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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number: 1-35229
Xylem Inc.
(Exact name of registrant as specified in its charter)
 
Indiana  45-2080495
(State or other jurisdiction of incorporation or
organization)
  (I.R.S. Employer Identification No.)
1 International Drive, Rye Brook, NY 10573
(Address of principal executive offices) (Zip code)
(914) 323-5700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange of which registered
Common Stock, par value $0.01 per shareXYLNew York Stock Exchange
2.250% Senior Notes due 2023XYL23New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
As of April 30, 2021, there were 180,041,590 outstanding shares of the registrant’s common stock, par value $0.01 per share.




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


PART I

ITEM 1.             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

For the three months ended March 31,20212020
Revenue$1,256 $1,123 
Cost of revenue766 714 
Gross profit490 409 
Selling, general and administrative expenses301 297 
Research and development expenses50 49 
Restructuring and asset impairment charges6 2 
Operating income133 61 
Interest expense21 16 
Other non-operating income (expense), net2 (3)
Income before taxes114 42 
Income tax expense27 4 
Net income$87 $38 
Earnings per share:
Basic$0.49 $0.21 
Diluted$0.48 $0.21 
Weighted average number of shares:
Basic180.3 180.2 
Diluted181.5 181.3 
See accompanying notes to condensed consolidated financial statements.

3


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
 
For the three months ended March 31,20212020
Net income$87 $38 
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment10 (78)
Net change in derivative hedge agreements:
Unrealized loss(11)(2)
Amount of (gain) loss reclassified into net income(3)3 
Net change in post-retirement benefit plans:
Amortization of prior service credit(1)(1)
Amortization of net actuarial loss into net income6 5 
Other comprehensive income (loss), before tax1 (73)
Income tax expense related to items of other comprehensive income (loss)14 14 
Other comprehensive loss, net of tax(13)(87)
Comprehensive income (loss)$74 $(49)
Less: comprehensive loss attributable to noncontrolling interests (1)
Comprehensive income (loss) attributable to Xylem $74 $(48)
See accompanying notes to condensed consolidated financial statements.
4


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
March 31,
2021
December 31,
2020
  
ASSETS
Current assets:
Cash and cash equivalents$1,688 $1,875 
Receivables, less allowances for discounts, returns and credit losses of $38 and $46 in 2021 and 2020, respectively
952 923 
Inventories596 558 
Prepaid and other current assets165 167 
Total current assets3,401 3,523 
Property, plant and equipment, net627 657 
Goodwill2,831 2,854 
Other intangible assets, net1,075 1,093 
Other non-current assets611 623 
Total assets$8,545 $8,750 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$530 $569 
Accrued and other current liabilities714 787 
Short-term borrowings and current maturities of long-term debt600 600 
Total current liabilities1,844 1,956 
Long-term debt2,460 2,484 
Accrued post-retirement benefits502 519 
Deferred income tax liabilities257 242 
Other non-current accrued liabilities536 573 
Total liabilities5,599 5,774 
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 195.2 shares and 194.9 shares in 2021 and 2020, respectively
2 2 
Capital in excess of par value2,049 2,037 
Retained earnings1,967 1,930 
Treasury stock – at cost 15.2 shares and 14.5 shares in 2021 and 2020, respectively
(655)(588)
Accumulated other comprehensive loss(426)(413)
Total stockholders’ equity2,937 2,968 
Non-controlling interests9 8 
Total equity2,946 2,976 
Total liabilities and stockholders’ equity$8,545 $8,750 
See accompanying notes to condensed consolidated financial statements.
5


