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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  
  For the fiscal year endedDecember 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 and zip code)
(914) 323-5700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareXYLNew York Stock Exchange
2.250% Senior Notes due 2023XYL23New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ  No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes  ¨  No  þ
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  þ  No  ¨
Indicate by check mark whether the registrant has submitted electronically, if any, 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  þ  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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes  No  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes    No  
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant as of June 30, 2021 was approximately $22.6 billion. As of February 18, 2022, there were 179,901,139 outstanding shares of the registrant’s common stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2022 Annual Meeting of Shareowners, to be held in May 2022, are incorporated by reference into Part II and Part III of this Report.



Xylem Inc.
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2021
Table of Contents
 
ITEMPAGE
PART I
1
1A.
1B.
2
3
4
*
PART II
5
6
7
7A.
8
9
9A.
9B.
9C.
PART III
10
11
12
13
14
PART IV
15
16
 
*Included pursuant to the Instruction to Item 401(b) of Regulation S-K.
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PART I
The following discussion should be read in conjunction with the consolidated financial statements, including the notes, included elsewhere in this Annual Report on Form 10-K (this "Report").
Forward-Looking Statements
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: 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 the ongoing coronavirus (“COVID-19”) pandemic. 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: overall industry and economic conditions, including industrial, governmental, and public and private sector spending and the strength of the residential and commercial real estate markets; geopolitical, regulatory, economic and other risks associated with our sales and operations, including with respect to domestic content requirements applicable to projects with governmental funding; continued uncertainty around the ongoing COVID-19 pandemic’s magnitude, duration and impacts on our business, operations, growth, and financial condition; actual or potential other epidemics, pandemics or global health crises; availability, shortage or delays in receiving electronics, parts and raw materials from our supply chain; manufacturing and operating cost increases due to inflation, prevailing price changes, tariffs and other factors; demand for our products, disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents or other disruptions of information technology systems on which we rely, or involving our products; disruptions in operations at our facilities or that of third parties upon which we rely; ability to retain and attract senior management and other diverse and key talent, as well as increasing competition for overall talent and labor; difficulty predicting our financial results; defects, security, warranty and liability claims, and recalls with respect to products; availability, regulation or interference with radio spectrum used by certain of our products; uncertainty related to restructuring and realignment actions and related charges 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 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, 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; and other factors set forth under "Item 1A. Risk Factors” in this Report and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

Forward-looking and other statements in this Form 10-K 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 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.


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ITEM 1.        BUSINESS
Business Overview
Xylem is a leading global water technology company with 2021 revenues of $5.2 billion and approximately 17,300 employees worldwide, of which approximately 1,200 were temporary or fixed-term employees or interns. We design, manufacture and service highly engineered products and solutions across a wide variety of critical applications, primarily in the water sector, but also in energy. Our broad portfolio of products, services and 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, testing, analysis and treatment of wastewater, to the return of water to the environment.
We have differentiated market positions in core application areas including transport, treatment, dewatering, test, smart metering, infrastructure assessment services, digital software solutions for utilities, commercial and residential building services and industrial processes. Setting us apart is a unique set of global assets that include:

Market-leading brands, some of which have been in use for more than 100 years
Global distribution networks consisting of direct sales forces and independent channel partners serving a diverse customer base in approximately 150 countries
A substantial global installed base across the water cycle that provides for steady recurring revenue
A strong history of bringing innovative products, solutions, and business models to customers
A strong financial position and cash generation profile that enables us to fund strategic organic and inorganic growth initiatives, and consistently return capital to shareholders
A demonstrated commitment to corporate governance, social and environmental sustainability and delivering a positive impact to our customers, communities and employees
A dedicated, experienced, qualified and technologically advanced group of experienced employees focused on safely satisfying our customers' requirements in the water and energy spaces

Our vision is to create a world in which water issues are no longer a constraint to health, prosperity and sustainable development.
Our Industry
Our planet faces serious water challenges. Less than 1% of the total water available on earth is fresh water, and these supplies are threatened by factors such as the draining of aquifers, increased pollution and the effects of climate change. Demand for fresh water is rising rapidly due to population growth, industrial expansion, and increased agricultural development, with consumption estimated to double every 20 years. By 2025, more than 30% of the world’s population is expected to live in areas without adequate water supply. Even in developed countries with sufficient clean water supply, existing water supply infrastructure is aging and often inefficient. In the U.S., deteriorating pipe systems, theft or inaccurate meters result in approximately one out of every six gallons of treated water being lost prior to reaching the end customer. This problem of "non-revenue" water is a major financial challenge of many utilities globally, especially in developing markets where non-revenue water can represent 10% to 60% or more of net water produced. These and other challenges create opportunities for growth in the global water industry. We estimate the total addressable market size of the global water industry, excluding operational expenditures related to labor, energy, and chemicals, to be approximately $600 billion.

Global water needs cannot be met without streamlining the water industry’s cost structure with technologies that fundamentally change the provision and management of water. We compete in areas that are pivotal to improving "water affordability" and "resilience", while reducing the impact of "water scarcity". "Water affordability" refers to the more efficient delivery, use and treatment of clean water and wastewater. "Resilience" refers to the management of water-related risks, including climate change mitigation, and the resilience of water infrastructure. "Water scarcity" refers to the management of limited supplies of water due to climate change, overpopulation and pollution. Our customers often face all three of these challenges, ranging from inefficient and aging water distribution networks and energy-intensive or unreliable water and wastewater management systems (requiring improvements in water affordability); droughts and pollution which limit the amount of water readily available (causing water scarcity); or exposure to natural disasters such as floods or droughts (requiring improvements in resilience). Additionally, we also provide solutions to enhance communications and efficiency, improve safety and conserve resources to customers in the water and energy sectors. Delivering value in these areas creates significant opportunity for the Company.

