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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 30, 2021, there were 180,162,994 outstanding shares of the registrant’s common stock, par value $0.01 per share.




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


PART I

ITEM 1.             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(in millions, except per share data)
 Three MonthsSix Months
For the period ended June 30,2021202020212020
Revenue$1,351 $1,160 $2,607 $2,283 
Cost of revenue831 726 1,597 1,440 
Gross profit520 434 1,010 843 
Selling, general and administrative expenses304 288 605 585 
Research and development expenses53 44 103 93 
Restructuring and asset impairment charges3 48 9 50 
Operating income160 54 293 115 
Interest expense21 18 42 34 
Other non-operating expense, net(3)(1)(1)(4)
Gain from sale of business2  2  
Income before taxes138 35 252 77 
Income tax expense25 4 52 8 
Net income$113 $31 $200 $69 
Earnings per share:
Basic$0.63 $0.17 $1.11 $0.38 
Diluted$0.62 $0.17 $1.10 $0.38 
Weighted average number of shares:
Basic180.1 180.0 180.2 180.1 
Diluted181.3 180.6 181.4 181.0 
See accompanying notes to condensed consolidated financial statements.

3


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
 
 Three MonthsSix Months
For the period ended June 30,2021202020212020
Net income$113 $31 $200 $69 
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment19 35 29 (43)
Net change in derivative hedge agreements:
Unrealized gain (loss)4 6 (7)4 
Amount of loss (gain) reclassified into net income1  (2)3 
Net change in post-retirement benefit plans:
Amortization of prior service credit (1)(1)(2)
Amortization of net actuarial loss into net income5 5 11 10 
Other comprehensive income (loss), before tax29 45 30 (28)
Income tax expense (benefit) related to items of other comprehensive income (loss)1 (7)15 7 
Other comprehensive income (loss), net of tax28 52 15 (35)
Comprehensive income$141 $83 $215 $34 
Less: comprehensive loss attributable to noncontrolling interests   (1)
Comprehensive income attributable to Xylem $141 $83 $215 $35 
See accompanying notes to condensed consolidated financial statements.
4


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
June 30,
2021
December 31,
2020
  
ASSETS
Current assets:
Cash and cash equivalents$1,840 $1,875 
Receivables, less allowances for discounts, returns and credit losses of $41 and $46 in 2021 and 2020, respectively
975 923 
Inventories642 558 
Prepaid and other current assets166 167 
Total current assets3,623 3,523 
Property, plant and equipment, net626 657 
Goodwill2,841 2,854 
Other intangible assets, net1,058 1,093 
Other non-current assets637 623 
Total assets$8,785 $8,750 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$599 $569 
Accrued and other current liabilities760 787 
Short-term borrowings and current maturities of long-term debt600 600 
Total current liabilities1,959 1,956 
Long-term debt2,466 2,484 
Accrued post-retirement benefits501 519 
Deferred income tax liabilities264 242 
Other non-current accrued liabilities546 573 
Total liabilities5,736 5,774 
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 195.3 shares and 194.9 shares in 2021 and 2020, respectively
2 2 
Capital in excess of par value2,063 2,037 
Retained earnings2,029 1,930 
Treasury stock – at cost 15.2 shares and 14.5 shares in 2021 and 2020, respectively
(656)(588)
Accumulated other comprehensive loss(398)(413)
Total stockholders’ equity3,040 2,968 
Non-controlling interests9 8 
Total equity3,049 2,976 
Total liabilities and stockholders’ equity$8,785 $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 six months ended June 30,20212020
Operating Activities
Net income$200 $69 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation59 58 
Amortization65 68 
Share-based compensation17 16 
Restructuring and asset impairment charges9 50 
Gain from sale of business(2) 
Other, net6 18 
Payments for restructuring(18)(12)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables(66)48 
Changes in inventories(89)(63)
Changes in accounts payable36 (86)
Other, net(11)13 
Net Cash – Operating activities206 179 
Investing Activities
Capital expenditures(80)(95)
Proceeds from sale of business2  
Other, net9 7 
Net Cash – Investing activities(69)(88)
Financing Activities
Short-term debt issued, net 359 
 Short-term debt repaid (422)
Long-term debt issued, net 987 
Repurchase of common stock(68)(60)
Proceeds from exercise of employee stock options9 5 
Dividends paid(102)(95)
Other, net(1) 
Net Cash – Financing activities(162)774 
Effect of exchange rate changes on cash(10)(12)
Net change in cash and cash equivalents(35)853 
Cash and cash equivalents at beginning of year1,875 724 
Cash and cash equivalents at end of period$1,840 $1,577 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$58 $45 
Income taxes (net of refunds received)$60 $11 
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 EndedSix Months Ended
June 30,June 30,
(in millions)2021202020212020
Revenue from contracts with customers$1,302 $1,114 $2,513 $2,188 
Lease Revenue49 46 94 95 
Total$1,351 $1,160 $2,607 $2,283 