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the three months ended March 31,20212020
Operating Activities
Net income$87 $38 
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation30 29 
Amortization32 35 
Share-based compensation9 8 
Restructuring and asset impairment charges6 2 
Other, net2 4 
Payments for restructuring(12)(8)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables(42)23 
Changes in inventories(46)(54)
Changes in accounts payable(29)(68)
Other, net(63)(11)
Net Cash – Operating activities(26)(2)
Investing Activities
Capital expenditures(39)(51)
Proceeds from the sale of property, plant and equipment1  
Other, net7 3 
Net Cash – Investing activities(31)(48)
Financing Activities
Short-term debt issued, net 193 
 Short-term debt repaid (3)
Repurchase of common stock(67)(60)
Proceeds from exercise of employee stock options3 5 
Dividends paid(51)(48)
Net Cash – Financing activities(115)87 
Effect of exchange rate changes on cash(15)(22)
Net change in cash and cash equivalents(187)15 
Cash and cash equivalents at beginning of year1,875 724 
Cash and cash equivalents at end of period$1,688 $739 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$41 $12 
Income taxes (net of refunds received)$28 $8 
See accompanying notes to condensed consolidated financial statements.
6


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

Note 1. Background and Basis of Presentation
Background
Xylem Inc. (“Xylem” or the “Company”) is a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment.
Xylem operates in three segments, Water Infrastructure, Applied Water and Measurement & Control Solutions. See Note 17, "Segment Information", to the condensed consolidated financial statements for further segment background information.
Except as otherwise indicated or unless the context otherwise requires, "Xylem," "we," "us," "our" and the "Company" refer to Xylem Inc. and its subsidiaries.
Basis of Presentation
The interim condensed consolidated financial statements reflect our financial position and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions between our businesses have been eliminated.
The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair statement of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 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 2020 Annual Report.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, post-retirement obligations and assets, revenue recognition, income taxes, valuation of intangible assets, goodwill and indefinite-lived intangible impairment testing and contingent liabilities. Actual results could differ from these estimates. The global outbreak of the novel coronavirus ("COVID-19") disease in March 2020, declared a pandemic by the World Health Organization, has created significant global volatility, uncertainty and economic disruption. The COVID-19 pandemic also has caused increased uncertainty in estimates and assumptions affecting the condensed consolidated financial statements. Actual results could differ from these estimates.
Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the condensed consolidated financial statements included herein are described as ending on the last day of the calendar quarter.

7


Note 2. Revenue
Disaggregation of Revenue
The following table illustrates the sources of revenue:
Three Months Ended
March 31,
(in millions)20212020
Revenue from contracts with customers$1,211 $1,074 
Lease Revenue45 49 
Total$1,256 $1,123 

The following table reflects revenue from contracts with customers by application. The table below also reflects updates to the aggregation of applications to simplify and focus presentation.
Three Months Ended
March 31,
(in millions)20212020
Water Infrastructure
     Transport$370 $318 
     Treatment94 71 
Applied Water
     Commercial Building Services147 137 
Residential Building Services67 50 
     Industrial Water179 151 
Measurement & Control Solutions
     Water283 265 
     Energy71 82 
Total$1,211 $1,074 
8


The following table reflects revenue from contracts with customers by geographical region. The presentation of geographic regions below has been updated to better align to how management currently focuses on revenue and growth platforms by geographic region. There has been no change to the Company's reportable segments.
Three Months Ended
March 31,
(in millions)20212020
Water Infrastructure
     United States$123 $121 
Western Europe173 142 
Emerging Markets (a)122 86 
Other46 40 
Applied Water
     United States194 191 
Western Europe92 74 
Emerging Markets (a)78 50 
Other29 23 
Measurement & Control Solutions
     United States213 221 
Western Europe74 63 
Emerging Markets (a)46 41 
Other21 22 
Total$1,211 $1,074 

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

Contract Balances
We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to 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.

