~	~~Refer to~~ ~~Note 14~~, “Credit Facilities and Long-Term Debt,” of the consolidated financial statements for discussion of the use and availability of debt and revolving credit agreements. Amounts represent principal payments of short-term and long-term debt including current maturities and exclude unamortized discounts.


~~(2)~~	~~Amounts represent estimates of future interest payments on short-term and long-term debt outstanding as of December 31, 2018.~~


~~(3)~~	Represents unconditional purchase agreements that are enforceable and legally binding and that specify all significant terms to purchase goods or services, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase agreements that are able to cancel without penalty have been excluded.

~~Off-Balance Sheet Arrangements~~statements.

As of December 31, 2018, we have issued guarantees for the debt and other obligations of consolidated subsidiaries in the normal course of business. We have determined that none of these arrangements has a material current effect or is reasonably likely to have a material future effect on our consolidated financial statements, financial condition, changes in financial condition, revenues or expenses, liquidity, capital expenditures or capital resources.

We obtain certain stand-by letters of credit, bank guarantees and surety bonds from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance related requirements. As of December 31, 2018, the amount of stand-by letters of credit, bank guarantees and surety bonds was $275 million.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Significant accounting policies used in the preparation of the ~~Consolidated Financial Statements~~consolidated financial statements are discussed in Note 1, “Summary of Significant Accounting Policies,” of the consolidated financial statements. Accounting estimates and assumptions discussed in this section are those that we consider most critical to an understanding of our financial statements because they are inherently uncertain, involve significant judgments, include areas where different estimates reasonably could have been used, and changes in the ~~estimate~~estimates that are reasonably possible could materially impact the financial statements. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management’s estimates under different assumptions or conditions.

Revenue Recognition. As discussed in Note 2, "Recently Issued Accounting Pronouncements", Xylem adopted the new guidance on recognizing revenue from contracts with customers as of January 1, 2018. In accordance with this new guidance Xylem recognizes revenue in a manner that depicts the transfer of promised goods and services to customers in an amount that reflects the consideration to which it expects to be entitled to for providing those goods and services. For each arrangement with a customer, we identify the contract and the associated performance obligations within the contract, determine the transaction price of that contract, allocate the transaction price to each performance obligation and recognize revenue as each performance obligation is satisfied.

The satisfaction of performance obligations in a contract is based upon when the customer obtains control over the asset. Depending on the nature of the performance obligation, control transfers either at a particular point in time, or over time which determines the recognition pattern of revenue.

For product sales, other than long-term construction-type contracts, we recognize revenue once control has passed at a point in time, which is generally when products are shipped. In instances where contractual terms include a provision for customer acceptance, revenue is recognized when either (i) we have previously demonstrated that the product meets the specified criteria based on either seller or ~~customer specified~~customer-specified objective criteria or (ii) upon formal acceptance received from the customer where the product has not been previously demonstrated to meet ~~customer specified~~customer-specified objective criteria. We recognize revenue on product sales to channel partners, including resellers, distributors or value-added solution providers, at the point in time when the risks and rewards, possession, and title have transferred to the customer, which usually occurs at the point of delivery.

Revenue from performance obligations related to services is primarily recognized over time, as the performance obligations are satisfied. In these instances, the customer consumes the benefit of the service as Xylem performs.

Certain businesses also enter into long-term construction-type sales contracts where revenue is recognized over time. In these instances, revenue is recognized using a measure of progress that applies an input method based on costs incurred in relation to total estimated costs. We also recognize revenue for certain of these arrangements using the output method and measure progress based on shipments of product where control has transferred to the customer.

For all contracts with customers, we determine the transaction price in the arrangement and allocate the transaction price to each performance obligation identified in the contract. Judgment is required to determine the appropriate unit of account, and we separate out the performance obligations if they are capable of being distinct and ~~if they~~ are distinct within the context of the contract. The transaction price is adjusted for our estimate of variable consideration, which may include a right of return, discounts, rebates, penalties and retainage. To estimate variable consideration, we apply the expected value or the most likely amount method, based on whichever method most appropriately predicts the amount of consideration we expect to be entitled to. The method applied is typically based on historical experience and known trends. We constrain the amounts of variable consideration that are included in the transaction price, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when uncertainties around the variable consideration are resolved.

~~The adoption of the new revenue guidance did not provide materially different results from historical revenue guidance.~~

Income Taxes. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates in effect for the year in which we expect the differences will reverse. Based on the evaluation of available evidence, we recognize future tax benefits, such as net operating loss carryforwards, to the extent that we believe it is more likely than not we will realize these benefits. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes to our estimate of the amount we are more likely than not to realize in the valuation allowance, with a corresponding adjustment to earnings or other comprehensive income, as appropriate.

In assessing the need for a valuation allowance, we look to the future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax planning strategies and estimated future taxable income. The valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates.

~~Due to the Tax Act, we~~We have recorded net foreign withholding taxes and state income taxes on earnings that are expected to be repatriated to the U.S. parent. We have not recorded any deferred taxes on the amounts that the Company currently does not intend to ~~repatriate as the~~repatriate. The determination of ~~any~~ deferred taxes on this amount is not practicable.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax ~~regulations~~laws in a multitude of jurisdictions across our global operations. We recognize potential liabilities and record tax liabilities

for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. Furthermore, we recognize the tax benefit from an uncertain tax position only if based on the technical merits of the position it is more likely than not that the tax position will be sustained on examination by the taxing authorities or ~~litigation, based on the technical merits~~upon completion of the ~~position.~~litigation process. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

We adjust our liability for uncertain tax positions in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional tax expense would result. If a payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

Business Combinations. We record acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies and contingent consideration is recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. These assumptions and estimates include a market participant’s use of the asset and the appropriate discount rates for a market participant. Our estimates are based on historical experience, information obtained from the management of the acquired companies and, when appropriate, includes assistance from independent third-party appraisal firms. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the cost to build/recreate certain technology, the appropriate weighted-average cost of capital, and the cost savings

expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.

Goodwill and Intangible Assets.We review goodwill and indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We also review the carrying value of our finite-lived intangible assets for potential impairment when impairment indicators arise. We conduct our annual impairment test as of the first day of the fourth quarter. For goodwill, the estimated fair value of each reporting unit is compared to the carrying value of the net assets assigned to that reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its estimated fair value, then an impairment charge is recognized for that excess up to the amount of recorded goodwill. We estimate the fair value of our reporting units using an income approach. We estimate the fair value of our intangible assets with indefinite lives using either the income approach or the market approach. Under the income approach, we calculate fair value based on the present value of estimated future cash flows. Under the market approach, we calculate fair value based on recent sales and selling prices of similar assets.

Determining the fair value of a reporting unit or an indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions and identification of appropriate market comparable data. In addition, the identification of reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of each reporting unit also require judgment. Goodwill is tested for impairment at either the operating segment identified in Note 21,22, “Segment and Geographic Data,” of the consolidated financial statements, or one level below. The fair value of our reporting units and indefinite-lived intangible assets is based on estimates and assumptions that are believed to be reasonable. Significant changes to these estimates and assumptions could adversely impact our conclusions. Actual future results may differ from those estimates.

In the third quarter of 2020, management updated forecasts of future cash flows for the AIA businesses, which reflected significant negative volume impacts from the COVID-19 pandemic, primarily on our assessment services business. Our ongoing investment in the AIA businesses also continues to impact near term profitability. Based on these factors we determined that there were indicators that the AIA reporting unit’s goodwill may be impaired, and accordingly, we performed an interim goodwill impairment test as of July 1, 2020. The results of the impairment test showed that the fair value of the AIA reporting unit was lower than the carrying value, resulting in a $58 million goodwill impairment charge. As of December 31, 2020, the remaining goodwill balance in our AIA reporting unit after recording the goodwill impairment charge was $113 million.

Also, during the third quarter of 2020, due to the factors discussed above, we assessed whether the carrying amounts of the AIA reporting unit’s long-lived assets may not be recoverable and therefore impaired. Our assessment resulted in an impairment charge of $11 million, primarily related to software and proprietary technology. The charge was calculated using an income approach.

The risks and potential impacts of COVID-19 on the fair value of our assets are included in our risk factor disclosures referenced under “Item 1A. Risk Factors".

During the fourth quarter of ~~2018,~~2021, we performed our annual impairment assessment and determined that the estimated fair values of our goodwill reporting units were substantially in excess of each of their carrying values. ~~Future~~However, future goodwill impairment tests could result in a charge to earnings. Our AIA business within our Measurement & Control Solutions segment was the only goodwill reporting unit whose fair value was not substantially in excess of its carrying value. The majority of this business was purchased during 2018 and was recorded at fair value in Xylem’s financial statements. As a result, our 2018 assessment indicated that the fair value of the AIA business exceeded its carrying

~~value by less than 10%. The goodwill associated with the AIA business was $290 million at December 31, 2018.~~ We will continue to evaluate goodwill on an annual basis as of the beginning of our fourth quarter and whenever events and changes in circumstances require us to do so.

We determined that no impairment of the indefinite-lived intangibles existed as of the measurement date in ~~2018.~~2021. However, future indefinite-lived intangible impairment tests could result in a charge to earnings. We will continue to evaluate indefinite-lived intangibles on an annual basis as of the beginning of our fourth quarter and whenever events and changes in circumstances indicate there may be a potential impairment.

~~Contingent Liabilities.~~ ~~As discussed in~~ ~~Note 19~~, "Commitments and Contingencies" of the consolidated financial statements, the Company is, from time to time, involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of previously owned entities). The Company recognizes a liability for any contingency that is known or probable of occurrence and reasonably estimable. These assessments require judgments concerning matters such as litigation developments and outcomes, the anticipated outcome of negotiations, the number of future claims and the cost of both pending and future claims. In addition, because most contingencies are resolved over long periods of time, liabilities may change in the future due to various factors, including those discussed in ~~Note 19~~ of the consolidated financial statements. If the liabilities established by the Company with respect to these contingencies are inadequate, the Company would be required to incur an expense equal to the amount of the loss incurred in excess of the recorded liability, which would adversely affect the Company’s financial statements.

~~Receivables and Allowance for Doubtful Accounts and Discounts.~~ ~~Receivables primarily comprise uncollected amounts owed to us from transactions with customers and are presented net of allowances for doubtful accounts and early payment discounts.~~

We determine our allowance for doubtful accounts using a combination of factors to reduce our trade receivable balances to their estimated net realizable amount. We maintain an allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, macroeconomic trends and conditions, significant one-time events, historical experience and the financial condition of customers. In addition, we record a specific reserve for individual accounts when we become aware of specific customer circumstances, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. The past due or delinquency status of a receivable is based on the contractual payment terms of the receivable. If circumstances related to the specific customer change, we adjust estimates of the recoverability of receivables as appropriate. We determine our allowance for early payment discounts primarily based on historical experience with customers.

Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different geographical regions. We perform ongoing credit evaluations of the financial condition of our third-party distributors, resellers and other customers and require collateral, such as letters of credit and bank guarantees, in certain circumstances. As of December 31, 2018 and 2017 we do not believe we have any significant concentrations of credit risk.

~~Postretirement~~Post-retirement Benefit Plans. Company employees around the world participate in numerous defined benefit plans. The determination of projected benefit obligations and the recognition of expenses related to these plans are dependent on various assumptions. These major assumptions primarily relate to discount rates, expected long-term rates of return on plan assets, rate of future compensation increases, mortality, ~~health care inflation and~~ years of service and other factors (some of which are disclosed in Note 15~~, “Postretirement~~16, “Post-retirement Benefit Plans,” of the consolidated financial statements) ~~and other factors.~~. Actual results that differ from our assumptions are accumulated and amortized on a straight-line basis only to the extent they exceed 10% of the higher of the market-related value or projected benefit obligation, over the average remaining service period of active plan participants, or for plans with all or substantially all inactive participants, over

the average remaining life expectancy.

Significant Assumptions

Management develops each assumption using relevant Company experience, in conjunction with market-related data for each individual country in which such plans exist. All assumptions are reviewed annually with third-party consultants and are adjusted as necessary. The table ~~included~~ below provides the weighted average assumptions used to estimate our defined benefit pension obligations and costs as of and for the years ended ~~2018~~2021 and ~~2017.~~2020.