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The Global Water Industry Value Chain
The water industry value chain includes Equipment, Technology and Services companies, like Xylem, that address the unique challenges and demands of a diverse customer base. This customer base includes water and wastewater utilities that supply, treat and monitor clean water or transport, treat and analyze wastewater or storm water through an infrastructure network, and engineering, procurement and construction ("EPC") firms and third party contractors, that work with utilities to design and build water and wastewater infrastructure networks, as depicted below. Utilities and other customers require products, solutions, services, technology and application expertise from their Equipment, Technology and Services providers to address trends such as rising pollution, stricter regulations, increasing operational costs and the increased outsourcing of process knowledge. In addition to utilities, Equipment, Technology and Service companies also provide distinct technologies and application expertise to a wide array of entities, including farms, mines, power plants, industrial facilities (such as food and beverage and pharmaceutical manufacturers) and residential and commercial customers seeking to address similar trends.
Water Industry Supply Chain
xyl-20211231_g1.jpg

Business Strategy
Our overarching strategy is to help customers solve the world's greatest water challenges with innovative products, services and solutions to deliver sustainable economic, social and environmental benefits. The following strategic pillars guide where and how we focus our efforts and resources to implement this strategy:
Drive Customer Success. We seek to partner with customers to meet their stakeholders’ needs through our broad portfolio of unmatched products, services and solutions. We are focused on several key areas, beginning with making it easier for customers to do business with Xylem and access the full range of our capabilities. As part of this, we are implementing a digital platform to discover, select, get price quotes, and purchase our offerings. Second, we seek to lead the way as digital technologies transform our sector by further integrating our digital solution portfolio and broadening our solution sales, digital literacy and marketing capabilities company-wide. Third, we seek to help customers get the most out of their systems by providing world-class services that ensure uptime, efficiency and resilience. We partner with them by providing powerful, integrated lifecycle services and solutions.
Grow in the Emerging Markets. We continue to invest in localizing our capabilities in the emerging markets. We will continue building innovation, product management and engineering teams in these regions, expanding our market coverage in key growth markets such as China, India, Eastern Europe and Africa. We seek to address the base of the pyramid population by providing water and sanitation needs with new solutions and business models.
Strengthen Innovation and Technology. We seek to create new customer offerings that help them solve water challenges more powerfully than ever before, while also providing our company with rapid growth
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opportunities. We are focused on building and enabling infrastructure for digital growth by making our hardware, networks and software applications interoperable and creating a common software experience. This will further strengthen our core product offerings, and deliver strategic, sustainable innovations that help us tap into new markets through advanced technology and new business models.
Build a Culture of Continuous Improvement. We seek to continue embedding a continuous improvement mindset throughout the Company, and will continue to improve our efficiency, simplify our business and manage costs to support continued growth. We are committed to eliminating business complexity by streamlining internal bureaucracy and expanding standard business platforms and processes to help people do their jobs. This will result in freeing up time to ensure that we focus on work that creates customer value. Other focus areas include removing unnecessary costs from our end-to-end value chain to free up resources for growth; and building resilience and sustainability into our supply chain to protect our ability to serve customers.
Cultivate Leadership and Talent Development. We continue to foster an empowering, mission-driven, diverse and inclusive culture. We will continue to build leadership succession depth and breadth in keeping with our commitment to developing the next generation of leaders. We will also align our incentives, including share-based and performance-based compensation, and organizational structure to our strategy, favoring approaches to drive 'one company' skills, mindset and behaviors, and stakeholder value creation.

Our strategic plan firmly embeds sustainability at the heart of our competitive advantage and unique business model, and aligns each of our five core strategic pillars to the overarching goal of integrating sustainability into everything we do.
While our strategy will evolve in response to the changing world, our four values are the enduring principles that go to the heart of who we are and guide how we conduct ourselves each day: Respect, Responsibility, Integrity and Creativity.

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Business Segments, Distribution and Competitive Landscape
We have three reportable business segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, and Measurement & Control Solutions. See Note 22, “Segment and Geographic Data,” in our consolidated financial statements for financial information about segments and geographic areas.
The table and descriptions below provide an overview of our business segments:
Market
Applications
2021 Revenue
(in millions)
%
Revenue
Major ProductsPrimary Brands
Water
Infrastructure
Transport$1,816 81 %
 
•   Water and wastewater pumps
•   Filtration, disinfection and biological treatment equipment
• Mobile dewatering equipment

 
•   Flygt
•   Godwin
•   Leopold
•   Sanitaire
•   Wedeco
•   Xylem Vue

Treatment431 19 %
$2,247 100 %
  
Applied
Water
Commercial Building Services$609 38 %
 
•   Pumps
•   Valves
•   Heat exchangers
•   Controls
•   Dispensing
equipment systems
  •   A-C Fire Pump
•   Bell & Gossett
•   Flojet
•   Goulds Water Technology
• Jabsco
•   Lowara
•   Standard
     Xchange
•   Xylem Vue
Residential Building Services268 17 %
Industrial Water736 45 %
$1,613 100 %
Measurement & Control SolutionsWater$1,055 79 %
•   Smart meters
•   Networked communication devices
•  Data analytics
•   Test equipment
•   Controls
•   Sensor devices
•   Software & managed services
• Critical infrastructure services


