UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-35229

Xylem Inc.

(Exact name of registrant as specified in its charter)


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

301 Water Street SE, Washington, DC 20003

(Address of principal executive offices) (Zip code)

(202) 869-9150

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange of 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~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~October~~July 28, ~~2022,~~2023, there were ~~180,221,532~~240,828,528 outstanding shares of the registrant’s common stock, par value $0.01 per share.

Xylem Inc.

Table of Contents


ITEM			PAGE
PART I – Financial Information
Item 1	-	Financial Statements:
		Condensed Consolidated Income Statements for the Three Months and ~~Nine~~Six Months Ended ~~September~~June 30 , 2023 and 2022 ~~and 2021~~ (Unaudited)	3
		Condensed Consolidated Statements of Comprehensive Income for the Three Monthsand ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	4
		Condensed Consolidated Balance Sheets as of ~~September~~June 30 ~~2022~~,2023 and December 31, ~~2021~~2022 (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~ Six Months Ended ~~September~~June 30 , 2023 and 2022 ~~and 2021~~ (Unaudited)	6
		Notes to the Condensed Consolidated Financial Statements (Unaudited)	7
Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3136
Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	5360
Item 4	-	Controls and Procedures	5361
PART II – Other Information
Item 1	-	Legal Proceedings	5462
Item 1A	-	Risk Factors	5462
Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	5463
Item 3	-	Defaults Upon Senior Securities	5463
Item 4	-	Mine Safety Disclosures	5463
Item 5	-	Other Information	5464
Item 6	-	Exhibits	5464
		Signatures	5667

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)


		Three Months				Nine Months					Three Months				Six Months

For the periods ended September 30,		2022		2021		2022		2021
For the period ended June 30,										For the period ended June 30,	2023		2022		2023		2022
Revenue	Revenue	$	1,380	$	1,265	$	4,016	$	3,872	Revenue	$	1,722	$	1,364	$	3,170	$	2,636
Cost of revenue	Cost of revenue	856		793		2,505		2,390		Cost of revenue	1,071		844		1,973		1,649
Gross profit	Gross profit	524		472		1,511		1,482		Gross profit	651		520		1,197		987
Selling, general and administrative expenses	Selling, general and administrative expenses	294		273		912		878		Selling, general and administrative expenses	446		314		800		618
Research and development expenses	Research and development expenses	47		49		152		152		Research and development expenses	58		53		111		105
Restructuring and asset impairment charges (recoveries)		15		(2)		22		7
Restructuring and asset impairment charges										Restructuring and asset impairment charges	28		7		36		7

Operating income	Operating income	168		152		425		445		Operating income	119		146		250		257
Interest expense	Interest expense	12		21		37		63		Interest expense	12		12		21		25
U.K. pension settlement expense		140		—		140		—

Other non-operating income, net	Other non-operating income, net	1		2		2		1		Other non-operating income, net	7		2		11		1
Gain from sale of business	Gain from sale of business	—		—		1		2		Gain from sale of business	—		—		—		1
Income before taxes	Income before taxes	17		133		251		385		Income before taxes	114		136		240		234
Income tax expense	Income tax expense	5		19		45		71		Income tax expense	22		24		49		40
Net income	Net income	$	12	$	114	$	206	$	314	Net income	$	92	$	112	$	191	$	194

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.07	$	0.63	$	1.14	$	1.74	Basic	$	0.45	$	0.62	$	0.99	$	1.07
Diluted	Diluted	$	0.07	$	0.63	$	1.14	$	1.73	Diluted	$	0.45	$	0.62	$	0.98	$	1.07
Weighted average number of shares:	Weighted average number of shares:									Weighted average number of shares:
Basic	Basic	180.2		180.2		180.2		180.2		Basic	205.5		180.2		193.0		180.2
Diluted	Diluted	180.9		181.6		180.9		181.5		Diluted	206.7		180.6		194.0		180.8

See accompanying notes to condensed consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions)


		Three Months				Nine Months					Three Months				Six Months
For the periods ended September 30,		2022		2021		2022		2021
For the period ended June 30,										For the period ended June 30,	2023		2022		2023		2022
Net income	Net income	$	12	$	114	$	206	$	314	Net income	$	92	$	112	$	191	$	194
Other comprehensive income (loss), before tax:	Other comprehensive income (loss), before tax:									Other comprehensive income (loss), before tax:
Foreign currency translation adjustment	Foreign currency translation adjustment	(74)		(19)		(118)		10		Foreign currency translation adjustment	(38)		(41)		(16)		(44)

Net change in derivative hedge agreements:	Net change in derivative hedge agreements:									Net change in derivative hedge agreements:
Unrealized gain (loss)	Unrealized gain (loss)	(8)		(1)		(23)		(8)		Unrealized gain (loss)	(3)		(9)		1		(15)
Amount of loss (gain) reclassified into net income		8		2		13		—
Amount of loss reclassified into net income										Amount of loss reclassified into net income	(1)		3		4		5
Net change in post-retirement benefit plans:	Net change in post-retirement benefit plans:									Net change in post-retirement benefit plans:

Amortization of prior service credit	Amortization of prior service credit	—		(1)		(1)		(2)		Amortization of prior service credit	(1)		(1)		(1)		(1)
Amortization of net actuarial loss into net income		3		6		11		17
U.K. pension settlement expense		137		—		137		—
Amortization of actuarial (gain) loss into net income										Amortization of actuarial (gain) loss into net income	—		4		(1)		8

Foreign currency translation adjustment	Foreign currency translation adjustment	46		—		46		—		Foreign currency translation adjustment	(1)		—		(1)		—

Income tax expense (benefit) related to items of other comprehensive income (loss)		63		11		93		26
Other comprehensive income (loss), before tax										Other comprehensive income (loss), before tax	(44)		(44)		(14)		(47)
Income tax (benefit) expense related to items of other comprehensive income (loss)										Income tax (benefit) expense related to items of other comprehensive income (loss)	(9)		27		(14)		30
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	49		(24)		(28)		(9)		Other comprehensive income (loss), net of tax	(35)		(71)		—		(77)
Comprehensive income	Comprehensive income	$	61	$	90	$	178	$	305	Comprehensive income	$	57	$	41	$	191	$	117

See accompanying notes to condensed consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,186	$	1,349	Cash and cash equivalents	$	708	$	944

Receivables, less allowances for discounts, returns and credit losses of $46 and $44 in 2022 and 2021, respectively		1,018		953
Receivables, less allowances for discounts, returns and credit losses of $45 and $50 in 2023 and 2022, respectively						Receivables, less allowances for discounts, returns and credit losses of $45 and $50 in 2023 and 2022, respectively	1,659		1,096
Inventories	Inventories	837		700		Inventories	1,143		799
Prepaid and other current assets	Prepaid and other current assets	150		158		Prepaid and other current assets	225		173

Total current assets	Total current assets	3,191		3,160		Total current assets	3,735		3,012
Property, plant and equipment, net	Property, plant and equipment, net	585		644		Property, plant and equipment, net	1,144		630
Goodwill	Goodwill	2,637		2,792		Goodwill	7,108		2,719
Other intangible assets, net	Other intangible assets, net	933		1,016		Other intangible assets, net	3,188		930
Other non-current assets	Other non-current assets	760		664		Other non-current assets	922		661
Total assets	Total assets	$	8,106	$	8,276	Total assets	$	16,097	$	7,952
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	618	$	639	Accounts payable	$	968	$	723
Accrued and other current liabilities	Accrued and other current liabilities	828		752		Accrued and other current liabilities	1,074		867
Short-term borrowings and current maturities of long-term debt	Short-term borrowings and current maturities of long-term debt	483		—		Short-term borrowings and current maturities of long-term debt	240		—
Total current liabilities	Total current liabilities	1,929		1,391		Total current liabilities	2,282		1,590
Long-term debt	Long-term debt	1,880		2,440		Long-term debt	2,267		1,880
Accrued post-retirement benefits	Accrued post-retirement benefits	361		438		Accrued post-retirement benefits	293		286
Deferred income tax liabilities	Deferred income tax liabilities	260		287		Deferred income tax liabilities	738		222
Other non-current accrued liabilities	Other non-current accrued liabilities	454		494		Other non-current accrued liabilities	607		471
Total liabilities	Total liabilities	4,884		5,050		Total liabilities	6,187		4,449
Commitments and contingencies (Note 17)
Commitments and contingencies (Note 18)						Commitments and contingencies (Note 18)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 196.0 shares and 195.6 shares in 2022 and 2021, respectively		2		2
Common stock – par value $0.01 per share:						Common stock – par value $0.01 per share:
Authorized 750.0 shares, issued 256.6 shares and 196.0 shares in 2023 and 2022, respectively						Authorized 750.0 shares, issued 256.6 shares and 196.0 shares in 2023 and 2022, respectively	3		2
Capital in excess of par value	Capital in excess of par value	2,123		2,089		Capital in excess of par value	8,495		2,134
Retained earnings	Retained earnings	2,197		2,154		Retained earnings	2,344		2,292
Treasury stock – at cost 15.8 shares and 15.2 shares in 2022 and 2021, respectively		(708)		(656)
Treasury stock – at cost 15.9 shares and 15.8 shares in 2023 and 2022, respectively						Treasury stock – at cost 15.9 shares and 15.8 shares in 2023 and 2022, respectively	(717)		(708)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(399)		(371)		Accumulated other comprehensive loss	(226)		(226)
Total stockholders’ equity	Total stockholders’ equity	3,215		3,218		Total stockholders’ equity	9,899		3,494
Non-controlling interests	Non-controlling interests	7		8		Non-controlling interests	11		9
Total equity	Total equity	3,222		3,226		Total equity	9,910		3,503
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	8,106	$	8,276	Total liabilities and stockholders’ equity	$	16,097	$	7,952

See accompanying notes to condensed consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)


For the nine months ended September 30,		2022		2021
For the six months ended June 30,						For the six months ended June 30,	2023		2022
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	206	$	314	Net income	191		194
Adjustments to reconcile net income to net cash provided by operating activities:	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	Depreciation	83		90		Depreciation	69		56
Amortization	Amortization	93		96		Amortization	83		62
Share-based compensation	Share-based compensation	28		25		Share-based compensation	27		18
Restructuring and asset impairment charges	Restructuring and asset impairment charges	22		7		Restructuring and asset impairment charges	36		7
U.K. pension settlement expense		140		—

Gain from sale of business	Gain from sale of business	(1)		(2)		Gain from sale of business	—		(1)
Other, net	Other, net	(9)		3		Other, net	(5)		6
Payments for restructuring	Payments for restructuring	(7)		(21)		Payments for restructuring	(9)		(5)
Changes in assets and liabilities (net of acquisitions):	Changes in assets and liabilities (net of acquisitions):					Changes in assets and liabilities (net of acquisitions):
Changes in receivables	Changes in receivables	(145)		(78)		Changes in receivables	(122)		(119)
Changes in inventories	Changes in inventories	(214)		(135)		Changes in inventories	(57)		(189)
Changes in accounts payable	Changes in accounts payable	47		19		Changes in accounts payable	36		40

Changes in accrued taxes		(12)		—
Changes in accrued and deferred taxes						Changes in accrued and deferred taxes	(86)		(2)

Other, net	Other, net	3		—		Other, net	(154)		(35)
Net Cash – Operating activities	Net Cash – Operating activities	234		318		Net Cash – Operating activities	9		32
Investing Activities	Investing Activities					Investing Activities
Capital expenditures	Capital expenditures	(148)		(127)		Capital expenditures	(103)		(95)

Acquisitions of businesses, net of cash acquired						Acquisitions of businesses, net of cash acquired	(476)		—
Proceeds from sale of business	Proceeds from sale of business	1		2		Proceeds from sale of business	91		1
Proceeds from the sale of property, plant and equipment	Proceeds from the sale of property, plant and equipment	3		1		Proceeds from the sale of property, plant and equipment	—		3
Cash received from investments	Cash received from investments	5		—		Cash received from investments	—		4
Cash paid for investments	Cash paid for investments	(9)		—		Cash paid for investments	—		(7)
Cash paid for equity investments						Cash paid for equity investments	(56)		(1)
Cash received from interest rate swaps						Cash received from interest rate swaps	38		—
Cash received from cross-currency swaps	Cash received from cross-currency swaps	24		11		Cash received from cross-currency swaps	14		11
Other, net	Other, net	1		—		Other, net	3		—
Net Cash – Investing activities	Net Cash – Investing activities	(123)		(113)		Net Cash – Investing activities	(489)		(84)
Financing Activities	Financing Activities					Financing Activities
Short-term debt issued, net						Short-term debt issued, net	74		—

Long-term debt issued, net						Long-term debt issued, net	275		—
Long-term debt repaid	Long-term debt repaid	—		(600)		Long-term debt repaid	(1)		—
Repurchase of common stock	Repurchase of common stock	(52)		(68)		Repurchase of common stock	(9)		(52)
Proceeds from exercise of employee stock options	Proceeds from exercise of employee stock options	6		15		Proceeds from exercise of employee stock options	40		3
Dividends paid	Dividends paid	(163)		(152)		Dividends paid	(139)		(110)

Other, net	Other, net	(1)		(1)		Other, net	(5)		1
Net Cash – Financing activities	Net Cash – Financing activities	(210)		(806)		Net Cash – Financing activities	235		(158)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(64)		(19)		Effect of exchange rate changes on cash	9		(26)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(163)		(620)		Net change in cash and cash equivalents	(236)		(236)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	1,349		1,875		Cash and cash equivalents at beginning of year	944		1,349
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	1,186	$	1,255	Cash and cash equivalents at end of period	$	708	$	1,113
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	67	$	83	Interest	$	30	$	40
Income taxes (net of refunds received)	Income taxes (net of refunds received)	$	57	$	71	Income taxes (net of refunds received)	$	135	$	42

See accompanying notes to condensed consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Background and Basis of Presentation

Background

Xylem Inc. (“Xylem” or the “Company”) is a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment.

Xylem operates in ~~three~~four segments, Water Infrastructure, Applied Water, ~~and~~ Measurement & Control ~~Solutions.~~Solutions and Integrated Solutions and Services. See Note ~~18,~~19, "Segment Information," to the condensed consolidated financial statements for further segment background information.

Except as otherwise indicated or unless the context otherwise requires, "Xylem," "we," "us," "our" and the "Company" refer to Xylem Inc. and its subsidiaries.

Acquisition of Evoqua

On May 24, 2023, Xylem completed the acquisition of Evoqua Water Technologies Corp. (“Evoqua”). Refer to Note 3, "Acquisitions and Divestitures," for additional information.

Basis of Presentation

The interim condensed consolidated financial statements reflect our financial position and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions between our businesses have been eliminated.

The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair statement of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 ("~~2021~~2022 Annual Report") in preparing these unaudited condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our ~~2021~~2022 Annual Report. Certain prior year amounts have been reclassified to conform to the current year presentation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, valuation results associated with purchase accounting, post-retirement obligations and assets, revenue recognition, income taxes, valuation of intangible assets, goodwill and indefinite-lived intangible impairment testing and contingent liabilities. Actual results could differ from these estimates. The global outbreak of the novel coronavirus ("COVID-19") disease in March 2020, declared a pandemic by the World Health Organization, has created significant global volatility, uncertainty and related macroeconomic disruption. The COVID-19 pandemic and macroeconomic conditions have also caused increased uncertainty in estimates and assumptions affecting the condensed consolidated financial statements. Actual results could differ from these estimates.

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the condensed consolidated financial statements included herein are described as ending on the last day of the calendar quarter.

Note 2. Recently Issued Accounting Pronouncements

Recently Adopted Pronouncements ~~Not Yet Adopted~~

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

The Company facilitates the opportunity for suppliers to participate in voluntary supply chain financing programs with third-party financial institutions. Xylem agrees on commercial terms, including payment terms, with suppliers regardless of program participation. The company does not determine the terms or conditions of the arrangement between suppliers and the third-party financial institutions. Participating suppliers are paid directly by the third-party financial institution. Xylem pays the third-party financial institution the stated amount of confirmed invoices from its designated suppliers at the original invoice amount on the original maturity dates of the invoices, ranging from 45-180 days. Xylem does not pay fees related to these programs. Xylem or the third-party financial institutions may terminate the agreements upon at least 30 days’ notice. As of June 30, 2023, the total outstanding balance under these programs is $178 million presented on our Condensed Consolidated Balance Sheet within "Accounts payable."

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This guidance requires an acquirer to apply the guidance in ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities in a business combination, rather than using fair value. The ASU is effective for fiscal years beginning after December 15, 2022 and we adopted this guidance as of January 1, 2023. The guidance will be applied prospectively to business combinations after the adoption. The adoption of this guidance did not have a material impact on our financial condition or results of operations.

Note 3. Acquisitions and Divestitures

Evoqua Water Technologies Corp.

On May 24, 2023, the Company completed the acquisition of 100% of the issued and outstanding shares of Evoqua, a leader in providing water and wastewater treatment solutions, offering a broad portfolio of products and services to support industrial, municipal, and recreational customers, pursuant to the Agreement and Plan of Merger dated January 22, 2023 (the “Merger Agreement”). The Merger Agreement provided that Fore Merger Sub, Inc., a wholly owned subsidiary of the Company, merge with and into Evoqua, with Evoqua surviving as a wholly owned subsidiary of Xylem (the “Merger”). Under the terms and conditions of the Merger Agreement, each share of Evoqua common stock issued and outstanding immediately prior to the effective time of the Merger (other than certain excluded shares as described in the Merger Agreement) was converted into the right to receive 0.48 (the “Exchange Ratio”) of a share of the common stock of Xylem. Upon the effectiveness of the Merger, legacy Evoqua stockholders owned approximately 25% and legacy Xylem shareholders owned approximately 75% of the combined company. The purchase price for purposes of the Merger consisted of an aggregate of $6,121 million of the Company’s common stock, $160 million in replacement equity awards, and $619 million to repay certain indebtedness of Evoqua (refer to Note 12. Credit Facilities and Debt). Acquisition costs for the three months and six months ended June 30, 2023 of $39 million and $55 million, respectively, have been recorded within Selling, general and administrative expense in our Consolidated Income Statement.

The acquisition-date fair value of the consideration totaled $6,900, which consisted of the following:


(in millions)	Fair Value of Purchase Consideration
Xylem Common Stock issued to Evoqua stockholders (58,779,096 shares)	$	6,121
Estimated replacement equity awards	160
Payment of certain Evoqua indebtedness	619
Total	$	6,900

The Company has applied the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”) and recognized assets acquired and liabilities assumed at their fair value as of the date of acquisition, with the excess purchase consideration recorded to goodwill. As the Company finalizes the estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months from the acquisition date). The following table summarizes the preliminary acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Evoqua:


(in millions)	Fair Value
Cash and cash equivalents	$	143
Receivables	432
Inventories	288

Prepaid and other current assets	75

Assets held for sale	8
Property, plant and equipment, net	511
Goodwill	4,364
Other intangible assets, net	2,307


Other non-current assets	191
Non-current assets held for sale	86
Accounts payable	(207)


Accrued and other current liabilities	(342)

Short-term borrowings and current maturities of long-term debt	(166)
Liabilities held for sale	(1)
Long-term debt	(111)


Other non-current accrued liabilities	(124)
Deferred income tax liabilities	(551)
Non-current liabilities held for sale	(3)
Total	$	6,900

The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. The above fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount rates, future expected cash flows and other future events that are judgmental and subject to change. The final determination of the fair value of certain assets and liabilities will be completed as soon as the necessary information becomes available but no later than one year from the acquisition date.

The fair value of receivables acquired is $322 million, with the gross contractual amount being $329 million. The Company expects $7 million to be uncollectible.

The amounts of sales and net loss from continuing operations before income taxes of Evoqua since the acquisition date included in the Consolidated Income Statement for the three and six months ended June 30, 2023 are $178 million and $49 million, respectively. The $4,364 million of goodwill recognized, which is not deductible for U.S. income tax purposes, is primarily attributable to synergies and economies of scale expected from combining the operations of Evoqua and Xylem as well as the assembled workforce of Evoqua.

Identifiable Intangible Assets Acquired

The following table summarizes key information underlying identifiable intangible assets related to the Evoqua acquisition:


(in millions)	Useful Life (in years)	Fair Value (in millions)
Trademarks	6	$	60
Proprietary technology and patents	4 - 9	150
Customer and distributor relationships	7 - 17	1,960
Backlog	1 - 8	110
Software	1 - 3	27
Total		$	2,307

The preliminary estimate of the fair value of Evoqua’s 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. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement of the fair value hierarchy as defined in ASC 820, Fair Value Measurements (“ASC 820”). Intangible assets consisting of the Evoqua tradename, technology, customer relationships, and backlog were valued using the multi-period excess earnings method (“MEEM”), or the relief from royalty (“RFR”) method, both are forms of the income approach.

•Trademarks and proprietary technology intangible assets were valued using the RFR method. The RFR method of valuation suggests that in lieu of ownership, the acquirer can obtain comparable rights to use the subject asset via a license from a hypothetical third-party owner. The asset’s Fair Value is the present value of license fees avoided by owning it (i.e., the royalty savings).

•Customer relationship and backlog intangible assets were valued using the MEEM method. The MEEM method of valuation is an approach where the net earnings attributable to the asset being measured are isolated from other “contributory assets” over the intangible asset’s remaining economic life.

•Inventory was estimated using the comparative sales method, which quantifies the Fair Value of inventory based on the expected sales price of the subject inventory (when complete), reduced for: (i) all costs expected to be incurred in its completion and disposition efforts and (ii) a profit on those value-added completion and disposition costs.

Stock-Based Compensation

In connection with the Merger, each outstanding and issued option, restricted stock unit (“RSU”), performance stock unit (“PSU”) and cash-settled stock appreciation right (“SAR”) was converted into the Xylem equivalent, with outstanding PSUs being converted into Xylem RSUs. As a result, Xylem issued 2 million replacement equity options, 330 thousand PSU awards, and 377 thousand RSU awards, respectively. The portion of the fair value related to pre-combination services of $160 million was included in the purchase price, and $56 million will be recognized over the remaining service periods. As of June 30, 2023, the future unrecognized expense related to the outstanding Converted Equity Options, RSU Awards and PSU Awards was approximately $5 million, $21 million, and $10 million, respectively. The future unrecognized expense related to Converted Equity Options, RSU Awards, and PSU Awards will be recognized over a weighted-average service period of 3 years. SAR awards are immaterial.

Pro Forma Financial Information

The following table summarizes, on an unaudited pro forma basis, the condensed combined results of operations of the Company for the three and six months ended June 30, 2023 and 2022, assuming the acquisition had occurred on January 1, 2022.


	(Unaudited) Three Months Ended June 30,				(Unaudited) Six Months Ended June 30,
(in millions)	2023		2022		2023		2022
Revenue	$	2,025	$	1,803	$	3,952	$	3,502
Net income	$	63	$	92	$	170	$	76

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, 2022, nor are they necessarily indicative of future results. The unaudited pro-forma information for all periods presented includes the following adjustments, where applicable, for business combination accounting effects resulting from the acquisition: (i) amortization of the fair value step up in inventory, (ii) additional amortization expense related to finite-lived intangible assets acquired, (iii) repayment of Evoqua’s term loan and revolver and the settlement of the related interest rate swap, (iv) additional interest expense related to financing for the acquisition (refer to Note 12. Credit Facilities and Debt), (v) depreciation expense on property, plant and equipment, (vi) additional incremental stock-based compensation expense for the replacement of Evoqua’s outstanding equity awards with Xylem’s replacement equity awards, and (vii) the related tax effects assuming that the business combination occurred on January 1, 2022.

The significant nonrecurring adjustments reflected in the unaudited pro-forma consolidated information above include the reclassification of the transaction costs to the earliest period presented and the reversal of the impacts related to the settlement of the interest rate swap, each net of tax.

Divestitures

On June 15, 2023, Xylem sold the former Evoqua carbon reactivation and slurry operations to Desotec US LLC, a subsidiary of Desotec N.V., for approximately $91 million, a price equal to the fair value less costs to sell the business.

Note 4. Revenue

Disaggregation of Revenue

The following table illustrates the sources of revenue:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
Revenue from contracts with customers	Revenue from contracts with customers	$	1,319	$	1,214	$	3,852	$	3,726	Revenue from contracts with customers	$	1,637	$	1,312	$	3,020	$	2,534
Lease Revenue	Lease Revenue	61		51		164		146		Lease Revenue	85		52		150		102
Total	Total	$	1,380	$	1,265	$	4,016	$	3,872	Total	$	1,722	$	1,364	$	3,170	$	2,636

The following table reflects revenue from contracts with customers by application.


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
Water Infrastructure	Water Infrastructure									Water Infrastructure
Transport	Transport	$	410	$	390	$	1,235	$	1,173	Transport	$	466	$	432	$	902	$	825
Treatment	Treatment	103		106		297		306		Treatment	168		104		256		194

Applied Water	Applied Water									Applied Water
Commercial Building Services		171		152		479		454
Residential Building Services		82		71		233		211
Building Solutions										Building Solutions	257		226		510		461

Industrial Water	Industrial Water	205		177		600		542		Industrial Water	221		204		421		394

Measurement & Control Solutions	Measurement & Control Solutions									Measurement & Control Solutions
Water	Water	278		253		822		824		Water	323		279		657		544
Energy	Energy	70		65		186		216		Energy	92		67		164		116

Integrated Solutions & Services										Integrated Solutions & Services	110		—		110		—

Total	Total	$	1,319	$	1,214	$	3,852	$	3,726	Total	$	1,637	$	1,312	$	3,020	$	2,534

812

The following table reflects revenue from contracts with customers by geographical region.