	2021				2020
	U.S.		Int’l		U.S.		Int’l
Benefit Obligation Assumptions
Discount rate	3.00	%	1.55	%	2.50	%	1.06	%
Rate of future compensation increase	NM		2.84	%	NM		2.79	%
Net Periodic Benefit Cost Assumptions
Discount rate	2.50	%	1.06	%	3.25	%	1.80	%
Expected long-term return on plan assets	6.50	%	2.60	%	6.50	%	2.82	%
Rate of future compensation increase	NM		2.79	%	NM		2.94	%

2018 2017
U.S. Int’l U.S. Int’l
Benefit Obligation Assumptions
Discount rate 4.50 % 2.60 % 3.75 % 2.43 %
Rate of future compensation increase NM
2.92 % NM
2.93 %
Net Periodic Benefit Cost Assumptions
Discount rate 3.75 % 2.43 % 4.25 % 2.63 %
Expected long-term return on plan assets 8.00 % 7.23 % 8.00 % 7.20 %
Rate of future compensation increase NM
2.93 % NM
2.76 %
NM Not meaningful. The pension benefits for future service for all the U.S. pension plans are based on years of service and not impacted by future compensation increases.


NM	~~Not meaningful. The pension benefits for future service for all the U.S. pension plans are based on years of service and not impacted by future compensation increases.~~

We determine the expected long-term rate of return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, the Company analyzes the estimated future returns based on independent estimates of asset class returns and evaluates historical broad market returns over long-term timeframes based on the strategic asset allocation, which is detailed in Note 15~~, “Postretirement~~16, “Post-retirement Benefit Plans,” of the consolidated financial statements.

Based on the approach described above, the chart below shows weighted average actual returns versus the weighted average expected long-term rates of return for our pension plans that were utilized in the calculation of the net periodic pension cost for each respective year.


	2018		2017		2016			2021		2020
Expected long-term rate of return on plan assets	7.34	%	7.30	%	7.32	%	Expected long-term rate of return on plan assets	3.24	%	3.46	%
Actual rate of return on plan assets	(3.85	)%	5.70	%	12.20	%	Actual rate of return on plan assets	1.66	%	14.06	%

For the recognition of net periodic pension cost, the calculation of the expected return on plan assets is generally derived by applying the expected long-term rate of return to the market-related value of plan assets. The market-related value of plan assets is based on average asset values at the measurement date over the last five years. The use of fair value, rather than a calculated value, could materially affect net periodic pension cost. The weighted average expected long-term rate of return for all of our plan assets to be used in determining net periodic benefit costs for ~~2019~~2022 is estimated at ~~7.09%~~3.22%. We estimate that every 25 basis point change in the expected return on plan assets impacts the expense by $1 million.

The discount rate reflects our expectation of the present value of expected future cash payments for benefits at the measurement date. A decrease in the discount rate increases the present value of benefit obligations and increases pension expense. We base the discount rate assumption on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate was determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and 30 years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single-point discount rate matching the plan’s characteristics. Our weighted average discount rate for all pension plans effective January 1, ~~2019,~~2022, is ~~2.82%~~1.71%. We estimate that every 25 basis point change in the discount rate impacts the expense byby $1 million.

The rate of future compensation increase assumption reflects our long-term actual experience and future and near-term outlook. Effective January 1, ~~2019,~~2022, our expected rate of future compensation is ~~3.02%~~2.96% for all pension plans. The estimated impact of a 25 basis point change in the expected rate of future compensation is less than $1 million.

The ~~assumed rate~~Company has initiated the process for a full buy-out of ~~future increases~~its largest defined benefit plan in the ~~per capita cost~~UK. Upon completion of ~~health care (the health care trend rate) is 8.24% for 2019, decreasing ratably to 4.48%~~the buy-out, expected in ~~2027. An increase or decrease in the health care trend rates by one percent per year would impact the aggregate annual service and interest components by less than $1~~2022, we anticipate a settlement charge of approximately $170 million, ~~and impact the benefit obligation by approximately $3 million.~~primarily consisting of unrecognized actuarial losses.

We currently anticipate making contributions to our pension and ~~postretirement~~post-retirement benefit plans in the range of ~~$15~~

$19 million to ~~$25~~$27 million during ~~2019,~~2022. Approximately $6 million of ~~which $5 million is~~contributions are expected to be made in the first quarter.

Funded Status

Funded status is derived by subtracting the respective year-end values of the projected benefit obligations from the fair value of plan assets. We estimate that every 25 basis point change in the discount rate impacts the funded status by approximately ~~$29~~$34 million.

Fair Value of Plan Assets

The plan assets of our pension plans comprise a broad range of investments, including domestic and foreign equity securities, interests in ~~private equity and~~ hedge funds, fixed income investments, insurance contracts, and cash and cash equivalents.

A portion of our pension benefit plan assets portfolio comprises investments in ~~private equity and~~ hedge ~~funds. The private equity and hedge fund investments~~funds which are generally measured at net asset value. However, in certain instances, the values reported by the asset managers were not current at the measurement date. Accordingly, we made estimate adjustments to the last reported value where necessary to measure the assets at fair value at the measurement date. These adjustments consider information received from the asset managers, as well as general market information. The adjustment recorded at December 31, ~~2018~~2021 and ~~2017~~2020 for these assets represented less than ~~one percent~~1% of total plan assets in each respective year. Asset values for other positions were generally measured using market observable prices. We estimate that a 5% change in asset values will impact funded status by approximately ~~$26~~$31 million.

New Accounting Pronouncements

See Note 2, “Recently Issued Accounting Pronouncements,” of the consolidated financial statements for a complete discussion of recent accounting pronouncements.

ITEM 7A.7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, primarily related to foreign currency exchange rates and interest rates. These exposures are actively monitored by management. Our exposure to foreign exchange rate risk is due to certain costs, revenue and borrowings being denominated in currencies other than one of our ~~subsidiaries~~subsidiaries' functional currency. Similarly, we are exposed to market risk as ~~the~~a result of changes in interest rates which may affect the cost of our financing. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures.

Foreign Currency Exchange Rate Risk

~~We conduct approximately 53%~~Approximately 56% of our ~~business~~2021 revenues were from customers in various locations outside the ~~United States.~~U.S.

Our economic foreign currency risk primarily relates to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. We may use derivative financial instruments to offset risk related to receipts from customers and payments to suppliers, when it is believed that the exposure will not be limited by our normal operating and financing activities. We enter into currency forward contracts periodically in order to manage the exchange rate fluctuation risk on certain intercompany transactions associated with ~~third party~~third-party sales and purchases. These risks are also mitigated by natural hedges including the presence of manufacturing facilities outside the ~~United States,~~U.S., global sourcing and other spending which occurs in foreign countries. Our principal foreign currency transaction exposures primarily relate to the Euro, Swedish Krona, ~~Polish Zloty,~~British Pound, Canadian Dollar, ~~British Pound,~~Australian Dollar, and ~~Australian Dollar.~~Polish Zloty. We estimate that a hypothetical 10% movement in foreign currency exchange rates would not have a material economic impact to Xylem’s financial position and results of operations.

Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar. The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, Chinese Yuan, British Pound, Canadian Dollar, Australian Dollar, Swedish Krona, and ~~Australian Dollar.~~Indian Rupee. As the U.S. Dollar strengthens against other currencies in which we transact business, revenue and income will generally be negatively impacted, and if the U.S. Dollar weakens, revenue and income will generally be positively impacted. We expect to continue to generate significant revenue from non-U.S. operations and we expect our cash will be predominately held by our foreign subsidiaries. We expect to manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when it is ~~cost effective~~cost-effective to do so, though we continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities and reassess whether there is a need to repatriate funds held internationally to support our U.S. operations. We also hedge our investment in certain foreign subsidiaries via the use of ~~cross currency~~cross-currency swaps and the designation of our 2.25% Senior Notes of €500 million aggregate principal amount due March 2023 as a net investment hedge. Accordingly, we estimate that a 10% movement of the U.S. Dollar to various foreign currency exchange rates we translate from, in aggregate would not have a material economic impact on our financial position and results of operations.

Effective July 1, 2018, Argentina was determined to be a highly inflationary economy, and as such we evaluated the impact of revaluing our monetary assets and liabilities under the applicable guidance and do not expect it to have a material impact.

Interest Rate Risk

As of December 31, ~~2018,~~2021, our long-term debt portfolio is primarily comprised of ~~four~~five series of fixed-rate senior notes that total ~~$2.1~~approximately $2.5 billion. The senior notes are not exposed to interest rate risk as the bonds are at a fixed rate until maturity. Based on the current interest rate market we do not anticipate material risk associated with our debt refinancing within the target time frame of ~~completion.~~maturity.

Commodity Price Exposures

For a discussion of risks relating to commodity prices, refer to “Item 1A. Risk Factors.”

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(In Millions, except per share data)


Year Ended December 31,	2021		2020		2019
Revenue	$	5,195	$	4,876	$	5,249
Cost of revenue	3,220		3,046		3,203
Gross profit	1,975		1,830		2,046
Selling, general and administrative expenses	1,179		1,143		1,158
Research and development expenses	204		187		191

Restructuring and asset impairment charges	7		75		63
Goodwill impairment charge	—		58		148
Operating income	585		367		486
Interest expense	76		77		67
Other non-operating expense, net	—		(5)		(4)
Gain on sale of businesses	2		—		1
Income before taxes	511		285		416
Income tax expense	84		31		15
Net income	$	427	$	254	$	401


Earnings per share:
Basic	$	2.37	$	1.41	$	2.23
Diluted	$	2.35	$	1.40	$	2.21
Weighted average number of shares:
Basic	180.2		180.1		180.0
Diluted	181.5		181.1		181.2

Year Ended December 31, 2018 2017 2016
Revenue $ 5,207
$ 4,707
$ 3,771
Cost of revenue 3,181
2,860
2,309
Gross profit 2,026
1,847
1,462
Selling, general and administrative expenses 1,161
1,089
914
Research and development expenses 189
181
110
Restructuring and asset impairment charges 22
25
30
Operating income 654
552
408
Interest expense 82
82
70
Other non-operating income, net 13
6
2
(Loss)/gain on sale of businesses —
(10 ) —
Income before taxes 585
466
340
Income tax expense 36
136
80
Net income 549
330
260
Less: Net loss attributable to non-controlling interests —
(1 ) —
Net income attributable to Xylem $ 549
$ 331
$ 260
Earnings per share:
Basic $ 3.05
$ 1.84
$ 1.45
Diluted $ 3.03
$ 1.83
$ 1.45
Weighted average number of shares:
Basic 179.8
179.6
179.1
Diluted 181.1
180.9
180.0
Dividends declared per share $ 0.8400
$ 0.7200
$ 0.6196

See accompanying notes to consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Millions)


Year Ended December 31,	2021		2020		2019
Net income	$	427	$	254	$	401
Other comprehensive loss, before tax:
Foreign currency translation adjustment	20		(23)		28

Net change in derivative hedge agreements:
Unrealized gain (loss)	(10)		9		(14)
Amount of (gain) loss reclassified into net income	4		(3)		12
Net change in post-retirement benefit plans:
Net gain (loss)	51		(78)		(83)
Prior service credit	—		5		—
Amortization of prior service credit cost	(3)		(3)		(4)
Amortization of net actuarial loss into net income	23		19		12
Settlement	—		—		9
Foreign currency translation adjustment	11		(19)		(3)
Other comprehensive income (loss), before tax	96		(93)		(43)
Income tax (benefit) expense related to other comprehensive loss	54		(54)		(5)
Other comprehensive income (loss), net of tax	42		(39)		(38)
Comprehensive income	$	469	$	215	$	363
Less: comprehensive (loss) gain attributable to noncontrolling interests	—		(1)		1
Comprehensive income attributable to Xylem	$	469	$	216	$	362

Year Ended December 31, 2018 2017 2016
Net income $ 549
$ 330
$ 260
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustment (85 ) 79
(65 )
Net change in derivative hedge agreements:
Unrealized (loss) gain (8 ) 9
—
Amount of loss (gain) reclassified into net income 4
(5 ) (2 )
Net change in postretirement benefit plans:
Net loss (37 ) (19 ) (20 )
Prior service credit —
1
1
Amortization of prior service credit cost (4 ) (3 ) (3 )
Amortization of net actuarial loss into net income 13
13
13
Settlement 1
1
—
Foreign currency translation adjustment 15
(18 ) 19
Other comprehensive (loss) income, before tax (101 ) 58
(57 )
Income tax expense (benefit) related to other comprehensive loss 10
(50 ) 23
Other comprehensive (loss) income, net of tax (111 ) 108
(80 )
Comprehensive income $ 438
$ 438
$ 180
Less: comprehensive loss attributable to noncontrolling interests (2 ) —
—
Comprehensive income attributable to Xylem $ 440

$ 438

$ 180

See accompanying notes to consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Millions, except per share amounts)