9


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, 2020$106 $135 
  Additions, net42 54 
  Revenue recognized from opening balance— (47)
  Billings transferred to accounts receivable(38)— 
  Other(4)(4)
Balance at March 31, 2020$106 $138 
Balance at January 1, 2021$117 $166 
  Additions, net43 67 
  Revenue recognized from opening balance (71)
  Billings transferred to accounts receivable (50) 
  Other(1) 
Balance at March 31, 2021$109 $162 
(a)Excludes receivable balances which are disclosed on the balance sheet

Performance obligations
Delivery schedules vary from customer to customer based upon their requirements. Typically, large projects require longer lead production cycles and delays can occur from time to time. As of March 31, 2021, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to $428 million. We expect to recognize the majority of revenue upon the completion of satisfying these performance obligations in the following 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 3. Restructuring and Asset Impairment Charges
From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position ourselves. During the three months ended March 31, 2021, we recognized restructuring charges of $5 million, of which $4 million relates to actions previously announced in 2020. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment. During the three months ended March 31, 2020, we recognized restructuring charges of $2 million.
In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, in June 2020 management committed to a restructuring plan that includes actions across our businesses and functions globally. The plan is designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers.
10


The following table presents the components of restructuring expense and asset impairment charges:
Three Months Ended
March 31,
(in millions)20212020
By component:
Severance and other charges$4 $2 
Asset impairment1  
Total restructuring charges$5 $2 
Asset impairment charges1  
Total restructuring and asset impairment charges$6 $2 
By segment:
Water Infrastructure$4 $2 
Applied Water1  
Measurement & Control Solutions1  
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 three months ended March 31, 2021 and 2020:
(in millions)20212020
Restructuring accruals - January 1$29 $27 
Restructuring charges5 2 
Cash payments(12)(8)
Asset impairment(1) 
Foreign currency and other (1)
Restructuring accruals - March 31$21 $20 
By segment:
Water Infrastructure$2 $1 
Applied Water1 1 
Measurement & Control Solutions14 17 
Regional selling locations (a)4 1 
(a)Regional selling locations consist primarily of selling and marketing organizations and related support services that incurred restructuring expense which was allocated to the segments. The liabilities associated with restructuring expense were not allocated to the segments.
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The following table presents expected restructuring spend in 2021 and thereafter:
(in millions)Water InfrastructureApplied WaterMeasurement & Control SolutionsCorporateTotal
Actions Commenced in 2021:
Total expected costs$3 $ $ $ $3 
Costs incurred during Q1 20211    1 
Total expected costs remaining$2 $ $ $ $2 
Actions Commenced in 2020:
Total expected costs$25 $8 $33 $2 $68 
Costs incurred during 202019 4 30  53 
Costs incurred during Q1 20212 1 1  4 
Total expected costs remaining$4 $3 $2 $2 $11 
The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2020 consist primarily of severance charges across segments and asset impairment charges in our Measurement & Control Solutions segment. These actions are expected to continue through 2021.
The Water Infrastructure actions commenced in 2021 consist primarily of severance charges. These actions are expected to continue through the third quarter of 2021.