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
Water Infrastructure	Water Infrastructure									Water Infrastructure
United States	United States	$	155	$	137	$	467	$	402	United States	$	219	$	165	$	395	$	312
Western Europe	Western Europe	172		175		548		538		Western Europe	220		190		410		376
Emerging Markets (a)	Emerging Markets (a)	135		137		356		391		Emerging Markets (a)	130		120		235		221
Other	Other	51		47		161		148		Other	65		61		118		110

Applied Water	Applied Water									Applied Water
United States	United States	235		197		675		593		United States	248		219		492		440
Western Europe	Western Europe	90		90		285		281		Western Europe	105		101		209		195
Emerging Markets (a)	Emerging Markets (a)	100		81		258		240		Emerging Markets (a)	86		79		159		159
Other	Other	33		32		94		93		Other	39		31		71		61

Measurement & Control Solutions	Measurement & Control Solutions									Measurement & Control Solutions
United States	United States	221		189		614		625		United States	265		212		522		393
Western Europe	Western Europe	55		59		183		202		Western Europe	69		59		146		128
Emerging Markets (a)	Emerging Markets (a)	48		46		142		141		Emerging Markets (a)	52		50		100		94
Other	Other	24		24		69		72		Other	29		25		53		45

Integrated Solutions & Services										Integrated Solutions & Services
United States										United States	98		—		98		—
Western Europe										Western Europe	2		—		2		—
Emerging Markets (a)										Emerging Markets (a)	3		—		3		—
Other										Other	7		—		7		—

Total	Total	$	1,319	$	1,214	$	3,852	$	3,726	Total	$	1,637	$	1,312	$	3,020	$	2,534

(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")

913

Contract Balances

We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Changes in contract assets and liabilities are due to our performance under the contract. The table below provides contract assets, contract liabilities, and significant changes in contract assets and liabilities:
(in millions) Contract Assets (a) Contract Liabilities
Balance at January 1, 2021 $ 117 $ 166
  Additions, net 99 109
  Revenue recognized from opening balance — (106)
  Billings transferred to accounts receivable (85) —
  Foreign currency and other (1) (2)
Balance at September 30, 2021 $ 130 $ 167
Balance at January 1, 2022 $ 125 $ 164
  Additions, net 91 110
  Revenue recognized from opening balance — (94)
  Billings transferred to accounts receivable (71) —
  Foreign currency and other (8) (12)
Balance at September 30, 2022 $ 137 $ 168


(in millions)	Contract Assets (a)		Contract Liabilities
Balance at January 1, 2022	$	125	$	164
Additions, net	63		97
Revenue recognized from opening balance	—		(75)
Billings transferred to accounts receivable	(61)		—
Foreign currency and other	(4)		(3)
Balance at June 30, 2022	$	123	$	183

Balance at January 1, 2023	$	151	$	183
Opening balance from the acquisition of Evoqua	110		107
Additions, net	85		94
Revenue recognized from opening balance	—		(80)
Billings transferred to accounts receivable	(73)		—
Foreign currency and other	1		(5)
Balance at June 30, 2023	$	274	$	299

(a)Excludes receivable balances, which are disclosed on the Condensed Consolidated Balance Sheets

Performance obligations

Delivery schedules vary from customer to customer based upon their requirements. Typically, large projects require longer lead production cycles and delays can occur from time to time. As of ~~September~~June 30, ~~2022,~~2023, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to ~~$567 million.~~$949 million, of which $464 million is contributed by the Evoqua acquisition. We expect to recognize the majority of revenue upon the completion of satisfying these performance obligations in the following ~~three years.~~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 4.5. Restructuring and Asset Impairment Charges

Restructuring

~~From time to time,~~During the ~~Company will incur~~three and six months ended June 30, 2023 we incurred restructuring costs of $28 million and $34 million, respectively. We incurred these charges primarily as a result of our acquisition of Evoqua. Approximately, $14 million of the charges related to ~~restructuring actions~~stock based compensation expense due to acceleration clauses in ~~order~~equity compensation agreements and approximately $14 million of the charges represented the reduction of headcount. Additionally, we incurred $6 million of charges related to our efforts to reposition our European and North American businesses to optimize our cost ~~base~~structure, improve our operational efficiency and ~~more strategically position itself.~~ effectiveness, strengthen our competitive positioning and better serve our customers. The charges were incurred across all of our segments.

During the three and ~~nine~~six months ended ~~September~~June 30, 2022 we incurred restructuring ~~costs~~charges of ~~$3 million and $9 million, respectively.~~$6 million. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount across ~~all segments.~~

~~During~~ the ~~three~~Water Infrastructure, Applied Water and nine months ended September 30, 2021, we recognized net restructuring (recoveries) expense of $(2) million and charges of $6 million, respectively, of which $(2) million and $4 million, respectively, relate to actions previously announced in 2020 and earlier. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions ~~segment and accrual recoveries in our Measurement & Control Solutions segment.~~segments.

1014

The following table presents the components of restructuring expense and asset impairment charges:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
By component:	By component:									By component:
Severance and other charges	Severance and other charges	$	3	$	1	$	9	$	9	Severance and other charges	$	29	$	6	$	35	$	6

Asset impairment		—		—		—		1

Reversal of restructuring accruals	Reversal of restructuring accruals	—		(3)		—		(4)		Reversal of restructuring accruals	(1)		—		(1)		—
Total restructuring costs	Total restructuring costs	$	3	$	(2)	$	9	$	6	Total restructuring costs	$	28	$	6	$	34	$	6
Asset impairment charges	Asset impairment charges	12		—		13		1		Asset impairment charges	—		1		2		1
Total restructuring and asset impairment charges	Total restructuring and asset impairment charges	$	15	$	(2)	$	22	$	7	Total restructuring and asset impairment charges	$	28	$	7	$	36	$	7

By segment:	By segment:									By segment:
Water Infrastructure	Water Infrastructure	$	2	$	—	$	4	$	7	Water Infrastructure	$	1	$	2	$	3	$	2
Applied Water	Applied Water	—		1		1		2		Applied Water	—		1		1		1
Measurement & Control Solutions	Measurement & Control Solutions	13		(3)		17		(2)		Measurement & Control Solutions	1		4		6		4

Integrated Solutions & Services										Integrated Solutions & Services	4		—		4		—
Corporate and other										Corporate and other	22		—		22		—

The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within "Accrued and other current liabilities" and "Other non-current accrued liabilities", for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~
(in millions) 2022 2021
Restructuring accruals - January 1 $ 7 $ 29
Restructuring costs, net 9 6
Cash payments (7) (21)
Asset impairment — (1)
Foreign currency and other (1) (2)
Restructuring accruals - September 30 $ 8 $ 11
By segment:
Water Infrastructure $ 1 $ 1
Applied Water — 2
Measurement & Control Solutions 3 6
Regional selling locations (a) 2 2
Corporate and other 2 —
2022:


(in millions)	2023		2022
Restructuring accruals - January 1	$	10	$	7
Restructuring costs, net	34		6
Cash payments	(9)		(5)

Stock based compensation included within AOCL	(14)		—
Foreign currency and other	(1)		—
Restructuring accruals - June 30	$	20	$	8

By segment:
Water Infrastructure	$	2	$	1
Applied Water	—		—
Measurement & Control Solutions	3		4
Integrated Solutions & Services	4		—
Regional selling locations (a)	2		1
Corporate and other	9		2

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

1115

The following table presents expected restructuring spend in ~~2022~~2023 and thereafter:

(in millions) Water Infrastructure Applied Water Measurement & Control Solutions Corporate Total
Actions Commenced in 2022:
Total expected costs $ 4 $ 1 $ 3 $ — $ 8
Costs incurred during Q1 2022 — — — — —
Costs incurred during Q2 2022 2 1 2 — 5
Costs incurred during Q3 2022 2 — 1 — 3
Total expected costs remaining $ — $ — $ — $ — $ —
Actions Commenced in 2021:
Total expected costs $ 3 $ — $ 1 $ — $ 4
Costs incurred during 2021 3 — — — 3
Costs incurred during Q1 2022 — — — — —
Costs incurred during Q2 2022 — — — — —
Costs incurred during Q3 2022 — — — — —
Total expected costs remaining $ — $ — $ 1 $ — $ 1

~~During the second quarter of 2022, we also incurred charges of $1 million within the Measurement & Control Solutions segment, related to actions commenced prior to 2021.~~


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Integrated Solutions & Services		Corporate		Total
Actions Commenced in 2023:
Total expected costs	$	4	$	2	$	6	$	7	$	33	$	52
Costs incurred during Q1 2023	1		1		3		—		—		5
Costs incurred during Q2 2023	2		—		1		4		22		29

Total expected costs remaining	$	1	$	1	$	2	$	3	$	11	$	18

The Water Infrastructure, Applied Water, ~~and~~ Measurement & Control Solutions, Integrated Solutions & Services and Corporate actions commenced in ~~2022~~2023 consist primarily of severance charges. The actions ~~commenced in 2022 are complete.~~

The Water Infrastructure and Measurement & Control Solutions actions commenced in 2021 consist primarily of severance charges. The Water Infrastructure actions are complete and the Measurement & Control Solutions actions are expected to continue through the ~~first quarter~~end of ~~2023.~~2024.

Asset Impairment

During the ~~third~~first quarter of ~~2022,~~2023, we determined that ~~certain assets including~~internally developed in-process software ~~and customer relationships~~ within our Measurement & Control Solutions segment ~~were impaired. Accordingly,~~was impaired as a result of actions taken to prioritize strategic investments and we therefore recognized an impairment charge of ~~$12~~$2 million. Refer to Note 8,9, "Goodwill and Other Intangible Assets," for additional information.

Note 5.6. Income Taxes

Our quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items within periods presented. The comparison of our effective tax rate between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction and discrete items.

The income tax provision for the three months ended ~~September~~June 30, ~~2022~~2023 was $5$22 million resulting in an effective tax rate of ~~27.8%~~19.1%, compared to a ~~$19~~$24 million expense resulting in an effective tax rate of ~~13.9%~~17.5% for the same period in ~~2021.~~2022. The income tax provision for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$45~~$49 million resulting in an effective tax rate of ~~17.8%~~20.5%, compared to a ~~$71~~$40 million expense resulting in an effective tax rate of ~~18.3%~~17.0% for the same period in ~~2021.~~2022. The effective tax rate for the ~~three~~six month period ended ~~September~~June 30, ~~2022 was higher than the U.S. federal statutory rate primarily due to the impact of earnings mix. The effective tax rate for the nine month period ended September 30, 2022~~2023 was lower than the U.S. federal statutory rate primarily due to the favorable impact of earnings mix partially offset by ~~the Global Intangible Low Taxed Income ("GILTI") inclusion.~~

nondeductible transaction costs.

Unrecognized Tax Benefits

During 2019, Xylem’s Swedish subsidiary received a tax assessment for the 2013 tax year related to the tax treatment of an intercompany transfer of certain intellectual property that was made in connection with a reorganization of our European businesses. Xylem filed an appeal with the Administrative Court of ~~Vaxjo,~~Växjö, which rendered a decision adverse to Xylem in June 2022 for ~~SEK788~~SEK806 million (approximately ~~$70 million USD)~~$74 million), consisting of the full tax assessment amount plus penalties and interest. Xylem has appealed this decision with the intermediate appellate court, the Administrative Court of Appeal (the “Court”). At this time, management, in consultation with external legal advisors, continues to believe it is more likely than not that Xylem will prevail on the proposed assessment and will continue to vigorously defend our position through the appellate process. ~~The appeal to the Court is expected to take approximately one year; however, there can be no assurance as to the timing of the Court’s decision.~~ Both parties will have the ability to seek appeal of the Court’s decision to the Supreme Administrative Court of Sweden. There can be no assurance that the final determination by the authorities will not be materially different than our position. As of ~~September~~June 30, ~~2022,~~2023, we ~~have~~do not ~~recorded~~have any unrecognized tax benefits related to this uncertain tax position.

Note 6.7. Earnings Per Share

The following is a reconciliation of the shares used in calculating basic and diluted net earnings per share:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income (in millions)	Net income (in millions)	$	12	$	114	$	206	$	314	Net income (in millions)	$	92	$	112	$	191	$	194
Shares (in thousands):	Shares (in thousands):									Shares (in thousands):
Weighted average common shares outstanding	Weighted average common shares outstanding	180,191		180,221		180,173		180,182		Weighted average common shares outstanding	205,505		180,123		192,938		180,164
Add: Participating securities (a)	Add: Participating securities (a)	26		15		28		21		Add: Participating securities (a)	34		33		29		29
Weighted average common shares outstanding — Basic	Weighted average common shares outstanding — Basic	180,217		180,236		180,201		180,203		Weighted average common shares outstanding — Basic	205,539		180,156		192,967		180,193
Plus incremental shares from assumed conversions: (b)	Plus incremental shares from assumed conversions: (b)									Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options	Dilutive effect of stock options	523		949		516		880		Dilutive effect of stock options	872		438		747		513
Dilutive effect of restricted stock units and performance share units	Dilutive effect of restricted stock units and performance share units	199		457		153		405		Dilutive effect of restricted stock units and performance share units	329		56		315		129

Weighted average common shares outstanding — Diluted	Weighted average common shares outstanding — Diluted	180,939		181,642		180,870		181,488		Weighted average common shares outstanding — Diluted	206,740		180,650		194,029		180,835
Basic earnings per share	Basic earnings per share	$	0.07	$	0.63	$	1.14	$	1.74	Basic earnings per share	$	0.45	$	0.62	$	0.99	$	1.07
Diluted earnings per share	Diluted earnings per share	$	0.07	$	0.63	$	1.14	$	1.73	Diluted earnings per share	$	0.45	$	0.62	$	0.98	$	1.07

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

(b)Incremental shares from stock options, restricted stock units and performance share units are computed by the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock units and performance share units, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance or market conditions at the end of the reporting period. See Note ~~14,~~15, "Share-Based Compensation Plans," to the condensed consolidated financial statements for further detail on the performance share units.

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2022 2021 2022 2021
Stock options 1,508 1,031 1,496 1,169
Restricted stock units 413 251 368 285
Performance share units 333 315 279 338


	Three Months Ended		Six Months Ended
	June 30,		June 30,
(in thousands)	2023	2022	2023	2022
Stock options	2,107	1,647	1,732	1,491
Restricted stock units	606	362	469	346
Performance share units	318	270	279	252

Note 7.8. Inventories

The components of total inventories are summarized as follows:


(in millions)	(in millions)	September 30, 2022		December 31, 2021		(in millions)	June 30, 2023		December 31, 2022
Finished goods	Finished goods	$	316	$	236	Finished goods	$	408	$	286
Work in process	Work in process	67		58		Work in process	121		58
Raw materials	Raw materials	454		406		Raw materials	614		455
Total inventories	Total inventories	$	837	$	700	Total inventories	$	1,143	$	799

Note 8.9. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying value of goodwill by reportable segment for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are as follows:
(in millions)
Water
Infrastructure
Applied Water Measurement & Control Solutions Total
Balance as of January 1, 2022 $ 656 $ 515 $ 1,621 $ 2,792
Activity in 2022
Foreign currency and other (39) (28) (88) (155)
Balance as of September 30, 2022 $ 617 $ 487 $ 1,533 $ 2,637


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Integrated Solutions & Services		Total
Balance as of January 1, 2023	$	638	$	502	$	1,579	$	—	$	2,719
Activity in 2023



Acquisitions	1,547		241		80		2,496		4,364
Foreign currency and other	6		5		13		1		25
Balance as of June 30, 2023	$	2,191	$	748	$	1,672	$	2,497	$	7,108

The Company has applied the acquisition method of accounting in accordance with ASC 805 and recognized assets acquired and liabilities assumed of Evoqua at their fair value as of the date of acquisition, with the excess purchase consideration recorded to goodwill. We have preliminarily allocated goodwill to segments of the Company that are expected to benefit from the synergies of the acquisition. As the Company finalizes the estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments to the amount of goodwill allocated to each segment may be necessary.

Other Intangible Assets

Information regarding our other intangible assets is as follows:


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
(in millions)	(in millions)	Carrying Amount		Accumulated Amortization		Net Intangibles		Carrying Amount		Accumulated Amortization		Net Intangibles		(in millions)	Carrying Amount		Accumulated Amortization		Net Intangibles		Carrying Amount		Accumulated Amortization		Net Intangibles
Customer and distributor relationships	Customer and distributor relationships	$	769	$	(349)	$	420	$	929	$	(456)	$	473	Customer and distributor relationships	$	2,749	$	(410)	$	2,339	$	784	$	(371)	$	413
Proprietary technology and patents	Proprietary technology and patents	163		(114)		49		201		(142)		59		Proprietary technology and patents	294		(126)		168		165		(118)		47
Trademarks	Trademarks	134		(75)		59		141		(72)		69		Trademarks	198		(87)		111		137		(80)		57
Software	Software	500		(259)		241		548		(303)		245		Software	595		(299)		296		514		(268)		246
Other	Other	5		(3)		2		21		(18)		3		Other	115		(7)		108		5		(3)		2
Indefinite-lived intangibles	Indefinite-lived intangibles	162		—		162		167		—		167		Indefinite-lived intangibles	166		—		166		165		—		165
Other Intangibles	Other Intangibles	$	1,733	$	(800)	$	933	$	2,007	$	(991)	$	1,016	Other Intangibles	$	4,117	$	(929)	$	3,188	$	1,770	$	(840)	$	930

Amortization expense related to finite-lived intangible assets was ~~$31~~$51 million and ~~$93~~$83 million for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2022,~~2023, respectively, and ~~$31~~$32 million and ~~$96~~$62 million for the three and ~~nine month~~six-month periods ended ~~September~~June 30, ~~2021,~~2022, respectively.

During the ~~third~~first quarter of ~~2022, the Company assessed whether the carrying amounts of certain long-lived assets~~2023, we determined that internally developed in-process software within ~~the~~our Measurement & Control Solutions segment ~~may not be recoverable. Our assessment resulted in~~was impaired as a result of actions taken to prioritize strategic investments and we therefore recognized an impairment charge of $12 million, primarily related to software and customer relationships. The charge was calculated using an income approach, which is considered a Level 3 input for fair value measurement, and is reflected in “Restructuring and asset impairment charges” in our Condensed Consolidated Income Statements.$2 million.

1418

Note 9.10. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions, and we principally manage our exposures to these risks through management of our core business activities. Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates that may impact revenue, expenses, cash receipts, cash payments, and the value of our stockholders' equity. We enter into derivative financial instruments to protect the value or fix the amount of certain cash flows in terms of the functional currency of the business unit with that exposure and also reduce the volatility in stockholders' equity.

As a result of Evoqua terminating their interest rate swaps prior to the Company completing the acquisition, the Company received $38 million in proceeds during the quarter ended June 30, 2023 from the termination of the interest rate swaps.

Cash Flow Hedges of Foreign Exchange Risk

We are exposed to fluctuations in various foreign currencies against our functional currencies. We use foreign currency derivatives, including currency forward agreements, to manage our exposure to fluctuations in the various exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.

Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures for which we enter into cash flow hedges relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty and Australian Dollar. We had foreign exchange contracts with purchased notional amounts totaling ~~$130~~$360 million and ~~$301~~$255 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. As of ~~September~~June 30, ~~2022,~~2023, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell British Pound and purchase Euro, purchase Polish Zloty and sell Euro, purchase U.S. Dollar and sell Canadian Dollar, sell Canadian Dollar and purchase Euro, purchase Canadian Dollar and Sell U.S. Dollar, and sell Australian Dollar and purchase ~~Euro, and to purchase Polish Zloty and sell~~ Euro. The purchased notional amounts associated with these currency derivatives are ~~$50~~$144 million, $93 million, $39 million, $18 million, $17 million, $16 million, ~~$8 million, $6 million, $6~~$16 million and $5$13 million, respectively. As of December 31, ~~2021~~2022 the purchased notional amounts associated with these currency derivatives ~~are $130~~were $105 million, ~~$88~~$73 million, ~~$31 million, $14 million, $14~~$29 million, $13 million, $13 million, $13 million, $0 million and ~~$11~~$9 million, respectively.

Hedges of Net Investments in Foreign Operations

We are exposed to changes in foreign currencies impacting our net investments held in foreign subsidiaries.

Cross-Currency Swaps

Beginning in 2015, we entered into cross-currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019, third quarter of 2020, and second quarter of 2022 we entered into additional cross-currency swaps. The total notional amount of derivative instruments designated as net investment hedges was ~~$1,469~~$1,659 million and ~~$1,151~~$1,616 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Foreign Currency Denominated Debt

On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023.On December 12th, 2022 our Senior Notes due March 2023 were settled with cash on hand for a total of $527 million.

Previously, the entirety of the outstanding balance was designated as a hedge of a net investment in certain foreign subsidiaries. On June 2, 2022, we de-designated the entirety of the outstanding balance of the €500 million 2.250% Senior Notes, or $533 million from the net investment hedge relationship. Previously, the entirety of the outstanding balance, or $563 million as of December 31, 2021, net of unamortized discount, was designated as a hedge of a net investment in certain foreign subsidiaries.

Fair Value Hedges of Foreign Exchange Risk

The de-designation of our 2.250% Senior Notes of €500 million resulted in exposure to fluctuations in the Euro-U.S. Dollar exchange rate. We use currency forward agreements to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.

On June 2, 2022, we entered into a currency forward agreement with a total notional amount of €500 million, designating the agreement as a fair value hedge of our Euro denominated notes. ~~As of September 30,~~On December 12, 2022 the ~~total notional amount of the fair value hedge was $483 million.~~

currency forward agreement matured.

Effectiveness of derivatives designated as fair value 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 Selling, general and administrative Expenses. Changes in the fair value of the 2.250% Senior Notes of €500 million related to spot exchange rates are also recorded in Selling, general and administrative expenses. Changes in the spot-forward differential and counterparty non-performance risk of the derivatives are excluded from the assessment of hedge effectiveness and will be recognized in Accumulated other comprehensive loss ("AOCL"). Amounts in AOCL are recognized in earnings, specifically Interest expense, using a systematic and rational method over the life of the hedging instrument.

The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Income Statements and Statements of Comprehensive Income. Items in the table below reflect changes in "Other comprehensive loss" ("OCL") within the Statements of Comprehensive Income:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
Cash Flow Hedges	Cash Flow Hedges									Cash Flow Hedges
Foreign Exchange Contracts	Foreign Exchange Contracts									Foreign Exchange Contracts
Amount of (loss) recognized in OCL		$	(6)	$	(1)	$	(25)	$	(8)
Amount of loss reclassified from OCL into Revenue		6		2		10		1
Amount of (gain) loss reclassified from OCL into Cost of revenue		—		—		1		(1)
Amount of gain (loss) recognized in OCL										Amount of gain (loss) recognized in OCL	$	(3)	$	(13)	$	1	$	(19)
Amount of (gain) loss reclassified from OCL into Revenue										Amount of (gain) loss reclassified from OCL into Revenue	(1)		2		2		4
Amount of loss reclassified from OCL into Cost of revenue										Amount of loss reclassified from OCL into Cost of revenue	—		1		2		1

Net Investment Hedges	Net Investment Hedges									Net Investment Hedges
Cross-Currency Swaps	Cross-Currency Swaps									Cross-Currency Swaps
Amount of gain recognized in OCL		$	113	$	27	$	207	$	59
Amount of gain (loss) recognized in OCL										Amount of gain (loss) recognized in OCL	$	(37)	$	93	$	(59)	$	94
Amount of income recognized in Interest expense	Amount of income recognized in Interest expense	9		6		22		16		Amount of income recognized in Interest expense	8		7		15		13
Foreign Currency Denominated Debt	Foreign Currency Denominated Debt									Foreign Currency Denominated Debt
Amount of gain recognized in OCL	Amount of gain recognized in OCL	$	—	$	12	$	31	$	32	Amount of gain recognized in OCL	$	—	$	23	$	—	$	31

Fair Value Hedges	Fair Value Hedges									Fair Value Hedges
Foreign Exchange Contracts	Foreign Exchange Contracts									Foreign Exchange Contracts
Amount of (loss) gain recognized in OCL		$	(2)	$	—	$	2	$	—
Amount of gain recognized in OCL										Amount of gain recognized in OCL	$	—	$	4	$	—	$	4
Amount of (loss) recognized in Selling, general and administrative expenses	Amount of (loss) recognized in Selling, general and administrative expenses	$	(39)	$	—	$	(50)	$	—	Amount of (loss) recognized in Selling, general and administrative expenses	$	—	$	(11)	$	—	$	(11)
Amount recognized in Interest expense	Amount recognized in Interest expense	$	(1)	$	—	$	(2)	$	—	Amount recognized in Interest expense	$	—	$	(1)	$	—	$	(1)

As of ~~September~~June 30, ~~2022, $17~~2023, $1 million of net losses on cash flow hedges are expected to be reclassified into earnings in the next 12 months.

As of ~~September~~June 30, ~~2022,~~2023, no gains or losses on the net investment hedges are expected to be reclassified into earnings over their duration.

~~As of September 30, 2022, $2 million of net gains on the fair value hedges are expected to be reclassified into earnings in the next 12 months.~~

The fair values of our derivative assets and liabilities are measured on a recurring basis using Level 2 inputs and are determined through the use of models that consider various assumptions including yield curves, time value and other measurements.

1620

The fair values of our derivative contracts currently included in our hedging program were as follows:
(in millions) September 30,
2022 December 31,
2021
Derivatives designated as hedging instruments
Assets
Cash Flow Hedges
Prepaid and other current assets $ 1 $ —
Net Investment Hedges
Other non-current assets $ 185 $ 8
Liabilities
Cash Flow Hedges
Accrued and other current liabilities $ (12) $ (1)
Net Investment Hedges
Other non-current accrued liabilities $ — $ (26)
Fair Value Hedges
Accrued and other current liabilities $ (51) $ —

Our long-term debt, due in 2023, was de-designated from the hedging relationship in June 2022. The fair value of the long-term debt designated as a net investment hedge was $577 million as of December 31, 2021.