December 31,	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,349	$	1,875
Receivables, less allowances for discounts, returns and credit losses of $44 and $46 in 2021 and 2020, respectively	953		923
Inventories	700		558
Prepaid and other current assets	158		167

Total current assets	3,160		3,523
Property, plant and equipment, net	644		657
Goodwill	2,792		2,854
Other intangible assets, net	1,016		1,093
Other non-current assets	664		623
Total assets	$	8,276	$	8,750
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	639	$	569
Accrued and other current liabilities	752		787
Short-term borrowings and current maturities of long-term debt	—		600
Total current liabilities	1,391		1,956
Long-term debt, net	2,440		2,484
Accrued post-retirement benefits	438		519
Deferred income tax liabilities	287		242
Other non-current accrued liabilities	494		573
Total liabilities	5,050		5,774
Commitment and Contingencies (Note 20)	0		0
Stockholders’ equity:
Common stock — par value $0.01 per share:
Authorized 750.0 shares, issued 195.6 and 194.9 shares in 2021 and 2020, respectively	2		2
Capital in excess of par value	2,089		2,037
Retained earnings	2,154		1,930
Treasury stock – at cost 15.2 shares and 14.5 shares in 2021 and 2020, respectively	(656)		(588)
Accumulated other comprehensive loss	(371)		(413)
Total stockholders’ equity	3,218		2,968
Non-controlling interest	8		8
Total equity	3,226		2,976
Total liabilities and stockholders’ equity	$	8,276	$	8,750

December 31, 2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 296
$ 414
Receivables, less allowances for discounts, returns and doubtful accounts of $35 and $35 in 2018 and 2017, respectively 1,031
956
Inventories 595
524
Prepaid and other current assets 172
177
Total current assets 2,094
2,071
Property, plant and equipment, net 656
643
Goodwill 2,976
2,768
Other intangible assets, net 1,232
1,168
Other non-current assets 264
210
Total assets $ 7,222
$ 6,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 586
$ 549
Accrued and other current liabilities 546
551
Short-term borrowings and current maturities of long-term debt 257
—
Total current liabilities 1,389
1,100
Long-term debt, net 2,051
2,200
Accrued postretirement benefits 400
442
Deferred income tax liabilities 303
252
Other non-current accrued liabilities 297
347
Total liabilities 4,440
4,341
Commitment and Contingencies (Note 19)

Stockholders’ equity:
Common stock — par value $0.01 per share:
Authorized 750.0 shares, issued 192.9 and 192.3 shares in 2018 and 2017, respectively 2
2
Capital in excess of par value 1,950
1,912
Retained earnings 1,639
1,227
Treasury stock – at cost 13.2 shares and 12.4 shares in 2018 and 2017, respectively (487 ) (428 )
Accumulated other comprehensive loss (336 ) (210 )
Total stockholders’ equity 2,768
2,503
Non-controlling interest 14
16
Total equity 2,782
2,519
Total liabilities and stockholders’ equity $ 7,222
$ 6,860

See accompanying notes to consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions)


Year Ended December 31,	2018			2017			2016			Year Ended December 31,	2021		2020		2019
Operating Activities										Operating Activities
Net income	$	549		$	330		$	260		Net income	$	427	$	254	$	401
Adjustments to reconcile net income to net cash provided by operating activities:										Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	117			109			87			Depreciation	118		117		117
Amortization	144			125			64			Amortization	127		134		140
Deferred income taxes	(47		)	(33		)	14			Deferred income taxes	10		(31)		(77)
Share-based compensation	30			21			18			Share-based compensation	33		26		29

Restructuring and asset impairment charges	22			25			30			Restructuring and asset impairment charges	7		75		63
Loss/(gain) from sale of businesses	—			10			—
Goodwill impairment charge										Goodwill impairment charge	—		58		148
Gain from sale of businesses										Gain from sale of businesses	(2)		—		(1)
Other, net	9			19			6			Other, net	8		46		9
Payments for restructuring	(21		)	(28		)	(16		)	Payments for restructuring	(25)		(36)		(30)
Contributions to postretirement benefit plans	(41		)	(33		)	(27		)
Contributions to post-retirement benefit plans										Contributions to post-retirement benefit plans	(29)		(27)		(19)
Changes in assets and liabilities (net of acquisitions):										Changes in assets and liabilities (net of acquisitions):
Changes in receivables	(103		)	(79		)	(6		)	Changes in receivables	(70)		109		(23)
Changes in inventories	(97		)	27			(15		)	Changes in inventories	(167)		(5)		47
Changes in accounts payable	51			50			61			Changes in accounts payable	81		(39)		29
Changes in accrued liabilities	(6		)	28			13			Changes in accrued liabilities	7		101		15
Changes in accrued taxes	—			104			(13		)	Changes in accrued taxes	(9)		20		(13)
Net changes in other assets and liabilities	(21		)	11			21			Net changes in other assets and liabilities	22		22		4
Net Cash — Operating activities	586			686			497			Net Cash — Operating activities	538		824		839
Investing Activities										Investing Activities
Capital expenditures	(237		)	(170		)	(124		)	Capital expenditures	(208)		(183)		(226)
Proceeds from the sale of property, plant and equipment	—			1			1

Acquisitions of businesses and assets, net of cash acquired	(433		)	(33		)	(1,782		)	Acquisitions of businesses and assets, net of cash acquired	—		—		(18)
Proceeds from sale of businesses	22			16			—			Proceeds from sale of businesses	10		—		—
Cash received from investments	11			10			—			Cash received from investments	3		200		11
Cash paid for investments	(11		)	(11		)	—			Cash paid for investments	—		(200)		(7)
Cash received from cross-currency swaps										Cash received from cross-currency swaps	14		12		9
Other, net	5			6			19			Other, net	(2)		2		—
Net Cash — Investing activities	(643		)	(181		)	(1,886		)	Net Cash — Investing activities	(183)		(169)		(231)
Financing Activities										Financing Activities
Short-term debt issued	335			—			274

Short-term debt issued, net										Short-term debt issued, net	—		359		281
Short-term debt repaid, net	(52		)	(282		)	(80		)	Short-term debt repaid, net	—		(640)		(254)
Long-term debt issued, net	1			—			1,540			Long-term debt issued, net	—		985		—
Long-term debt repaid	(120		)	—			(608		)
Long-term debt repaid, net										Long-term debt repaid, net	(600)		—		—
Repurchase of common stock	(59		)	(25		)	(4		)	Repurchase of common stock	(68)		(61)		(40)
Proceeds from exercise of employee stock options	7			16			24			Proceeds from exercise of employee stock options	19		20		13

Dividends paid	(152		)	(130		)	(112		)	Dividends paid	(203)		(188)		(174)
Other, net	—			—			—			Other, net	(3)		(2)		(3)
Net Cash — Financing activities	(40		)	(421		)	1,034			Net Cash — Financing activities	(855)		473		(177)
Effect of exchange rate changes on cash	(21		)	22			(17		)	Effect of exchange rate changes on cash	(26)		23		(3)
Net change in cash and cash equivalents	(118		)	106			(372		)	Net change in cash and cash equivalents	(526)		1,151		428
Cash and cash equivalents at beginning of year	414			308			680			Cash and cash equivalents at beginning of year	1,875		724		296
Cash and cash equivalents at end of year	$	296		$	414		$	308		Cash and cash equivalents at end of year	$	1,349	$	1,875	$	724
Supplemental disclosure of cash flow information:										Supplemental disclosure of cash flow information:
Cash paid during the year for:										Cash paid during the year for:
Interest	$	78		$	78		$	49		Interest	$	99	$	77	$	77
Income taxes (net of refunds received)	$	75		$	57		$	78		Income taxes (net of refunds received)	$	83	$	41	$	107

See accompanying notes to consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Millions, except per share amounts)


	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-Controlling Interest		Total
Balance at December 31, 2018	$	2	$	1,950	$	1,639	$	(336)	$	(487)	$	14	$	2,782
Sale of Business											(2)		(2)
Net income					401								401
Other comprehensive loss, net							(39)				1		(38)
Distribution to minority shareholders											(3)		(3)
Dividends declared ($.96 per share)					(174)				0				(174)
Stock incentive plan activity			41						(15)				26
Repurchase of common stock									(25)				(25)
Acquisition activity													—
Balance at December 31, 2019	$	2	$	1,991	$	1,866	$	(375)	$	(527)	$	10	$	2,967
Cumulative effect of change in accounting principle					(2)								(2)
Net income					254								254
Other comprehensive loss, net							(38)				(1)		(39)
Distribution to minority shareholders											(1)		(1)
Dividends declared ($1.04 per share)					(188)								(188)
Stock incentive plan activity			46						(11)				35
Repurchase of common stock									(50)				(50)
Acquisition activity													—
Balance at December 31, 2020	$	2	$	2,037	$	1,930	$	(413)	$	(588)	$	8	$	2,976

Net income					427								427
Other comprehensive loss, net							42						42


Dividends declared ($1.12 per share)					(203)								(203)
Stock incentive plan activity	—		52						(8)				44
Repurchase of common stock									(60)				(60)

Balance at December 31, 2021	$	2	$	2,089	$	2,154	$	(371)	$	(656)	$	8	$	3,226

Common
Stock
Capital in Excess of Par Value Retained
Earnings Accumulated Other
Comprehensive
Income (Loss) Treasury Stock Non-Controlling Interest Total
Balance at December 31, 2015 $ 2
$ 1,834
$ 885
$ (238 ) $ (399 ) $ —
$ 2,084
Net income 260
260
Other comprehensive loss, net (80 ) (80 )
Dividends declared ($0.6196 per share) (112 ) (112 )
Stock incentive plan activity 42
42
Repurchase of common stock (4 ) (4 )
Acquisition activity $ 17
$ 17
Balance at December 31, 2016 $ 2
$ 1,876
$ 1,033
$ (318 ) $ (403 ) $ 17
$ 2,207
Cumulative effect of change in accounting principle (7 ) (7 )
Net income 331
(1 ) 330
Other comprehensive income, net 108
108
Dividends declared ($.72 per share) (130 ) (130 )
Stock incentive plan activity 36
(5 ) 31
Repurchase of common stock (20 ) (20 )
Balance at December 31, 2017 $ 2
$ 1,912
$ 1,227
$ (210 ) $ (428 ) $ 16
$ 2,519
Cumulative effect of change in accounting principle

14
(17 )

(3 )
Net income 549

549
Other comprehensive loss, net (109 ) (2 ) (111 )
Dividends declared ($.84 per share) (151 ) (151 )
Stock incentive plan activity 38
(9 ) 29
Repurchase of common stock (50 ) (50 )
Balance at December 31, 2018 $ 2
$ 1,950
$ 1,639
$ (336 ) $ (487 ) $ 14
$ 2,782

See accompanying notes to consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.1. Summary of Significant Accounting Policies

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~~3 segments, Water Infrastructure, Applied Water and Measurement & Control Solutions. ~~The Water Infrastructure~~See Note 22, "Segment and Geographic Data" for further segment focuses on the transportation and treatment of water, offering a range of products including water and wastewater pumps, treatment equipment, and controls and systems. The Applied Water segment serves many of the primary uses of water and focuses on the residential, commercial and industrial markets. The Applied Water segment’s major products include pumps, valves, heat exchangers, controls and dispensing equipment. The Measurement & Control Solutions segment focuses on developing advanced technology solutions that enable intelligent use and conservation of critical water and energy resources as well as analytical instrumentation used in the testing of water. The Measurement & Control Solutions segment's major products include smart metering, networked communications, measurement and control technologies, critical infrastructure technologies, software and services including cloud-based analytics, remote monitoring and data management, leak detection and pressure monitoring solutions and testing equipment.background information.

On October 31, 2011 (the "Distribution Date"), ITT Corporation (“ITT”) completed the Spin-off (the “Spin-off”) of Xylem, formerly ITT’s water equipment and services businesses. The Spin-off was completed pursuant to the Distribution Agreement, dated as of October 25, 2011 (the “Distribution Agreement”), among ~~ITT~~ITT; (now ITT ~~LLC)~~LLC; acquired by Delticus HoldCo, L.P., a portfolio company of Warburg Pincus LLC, on July 1, 2021), Exelis Inc., acquired by Harris Corporation, now L3Harris Technologies, Inc., on May 29, 2015, (“Exelis”) and Xylem. Xylem Inc. was incorporated in Indiana on May 4, 2011 in connection with the Spin-off.

Hereinafter, except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries. References in the notes to the consolidated financial statements to “ITT” or ~~“ former~~“former parent” refers to ITT Corporation (now ITT LLC) and its consolidated subsidiaries (other than Xylem Inc.).

Basis of Presentation

The 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.

