Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

Leases

Leasing Arrangements

We lease certain offices, manufacturing buildings, transportation equipment, machinery, computers and other equipment. Our most significant lease liabilities relate to real estate leases. These leases include renewal, termination or purchase options, and we have assessed these to determine whether it is reasonably certain for us to exercise any of the previously mentioned options. All periods relating to options that are reasonably certain to be exercised have been included in the lease term of the respective leases.

We did not identify any events or conditions during the 12 month period ended December 31, 2021 to indicate that a reassessment or re-measurement of our existing leases was required. There also were no impairment indicators identified during the 12 month period ended December 31, 2021 that required an impairment test for the Company’s ROU assets.

Our current lease liabilities of $69 million and $63 million are included in "Accrued and other current liabilities" as of December 31, 2021 and 2020, respectively. Our non-current lease liabilities of $243 million and $216 million are included in "Other non-current accrued liabilities" as of December 31, 2021 and 2020, respectively. Our ROU asset balances are included in "Other non-current assets." The net balance of our ROU assets as of December 31, 2021 and 2020 was $304 million and $272 million, respectively. These balances include an immaterial amount related to finance leases.

The components of our lease cost were as follows:

	Year Ended December 31,
(in millions)	2021		2020		2019
Lease cost
Operating lease cost	$	84	$	77	$	76
Short-term lease cost	2		2		9
Variable lease cost	23		22		19
Total lease cost	$	109	$	101	$	104

The supplemental cash flow information related to leases are as follows:

	Year Ended December 31,
(in millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	83	$	75	$	73
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	109	$	64	$	33

Information relating to the lease term and discount rate are as follows:

	Year Ended December 31,
	2021	2020
Weighted-average remaining lease term (years)
Operating leases	7 Years	7 Years
Weighted-average discount rate
Operating leases	2.2%	2.5%

As of December 31, 2021, the maturities of operating lease liabilities were as follows:

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

(1) Excludes $8 million of legally binding minimum lease payments for leases signed but not yet commenced. Lease payments are expected to begin in 2022.

Lessor arrangements

In addition to manufacturing and selling equipment, we also lease equipment to customers in exchange for consideration. These arrangements are generally short term in nature and predominantly involve the rental of pumps and accessories within the Water Infrastructure segment. Rental arrangements generally do not provide the customer the right to purchase the equipment as Xylem’s strategy is to rent these items over their useful lives. Customers may be billed based on daily, weekly or monthly rates depending on the expected rental period. We assessed that these arrangements constitute a lease under ASC 842, and have recognized them as operating leases. In situations where arrangements contain both the sale of products and a leasing component, contract consideration is allocated based on relative standalone selling price.

Total revenue from lease arrangements was $197 million, $195 million and $247 million for the 12-month period ended December 31, 2021, 2020 and 2019, respectively. Our gross assets available for rent were $251 million and $241 million as of December 31, 2021 and 2020, respectively. The accumulated amortization related to our gross assets was $158 million and $159 million as of December 31, 2021 and 2020, respectively. Depreciation expense

for these assets was $24 million, $25 million and $28 million for the 12 month period ended December 31, 2021, 2020 and 2019, respectively.

Leases

Leases

Leasing Arrangements

We lease certain offices, manufacturing buildings, transportation equipment, machinery, computers and other equipment. Our most significant lease liabilities relate to real estate leases. These leases include renewal, termination or purchase options, and we have assessed these to determine whether it is reasonably certain for us to exercise any of the previously mentioned options. All periods relating to options that are reasonably certain to be exercised have been included in the lease term of the respective leases.

We did not identify any events or conditions during the 12 month period ended December 31, 2021 to indicate that a reassessment or re-measurement of our existing leases was required. There also were no impairment indicators identified during the 12 month period ended December 31, 2021 that required an impairment test for the Company’s ROU assets.

Our current lease liabilities of $69 million and $63 million are included in "Accrued and other current liabilities" as of December 31, 2021 and 2020, respectively. Our non-current lease liabilities of $243 million and $216 million are included in "Other non-current accrued liabilities" as of December 31, 2021 and 2020, respectively. Our ROU asset balances are included in "Other non-current assets." The net balance of our ROU assets as of December 31, 2021 and 2020 was $304 million and $272 million, respectively. These balances include an immaterial amount related to finance leases.

The components of our lease cost were as follows:

	Year Ended December 31,
(in millions)	2021		2020		2019
Lease cost
Operating lease cost	$	84	$	77	$	76
Short-term lease cost	2		2		9
Variable lease cost	23		22		19
Total lease cost	$	109	$	101	$	104

The supplemental cash flow information related to leases are as follows:

	Year Ended December 31,
(in millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	83	$	75	$	73
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	109	$	64	$	33

Information relating to the lease term and discount rate are as follows:

	Year Ended December 31,
	2021	2020
Weighted-average remaining lease term (years)
Operating leases	7 Years	7 Years
Weighted-average discount rate
Operating leases	2.2%	2.5%

As of December 31, 2021, the maturities of operating lease liabilities were as follows:

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

(1) Excludes $8 million of legally binding minimum lease payments for leases signed but not yet commenced. Lease payments are expected to begin in 2022.

Lessor arrangements

In addition to manufacturing and selling equipment, we also lease equipment to customers in exchange for consideration. These arrangements are generally short term in nature and predominantly involve the rental of pumps and accessories within the Water Infrastructure segment. Rental arrangements generally do not provide the customer the right to purchase the equipment as Xylem’s strategy is to rent these items over their useful lives. Customers may be billed based on daily, weekly or monthly rates depending on the expected rental period. We assessed that these arrangements constitute a lease under ASC 842, and have recognized them as operating leases. In situations where arrangements contain both the sale of products and a leasing component, contract consideration is allocated based on relative standalone selling price.

Total revenue from lease arrangements was $197 million, $195 million and $247 million for the 12-month period ended December 31, 2021, 2020 and 2019, respectively. Our gross assets available for rent were $251 million and $241 million as of December 31, 2021 and 2020, respectively. The accumulated amortization related to our gross assets was $158 million and $159 million as of December 31, 2021 and 2020, respectively. Depreciation expense

for these assets was $24 million, $25 million and $28 million for the 12 month period ended December 31, 2021, 2020 and 2019, respectively.