• Pure
•   Sensus
•  Smith Blair
•   WTW
•   YSI
•   Xylem Vue




Energy280 21 %
$1,335 100 %
  


Water Infrastructure
Our Water Infrastructure segment primarily supports the process that collects water from a source, treats it and distributes it to users, and then treats and returns the wastewater responsibly to the environment through two closely linked applications: Transport and Treatment. The Transport application also includes sales and rental of specialty dewatering pumps and related equipment and services, which provide the safe removal or draining of groundwater and surface water from construction sites or other industrial sites and bypass pumping for the repair of aging utility infrastructure, as well as emergency water transport and removal during severe weather events.
The customer base consists of two primary end markets: utility and industrial. The utility market includes public, private and public-private entities that support water, wastewater and storm water networks. The industrial market includes customers that require similar water and wastewater infrastructure networks to support various industrial operations.
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Water Infrastructure sells primarily through direct channels with remaining sales through indirect channels and service capabilities. Both utility and industrial facility customers increasingly require our teams’ global but locally proficient expertise to use our equipment in their specific applications. Several trends are increasing demand for this application expertise: (i) the increase in both the type and amount of contaminants found in the water supply, (ii) increasing environmental regulations, (iii) the need to increase system efficiencies and resilience to optimize energy and other operational costs, (iv) the retirement of an aging water industry workforce that has not been systematically renewed at utilities and other end-user customers, and (v) the build-out of water infrastructure in the emerging markets.
Given the highly fragmented nature of the water industry, the Water Infrastructure segment competes with a large number of businesses and no one business competes across all the markets Water Infrastructure serves. We differentiate ourselves in the market by focusing on product and service performance, quality and reliability, innovation, speed to market with new or disruptive technologies and business models, application expertise, brand reputation, energy efficiency, product security, product life-cycle cost, timeliness of delivery, proximity of service centers, effectiveness of our distribution channels, price and customers' experience in doing business with us. Increasingly digital solutions and analytics are important competitive differentiators. We are actively expanding our capabilities in these areas and integrating them together with our legacy technologies and service offerings as well as capabilities from other Xylem business units to present ever more compelling solutions to our customers. In the sale or rental of products and provision of services, we benefit from our large installed base, which requires maintenance, repair and replacement parts due to the critical application and nature of the products and the conditions under which they operate. Timeliness of delivery, quality and the proximity of service centers are important customer considerations when selecting a provider for after-market products and services as well as equipment rentals. In geographic regions where we are locally positioned to provide a quick response, customers have historically relied on us, rather than our competitors, for after-market products relating to our highly engineered and customized solutions. Our key competitors in the Water Infrastructure segment include KSB Inc., Sulzer Ltd., Evoqua Water Technologies, United Rentals, Trojan (Danaher Corporation) and Grundfos.
Applied Water
Applied Water encompasses the uses of water in two primary applications: Building Services and Industrial Water. These applications serve a diverse set of customers in the commercial, residential and industrial end markets. Residential consumers represent the end users in the residential market, while owners and managers of properties such as apartment buildings, retail stores, institutional buildings, restaurants, schools/universities, hospitals and hotels are examples of end users in the commercial market. The industrial market includes OEMs, exploration and production firms, and developers and managers of industrial facilities, such as electrical power generators, chemical manufacturers, machine shops, clothing manufacturers, marine, food and beverage companies and car washes.
In the Applied Water segment, end markets vary widely and, as a result, specialized distribution partners are often preferred. As such, the Applied Water segment provides the majority of its sales through strong indirect channels with the remaining sales going through our global direct sales channels. We have long-standing relationships with many of the leading independent distributors in the markets we serve and we provide incentives to distributors, such as specialized loyalty and training programs.
Population growth, urbanization regulatory requirements on energy efficiency and eco-friendly buildings are macro growth drivers of these markets, driving the need for housing, food, community services and retail goods within growing city centers.

Competition in the Applied Water segment focuses on brand reputation, application expertise, product delivery, performance and energy efficiency, quality and reliability, and price. We compete by offering a wide variety of innovative and high-quality products, coupled with world-class application expertise. We believe our distribution through well-established channels and our reputation for quality significantly enhance our market position. Our ability to deliver innovative product offerings has enabled us to compete effectively, to cultivate and maintain customer relationships and to serve and expand into many niche and new markets. Our key competitors in the Applied Water segment include Grundfos, Wilo SE, Pentair plc and Franklin Electric Co., Inc.