Use of Estimates

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 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, ~~postretirement~~post-retirement obligations and assets, revenue recognition, income ~~tax contingency accruals and valuation allowances,~~taxes, valuation of intangible assets, goodwill and ~~indefinite lived~~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 economic disruption. The COVID-19 pandemic also has caused increased uncertainty in estimates and assumptions affecting the consolidated financial statements. Actual results could differ from these estimates.

Consolidation Principles

We consolidate companies in which we have a controlling financial interest or when Xylem is considered the primary beneficiary of a variable interest entity. We account for investments under the equity method in companies over which we have the ability to exercise significant influence but do not hold a controlling financial interest, ~~under the equity method,~~ and we record our proportionate share of income or losses in the Consolidated Income Statements. Equity method investments are reviewed for impairment when events or circumstances indicate the investment may be other than temporarily impaired. This requires significant judgment, including an assessment of the investee’s financial condition, the possibility of subsequent rounds of financing, and the investee’s historical and projected results of operations. If the actual results of operations for the investee are significantly different from projections, we may incur future charges for the impairment of these investments.

Foreign Currency Translation

The national currencies of our foreign companies are generally the functional currencies. Balance sheet accounts are translated at the exchange rate in effect at the end of each period; income statement accounts are translated at the average rates of exchange prevailing during the period. Gains and losses on foreign currency translations are reflected in the cumulative translation adjustments component of stockholders’ equity. Net gains or losses from foreign currency transactions are reported currently in selling, general and administrative expenses.

Revenue Recognition

As discussed in Note 2, "Recently Issued Accounting Pronouncements", Xylem adopted the new guidance on recognizing revenue from contracts with customers as of January 1, 2018. In accordance with this new guidance Xylem recognizes revenue in a manner that depicts the transfer of promised goods and services to customers in an amount that reflects the consideration to which it expects to be entitled to for providing those goods and services. For each arrangement with a customer, we identify the contract and the associated performance obligations within the contract, determine the transaction price of that contract, allocate the transaction price to each performance obligation and recognize revenue as each performance obligation is satisfied.

For product sales, other than long-term construction-type contracts, we recognize revenue once control has passed at a point in time, which is generally when products are shipped. In instances where contractual terms include a provision for customer acceptance, revenue is recognized when either (i) we have previously demonstrated that the product meets the specified criteria based on either seller or ~~customer specified~~customer-specified objective criteria or (ii) upon formal acceptance received from the customer where the product has not been previously demonstrated to meet ~~customer specified~~customer-specified objective criteria. We recognize revenue on product sales to channel partners, including resellers, distributors or value-added solution providers, at the point in time when control is transferred which is determined based on when the risks and rewards, possession, and title have transferred to the customer, which usually occurs at the point of delivery.

If shipping and handling activities are performed after a customer obtains control of a good, we account for the shipping and handling activities as activities to fulfill a promise to transfer a good. Shipping and handling related costs are accrued as revenue is recognized.

For all contracts with customers, we determine the transaction price in the arrangement and allocate the transaction price to each performance obligation identified in the contract. Judgment is required to determine the appropriate unit of account, and we separate out the performance obligations if they are capable of being distinct and ~~if they~~ are distinct within the context of the contract. We base our allocation of the transaction price to the performance obligations on the relative ~~standalone~~stand-alone selling prices for the goods or services contained in a particular performance obligation. The ~~standalone~~stand-alone selling prices are determined first by reference to observable prices. In the event observable prices are not available, we estimate the stand-alone selling price by maximizing observable inputs and ~~apply~~applying an adjusted market assessment approach, expected cost plus margin approach, or a residual approach in limited situations. Revenue in these instances is recognized on individual performance obligations within the same contract as they are satisfied.

The transaction price is adjusted for our estimate of variable consideration which may include a right of return, discounts, rebates, penalties and retainage. To estimate variable consideration, we apply the expected value or the most likely amount method, based on whichever method most appropriately predicts the amount of consideration we expect to receive. The method applied is typically based on historical experience and known trends. We constrain the amounts of variable consideration that are included in the transaction price, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when uncertainties around the variable consideration are resolved.

We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer, for example sales, use, value added and some excise taxes.

For all contracts with customers, payment received for our products and services may not necessarily follow the same pattern of revenue recognition to which it relates and are dictated by the terms and conditions of our contracts with customers. Payments received for product sales typically occur following delivery and the satisfaction of the performance ~~obligation~~obligations based upon the terms outlined in the contracts. Payments received for services typically occur following the services being rendered. For long-term construction-type projects, payments are typically made throughout the contract as progress is made.

In limited situations, contracts with customers include financing components where payment terms exceed one ~~year,~~year; however, we believe that the financing effects are not significant to Xylem. In addition, we apply a practical expedient and do not adjust the promised amount of consideration in a contract for the effects of significant financing components when we expect payment terms to be one year or less from the time the goods or services are transferred until ultimate payment.

We offer standard warranties for our products to ensure that our products comply with agreed-upon specifications in our contracts. ~~For standard~~Standard warranties ~~these~~ do not give rise to performance obligations and represent assurance-type warranties. In certain instances, product warranty terms are adjusted to account for the specific nature of the contract. In these instances, we assess the warranties to determine whether they represent service-type warranties, and should be accounted for as a separate performance obligation in the contract.

Costs to obtain a contract include incremental costs that the Company has incurred ~~which~~that it expects to recover. Incremental costs only include costs that the Company would not have incurred had the contract not been obtained. Costs that would have been incurred regardless of whether or not the contract was obtained are expensed as incurred, unless they are explicitly chargeable to the customer whether or not the contract is obtained.

Costs to obtain contracts are capitalized when ~~incurred. The costs to obtain contracts~~incurred, and are then amortized in a manner that is consistent with the pattern of transfer of the related goods or services provided in the contract. The Company elects to apply the practical expedient to expense costs to obtain contracts when the associated amortization period of those costs would be one year or less.

For annual periods prior to January 1, 2018, revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, collectability is reasonably assured and delivery has occurred or services have been rendered. For product sales, other than long-term construction-type contracts, we recognize revenue at the time title, and risks and rewards of ownership pass, which is generally when products are shipped. Certain contracts with customers require delivery, installation, testing, certification or other acceptance provisions to be satisfied before revenue is recognized. We recognize revenue on product sales to channel partners, including resellers, distributors or value-added solution providers at the time of sale when the channel partners have economic substance apart from Xylem and Xylem has completed its obligations related to the sale. Revenue from the rental of equipment is recognized over the rental period. Service revenue is recognized as services are performed.

For agreements that contain multiple deliverables, we recognize revenue based on the relative selling price if the deliverable has stand-alone value to the customer and, in arrangements that include a general right of return relative to the delivered element, performance of the undelivered element is considered probable and substantially in the Company’s control. The selling price for a deliverable is based on vendor-specific objective evidence of selling price (“VSOE”), if available, third-party evidence of selling price (“TPE”) if VSOE is not available, or best estimated selling price, if neither VSOE nor TPE is available.

The deliverables in our arrangements with multiple elements include various products and may include related services, such as installation and start-up services. Generally, these elements are satisfied within the same reporting period although certain contracts may be completed over 6 months. We allocate arrangement consideration based on the relative selling prices of the separate units of accounting determined in accordance with the hierarchy described above. For deliverables that are sold separately, we establish VSOE based on the price when the deliverable is sold separately. We establish TPE, generally for services, based on prices similarly situated customers pay for similar services from third-party vendors. For those deliverables for which we are unable to establish VSOE or TPE, we estimate the selling price considering various factors including market and pricing trends, geography, product customization, and profit objectives. Revenue for multiple element arrangements is recognized when the appropriate revenue recognition criteria for the individual deliverable have been satisfied.

Certain businesses enter into long-term construction-type sales contracts for which revenue is recognized under the percentage-of-completion method based upon percentage of costs incurred to total estimated costs.

Shipping and Handling Costs

Shipping and handling costs are recorded as a component of cost of revenue.

Share-Based Compensation

Share-based awards issued to employees ~~and members of the Board of Directors~~ include non-qualified stock options, restricted stock unit awards and performance share unit awards. Share-based awards issued to members of the Board of Directors include restricted stock unit awards. Compensation costs resulting from share-based payment transactions are recognized primarily within selling, general and administrative expenses, at fair value over the requisite service period (typically three years) on a straight-line basis. The calculated compensation cost is adjusted based on an estimate of awards ultimately expected to vest. For performance awards, the calculated compensation cost is adjusted based on an estimate of awards ultimately expected to vest and our assessment of the probable outcome of the performance condition. The fair value of a non-qualified stock option is determined on the date of grant using a binomial lattice pricing model incorporating multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The fair value of restricted stock unit awards is determined using the closing price of our common stock on date of grant. The fair value of Return on Invested Capital ("ROIC") performance share units at 100% target is determined using the closing price of our common stock on date of grant. The fair value of Total Shareholder Return ("TSR") performance share units is calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features.

Research and Development

We conduct research and development activities, which consist primarily of the development of new products, product applications, and manufacturing processes. To the extent these activities are related to developing software that is sold to our customers, we capitalize the applicable development costs. All other research and development costs are charged to expense as incurred.

Exit and Disposal Costs

We periodically initiate management-approved restructuring activities to achieve cost savings through reduced operational redundancies and to position ourselves strategically in the market in response to prevailing economic conditions and associated customer demand. Costs associated with restructuring actions can include severance, infrastructure charges to vacate facilities or consolidate operations, contract termination costs and other related charges. For involuntary separation plans, a liability is recognized when it is probable and reasonably estimable. For voluntary separation plans, a liability is recognized when the employee irrevocably accepts the voluntary termination. For one-time termination benefits, such as additional severance pay or benefit payouts and other exit costs, ~~such as lease termination costs,~~ the liability is measured and recognized initially at fair value in the period in which the liability is incurred, with subsequent changes to the liability recognized as adjustments in the period of change.

Deferred Financing Costs

Deferred financing costs represent costs incurred in conjunction with our debt financing activities and are capitalized in long-term debt and amortized over the life of the related financing arrangements. If the debt is retired early, the related unamortized deferred financing costs are ~~written off in the period the debt is retired and are~~ recorded inwithin the results of operations under the caption “interest ~~expense.”~~expense” in the period the debt is retired.

Income Taxes

Income taxes are calculated using the asset and liability method. Deferred tax assets and liabilities are determined based on ~~the estimated future tax effects of~~ temporary differences between the financial ~~statement carrying amounts~~reporting and ~~the~~ tax bases of assets and liabilities, ~~as measured by the current~~applying enacted tax ~~rates.~~rates in effect for the year in which we expect the differences will reverse.

We maintain valuation allowances when it is more likely than not that all or a portion of a deferred asset will not be realized. The valuation allowance is intended in part to provide for the uncertainty regarding the ultimate utilization of our U.S. capital loss carryforwards, U.S. foreign tax credit carryovers, and foreign net operating loss carryforwards. In determining whether a valuation allowance is warranted, we consider all positive and negative evidence and all sources of taxable income such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies to estimate if sufficient future taxable income will be generated to realize the

deferred tax asset. The assessment of the adequacy of our valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. ~~In the event that~~If actual results differ from these estimates, or we adjust these estimates in future periods for current trends or expected changes in our estimating assumptions, we may need to modify the level of valuation allowance that could materially impact our business, financial condition and results of operations.

~~Due to the U.S. Tax Cuts and Jobs Act (the "Tax Act"), we~~

We have recorded net foreign withholding taxes and state income taxes on earnings that are expected to be repatriated to the U.S. parent. We have not recorded any deferred taxes on the amounts that the Company currently does not intend to ~~repatriate as the~~repatriate. The determination of ~~any~~ deferred taxes on this amount is not practicable.

Tax benefits are recognized for an uncertain tax position when, ~~in management’s judgment,~~based on the technical merits of the position it is more likely than not that the position will be sustained upon examination by a taxing ~~authority.~~authority or upon completion of the litigation process. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is adequate. We classify interest relating to unrecognized tax benefits as a component of other non-operating (expense) income, net and tax penalties as a component of income tax expense in our Consolidated Income Statements.

Earnings Per Share

We present two calculations of earnings per share (“EPS”). “Basic” EPS equals net income divided by weighted average shares outstanding during the period. “Diluted” EPS equals net income divided by the sum of weighted average common shares outstanding during the period plus potentially dilutive shares. Potentially dilutive common shares that are anti-dilutive are excluded from diluted EPS.

Cash Equivalents

We consider all liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Receivables and Allowance for ~~Doubtful Accounts~~Credit Losses and Discounts

Receivables are primarily ~~comprise~~comprised of uncollected amounts owed to us from transactions with customers and are presented net of allowances for ~~doubtful accounts,~~credit losses, returns and early payment discounts.