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 EndedSix Months Ended
June 30,June 30,
(in millions)2021202020212020
Water Infrastructure
     Transport$414 $350 $784 $668 
     Treatment106 105 200 176 
Applied Water
     Commercial Building Services155 133 302 270 
Residential Building Services73 54 140 104 
     Industrial Water186 150 365 301 
Measurement & Control Solutions
     Water288 240 571 505 
     Energy80 82 151 164 
Total$1,302 $1,114 $2,513 $2,188 
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 EndedSix Months Ended
June 30,June 30,
(in millions)2021202020212020
Water Infrastructure
     United States$142 $144 $265 $265 
Western Europe190 157 363 299 
Emerging Markets (a)133 109 255 195 
Other55 45 101 85 
Applied Water
     United States202 183 396 374 
Western Europe99 70 191 144 
Emerging Markets (a)81 61 159 111 
Other32 23 61 46 
Measurement & Control Solutions
     United States224 212 437 433 
Western Europe69 51 143 114 
Emerging Markets (a)49 39 95 80 
Other26 20 47 42 
Total$1,302 $1,114 $2,513 $2,188 

(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, net63 85 
  Revenue recognized from opening balance— (70)
  Billings transferred to accounts receivable(60)— 
  Other(2)(4)
Balance at June 30, 2020$107 $146 
Balance at January 1, 2021$117 $166 
  Additions, net78 99 
  Revenue recognized from opening balance (93)
  Billings transferred to accounts receivable (74) 
  Other (1)
Balance at June 30, 2021$121 $171 
(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 June 30, 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 $438 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
Restructuring
From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position ourselves. During the three and six months ended June 30, 2021, we recognized restructuring charges of $3 million and $8 million, respectively, of which $2 million and $6 million relate to actions previously announced in 2020. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment.
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, simplify our operations, strengthen our competitive positioning and better serve our customers. During the three and six months ended June 30, 2020, we recognized restructuring charges of $38 million and $40 million, respectively. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment.
10


The following table presents the components of restructuring expense and asset impairment charges:
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2021202020212020
By component:
Severance and other charges$4 $21 $8 $23 
Asset impairment 17 1 17 
Reversal of restructuring accruals(1) (1) 
Total restructuring charges$3 $38 $8 $40 
Asset impairment charges 10 1 10 
Total restructuring and asset impairment charges$3 $48 $9 $50 
By segment:
Water Infrastructure$3 $6 $7 $8 
Applied Water 2 1 2 
Measurement & Control Solutions 40 1 40 
The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within "Accrued and other current liabilities" and "Other non-current accrued liabilities", for the six months ended June 30, 2021 and 2020:
(in millions)20212020
Restructuring accruals - January 1$29 $27 
Restructuring charges8 40 
Cash payments(18)(12)
Asset impairment(1)(17)
Foreign currency and other (1)
Restructuring accruals - June 30$18 $37 
By segment:
Water Infrastructure$3 $4 
Applied Water1 1 
Measurement & Control Solutions11 27 
Regional selling locations (a)3 4 
Corporate and other 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.
11