(in millions)	June 30, 2023		December 31, 2022
Derivatives designated as hedging instruments
Assets
Cash Flow Hedges
Prepaid and other current assets	$	5	$	—
Net Investment Hedges
Other non-current assets	$	40	$	79
Liabilities
Cash Flow Hedges
Accrued and other current liabilities	$	(6)	$	—
Net Investment Hedges
Other non-current accrued liabilities	$	(25)	$	(6)

Note ~~10.~~11. Accrued and Other Current Liabilities

The components of total Accrued and other current liabilities are as follows:


(in millions)	(in millions)	September 30, 2022		December 31, 2021		(in millions)	June 30, 2023		December 31, 2022
Compensation and other employee-benefits	Compensation and other employee-benefits	$	246	$	273	Compensation and other employee-benefits	$	320	$	285
Customer-related liabilities	Customer-related liabilities	195		186		Customer-related liabilities	333		210
Accrued taxes	Accrued taxes	136		86		Accrued taxes	119		186
Lease liabilities	Lease liabilities	63		69		Lease liabilities	97		69
Accrued warranty costs	Accrued warranty costs	35		40		Accrued warranty costs	43		37
Other accrued liabilities	Other accrued liabilities	153		98		Other accrued liabilities	162		80
Total accrued and other current liabilities	Total accrued and other current liabilities	$	828	$	752	Total accrued and other current liabilities	$	1,074	$	867

1721

Note ~~11.~~12. Credit Facilities and Debt

Total debt outstanding is summarized as follows:


(in millions)	(in millions)	September 30, 2022		December 31, 2021		(in millions)	June 30, 2023		December 31, 2022
2.250% Senior Notes due 2023 (a)		483		564

3.250% Senior Notes due 2026 (a)	3.250% Senior Notes due 2026 (a)	500		500		3.250% Senior Notes due 2026 (a)	500		500
1.950% Senior Notes due 2028 (a)	1.950% Senior Notes due 2028 (a)	500		500		1.950% Senior Notes due 2028 (a)	500		500
2.250% Senior Notes due 2031 (a)	2.250% Senior Notes due 2031 (a)	500		500		2.250% Senior Notes due 2031 (a)	500		500
4.375% Senior Notes due 2046 (a)	4.375% Senior Notes due 2046 (a)	400		400		4.375% Senior Notes due 2046 (a)	400		400
Equipment Financing due 2023 to 2032						Equipment Financing due 2023 to 2032	126		—
Securitization Facility due 2024						Securitization Facility due 2024	150		—

Term loan						Term loan	275		—
Commercial Paper						Commercial Paper	75		—
Debt issuance costs and unamortized discount (b)	Debt issuance costs and unamortized discount (b)	(20)		(24)		Debt issuance costs and unamortized discount (b)	(19)		(20)

Total debt	Total debt	2,363		2,440		Total debt	2,507		1,880
Less: short-term borrowings and current maturities of long-term debt	Less: short-term borrowings and current maturities of long-term debt	483		—		Less: short-term borrowings and current maturities of long-term debt	240		—
Total long-term debt	Total long-term debt	$	1,880	$	2,440	Total long-term debt	$	2,267	$	1,880

(a)The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due ~~2023~~2026 was ~~$477~~$471 million and ~~$577~~$470 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, respectively. The fair value of our Senior Notes due 2026 was $465 million and $537 million as of September 30,~~ 2022 ~~and December 31, 2021~~ respectively. The fair value of our Senior Notes due 2028 was ~~$424~~$440 million and ~~$497~~$430 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The fair value of our Senior Notes due 2031 was ~~$400~~$416 million and ~~$496~~$406 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The fair value of our Senior Notes due 2046 was ~~$332~~$339 million and ~~$481~~$333 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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

Senior Notes

On June 26, 2020, we issued 1.950% Senior Notes of $500 million aggregate principal amount due January 2028 (the “Senior Notes due 2028”) and 2.250% Senior Notes of $500 million aggregate principal amount due January 2031 (the “Senior Notes due 2031" and, together with the Senior Notes due 2028, the “Green Bond”).

The Green Bond includes covenants that restrict our ability, and the ability of our restricted subsidiaries, to incur debt secured by liens on certain property above a threshold, to engage in certain sale and leaseback transactions involving certain property above a threshold, and to consolidate or merge, or convey or transfer all or substantially all of our assets. We may redeem the Green Bond at any time, at our option, subject to certain conditions, at specified redemption prices, plus accrued and unpaid interest to the redemption date.

If a change of control triggering event (as defined in the applicable Green Bond indenture) occurs, we will be required to make an offer to purchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase.

Interest on the Green Bond is payable on January 30 and July 30 of each year. As of ~~September~~June 30, ~~2022,~~2023, we are in compliance with all covenants for the Green Bond.

On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023 (the "Senior Notes due 2023"). On October 11, 2016, we issued 3.250% Senior Notes of $500 million aggregate principal amount due October 2026 (the “Senior Notes due 2026”) and 4.375% Senior Notes of $400 million aggregate principal amount due October 2046 (the “Senior Notes due 2046” and, together with the Senior Notes due 2021, the Senior Notes due 2023 and the Senior Notes due 2026, the “Senior Notes”).On December 12th, 2022 our Senior Notes due 2023 were settled with cash on hand for a total of $527 million.

The Senior Notes include covenants that restrict our ability, and the ability of our restricted subsidiaries, to incur debt secured by liens on certain property above a threshold, to engage in certain sale and leaseback transactions involving certain property above a threshold, and to consolidate or merge, or convey or transfer all or substantially all of our assets. We may redeem the Senior Notes, as applicable, in whole or in part, at any time at a redemption

price equal to the principal amount of the Senior Notes to be redeemed, plus a make-whole premium. We may also redeem the Senior Notes in certain other circumstances, as set forth in the applicable Senior Notes indenture.

If a change of control triggering event (as defined in the applicable Senior Notes indenture) occurs, we will be required to make an offer to purchase the Senior Notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase.

Interest on the Senior Notes due ~~2021 was payable on April 1 and October 1 of each year. Interest on the Senior Notes due 2023 is payable on March 11 of each year. Interest on the Senior Notes due~~ 2026 and the Senior Notes due 2046 is payable on May 1 and November 1 of each year. As of ~~September~~June 30, ~~2022,~~2023, we are in compliance with all covenants for the Senior Notes.

Credit Facilities

2019 Five-Year Revolving Credit Facility

On March 5, 2019, Xylem entered into a Five-Year Revolving Credit Facility (the “2019 Credit Facility”) with Citibank, N.A., as Administrative Agent, and a syndicate of lenders. The 2019 Credit Facility ~~provides~~provided for an aggregate principal amount of up to $800 million (available in U.S. Dollars and in Euros), with increases of up to $200 million for a maximum aggregate principal amount of $1 billion at the request of Xylem and with the consent of the institutions providing such increased commitments. On March 1, 2023, Xylem terminated the 2019 Credit Facility among the Company, certain lenders and Citibank, N.A. as Administrative Agent as a result of signing the 2023 Five-Year Revolving Credit Facility.

2023 Five-Year Revolving Credit Facility

On March 1, 2023, Xylem entered into a five year revolving credit facility (the "2023 Credit Facility") with Citibank, N.A., as Administrative Agent, and a syndicate of lenders. The 2023 Credit Facility provides for an aggregate principal amount of up to $1 billion (available in U.S. Dollars and in Euros), with increases of up to $300 million for a maximum aggregate principal amount of $1.3 billion at the request of Xylem and with the consent of the institutions providing such increased commitments.

Interest on all loans under the ~~2019~~2023 Credit Facility is payable either quarterly or at the expiration of any ~~LIBOR~~Term SOFR or EURIBOR interest period applicable thereto. Borrowings accrue interest at a rate equal to, at Xylem's election, a base rate or an adjusted ~~LIBOR~~Term SOFR or EURIBOR rate plus an applicable margin. The ~~2019~~2023 Credit Facility includes customary provisions for implementation of replacement rates for ~~LIBOR-based~~Term SOFR-based and EURIBOR-based loans. The ~~2019~~2023 Credit Facility also includes a pricing grid that determines the applicable margin based on Xylem's credit rating, with a further adjustment ~~depending~~based on Xylem's ~~annual Sustainalytics~~achievement of certain Environmental, Social and Governance ("ESG") ~~score, determined based on the methodology in effect as of March 5, 2019.~~key performance indicators. Xylem will also pay quarterly fees to each lender for such ~~lender’s~~lender's commitment to lend accruing on such commitment at a rate based on ~~our~~Xylem's credit rating, whether such commitment is used or unused, as well as a quarterly letter of credit fee accruing on the letter of credit exposure of such lender during the preceding quarter at a rate based on the credit rating of Xylem ~~(as adjusted for the~~with a further adjustment based on Xylem's achievement of certain ESG ~~score).~~ key performance indicators.

The ~~2019~~2023 Credit Facility requires that Xylem maintain a consolidated total debt to consolidated EBITDA ratio (or maximum leverage ratio), which will be based on the last four fiscal ~~quarters;~~quarters. In accordance with the terms of the agreement to the 2023 Credit Facility, Xylem may not exceed a maximum leverage ratio of 4.00 to 1.00 for a period of four consecutive fiscal quarters beginning with the fiscal quarter during which a material acquisition is consummated and ina maximum leverage ratio of 3.50 to 1.00 thereafter for a minimum of four fiscal quarters before another material acquisition is consummated. In addition, the 2023 Credit Facility contains a number of customary covenants, including limitations on the incurrence of secured debt and debt of subsidiaries, liens, sale and lease-back transactions, mergers, consolidations, liquidations, dissolutions and sales of assets. The ~~2019~~2023 Credit Facility also contains customary events of default. Finally, Xylem has the ability to designate subsidiaries that can borrow under the ~~2019~~2023 Credit Facility, subject to certain requirements and conditions set forth in the ~~2019~~2023 Credit Facility. As of ~~September~~June 30, ~~2022,~~2023, the ~~2019~~2023 Credit Facility was undrawn and we are in compliance with all revolver covenants. The 2023 Credit Facility has availability of $925 million, comprised of the $1 billion aggregate principal, less $75 million of U.S. Dollar commercial paper outstanding as of June 30, 2023.

Term Loan Facility

On May 9, 2023, the Company’s subsidiary, Xylem Europe GmbH (the “borrower”) entered into a twenty four-month €250 million (approximately $273 million) term loan facility (the “Term Facility”) the terms of which are set forth in a term loan agreement, among the borrower, the Company, as parent guarantor and ING Bank. The Company has entered into a parent guarantee in favor of ING Bank also dated May 9, 2023 to secure all present

and future obligations of the borrower under the Term Loan Agreement. The net cash proceeds were used to repay a portion of Evoqua’s indebtedness pursuant to the Merger Agreement.

Equipment Financing

As a result of the Evoqua acquisition, the Company has secured financing agreements that require providing a security interest in specified equipment and, in some cases, the underlying contract and related receivables. As of June 30, 2023, the gross and net amounts of those assets are included on the Consolidated Balance Sheets as follows:


	June 30, 2023
(in millions)	Gross		Net
Property, plant, and equipment, net	$	76	$	75
Receivables, net	2		2
Prepaid and other current assets	4		4
Other non-current assets	55		54
	$	137	$	135

Commercial Paper

U.S. Dollar Commercial Paper Program

Our U.S. Dollar commercial paper program generally serves as a means of short-term funding with a $600 million maximum issuing balance and a combined limit of ~~$800 million~~$1 billion inclusive of the ~~2019~~2023 Credit Facility. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, $75 million and none of the Company's $600 million U.S. Dollar commercial paper program was ~~outstanding.~~outstanding, respectively. The net cash proceeds from issuance of commercial paper were used to repay a portion of Evoqua’s indebtedness pursuant to the Merger Agreement. We have the ability to continue borrowing under this program going forward in future periods.

Euro Commercial Paper Program

On June 3, 2019, Xylem entered into a Euro commercial paper program with ING Bank N.V., as administrative agent, and a syndicate of dealers. The Euro commercial paper program provides for a maximum issuing balance of up to €500 million (approximately ~~$483~~$546 million) which may be denominated in a variety of currencies. The maximum issuing balance may be increased in accordance with the Dealer Agreement. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, none of the Company's Euro commercial paper program was outstanding. We have the ability to continue borrowing under this program going forward in future periods.

Receivables Securitization Program

On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”), now an indirect wholly-owned subsidiary of the Company, entered into an accounts receivable securitization program (the “Receivables Securitization Program”) consisting of, among other agreements, (i) a Receivables Financing Agreement (as amended, the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the lenders from time to time party thereto (the “Receivables Financing Lenders”), PNC Bank, National Association ("PNC"), as administrative agent, EWT LLC, as initial servicer, and PNC Capital Markets LLC, as structuring agent, pursuant to which the lenders have made available to Evoqua Finance a receivables finance facility in an amount up to $150 million, (ii) a Sale and Contribution Agreement (as amended, the “Sale and Contribution Agreement”) among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator (together with EWT LLC, the “Originators”), and (iii) a Performance Guaranty of Xylem Inc. dated as of May 24, 2023 (the “Performance Guaranty”) in favor of PNC and for the benefit of PNC and the other secured parties under the Receivables Financing Agreement that replaced the performance guaranty of EWT Holdings II Corp. and EWT Holdings III Corp dated as of April 1, 2021.

The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, and negative covenants, subject to certain cure periods in some cases, including the eligibility of the

receivables being sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of default, termination events, and servicer defaults.

On July 20, 2023, the Receivables Financing Agreement, the Sale and Contribution Agreement and the Performance Guaranty and the other transaction documents under the Receivables Financing Program were terminated and all outstanding obligations for principal, interest, and fees under the agreement were paid in full.

Note ~~12.~~13. Post-retirement Benefit Plans

The components of net periodic benefit cost for our defined benefit pension plans are as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
Domestic defined benefit pension plans:	Domestic defined benefit pension plans:									Domestic defined benefit pension plans:
Service cost	Service cost	$	1	$	1	$	2	$	2	Service cost	$	1	$	—	$	2	$	1
Interest cost	Interest cost	—		—		2		2		Interest cost	1		1		2		2
Expected return on plan assets	Expected return on plan assets	(1)		(2)		(4)		(5)		Expected return on plan assets	(2)		(1)		(3)		(3)

Amortization of net actuarial loss	Amortization of net actuarial loss	1		1		2		3		Amortization of net actuarial loss	—		—		—		1
Net periodic benefit cost	Net periodic benefit cost	$	1	$	—	$	2	$	2	Net periodic benefit cost	$	—	$	—	$	1	$	1
International defined benefit pension plans:	International defined benefit pension plans:									International defined benefit pension plans:
Service cost	Service cost	$	3	$	4	$	10	$	11	Service cost	$	1	$	4	$	3	$	7
Interest cost	Interest cost	4		2		11		8		Interest cost	4		3		8		7
Expected return on plan assets	Expected return on plan assets	(4)		(3)		(11)		(10)		Expected return on plan assets	(3)		(3)		(6)		(7)

Amortization of net actuarial loss		3		5		9		13
U.K. pension settlement expense		140		—		140		—
Amortization of actuarial (gain) loss										Amortization of actuarial (gain) loss	—		3		(1)		6

Net periodic benefit cost	Net periodic benefit cost	$	146	$	8	$	159	$	22	Net periodic benefit cost	$	2	$	7	$	4	$	13
Total net periodic benefit cost	Total net periodic benefit cost	$	147	$	8	$	161	$	24	Total net periodic benefit cost	$	2	$	7	$	5	$	14

The components of net periodic benefit cost, other than the service cost component ~~and the U.K, pension settlement expense~~ are included in the line item "Other non-operating income, net" in the Condensed Consolidated Income Statements.

The total net periodic benefit cost for other post-retirement employee benefit plans ~~was~~was less than $1 million, including net credits recognized into ~~other~~"Other comprehensive income (loss)" of less than $1 million, for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

We contributed ~~$15~~$9 million and ~~$16~~$10 million to our defined benefit plans ~~during~~for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Additional contributions ranging between approximately $3$10 million and $7$14 million ~~are~~are expected to be made during the remainder of ~~2022.~~

The Company initiated the process for a full buy-out of its largest defined benefit plan in the U.K. in 2019. During the first quarter of 2020, the Company purchased a bulk annuity policy as a plan asset to facilitate the termination and buy-out of the plan. The buyout was completed in September 2022, at which point the remaining benefit obligations were transferred to the insurer and we were relieved of any further obligation. As a result, we recorded a pension settlement charge of ~~£123 million (approximately $140 million), primarily consisting of unrecognized actuarial losses.~~

2023.

2025

Note ~~13.~~14. Equity

The following table shows the changes in stockholders' equity for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:
Common
Stock Capital in Excess of Par Value Retained
Earnings Accumulated Other
Comprehensive Loss Treasury Stock Non-Controlling Interest Total
Balance at January 1, 2022 $ 2 $ 2,089 $ 2,154 $ (371) $ (656) $ 8 $ 3,226
Net income — — 82 — — — 82
Other comprehensive loss, net — — — (6) — — (6)
Dividends declared ($0.30 per share) — — (55) — — — (55)
Stock incentive plan activity — 10 — — (6) — 4
Repurchase of common stock — — — — (45) — (45)
Balance at March 31, 2022 $ 2 $ 2,099 $ 2,181 $ (377) $ (707) $ 8 $ 3,206
Net income — — 112 — — — 112
Other comprehensive income, net — — — (71) — — (71)
Dividends declared ($0.30 per share) — — (55) — — — (55)
Stock incentive plan activity — 12 — — (1) — 11
Balance at June 30, 2022 $ 2 $ 2,111 $ 2,238 $ (448) $ (708) $ 8 $ 3,203
Net income — — 12 — — — 12
Other comprehensive loss, net — — — 49 — — 49
Distribution to minority shareholders — — — — — (1) (1)
Dividends declared ($0.30 per share) — — (53) — — — (53)
Stock incentive plan activity — 12 — — — — 12
Balance at September 30, 2022 $ 2 $ 2,123 $ 2,197 $ (399) $ (708) $ 7 $ 3,222


(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-Controlling Interest		Total
Balance at January 1, 2023	$	2	$	2,134	$	2,292	$	(226)	$	(708)	$	9	$	3,503


Net income	—		—		99		—		—		—		99
Other comprehensive income, net	—		—		—		35		—		—		35
Other activity	—		—		—		—		—		2		2
Dividends declared ($0.33 per share)	—		—		(60)		—		—		—		(60)
Stock incentive plan activity	—		18		—		—		(8)		—		10

Balance at March 31, 2023	$	2	$	2,152	$	2,331	$	(191)	$	(716)	$	11	$	3,589


Net income	—		—		92		—		—		—		92
Other comprehensive income, net	—		—		—		(35)		—		—		(35)
Issuance of common stock	1		6,120		—		—		—		—		6,121
Issuance of replacement equity awards			160		—		—		—		—		160
Dividends declared ($0.33 per share)	—		—		(79)		—		—		—		(79)
Stock incentive plan activity	—		63		—		—		(1)		—		62

Balance at June 30, 2023	$	3	$	8,495	$	2,344	$	(226)	$	(717)	$	11	$	9,910

2126

The following table shows the changes in stockholders' equity for the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


		Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Non-Controlling Interest		Total			Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-Controlling Interest		Total
Balance at January 1, 2021		$	2	$	2,037	$	1,930	$	(413)	$	(588)	$	8	$	2,976
Other		—		—		—		—		—		1		1
Balance at January 1, 2022																Balance at January 1, 2022	$	2	$	2,089	$	2,154	$	(371)	$	(656)	$	8	$	3,226

Net income	Net income	—		—		87		—		—		—		87		Net income	—		—		82		—		—		—		82
Other comprehensive loss, net	Other comprehensive loss, net	—		—		—		(13)		—		—		(13)		Other comprehensive loss, net	—		—		—		(6)		—		—		(6)
Dividends declared ($0.28 per share)		—		—		(50)		—		—		—		(50)
Dividends declared ($0.30 per share)																Dividends declared ($0.30 per share)	—		—		(55)		—		—		—		(55)
Stock incentive plan activity	Stock incentive plan activity	—		12		—		—		(7)		—		5		Stock incentive plan activity	—		10		—		—		(6)		—		4
Repurchase of common stock	Repurchase of common stock	—		—		—		—		(60)		—		(60)		Repurchase of common stock	—		—		—		—		(45)		—		(45)
Balance at March 31, 2021		$	2	$	2,049	$	1,967	$	(426)	$	(655)	$	9	$	2,946
Balance at March 31, 2022																Balance at March 31, 2022	$	2	$	2,099	$	2,181	$	(377)	$	(707)	$	8	$	3,206
Net income	Net income	—		—		113		—		—		—		113		Net income	—		—		112		—		—		—		112
Other comprehensive income, net	Other comprehensive income, net	—		—		—		28		—		—		28		Other comprehensive income, net	—		—		—		(71)		—		—		(71)
Dividends declared ($0.28 per share)		—		—		(51)		—		—		—		(51)
Dividends declared ($0.30 per share)																Dividends declared ($0.30 per share)	—		—		(55)		—		—		—		(55)
Stock incentive plan activity	Stock incentive plan activity	—		14		—		—		(1)		—		13		Stock incentive plan activity	—		12		—		—		(1)		—		11
Balance at June 30, 2021		$	2	$	2,063	$	2,029	$	(398)	$	(656)	$	9	$	3,049
Net income		—		—		114		—		—		—		114
Other comprehensive income, net		—		—		—		(24)		—		—		(24)
Balance at June 30, 2022																Balance at June 30, 2022	$	2	$	2,111	$	2,238	$	(448)	$	(708)	$	8	$	3,203

Dividends declared ($0.28 per share)		—		—		(51)		—		—		—		(51)
Stock incentive plan activity		—		14		—		—		—		—		14
Balance at September 30, 2021		$	2	$	2,077	$	2,092	$	(422)	$	(656)	$	9	$	3,102

2227

Note ~~14.~~15. Share-Based Compensation Plans

Share-based compensation expense was ~~$10~~$16 million and ~~$28~~$27 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, and $8$9 million and ~~$25~~$18 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. The unrecognized compensation expense related to our stock options, restricted stock units and performance share units was $7$13 million, ~~$31~~$62 million and ~~$15~~$19 million, respectively, at ~~September~~June 30, ~~2022~~2023 and is expected to be recognized over a weighted average period of 1.8, 1.9 and 2.2 years, respectively. The amount of cash received from the exercise of stock options was $6$40 million and ~~$15~~$3 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

On May 24, 2023, there were an additional 2.7 million of shares registered for issuance. As of June 30, 2023, there were approximately 5 million shares of common stock available for future awards.

Stock Option Grants

The following is a summary of the changes in outstanding stock options for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023:
Share units
(in thousands)
Weighted
Average
Exercise
Price / Share
Weighted Average
Remaining
Contractual
Term (Years)
Aggregate Intrinsic Value
(in millions)
Outstanding at January 1, 2022 1,827 $ 64.12 6.1 102
Granted 306 86.76
Exercised (101) 57.52
Forfeited and expired (39) 90.75
Outstanding at September 30, 2022 1,993 $ 67.41 6.1 $ 43
Options exercisable at September 30, 2022 1,387 $ 58.75 5.0 $ 41
Vested and expected to vest as of September 30, 2022 1,932 $ 66.76 5.9 $ 43


	Share units (in thousands)	Weighted Average Exercise Price / Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2023	1,935	$	67.55	5.9	$	83
Granted	2,153	38.13
Exercised	(1,412)	28.26
Forfeited and expired	(14)	98.95
Other	14	73.16
Outstanding at June 30, 2023	2,676	$	64.42	6.0	$	129
Options exercisable at June 30, 2023	1,979	$	58.18	5.1	$	108
Vested and expected to vest as of June 30, 2023	2,603	$	63.69	5.7	$	127

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$3.2~~$109 million.

Stock Option Fair Value

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for ~~2022~~2023 grants:


Volatility	~~26.20~~27.30		%
Risk-free interest rate	~~1.59~~4.25		%
Dividend yield	~~1.38~~1.31		%
Expected term (in years)	~~5.6~~5.4
Weighted-average fair value / share	$	~~19.86~~29.06

Expected volatility is calculated based on an analysis of historic volatility measures for Xylem. We use historical data to estimate option exercise and employee termination behavior within the valuation model. Employee groups and option characteristics are considered separately for valuation purposes. The expected term represents an estimate of the period of time options are expected to remain outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.

2328

Restricted Stock Unit Grants

The following is a summary of restricted stock unit activity for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The fair value of the restricted share unit awards is determined using the closing price of our common stock on date of grant:


		Share units (in thousands)	Weighted Average Grant Date Fair Value / Share			Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2022		484	$	88.47
Outstanding at January 1, 2023					Outstanding at January 1, 2023	553	$	88.88
Granted	Granted	344	86.76		Granted	1,005	103.29
Vested	Vested	(226)	84.73		Vested	(264)	101.43
Forfeited	Forfeited	(39)	90.96		Forfeited	(22)	95.65
Outstanding at September 30, 2022		563	$	88.76
Outstanding at June 30, 2023					Outstanding at June 30, 2023	1,272	$	96.05

~~ROIC~~Adjusted EBITDA Performance Share Unit Grants

As approved by the Leadership Development & Compensation Committee of the Company's Board of Directors, for the 2023-2025 performance period, the completion of the acquisition of Evoqua transitioned one of the performance share unit metrics from a pre-set, three-year adjusted Return on Invested Capital ("ROIC") performance target to a pre-set, third-year adjusted earnings before interest, taxes, depreciation and amortization expense (“EBITDA”) performance target for the combined company.

The following is a summary of ~~Return on Invested Capital ("ROIC") performance share unit~~our ROIC and EBITDA grants for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. The fair value of the ~~ROIC~~adjusted EBITDA performance share units is equal to the closing share price on the date of the grant:


		Share units (in thousands)	Weighted Average Grant Date Fair Value / Share			Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2022		177	$	84.84
Outstanding at January 1, 2023					Outstanding at January 1, 2023	146	$	88.78
Granted	Granted	35	86.76		Granted	33	101.11

Forfeited (a)	Forfeited (a)	(64)	76.60		Forfeited (a)	(66)	81.94
Outstanding at September 30, 2022		148	$	88.86
Outstanding at June 30, 2023					Outstanding at June 30, 2023	113	$	97.75

(a) Includes adjusted ROIC performance share unit awards forfeited during the period as a result of the final performance condition not being achieved on vest date.

TSR Performance Share Unit Grants

The following is a summary of our Total Shareholder Return ("TSR") performance share unit grants for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


		Share units (in thousands)	Weighted Average Grant Date Fair Value / Share			Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2022		177	$	102.96
Outstanding at January 1, 2023					Outstanding at January 1, 2023	178	$	100.67
Granted	Granted	70	71.14		Granted	66	109.57
Adjustment for Market Condition Achieved (a)	Adjustment for Market Condition Achieved (a)	22	89.62		Adjustment for Market Condition Achieved (a)	40	102.55
Vested	Vested	(75)	89.62		Vested	(102)	102.55
Forfeited	Forfeited	(13)	88.37		Forfeited	(4)	114.09
Outstanding at September 30, 2022		181	$	100.58
Outstanding at June 30, 2023					Outstanding at June 30, 2023	178	$	103.76

(a) Represents an increase in the number of original TSR performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.