We determine our allowance for ~~doubtful accounts~~credit losses using a combination of factors to reduce our trade receivable balances to ~~their estimated~~the net ~~realizable amount.~~amount expected to be collected. We maintain an allowance for ~~doubtful accounts~~credit losses based on a variety of factors, including the length of time receivables ~~are~~were past due, ~~macroeconomic~~macro-economic trends and conditions, significant one-time events, historical experience, and ~~the financial condition~~current and future expectations of ~~customers.~~economic conditions. In addition, we record ~~a specific reserve~~an allowance for individual accounts when we become aware of specific customer circumstances, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. The past due or delinquency status of a receivable is based on the contractual payment terms of the receivable. If circumstances related to the specific customer change, we adjust estimates of the recoverability of receivables as appropriate. We determine our allowance for early payment discounts primarily based on historical experience with customers.

Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different geographical regions. We ~~perform ongoing credit evaluations of~~evaluate the financial condition of our third-party distributors, resellers and other customers and require collateral, such as letters of credit and bank guarantees, in certain circumstances. As of December 31, ~~2018~~2021 and ~~2017~~2020 we do not believe we have any significant concentrations of credit risk.

Inventories

Inventories, which include the costs of material, labor and overhead, are stated at the lower of cost or net realizable ~~value using the first in, first out ("FIFO") method.~~value. Estimated losses from obsolete and slow-moving inventories are recorded to reduce inventory values to their estimated net realizable value. Our manufacturing operations recognize costs of sales using standard costs with full overhead absorption, which generally approximates actual cost.

Property, Plant and Equipment

These assets are recorded at historical cost and are depreciated using the straight-line method of depreciation over the estimated useful lives as follows:



			Estimated Life
Buildings and improvements			5 to 40 years
Machinery and equipment			2 to 10 years
Furniture and fixtures			3 to 7 years
Equipment held for lease or rental			2 to 10 years

Leasehold improvements are depreciated over the shorter of their estimated useful life or the term of the lease. Costs related to maintenance and repairs that do not prolong the assets' useful lives are expensed as incurred.

Leases

We determine if an arrangement is a lease at inception. We have recorded right of use (“ROU”) assets and liabilities for lease arrangements that are reasonably certain to extend beyond 12 months. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease. ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit rate within our leases is generally not determinable, and we use our incremental borrowing rate at the lease commencement date to determine the net present value of lease payments. The determination of the appropriate incremental borrowing rate requires judgment. We determine the appropriate incremental borrowing rate for each lease using our current borrowing rate, adjusted for various factors including geographic region, level of collateralization and term, to align with the term of the underlying lease.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. Many of our leases are subject to payment adjustments to reflect annual changes in price indexes, such as the Consumer Price Index. While associated lease liabilities are not re-measured as a result of changes in the applicable price indexes, changes to required lease payments are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

Leases with a lease term of 12 months or less, including renewal options that are reasonably certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise, are not recorded on the balance sheet. Instead, lease payments for these leases are recognized as a lease cost on a straight-line basis over the lease term.

We elected the package of practical expedients, which among other things, does not require reassessment of lease classification. Additionally, we have made an accounting policy election whereby we chose not to separate non-lease components from lease components in agreements in all leases which we are the lessee.

Goodwill and Intangible Assets

Goodwill represents purchase consideration paid in a business combination that exceeds the values assigned to the net assets of acquired businesses. Intangible assets include customer relationships, proprietary technology, brands and trademarks, patents, software and other intangible assets. Intangible assets with a finite life are amortized on a straight-line basis over an estimated economic useful life which ranges from 1 to 25 years and is included in cost of revenue or selling, general and administrative ~~expense.~~expenses. Certain of our intangible assets, namely certain brands and trademarks, as well as FCC licenses, have an indefinite life and are not amortized.

Long-Lived Asset Impairment

Long-lived assets, including intangible assets with finite lives, are amortized and tested for impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable. We assess the recoverability of long-lived assets based on the undiscounted future cash flow the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When an impairment is identified, we reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values.

Goodwill and indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually (or more frequently if impairment indicators arise, such as changes to the reporting unit structure, significant adverse changes in the business or business climate or an adverse action or assessment by a regulator). We conduct our annual impairment testing onas of the ~~first day~~beginning of ~~our~~the fourth quarter. For goodwill, the estimated fair value of each reporting unit is compared to the carrying value of the net assets assigned to that reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its estimated fair value, then an impairment charge is recognized for that excess up to the amount of recorded goodwill. We estimate the fair value of our reporting units using an income approach. We estimate the fair value of our intangible assets with indefinite lives using either the income approach or the market approach. Under the income approach, we calculate fair value based on the present value of estimated future cash flows. Under the market approach, we calculate fair value based on recent sales and selling prices of similar assets.

Product Warranties

For assurance-type warranties, we accrue for the estimated cost of product warranties at the time revenue is recognized and record it as a component of cost of revenue. Our product warranty liability reflects our best estimate of probable liability under the terms and conditions of our product warranties offered to customers. We estimate the liability based on our standard warranty terms, the historical frequency of claims and the cost to replace or repair our products under warranty. Factors that impact our warranty liability include the number of units sold, the length of warranty term, historical and anticipated rates of warranty claims and cost per claim. We also record a warranty liability for specific matters. We assess the adequacy of our recorded warranty liabilities quarterly and adjust amounts as necessary.

For service-type warranties (i.e. non-standard warranties) costs incurred to fulfill the extended or service warranty are recognized/recorded as the costs are incurred.

~~Postretirement~~Post-retirement Benefit Plans

The determination of defined benefit pension and ~~postretirement~~post-retirement plan obligations and their associated costs requires the use of actuarial computations to estimate participant plan benefits to which the employees ~~wil~~

lwill be entitled. The significant assumptions primarily relate to discount rates, expected long-term rates of return on plan assets, rate of future compensation increases, mortality, years of service and other factors. We develop each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist. All actuarial assumptions are reviewed annually with third-party consultants and adjusted as necessary. For the recognition of net periodic ~~postretirement~~post-retirement cost, the calculation of the expected return on plan assets is generally derived by applying the expected long-term rate of return on the market-related value of plan assets. The market-related value of plan assets is based on average asset values at the measurement date over the last five years. Actual results that differ from our assumptions are accumulated and amortized on a straight-line basis only to the extent they exceed 10% of the higher of the market-related value or the projected benefit obligation, over the average remaining service period of active participants, or for plans with all or substantially all inactive participants, over the average remaining life expectancy. The fair value of plan assets is determined based on market prices or estimated fair value at the measurement date.

We consider changes to a plan’s benefit formula that eliminate the accrual for future service but continue to allow for future salary increases (i.e. “soft freeze”) to be a curtailment.

Business Combinations

We allocate the purchase price of acquisitions to the tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquiree based on their estimated fair value at the acquisition date. The excess of the acquisition price over those estimated fair values is recorded as goodwill. Changes to the acquisition date provisional fair values prior to the expiration of the measurement period, a period not to exceed 12 months from date of acquisition, are recorded as an adjustment to the associated goodwill. Acquisition-related expenses and restructuring costs, if any, are recognized separately from the business combination and are expensed as incurred.

Derivative Financial Instruments

We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, including forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to hedge certain risks economically, even though hedge accounting does not apply or we elect not to apply hedge accounting.

During the fourth quarter of 2018 we adopted new accounting guidance that eliminates the concept of ineffectiveness for cash flow and net investment hedges (refer to Note 2, “Recently Issued Accounting Pronouncements”). Prior to this adoption, the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk was recorded in other comprehensive income ("OCI") and was subsequently reclassified into either revenue or cost of revenue (hedge of sales classified into revenue and hedge of purchases classified into cost of revenue) in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of the change in fair value of the derivative was recognized directly in selling, general and administrative expenses. Our policy was to de-designate cash flow hedges at the time forecasted transactions are recognized as assets or liabilities on a business unit’s balance sheet and report subsequent changes in fair value through selling, general and administrative expenses where the gain or loss due to movements in currency rates on the underlying asset or liability is revalued. If it became probable that the originally forecasted transaction would not occur, the gain or loss related to the hedge recorded within accumulated other comprehensive income ("AOCI") was immediately recognized into net income.

Prior to the adoption of the new guidance, changes in the fair value of derivatives designated and that qualify as net investment hedges of foreign exchange risk were recorded in OCI. Amounts in AOCI were reclassified into earnings at the time the hedged net investment is sold or substantially liquidated. Effectiveness of derivatives designated as net investment hedges was assessed using the forward method.

~~Subsequent to adopting the new hedge guidance, changes~~Changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk are recorded in ~~other comprehensive income ("OCI")~~OCI and are subsequently reclassified into either revenue or cost of revenue (hedge of sales classified into revenue and hedge

of purchases classified into cost of revenue) in the period that the hedged forecasted transaction affects earnings. Our policy is to de-designate cash flow hedges at the time forecasted transactions are recognized as assets or liabilities on a business unit’s balance sheet and report subsequent changes in fair value through selling, general and administrative expenses where the gain or loss due to movements in currency rates on the underlying asset or liability is revalued. If it becomes probable that the originally forecasted transaction will not occur, the gain or loss related to the hedge recorded within ~~accumulated other comprehensive income ("AOCI")~~AOCI is immediately recognized into net income.

~~Subsequent to adopting the new hedge guidance effectiveness~~Effectiveness of derivatives designated as net investment hedges is assessed using the spot method. The changes in the fair value of these derivatives due to movements in spot exchange rates are recorded in OCI. Amounts in AOCI are reclassified into earnings at the time the hedged net investment is sold or substantially liquidated. Furthermore, we ~~will~~ recognize interest income based on the interest rate differential embedded in the derivative instrument.

Commitments and Contingencies

We record accruals for commitments and loss contingencies for those which are both probable and for which the amount can be reasonably estimated. In addition, legal fees are accrued for cases where a loss is probable and the related fees can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount of loss. We review these accruals quarterly and adjust the accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other current information.

Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. Our estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. These accruals are reviewed quarterly and are adjusted as assessment and remediation efforts progress or as additional technical or legal information becomes available. Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures. Accruals for environmental liabilities are primarily included in other non-current liabilities at undiscounted ~~amounts and exclude claims for recoveries from insurance companies or other third parties.~~amounts.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, derivative contracts and accounts receivable from trade customers. We maintain cash and cash equivalents and derivative contracts with various financial institutions. These financial institutions are located

in many different geographical regions, and our policy is designed to limit exposure with any one institution. As part of our cash and risk management processes, we perform periodic evaluations of the relative credit standing of the financial institutions. We have not sustained any material credit losses during the previous three years from instruments held at financial institutions. We may utilize forward contracts to protect against the effects of foreign currency fluctuations. Such contracts involve the risk of non-performance by the counterparty. Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different industries and geographic regions. We perform ongoing credit evaluations of the financial condition of our third-party distributors, resellers and other customers and require collateral, such as letters of credit and bank guarantees, in certain circumstances.

Substantially all of the cash and cash equivalents, including foreign cash balances, at December 31, ~~2018~~2021 and ~~2017~~2020 were uninsured. Foreign cash balances at December 31, ~~2018~~2021 and ~~2017~~2020 were ~~$274~~$596 million and ~~$373~~$635 million, respectively.

Fair Value Measurements

We determine fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use a hierarchical structure to prioritize the inputs to valuation techniques used to measure fair value into three broad levels defined as follows:

•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices (in non-active markets or in active markets for similar assets or liabilities), inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3 inputs are unobservable inputs for the assets or liabilities.

The fair value hierarchy is based on maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value. Classification within the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement.

~~NAV Practical Expedient is the measurement of~~Certain investments which measure fair value using the net asset value ~~("NAV"~~(“NAV”) per share ~~(or its equivalent) as an alternative to~~practical expedient are not classified within the fair value hierarchy ~~as discussed above.~~and are separately disclosed.