Note 4. Income Taxes
Our quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items within periods presented. The comparison of our effective tax rate between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction and discrete items.
The income tax provision for the three months ended March 31, 2021 was $27 million resulting in an effective tax rate of 23.3%, compared to a $4 million expense resulting in an effective tax rate of 10.0% for the same period in 2020. The effective tax rate for the three month period ended March 31, 2021 was higher than the U.S. federal statutory rate primarily due to tax settlements and the Global Intangible Low Taxed Income ("GILTI") inclusion, partially offset by favorable earnings mix. Additionally, the effective tax rate for the three month period ended March 31, 2021 differs from the same period in 2020 due to the impact of the tax settlements in the current period, partially offset by the benefit from favorable equity compensation deductions in the prior year.
Unrecognized Tax Benefits
We recognize tax benefits from uncertain tax positions only if it is more likely than not that a tax position will be sustained on examination by taxing authorities or upon completion of the litigation process, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits at March 31, 2021 was $113 million, as compared to $114 million at December 31, 2020, which if ultimately recognized will reduce our effective tax rate. We do not believe it is reasonably possible that the unrecognized tax benefits will significantly change within the next twelve months. We classify interest expense relating to unrecognized tax benefits as a component of "Other non-operating (expense) income, net" and tax penalties as a component of "Income tax expense" in our Condensed Consolidated Income Statements. As of March 31, 2021, we had $8 million of interest accrued for 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. The assessment asserts an aggregate amount of approximately $80 million for tax, penalties and interest. Xylem filed an appeal with the Administrative Court of Stockholm. Management, in consultation with external legal advisors, believes it is more likely than not that Xylem will prevail on the proposed assessment and is vigorously defending our position through litigation. As of March 31, 2021, we have not recorded any unrecognized tax benefits related to this uncertain tax position.
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Note 5. Earnings Per Share
The following is a reconciliation of the shares used in calculating basic and diluted net earnings per share:
Three Months Ended
 March 31,
20212020
Net income (in millions)$87 $38 
Shares (in thousands):
Weighted average common shares outstanding180,252 180,154 
Add: Participating securities (a)15 25 
Weighted average common shares outstanding — Basic180,267 180,179 
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options794 725 
Dilutive effect of restricted stock units and performance share units413 390 
Weighted average common shares outstanding — Diluted181,474 181,294 
Basic earnings per share$0.49 $0.21 
Diluted earnings per share$0.48 $0.21 
(a)Restricted stock unit awards containing rights to non-forfeitable dividends that participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.
(b)Incremental shares from stock options, restricted stock units and performance share units are computed by the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock units and performance share units, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance or market conditions at the end of the reporting period. See Note 13, "Share-Based Compensation Plans", to the condensed consolidated financial statements for further detail on the performance share units.
Three Months Ended
 March 31,
(in thousands)20212020
Stock options1,249 1,367 
Restricted stock units285 314 
Performance share units352 285 

Note 6. Inventories
The components of total inventories are summarized as follows: 
(in millions)March 31,
2021
December 31,
2020
Finished goods$232 $221 
Work in process58 49 
Raw materials306 288 
Total inventories$596 $558 

13


Note 7. Goodwill and Other Intangible Assets
Goodwill    
Changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2021 are as follows:
(in millions)
Water
Infrastructure
Applied WaterMeasurement & Control SolutionsTotal
Balance as of January 1, 2021$668 $529 $1,657 $2,854 
Activity in 2021
Foreign currency and other(6)(3)(14)(23)
Balance as of March 31, 2021$662 $526 $1,643 $2,831 
As of March 31, 2021, goodwill included accumulated impairment loss of $206 million within the Measurement & Control Solutions segment.
Other Intangible Assets
Information regarding our other intangible assets is as follows:
March 31, 2021December 31, 2020
(in millions)
Carrying
Amount
Accumulated
Amortization
Net
Intangibles
Carrying
Amount
Accumulated
Amortization
Net
Intangibles
Customer and distributor relationships$939 $(421)$518 $941 $(410)$531 
Proprietary technology and patents205 (134)71 206 (131)75 
Trademarks143 (65)78 143 (63)80 
Software510 (274)236 500 (265)235 
Other21 (18)3 21 (18)3 
Indefinite-lived intangibles169  169 169  169 
Other Intangibles$1,987 $(912)$1,075 $1,980 $(887)$1,093 
Amortization expense related to finite-lived intangible assets was $32 million and $35 million for the three month periods ended March 31, 2021 and 2020, respectively.