2429

The fair value of TSR performance share units was 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. The following are weighted-average assumptions for ~~2022~~2023 grants:




Volatility	~~33.3~~35.9	%
Risk-free interest rate	~~1.44~~4.66	%

Revenue Performance Share Unit Grants

The following is a summary of our Revenue performance share unit grants for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


		Share units (in thousands)	Weighted Average Grant Date Fair Value / Share			Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2022		—	$	—
Outstanding at January 1, 2023					Outstanding at January 1, 2023	32	86.77
Granted	Granted	35	86.76		Granted	33	101.11

Forfeited	Forfeited	(2)	86.76		Forfeited	(1)	88.28
Outstanding at September 30, 2022		33	$	86.76
Outstanding at June 30, 2023					Outstanding at June 30, 2023	64	$	93.36

The fair value of the Revenue performance share unit awards is determined using the closing price of our common stock on date of grant. The shares will vest contingent upon the achievement of a pre-set, three-year Revenue target.

Note ~~15.~~16. Capital Stock

For the three and ~~nine~~six months ended ~~September~~June 30, 2023, the Company repurchased less than 0.1 million shares of common stock for approximately $1 million and approximately 0.1 million shares of common stock for $9 million, respectively. For the three and six months ended June 30, 2022, the Company repurchased less than 0.1 million shares of common stock for ~~less than $1~~$0.5 million and approximately 0.6 million shares of common stock for $52 million, respectively. For the three and nine months ended September 30, 2021, the Company repurchased less than 0.1 million shares of common stock for less than $1 million and approximately 0.7 million shares of common stock for $68 million, respectively. Repurchases include share repurchase programs approved by the Board of Directors and repurchases in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units. The details of repurchases by each program are as follows:

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 stockholders and maintains our focus on growth. There were no shares repurchased under the program for the three and six months ended ~~September~~June 30, ~~2022. For the nine months ended September 30, 2022, we repurchased 0.5 million shares for approximately $46 million.~~2023. There were no shares repurchased under the program for the three months ended ~~September~~June 30, ~~2021.~~2022. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we repurchased ~~approximately 0.6~~0.5 million shares for ~~$60~~approximately $46 million. There are up to $182 million in shares that may still be purchased under this plan as of ~~September~~June 30, ~~2022.~~2023.

Aside from the aforementioned repurchase program, we repurchased less than 0.1 million shares and approximately 0.1 million shares for ~~less than~~ $1 million and ~~approximately $6~~$9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units. Likewise, we repurchased less than 0.1 million shares and approximately 0.1 million shares for less than $1 million and $8approximately $6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively.~~2022.

Note ~~16.~~17. Accumulated Other Comprehensive Loss

The following table provides the components of AOCL for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


(in millions)	(in millions)	Foreign Currency Translation		Post-retirement Benefit Plans		Derivative Instruments		Total		(in millions)	Foreign Currency Translation		Post-retirement Benefit Plans		Derivative Instruments		Total
Balance at January 1, 2022		$	(101)	$	(268)	$	(2)	$	(371)
Balance at January 1, 2023										Balance at January 1, 2023	$	(180)	$	(41)	$	(5)	$	(226)
Foreign currency translation adjustment	Foreign currency translation adjustment	(3)		—		—		(3)		Foreign currency translation adjustment	22		—		—		22
Tax on foreign currency translation adjustment	Tax on foreign currency translation adjustment	(2)		—		—		(2)		Tax on foreign currency translation adjustment	5		—		—		5

Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net		—		4		—		4
Amortization of actuarial gain on post-retirement benefit plans into other non-operating income, net										Amortization of actuarial gain on post-retirement benefit plans into other non-operating income, net	—		(1)		—		(1)

Income tax impact on amortization of post-retirement benefit plan items	Income tax impact on amortization of post-retirement benefit plan items	—		(1)		—		(1)		Income tax impact on amortization of post-retirement benefit plan items	—		1		—		1
Unrealized loss on derivative hedge agreements		—		—		(6)		(6)
Unrealized gain on derivative hedge agreements										Unrealized gain on derivative hedge agreements	—		—		4		4
Income tax benefit on unrealized gain on derivative hedge agreements										Income tax benefit on unrealized gain on derivative hedge agreements	—		—		(1)		(1)

Reclassification of unrealized loss on foreign exchange agreements into revenue										Reclassification of unrealized loss on foreign exchange agreements into revenue	—		—		3		3
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue										Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—		—		2		2

Balance at March 31, 2023										Balance at March 31, 2023	$	(153)	$	(41)	$	3	$	(191)
Foreign currency translation adjustment										Foreign currency translation adjustment	(38)		—		—		(38)
Tax on foreign currency translation adjustment										Tax on foreign currency translation adjustment	9		—		—		9

Amortization of prior service credit and actuarial gain on post-retirement benefit plans into other non-operating income, net										Amortization of prior service credit and actuarial gain on post-retirement benefit plans into other non-operating income, net	—		(1)		—		(1)

Foreign currency translation adjustment for post-retirement benefit plans										Foreign currency translation adjustment for post-retirement benefit plans	—		(1)		—		(1)

Unrealized loss on derivative hedge agreements										Unrealized loss on derivative hedge agreements	—		—		(3)		(3)

Reclassification of unrealized gain on foreign exchange agreements into revenue	Reclassification of unrealized gain on foreign exchange agreements into revenue	—		—		2		2		Reclassification of unrealized gain on foreign exchange agreements into revenue	—		—		(1)		(1)

Balance at March 31, 2022		$	(106)	$	(265)	$	(6)	$	(377)
Foreign currency translation adjustment		(41)		—		—		(41)
Tax on foreign currency translation adjustment		(28)		—		—		(28)

Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net		—		4		—		4
Income tax impact on amortization of post-retirement benefit plan items		—		(1)		—		(1)
Balance at June 30, 2023										Balance at June 30, 2023	$	(182)	$	(43)	$	(1)	$	(226)

Unrealized gain on derivative hedge agreements		—		—		(9)		(9)
Income tax benefit on unrealized gain on derivative hedge agreements		—		—		1		1
Reclassification of unrealized loss on foreign exchange agreements into revenue		—		—		2		2
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue		—		—		1		1

Balance at June 30, 2022		$	(175)	$	(262)	$	(11)	$	(448)
Foreign currency translation adjustment		(74)		—		—		(74)
Tax on foreign currency translation adjustment		(28)		—		—		(28)

Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net		—		3		—		3

U.K. pension settlement expense		—		137		—		137
Foreign currency translation adjustment for post-retirement benefit plans				46		—		46
Income tax impact on amortization of post-retirement benefit plan items and U.K. pension settlement expense		—		(35)		—		(35)
Unrealized loss on derivative hedge agreements		—		—		(8)		(8)

Reclassification of unrealized loss on foreign exchange agreements into revenue		—		—		6		6
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue		—		—		2		2
Balance at September 30, 2022		$	(277)	$	(111)	$	(11)	$	(399)

2631

The following table provides the components of AOCL for the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


(in millions)	(in millions)	Foreign Currency Translation		Post-retirement Benefit Plans		Derivative Instruments		Total		(in millions)	Foreign Currency Translation		Post-retirement Benefit Plans		Derivative Instruments		Total
Balance at January 1, 2021		$	(86)	$	(330)	$	3	$	(413)
Balance at January 1, 2022										Balance at January 1, 2022	$	(101)	$	(268)	$	(2)	$	(371)

Foreign currency translation adjustment	Foreign currency translation adjustment	10		—		—		10		Foreign currency translation adjustment	(3)		—		—		(3)
Tax on foreign currency translation adjustment	Tax on foreign currency translation adjustment	(14)		—		—		(14)		Tax on foreign currency translation adjustment	(2)		—		—		(2)

Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net		—		5		—		5
Amortization of actuarial loss on post-retirement benefit plans into other non-operating income, net										Amortization of actuarial loss on post-retirement benefit plans into other non-operating income, net	—		4		—		4

Income tax impact on amortization of post-retirement benefit plan items	Income tax impact on amortization of post-retirement benefit plan items	—		(1)		—		(1)		Income tax impact on amortization of post-retirement benefit plan items	—		(1)		—		(1)
Unrealized loss on derivative hedge agreements	Unrealized loss on derivative hedge agreements	—		—		(11)		(11)		Unrealized loss on derivative hedge agreements	—		—		(6)		(6)
Income tax benefit on unrealized loss on derivative hedge agreements		—		—		1		1

Reclassification of unrealized gain on foreign exchange agreements into revenue		—		—		(2)		(2)
Reclassification of unrealized gain on foreign exchange agreements into cost of revenue		—		—		(1)		(1)

Balance at March 31, 2021		$	(90)	$	(326)	$	(10)	$	(426)

Foreign currency translation adjustment		19		—		—		19
Tax on foreign currency translation adjustment		1		—		—		1

Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net		—		5		—		5

Income tax impact on amortization of post-retirement benefit plan items		—		(2)		—		(2)
Unrealized gain on derivative hedge agreements		—		—		4		4

Reclassification of unrealized loss on foreign exchange agreements into revenue	Reclassification of unrealized loss on foreign exchange agreements into revenue	—		—		1		1		Reclassification of unrealized loss on foreign exchange agreements into revenue	—		—		2		2

Balance at June 30, 2021		$	(70)	$	(323)	$	(5)	$	(398)

Balance at March 31, 2022										Balance at March 31, 2022	$	(106)	$	(265)	$	(6)	$	(377)
Cumulative effect of change in accounting principle										Cumulative effect of change in accounting principle							—
Foreign currency translation adjustment	Foreign currency translation adjustment	(19)		—		—		(19)		Foreign currency translation adjustment	(41)		—		—		(41)
Tax on foreign currency translation adjustment	Tax on foreign currency translation adjustment	(10)		—		—		(10)		Tax on foreign currency translation adjustment	(28)		—		—		(28)

Changes in post-retirement benefit plans										Changes in post-retirement benefit plans							—
Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net	Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net	—		5		—		5		Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income, net	—		4		—		4
Other non-operating income										Other non-operating income							—
Income tax impact on amortization of post-retirement benefit plan items	Income tax impact on amortization of post-retirement benefit plan items	—		(1)		—		(1)		Income tax impact on amortization of post-retirement benefit plan items	—		(1)		—		(1)
Unrealized gain on derivative hedge agreements	Unrealized gain on derivative hedge agreements	—		—		(1)		(1)		Unrealized gain on derivative hedge agreements	—		—		(9)		(9)
Reclassification of unrealized gain on foreign exchange agreements into revenue		—		—		2		2
Income tax benefit on unrealized gain on derivative hedge agreements										Income tax benefit on unrealized gain on derivative hedge agreements	—		—		1		1
Reclassification of unrealized loss on foreign exchange agreements into revenue										Reclassification of unrealized loss on foreign exchange agreements into revenue	—		—		2		2
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue										Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—		—		1		1
Balance at June 30, 2022										Balance at June 30, 2022	$	(175)	$	(262)	$	(11)	$	(448)

Balance at September 30, 2021		$	(99)	$	(319)	$	(4)	$	(422)

Note ~~17.~~18. Commitments and Contingencies

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 entities). These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government contract issues and commercial or contractual disputes.

See Note 5,6, "Income Taxes," of our condensed consolidated financial statements for a description of a pending tax litigation matter.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claims, we do not believe it is reasonably possible that any asserted or unasserted legal claims or proceedings, individually or in aggregate, will have a material adverse effect on our results of operations, or financial condition. We have estimated and accrued $5$12 million and $4$5 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, for these general legal matters.

Guarantees

We obtain certain stand-by letters of credit, bank guarantees, surety bonds and insurance letters of credit from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance-related requirements. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the amount of surety bonds, bank guarantees, insurance letters of credit, stand-by letters of credit as well as revenue and customs guarantees was ~~$435~~$716 million and ~~$415~~$451 million, respectively.

Environmental

In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of sites in various countries. These sites are in various stages of investigation and/or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned and/or operated by Xylem or for which we are responsible, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations.

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 accrued liabilities for these environmental matters represent our best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees. These estimates, and related accruals, are reviewed quarterly and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. Liabilities for these environmental expenditures are recorded on an undiscounted basis. We have estimated and accrued $4 million~~and$3 million~~ as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 for environmental matters.

It is difficult to estimate the final costs of investigation and remediation due to various factors, including incomplete information regarding particular sites and other potentially responsible parties, uncertainty regarding the extent of investigation or remediation and our share, if any, of liability for such conditions, the selection of alternative remedial approaches, and changes in environmental standards and regulatory requirements. We believe the total amount accrued is reasonable based on existing facts and circumstances.

Warranties

We warrant numerous products, the terms of which vary widely. In general, we warrant products against defect and specific non-performance. The table below provides changes in the combined current and non-current product warranty accruals over each period:


(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
Warranty accrual – January 1	Warranty accrual – January 1	$	57	$	65	Warranty accrual – January 1	$	54	$	57
Net charges for product warranties in the period	Net charges for product warranties in the period	18		23		Net charges for product warranties in the period	13		11
Net Evoqua additions						Net Evoqua additions	10		—
Settlement of warranty claims	Settlement of warranty claims	(19)		(25)		Settlement of warranty claims	(13)		(12)
Foreign currency and other	Foreign currency and other	(4)		(1)		Foreign currency and other	—		(2)
Warranty accrual - September 30		$	52	$	62
Warranty accrual - June 30						Warranty accrual - June 30	$	64	$	54

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Note ~~18.~~19. Segment Information

Our business has ~~three~~four reportable segments: Water Infrastructure, Applied Water, ~~and~~ Measurement & Control ~~Solutions.~~Solutions and Integrated Solutions & Services. The Water Infrastructure segment focuses on the transportation and treatment of water, offering a range of products including water, wastewater and storm water pumps, treatment equipment, and controls and systems. The Water Infrastructure segment also includes Applied Product Technologies (APT) from the Evoqua acquisition. APT provides a range of highly differentiated and scalable products and technologies with product offerings in the filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology, and aquatics technologies and solutions spaces. 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. As a result of the Evoqua acquisition, Xylem has a new segment for Integrated Solutions and Services. This segment provides tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse, and emergency response service alternatives to improve operational reliability, performance, and environmental compliance. Key offerings within this segment also include equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment, and recycle / reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services.

Additionally, we have Regional selling locations, which consist primarily of selling and marketing organizations and related support services, that offer products and services across our reportable segments. Corporate and other consists of corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs, as well as charges related to certain matters, such as environmental matters, that are managed at a corporate level and are not included in the business segments in evaluating performance or allocating resources.

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The accounting policies of each segment are the same as those described in the Summary of Significant Accounting Policies section of Note 1 in the ~~2021~~2022 Annual Report. The following table contains financial information for each reportable segment:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
Revenue:	Revenue:									Revenue:
Water Infrastructure	Water Infrastructure	$	574	$	547	$	1,696	$	1,625	Water Infrastructure	$	704	$	589	$	1,293	$	1,122
Applied Water	Applied Water	458		400		1,312		1,207		Applied Water	478		429		931		854
Measurement & Control Solutions	Measurement & Control Solutions	348		318		1,008		1,040		Measurement & Control Solutions	415		346		821		660
Integrated Solutions & Services										Integrated Solutions & Services	125		—		125		—
Total	Total	$	1,380	$	1,265	$	4,016	$	3,872	Total	$	1,722	$	1,364	$	3,170	$	2,636
Operating Income (Loss):	Operating Income (Loss):									Operating Income (Loss):
Water Infrastructure	Water Infrastructure	$	104	$	101	$	286	$	265	Water Infrastructure	$	106	$	108	$	176	$	182
Applied Water	Applied Water	77		60		197		190		Applied Water	84		61		167		120
Measurement & Control Solutions	Measurement & Control Solutions	(2)		7		(17)		29		Measurement & Control Solutions	26		(5)		46		(15)
Integrated Solutions & Services										Integrated Solutions & Services	(7)		—		(7)		—
Corporate and other	Corporate and other	(11)		(16)		(41)		(39)		Corporate and other	(90)		(18)		(132)		(30)
Total operating income	Total operating income	$	168	$	152	$	425	$	445	Total operating income	$	119	$	146	$	250	$	257
Interest expense	Interest expense	$	12	$	21	$	37	$	63	Interest expense	$	12	$	12	$	21	$	25
U.K. pension settlement expense		140		—		140		—

Other non-operating income, net	Other non-operating income, net	1		2		2		1		Other non-operating income, net	7		2		11		1
Gain from sale of business	Gain from sale of business	—		—		1		2		Gain from sale of business	—		—		—		1
Income before taxes	Income before taxes	$	17	$	133	$	251	$	385	Income before taxes	$	114	$	136	$	240	$	234
Depreciation and Amortization:	Depreciation and Amortization:									Depreciation and Amortization:
Water Infrastructure	Water Infrastructure	$	12	$	12	$	39	$	38	Water Infrastructure	$	24	$	14	$	38	$	27
Applied Water	Applied Water	4		5		14		17		Applied Water	5		5		10		10
Measurement & Control Solutions	Measurement & Control Solutions	35		38		103		111		Measurement & Control Solutions	35		34		69		68
Integrated Solutions & Services										Integrated Solutions & Services	20		—		20		—
Regional selling locations (a)	Regional selling locations (a)	5		6		14		15		Regional selling locations (a)	6		4		11		9
Corporate and other	Corporate and other	2		1		6		5		Corporate and other	2		2		4		4
Total	Total	$	58	$	62	$	176	$	186	Total	$	92	$	59	$	152	$	118
Capital Expenditures:	Capital Expenditures:									Capital Expenditures:
Water Infrastructure	Water Infrastructure	$	19	$	18	$	49	$	42	Water Infrastructure	$	18	$	13	$	32	$	30
Applied Water	Applied Water	6		4		14		11		Applied Water	7		5		15		8
Measurement & Control Solutions	Measurement & Control Solutions	19		19		61		60		Measurement & Control Solutions	14		21		32		43
Integrated Solutions & Services										Integrated Solutions & Services	6		—		6		—
Regional selling locations (b)	Regional selling locations (b)	5		4		15		12		Regional selling locations (b)	5		5		11		10
Corporate and other	Corporate and other	4		2		9		2		Corporate and other	4		2		7		4
Total	Total	$	53	$	47	$	148	$	127	Total	$	54	$	46	$	103	$	95

(a)Depreciation and amortization expense incurred by the Regional selling locations was included in an overall allocation of Regional selling location costs to the segments; however, a certain portion of that expense was not specifically identified to a segment. That expense is captured in this Regional selling location line.

(b)Represents capital expenditures incurred by the Regional selling locations not allocated to the segments.

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ITEM 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements, including the notes, included elsewhere in this report on Form 10-Q (this "Report").

This Report contains “forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” "contemplate," "predict," “forecast,” “likely,” “believe,” “target,” “will,” “could,” “would,” “should,” "potential," "may" and similar expressions or their negative, may, but are not necessary to, identify forward-looking statements. By their nature, forward-looking statements address uncertain matters and include any statements ~~that~~that: are not historical, such as statements about our strategy, financial plans, outlook, objectives, plans, intentions or goals (including those related to our social, environmental and other sustainability goals); or address possible or future results of operations or financial performance, including statements relating to orders, revenues, operating margins and earnings per share growth.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Additionally, many of these risks and uncertainties are, and may continue to be, amplified by impacts from changes in international conditions, including as a result of the war between Russia and Ukraine, coronavirus (“COVID-19”) pandemic and macroeconomic conditions, including inflation. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include, among others, the following: the impact of overall industry and general economic conditions, including industrial, governmental, and public and private sector spending, inflation, interest rates and related monetary policy by governments in response to inflation, and the strength of the residential and commercial real estate markets, on economic activity and our operations; geopolitical events, including the war between Russia and Ukraine, and regulatory, economic and other risks associated with our global sales and operations, including with respect to domestic content requirements applicable to projects with governmental funding; ~~continued uncertainty around~~ the ~~ongoing impacts~~global impact of the COVID-19 pandemic on the macroeconomy and our business, operations, growth, and financial condition; actual or potential other epidemics, pandemics or global health crises; availability, shortage or delays in receiving electronic components (in particular, semiconductors), parts and raw materials from our supply chain; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, energy supply, supply chain shortages, logistics challenges, tight labor markets, prevailing price changes, tariffs and other factors; demand for our ~~products;~~products, disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents or other disruptions of information technology systems on which we ~~rely,~~rely; or involving our products; disruptions in operations at our facilities or that of third parties upon which we rely; failure to successfully execute large projects, including with respect to meeting performance guarantees and customers’ safety requirements; our ability to retain and attract senior management and other diverse and key talent, as well as competition for overall talent and labor; difficulty predicting our financial results; defects, security, warranty and liability claims, and recalls with respect to products; safe and compliant handling of wastewater and hazardous materials;availability, regulation or interference with radio spectrum used by certain of our products; uncertainty related to restructuring and realignment actions and related costs and savings; our ability to continue strategic investments for growth; our ability to successfully identify, execute and integrate acquisitions; volatility in served markets or impacts on our business and operations due to weather conditions, including the effects of climate change; fluctuations in foreign currency exchange rates; our ability to borrow or refinance our existing indebtedness, and uncertainty around the availability of liquidity sufficient to meet our needs; risk of future impairments to goodwill and other intangible assets; failure to comply with, or changes in, laws or regulations, including those pertaining to anti-corruption, data privacy and security, export and import, our products, competition, and the environment and climate change; changes in our effective tax rates or tax expenses; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; risks related to our recently completed acquisition of Evoqua, including related to our ability to retain and hire key personnel, the realization of expected benefits and synergies, the need to incur additional or unexpected costs, charges or expenses associated with the integration of the combined companies, delays or challenges with the integration, potential adverse reactions or changes to relationships with customers, suppliers, distributors and other business partners, competitive responses to the acquisition, actual or potential litigation and associated costs and expenses, and impacts to our share price and dilution of shareholders’ ownership; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 ("~~2021~~2022 Annual Report") and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

Forward-looking and other statements in this Report regarding our environmental and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or are required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking social, environmental and ~~sustainability related~~sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. All forward-looking statements made herein are based on information currently available to us as of the date of

this Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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~~solutions settings. Our broad portfolio of solutions addresses customer needs of scarcity, resilience, and affordability across the water cycle, from the delivery, measurement and use of drinking water to the collection, test, treatment and analysis of wastewater to the return of water to the environment. Our product and service offerings are organized into ~~three~~four reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, ~~and~~ Measurement & Control ~~Solutions.~~Solutions and Integrated Solutions & Services.

•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, 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. The Water Infrastructure segment also includes legacy-Evoqua's Applied Product Technologies (APT) segment. APT provides a range of highly differentiated and scalable products and technologies with product offerings in the filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology, and aquatics technologies and solutions spaces.

•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~~solutions 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~~capabilities 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~~and outdoor 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 and Macroeconomic Conditions~~

Our markets and operations have largely demonstrated resilience against the effects of the pandemic. However, we have experienced, and may continue to experience, shortages in the supply of components, including electronics, particularly semiconductors ("chips"), parts and raw materials. For example, China has adopted and continues to rely upon a “zero-COVID” policy pursuant to which it has declared a number of total and partial lockdowns in cities throughout China that has, and may continue to adversely affect the global supply chain. Chip supply has modestly improved in each successive quarter in 2022, which we expect to continue through the fourth quarter assuming no new unforeseen impacts to the global supply chain.

3237

~~In addition~~•Integrated Solutions & Services provides tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse, and emergency response service alternatives to ~~impacts on our supply chain, we have~~improve operational reliability, performance, and environmental compliance. Key offerings within this segment also ~~experienced,~~include equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment, and ~~continue to experience other impacts~~recycle / reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services.

Evoqua Acquisition

On May 24, 2023, Xylem completed the acquisition of Evoqua. Commencing from the ~~macroeconomic conditions, including increased inflation~~acquisition date, Xylem’s financial statements include the assets, liabilities, operating results and cash flows of ~~materials~~Evoqua. Refer to Note 3, "Acquisitions and ~~labor, energy, overhead, freight~~Divestitures," for additional information.

Coinciding with the Evoqua acquisition, Xylem has updated our adjusted operating income and ~~logistics costs,~~adjusted earnings per share to add back non-cash purchase accounting intangible amortization and are engaging in various mitigation strategies and activities, including productivity and price realization efforts. Specifically, our productivity efforts include selective chip allocation, product redesigns, alternate sourcing options, and global procurement effortsrecast 2022 amounts to ~~mitigate inflationary impacts. We have also initiated restructuring plans to further optimize our cost structure.~~

~~Risks related to~~reflect the ~~pandemic, supply chain and macroeconomic issues, including inflation, are described in further detail under "Item 1A. Risk Factors" in the Company's 2021 Annual Report.~~change on a comparative basis.

Executive Summary

Xylem reported revenue for the ~~third~~second quarter of ~~2022~~2023 of ~~$1,380~~$1,722 million, an increase of ~~9.1%~~26.2% compared to ~~$1,265~~$1,364 million reported in the ~~third~~second quarter of ~~2021. On a constant currency basis,~~2022. The revenue ~~increased by $195 million, or 15.4%~~increase consisted of strong organic growth of 14.6%, driven by ~~organic~~strong revenue ~~growth in all end markets. These results were driven by organic growth~~performance across ~~all~~the segments and in all ~~end markets.~~of our major geographic regions, and increased revenue from the Evoqua acquisition of 13.0%, which was marginally offset by currency translation headwinds of 1.4%.

We generated operating income of ~~$168~~$119 million (margin of ~~12.2%~~6.9%) during the ~~third~~second quarter of ~~2022,~~2023, as compared to ~~$152~~$146 million (margin of ~~12.0%~~10.7%) in ~~2021.~~2022. Operating income in the ~~third~~second quarter of ~~2022~~2023 included an increase in special charges of ~~$13~~$66 million and an unfavorable impact from increased restructuring and realignment costs of $6$29 million and an unfavorable increase to intangible amortization from acquisitions of $18 million as compared to the ~~third~~second quarter of ~~2021.~~2022. Excluding the impact of special charges, ~~and~~ restructuring and realignment costs and intangible amortization from acquisitions, adjusted operating income was ~~$187~~$259 million (adjusted margin of ~~13.6%~~15.0%) during the ~~third~~second quarter of ~~2022~~2023 as compared to ~~$155~~$173 million (adjusted margin of ~~12.3%~~12.7%) in ~~2021.~~2022. The increase in adjusted operating margin was primarily ~~related~~due to price realization, productivity savings and favorable ~~volume,~~volume. These impacts were partially offset by inflation, ~~increased~~ spending on strategic investments, unfavorable mix, and ~~unfavorable mix.~~inventory management costs.