Note 2.2. Recently Issued Accounting Pronouncements

Recently Adopted Pronouncements ~~Not Yet Adopted~~

In ~~August 2018,~~June 2016, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued ~~guidance regarding the accounting for implementation costs~~Accounting Standards Update 2016-13, "Financial Instruments-Credit Losses (Topic 326), Measurement of a hosting arrangement that is a service contract. The guidance establishes the requirement to capitalize certain implementation costs incurred in a hosting arrangement that is a service contract, effectively aligning with the requirement to capitalize certain implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. The requirements of the amended guidance may be applied using either a retrospective or prospective approach. We are evaluating the impact of the guidanceCredit Losses on ~~our financial condition and results of operations.~~

~~In June 2016, the FASB issued guidance~~Financial Instruments," amending the accounting for the impairment of financial instruments, including trade receivables. Under ~~current~~previous guidance, credit losses ~~are~~were recognized when the applicable losses ~~are~~had a probable likelihood of occurring and this assessment iswas based on past events and current conditions. The amended current guidance eliminates the “probable” threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance isbecame effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach except for debt securities, which require a prospective transition approach. We ~~are evaluating the impact of the guidance on our financial condition and results of operations.~~

In February 2016, the FASB issued guidance amending the accounting for leases. Specifically, the amended guidance requires all lessees to record a lease liability at lease inception, with a corresponding right of use asset ("ROU"), except for short-term leases. Lessor accounting is not fundamentally changed. This amended guidance is effective for interim and annual periods beginning after December 15, 2018 using a modified retrospective approach. Early adoption is permitted. We will apply the modified retrospective approach by recording a cumulative effect adjustment as of the date of adoption, whereby prior comparative periods will not be retrospectively presented in the consolidated financial statements. As a result, adoption of the standard will result in the recognition of ROU assets and lease liabilities for operating leases of between $255 million and $285 million, as of January 1, 2019, the date of initial application. The guidance will not have a material impact on our consolidated income statements and statements of cash flow.

~~Recently Adopted Pronouncements~~

In August 2017, the FASB issued amended guidance on hedging activities. The amendment better aligns a company’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying for hedging relationships and the presentation of hedge results. Specifically, the guidance:


~~(1)~~	~~Eliminates the concept of recognizing periodic hedge ineffectiveness for cash flow and net investment hedges;~~


~~(2)~~	~~Eliminates the benchmark interest rate concept of variable - rate instruments in cash flow hedges and allows companies to designate the contractually specified interest rate as the hedged risk;~~


~~(3)~~	~~Requires a company to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported; and~~

~~(4)Provides the ability to perform subsequent hedge effectiveness tests qualitatively.~~

This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted with the effect of adoption reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges existing at the date of adoption, a cumulative-effect

adjustment related to eliminating the separate measurement of ineffectiveness is required. Other presentation and disclosure guidance is required only prospectively. We adopted this guidance in the fourth quarter of 2018. The adoption resulted in the recognition of $2 million of interest income as a result of our transition from the forward rate method to the spot rate method in accounting for our net investment hedges.

In February 2018, the FASB issued new guidance on the reclassification of certain tax effects in Accumulated Other Comprehensive Income ("AOCI"). The guidance allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”). This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. The guidance may be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. We early adopted this guidance effective the first quarter of 2018, and elected to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. As a result of adopting the guidance, AOCI was reduced by $17 million and retained earnings increased by $17 million. This amount includes the effect of the change in the US federal corporate income tax rate.

In March 2017, the FASB issued amended guidance on the presentation of net periodic benefit costs. The amendment requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components are required to be presented in the income statement separately and outside a subtotal of income from operations, if one is presented. The amendment also requires entities to disclose the income statement lines that contain the other components if they are not appropriately described. This guidance is effective retrospectively for periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. We adopted this guidance effective the first quarter of 2018. The prior period consolidated income statements and segment results have been retrospectively adjusted in accordance with the new guidance. The impact to the presentation between operating income and other non-operating income within Xylem's Consolidated Income Statements was approximately $4 million and $2 million for the years ended December 31, 2017 and 2016, respectively.

In May 2014, the FASB issued guidance on recognizing revenue from contracts with customers. The guidance outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the model is that an entity recognizes revenue to portray the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also expands disclosure requirements regarding revenue recognition. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017 and may be applied retrospectively to each prior period presented or using a modified retrospective approach with the cumulative effect recognized as of the date of initial application. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2016. We adopted this guidance as of January 1, ~~2018 using the modified retrospective transition method.~~2020. The adoption of ~~the~~this guidance did not have a material impact on our financial condition and results of operations. ~~See Note 4, "Revenue", for further details.~~

In May 2017, the FASB issued guidance, which amends the scope of modification accounting guidance for share-based payment arrangements. The guidance outlines the types of changes to the terms or conditions of share-based payment arrangements that would require the use of modification accounting. Specifically, modification accounting would not apply if the fair value, vesting conditions, and classification of the award as equity or liability are the same immediately before and after the modification. This guidance is effective prospectively for interim and annual reporting periods beginning December 15, 2017 and early adoption is permitted. We elected to early adopt this guidance effective the second quarter of 2017. The adoption of this guidance did not impact our financial condition or results from operations.

In January 2017, the FASB issued guidance amending the impairment testing of goodwill. Under current guidance, the testing of goodwill for impairment is performed at least annually using a two-step test. Step one involves comparing the fair value of a “reporting unit” to its carrying amount. If the applicable book value exceeds the reporting unit’s fair value then step two must be performed. Step two involves comparing the fair value of the reporting unit’s goodwill to the applicable carrying amount of the asset and recognizing an impairment charge equal to the amount by which the carrying amount of the goodwill exceeds its implied fair value. The amended guidance eliminates step two of the impairment test and allows an entity to record an impairment charge equal to the amount that the carrying amount of the applicable reporting unit exceeds its fair value, up to the value of the recorded goodwill. This guidance is effective prospectively for interim and annual goodwill impairment tests beginning after December 15, 2019 with early adoption permitted for interim or annual tests after January 1, 2017. We elected to

~~early adopt this guidance effective the first quarter of 2017. The adoption of this guidance did not impact our financial condition or results of operations.~~

In October 2016, the FASB issued guidance amending the accounting for income taxes. Under current guidance the recognition of current and deferred income taxes for an intra-entity asset transfer is prohibited until the asset has been sold to an outside party. The amended guidance eliminates the prohibition against immediate recognition of current and deferred income tax amounts associated with intra-entity transfers of assets other than inventory. This guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The requirements of the amended guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We elected to early adopt this guidance effective the first quarter of 2017. As a result of adopting the amended guidance, prepaid tax assets were reduced by $14 million, long-term deferred tax assets increased $3 million, and accrued taxes were reduced by $4 million. The net impact of these adjustments on retained earnings was a decrease of $7 million.

In July 2015, the FASB issued guidance regarding simplifying the measurement of inventory. Under prior guidance, inventory is measured at the lower of cost or market, where market is defined as replacement cost, with a ceiling of net realizable value and a floor of net realizable value less a normal profit margin. The amended guidance requires the measurement of inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective prospectively for interim and annual periods beginning after December 15, 2016 and early application is permitted. We adopted this guidance effective the first quarter of 2017. The adoption of this guidance did not impact our financial condition or results of operations.

Note 3~~. Acquisitions and Divestitures~~

~~2018~~3. Acquisitions and Divestitures

~~Pure Technologies Ltd.~~2021 and 2020 Acquisitions and Divestitures

~~On January 31, 2018, we acquired all~~We had no material acquisition or divestiture activity during the issued and outstanding shares of Pure Technologies Ltd. (“Pure”), a leader in intelligent leak detection and condition assessment solutions for water distribution networks for approximately $420 million, net of cash received. Acquisition costs of $4 million were reflected as a component of selling, general and administrative expenses in our Consolidated Income Statement.

~~Pure’s results of operations were consolidated with the Company effective February 1, 2018 and are reflected in the Measurement & Control Solutions segment.~~

~~The Pure purchase price allocation as of January 31, 2018 is shown in the following table.~~

(in millions) Amount
Cash $ 14
Receivables 23
Inventories 4
Prepaid and other current assets 2
Property, plant and equipment 22
Intangible assets 149
Other long-term assets 1
Accounts payable (3 )
Accrued and other current liabilities (12 )
Deferred income tax liabilities (25 )
Other non-current accrued liabilities (2 )
Total identifiable net assets 173

Goodwill 261
Total consideration $ 434

During the fourth quarter of 2018 we finalized the Pure purchase price allocation. The fair values of Pure's assets and liabilities were determined based on estimates and assumptions which management believes are reasonable.

Goodwill arising from the acquisition consists largely of synergies and economies of scale expected from combining the operations of Pure and Xylem. All of the goodwill was assigned to the Measurement & Control Solutions segment and is not deductible for tax purposes.

The estimate of the fair value of Pure identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method. Some of the more significant assumptions inherent in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, the assessment of the intangible asset’s life cycle, as well as other factors. The following table summarizes key information underlying identifiable intangible assets related to the Pure acquisition:

Category Life Amount (in millions)
Customer Relationships 17 - 18 years $ 84
Technology 3 - 10 years 38
Tradenames 20 years 21
Internally Developed Software 3 years 6
Total $ 149

The following table summarizes, on an unaudited pro forma basis, the condensed combined results of operations of the Company for the years ended December 31, 2018 and 2017, respectively, assuming the acquisition of Pure was made on January 1, 2017.

(in millions) Year Ended December 31,
2018 2017
Revenue $5,212 $4,809
Net income $546 $323

The foregoing unaudited pro forma results are for informational purposes only and are not necessarily indicative of the actual results of operations that might have occurred had the acquisition occurred on January 1, 2017, nor are they necessarily indicative of future results. The pro forma financial information includes the impact of purchase accounting and other nonrecurring items directly attributable to the acquisition, which include:

~~Amortization expense of acquired intangibles~~

~~Adjustments to the depreciation of property, plant and equipment reflecting the impact of the calculated fair value of those assets in accordance with purchase accounting~~

~~Adjustments to interest expense to remove historical Pure interest costs and reflect Xylem's current debt profile~~

~~The related tax impact of the above referenced adjustments~~

~~The pro forma results do not include any cost savings or operational synergies that may be generated or realized due to the acquisition of Pure.~~

~~During the eleven month period ended December 31, 2018 Pure had revenue and an operating loss of $96 million and $2 million, respectively.~~

~~Other Acquisition Activity~~

~~During the twelve~~12 months ended December 31, ~~2018~~2021 and December 31, 2020.

2019 Acquisitions

During the 12 months ended December 31, 2019 we spent approximately ~~$13~~$18 million, net of cash received on ~~other~~ acquisition activity.

During the third quarter we divested our Precision Die Casting business for approximately $22 million, net of cash assumed. The sale resulted in an immaterial gain, which is reflected in gain from sale of business in our Consolidated Income Statement. The business, which was part of our Measurement & Controls Solutions segment, provided aluminum die casting products primarily to customers in the automotive sector. The business reported 2017 annual revenue of approximately $32 million.

~~2017 Acquisitions and Divestitures~~

~~Acquisition Activity~~

~~During 2017 we spent approximately $33 million on acquisition activity, including the acquisition of EmNet LLC (“EmNet”), a developer of software and data analytics solutions for municipalities.~~

~~Divestitures~~

On October 31, 2017, we divested our Flowtronex and Water Equipment Technologies (WET) businesses for $6 million. The sale resulted in a gain of approximately $1 million, which is reflected in gain from sale of business in our Consolidated Income Statement. The business, which was part of our Applied Water segment, provided turf and reverse osmosis packages to customers in the agricultural and industrial sectors. The business reported approximately $9 million of revenue in the first 10 months of 2017.

On February 17, 2017, we divested our United Kingdom and Poland based membranes business for approximately $10 million. The sale resulted in a gain of $5 million, which is reflected in gain from sale of business in our Consolidated Income Statement. The business, which was part of our Applied Water segment, provided membrane filtration products primarily to customers in the municipal water and industrial sectors. The business reported 2016 annual revenue of approximately $8 million.

~~Assets Held for Sale~~

~~During the fourth quarter of 2017 two of our businesses qualified as held for sale treatment. Accordingly an estimated loss of $16 million was recognized.~~

~~2016 Acquisitions~~

~~Sensus Worldwide Limited~~

On October 31, 2016, we acquired all of the outstanding equity interests of Sensus Worldwide Limited (other than Sensus Industries Limited) (“Sensus”) effective October 31, 2016 for $1,766 million ($1,710 million net of cash acquired), including a $6 million payment in 2017 for a working capital adjustment. Sensus develops advanced technology solutions that enable intelligent use and conservation of critical water and energy resources. Sensus' major products include smart metering, networked communications, measurement and control technologies, software and services including cloud-based analytics, remote monitoring and data management. The Company acquired Sensus because it believes that, within its market category, its products have superior qualities and usefulness to customers. The Company also acquired Sensus on the strength of its developed technology that we plan to leverage across our existing base of products and customers.

~~Acquisition costs of $19 million were reflected as a component of selling, general and administrative expenses in our Consolidated Income Statements.~~

Sensus results of operations were consolidated with the Company effective November 1, 2016 and it is part of the Measurement & Control Solutions segment. Refer to Note 21, "Segment and Geographic Data" for Measurement & Control Solutions segment information.