Measurement & Control Solutions
Measurement & Control Solutions develops advanced technology solutions that enable intelligent use and conservation of critical water and energy resources. The segment delivers communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure and analyze water
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quality, flow and level in clean water, wastewater, surface water and coastal environments. Additionally, we offer software and services including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management and pressure monitoring solutions.
At the heart of our leading technologies are automation, data management and decision support. Communications networks enable customers to automate and optimize meter reading, bill customers, monitor flow rates and detect and enable rapid response to changing and unsafe conditions. In short, they provide insight into operations and enable our customers to manage the entire scope of their operations remotely through their networks. At the center of our offering is the FlexNet communication network, which provides a common communications platform and infrastructure for essential metering services. This two-way communication technology remotely connects a wide variety of smart points in a given network with protocols, frequently on Federal Communications Commission ("FCC") licensed spectrum in the U.S., to enable reliable, resilient and secure transmissions. These technologies allow our customers to remotely and continuously monitor their water and energy distribution infrastructure, prioritize and manage maintenance, and use data to optimize many aspects of their networks. Our Advanced Infrastructure Analytics platform complements these offerings with intelligent solutions that help utility decision-makers manage and maintain their networks more effectively in real time.
The majority of our sales in the U.S. are conducted through strong, long-standing relationships with leading distributors and dedicated channel partners for the water and energy markets. Internationally, direct sales are often made in markets without established distribution channels; however, some distribution channels are used in more developed markets. A more direct sales approach, with key account management, is employed for large utilities and government programs.
Macro growth drivers include increasing regulation, aging infrastructure and worldwide movement towards smart grid implementation. Water scarcity and conservation, as well as the need to prevent revenue loss (via inaccurate meter readings, leaks or theft) are among the drivers of smart meter and leak detection technologies.
Our Sensus-branded meters are well positioned in the smart metering sector, the fastest growing sector of the global meter industry. We set ourselves apart in the industry by focusing on our communication network, innovation, new product development and service offerings that deliver tangible savings of non-revenue water through improved meter accuracy, reduced theft and identification of leaks. Our Pure Technologies equipment and services are also well positioned in the leak detection sector, which is attracting considerable attention as aging infrastructure and increased regulatory scrutiny exert pressure on operating budgets. Our key competitors in the Measurement & Control Solutions segment include Itron, Badger Meter, Landis+Gyr, Neptune (Roper), Elster (Honeywell), Echologics (Mueller Water Products), Hach (Danaher Corporation) and Teledyne.
Geographic Profile
The table below illustrates the annual revenue and percentage of revenue by geographic area for each of the three years ended December 31.
Revenue
(in millions)202120202019
$ Amount% of Total$ Amount% of Total$ Amount% of Total
United States$2,280 44 %$2,297 47 %$2,554 49 %
Western Europe1,414 27 %1,259 26 %1,235 24 %
Emerging Markets (a)
1,066 21 %919 19 %1,049 20 %
Other435 8 %401 %411 %
Total$5,195 $4,876 $5,249 
(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")
Supply and Seasonality
We have a global manufacturing and assembly footprint, with production facilities in Europe, North America, Latin America, Asia and the Middle East. All of our businesses require various parts and raw materials, the availability and prices of which may fluctuate. Parts and raw materials commonly used in our products include motors, fabricated parts, castings, bearings, seals, batteries, printed circuit boards ("PCBs") and electronic components, including semiconductors, as well as commodities, including steel, brass, nickel, copper, aluminum and plastics. While we may recover some cost increases through operational improvements, we are still exposed to pricing risk, including
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due to duty and tariff assessments by the U.S. or other governments on foreign imports. We attempt to control costs through fixed-priced contracts with suppliers and various other programs, such as our global procurement initiative.
Our business relies on third-party suppliers, contract manufacturing and commodity markets to secure raw materials, parts and components used in our products. We typically acquire materials and components through a combination of blanket and scheduled purchase orders to support our materials requirements. For many of our products we have existing alternate sources of supply, or such sources may be readily available.
We may experience price volatility or supply constraints for materials that are not available from multiple sources. From time to time, we acquire certain inventory in anticipation of supply constraints or enter into longer-term pricing commitments with suppliers to improve the priority, price and availability of supply.
Our business segments experience a modest level of seasonality in their operations. This seasonality is dependent on factors such as customers' capital spending, as well as the effects of climate change and weather conditions, including heavy flooding, prolonged droughts and fluctuations in temperatures or weather patterns, all of which can positively or negatively impact portions of our business.
Customers
Our business is not dependent on any single customer or a few customers, the loss of which would have a material adverse effect on our Company. No individual customer accounted for more than 10% of our consolidated revenues in 2021, 2020 or 2019.
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 $3,240 million at December 31, 2021 and $2,124 million at December 31, 2020. We anticipate that approximately 60% of the backlog at December 31, 2021 will be recognized as revenue during 2022.
Research and Development
Research and development (“R&D”) is a key foundation of our growth strategy and we focus on the design and development of products and application know-how that address anticipated customer needs and emerging trends. Our engineers are involved in new product development as well as improvement of existing products to increase customer value. Our businesses invest substantial resources into R&D. We anticipate we will continue to develop and invest in our R&D capabilities to promote a steady flow of innovative, high-quality and reliable products and integrated solutions to further strengthen our position in the markets we serve. In addition to investments made in software development, which were capitalized, we incurred $204 million, $187 million, and $191 million as a result of R&D investment spending in 2021, 2020 and 2019, respectively.