Additional financial highlights for the quarter ended ~~September~~June 30, ~~2022~~2023 include the following:

•Orders of ~~$1,419~~$1,856 million, ~~down 6.5%~~up 10.2% from ~~$1,518~~$1,684 million in the prior year period, and down ~~0.7%~~1.6% on an organic basis.

•Earnings per share of ~~$0.07,~~$0.45, down ~~88.9%~~27.4% compared to prior year ($~~0.79,~~0.98, up ~~25.4%~~32.4% versus prior year, on an adjusted basis).

•Net income as a percent of revenue of ~~.87%~~5.3%, down ~~813~~290 basis points compared to ~~9.0%~~8.2% in the prior year. EBITDA margin of ~~5.9%~~12.3%, down ~~1,110~~280 basis points when compared to ~~17.0%~~15.1% in the prior year ~~(18.3%~~(EBITDA margin of 19.1% on an adjusted basis, up 40250 basis points)

•Net cash flow generated in operating activities of $234 million for the nine months ended September 30, 2022, a decrease of $84 million during the same period of the prior year. Free cash flow of $86 million, down $105 million from the prior year.

3338

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 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 measures reported by other 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, ~~special charges,~~amortization of acquired intangible assets, gain or loss from the sale of businesses, special charges and tax-related special items, as applicable. A reconciliation of adjusted net income and adjusted earnings per share is provided below.


		Three Months Ended									Nine Months Ended									Three Months Ended									Six Months Ended
		September 30,									September 30,									June 30,									June 30,
(in millions, except for per share data)	(in millions, except for per share data)	2022					2021				2022				2021				(in millions, except for per share data)	2023					2022				2023					2022
Net income & Earnings per share	Net income & Earnings per share	$	12		$	0.07	$	114	$	0.63	$	206	$	1.14	$	314	$	1.73	Net income & Earnings per share	$	92		$	0.45	$	112	$	0.62	$	191		$	0.98	$	194	$	1.07
Restructuring and realignment	Restructuring and realignment	6			0.03		2		0.01		18		0.10		16		0.09		Restructuring and realignment	37			0.18		8		0.04		48			0.25		12		0.07
Acquired intangible amortization																			Acquired intangible amortization	36			0.17		18		0.10		54			0.28		36		0.20
Special charges	Special charges	154		(b)	0.84		2		0.01		159		0.88		8		0.04		Special charges	67		(a)	0.33		3		0.02		92		(a)	0.47		5		0.03

Tax-related special items																			Tax-related special items	—			—		(1)		(0.01)		—			—		(2)		(0.01)
(Gain) loss from sale of business	(Gain) loss from sale of business	—			—		—		—		(1)		(0.01)		(2)		(0.01)		(Gain) loss from sale of business	—			—		—		—		—			—		(1)		(0.01)
Tax effects of adjustments (a)		(28)		(c)	(0.15)		(1)		(0.01)		(34)		(0.19)		1		(0.02)
Tax effects of adjustments (b)																			Tax effects of adjustments (b)	(30)			(0.15)		(6)		(0.03)		(39)			(0.20)		(13)		(0.07)
Adjusted net income & Adjusted earnings per share	Adjusted net income & Adjusted earnings per share	$	144		$	0.79	$	116	$	0.63	$	348	$	1.92	$	337	$	1.86	Adjusted net income & Adjusted earnings per share	$	202		$	0.98	$	134	$	0.74	$	346		$	1.78	$	231	$	1.28


(a) The special charges primarily relate to acquisition and integration costs related to the Evoqua transaction.
(b) The tax effects of adjustments are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction.
~~(b) The special charges in the quarter primarily relates to the U.K. pension settlement expense of $140 million and asset impairment charges of $12 million recorded in the period.~~
~~(c) The $28 million in tax effects of adjustments in the quarter primarily consists of $23 million related to to the U.K. pension settlement expense.~~

3439

•"adjusted operating expenses" and "adjusted gross profit" defined as operating expenses and gross profit, respectively, adjusted to exclude amortization of acquired intangible assets, restructuring and realignment costs and special charges.

•"adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs, amortization of acquired intangible assets, gain or loss from the sale of businesses, special charges and special ~~charges,~~tax related items, as applicable, 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~~ gain or loss from sale of businesses and special charges, 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.

•“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 ~~U.K.~~UK pension plan ~~buy-out.~~buyout.

•"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 Condensed Consolidated Statement of 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.


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
Net cash provided by operating activities	Net cash provided by operating activities	$	234	$	318	Net cash provided by operating activities	$	9	$	32
Capital expenditures	Capital expenditures	(148)		(127)		Capital expenditures	(103)		(95)

Non-discretionary tax payments (R&D tax law adoption)						Non-discretionary tax payments (R&D tax law adoption)	33		—
Free cash flow	Free cash flow	$	86	$	191	Free cash flow	$	(61)	$	(63)
Net cash used in investing activities	Net cash used in investing activities	$	(123)	$	(113)	Net cash used in investing activities	$	(489)	$	(84)
Net cash used in financing activities		$	(210)	$	(806)
Net cash provided (used) by financing activities						Net cash provided (used) by financing activities	$	235	$	(158)

3540

~~2022~~2023 Outlook

We are ~~further~~ updating our total revenue growth to approximately 30%, and organic revenue growth to be in the range of ~~approximately 4% in 2022, with organic revenue growth anticipated to be in the range of~~ 9% to 10%. in 2023. The following is a summary of our organic revenue performance and the organic revenue outlook by end ~~markets:~~

market.

•Utilities revenue increased by approximately 5%20% through the ~~third quarter on an organic basis driven by strength in~~first half of the U.S. and western Europe partially offset by weakness in the emerging markets. For the remainder of 2022, we expect organic revenue growth in the mid-single-digit range, as utilities continue to remain focused on mission-critical applications in wastewater. Long-term capex outlook supported by aging infrastructure and the emerging markets’ continued advancement. On the clean water side, the timing of large project deployments has been impacted by the global shortage of electronic components. Although chip supply remains constrained, we do expect a continued, modest easing of chip supply, sequentially. Additionally, we can expect continued momentum for water quality products and increased demand for pipeline assessment services due to aging infrastructure.

•Industrial revenue increased by approximately 13% through the third quarter on an organic basis driven by strength across all major geographic regions. For 2022, we now expect organic revenue growth in the low-double-digit range. We expect to see continued robust growth in our dewatering business, especially in the emerging markets from mining demand. We expect sustained demand in light industrial activity globally.

•~~In the commercial markets, organic revenue increased by approximately 8% through the third quarter~~year on an organic basis driven by strength across all major geographic regions. For the remainder of ~~2022,~~2023, we now expect organic revenue growth in the ~~high-single~~mid teens. On the clean water side, we anticipate growth from the conversion of our resilient backlog due to ~~low-double digit range.~~continued improvement in chip supply. Additionally, we expect strong order momentum from smart water demand. We expect wastewater utilities to remain focused on mission-critical applications in wastewater. Long-term capital expenditure outlook is strong due to aging infrastructure and the emerging markets’ continued advancement.

•Industrial revenue increased by approximately 12% through the first half of the year on an organic basis driven by strength across all major geographic regions. For 2023, we continue to expect organic revenue growth in the mid-single-digits. We anticipate resilient demand across most industrials. In light and general industry, we are seeing sustained demand globally, through resilient, recurring service revenue and healthy dewatering demand.

•In the building solutions markets, revenue increased by approximately 13% through the first half of the year on an organic basis driven by strength in the U.S. and western Europe. For the remainder of 2023, we expect organic revenue growth in the mid-single-digits. In the commercial market, we expect resilient demand for ~~green buildings and~~ energy efficiency related projects, particularly in ~~Europe, and strong commercial development in the Middle East.~~

•Europe. We continue to monitor new construction, a smaller portion of our portfolio, for signs of moderation. In the residential ~~markets, organic revenue increased by approximately 16% through the third quarter on an organic basis predominately driven by strength in the U.S. This~~ market, ~~is primarily~~which are predominantly driven by solid replacement revenue serviced through our distribution ~~network. For 2022,~~network, we ~~expect organic revenue growth~~are continuing to experience market softness, particularly in the ~~high-teens. We anticipate dealer activity to remain healthy and order demand to normalize as supply chains and lead times improve.~~

U.S.

We will continue to strategically execute restructuring and realignment actions in an effort to advance our integration of Evoqua, optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. During ~~2022,~~2023, we expect to incur approximately ~~$25~~$90 million ~~and $30~~to $95 million in restructuring and realignment costs.

3641

Results of Operations


		Three Months Ended								Nine Months Ended									Three Months Ended								Six Months Ended
		September 30,								September 30,									June 30,								June 30,
(in millions)	(in millions)	2022			2021			Change		2022			2021			Change		(in millions)	2023			2022			Change		2023			2022			Change
Revenue	Revenue	$	1,380		$	1,265		9.1	%	$	4,016		$	3,872		3.7	%	Revenue	$	1,722		$	1,364		26.2	%	$	3,170		$	2,636		20.3	%
Gross profit	Gross profit	524			472			11.0	%	1,511			1,482			2.0	%	Gross profit	651			520			25.2	%	1,197			987			21.3	%
Gross margin	Gross margin	38.0		%	37.3		%	70	bp	37.6		%	38.3		%	(70)	bp	Gross margin	37.8		%	38.1		%	(30)	bp	37.8		%	37.4		%	40	bp

Total operating expenses	Total operating expenses	356			320			11.3	%	1,086			1,037			4.7	%	Total operating expenses	532			374			42.2	%	947			730			29.7	%
Expense to revenue ratio	Expense to revenue ratio	25.8		%	25.3		%	50	bp	27.0		%	26.8		%	20	bp	Expense to revenue ratio	30.9		%	27.4		%	350	bp	29.9		%	27.7		%	220	bp
Restructuring and realignment costs	Restructuring and realignment costs	6			2			200.0	%	18			16			12.5	%	Restructuring and realignment costs	37			8			362.5	%	48			12			300.0	%

Purchase accounting intangible amortization																		Purchase accounting intangible amortization	36			18			100.0	%	54			36			50.0	%
Special charges	Special charges	13			1			NM		15			3			400.0	%	Special charges	67			1			6,600.0	%	92			2			4,500.0	%
Adjusted operating expenses	Adjusted operating expenses	337			317			6.3	%	1,053			1,018			3.4	%	Adjusted operating expenses	392			347			13.0	%	753			680			10.7	%
Adjusted operating expenses to revenue ratio	Adjusted operating expenses to revenue ratio	24.4		%	25.1		%	(70)	bp	26.2		%	26.3		%	(10)	bp	Adjusted operating expenses to revenue ratio	22.8		%	25.4		%	(260)	bp	23.8		%	25.8		%	(200)	bp
Operating income	Operating income	168			152			10.5	%	425			445			(4.5)	%	Operating income	119			146			(18.5)	%	250			257			(2.7)	%
Operating margin	Operating margin	12.2		%	12.0		%	20	bp	10.6		%	11.5		%	(90)	bp	Operating margin	6.9		%	10.7		%	(380)	bp	7.9		%	9.7		%	(180)	bp
U.K. pension settlement expense		140			—			100.0	%	140			—			100.0	%

Interest and other non-operating expense, net	Interest and other non-operating expense, net	11			19			(42.1)	%	35			62			(43.5)	%	Interest and other non-operating expense, net	5			10			(50.0)	%	10			24			(58.3)	%
Gain from sale of business	Gain from sale of business	—			—			—		1			2			(50.0)	%	Gain from sale of business	—			—			NM		—			1			(100.0)	%
Income tax expense	Income tax expense	5			19			(73.7)	%	45			71			(36.6)	%	Income tax expense	22			24			(8.3)	%	49			40			22.5	%
Tax rate	Tax rate	27.8		%	13.9		%	1,390	bp	17.8		%	18.3		%	(50)	bp	Tax rate	19.1		%	17.5		%	160	bp	20.5		%	17.0		%	350	bp
Net income	Net income	$	12		$	114		(89.5)	%	$	206		$	314		(34.4)	%	Net income	$	92		$	112		(17.9)	%	$	191		$	194		(1.5)	%

NM - Not meaningful change

Revenue

Revenue generated during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$1,380~~$1,722 million and ~~$4,016~~$3,170 million, reflecting increases of ~~$115~~$358 million, or ~~9.1%~~26.2%, and ~~$144~~$534 million, or ~~3.7%~~20.3%, respectively, compared to the same prior year periods. On a constant currency basis, revenue grew ~~15.4%~~27.6% and ~~8.2%~~22.7% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022. The increases on a constant currency basis were driven~~2023. Revenue growth contributed by acquisitions was $178 million for the three and six months ended June 30, 2023 and organic revenue ~~growth of~~increased $199 million and ~~$326~~$420 million for the three and six months ended June 30, 2023, respectively, ~~reflecting~~partially offset by negative impacts from foreign currency translation of $19 million and $64 million for the three and six months ended June 30, 2023, respectively. The increases reflect strong organic growth across all of our segments and in all of our major geographic regions for ~~the quarter and on a year-to-date basis, driven by strong backlog execution and price realization.~~both periods.

The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022:~~
Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2021 Revenue $ 547 $ 400 $ 318 $ 1,265
Organic Growth 73 13.3 % 79 19.8 % 47 14.8 % 199 15.7 %
Divestitures — — % — — % (4) (1.3) % (4) (0.3) %
Constant Currency 73 13.3 % 79 19.8 % 43 13.5 % 195 15.4 %
Foreign currency translation (a) (46) (8.4) % (21) (5.3) % (13) (4.1) % (80) (6.3) %
Total change in revenue 27 4.9 % 58 14.5 % 30 9.4 % 115 9.1 %
2022 Revenue $ 574 $ 458 $ 348 $ 1,380

~~(a)~~Foreign currency translation impact for the quarter due to the weakening in value of various currencies against the U.S. Dollar, the largest being the Euro, the British Pound, the Chinese Yuan and the Swedish Krona.2023:

3742


		Water Infrastructure				Applied Water				Measurement & Control Solutions				Total Xylem					Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(in millions)	(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change		(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2021 Revenue		$	1,625			$	1,207			$	1,040			$	3,872
2022 Revenue																		2022 Revenue	589				429				346				—			1,364
Organic Growth	Organic Growth	170		10.5	%	149		12.3	%	7		0.7	%	326		8.4	%	Organic Growth	74		12.6	%	53		12.4	%	72		20.8	%	—		NM	199		14.6	%
Divestitures		—		—	%	—		—	%	(9)		(0.9)	%	(9)		(0.2)	%
Acquisitions/(Divestitures)																		Acquisitions/(Divestitures)	53		9.0	%	—		—	%	—		—	%	125		NM	178		13.0	%
Constant Currency	Constant Currency	170		10.5	%	149		12.3	%	(2)		(0.2)	%	317		8.2	%	Constant Currency	127		21.6	%	53		12.4	%	72		20.8	%	125		NM	377		27.6	%
Foreign currency translation (a)	Foreign currency translation (a)	(99)		(6.1)	%	(44)		(3.6)	%	(30)		(2.9)	%	(173)		(4.5)	%	Foreign currency translation (a)	(12)		(2.1)	%	(4)		(1.0)	%	(3)		(0.9)	%	—		NM	(19)		(1.4)	%
Total change in revenue	Total change in revenue	71		4.4	%	105		8.7	%	(32)		(3.1)	%	144		3.7	%	Total change in revenue	115		19.5	%	49		11.4	%	69		19.9	%	$	125	NM	358		26.2	%
2022 Revenue		$	1,696			$	1,312			$	1,008			$	4,016
2023 Revenue																		2023 Revenue	$	704			$	478			$	415			$	125		$	1,722

(a)Foreign currency translation impact for the year due to the weakening in value of various currencies against the U.S. Dollar, the largest being the ~~Euro,~~Chinese Yuan, the Canadian Dollar, the Australian Dollar and the Norwegian Krone.


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(In millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2022 Revenue	1,122				854				660				—			2,636
Organic Growth	155		13.8	%	94		11.0	%	171		25.9	%	—		NM	420		15.9	%
Acquisitions/(Divestitures)	53		4.7	%	—		—	%	—		—	%	125		NM	178		6.8	%
Constant Currency	208		18.5	%	94		11.0	%	171		25.9	%	125		NM	598		22.7	%
Foreign currency translation (a)	(37)		(3.3)	%	(17)		(2.0)	%	(10)		(1.5)	%	—		NM	(64)		(2.4)	%
Total change in revenue	171		15.2	%	77		9.0	%	161		24.4	%	$	125	NM	534		20.3	%
2023 Revenue	$	1,293			$	931			$	821			$	125		$	3,170

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

Water Infrastructure

Water Infrastructure revenue increased ~~$27~~$115 million, or ~~4.9%~~19.5%, for the ~~third~~second quarter of ~~2022 (13.3%~~2023 (21.6% increase on a constant currency basis) as compared to the prior year. Revenue growth for the quarter was partially made up of the revenue contributed by acquisitions from the APT business of $53 million, with the remainder of the increase coming from organic revenue growth of $74 million, or 12.6%. Revenue was negatively impacted by ~~$46~~$12 million of foreign currency translation, with the change at constant currency ~~coming entirely from organic growth~~ of ~~$73~~$127 million. Organic growth for the quarter was driven by strength in both the ~~utility~~utilities and industrial end markets. The utilities end market experienced organic growth of ~~$49~~$43 million across all major geographic regions, ~~with particular strength~~particularly in the U.S. driven by ~~good~~strong price realization and ~~strength~~higher demand in ~~the construction sector, and in western~~our rental business. Western Europe ~~where we saw~~also experienced strong organic growth due to robust demand in utilities' capital spending coupled with good price realization. The industrial end market ~~also~~ had $31 million of organic growth ~~of $24 million spanning all major geographic regions, with particular strength in emerging markets~~ led by ~~strong dewatering demand in Latin America and Africa, as well as~~ strength in western Europe ~~where we benefited from~~driven by capital projects and strong ~~backlog execution.~~price realization and the U.S. due to good price realization.

From an application perspective, excluding the $53 million contributed by acquisitions, organic revenue growth ~~for the third quarter~~ was primarily driven by our transport ~~applications with $67~~applications. Transport experienced $60 million of ~~organic~~revenue growth, ~~with dewatering accounting for almost half of that. All~~across all three of our major geographic ~~regions contributed to the organic revenue growth in transport,~~regions. Growth was led by the U.S. where we continued to experience strong price realization and healthy market conditions, followed by western Europe which had strong demand from utility capital projects and solid project execution. We also experienced strong growth in the emerging markets, driven by strong price realization, ~~a well as robust mining~~increased

sales volume and higher demand in our ~~dewatering business, particularity in Latin America~~rental business. Western Europe also experienced growth due to utility and ~~Africa.~~other capital projects and price realization. Organic revenue for the treatment application ~~was up $6~~grew by $14 million for the quarter, ~~driven~~led by ~~backlog execution~~organic revenue growth in ~~western Europe.~~the U.S., due to project timing and increases in the emerging markets from project timing due to COVID recovery in China.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, revenue increased ~~$71~~$171 million, or ~~4.4% (10.5%~~15.2% (18.5% increase on a constant currency basis) as compared to the prior year. Revenue growth was partially made up of the revenue contributed by acquisitions from the APT business of $53 million. Revenue was negatively impacted by ~~$99~~$37 million of foreign currency translation, with the change at constant currency coming ~~entirely~~ from organic growth of ~~$170 million.~~$155 million or 13.8%. Organic growth for the period was driven by strength in both the utility and industrial end markets. The utilities end market experienced organic growth across all of ~~$90 million led~~our major geographic regions totaling $89 million. Organic growth for the period was driven by ~~strength in~~ the U.S. ~~and western Europe, bolstered by~~, where we experienced strong price realization, ~~solid backlog execution~~project timing and ~~timing of projects as compared to prior year; which was partially offset by weakness~~higher demand in ~~the emerging markets, primarily~~our rental business. Western Europe also experienced strong organic growth due to ~~the negative impact of continued COVID impacts~~robust demand in ~~China.~~utilities' capital spending coupled with good price realization. The industrial end market had ~~$80~~$66 million of organic growth across all major geographies, particularly in western Europe driven by capital projects and strong price realization and growth in the U.S. due to ~~strong backlog execution, and the~~good price realization. The emerging markets ~~driven by mining~~also experienced growth due to projects ~~and price realization~~ in ~~both~~ Latin ~~America and Africa.~~America.

From an application perspective, excluding the $53 million contributed by acquisitions, organic revenue growth during the ~~nine-month~~six-month period was driven by our transport ~~applications. Transport experienced $160~~applications with $139 million of revenue ~~growth, almost half of which came from the dewatering application.~~growth. The increase in organic revenue was led by the U.S. ~~and western Europe,~~, where we experienced ~~solid~~strong price realization and ~~executed on~~sales volume, as well as increased rental volumes in the dewatering business when compared to the prior year. Western Europe also experienced increases due to strong ~~backlog in both regions.~~price realization along with demand from utility capital projects. The emerging markets also had strong growth ~~in dewatering from mining demand~~primarily due to increased projects in Latin America and ~~Africa, which was partially offset by declines in China due to COVID impacts.~~China. Organic revenue for the treatment application also contributed ~~$10~~$16 million ~~for the period, as revenue~~of organic sales growth ~~from~~across all major geographic regions driven by project timing and strong backlog ~~execution in western Europe and the U.S., partially offset by declines in emerging markets led by the continued negative COVID impacts on China.~~

execution.

Applied Water

Applied Water revenue increased ~~$58~~$49 million, or ~~14.5%~~11.4%, for the ~~third~~second quarter of ~~2022 (19.8%~~2023 (12.4% increase on a constant currency basis) as compared to the prior year. Revenue was negatively impacted by ~~$21~~$4 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of ~~$79 million, led by strength in the industrial end market, followed~~$53 million. Organic growth was driven by strength in the commercial and industrial end markets/applications, partially offset by a decline in the residential end ~~markets.~~market/application versus the comparable period. Organic revenue growth in the ~~third~~second quarter was ~~$40~~led by strength in commercial building solutions of $45 million, ~~for~~primarily in the ~~industrial water application, driven by the emerging markets, due to strong backlog execution driven by market recovery in China and in western Europe~~U.S. where we benefited from ~~strength in the marine and food & beverage sectors and continued investments that drove~~ strong growth in manufacturing output. The U.S. also experienced continued strength in the industrial water application, driven by strong price realization. The commercial and residential building services applications grew organically $26 million and $13 million, respectively. Growth in these applications was driven by price realization and backlog execution. Industrial water had strong ~~backlog execution~~organic growth in the quarter of $20 million, across all three of our major geographic regions, driven primarily by recovery from prior year COVID-19 impacts in the emerging markets. Residential building solutions was down $12 million organically for the quarter, primarily in the U.S. due to ~~supply chain improvements.~~healthy order intake in the prior year that did not recur.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, revenue increased ~~$105~~$77 million, or ~~8.7% (12.3%~~9.0% (11.0% increase on a constant currency basis) as compared to the prior year. Revenue was negatively impacted by ~~$44~~$17 million of foreign currency translation during the ~~nine~~six month period, with the change at constant currency coming ~~entirely~~primarily from organic growth of ~~$149~~$94 million. Organic growth during the period was driven by ~~strength in all three end markets and across~~ all major geographic regions, with particular strength in the U.S. and western Europe. Organic revenue growth during the nine month period was led by strength in the industrial water application of $78 million, where in the U.S. where we benefited from price realization and strong backlog execution, in the emerging markets where we saw market recovery in China, and in Western Europe where we had healthy order intake across the sector. Commercialcommercial building ~~services~~solutions grew ~~$38~~$71 million organically during the period, ~~particularly~~driven by strong price realization in the U.S. The industrial water application achieved organic growth of $36 million, led by the emerging markets due to recovery from prior year COVID-19 impacts and in western Europe ~~where we benefited from~~due to strong price realization and ~~strong backlog execution.~~healthy demand. The residential building ~~services~~solutions application ~~had $33~~saw a decline in revenue of $13 million, ~~of organic revenue growth during the period,~~ primarily in the ~~U.S. driven by price realization~~emerging markets and ~~strong backlog execution.~~U.S.

Measurement & Control Solutions

Measurement & Control Solutions revenue increased ~~$30~~$69 million, or ~~9.4%~~19.9%, for the ~~third~~second quarter of ~~2022 (13.5%~~2023 (20.8% increase on a constant currency basis) as compared to the prior year. Revenue was negatively impacted by ~~$13~~$3 million of foreign currency translation, with the change at constant currency coming entirely from an organic growth of ~~$47~~$72 million, ~~(14.8% growth)~~or 20.8%. The segment experienced organic revenue growth across all three major geographic regions and ~~reduced revenue related to divestiture impacts~~in both of ~~$4 million. Organic growth in~~the segment's end markets for the quarter, ~~was~~ driven by ~~$42~~$70 million of organic growth in the utility end ~~markets across all major geographies.~~market, primarily in the U.S., and to a lesser extent, in western Europe, driven by increased demand, enabled by recovery on prior year component constraints and price realization. The industrial end market ~~experienced modest growth of $5 million.~~saw $2 million organic revenue growth.

From an application perspective, organic revenue growth during the quarter was driven by both the water and energy applications. The water application had strong organic growth of ~~$38~~$47 million, primarily in the U.S.~~, as~~ and to a ~~result of easing of electronic~~lesser extent in western Europe, driven by increased demand, enabled by recovery on prior year component ~~shortages~~constraints and ~~strong price realization.~~backlog execution. The energy applications grew $9$25 million ~~driven by gas metering backlog execution~~organically, primarily in the U.S. where we saw greater electronic component availability.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, revenue ~~decreased $32~~increased $161 million, or ~~3.1% (0.2% decrease~~24.4% (25.9% increase on a constant currency basis) as compared to the prior year. Revenue was negatively impacted by ~~$30~~$10 million of foreign currency translation, with the change at constant currency coming from an organic increase of $7$171 million ~~(0.7%~~(25.9% increase) ~~and reduced revenue related to divestiture impacts of $9 million. Organic~~. The segment experienced organic revenue growth across all three major geographic regions and in both of the ~~period consisted of growth in~~segment's end markets for the ~~industrial end market of $8 million,~~quarter, driven by ~~strength in our test business in the emerging markets, slightly offset by $1~~$161 million of ~~declines~~organic growth in the utility end ~~market.~~market, primarily in the U.S., driven by increased demand, enabled by recovery on prior year component constraints and backlog execution. Western Europe also experienced increases driven by backlog execution. The industrial end market grew organically by $10 million across all geographic regions driven by backlog execution in our test business.