Note 8. 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 reduce the volatility in stockholders' equity.
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 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 $400 million and
14


$0 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, 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, and to sell Canadian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are $144 million, $131 million, $54 million, $21 million, $19 million and $17 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 and third quarter of 2020 we entered into additional cross-currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $1,196 million and $1,249 million as of March 31, 2021 and December 31, 2020, respectively.
Foreign Currency Denominated Debt
On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. We designated the entirety of the outstanding balance, or $585 million and $610 million as of March 31, 2021 and December 31, 2020, respectively, net of unamortized discount, as a hedge of a net investment in certain foreign subsidiaries.
The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Income Statements and Statements of Comprehensive Income:
Three Months Ended
 March 31,
(in millions)20212020
Cash Flow Hedges
Foreign Exchange Contracts
Amount of (loss) recognized in OCI$(11)$(2)
Amount of (gain) loss reclassified from OCI into revenue(2)2 
Amount of (gain) loss reclassified from OCI into cost of revenue(1)1 
Net Investment Hedges
Cross Currency Swaps
Amount of gain recognized in OCI$30 $45 
Amount of income recognized in Interest Expense5 4 
Foreign Currency Denominated Debt
Amount of gain recognized in OCI$26 $10 

As of March 31, 2021, $11 million of net losses on cash flow hedges are expected to be reclassified into earnings in the next 12 months.
As of March 31, 2021, no gains or losses on the net investment hedges are expected to be reclassified into earnings over their duration.
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.

15


The fair values of our derivative contracts currently included in our hedging program were as follows:
(in millions)March 31,
2021
December 31,
2020
Derivatives designated as hedging instruments
Liabilities
Cash Flow Hedges
  Other current liabilities$(11)$ 
Net Investment Hedges
Other non-current accrued liabilities$(86)$(117)

The fair value of our long-term debt, due in 2023, designated as a net investment hedge was $610 million and $640 million as of March 31, 2021 and December 31, 2020, respectively.

Note 9. Accrued and Other Current Liabilities
The components of total accrued and other current liabilities are as follows:
(in millions)March 31,
2021
December 31,
2020
Compensation and other employee-benefits$211 $258 
Customer-related liabilities180 186 
Accrued taxes93 103 
Lease liabilities 64 63 
Accrued warranty costs51 54 
Other accrued liabilities115 123 
Total accrued and other current liabilities$714 $787 


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Note 10. Credit Facilities and Debt
Total debt outstanding is summarized as follows:
(in millions)March 31,
2021
December 31,
2020
4.875% Senior Notes due 2021 (a)$600 $600 
2.250% Senior Notes due 2023 (a)587 612 
3.250% Senior Notes due 2026 (a)500 500 
1.950% Senior Notes due 2028 (b)500 500 
2.250% Senior Notes due 2031 (b)500 500 
4.375% Senior Notes due 2046 (a)400 400 
Debt issuance costs and unamortized discount (c)(27)(28)
Total debt3,060 3,084 
Less: short-term borrowings and current maturities of long-term debt600 600 
Total long-term debt$2,460 $2,484 
(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 2021 was $613 million and $620 million as of March 31, 2021 and December 31, 2020, respectively. The fair value of our Senior Notes due 2023 was $610 million and $640 million as of March 31, 2021 and December 31, 2020, respectively. The fair value of our Senior Notes due 2026 was $542 million and $563 million as of March 31, 2021 and December 31, 2020 respectively. The fair value of our Senior Notes due 2046 was $455 million and $496 million as of March 31, 2021 and December 31, 2020, respectively.
(b)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 2028 was $500 million and $529 million as of March 31, 2021 and December 31, 2020, respectively. The fair value of our Senior Notes due 2031 was $491 million and $527 million as of March 31, 2021 and December 31, 2020, respectively.
(c)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 March 31, 2021, we are in compliance with all covenants for the Green Bond.
On September 20, 2011, we issued 4.875% Senior Notes of $600 million aggregate principal amount due October 2021 (the "Senior Notes due 2021"). 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”).
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
17