~~The Sensus purchase price allocation as of October 31, 2016 is shown in the following table.~~

(in millions) Amount
Cash $ 56
Receivables 104
Inventories 79
Prepaid and other current assets 19
Property, plant and equipment 176
Intangible assets 782
Other long-term assets 5
Accounts payable (69 )
Accrued and other current liabilities (90 )
Deferred income tax liabilities (198 )
Accrued post retirement benefits (84 )
Other non-current accrued liabilities (60 )
Total identifiable net assets 720

Goodwill 1,063
Non-controlling interest (17 )
Total consideration $ 1,766

In the third quarter of 2017 we finalized the Sensus purchase price allocation. The fair values of Sensus' assets and liabilities were determined based on estimates and assumptions which management believes are reasonable.

Goodwill arising from the acquisition consists largely of synergies and economies of scale expected from combining the operations of Sensus and Xylem. All of the goodwill was assigned to the Measurement & Control Solutions segment and is not deductible for tax purposes.

The estimate of the fair value of Sensus identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method. Some of the more significant assumptions inherent in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, the assessment of the intangible asset’s life cycle, as well as other factors. The following table summarizes key information underlying identifiable intangible assets related to the Sensus acquisition:

Category Life Amount (in millions)
Customer and Distributor Relationships 2 - 18 years $ 543
Tradenames 10 - 25 years 98
Internally Developed Network Software 7 years 60
FCC Licenses Indefinite lived 24
Technology 5 - 15 years 39
Other 1 - 16 years 18
Total $ 782

The following table summarizes, on an unaudited proforma basis, the condensed combined results of operations of the Company for the year ended December 31, 2016 assuming the acquisition of Sensus was made on January 1, 2015.

Year Ended December 31,
(in millions) 2016
Revenue $ 4,528
Net income $ 286

The foregoing unaudited proforma results are for informational purposes only and are not necessarily indicative of the actual results of operations that might have occurred had the acquisition occurred on January 1, 2015, nor are they necessarily indicative of future results. The pro forma financial information includes the impact of purchase accounting and other nonrecurring items directly attributable to the acquisition, which include:

~~Adjustments to revenue resulting from the valuation of the acquired deferred revenue balance to fair value as part of purchase accounting~~

~~Amortization expense of acquired intangibles~~

~~Amortization of the fair value step-up in inventory~~

~~Adjustments to the depreciation of property, plant and equipment reflecting the impact of the calculated fair value of those assets in accordance with purchase accounting~~

~~Amortization of the fair value adjustment for warranty liabilities~~

~~Adjustments to interest expense to remove historical Sensus interest costs and reflect Xylem's current debt profile~~

~~The related tax impact of the above referenced adjustments~~

~~The pro forma results do not include any cost savings or operational synergies that may be generated or realized due to the acquisition of Sensus.~~

~~For the two month period ended December 31, 2016 Sensus had revenue and an operating loss of $132 million and $13 million, respectively.~~

~~Visenti Pte. Ltd~~

On October 18, 2016, we acquired Visenti Pte. Ltd. (“Visenti”), a smart water analytics company focused on leak detection and pressure monitoring solutions to help water utilities manage their water networks for $8 million. Visenti, a privately-owned company headquartered in Singapore, has approximately 25 employees. Our consolidated financial statements include Visenti's results of operations prospectively from October 18, 2016 within the Measurement & Control Solutions segment.

~~Tideland Signal Corporation~~

On February 1, 2016, we acquired Tideland Signal Corporation (“Tideland”), a leading producer of analytics solutions in the coastal and ocean management sectors, for $70 million. Tideland, a privately-owned company headquartered in Texas, has approximately 160 employees. Our consolidated financial statements include Tideland's results of operations prospectively from February 1, 2016 within the Measurement & Control Solutions segment.

Note 4. Revenue

Disaggregation of Revenue

The following table illustrates the sources of revenue:


	Year Ended December 31,
(in millions)	2021		2020		2019
Revenue from contracts with customers	$	4,998	$	4,681	$	5,002
Lease Revenue	197		195		247
Total	$	5,195	$	4,876	$	5,249

Twelve Months Ended
(in millions) December 31, 2018
Revenue from contracts with customers $ 4,963
Other 244
Total $ 5,207

The following table reflects revenue from contracts with customers by ~~application:~~application. The table below also reflects updates to the aggregation of applications to simplify and focus presentation.


	Year Ended December 31,
(in millions)	2021		2020		2019
Water Infrastructure
Transport	$	1,619	$	1,484	$	1,533
Treatment	431		400		397

Applied Water*
Commercial Building Services	609		558		600
Residential Building Services	268		238		247
Industrial Water	736		638		694

Measurement and Control Solutions
Water	1,055		1,039		1,134
Energy	280		324		397


Total	$	4,998	$	4,681	$	5,002

*Items in the prior year footnote disclosures for Applied Water and Measurement and Control Solutions were reclassified to conform to the current classification.

Twelve Months Ended
(in millions) December 31, 2018
Water Infrastructure
     Transport $ 1,535
     Treatment 397

Applied Water
     Commercial Building Services 596
     Residential Building Services 232
     Industrial Water 706

Measurement and Control Solutions
     Water 692
     Electric 143
     Gas 195
     Software and Services/Other 123
     Test 344

Total $ 4,963

The following table reflects revenue from contracts with customers by geographical ~~region:~~region. The presentation of geographic regions below has been updated to better align to how management currently focuses on revenue and growth platforms by geographic region. For consistency, the prior year balances have been adjusted to conform with the current year presentation. There has been no change to the Company's reportable segments.


	Year Ended December 31,
(in millions)	2021		2020		2019
Water Infrastructure
United States	$	556	$	558	$	593
Western Europe	753		675		658
Emerging Markets (a)	537		468		491
Other	204		183		187

Applied Water
United States	804		754		816
Western Europe	370		316		323
Emerging Markets (a)	324		260		300
Other	115		104		103

Measurement and Control Solutions
United States	796		856		972
Western Europe	256		234		222
Emerging Markets (a)	189		177		235
Other	94		96		102

Total	$	4,998	$	4,681	$	5,002

Twelve Months Ended
(in millions) December 31, 2018
Water Infrastructure
     United States $ 539
     Europe 758
     Emerging Markets & Other 635

Applied Water
     United States 797
     Europe 386
     Emerging Markets & Other 351

Measurement and Control Solutions
     United States 913
     Europe 273
     Emerging Markets & Other 311

Total $ 4,963

(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")

Contract Balances

We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to ~~revenue recognized~~costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. ~~Change~~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.~~liabilities:


(in millions)	Contract Assets (a)		Contract Liabilities
Balance at 1/1/2020	$	106	$	135
Additions, net	118		120
Revenue recognized from opening balance	—		(93)
Billings transferred to accounts receivable	(110)		—
Other	3		4
Balance at 1/1/2021	$	117	$	166
Additions, net	112		117
Revenue recognized from opening balance	—		(117)
Billings transferred to accounts receivable	(103)		—




Other	(1)		(2)
Balance at 12/31/2021	$	125	$	164

(in millions) Contract Assets (a) Contract Liabilities
Balance at 1/1/2018 $ 89
$ 107
  Additions, net 87
101
  Revenue recognized from opening balance —
(89 )
  Billings (76 ) —
  Foreign currency and other

(4 ) (6 )
Balance at 12/31/2018 $ 96
$ 113

(a)Excludes receivable balances which are disclosed on the balance sheet


~~(a)~~	~~Excludes receivable balances which are disclosed on the balance sheet~~

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 December 31, ~~2018,~~2021, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to ~~$258~~$394 million. We expect to recognize the majority of revenue upon the completion of satisfying ~~the majority of~~ these performance obligations in the following ~~12 to 36~~60 months. 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 5. Restructuring and Asset Impairment Charges

~~From time~~In response to ~~time,~~ the ~~Company will incur costs related~~changes in business and economic conditions arising as a result of the COVID-19 pandemic, on June 2, 2020 management committed to a restructuring plan that includes actions across our businesses and functions globally. The plan was designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers.

As a result of this action, during 2021, we recognized restructuring charges of $4 million and $2 million in our Water Infrastructure and Applied Water segments, respectively. These charges included reduction of headcount across both segments. Other, less significant, restructuring actions taken in ~~order to optimize~~2021 resulted in $3 million of charges during 2021 and are included in the information presented below.

As a result of this action, during 2020, we recognized restructuring costs of $19 million, $4 million and $30 million in our ~~cost base~~Water Infrastructure, Applied Water and ~~more strategically position ourselves based on~~Measurement & Control Solutions segments, respectively. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment. Immaterial restructuring charges incurred during the ~~economic environment and customer demand.~~ first quarter of 2020 are included in the 2020 plan information presented below.

During ~~2018, 2017 and 2016, the costs~~2019, we incurred restructuring charges primarily ~~relate~~related to an effort to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. ~~In 2018, the~~The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions within our Applied Water segment. ~~In 2017 and 2016~~

The following table presents the charges included the reduction of headcount and consolidation of facilities within our Applied Water, Water Infrastructure, and Measurement & Control Solutions segments, as well as Corporate headcount reductions. The components of restructuring expense and asset impairment charges incurred during each of the previous ~~three years ended are presented below.~~3 years:

Year Ended December 31,
(in millions) 2018 2017 2016
By component:
Severance and other charges $ 19
$ 20
$ 28
Lease related charges 1
—
2
Other restructuring charges 1
2
1
Reversal of restructuring accruals (1 ) (2 ) (1 )
Total restructuring charges 20
20
30
Asset impairment charges 2
5
—
Total restructuring and asset impairment charges $ 22
$ 25
$ 30

By segment:
Water Infrastructure $ 11
$ 7
$ 12
Applied Water 2
13
10
Measurement & Control Solutions 9
5
6
Corporate and other —
—
2


	Year Ended December 31,
(in millions)	2021		2020		2019
By component:
Severance and other charges	$	10	$	36	$	51
Lease related charges	—		—		1
Asset impairment	1		18		—
Other restructuring charges	1		1		2
Reversal of restructuring accruals	(6)		(1)		(1)
Total restructuring charges	6		54		53
Asset impairment charges	1		21		10
Total restructuring and asset impairment charges	$	7	$	75	$	63

By segment:
Water Infrastructure	$	8	$	20	$	20
Applied Water	2		4		5
Measurement & Control Solutions	(3)		51		38

Restructuring

The following table displays a ~~rollforward~~roll-forward of the restructuring accruals, presented on our Consolidated Balance Sheets within ~~accrued~~"accrued and other current liabilities" and "other non-current accrued liabilities," for the years ended December 31, ~~2018~~2021 and ~~2017.~~2020:


(in millions)	2018			2017			(in millions)	2021		2020
Restructuring accruals - January 1	$	7		$	15		Restructuring accruals - January 1	$	29	$	27
Restructuring charges	20			20			Restructuring charges	6		54
Cash payments	(21		)	(28		)	Cash payments	(25)		(36)
Asset impairment							Asset impairment	(1)		(18)
Foreign currency and other	(1		)	—			Foreign currency and other	(2)		2
Restructuring accruals - December 31	$	5		$	7		Restructuring accruals - December 31	$	7	$	29

By segment:							By segment:
Water Infrastructure	$	1		$	1		Water Infrastructure	$	1	$	4
Applied Water	1			1			Applied Water	1		1
Measurement & Control Solutions	2			2			Measurement & Control Solutions	4		18
Regional selling locations (a)	1			3			Regional selling locations (a)	1		5
Corporate and other	—			—			Corporate and other	—		1



Indiana						45-2080495
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



~~1 International Drive, Rye Brook, NY 10573~~
~~(address of principal executive offices and zip code)~~
~~(914) 323-5700~~
~~(Registrant's telephone number, including area code)~~

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	XYL	New York Stock Exchange
2.250% Senior Notes due 2023	XYL23	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None