From an application perspective, organic revenue growth during the ~~nine-month~~six-month period consisted of growth in the water application of ~~$27~~$123 million, ~~partially offset by declines~~primarily in the ~~energy applications of $20 million. Organic revenue growth~~U.S. and to a lesser extent in ~~the water application was~~western Europe, driven by ~~strength~~increased demand, enabled by recovery on prior year component constraints and backlog execution. Energy applications saw organic growth of $48 million, driven by metrology sales in the U.S. due to ~~strong price realization, and backlog execution in the emerging markets. Declines in the energy applications were driven by impacts from~~improved electronic component ~~shortages in~~availability.

Integrated Solutions & Services

Integrated Solutions & Services consists entirely of revenues of $125 million for the ~~U.S. during~~three and six months ended June 30, 2023 contributed from the ~~first half of the year.~~Evoqua acquisition.

Orders / Backlog

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 the ~~third~~second quarter of ~~2022~~2023 were ~~$1,419~~$1,856 million, ~~a decrease~~an increase of ~~$99~~$172 million, or ~~6.5%~~10.2%, over the prior year ~~(1.1% decrease~~(11.6% increase on a constant currency basis). Orders received during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 were ~~$4,818~~$3,426 million, an increase of ~~$102~~$27 million, or ~~2.2%~~0.8%, over the prior year ~~(6.2%~~(3.0% increase on a constant currency basis). Orders contributed by acquisitions were $222 million in the three and six months ended June 30, 2023. Order intake was negatively impacted by ~~$82~~$23 million and ~~$189~~$76 million of foreign currency translation for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively. The decrease on a constant currency basis for the quarter was primarily driven by organic order declines of $10 million. The increase on a constant currency basis for the nine month period was primarily driven by organic order growth of $309 million.

The following table illustrates the impact from organic growth, recent acquisitions or divestitures, and foreign currency translation in relation to orders during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022:~~
Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2021 Orders $ 623 $ 446 $ 449 $ 1,518
Organic Growth 18 2.9 % (17) (3.8) % (11) (2.4) % (10) (0.7) %
Divestitures — — % — — % (7) (1.6) % (7) (0.4) %
Constant Currency 18 2.9 % (17) (3.8) % (18) (4.0) % (17) (1.1) %
Foreign currency translation (a) (47) (7.5) % (20) (4.5) % (15) (3.3) % (82) (5.4) %
Total change in orders (29) (4.7) % (37) (8.3) % (33) (7.3) % (99) (6.5) %
2022 Orders $ 594 $ 409 $ 416 $ 1,419
2023:


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2022 Orders	$	731			$	480			$	473			$	—		$	1,684
Organic Impact	(26)		(3.6)	%	(29)		(6.0)	%	28		5.9	%	—		NM	(27)		(1.6)	%
Acquisitions/(Divestitures)	59		8.1	%	—		—	%	—		—	%	163		NM	222		13.2	%
Constant Currency	33		4.5	%	(29)		(6.0)	%	28		5.9	%	163		NM	195		11.6	%
Foreign currency translation (a)	(13)		(1.8)	%	(6)		(1.3)	%	(4)		(0.8)	%	—		NM	(23)		(1.4)	%
Total change in orders	20		2.7	%	(35)		(7.3)	%	24		5.1	%	163		NM	172		10.2	%
2023 Orders	$	751			$	445			$	497			$	163		$	1,856

(a)Foreign currency translation impact for the quarter due to the weakening in value of various currencies against the U.S. Dollar, the largest being the ~~Euro, the British Pound, the~~ Chinese Yuan, the Canadian Dollar, the Australian Dollar and the ~~Swedish Krona.~~Norwegian Krone.

Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2021 Orders $ 1,873 $ 1,409 $ 1,434 $ 4,716
Organic Growth 225 12.0 % 30 2.1 % 54 3.8 % 309 6.6 %
Divestitures — — % — — % (18) (1.3) % (18) (0.4) %
Constant Currency 225 12.0 % 30 2.1 % 36 2.5 % 291 6.2 %
Foreign currency translation (a) (113) (6.0) % (45) (3.2) % (31) (2.2) % (189) (4.0) %
Total change in orders 112 6.0 % (15) (1.1) % 5 0.3 % 102 2.2 %
2022 Orders $ 1,985 $ 1,394 $ 1,439 $ 4,818


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2022 Orders	$	1,391			$	985			$	1,023			$	—		$	3,399
Organic Impact	(18)		(1.3)	%	(33)		(3.4)	%	(68)		(6.6)	%	—		NM	(119)		(3.5)	%
Acquisitions/(Divestitures)	59		4.2	%	—		—	%	—		—	%	163		NM	222		6.5	%
Constant Currency	41		2.9	%	(33)		(3.4)	%	(68)		(6.6)	%	163		NM	103		3.0	%
Foreign currency translation (a)	(42)		(3.0)	%	(24)		(2.4)	%	(10)		(1.0)	%	—		NM	(76)		(2.2)	%
Total change in orders	(1)		(0.1)	%	(57)		(5.8)	%	(78)		(7.6)	%	163		NM	27		0.8	%
2023 Orders	$	1,390			$	928			$	945			$	163		$	3,426

(a)Foreign currency translation impact for the ~~year~~quarter due to the weakening in value of various currencies against the U.S. Dollar, the largest being the ~~Euro,~~Chinese Yuan, the ~~British Pound,~~Canadian Dollar, the ~~Swedish Krona~~Australian Dollar and the ~~Australian Dollar.~~Norwegian Krone.

Water Infrastructure

Water Infrastructure segment orders ~~decreased $29~~increased $20 million, or ~~4.7%~~2.7%, to ~~$594~~$751 million ~~(2.9%~~(4.5% increase on a constant currency basis) for the ~~third~~second quarter of ~~2022~~2023 as compared to the prior year. The order increase included orders from recent acquisitions of $59 million from the APT business partially offset by an organic order decline of $26 million, or 3.6%. Order intake for the period was negatively impacted by $13 million of foreign currency translation. Organic orders decreased during the quarter primarily in the transport applications due to declines in orders in the U.S. driven by large infrastructure projects in the prior period which did not recur in the current period. This decline in order intake was partially offset by order growth in the dewatering business, primarily driven by rental orders and increased activity in the mining industry in Latin America. The treatment application saw a slight decrease in orders driven by western Europe due to project order wins in the prior year. Orders in the treatment application remained relatively flat as compared to the prior year.

For the six months ended June 30, 2023, orders decreased by $1 million, which was partially made up of the orders contributed by acquisitions from the APT business of $59 million, offset by an $18 million, or 1.3%, decrease in organic orders. Order intake for the period was negatively impacted by $42 million of foreign currency translation. Organic orders decreased during the quarter primarily in the transport applications due to declines in orders in the U.S. driven by large infrastructure projects in the prior period which did not recur in the current period. This decline in order intake was partially offset by order strength in the dewatering business, led by rental orders primarily in the emerging markets. The treatment application saw a slight decrease in orders driven by western Europe due to project order wins in the prior year.

Applied Water

Applied Water segment orders decreased $35 million, or 7.3%, to $445 million (6.0% decrease on a constant currency basis) for the second quarter of 2023 as compared to the prior year. Order intake for the quarter was negatively impacted by ~~$47~~$6 million of foreign currency translation. The ~~order increase on a constant currency basis~~decrease in ~~the quarter~~organic orders was driven by ~~organic order growth in our transport applications~~weakness in the U.S. from lower demand and ~~western Europe, where we benefited from healthy market conditions, large infrastructure projects and price realization. Transport order growth in the U.S. and western Europe~~timing of orders, which was ~~slightly~~partially offset by ~~declines in emerging markets, where dewatering~~ strength ~~in Latin America and Africa was more than offset by order softness in India, China and~~

~~Russia. For the treatment application, organic orders declined modestly in the quarter, primarily due to modest weakness~~ in the emerging markets ~~and western Europe more than offsetting growth in the U.S.~~due to recovery from prior year COVID-19 impacts.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, orders ~~increased $112~~decreased $57 million, or ~~6.0%~~5.8%, to ~~$1,985~~$928 million ~~(12.0%~~(3.4% decrease on a constant currency basis) as compared to the prior year. Order ~~growth~~intake for the period was negatively impacted by ~~$113~~$24 million of foreign currency translation. ~~Organic orders increased during the period as strength~~Weakness in the ~~transport applications came primarily~~U.S. from ~~the U.S. where we benefited from strong market~~lower demand and timing of ~~large infrastructure projects~~orders was partially offset by strength in utilities. There was also order growth from water utility customers in western Europe mainly from increased demand in utility capital projects and healthy market conditions in the first half of the year. The treatment application saw a decrease in orders driven by the emerging markets due to ~~declines in China related to COVID impacts, which more than offset modest growth in the U.S.~~recovery from prior year COVID-19 impacts.

~~Applied Water~~

Measurement & Control Solutions

Measurement & Control Solutions segment orders ~~decreased $37~~increased $24 million, or ~~8.3%~~5.1%, to ~~$409~~$497 million ~~(3.8% decrease~~(5.9% increase on a constant currency basis) for the ~~third~~second quarter of ~~2022~~2023 as compared to the prior year. Order ~~weakness~~growth for the quarter was negatively impacted by ~~$20~~$4 million of foreign currency translation. ~~The~~Organic order ~~decrease on a constant currency basis~~growth was driven primarily by ~~weakness~~the water application in the U.S. ~~following strong demand recovery~~and emerging markets. Order growth within water applications was due to large project orders in the ~~prior year. The declines in the~~ U.S. ~~were primarily in the specialty flow control business in the industrial end market, as well as in residential building services. This decline~~, which was partially offset by ~~higher order intake~~declines across our energy applications in the ~~emerging markets.~~U.S., due to lower demand.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, orders decreased ~~$15~~$78 million or ~~1.1%~~7.6%, to ~~$1,394~~$945 million ~~(2.1% increase~~(6.6% decrease on a constant currency basis) as compared to the prior year. Order ~~weakness~~intake for the period was negatively impacted by ~~$45~~$10 million of foreign currency translation. The order increase on a constant currency basis was driven by strength in the emerging markets and western Europe as a result of strong market conditions and stocking by channel partners, partially offset by weakness in the U.S. following very strong demand recovery in the prior year reflecting order growth of 28% in the prior year period.

~~Measurement & Control Solutions~~

Measurement & Control Solutions segment orders decreased $33 million, or 7.3%, to $416 million (4.0% decrease on a constant currency basis) for the third quarter of 2022 as compared to the prior year. Order weakness for the quarter was negatively impacted by $15 million of foreign currency translation and reduced orders related to divestiture impacts of $7 million. The order decrease on a constant currency basis consisted primarily of organic order declines of ~~$11~~$68 million or ~~(2.4)%~~6.6%. ~~The~~Organic order ~~declines~~intake was negatively impacted by lower demand across the energy application, particularly in the ~~current quarter are~~U.S., lapping ~~very~~ strong ~~organic~~ order growth ~~of 42%~~ in the same prior year period. Organic orders for the quarter decreased in the energy applications, primarily driven by moderation of the increased demand and advanced ordering to address electronic component shortages that we benefited from in the prior year.second quarter. This decline was partially offset by ~~strength in the water application driven by large project orders in the U.S. and the emerging markets.~~

For the nine months ended September 30, 2022, orders increased $5 million or 0.3%, to $1,439 million (2.5% increase on a constant currency basis) as compared to the prior year. Order growth for the period was negatively impacted by $31 million of foreign currency translation and reduced orders related to divestiture impacts of $18 million. The order increase on a constant currency basis consisted primarily of organic order growth of $54 million, or 3.8%. The modest order growth in the ~~period is lapping very strong order growth~~U.S., due to increased demand in water applications.

Integrated Solutions & Services

The Integration Solutions & Services segment contributed total orders of ~~42% in the same period during the prior year. Organic orders~~$163 million for the ~~period increased in~~three and six months ended June 30, 2023. See Note 3, "Acquisitions and Divestitures," to the energy applications, primarily driven by demand and advanced ordering in the first half of the year to address electronic component shortages. This increase was partially offset by weakness in the water application driven by the moderation of early orders to mitigate electronic component shortages and longer lead times that drove order growth in the prior year, as well as modest order growth in our test and assessment service offerings.condensed consolidated financial statements for further information.

Backlog

Backlog includes orders on hand as well as contractual customer agreements at the end of the period. Delivery schedules vary from customer to customer based 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 occur from time to time. Total backlog was ~~$3,667~~$5,271 million at ~~September~~June 30, ~~2022,~~2023, an increase of ~~$703~~$1,514 million or ~~23.7%~~40.3%, as compared to ~~September~~June 30, ~~2021~~2022 backlog of ~~$2,964~~$3,757 million, and an increase of ~~$427~~$1,666 million or ~~13.2%~~46.2%, as compared to December 31, ~~2021~~2022 backlog of ~~$3,240~~

$3,605 million, driven by the ~~significant increase in orders~~order intake in the ~~year.~~quarter outpacing revenue. We anticipate that approximately ~~30%~~39% of the backlog at ~~September~~June 30, ~~2022~~2023 will be recognized as revenue in the remainder of ~~2022.~~2023. There were no significant order cancellations during the quarter.

Gross Margin

Gross margin as a percentage of revenue decreased 30 and increased ~~70 and decreased 70~~40 basis points to ~~38.0% and 37.6%~~37.8% for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~37.3%~~38.1% and ~~38.3%~~37.4% for the comparative ~~2021~~2022 period. The gross margin ~~increase~~decrease for the quarter included favorable impacts of ~~840 basis points, driven~~price realization offset by ~~570 basis points~~negative impacts of inflation and mix. The gross margin increase for the six month period included favorable impacts of price realization and ~~250 basis points of~~ productivity ~~savings. Favorable impacts in the quarter were partially~~savings offset by ~~770 basis points of~~ negative impacts ~~driven by 570 basis points~~ of inflation 80 basis points of unfavorable mix and 50 basis points of spending on strategic investments. The gross margin decrease for the nine month period included 770 basis points of negative impacts, driven by 610 basis points of cost inflation, as well as increased spending on strategic investments of 60 basis points and unfavorable ~~mix of 60 basis points. These impacts were partially offset favorable impacts of 700 basis points, driven by 440 basis points of price realization and 230 basis points of productivity savings.~~mix.

Operating Expenses

The following table presents operating expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended								Nine Months Ended									Three Months Ended								Six Months Ended
		September 30,								September 30,									June 30,								June 30,
(in millions)	(in millions)	2022			2021			Change		2022			2021			Change		(in millions)	2023			2022			Change		2023			2022			Change
Selling, general and administrative expenses ("SG&A")		$	294		$	273		7.7	%	$	912		$	878		3.9	%
Selling, general and administrative expenses																		Selling, general and administrative expenses	$	446		$	314		42.0	%	$	800		$	618		29.4	%
SG&A as a % of revenue	SG&A as a % of revenue	21.3		%	21.6		%	(30)	bp	22.7		%	22.7		%	—	bp	SG&A as a % of revenue	25.9		%	23.0		%	290	bp	25.2		%	23.4		%	180	bp
Research and development expenses ("R&D")		47			49			(4.1)	%	152			152			—	%
Research and development expenses																		Research and development expenses	58			53			9.4	%	111			105			5.7	%
R&D as a % of revenue	R&D as a % of revenue	3.4		%	3.9		%	(50)	bp	3.8		%	3.9		%	(10)	bp	R&D as a % of revenue	3.4		%	3.9		%	(50)	bp	3.5		%	4.0		%	(50)	bp
Restructuring and asset impairment charges	Restructuring and asset impairment charges	15			(2)			(850.0)	%	22			7			214.3	%	Restructuring and asset impairment charges	28			7			300.0		36			7			414.3	%

Operating expenses	Operating expenses	$	356		$	320		11.3	%	$	1,086		$	1,037		4.7	%	Operating expenses	$	532		$	374		42.2	%	$	947		$	730		29.7	%
Expense to revenue ratio	Expense to revenue ratio	25.8		%	25.3		%	50	bp	27.0		%	26.8		%	20	bp	Expense to revenue ratio	30.9		%	27.4		%	350	bp	29.9		%	27.7		%	220	bp

Selling, General and Administrative ("SG&A") Expenses

SG&A expenses increased by ~~$21~~$132 million to ~~$294~~$446 million, or ~~21.3%~~25.9% of revenue, in the ~~third~~second quarter of ~~2022,~~2023, as compared to ~~$273~~$314 million, or ~~21.6%~~23.0% of revenue, in the comparable 2021 period. Revenue growth was higher than SG&A increases resulting in a lower SG&A as a percentage of sales for the third quarter. Cost increases were driven by increased investments in strategic growth initiatives of $18 million2022 period; and ~~inflation of $9 million, partially offset by $5 million productivity savings.~~

~~SG&A expenses~~ increased by ~~$34~~$182 million to ~~$912~~$800 million, or ~~22.7%~~25.2% of revenue, in the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$878~~$618 million, or ~~22.7%~~23.4% of revenue, in the comparable ~~2021~~2022 period. ~~Cost increases~~Increases in SG&A in the second quarter of 2023 as compared to the prior year primarily consisted of increased restructuring and realignment costs of $29 million, increased special charges of $51 million, $34 million of additional SG&A from the acquisition and $13 million of inflation. Increases in SG&A in the six months ended June 30, 2023 as compared to the prior year were driven by increased ~~investments~~restructuring and realignment costs of $36 million, an increase of $74 million in ~~strategic growth initiatives of $41 million and inflation of $28 million, partially offset by $29~~special charges, $34 million of ~~favorable currency impacts~~additional SG&A from the acquisition and ~~$15~~$27 million ~~productivity savings.~~

of inflation.

Research and Development ("R&D") Expenses

R&D expense was ~~$47~~$58 million, or 3.4% of revenue, in the ~~third~~second quarter of ~~2022,~~2023, as compared to ~~$49~~$53 million, or 3.9% of revenue in the ~~third~~second quarter of ~~2021;~~2022; and was ~~$152~~$111 million, or ~~3.8%~~3.5% of revenue, in the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$152~~$105 million, or ~~3.9%~~4.0% of revenue, in the comparable ~~2021~~2022 period. The R&D spend ~~was~~has remained fairly consistent year over year with a small increase in ~~both periods.~~R&D expense as a result of less R&D being captialized in the current year as compared to prior year.

4248

Restructuring and Asset Impairment Charges

Restructuring

During the three and ~~nine~~six months ended ~~September~~June 30, 2023, we incurred restructuring costs of $28 million and $34 million, respectively. We incurred these charges primarily as a result of our acquisition of Evoqua. Approximately, $14 million of the charges related to stock based compensation expense due to acceleration clauses in equity compensation agreements and approximately $14 million of the charges represented the reduction of headcount. Additionally, we incurred $6 million of charges related to our efforts to reposition our European and North American businesses to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. The charges were incurred across all of our segments.

During the three and six months ended June 30, 2022, we incurred restructuring ~~costs~~charges of ~~$3 million and $9 million, respectively.~~$6 million. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount across all segments.

During the three and nine months ended September 30, 2021, we recognized restructuring recoveries of $(2) million and charges of $6 million, respectively, of which $(2) million and $4 million, respectively, relate to actions previously announced in 2020. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment.

The following is a roll-forward for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 of employee position eliminations associated with restructuring activities:


		2022	2021		2023	2022
Planned reductions - January 1	Planned reductions - January 1	60	319	Planned reductions - January 1	102	60
Additional planned reductions	Additional planned reductions	92	73	Additional planned reductions	106	69
Actual reductions and reversals	Actual reductions and reversals	(66)	(234)	Actual reductions and reversals	(132)	(48)
Planned reductions - September 30		86	158
Planned reductions - June 30				Planned reductions - June 30	76	81

The following table presents expected restructuring spend in ~~2022~~2023 and ~~thereafter:~~
(in millions) Water Infrastructure Applied Water Measurement & Control Solutions Corporate Total
Actions Commenced in 2022:
Total expected costs $ 4 $ 1 $ 3 $ — $ 8
Costs incurred during Q1 2022 — — — — —
Costs incurred during Q2 2022 2 1 2 — 5
Costs incurred during Q3 2022 2 — 1 — 3
Total expected costs remaining $ — $ — $ — $ — $ —
Actions Commenced in 2021:
Total expected costs $ 3 $ — $ 1 $ — $ 4
Costs incurred during 2021 3 — — — 3
Costs incurred during Q1 2022 — — — — —
Costs incurred during Q2 2022 — — — — —
Costs incurred during Q3 2022 — — — — —
Total expected costs remaining $ — $ — $ 1 $ — $ 1

~~During the second quarter of 2022, we also incurred charges of $1 million within the Measurement & Control Solutions segment, related~~thereafter relating to actions commenced ~~prior to 2021.~~in 2023:


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Integrated Solutions & Services		Corporate		Total







Actions Commenced in 2023:
Total expected costs	$	4	$	2	$	6	$	7	$	33	$	52
Costs incurred during Q1 2023	1		1		3		—		—		5
Costs incurred during Q2 2023	2		—		1		4		22		29

Total expected costs remaining	$	1	$	1	$	2	$	3	$	11	$	18

The Water Infrastructure, Applied Water, ~~and~~ Measurement & Control Solutions, Integrated Solutions Services and Corporate actions commenced in ~~2022~~2023 consist primarily of severance charges. The actions ~~commenced in 2022 are complete.~~

2024.

We currently expect to incur between ~~$10~~$55 million and ~~$15~~$60 million in restructuring costs for the full year. These restructuring costs are primarily a result of our acquisition of Evoqua and are also related to efforts to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers.

Asset Impairment

During the ~~third~~first quarter of ~~2022,~~2023, we determined that ~~certain assets including~~internally developed in-process software ~~and customer relationships~~ within our Measurement & Control Solutions segment ~~were impaired. Accordingly, we~~was impaired as a result of actions taken to prioritize strategic investments and recognized an impairment charge of ~~$12~~$2 million. Refer to Note 8, "Goodwill and Other Intangible Assets," for additional information.

Operating Income and Adjusted EBITDA

Operating income was ~~$168~~$119 million (operating margin of ~~12.2%~~6.9%) during the ~~third~~second quarter of ~~2022, an increase~~2023, a decrease of ~~$16~~$27 million, or ~~10.5%~~18.5%, when compared to operating income of ~~$152~~$146 million (operating margin of ~~12.0%~~10.7%) during the prior ~~year, or a total increase~~year. Operating loss contributed by acquisitions was $47 million for the second quarter of ~~20 basis points.~~2023. Operating margin ~~expansion~~decreased 380 basis points and included unfavorable impacts of ~~110~~610 basis points from increases in special charges, ~~and~~ restructuring and realignment costs and acquired intangible asset amortization as compared to the prior year. Additionally, operating margin included ~~1200~~940 basis points of expansion from favorable operating impacts, ~~which consisted~~consisting of ~~an 800~~a 470 basis point increase ~~related to~~from price realization, 300 basis points ~~related to~~from productivity savings and ~~100~~170 basis points offrom favorable volume. Margin expansion was offset by ~~negative operating impacts of 1070 basis points driven by 650~~710 basis points of ~~inflation, 190~~unfavorable impacts driven by 350 basis points of inflation,120 basis points of increased spending on strategic investments, ~~and 80~~110 basis points of unfavorable ~~mix.~~mix and 40 basis points related to unfavorable inventory management costs. Excluding special charges, ~~and~~ restructuring and realignment costs and acquired intangible asset amortization, adjusted operating income was ~~$187~~$259 million (adjusted operating margin of ~~13.6%~~15.0%) for the ~~third~~second quarter of ~~2022~~2023 as compared to adjusted operating income of ~~$155~~$173 million (adjusted operating margin of ~~12.3%) or the third quarter of 2021.~~

Operating income was $425 million (operating margin of 10.6%) for the nine months ended September 30, 2022, a decrease of $20 million, or 4.5%, when compared to operating income of $445 million (operating margin of 11.5%) during the prior year, or a total decrease of 90 basis points. Operating margin declines included unfavorable impacts of 30 basis points from increases in special charges and restructuring and realignment costs as compared to the prior year, as well as 990 basis points of unfavorable operating impacts, driven by 700 basis points of inflation and 180 basis points of increased spending on strategic investments. Operating margin declines were offset by 930 basis points from favorable operating impacts, which were driven by a 630 basis point increase from price realization and 280 basis points from productivity savings. Excluding special charges and restructuring and realignment costs, adjusted operating income was $458 million (adjusted operating margin of 11.4%) for the nine months ended September 30, 2022 as compared to adjusted operating income of $464 million (adjusted operating margin of 12.0%) for the nine months ended September 30, 2021.

Adjusted EBITDA was $252 million (adjusted EBITDA margin of 18.3%) during the third quarter of 2022, an increase of $25 million, or 11.0%, when compared to adjusted EBITDA of $227 million (adjusted EBITDA margin of 17.9%12.7%) during the comparable quarter in the prior year. The increase in adjusted EBITDA margin was primarily due to the same factors impacting adjusted operating margin noted above; however, adjusted EBITDA margin expansion excludes the benefit from a year over year reduction in depreciation and amortization expense.

Adjusted EBITDA ~~for the nine months ended September 30, 2022~~ was ~~$659~~$329 million (adjusted EBITDA margin of ~~16.4%~~19.1%)~~, a decrease~~ during the second quarter of ~~$17~~2023, an increase of $103 million, or 2.5%, when compared to adjusted EBITDA of ~~$676~~$226 million (adjusted EBITDA margin of ~~17.5%~~16.6%) during the comparable quarter in the prior year, an increase to adjusted EBITDA margin of 250 basis points. Adjusted EBITDA margin contributed by acquisitions 50 basis points. Excluding the impact from acquisitions, adjusted EBITDA margin was impacted by the same offsetting factors impacting the adjusted operating margin.