We have R&D and product development capabilities around the world. R&D activities are initially conducted in our technology centers, located in conjunction with some of our major manufacturing facilities to enable an efficient and robust development process. We have several global technical centers and local development teams around the world where we are supporting global needs and accelerating the customization of our products and solutions to address local needs. In some cases, our R&D activities are conducted at our piloting and testing facilities and at strategic customer sites. These piloting and testing facilities enable us to serve our strategic markets globally. As part of expanding our bandwidth and to increase our access to technology, we have built innovation eco-system partnerships with academic institutions, start-up accelerators and venture capital organizations.
Capitalized Software
We offer software as a product or service directly to external customers, which is included within "Other intangible assets, net" on our Consolidated Balance Sheets. As of December 31, 2021 and 2020 we had net capitalized software used in sales and services to external customers of $211 million and $182 million, respectively.
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Intellectual Property
We generally seek patent protection for those inventions and improvements that we believe will improve our competitive position and are not suitable to be kept as a trade secret. We believe that our patents and applications are important for maintaining the competitive differentiation of our products and improving our return on R&D investments. While we own, control or license a significant number of patents, trade secrets, proprietary information, trademarks, trade names, copyrights and other intellectual property rights which, in the aggregate, are of material importance to our business, management believes that our business, as a whole, as well as each of our core business segments, is not materially dependent on any one intellectual property right or related group of such rights.
Patents, patent applications and license agreements expire or terminate over time by operation of law, in accordance with their terms or otherwise. As the portfolio of our patents, patent applications and license agreements has evolved over time, we do not expect the expiration of any specific patent to have a material adverse effect on our financial position or results of operations.
Governmental Regulations
Environmental Regulations
Our global operations are subject to various laws and regulations governing the environment and climate change, such as those promulgated by the U.S. Environmental Protection Agency and similar state and foreign environmental agencies, including the discharge of pollutants and the management and disposal of hazardous substances. While environmental and climate change laws and regulations are subject to change, such changes can be difficult to predict reliably and the timing of potential changes is uncertain. Management does not believe, based on current circumstances, that compliance costs pursuant to such regulations will have a material adverse effect on our financial position or results of operations. However, the effect of future legislative or regulatory changes could be material to our financial condition or results of operations.
We continue to be dedicated to environmental and sustainability programs to minimize the use of natural resources, reduce the utilization and generation of hazardous materials from our processes and remediate identified environmental concerns. We are currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at a number of current and former manufacturing facilities. We do not anticipate these liabilities will have a material adverse effect on our consolidated financial position or results of operations. At December 31, 2021, we had estimated and accrued $3 million related to environmental matters.

Other Regulations
As a company with global operations, we are subject to complex U.S. federal, state and local and foreign laws and regulations in the countries where we conduct business, including with respect to trade, such as tariffs, imports and exports; anti-bribery and corruption; antitrust and competition; data security and privacy, such as the EU General Data Protection Regulation (“GDPR”) and the China Personal Information Protection Law ('PIPL"); use of regulated radio spectrum, including that of the U.S. FCC; lobbying activity; health and safety; and the environment, among other matters. We have policies and procedures in place to promote compliance with these laws and regulations. Additional information about the impact of government regulations on Xylem’s business is included in Item 1A. “Risk Factors” under the headings Risks Related to Our Business and Operations and Risks Related to Legal, Regulatory and Tax.
Sustainability
At Xylem, sustainability is at the center of who we are and what we do. As a leading global water technology company, we address some of the world’s most urgent sustainability challenges - responsible stewardship of our shared water resources and resiliency of communities to climate change. Technology is playing an increasingly important role in helping the world solve water issues. We have a long history of innovation and we are focusing on the powerful capabilities of smart technology, integrated management and data analytics.
We believe our financial performance and commitment to sustainability go hand in hand. Xylem approaches business sustainability as a way to generate economic value while also creating value for society, thus meeting the needs of both. Accordingly, in 2019, we evolved our approach to leverage sustainability in our decision-making toward long-term value creation for our shareholders, customers, employees and communities in which we operate and we announced an ambitious slate of 2025 Sustainability goals. The progress towards these goals can be found in our 2020 Sustainability Report, which is aligned to the Global Reporting Initiative and the Sustainability Accounting Standards Board frameworks.
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In setting our 2025 Sustainability goals, we also aligned them with the United Nations Sustainable Development Goals ("UNSDGs"), not only to substantiate our contribution to achieving global objectives, but also to be transparent in our communication to stakeholders by providing details on our responsibility to build a sustainable future. While Xylem embraces all 17 of the UNSDGs, we have a special focus on SDG6: Clean Water and Sanitation.
Additionally, in 2021, Xylem announced our commitment to reach Net Zero greenhouse gas emissions before 2050 across our value chain, further aligning our long-term commitment to sustainability with sector-wide moves towards reduced carbon footprint.