		Page No.
Audited Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)		57
Consolidated Income Statements for the Years Ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019		5859
Consolidated Statements of Comprehensive Income for the Years Ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019		5960
Consolidated Balance Sheets as of December 31, ~~2018~~2021 and ~~2017~~2020		6061
Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019		6162
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019		6263
Notes to Consolidated Financial Statements:
Note 1 Summary of Significant Accounting Policies		6364
Note 2 Recently Issued Accounting Pronouncements		71
Note 3 Acquisitions and Divestitures		7371
Note 4 Revenue		7872
Note 5 Restructuring and Asset Impairment Charges		8074
Note 6 Other Non-Operating Income, Net		8277
Note 7 Income Taxes		8277
Note 8 Earnings Per Share		8582
Note 9 Inventories		8682
Note 10 Property, Plant and Equipment		8683
Note 11 Leases		83
Note 12 Goodwill and Other Intangible Assets		8685
Note 1213 Derivative Financial Instruments		87
Note 1314 Accrued and Other Current Liabilities		9089
Note 1415 Credit Facilities and ~~Long-Term~~ Debt		9089
Note ~~15 Postretirement~~16 Post-retirement Benefit Plans		9291
Note ~~16 Stock-Based~~17 Share-Based Compensation Plans		~~100~~98
Note 1718 Capital Stock		~~102~~101
Note 1819 Accumulated Other Comprehensive Income (Loss)		~~104~~102
Note 1920 Commitment and Contingencies		~~105~~103
Note 2021 Related Party Transactions		~~107~~104
Note 2122 Segment and Geographic Data		~~108~~105
Note 2223 Valuation and Qualifying Accounts		~~110~~108
~~Note 23 Quarterly Financial Data~~	~~110~~



ITEM		PAGE
PART I

1	Business	3
1A.	Risk Factors	15
1B.	Unresolved Staff Comments	27
2	Properties	28
3	Legal Proceedings	28
4	Mine Safety Disclosures	29
*	Information about our Executive Officers	29
	Board of Directors	30

PART II

5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
6	Reserved	33
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
7A.	Quantitative and Qualitative Disclosures About Market Risk	55
8	Financial Statements and Supplementary Data	56
9	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	108
9A.	Controls and Procedures	109
9B.	Other Information	109
9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	110

PART III

10	Directors, Executive Officers and Corporate Governance	112
11	Executive Compensation	112
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	112
13	Certain Relationships and Related Transactions, and Director Independence	112
14	Principal Accounting Fees and Services	112

PART IV

15	Exhibits, Financial Statement Schedules	113
16	Form 10-K Summary	117
	Signatures	117



*			Included pursuant to the Instruction ~~3 of~~to Item 401(b) of Regulation S-K.


•	~~Accelerate Profitable Growth.~~ ~~To accelerate growth, we continue to focus on several priorities:~~ 6


•	~~Emerging Markets~~ - ~~We seek to accelerate our growth in priority emerging markets through increased focus on product localization and channel development.~~


▪	~~Innovation & Technology~~ - We seek to enhance our innovation efforts with increased focus on smart, digitally enabled technologies and innovation that can significantly improve customers’ productivity, quality and resilience.


•	~~Commercial Leadership~~ -~~We are strengthening our capabilities by simplifying our commercial processes and supporting information technology systems.~~


•	~~Mergers and Acquisitions~~ ~~- We continue to evaluate and, where appropriate, will act upon attractive acquisition candidates to accelerate our growth, including into adjacent markets.~~


•	~~Leadership and Talent Development~~. We seek to continue to invest in attracting, developing and retaining world-class talent with an increased focus on leadership and talent development programs. We will continue to align individual performance with the objectives of the Company and its shareholders.


•	~~Focus on Execution and Accountability.~~ ~~We seek to ensure the impact of these strategic focus areas by holding our people accountable and streamlining our performance management and goal deployment systems.~~


•	~~Create social value in everything we do.~~ ~~We seek to have a positive impact on communities through the combination of corporate social responsibility and employee, customer, and stakeholder engagement.~~


												Market Applications					2021 Revenue (in millions)						% Revenue			Major Products			Primary Brands
	Market Applications	2018 Revenue (in millions)		% Revenue		Major Products		Primary Brands
Water Infrastructure	Transport	$	1,779	82	%	• Water and wastewater pumps • Filtration, disinfection and biological treatment equipment • Mobile dewatering equipment		• Flygt • Godwin • Leopold • Sanitaire • Wedeco	Water Infrastructure			Transport					$	1,816					81	%		• Water and wastewater pumps • Filtration, disinfection and biological treatment equipment • Mobile dewatering equipment			• Flygt • Godwin • Leopold • Sanitaire • Wedeco • Xylem Vue
	Treatment	397		18	%							Treatment					431						19	%

		$	2,176	100	%												$	2,247					100	%


																										• Water and wastewater pumps • Filtration, disinfection and biological treatment equipment • Mobile dewatering equipment			• Flygt • Godwin • Leopold • Sanitaire • Wedeco • Xylem Vue

Applied Water	Industrial Water	$	706	46	%	• Pumps • Valves • Heat exchangers • Controls • Dispensing equipment systems		• A-C Fire Pump • Bell & Gossett • Flojet • Goulds Water Technology • Jabsco • Lowara • Standard Xchange	Applied Water			Commercial Building Services					$	609					38	%
	Commercial Building Services	596		39	%					Residential Building Services				268						17		%
	Residential Building Services	232		15	%					Industrial Water				736						45		%
															$	1,613					100		%
		$	1,534	100	%																				• Pumps • Valves • Heat exchangers • Controls • Dispensing equipment systems			• A-C Fire Pump • Bell & Gossett • Flojet • Goulds Water Technology • Jabsco • Lowara • Standard Xchange • Xylem Vue




Measurement & Control Solutions									Measurement & Control Solutions			Water					$	1,055					79	%			• Smart meters • Networked communication devices • Data analytics • Test equipment • Controls • Sensor devices • Software & managed services • Critical infrastructure services
	Water	$	692	46	%		• Smart meters • Networked communication devices • Data analytics • Test equipment • Controls • Sensor devices • Software & managed services • Critical infrastructure services				• EmNet • Pure • Sensus • Smith Blair • Valor Water • Visenti • WTW • YSI		Energy						280					21				%		• Pure • Sensus • Smith Blair • WTW • YSI • Xylem Vue
	Test	344		23	%												$	1,335					100	%
	Gas	195		13	%
	Electric	143		10	%
	Software as a Service/Other	123		8	%
		$	1,497	100	%



	Year Ended December 31,
(in millions, except per share data)	2018 (a)			2017 (b) (c)			2016 (b) (c)			2015 (c)			2014 (c)
Results of Operations Data:
Revenue	$	5,207		$	4,707		$	3,771		$	3,653		$	3,916
Gross profit	2,026			1,847			1,462			1,407			1,517
Gross margin	38.9		%	39.2		%	38.8		%	38.5		%	38.7		%
Operating income	654			552			408			454			469
Operating margin	12.6		%	11.7		%	10.8		%	12.4		%	12.0		%
Net income attributable to Xylem	549			331			260			340			337
Per Share Data:
Earnings per share:
Basic	$	3.05		$	1.84		$	1.45		$	1.88		$	1.84
Diluted	3.03			1.83			1.45			1.87			1.83
Basic shares outstanding	179.8			179.6			179.1			180.9			183.1
Diluted shares outstanding	181.1			180.9			180.0			181.7			184.2
Cash dividends per share	$	0.8400		$	0.7200		$	0.6196		$	0.5632		$	0.5120
Balance Sheet Data (at period end):
Cash and cash equivalents	$	296		$	414		$	308		$	680		$	663
Working capital*	988			873			878			810			882
Total assets	7,222			6,860			6,474			4,657			4,833
Total debt	2,308			2,200			2,368			1,274			1,284



(in millions)	2019		2020 - 2021		2022 - 2023		Thereafter		Total
Debt and capital lease obligations (1)	$	257	$	600	$	570	$	900	$	2,327
Interest payments (1) (2)	76		152		93		451		772
Operating lease obligations	76		104		55		64		299
Purchase obligations (3)	154		2		—		—		156
Other long-term obligations reflected on the balance sheet	1		16		17		27		61
Total commitments	$	564	$	874	$	735	$	1,442	$	3,615



(in millions)	Amount
Cash	$	14
Receivables	23
Inventories	4
Prepaid and other current assets	2
Property, plant and equipment	22
Intangible assets	149
Other long-term assets	1
Accounts payable	(3		)
Accrued and other current liabilities	(12		)
Deferred income tax liabilities	(25		)
Other non-current accrued liabilities	(2		)
Total identifiable net assets	173

Goodwill	261
Total consideration	$	434



Category	Life	Amount (in millions)
Customer Relationships	17 - 18 years	$	84
Technology	3 - 10 years	38
Tradenames	20 years	21
Internally Developed Software	3 years	6
Total		$	149



	Twelve Months Ended
(in millions)	December 31, 2018
Revenue from contracts with customers	$	4,963
Other	244
Total	$	5,207


~~(a)~~	(a) Regional selling locations consist primarily of selling and marketing organizations that incurred restructuring expense which was allocated to the segments. The liabilities ~~associated with restructuring expense were not allocated to the segments.~~


~~(a)~~	Increase in assessment in 2018 is primarily attributable to loss positions in various jurisdictions. Decrease in assessment in 2017 is primarily attributable to Foreign Tax Credits utilization resulting from the Tax Act.


~~(b)~~	~~Included in foreign currency and other in 2018 is an increase in net operating losses due to amended prior year tax returns for which a valuation allowance was recorded.~~



(in millions)	December 31, 2018		First Year of Expiration
U.S. net operating loss	$	12	December 31, 2024
State net operating loss	98		December 31, 2019
State excess interest expense	12		Indefinitely
State tax credits	2		Indefinitely
Foreign net operating loss	1,119		December 31, 2019
Foreign tax credits	3		December 31, 2030



Jurisdiction						Earliest Open Year
Italy						~~2013~~2015
Luxembourg						~~2016~~2017
Sweden						2013
Germany						~~2009~~2012
United Kingdom						~~2011~~2015
United States						~~2016~~2017
Switzerland						~~2013~~2019


~~(a)~~	Restricted stock awards containing rights to non-forfeitable dividends that participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.


	Year Ended December 31,				Year Ended December 31,
(in thousands)	2018	2017	2016	(in thousands)	2021	2020	2019
Stock options	1,300	1,626	1,892	Stock options	1,132	1,545	1,383
Restricted stock units	333	379	514	Restricted stock units	271	362	348
Performance share units	465	504	373	Performance share units	330	305	394


(in millions)
2022	$	73
2023	60
2024	48
2025	36
2026	28
Thereafter	83
Total lease payments	328
Less: Imputed interest	(20)
Total (1)	$	308


~~(b)~~	The debt issuance costs and unamortized discount is recognized as a reduction in the carrying value of the Senior Notes in the Consolidated Balance Sheets and is being amortized to interest expense in our Consolidated Income Statements over the expected remaining terms of the Senior Notes.



	Domestic Plans						International Plans
	December 31,						December 31,
(in millions)	2018			2017			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	107		$	100		$	843		$	754
Service cost	3			3			9			12
Interest cost	4			4			19			21
Benefits paid	(5		)	(5		)	(36		)	(30		)
Actuarial loss (gain)	(10		)	5			(20		)	10
Plan amendments, settlements and curtailments	—			1			3			(2		)
Foreign currency translation/other	—			(1		)	(55		)	78
Benefit obligation at end of year	$	99		$	107		$	763		$	843
Change in plan assets:
Fair value of plan assets at beginning of year	$	84		69			$	544		$	493
Employer contributions	22			10			16			20
Actual return on plan assets	(4		)	10			(20		)	21
Benefits paid	(5		)	(5		)	(36		)	(30		)
Plan amendments, settlements and curtailments	—			—			—			(3		)
Foreign currency translation/other	—			—			(34		)	43
Fair value of plan assets at end of year	$	97		$	84		$	470		$	544
Unfunded status of the plans	$	(2	)	$	(23	)	$	(293	)	$	(299	)



	2018		2017		Target Allocation Ranges
Equity securities	29.7	%	35.6	%	10-50%
Fixed income	24.5	%	23.4	%	10-40%
Hedge funds	11.8	%	17.0	%	0-40%
Private equity	1.1	%	1.6	%	0-30%
Cash, insurance contracts and other	32.9	%	22.4	%	0-60%



(in millions)	Insurance Contracts and Other
Balance, December 31, 2016	$	24
Purchases, sales, settlements	(8		)
Currency impact	1
Balance, December 31, 2017	$	17
Purchases, sales, settlements	(5		)
Currency impact	—
Balance, December 31, 2018	$	12


(in millions)	Insurance Contracts and Other
Balance, December 31, 2019	$	13
Purchases, sales, settlements, net	314
Actual return on plan assets	$	44
Currency impact	13
Balance, December 31, 2020	384
Purchases, sales, settlements, net	(8)
Actual return on plan assets	(6)
Currency impact	(2)
Balance, December 31, 2021	$	368



(in millions)	Pension		Other Benefits
2019	$	35	$	3
2020	36		4
2021	36		4
2022	37		4
2023	39		4
Years 2023 - 2027	205		19