Operating income for the six months ended June 30, 2023 was $250 million (operating margin of 7.9%), reflecting a decrease of $7 million or 2.7% when compared to $257 million (operating margin of 9.7%) in 2022 or a decrease of 180 basis points . Operating loss contributed by acquisitions was $47.4 million for the six months ended June 30, 2023. Operating margin declines included unfavorable impacts of 420 basis points from increases in acquired intangible asset amortization, special charges and restructuring and realignment as compared to the prior year. Additionally, operating margin included unfavorable impacts of 890 basis points, driven by 430 basis points of inflation,130 basis points from increased spending on strategic investments, 130 basis points from unfavorable mix, 50 basis points related to cost of quality and 30 basis points of unfavorable foreign currency impacts. Operating margin declines were offset by 1.130 basis points of favorable impacts, consisting of 570 basis points price realization, 240 basis points for favorable volume and 320 basis points from productivity savings. Excluding special charges, restructuring and realignment costs and acquired intangible asset amortization, adjusted operating income was $444 million with an adjusted operating margin of 14.0% for the six months ended June 30, 2023 as compared to adjusted operating income of $307 million with an adjusted operating margin of 11.6% in 2022.

Adjusted EBITDA for the six months ended June 30, 2023 was $565 million (adjusted EBITDA margin of 17.8%), an increase of $158 million, or 38.8%, when compared to adjusted EBITDA of $407 million (adjusted EBITDA margin of 15.4%) during the comparable period in prior year. Adjusted EBITDA margin contributed by acquisitions was 40 basis points for the six months ended June 30, 2023. The ~~decrease in~~ adjusted EBITDA margin was ~~primarily due to~~impacted by the same offsetting factors impacting the adjusted operating ~~margin noted above; however, adjusted EBITDA margin did not benefit from a year over year reduction in depreciation and amortization expense.~~margin.

4450

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:


		Three Months Ended								Nine Months Ended									Three Months Ended								Six Months Ended
		September 30,								September 30,									June 30,								June 30,
(in millions)	(in millions)	2022			2021			Change		2022			2021			Change		(in millions)	2023			2022			Change		2023			2022			Change
Water Infrastructure	Water Infrastructure																	Water Infrastructure
Operating income	Operating income	$	104		$	101		3.0	%	$	286		$	265		7.9	%	Operating income	$	106		$	108		(1.9)	%	$	176		$	182		(3.3)	%
Operating margin	Operating margin	18.1		%	18.5		%	(40)	bp	16.9		%	16.3		%	60	bp	Operating margin	15.1		%	18.3		%	(320)	bp	13.6		%	16.2		%	(260)	bp
Restructuring and realignment costs	Restructuring and realignment costs	3			1			200.0	%	7			10			(30.0)	%	Restructuring and realignment costs	3			3			—	%	6			4			50.0	%
Purchase accounting intangible amortization																		Purchase accounting intangible amortization	8			1			700.0	%	9			2			350.0	%
Special charges	Special charges	—			—			NM		—			—			NM		Special charges	12			—			NM		12			—			NM
Adjusted operating income	Adjusted operating income	$	107		$	102		4.9	%	$	293		$	275		6.5	%	Adjusted operating income	$	129		$	112		15.2	%	$	203		$	188		8.0	%
Adjusted operating margin	Adjusted operating margin	18.6		%	18.6		%	—	bp	17.3		%	16.9		%	40	bp	Adjusted operating margin	18.3		%	19.0		%	(70)	bp	15.7		%	16.8		%	(110)	bp
Applied Water	Applied Water																	Applied Water
Operating income	Operating income	$	77		$	60		28.3	%	$	197		$	190		3.7	%	Operating income	$	84		$	61		37.7	%	$	167		$	120		39.2	%
Operating margin	Operating margin	16.8		%	15.0		%	180	bp	15.0		%	15.7		%	(70)	bp	Operating margin	17.6		%	14.2		%	340	bp	17.9		%	14.1		%	380	bp
Restructuring and realignment costs	Restructuring and realignment costs	1			2			(50.0)	%	4			5			(20.0)	%	Restructuring and realignment costs	2			2			—	%	5			3			66.7	%
Purchase accounting intangible amortization																		Purchase accounting intangible amortization	—			—			NM		—			—			NM
Special charges	Special charges	—			—			NM		—			1			NM		Special charges	—			—			NM		—			—			NM
Adjusted operating income	Adjusted operating income	$	78		$	62		25.8	%	$	201		$	196		2.6	%	Adjusted operating income	$	86		$	63		36.5	%	$	172		$	123		39.8	%
Adjusted operating margin	Adjusted operating margin	17.0		%	15.5		%	150	bp	15.3		%	16.2		%	(90)	bp	Adjusted operating margin	18.0		%	14.7		%	330	bp	18.5		%	14.4		%	410	bp
Measurement & Control Solutions	Measurement & Control Solutions																	Measurement & Control Solutions
Operating income (loss)	Operating income (loss)	$	(2)		$	7		(128.6)	%	$	(17)		$	29		158.6	%	Operating income (loss)	$	26		$	(5)		620.0	%	$	46		$	(15)		406.7	%
Operating margin	Operating margin	(0.6)		%	2.2		%	(280)	bp	(1.7)		%	2.8		%	(450)	bp	Operating margin	6.3		%	(1.4)		%	770	bp	5.6		%	(2.3)		%	790	bp

Restructuring and realignment costs	Restructuring and realignment costs	2			(1)			NM		7			1			600.0	%	Restructuring and realignment costs	3			3			—	%	8			5			60.0	%
Purchase accounting intangible amortization																		Purchase accounting intangible amortization	17			17			—	%	34			34			—	%
Special charges																		Special charges	—			1			(100.0)	%	2			1			100.0	%
Adjusted operating income																		Adjusted operating income	$	46		$	16		(187.5)	%	$	90		$	25		(260.0)	%
Adjusted operating margin																		Adjusted operating margin	11.1		%	4.6		%	650	bp	11.0		%	3.8		%	720	bp
Integrated Solutions & Services																		Integrated Solutions & Services
Operating loss																		Operating loss	$	(7)		$	—		NM		$	(7)		$	—		NM
Operating margin																		Operating margin	(5.6)		%	—		%	NM		(5.6)		%	—		%	NM
Restructuring and realignment costs																		Restructuring and realignment costs	7			—			NM		7			—			NM
Purchase accounting intangible amortization																		Purchase accounting intangible amortization	11			—			NM		11			—			NM
Special charges	Special charges	12			—			100.0	%	13			—			100.0	%	Special charges	7			—			NM		7			—			NM
Adjusted operating income	Adjusted operating income	$	12		$	6		100.0	%	$	3		$	30		90.0	%	Adjusted operating income	$	18		$	—		NM		$	18		$	—		100.0	%
Adjusted operating margin	Adjusted operating margin	3.4		%	1.9		%	150	bp	0.3		%	2.9		%	(260)	bp	Adjusted operating margin	14.4		%	—		%	NM		14.4		%	—		%	NM
Corporate and other	Corporate and other																	Corporate and other
Operating loss	Operating loss	$	(11)		$	(16)		31.3	%	$	(41)		$	(39)		5.1	%	Operating loss	$	(90)		$	(18)		400.0	%	$	(132)		$	(30)		340.0	%

Restructuring and realignment costs																		Restructuring and realignment costs	22			—			NM		22			—			NM

Special charges	Special charges	1			1			NM		2			2			—	%	Special charges	48			—			NM		71			1			(7,000.0)	%
Adjusted operating loss	Adjusted operating loss	$	(10)		$	(15)		(33.3)	%	$	(39)		$	(37)		5.4	%	Adjusted operating loss	$	(20)		$	(18)		11.1	%	$	(39)		$	(29)		34.5	%
Total Xylem	Total Xylem																	Total Xylem
Operating income	Operating income	$	168		$	152		10.5	%	$	425		$	445		(4.5)	%	Operating income	$	119		$	146		(18.5)	%	$	250		$	257		(2.7)	%
Operating margin	Operating margin	12.2		%	12.0		%	20	bp	10.6		%	11.5		%	(90)	bp	Operating margin	6.9		%	10.7		%	(380)	bp	7.9		%	9.7		%	(180)	bp
Restructuring and realignment costs	Restructuring and realignment costs	6			2			200.0	%	18			16			12.5	%	Restructuring and realignment costs	37			8			362.5	%	48			12			300.0	%
Purchase accounting intangible amortization																		Purchase accounting intangible amortization	36			18			100.0	%	54			36			50.0	%

Special charges	Special charges	13			1			1,200.0	%	15			3			400.0	%	Special charges	67			1			6,600.0	%	92			2			4,500.0	%
Adjusted operating income	Adjusted operating income	$	187		$	155		20.6	%	$	458		$	464		(1.3)	%	Adjusted operating income	$	259		$	173		49.7	%	$	444		$	307		44.6	%
Adjusted operating margin	Adjusted operating margin	13.6		%	12.3		%	130	bp	11.4		%	12.0		%	(60)	bp	Adjusted operating margin	15.0		%	12.7		%	230	bp	14.0		%	11.6		%	240	bp

NM - Not meaningful percentage change

4551

The table below provides a reconciliation of net income to consolidated EBITDA and adjusted EBITDA:


		Three Months Ended								Nine Months Ended									Three Months Ended								Six Months Ended
(in millions)	(in millions)	September 30,								September 30,								(in millions)	June 30, 2023								June 30, 2023
		2022			2021			Change		2022			2021			Change			2023			2022			Change		2023			2022			Change
Net Income	Net Income	$	12		$	114		(89)	%	$	206		$	314		(34)	%	Net Income	92			112			(18)	%	191			194			(2)	%
Net Income margin	Net Income margin	0.9		%	9.0		%	(810)	bp	5.1		%	8.1		%	(30.0)	bp	Net Income margin	5.3		%	8.2		%	(290)	bp	6.0		%	7.4		%	(140)	bp
Depreciation	Depreciation	27			31			(13)	%	83			90			(8)	%	Depreciation	41			28			46	%	69			56			23	%
Amortization	Amortization	31			31			—	%	93			96			(3)	%	Amortization	51			32			59	%	83			62			34	%
Interest expense, net	Interest expense, net	7			20			(65)	%	28			58			(52)	%	Interest expense, net	5			10			(50)	%	7			21			(67)	%
Income tax expense	Income tax expense	5			19			(74)	%	45			71			(37)	%	Income tax expense	22			24			(8)	%	49			40			23	%
EBITDA	EBITDA	$	82		$	215		(62)	%	$	455		$	629		(28)	%	EBITDA	$	211		206			2	%	$	399		373			7	%
Share-based compensation	Share-based compensation	10			8			25	%	28			25			12	%	Share-based compensation	15			9			67	%	27			18			50	%
Restructuring & realignment	Restructuring & realignment	6			2			200	%	18			16			13	%	Restructuring & realignment	36			8			350	%	47			12			292	%
U.K. pension settlement expense		140			—			100.0	%	140			—			100.0	%

Special charges	Special charges	14			2			600	%	19			8			138	%	Special charges	67			3			2133	%	92			5			1740	%
Gain from sale of business	Gain from sale of business	—			—			NM		(1)			(2)			(50)	%	Gain from sale of business	—			—			NM	%	—			(1)			(100)	%
Adjusted EBITDA	Adjusted EBITDA	$	252		$	227		11	%	$	659		$	676		(3)	%	Adjusted EBITDA	$	329		$	226		46	%	$	565		$	407		39	%
Adjusted EBITDA margin	Adjusted EBITDA margin	18.3		%	17.9		%	40	bp	16.4		%	17.5		%	(110)	bp	Adjusted EBITDA margin	19.1%			16.6%			250	bp	17.8%			15.4%			240	bp

The tables below provide a reconciliation of each segment's operating income (loss) to EBITDA and adjusted EBITDA:


		Three Months Ended										Three Months Ended
		September 30, 2022										June 30, 2023
(in millions)	(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income (Loss)		$	104		$	77		$	(2)
Operating Income											Operating Income	$	106		$	84		$	26		$	(7)
Operating margin											Operating margin	15.1		%	17.6		%	6.3		%	(5.6)		%

Depreciation	Depreciation	11			4			8			Depreciation	14			4			9			8
Amortization	Amortization	1			—			27			Amortization	10			1			26			12
Other non-operating expense	Other non-operating expense	—			(1)			(1)			Other non-operating expense	1			—			—			—
EBITDA	EBITDA	$	116		$	80		$	32		EBITDA	$	131		$	89		$	61		$	13
Share-based compensation	Share-based compensation	—			2			2			Share-based compensation	5						2			3
Restructuring & realignment	Restructuring & realignment	3			1			2			Restructuring & realignment	3			2			2			7
Special charges	Special charges	—			—			12			Special charges	12			—			—			7

Adjusted EBITDA	Adjusted EBITDA	$	119		$	83		$	48		Adjusted EBITDA	$	151		$	91		$	65		$	30
Adjusted EBITDA margin	Adjusted EBITDA margin	20.7		%	18.1		%	13.8		%	Adjusted EBITDA margin	21.4		%	19.0		%	15.7		%	24.0		%

4652


		Three Months Ended										Three Months Ended
		September 30, 2021										June 30, 2022
(in millions)	(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income	Operating Income	$	101		$	60		$	7		Operating Income	$	108		$	61		$	(5)		$	—
Operating margin											Operating margin	18.3		%	14.2		%	(1.4)		%	—		%

Depreciation	Depreciation	11			5			11			Depreciation	11			4			8			—
Amortization	Amortization	1			—			27			Amortization	3			1			26			—
Other non-operating expense	Other non-operating expense	1			—			—			Other non-operating expense	1			—			(1)			—
EBITDA	EBITDA	$	114		$	65		$	45		EBITDA	$	123		$	66		$	28		$	—
Share-based compensation	Share-based compensation	1			1			1			Share-based compensation	—			1			2			—
Restructuring & realignment	Restructuring & realignment	1			2			(1)			Restructuring & realignment	3			2			3			—
Special Charges											Special Charges	—			—			1

Adjusted EBITDA	Adjusted EBITDA	$	116		$	68		$	45		Adjusted EBITDA	$	126		$	69		$	34		$	—
Adjusted EBITDA margin	Adjusted EBITDA margin	21.2		%	17.0		%	14.2		%	Adjusted EBITDA margin	21.4		%	16.1		%	9.8		%	—		%

2022 versus 2021
(in millions) Water Infrastructure Applied Water Systems Measurement & Control Solutions
Operating Income (Loss) $ 3 $ 17 $ (9)
Depreciation — (1) (3)
Amortization — — —
Other non-operating expense (1) (1) (1)
EBITDA $ 2 $ 15 $ (13)
Share-based compensation (1) 1 1
Restructuring & realignment 2 (1) 3
Special charges — — 12
Adjusted EBITDA $ 3 $ 15 $ 3
Adjusted EBITDA margin (0.5) % 1.1 % (0.4) %

Nine Months Ended
September 30, 2022
(in millions) Water Infrastructure Applied Water Systems Measurement & Control Solutions
Operating Income (Loss) $ 286 $ 197 $ (17)
Gain from sale of business — — 1
Depreciation 33 13 25
Amortization 6 1 78
Other non-operating expense (3) (2) (2)
EBITDA $ 322 $ 209 $ 85
Share-based compensation 1 4 5
Restructuring & realignment 7 4 7
Special charges — — 13
Gain from sale of business — — (1)
Adjusted EBITDA $ 330 $ 217 $ 109
Adjusted EBITDA margin 19.5 % 16.5 % 10.8 %


	Three Months Ended
	2023 versus 2022
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income (Loss)	$	(2)		$	84		$	31		$	(7)
Operating margin	(3.2)		%	3.4		%	7.7		%	(5.6)		%

Depreciation	3			—			1			8
Amortization	7			—			—			12
Other non-operating expense	—			—			1			—
EBITDA	$	8		$	23		$	33		$	13
Share-based compensation	5			(1)			—			3
Restructuring & realignment	—			—			(1)			7
Special charges	12			—			(1)			7

Adjusted EBITDA	$	25		$	22		$	31		$	30
Adjusted EBITDA margin	19.8		%	31.9		%	91.2		%	NM

4753


		Nine Months Ended										Six Months Ended
		September 30, 2021										June 30, 2023
(in millions)	(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income	Operating Income	$	265		$	190		$	29		Operating Income	$	176		$	167		$	46		$	(7)
Gain from sale of business		—			2			—
Operating margin											Operating margin	13.6		%	17.9		%	5.6		%	(5.6)		%

Depreciation	Depreciation	33			15			30			Depreciation	26			9			16			8
Amortization	Amortization	5			2			81			Amortization	12			1			53			12
Other non-operating expense	Other non-operating expense	(3)			(1)			(2)			Other non-operating expense	1			(1)			—			—
EBITDA	EBITDA	$	300		$	208		$	138		EBITDA	$	215		$	176		$	115		$	13
Share-based compensation	Share-based compensation	2			3			4			Share-based compensation	7			1			4			3
Restructuring & realignment	Restructuring & realignment	10			5			1			Restructuring & realignment	6			5			7			7
Special charges	Special charges	—			1			—			Special charges	12			—			2			7
Gain from sale of business		—			(2)			—

Adjusted EBITDA	Adjusted EBITDA	$	312		$	215		$	143		Adjusted EBITDA	$	240		$	182		$	128		$	30
Adjusted EBITDA margin	Adjusted EBITDA margin	19.2		%	17.8		%	13.8		%	Adjusted EBITDA margin	18.6		%	19.5		%	15.6		%	24.0		%


	Six Months Ended
	June 30, 2022
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income	$	182		$	120		$	(15)		$	—
Operating margin	16.2		%	14.1		%	(2.3)		%	—		%
Gain from sale of business	$	—		—			1			—
Depreciation	$	22		9			17			—
Amortization	$	5		1			51			—
Other non-operating expense	$	(3)		(1)			(1)			—
EBITDA	$	206		$	129		$	53		$	—
Share-based compensation	$	1		2			3			—
Restructuring & realignment	$	4		3			5			—
Special charges	$	—		—			1			—
Gain from sale of business	$	—		—			(1)			—
Adjusted EBITDA	$	211		$	134		$	61		$	—
Adjusted EBITDA margin	18.8		%	15.7		%	9.2		%	—		%

2022 versus 2021
(in millions) Water Infrastructure Applied Water Systems Measurement & Control Solutions
Operating Income (Loss) $ 21 $ 7 $ (46)
Gain from sale of business — (2) 1
Depreciation — (2) (5)
Amortization 1 (1) (3)
Other non-operating expense — (1) —
EBITDA $ 22 $ 1 $ (53)
Share-based compensation (1) 1 1
Restructuring & realignment (3) (1) 6
Special charges — (1) 13
Gain from sale of business — 2 (1)
Adjusted EBITDA $ 18 $ 2 $ (34)
Adjusted EBITDA margin 0.3 % (1.3) % (3.0) %


	Six Months Ended
	2023 versus 2022
(in millions)	Water Infrastructure		Applied Water Systems		Measurement & Control Solutions			Integrated Solutions & Services
Operating Income (Loss)	(6)		47		$	61		$	(7)
Operating margin	(2.6)	%	3.8	%	7.9		%	—		%
Gain from sale of business	—		—		$	(1)		$	—
Depreciation	4		—		$	(1)		$	8
Amortization	7		—		$	2		$	12
Other non-operating expense	4		—		$	1		$	—
EBITDA	9		47		$	62		$	13
Share-based compensation	6		(1)		$	1		$	3
Restructuring & realignment	2		2		$	2		$	7
Special charges	12		—		$	1		$	7
Gain from sale of business	—		—		$	1		$	—
Adjusted EBITDA	29		48		$	67		$	30
Adjusted EBITDA margin	(0.2)	%	3.8	%	6.4		%	NM

Water Infrastructure

Operating income for our Water Infrastructure segment was ~~$104~~$106 million (operating margin of ~~18.1%~~15.1%) during the ~~third~~second quarter of ~~2022, an increase~~2023, a decrease of $3$2 million, or ~~2.9%~~1.9%, when compared to operating income of ~~$101~~$108 million (operating margin of ~~18.5%~~18.3%) during the prior year, or a total decrease of 40320 basis points. Operating margin declines included unfavorable impacts of 40250 basis points from increases in special charges, amortization of acquired intangible assets and restructuring and realignment costs as compared to the prior ~~year, as well as negative~~year. Additionally, operating margin declines included 930 basis points of unfavorable operating impacts, ~~of 1,080 basis points~~ driven by ~~560~~350 basis points of inflation, ~~250~~200 basis points of unfavorable mix,180 basis points of increased spending on strategic investments, ~~and 190~~60 basis points ofrelated to unfavorable ~~mix.~~inventory management impacts and . Margin declines were offset by ~~1,080~~860 basis points from favorable operating impacts ~~consisting a 680~~driven by 500 basis points of price realization, ~~300~~240 basis points of productivity savings and ~~100~~90 basis points of favorable ~~volume.~~volume and 40 basis of negative impact from the Evoqua acquisition. Excluding amortization of purchased intangibles, special charges and restructuring and realignment costs, adjusted operating income was ~~$107~~$129 million (adjusted operating margin of ~~18.6%~~18.3%) for the ~~third~~second quarter of ~~2022~~2023 as compared to adjusted operating income of ~~$102~~$112 million (adjusted operating margin of ~~18.6%) or the third quarter of 2021.~~

~~Operating income was $286 million for our Water Infrastructure segment (operating margin of 16.9%~~19.0%) for the ~~nine months ended September 30, 2022, an increase~~second quarter of $21 million, or 7.9%, when compared to operating income of $265 million (operating margin of 16.3%) during the prior year, or a total increase of 60 basis points. Operating margin expansion included favorable impacts of 20 basis points from a decrease in restructuring and realignment costs as compared to the prior year, as well as 940 basis points from favorable operating impacts, driven by 510 basis points of price realization, 280 basis points from productivity savings and 90 basis points of favorable volume. Margin expansion was offset by 900 basis points of unfavorable impacts driven by 570 basis points of inflation, 220 basis points due to increased spending on strategic investments and 80 basis points of unfavorable mix. Excluding special charges and restructuring and realignment costs, adjusted operating income was $293 million (adjusted operating margin of 17.3%) for the nine months ended September 30, 2022 as compared to adjusted operating income of $275 million (adjusted operating margin of 16.9%) for the nine months ended September 30, 2021.2022.

Adjusted EBITDA was ~~$119~~$151 million (adjusted EBITDA margin of ~~20.7%~~21.4%) for the ~~third~~second quarter of ~~2022,~~2023, an increase of $3$25 million, ~~or 2.6%,~~ when compared to adjusted EBITDA of ~~$116~~$126 million (adjusted EBITDA margin of ~~21.2%~~21.4%) during the prior year. The acquisition impacted the adjusted EBITDA margin negatively by 20 basis points. was impacted by the same offsetting factors impacting the adjusted operating margin; however, adjusted EBITDA margin ~~did~~was not ~~benefit from a year over year reduction in share~~negatively impacted by increased stock based compensation ~~expense~~expense.

Operating income was $176 million for our Water Infrastructure segment (operating margin of 13.6%) for the six months ended June 30, 2023, an decrease of $6 million, or 3.3%, when compared to operating income of $182 million (operating margin of 16.2%) during the prior year, or a total decrease of 260 basis points. Operating margin declines included unfavorable impacts of 150 basis points from increases in acquired intangible asset amortization, special charges and ~~other non-operating expense.~~restructuring and realignment costs as compared to the prior year. Additionally, operating margin declines included 1,100 basis points of unfavorable operating impacts, driven by 420 basis points of inflation, 240 basis points of unfavorable mix, 180 basis points of increased spending on strategic investments, 90 basis points related to inventory management costs and 40 basis points related to increased employee costs. Margin declines were offset by 990 basis points from favorable operating impacts consisting of 620 basis points of price realization, 240 basis points of productivity savings and 130 basis points of favorable volume. Excluding amortization of acquired intangible assets, special charges and restructuring and realignment costs, adjusted operating income was $203 million (adjusted operating margin of 15.7%) for the six months ended

June 30, 2023 as compared to adjusted operating income of $188 million (adjusted operating margin of 16.8%) for the six months ended June 30, 2023.

Adjusted EBITDA for the six months ended June 30, 2023 was ~~$330~~$240 million (adjusted EBITDA margin of ~~19.5%~~18.6%) ~~for the nine months ended September 30, 2022,~~, an increase of ~~$18~~$29 million, or ~~5.8%~~0.2%, when compared to adjusted EBITDA of ~~$312~~$211 million (adjusted EBITDA margin of ~~19.2%~~18.8%) during ~~2021.~~the comparable period in prior year. The ~~increase~~decrease in adjusted EBITDA margin was primarily due to the same factors impacting operating margin noted above, however, adjusted EBITDA margin was not negatively impacted by increased stock based compensation expense and also benefited from a decrease in other non-operating expense as compared to the ~~increase in adjusted operating margin.~~prior year.

Applied Water

Operating income for our Applied Water segment was ~~$77~~$84 million (operating margin of ~~16.8%~~17.6%) during the ~~third~~second quarter of ~~2022,~~2023, an increase of ~~$17~~$23 million, or ~~28.3%~~37.7%, when compared to operating income of ~~$60~~$61 million (operating margin of ~~15.0%~~14.2%) during the prior year, or a total increase of ~~180~~340 basis points. Operating margin expansion included ~~favorable impacts~~an unfavorable impact of 3010 basis points from ~~a decrease~~an increase in restructuring and realignment costs as compared to the prior ~~year, as well as 1,510~~year. Additionally, operating margin expansion included 940 basis points from favorable operating impacts, ~~driven by 1,150~~consisting of 600 basis points ~~from~~of price realization and ~~320~~340 basis points ~~from~~of productivity savings. Margin expansion was offset by negative operating impacts of ~~1,360~~610 basis points driven by ~~860~~350 basis points of ~~inflation, 130~~inflation,70 basis points related to unfavorable currency impacts, 60 basis points of increased spending on strategic investments, ~~130~~60 basis points of ~~inventory management costs~~unfavorable volume, and 60 basis points of unfavorable mix. Excluding ~~special charges and~~ restructuring and realignment costs, adjusted operating income was ~~$78~~$86 million (adjusted operating margin of ~~17.0%~~18.0%) for the ~~third~~first quarter of ~~2022~~2023 as compared to adjusted operating income of ~~$62~~$63 million (adjusted operating margin of ~~15.5%~~14.7%) for the ~~third~~second quarter of ~~2021.~~

Operating income was $197 million for our Applied Water segment (operating margin of 15.0%) for the nine months ended September 30, 2022, an increase of $7 million, or 3.7%, when compared to operating income of $190 million (operating margin of 15.7%) during the prior year, or a total decrease of 70 basis points. Operating margin declines included favorable impacts of 20 basis points from a decrease in restructuring and realignment costs and special charges as compared to the prior year, as well as 1,300 basis points of unfavorable operating impacts, driven by 950 basis points of inflation, 100 basis points of increased spending on strategic investments, and 70 basis points of increased inventory management costs. Margin declines were offset by 1,210 basis points from favorable operating impacts, which were driven by 880 basis points of price realization and 320 basis points from productivity savings. Excluding special charges and restructuring and realignment costs, adjusted operating income was $201 million (adjusted operating margin of 15.3%) for the nine months ended September 30, 2022 as compared to adjusted operating income of $196 million (adjusted operating margin of 16.2%) for the nine months ended September 30, 2021.2022.