In 2021, in partnership with Goldman Sachs, we continued our work towards further integrating our business and finance strategies with sustainability by creating a cash account tied to performance of select 2025 Sustainability goals. In 2020, Xylem completed a $1 billion Green Bond offering in senior unsecured notes, consisting of $500 million of 1.950% senior notes due in January 2028 and $500 million of 2.250% senior notes due in January 2031. The proceeds of this offering were allocated to green projects that help improve water accessibility, water affordability, and water systems resilience. This follows our 2019 execution of 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 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, an important barometer of Xylem’s continued commitment to sustainability. Additionally, during the first quarter of 2021, we issued a special grant of less than 0.1 million ESG performance share units.

Human Capital
Our colleagues around the globe are united in a shared purpose – to solve water – and, as such, are key to the Company’s success and execution of our strategy. We continue to foster an empowering, mission-driven, people-centered, diverse and inclusive culture. We believe that our overall success and long-term growth depend, in part, on our continued ability to attract and retain diverse and highly skilled colleagues, including senior leaders and colleagues with skills in our strategic competencies, such as engineering, innovation, digital technologies, sales excellence, sustainability and product and project management. The market for highly-skilled talent and leaders in our industry is increasingly competitive, but we believe our culture is a differentiator and therefore important to our ability to attract and retain employees.
As of December 31, 2021, Xylem employed approximately 17,300 employees worldwide, of which approximately 1,200 were temporary or fixed-term employees or interns. We have approximately 5,700 employees in the U.S., 8,100 in Europe, and 3,000 in Asia Pacific, with the remaining 1,000 in other geographies in which we operate. Approximately 18% of our U.S. colleagues are represented by labor unions. In certain foreign countries, our colleagues are represented by labor unions and/or work councils. We believe that our relations with our employees are good.
We conduct periodic employee engagement surveys to understand our employees’ perspectives, identify areas for additional focus and establish action plans. These surveys cover a range of topics, including employee engagement, company culture, customer focus, organizational effectiveness, employee well-being, diversity, equity and inclusion, pay for performance and development opportunities. 86% of our employees globally participated in our 2021 engagement survey, and our engagement index showed increases from the 2019 survey.
Our Vision and Values
Our vision and values provide the foundation for how we want to grow as a company as well as the inspiration for how we want to behave as industry leaders and ethical corporate citizens. Our vision is to create a world in which water issues are no longer a constraint to health, prosperity, and sustainable development. We devote our technology, time and talent to advance the smarter use of water and our colleagues are guided by our core values:
Respect for each other, for diversity of people and opinions, for the environment;
Responsibility for our words and actions, for customer satisfaction, for giving back to our communities;
Integrity for acting ethically, for doing what we say we’ll do, for having the courage to communicate with candor; and
Creativity for thinking beyond boundaries, for anticipating tomorrow’s challenges, for unlocking growth potential.
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Diversity, Equity and Inclusion
We are committed to a workplace that creates a sense of belonging for everyone: where all our colleagues feel involved, respected, valued, connected and able to bring their authentic selves to work. At Xylem, we recognize the power of diversity and inclusion to drive innovation, make us more competitive, positively impact customer satisfaction and Company performance, and create value for our shareholders and other stakeholders.
Our commitment to building a global, diverse and inclusive culture starts at the top with our Board of Directors and senior leadership team members, who represent a broad spectrum of backgrounds and perspectives. As of February 25, 2022, 50% of our directors have origins outside the U.S., and 50% of our directors also identify as diverse from a gender, ethnic or racial standpoint. Approximately 17% of our senior leadership team members have origins outside the U.S., and approximately 42% of our senior leadership team also identify as diverse from a gender, ethnic or racial standpoint. We believe that the diversity of our Board of Directors and senior leadership enhances our ability to evolve and execute our business strategy and to attract and retain diverse and highly qualified talent, and also fuels our commitment to building a culture of inclusion, and providing our colleagues with equitable access to opportunities. As of December 31, 2021 globally, 25% of our colleagues identify as female; in the U.S., 25% of our colleagues identify as U.S. minorities.
Diversity and inclusion metrics are included in our regular business reviews to improve transparency and drive accountability by highlighting progress on goals and outlining steps to achieve them. In addition, we publicly disclose various workforce metrics regarding gender, age and racial and ethnic diversity, including our U.S. EEO-1 report.
We provide periodic training on diversity, equity and inclusion globally, including for our senior leaders. We offer Employee Network Groups, which are voluntary, employee-led groups formed by people with a common affinity, such as gender, race, sexual orientation and gender identity, military status or other attributes. Each Employee Network Group is sponsored and supported by one or more senior leaders and all groups are open to all employees regardless of any diversity attributes with which they may identify. Collectively, approximately 3,700 colleagues participate as members of our network groups. These groups are a critical part of Xylem’s diversity, equity and inclusion strategy and empower colleagues. Each group has a collective voice to speak with management, including the opportunity to voice concerns as a community and to drive change and advance inclusion and innovation. In addition, our CEO and senior leadership team hold regular global town hall meetings, as well as smaller regional or local town halls, to share and hear from our colleagues across all areas of the Company and geographies.
Health and Safety
Protecting the safety, health and well-being of our colleagues is one of our highest priorities. We have a strong Environmental, Health and Safety program that focuses on governance, risk reduction, training and education, and leadership accountability to provide our colleagues with safe and healthy workplaces. In response to the COVID-19 pandemic, we continue to take additional measures to protect the health, safety and well-being of our colleagues, including a support pay program for colleagues impacted by the pandemic which remained in place throughout 2021, an essential services support pay program for colleagues whose roles were classified as an “essential service” requiring work on-site at a Xylem facility or in the field supporting customers, and the transition of office-based colleagues to remote work-from-home status where possible, which enabled us to minimize disruptions to our operations and continue to support our customers. In addition, our senior leadership team held listening sessions with colleagues who were also caregivers to understand their unique challenges and evolve our support accordingly. In order to maintain a safe work environment for our colleagues, our production facilities spread out operations over multiple shifts and implemented other protective measures, such as temperature screening and social distancing, while maintaining operational capabilities. In response to our 2021 employee engagement survey, we sought specific feedback on mental well-being and are augmenting our holistic well-being strategies as a result.
Compensation and Benefits
Attracting, motivating and retaining talented colleagues worldwide is essential to the success of our business. Accordingly, we endeavor to provide our colleagues with competitive compensation and benefits, including paid parental leave in the United States. Xylem takes a total rewards approach that integrates programs for compensation, benefits, recognition and work-life balance. While individual program components may differ by country, role or level, our culture and commitment to results and equity remain constant.
We seek to align our human capital and sustainability strategies to support our mission-driven culture and further our shared value approach, which is designed to generate increased economic and social value for our investors and other stakeholders. Accordingly, in 2021, the Company expanded its sustainability-linked compensation for all
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of our senior leaders, as well as a broader group of executives, with a special, one-time grant of performance share units with goals that are based on 5 of our strategically transformative 2025 sustainability goals.
Career Development
We are committed to enhancing colleagues’ capabilities needed to win in the marketplace and are focused on enhancing digital literacy, sales effectiveness, and other skills needed to support execution of our strategy. We also are focused on internal talent mobility across functions, geographies and businesses. Through our continuous improvement program, we nurture and grow a continuous improvement mindset throughout all areas of the Company.
We have a broad range of talent development programs and experiences to facilitate the continued professional growth and leadership development of our colleagues and to support our succession plans. These programs span across all levels, businesses and functions, including entry-level talent recruitment programs, development programs for emerging leaders, manager training and executive development. We also provide on-demand/self-paced learning through our learning management system.
We also prioritize employee engagement through regular, year-round discussions focused on employee performance feedback and development, opportunities to work on special projects, and volunteer activities involving Watermark, our corporate social responsibility program, as well as Xylem Ignite, our youth engagement program. Our Employee Network Groups foster inclusion and support the development of our colleagues by offering formal and informal leadership opportunities and creating visibility for colleagues.
Workplace Flexibility
In response to the COVID-19 pandemic, our colleagues discovered innovative ways to engage customers and suppliers, and collaborate with each other on complex global or cross-functional projects, adapted to stay strong and productive, and remained highly engaged and committed to our vision as a Company. This agility has also helped us see new business capabilities and ways of working together.
We have heard from many of our office-based colleagues that they greatly value the increased flexibility and autonomy that came with remote working. We believe that an appropriately tailored approach that balances in the office, fully remote and hybrid arrangements will increase our ability to retain and attract the best, most diverse talent, and reduce our carbon footprint associated with unnecessary commuting and business travel.
We are committed to preparing and enabling both management and our colleagues for this new way of working, while we continue to foster an inclusive, equitable culture that promotes engagement, innovation, performance and trust, including for our on-site manufacturing and field services colleagues.
Labor Relations
Xylem respects the work of labor organizations, work councils and trade unions to better the lives of working people. Accordingly, Xylem respects the legal rights of its colleagues to join or to refrain from joining such organizations. An employee’s decision to join or not join a labor organization will in no way account for any discrimination against that employee. Xylem makes managers at all levels aware of the importance of respecting the rights of colleagues to organize or be represented. Our experience supports our core belief that a favorable, collaborative work environment with direct communication between employees and management serves not only the interests of employees but also the interests of Xylem as a company. We work to establish favorable employment conditions that promote positive relationships between our colleagues and their managers, facilitate communications among our colleagues and support their development.