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$5 $ $ $ $5 
Costs incurred during Q1 20211    1 
Costs incurred during Q2 20211    1 
Total expected costs remaining$3 $ $ $ $3 
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 
Costs incurred during Q2 20212    2 
Total expected costs remaining$2 $3 $2 $2 $9 
The Water Infrastructure actions commenced in 2021 consist primarily of severance charges. These actions are expected to continue through the second quarter of 2022.
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 the second quarter of 2022.
During the second quarter of 2020 the discontinuance of a product line resulted in $17 million of asset impairments, primarily related to customer relationships, trademarks and fixed assets within our Measurement & Control Solutions segment.
Asset Impairment
During the second quarter of 2020 we determined that internally developed in-process software within our Measurement & Control Solutions segment was impaired as a result of actions taken to prioritize strategic investments. Accordingly, we recognized an impairment charge of $10 million. Refer to Note 7, "Goodwill and Other Intangible Assets," for additional information.

Note 4. Income Taxes
Our quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items within periods presented. The comparison of our effective tax rate between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction and discrete items.
The income tax provision for the three months ended June 30, 2021 was $25 million resulting in an effective tax rate of 18.5%, compared to a $4 million expense resulting in an effective tax rate of 10.9% for the same period in 2020. The income tax provision for the six months ended June 30, 2021 was $52 million resulting in an effective tax rate of 20.7%, compared to an $8 million expense resulting in an effective tax rate of 10.4% for the same period in 2020. The effective tax rate for the three and six month periods ended June 30, 2021 was lower than the U.S. federal statutory rate primarily due to favorable earnings mix, partially offset by the Global Intangible Low Taxed Income ("GILTI") inclusion. Additionally, the effective tax rate for the three and six month periods ended June 30, 2021 differ from the same periods in 2020 due to unfavorable earnings mix as compared to the prior year and favorable equity compensation deductions in the prior year. The effective tax rate for the six month period ended June 30, 2021 differs from the same period in 2020 due to the impact of tax settlements in the current period.
12


Unrecognized Tax Benefits
During 2019, Xylem’s Swedish subsidiary received a tax assessment for the 2013 tax year related to the tax treatment of an intercompany transfer of certain intellectual property that was made in connection with a reorganization of our European businesses. 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 June 30, 2021, we have not recorded any unrecognized tax benefits related to this uncertain tax position.

Note 5. Earnings Per Share
The following is a reconciliation of the shares used in calculating basic and diluted net earnings per share:
Three Months EndedSix Months Ended
 June 30,June 30,
2021202020212020
Net income (in millions)$113 $31 $200 $69 
Shares (in thousands):
Weighted average common shares outstanding180,072 179,933 180,162 180,043 
Add: Participating securities (a)34 32 24 29 
Weighted average common shares outstanding — Basic180,106 179,965 180,186 180,072 
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options897 563 845 644 
Dilutive effect of restricted stock units and performance share units346 79 380 234 
Weighted average common shares outstanding — Diluted181,349 180,607 181,411 180,950 
Basic earnings per share$0.63 $0.17 $1.11 $0.38 
Diluted earnings per share$0.62 $0.17 $1.10 $0.38 
(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 EndedSix Months Ended
 June 30,June 30,
(in thousands)2021202020212020
Stock options1,227 1,766 1,238 1,567 
Restricted stock units318 441 302 377 
Performance share units345 313 349 299 

13


Note 6. Inventories
The components of total inventories are summarized as follows:
(in millions)June 30,
2021
December 31,
2020
Finished goods$244 $221 
Work in process62 49 
Raw materials336 288 
Total inventories$642 $558 

Note 7. Goodwill and Other Intangible Assets
Goodwill    
Changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 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 (5)(8)(13)
Balance as of June 30, 2021$668 $524 $1,649 $2,841 
As of June 30, 2021, goodwill included an accumulated impairment loss of $206 million within the Measurement & Control Solutions segment.
Other Intangible Assets
Information regarding our other intangible assets is as follows:
June 30, 2021December 31, 2020
(in millions)
Carrying
Amount
Accumulated
Amortization
Net
Intangibles
Carrying
Amount
Accumulated
Amortization
Net
Intangibles
Customer and distributor relationships$941 $(436)$505 $941 $(410)$531 
Proprietary technology and patents206 (138)68 206 (131)