Adjusted EBITDA was ~~$83~~$91 million (adjusted EBITDA margin of ~~18.1%~~19.0%) for the ~~third~~second quarter of ~~2022,~~2023, an increase of ~~$15~~$22 million, or ~~22.1%~~2.9%, when compared to adjusted EBITDA of ~~$68~~$69 million (adjusted EBITDA margin of ~~17.0%~~16.1%) 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,~~margin.

Operating income for our Applied Water segment was $167 million (operating margin of 17.9%) during the six months ended June 30, 2023, an increase of $47 million or 39.2%, when compared to operating income of $120 million (operating margin of 14.1%) during the prior year, or a total increase of 380 basis points. Operating margin expansion included unfavorable impacts of 30 basis points from increases in restructuring and realignment costs as compared to the prior year. Operating margin increases included 1,090 basis points of favorable operating impacts, driven by 700 basis points from price realization and 360 basis points from productivity savings. Margin expansion was offset by negative operating impacts of 690 basis points consisting of 460 basis points of inflation, 70 basis points of increased spending on strategic investments and 60 basis points of unfavorable mix. Excluding restructuring and realignment costs, adjusted ~~EBITDA~~operating income was $172 million (adjusted operating margin ~~did not benefit from a year over year reduction in depreciation and amortization expense.~~of 18.5%) for the six months ended June 30, 2023 as compared to adjusted operating income of $123 million (adjusted operating margin of 14.4%) for the six months ended June 30, 2023.

Adjusted EBITDA was ~~$217~~$182 million (adjusted EBITDA margin of ~~16.5%~~19.5%) for the ~~nine~~six months ended ~~September~~June 30, ~~2022, an~~2023, a increase of $2$48 million, or ~~0.9%~~3.8%, when compared to adjusted EBITDA of ~~$215~~$134 million (adjusted EBITDA margin of ~~17.8%~~15.7% ) during the prior year. The ~~decrease~~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 a year over year reduction in depreciation and amortization expense.~~margin.

4956

Measurement & Control Solutions

Operating ~~loss~~income for our Measurement & Control Solutions segment was $2$26 million (operating margin of ~~(0.6%)~~6.3%) during the ~~third~~second quarter of ~~2022, a decrease~~2023, an increase of $9$31 million, or ~~(128.6)%~~620.0%, when compared to operating ~~income~~loss of $7$5 million (operating margin of ~~2.2%~~(1.4)%) during the prior year, or a total ~~decrease~~increase of ~~280~~770 basis points. Operating margin ~~declines~~expansion included ~~unfavorable~~favorable impacts of ~~430~~120 basis points from ~~increases in special charges (asset impairment) and~~acquired intangible asset amortization, restructuring and realignment costs and special charges as compared to the prior year. ~~Operating~~Additionally, operating margin ~~declines also~~expansion included 1,470 basis points of favorable operating impacts,consisting of 730 basis points of favorable volume, 380 basis points of productivity savings and 360 basis points of price realization. Margin expansion was offset by negative operating impacts of ~~530~~820 basis points driven by ~~490~~400 basis points of ~~inflation. Margin declines were offset by 680~~inflation, 130 basis points from ~~favorable operating impacts consisting of 440~~a decrease in capitalized R&D, 70 basis points of ~~price realization and 240~~increased spending on strategic investments, 60 basis points of ~~favorable volume.~~unfavorable mix and 50 basis points from increased employee costs . Excluding ~~special charges and~~acquired intangible asset amortization, restructuring and realignment costs and special charges, adjusted operating income was ~~$12~~$46 million (adjusted operating margin of ~~3.4%~~11.1%) for the ~~third~~second quarter of ~~2022~~2023 as compared to adjusted operating income of $6$16 million (adjusted operating margin of ~~1.9%~~4.6%) for the ~~third~~second quarter of ~~2021.~~

Operating loss was $17 million for our Measurement & Control Solutions (operating margin of (1.7%)) for the nine months ended September 30, 2022, a decrease of $46 million, or (158.9)%, when compared to operating income of $29 million (operating margin of 2.8%) during the prior year, or a total decrease of 450 basis points. Operating margin declines included unfavorable impacts of 190 basis points an increase in special charges (asset impairment) and restructuring and realignment costs as compared to the prior year. Operating margin declines also had negative operating impacts of 890 basis points of unfavorable impacts driven by 530 basis points of inflation, 160 basis points of unfavorable volume and 90 basis points of unfavorable mix. Margin declines were offset by 630 basis points from favorable operating impacts consisting of 410 basis points of price realization and 220 basis points from productivity savings. Excluding special charges and restructuring and realignment costs, adjusted operating income was $3 million (adjusted operating margin of 0.3%) for the nine months ended September 30, 2022 as compared to adjusted operating income of $30 million (adjusted operating margin of 2.9%) for the nine months ended September 30, 2021.2022.

Adjusted EBITDA was ~~$48~~$65 million (adjusted EBITDA margin of ~~13.8%~~15.7%) for the ~~third~~second quarter of ~~2022,~~2023, an increase of $3$31 million, or ~~6.7%~~5.9%, when compared to adjusted EBITDA of ~~$45~~$34 million (adjusted EBITDA margin of ~~14.2%~~9.8%) during the prior year. The ~~decrease~~increase in adjusted EBITDA margin was due to the same factors as those impacting the increase in adjusted operating margin; however, adjusted EBITDA margin did not benefit from ~~a year over year reduction in~~the relative impact of depreciation and software amortization expense.

Operating income for our Measurement & Control Solutions segment was $46 million (operating margin of 5.6%) during the six months ended June 30, 2023, an increase of $61 million, or 406.7%, when compared to operating loss of $15 million (operating margin of (2.3)%) during the prior year, or a total increase of 790 basis points. Operating margin expansion included favorable impacts of 70 basis points from the net changes to acquired intangible asset amortization, restructuring and realignment costs and special charges as compared to the prior year. Additionally, operating margin expansion included 1,680 basis points of favorable operating impacts, driven by 920 basis points of favorable volume, 400 basis points of price realization and 350 basis points of productivity savings. Margin expansion was offset by negative operating impacts of 960 basis points driven by 410 basis points of inflation, 160 basis points due to unfavorable mix, 100 basis points related to a decrease in capitalized R&D, 90 basis points of increased spending on strategic investments and 50 basis points related to increased employee costs,. Excluding acquired intangible asset amortization, special charges and restructuring and realignment costs, adjusted operating income was $90 million (adjusted operating margin of 11.0%) for the second quarter of 2023 as compared to adjusted operating income of $25 million (adjusted operating margin of 3.8%) for the second quarter of 2022.

Adjusted EBITDA was ~~$109~~$128 million (adjusted EBITDA margin of ~~10.8%~~15.6%) for the ~~nine~~six months ended ~~September~~June 30, ~~2022, a decrease~~2023, an increase of ~~$34~~$67 million, or ~~23.8%~~6.4%, when compared to adjusted EBITDA of ~~$143~~$61 million (adjusted EBITDA margin of ~~13.8%~~9.2%) during the prior year. The ~~decrease~~increase in adjusted EBITDA margin was due to the same factors as those impacting the ~~decrease~~increase in adjusted operating margin; however, adjusted EBITDA margin ~~decline was greater as it~~ did not benefit from ~~a year over year reduction in~~the relative impact of depreciation and software amortization expense.

Integrated Solutions & Services

Operating loss for our Integrated Solutions & Services segment for the three and six months ended was $7 million (operating margin of negative 5.6%) . Excluding amortization of acquired intangible asset amortization, special charges and restructuring and realignment costs, adjusted operating income was $18 million (adjusted operating margin of 14.4%).

Adjusted EBITDA for our Integrated Solutions & Services segment for the three and six months ended was $30 million (adjusted EBITDA margin of 24.0%).

Corporate and Other

Operating loss for corporate and other ~~decreased $5~~increased $72 million, or ~~31.2%~~400%, during the ~~third~~second quarter of ~~2022~~2023 compared to the prior year period. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, operating loss for corporate and other increased $102 million, or 340%, compared to the same prior period. The increase in operating loss for the three months ended June 30,2023 was primarily due to special charges related to acquisition and integration costs resulting from the acquisition of Evoqua and increased restructuring and realignment costs. Additional corporate costs driven by the Evoqua acquisition also contributed to the increase in operating loss for the quarter. The increase in operating loss for the six months ended June 30, 2023 was primarily driven by special charges related to acquisition and integration costs resulting from the acquisition of Evoqua and increased restructuring and realignment costs, The timing of corporate initiatives, higher employee benefit costs, increased strategic initiatives and additional corporate costs driven by the acquisition of Evoqua also contributed to the higher operating loss. Excluding special charges and restructuring and realignment costs, adjusted operating loss for corporate and other increased $2 million ~~or 5.1%, compared to the same prior year period. The decrease in operating loss~~and $10 million for the three months and six months ended ~~September~~June 30, ~~2022 was due to~~2023, respectively driven by the ~~timing of employee-related expenses as compared to prior year. The increase in operating loss for the year was primarily due to higher performance related incentive costs.~~factors previously noted.

Interest Expense

Interest expense was $12 million ~~and $37~~for the three months ended June 30, 2023, flat with the comparable prior year period. For the six months ended June 30, 2023 interest expense was $21 million compared to $25 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022 and $21 million and $63 million for the three and nine months ended September 30, 2021, respectively.~~2022. The decrease in interest expense iswas primarily driven by interest expense incurred during ~~2021~~2022 related to our ~~senior note~~2.250% Senior Notes due 2023 that ~~was~~were paid off in ~~October 2021~~December 2022 and reduced expense generated by cross currency swaps. Partially offsetting these items was interest ~~income related to additional net investment hedges executed~~expense on several debt facilities including, a term loan entered into in ~~during 2022.~~May 2023 for use in funding the acquisition of Evoqua, securitization and equipment financing facilities assumed as part of our acquisition of Evoqua and commercial paper. See Note ~~9.,~~9, “Derivative Financial Instruments” and Note ~~11,~~12, "Credit Facilities and Debt," of our condensed consolidated financial statements for a description of our net investment hedges and credit facilities and long-term debt, respectively.

Income Tax Expense

The income tax provision for the three months ended ~~September~~June 30, ~~2022~~2023 was $5$22 million resulting in an effective tax rate of ~~27.8%~~19.1%, compared to a ~~$19~~$24 million expense resulting in an effective tax rate of ~~13.9%~~17.5% for the same period in 2021. The income tax provision for the nine months ended September 30, 2022 was $45 million resulting in an effective tax rate of 17.8%, compared to a $71 million expense resulting in an effective tax rate of 18.3% for the same period in 2021.2022. The effective tax rate for the three months ended ~~September~~June 30, ~~2022~~2023 differs from the same period in ~~2021~~2022 due to the impact of earnings mix in the current period. The effective tax rate for the nine month period ended September 30, 2022 differs from the same period in 2021 due to the impact of tax settlement benefits in the current period which was partially offset by permanent differences.and nondeductible transaction costs recorded.

Liquidity and Capital Resources

The following table summarizes our sources and (uses) of cash:


		Nine Months Ended							Six Months Ended
		September 30,							June 30,
(in millions)	(in millions)	2022		2021		Change		(in millions)	2023		2022		Change
Operating activities	Operating activities	$	234	$	318	$	(84)	Operating activities	$	9	$	32	$	(23)
Investing activities	Investing activities	(123)		(113)		(10)		Investing activities	(489)		(84)		(405)
Financing activities	Financing activities	(210)		(806)		596		Financing activities	235		(158)		393
Foreign exchange (a)	Foreign exchange (a)	(64)		(19)		(45)		Foreign exchange (a)	9		(26)		35
Total	Total	$	(163)	$	(620)	$	457	Total	$	(236)	$	(236)	$	—

(a)The impact is primarily due to ~~weakening~~strengthening of the Euro, Polish Zloty and Chinese ~~Yuan partially offset by strengthening of the Russian Ruble.~~Yuan.

Sources and Uses of Liquidity

Operating Activities

Cash generated by operating activities was ~~$234~~$9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~$318~~$32 million in the comparable prior year period. The reduction in cash ~~generated~~provided was primarily driven by higher ~~working capital~~tax payments, the investment in a distribution agreement of select technology and the payment of transaction costs associated with the acquisition of Evoqua. Reductions in inventory levels ~~reflecting increased safety stock~~ and higher ~~accounts receivable driven by increased sales. Lower interest and income tax payments~~cash earnings partially offset these items.

Investing Activities

Cash used in investing activities was ~~$123~~$489 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~$113~~$84 million in the comparable prior year period. The increase in ~~spending was driven by higher~~cash used reflects payments related to the acquisition of Evoqua, cash paid for equity investments and increased capital ~~expenditures driven primarily by investments in equipment~~expenditures. The sale of a business and ~~rental fleet. Cash~~cash received from ~~cross-currency~~the termination of acquired interest rate swaps partially offset ~~the outflow.~~these items.

Financing Activities

Cash ~~used~~generated by financing activities was ~~$210~~$235 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to cash used of ~~$806~~$158 million in the comparable prior year period. The ~~reduction~~increase in cash ~~used~~provided was primarily driven by cash received from a new term loan facility, the ~~repayment~~issuance of ~~Senior Notes due 2021~~commercial paper, a reduction in stock repurchases and proceeds for the ~~prior year.~~exercise of employee stock options. Higher dividend payments partially offset these cash inflows.

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. ~~As a result of uncertainties caused both directly and indirectly by the COVID-19 pandemic and macroeconomic conditions, we continue to~~We continually evaluate aspects of our spending, including capital expenditures, strategic investments and dividends.

~~Historically, we have generated operating cash flow sufficient to fund our primary cash needs.~~ 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 ~~11,~~12, "Credit Facilities and Debt", of our condensed 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 basis. In addition, our existing committed credit facilities and access to the public debt markets would provide further liquidity if required.

Based on our current global cash positions, cash flows from operations and access to the capital markets, we believe there is sufficient liquidity to meet our funding requirements and service debt and other obligations in both

the U.S. and outside of the U.S. during the year. ~~In addition,~~As of June 30, 2023, we ~~believe~~have $925 million available under our ~~existing committed credit facilities~~2023 Credit Facility and ~~access to the public debt markets would provide further liquidity if required. Currently, we have~~$708 million of cash and cash equivalents, resulting in available liquidity of approximately $2.0 billion, consisting of $1.2 billion of cash and $800 million of available credit facilities as disclosed in Note 11, "Credit Facilities and Debt", of our condensed consolidated financial statements. On October 1, 2021 our Senior Notes due 2021 were settled with cash on hand for a total of $600 million. We intend to repay the Senior Notes due 2023 in December 2022 at par using cash on hand.$1.6 billion.

Risks related to these items are described in our risk factor disclosures referenced under “Item 1A. Risk Factors" in our ~~2021~~2022 Annual Report.

Credit Facilities & Long-Term Contractual Commitments

See Note ~~11,~~12, "Credit Facilities and Debt," of our condensed consolidated financial statements for a description of our credit facilities and long-term debt.

Non-U.S. Operations

We generated approximately ~~53%~~49% and 54% of our revenue from non-U.S. operations for the three and ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~respectively, and 56% for both the three and nine months ended September 30, 2021.~~respectively. As we continue to grow our operations in the emerging markets and elsewhere outside of the 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 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 to do so. We continually review our domestic and foreign cash profile and our, 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 ~~September~~June 30, ~~2022,~~2023, we have provided a deferred tax liability of $1$22 million for net foreign withholding taxes and state income taxes on ~~$475~~$650 million of earnings expected to be repatriated to the U.S. parent as deemed necessary in the future.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and capital resources are based on our condensed consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. We believe the most complex and sensitive judgments, because of their significance to the condensed consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently ~~uncertain, particularly at this time and moving forward given the uncertainty around the magnitude and duration of the COVID-19 pandemic and related macro economic conditions.~~uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~2021~~2022 Annual Report describes the critical accounting estimates used in preparation of the condensed consolidated financial statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in the information concerning our critical accounting estimates as stated in our ~~2021~~2022 Annual Report.

~~Post-retirement Benefit Plans.~~ As described in our 2021 Annual Report, the Company initiated the process for a full buy-out of its largest defined benefit plan in the U.K. in 2019. During the first quarter of 2020, the Company purchased a bulk annuity policy as a plan asset to facilitate the termination and buy-out of the plan. The buyout was completed in September 2022, at which point the remaining benefit obligations were transferred to the insurer and we were relieved of any further obligation. As a result, we recorded a pension settlement charge of £123 million (approximately $140 million), primarily consisting of unrecognized actuarial losses. ~~The settlement also resulted in the recognition of $23 million in net tax benefits. The settlement of the plan did not impact our cash position.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the information concerning market risk as stated in our ~~2021~~2022 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5361

PART II

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

~~There have been no~~Information regarding our risk factors appears in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 24, 2023 (“Annual Report”). These risk factors describe some of the assumptions, risks, uncertainties and other factors that could materially and adversely affect our business, financial condition or operating results. In addition, the following risk factors represent material changes ~~from the~~in our risk factors ~~previously~~from those disclosed in ~~"Item~~Item 1A. ~~Risk Factors"~~ of our ~~2021~~ Annual Report.

Wastewater treatment operations and the handling, storage, release or disposal of hazardous materials may result in contamination, environmental or other liabilities or pose other significant risks that could cause us to incur significant costs and reputational harm.

Wastewater treatment involves various unique risks. If our treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby bodies of water and groundwater, causing various damages and injuries, including environmental. Liabilities resulting from such events, damages and injuries could materially adversely affect our business, financial condition, results of operations or prospects.

Furthermore, certain of our business activities, including those of our ISS segment, include manufacturing processes and waste recycling and treatment processes that currently involve the use, treatment, storage, transfer, handling and/or disposal of hazardous materials, chemicals, and wastes. These business activities create a risk of accidental contamination or injury to our employees, customers and other third parties, the general public (as end-users of our industrial and municipal customers’ products and services), and the environment. As such, these activities create a risk of significant legal and environmental liabilities and reputational damage. For example, under applicable environmental laws and regulations, including RCRA and CERCLA, we could be strictly, jointly, and severally liable for releases of regulated substances by us at our current or former properties or the properties of others or by other businesses that previously owned or used our current or former properties. We could also be liable or incur reputational damage if we merely generate hazardous materials or wastes, or arrange for their transportation, disposal, or treatment, or we transport such materials, and they are subsequently released or cause harm.

In the event that our business activities and wastewater treatment operations result in legal or environmental claims, damage or liabilities, including those described above, we could incur significant costs or reputational damage in connection with legal defense, investigation and remediation of environmental contamination, and damages related to property damage, personal injuries and natural resources. Such costs and liabilities could exceed any applicable insurance coverage we may have.

Additionally, we are subject to, on an ongoing basis, federal, state, and local laws and regulations governing the use, storage, handling and disposal of hazardous materials and specified waste products. The cost of compliance with these laws and regulations may become significant and could have a material adverse effect on our business, financial condition, results of operations or prospects.

If we are unable to successfully execute large projects and meet customers’ timelines and performance and safety requirements, this could have a material adverse effect on our sales and profitability.

A portion of our revenue is derived from large projects that are technically complex and may occur over multiple years. These projects are subject to a number of significant risks, including project delays, cost overruns, changes

in scope, unanticipated site conditions, design and engineering issues, incorrect cost assumptions, increases in the cost of materials and labor, health and safety hazards, subcontractor performance issues, weather issues and changes in laws or permitting requirements. If we are unable to manage these risks, we may incur higher costs, liquidated damages, and other liabilities to our customers, which may decrease our profitability and harm our reputation.

Furthermore, our project-based customers typically require performance guarantees as to the effluent water produced by our water treatment equipment and services. Failure of our products and services to meet our performance guarantees may increase costs by requiring additional engineering, replacement of parts and equipment and frequent replacement of consumables, or monetary reimbursement to a customer, and could otherwise result in liability to our customers. There are significant uncertainties and judgments involved in estimating performance guarantee obligations, including changing product designs, differences in customer installation processes and failure to identify or disclaim certain variables in a customer’s influent. To the extent that we incur substantial performance guarantee claims in any period, our reputation, earnings, and ability to obtain future business could be materially adversely affected.

Many of our customers also have safety performance requirements that we must meet in order to be allowed access to their sites to perform our services, install our products and execute projects. Risks arising from unsafe products or performance by our employees include, among other things, delays in or suspension of site access to service or timely deliver our products. Workplace accidents or near-accidents, product-related accidents, or the failure to follow our own or our customers’ safety policies could also damage our reputation or our customers’ perception of our safety record, which could have a material adverse impact on demand for our products and services, result in additional costs to our business or the loss of customers, result in litigation against us or increase government or regulatory oversight over us.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents information with respect to purchases of the Company's common stock by the Company during the three months ended ~~September~~June 30, ~~2022:~~2023:


(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)
7/4/1/2223 - ~~7/31/22~~4/30/23	—	—	—	$182
8/5/1/2223 - 8/5/31/2223	—	—	—	$182
9/6/1/2223 - 9/6/30/2223	—	—	—	$182

This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.

(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 stockholders and maintains our focus on growth. There were no shares repurchased under this program for the three months ended ~~September~~June 30, ~~2022.~~2023. There are up to $182 million in shares that may still be purchased under this plan as of ~~September~~June 30, ~~2022.~~2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~(c) Trading Plans

During the quarter ended June 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

ITEM 6. EXHIBITS

See the Exhibit Index for a list of exhibits filed as part of this report and incorporated herein by reference.

XYLEM INC.

EXHIBIT INDEX


Exhibit Number		Description	Location

2.1		Agreement and Plan of Merger, dated as of January 22, 2023, among Xylem Inc., Fore Merger Sub, Inc. and Evoqua Water Technologies Corp.	Incorporated by reference to Exhibit 2.1 of Xylem Inc.’s Form 8-K filed on January 23, 2023 (CIK No. 1524472, File No. 1-24339)

3.1		Fourth Amended and Restated Articles of Incorporation of Xylem Inc.	Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 8-K filed on May 15, 2017 (CIK No. 1524472, File No. 1-35229).

3.2		~~Fourth~~Fifth Amended and Restated By-laws of Xylem Inc.	Incorporated by reference to Exhibit ~~3.2~~3.1 of Xylem Inc.’s Form 8-K filed on ~~May~~November 15, ~~2017~~2022 (CIK No. 1524472, File No. 1-35229).














10.1		Term Loan Agreement dated as of May 9, 2023 among Xylem Europe GmbH, as borrower, Xylem Inc. as parent guarantor and ING Bank, N.V. as lender (including Form of Parent Guarantee)	Filed herewith.

10.2	#	EWT Holdings I Corp. Stock Option Plan	Incorporated by reference to Exhibit 10.17 to Amendment No. 2 to EWT Holdings I Corp’s Evoqua’s Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)

10.3	#	Form of EWT Holdings I Corp. Nonqualified Stock Option Agreement	Incorporated by reference to Exhibit 10.29 to Amendment No. 2 to EWT Holdings I Corp’s Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785))

10.4	#	Form of EWT Holdings I Corp. 2017 Annual Incentive Plan	Incorporated by reference to Exhibit 10.31 to Amendment No. 2 to EWT Holdings I Corp’s Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)

10.5	#	Form of Nonqualified Stock Option Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on April 4, 2018 (File No. 001-38272

10.6	#	Form of Restricted Stock Unit Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (Employee Form)	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on April 4, 2018 (File No. 001-38272)

10.7	#	Form of Nonqualified Stock Option Award Agreement under Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on May 10, 2019 (File No. 001-38272)

10.8	#	Form of Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q filed on May 10, 2019 (File No. 001-38272)

10.9	#	Form of Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (RSUs Received in Connection with AIP Payment)	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 6, 2019 (File No. 001-38272)

10.10	#	Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on May 6, 2020 (File No. 001-38272)

10.11	#	Form of Non-Employee Director Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.33 to the Registrant’s Form 10-K filed on November 17, 2021 (File No. 001-38272)

10.12	#	Form of Special Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)


Exhibit Number		Description	Location
10.13	#	Form of Special Performance Share Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)

10.14	#	Form of Restricted Stock Unit Award-Notice of Grant under the Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (for awards made after fiscal 2021)	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q filed on February 1, 2022 (File No. 001-38272)

10.15	#	Form of Performance Share Unit Award-Notice of Grant under the Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (for awards made after fiscal 2021)	Incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q filed on February 1, 2022 (File No. 001-38272)

31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.

101.0		The following materials from Xylem Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September~~June 30, ~~2022,~~2023, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements	The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

104.0		The cover page from Xylem Inc.'s Quarterly Report on Form 10-Q for the period ended ~~September~~June 30, ~~2022~~2023 formatted in Inline XBRL and contained in Exhibit 101.0.

		# Management contract or compensatory plan or arrangement

5566

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						XYLEM INC.
						(Registrant)

						/s/ Geri McShane
						Geri McShane
						Vice President, Controller and Chief Accounting Officer

~~November 1, 2022~~August 4, 2023

5667


	2022 versus 2021
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions
Operating Income (Loss)	$	3		$	17		$	(9)
Depreciation	—			(1)			(3)
Amortization	—			—			—
Other non-operating expense	(1)			(1)			(1)
EBITDA	$	2		$	15		$	(13)
Share-based compensation	(1)			1			1
Restructuring & realignment	2			(1)			3
Special charges	—			—			12
Adjusted EBITDA	$	3		$	15		$	3
Adjusted EBITDA margin	(0.5)		%	1.1		%	(0.4)		%