Available Information
We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports are available free of charge on our website www.xylem.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.
In addition, the public may read or copy any materials filed with the SEC, free of charge, at www.sec.gov.
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ITEM 1A.    RISK FACTORS
In evaluating our business and investment in our securities, investors should carefully consider the following discussion of material factors and events, along with all of the other information in this Report and in our other filings with the SEC. The events and consequences discussed below could, in circumstances that we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, financial condition, cash flows, results of operations and/or market price of our common stock.
These risk factors do not identify all of the risks we face. Our business is also subject to general risks that affect many other companies. In addition, we operate in a continually changing business, economic and geopolitical environment and as a result, new risk factors may emerge from time to time. Risks not currently known to us, or that we currently believe are immaterial, may impact our business operations, financial condition or share price. The global economic and geopolitical climate, including the impacts of the ongoing COVID-19 pandemic, amplifies many of the risks below. Risks in this section are grouped in the following categories: (1) Risks Related to Macroeconomic and Industry Factors; (2) Risks Related to Our Business and Operations; (3) Risks Related to Legal, Regulatory and Tax; and (4) Risks Related to Ownership of Our Common Stock. Many risks affect more than one category, and as a result the risks are not in order of significance or probability of occurrence.
Risks Related to Macroeconomic and Industry Factors
Industry and economic conditions may adversely affect our markets and our customers’ operating conditions, which can in turn affect our business, results of operations and financial condition.
With sales in approximately 150 countries, we compete in a wide range of geographic and product markets. Material economic and industry factors impacting our businesses include: (i) the overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) overall strength of industrial, governmental and public and private sector spending; (iii) overall strength of the residential and commercial real estate markets; (iv) federal, state, local and municipal governmental fiscal, trade and procurement laws, regulations and policies, including with respect to domestic content; (v) the availability of commercial financing for our customers and end-users; and (vi) the degree of funding for our public sector customers, including with respect to water infrastructure investments. The macroeconomic impacts of the ongoing COVID-19 pandemic and broader economic dynamics, including with respect to supply chain shortages, logistics challenges, tight labor markets and inflation, have had, and continue to have, a material adverse effect on our business and results of operations. Future slowdowns or prolonged downturns in the global economy or our markets could have material adverse effects on our business, financial condition, cash flows and results of operations.
We are exposed to geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales and operations.
In 2021, 44% of our total revenue was from customers within the U.S. and 56% was from customers outside the U.S. We expect our sales from international operations and export sales to continue to be a significant portion of our revenue. Many of our manufacturing operations, employees and suppliers are located outside of the U.S. Our operations and sales both within the U.S. and internationally are subject, in varying degrees, to risks inherent in doing business globally, including:
changes in trade protection measures, including embargoes, tariffs and other trade barriers, import and export regulations, licensing requirements, and new and existing domestic content requirements for projects receiving governmental funding;
instability and uncertainties arising from the global geopolitical environment, including economic nationalism, populism, protectionism and anti-global sentiment;
changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies;
changes in other laws and regulations or how such provisions are interpreted or administered;
disruptions in our global supply chain, including with respect to labor shortages, supply shortages, and freight and logistics challenges;
unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy;
shocks to the global financial system, including due to global health crises, the effects of climate change, or idiosyncratic events, such as a terrorist attack;
theft, compromise or misappropriation of technology, intellectual property or data;
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foreign currency exchange rate fluctuations, restrictions on repatriation of earnings or payment of distributions, dividends, loans or advances to us by foreign subsidiaries; 
disruption of operations from labor, civil, political or other disturbances;
regional safety and security considerations;
increased costs and risks in developing, staffing and simultaneously managing a number of global operations as a result of distance, remote work arrangements, language and cultural differences; and
threat, outbreak, uncertainty or escalation of political instability, insurrection, armed conflict, terrorism, epidemics, global health crises or pandemics, or war.
In 2021, 44% of our revenues were generated in the U.S, which included sales of products sold into federally funded projects. We expect our U.S. sales in 2022 and beyond to be similar. However, we may not be able to successfully compete for federally funded projects as some of our products may not comply with the domestic content requirements of the U.S. Buy American mandate applicable to the Infrastructure Investment and Jobs Act (“IIJA”) signed into law on November 15, 2021, as well as other federally funded projects. We are assessing the risks associated with the Buy America mandate, as well as related mitigation options around sourcing and manufacturing, but there is no guarantee that we will be able to meet applicable domestic content requirements. While governmental exemptions and waivers may in the future be issued that negate the application of the Buy America mandate to some or all of our potential sales into IIJA and other federally funded projects, it is uncertain whether and to what extent such exemptions or waivers may be issued. An inability to meet applicable domestic content requirements for U.S. federally funded projects could have a material adverse impact on our business, financial condition or results of operations.
We continue to monitor the impacts of the U.K.’s exit from the EU (“Brexit”) on our supply chain, operations and financial results. The U.K. and the EU's Trade and Cooperation Agreement (“TCA”) creates a number of risks and uncertainties for our businesses, including: 1) our services are subject to the World Trade Organization’s rules until the parties to the TCA agree on rules around trade in services, and 2) a delay in implementing final provisions on border checks, with some transitional arrangements for 2021 being continued into 2022. The U.K. will also need to negotiate its own trade treaties with countries around the world, which could take years to complete, and any disagreements on trade terms could result in supply chain delays or other disruptions. As a result, we face continued uncertainty and risks of disruption in our supply chain and increased costs.
In the year ended December 31, 2021, 21% of our total revenues were generated in emerging markets and we have placed a particular emphasis in our strategy on increasing our growth and presence in emerging markets. Beyond the general risks that we face outside the U.S., our operations in emerging markets are subject to additional risks and uncertainties, including: (i) governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such taxes may increase; (ii) governments may seek to nationalize our assets; (iii) governments may impose or increase investment barriers or other restrictions affecting our business; (iv) difficulty in enforcing agreements; (v) challenges collecting receivables, protecting our intellectual property and other assets; (vi) pressure on the pricing of our products and services; (vii) higher business conduct risks; and (viii) challenges in our ability to hire and retain qualified talent and labor. We cannot predict the impact that such factors might have on our business, financial condition, cash flows and results of operations.
The COVID-19 pandemic has adversely impacted, and continues to pose risks to, our business, results of operations and financial condition, the nature and extent of which are highly uncertain and unpredictable.
Our global operations expose us to risks associated with public health crises, including epidemics and pandemics. The ongoing COVID-19 pandemic has had, and may continue to have, an adverse impact on our employees, customers, supply chain, operations and sales. The COVID-19 pandemic has, and may in the future, curtail the movement of people, goods and services worldwide, including in many of the regions where we sell our products and services and conduct operations. Government-mandated precautions to mitigate the spread of COVID-19, including travel restrictions, quarantines, stay at home or similar measures in many of the areas in which we operate, resulted in temporary production impacts at several of our facilities in 2020 and 2021, curtailed, and may in the future curtail, the business and operations of some of our customers and suppliers, including our ability to access our customers’ sites. If the COVID-19 pandemic continues or worsens, including additional mutations of the virus, we may experience a decline in sales and customer orders in certain of our businesses. The COVID-19 pandemic and broader global market supply and demand dynamics also have impacted, and continue to impact our supply chain with unpredictable disruptions, due to component shortages, including with respect to key electronic components such as semiconductors, capacity constraints, delays in shipment of materials necessary to the manufacture of our products, freight and logistics challenges, tight labor markets and inflation. Different markets and parts of our business will recover from the COVID-19 pandemic at different rates depending on many factors,