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 is 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 March 31, 2021, 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 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.
Interest on all loans under the 2019 Credit Facility is payable either quarterly or at the expiration of any LIBOR 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 or EURIBOR rate plus an applicable margin. The 2019 Credit Facility includes customary provisions for implementation of replacement rates for LIBOR-based and EURIBOR-based loans. The 2019 Credit Facility also includes a pricing grid that determines the applicable margin based on Xylem's credit rating, with a further adjustment depending on Xylem's annual Sustainalytics Environmental, Social and Governance ("ESG") score, determined based on the methodology in effect as of March 5, 2019. Xylem will also pay quarterly fees to each lender for such lender’s commitment to lend accruing on such commitment at a rate based on our 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 ESG score). 
The 2019 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; and in addition 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 Credit Facility also contains customary events of default. Finally, Xylem has the ability to designate subsidiaries that can borrow under the 2019 Credit Facility, subject to certain requirements and conditions set forth in the 2019 Credit Facility. 
On June 22, 2020, Xylem entered into Amendment No. 1 to the 2019 Credit Facility (the "Amendment") which modified the financial covenant from a test based on the maximum leverage ratio (defined as consolidated total debt to consolidated EBITDA) to a test based on the net leverage ratio (defined as consolidated total debt less unrestricted cash and cash equivalents to consolidated EBITDA). This modification is effective through the quarter ending September 30, 2021, after which the covenant will revert back to the prior maximum leverage ratio test. The Amendment also restricts stock repurchases until March 31, 2021, except for shares of common stock in an amount not to exceed the number of shares issued after the date of the Amendment, subject to customary exceptions. As of March 31, 2021, the 2019 Credit Facility was undrawn and we are in compliance with all revolver covenants. 
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 inclusive of the 2019 Credit Facility. As of March 31, 2021 and December 31, 2020, none of the Company's $600 million U.S. Dollar commercial paper
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program was outstanding. 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 $587 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 March 31, 2021 and December 31, 2020, 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.

Note 11. Post-retirement Benefit Plans
The components of net periodic benefit cost for our defined benefit pension plans are as follows:
Three Months Ended
 March 31,
(in millions)20212020
Domestic defined benefit pension plans:
Service cost$1 $1 
Interest cost1 1 
Expected return on plan assets(2)(2)
Amortization of net actuarial loss1 1 
Net periodic benefit cost$1 $1 
International defined benefit pension plans:
Service cost$4 $3 
Interest cost3 4 
Expected return on plan assets(4)(4)
Amortization of net actuarial loss4 3 
Net periodic benefit cost$7 $6 
Total net periodic benefit cost$8 $7 
The components of net periodic benefit cost other than the service cost component are included in the line item "Other non-operating expense, net" in the Condensed Consolidated Income Statements.
The total net periodic benefit cost for other post-retirement employee benefit plans was less than $1 million, including net credits recognized into other comprehensive income of less than $1 million, for the three months ended March 31, 2021 and 2020.
We contributed $6 million and $12 million to our defined benefit plans during the three months ended March 31, 2021 and 2020, respectively. Additional contributions ranging between approximately $13 million and $21 million are expected during the remainder of 2021.
During the first quarter of 2020, the Company purchased a bulk annuity policy with an insurance company for its largest defined benefit plan in the U.K., as a plan asset, to facilitate the termination and buy-out of the plan. The bulk annuity fully insures the benefits payable to the participants of the plan until a full buy-out of the plan can be executed, which is expected to occur in late 2021 or early 2022. Included in the Company's first quarter 2020 contributions is $5 million paid to meet the shortfall between the cost of the bulk annuity policy and the plan assets.


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Note 12. Equity
The following table shows the changes in stockholders' equity for the three months ended March 31, 2021:
Common
Stock
Capital in Excess of Par ValueRetained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Treasury StockNon-Controlling InterestTotal
Balance at January 1, 2021$2 $2,037 $1,930 $(413)$(588)$8 $2,976 
Other     1 1 
Net income   87    87 
Other comprehensive loss, net   (13)  (13)
Dividends declared ($0.28 per share)
  (50)   (50)
Stock incentive plan activity 12   (7) 5 
Repurchase of common stock    (60) (60)
Balance at March 31, 2021$2 $2,049 $1,967 $(426)$(655)$