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including vaccination levels or new COVID-19 variants and related outbreaks. While we have taken measures to mitigate these impacts, as the pandemic continues, or if it worsens, our manufacturing facilities, supply chain and logistics may continue to be significantly impacted. Accordingly, the pandemic has negatively impacted our revenue growth in certain of our businesses. It is uncertain how materially the COVID-19 pandemic, including additional mutations of the virus, the corresponding rollout, efficacy or unanticipated consequences of vaccines, and the pace of recovery will affect our global operations and sales if these impacts persist, worsen or re-emerge throughout 2022 and beyond. The extent and duration of these impacts on us are dependent in part on demand for our products and services and, our ability to meet customer demand; customers’ budgets, spending, willingness to allow us access to their job sites and continuation of planned projects; continued funding for infrastructure investments, particularly water infrastructure; our suppliers’ ability to continue to supply us with parts, components and raw materials, and logistics providers' ability to continue shipment of our products and supplies in a timely manner.
The COVID-19 pandemic has caused significant volatility and uncertainty in the financial and capital markets. A further disruption of global financial markets or resulting economic downturn from the COVID-19 pandemic or other global health crises may reduce our ability to incur debt or access capital, or increase our cost of capital. There are no assurances that the credit markets or the capital markets will be available to us in the future or that the lenders participating in our credit facilities will be able to provide financing in accordance with their contractual obligations. Additionally, concerns over the economic impacts of COVID-19 have caused, and may continue to cause, volatility in our stock price. A sustained downturn may impact our liquidity position, including our ability to continue to pay dividends, or may impact our asset values resulting in the carrying value of our goodwill or other intangible assets exceeding their fair value, which may require us to recognize an impairment to those assets. The effects of the COVID-19 pandemic, including remote working arrangements for employees, has not to date impacted but could in the future impact our financial reporting systems and internal control over financial reporting.
We cannot reasonably estimate the length or severity of the ongoing COVID-19 pandemic or the associated macroeconomic impacts, including impacts on our markets and other impacts to our business, financial position, results of operations and cash flows. To the extent that COVID-19 conditions improve, the duration and sustainability of such improvements will be uncertain, and continuing adverse impacts or the degree of improvement may vary by business and/or geography. Actions we may take in response to improvements in conditions may also vary by business and/or geography, and may be made with incomplete information. There is a risk that such actions could be premature, insufficient or incorrect and could have a material adverse impact on our business and results of operations.
Inflation, tariffs, customs duties and other increases in manufacturing and operating costs could adversely affect our cash flows and results of operations.
Our operating costs are subject to fluctuations, particularly due to changes in prices for commodities, parts, raw materials, energy and related utilities, freight, and cost of labor which have been and may continue to be driven by inflation, tightening labor markets, prevailing price levels, exchange rates, changes in trade agreements and trade protection measures including tariffs, and other economic factors. Throughout 2021 our operating costs have been impacted by price inflation, including with respect to the cost of certain raw materials, electronic components, commodities, freight and logistics, and we expect this to continue for the foreseeable future. The U.S. has enacted various trade actions, including imposing tariffs on certain goods we import from China and other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S., or further retaliatory trade measures taken by China or other countries, could increase the cost of our products that we may not be able to offset. The TCA between the U.K. and EU imposes duties on goods traded between the U.K. and EU. In order to remain competitive, we may not be able to recover all or a portion of these higher costs from our customers through price increases. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method. Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
Our business is subject to foreign currency exchange rates fluctuations.
Sales outside of the U.S. for the year ended December 31, 2021 accounted for approximately 56% of our net sales. We also have significant operations in various locations outside of the U.S. We are therefore exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Swedish Krona, British Pound, Canadian Dollar, Australian Dollar, and Polish Zloty. Changes in the value of currencies of the countries in which we do business relative to the value of the U.S. Dollar or Euro could affect our ability to sell products competitively and control our cost structure, which has had and may continue to have a material adverse effect on our business, financial condition, cash flows and results of operations. Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar. The
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translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, Chinese Yuan, British Pound, Canadian Dollar, Australian Dollar, Swedish Krona, and Indian Rupee. As the U.S. Dollar fluctuates against other currencies in which we transact business, revenue and income may be impacted. Strengthening of the U.S. Dollar relative to the Euro and the currencies of the other countries in which we do business, has materially and adversely affected and could in the future materially and adversely affect our sales growth and profitability in future periods. Refer to Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" for additional information on foreign exchange risk.
Our pension and other defined benefit plans are subject to financial market risks that could adversely impact our earnings, financial condition and cash flows in future periods.
Certain current and retired employees are covered by pension and other defined benefit plans (collectively, “post-retirement benefit plans”). We make contributions to fund our post-retirement benefit plans when we consider it necessary or advantageous to do so. Significant changes in market interest rates, decreases in fair value of or investment losses on plan assets, changes in discount rates, or changes in minimum funding requirements established by governments, taxing authorities or other agreements, could increase our funding obligations and adversely impact our earnings, financial condition and cash flows in future periods. In addition, the cost of our post-retirement benefit plans is incurred over long periods of time and involves factors that can be volatile and unpredictable, including rates of return on plan assets, discount rates used to calculate liabilities and expenses, change in laws and regulatory actions, and changes in actuarial experience and assumptions, which could adversely impact our earnings, results of operations, financial condition and cash flows.
Risks Related to Our Business and Operations
Failure to compete successfully in our markets, including our ability to develop and commercialize innovative and disruptive technologies, could adversely affect our business.
We offer our technologies, products and services in highly competitive markets. We believe the principal points of competition are product and service performance, quality and reliability, innovation, speed to market with new or disruptive technologies and business models, application expertise, brand reputation, energy efficiency, product security, product life cycle cost, timeliness of delivery, proximity of our service centers to customers, effectiveness of our distribution channels, price and customers’ experience in doing business with us. Maintaining and improving our competitive position will require successful management of these factors in a business environment with increasingly rapid rates of change and disruption.
Our competitive position and future growth rate depend upon a number of factors, including our ability to successfully: (i) innovate, develop and maintain competitive products, services, business models and customer experience to address emerging trends and meet customers’ needs (including those related to social, environmental and sustainability matters), (ii) defend our market share against an ever-expanding number of competitors, many of which are new and non-traditional competitors from outside our industry, such as large technology firms, or those out of emerging markets, (iii) enhance our product and service offerings by adding innovative features or disruptive technologies that differentiate them from those of our competitors and prevent commoditization, (iv) develop, manufacture and bring compelling new products and services to market quickly and cost-effectively, (v) continue to cultivate, develop and maintain our distribution network of channel partners, (vi) attract, develop and retain individuals with the requisite innovation, digital and technical expertise and understanding of customers’ needs to develop and commercialize new technologies, products and services, (vii) continue to invest in our manufacturing, research and development, engineering, sales and marketing, customer service and support, and distribution networks, (viii) win large contracts, and (ix) compete for business subject to applicable governmental procurement laws, regulations and policies, including new and existing domestic content requirements in the U.S. and globally, as they may evolve over time.
We may not be successful in maintaining our competitive position, which could adversely affect our business, financial condition, cash flows or results of operations. The failure of our technologies, products or services to maintain and gain market acceptance due to more attractive offerings, or customers’ slower-than-expected adoption of and investment in our new and innovative technologies could significantly reduce our revenues or market share and adversely affect our competitive position. Pricing pressures could cause us to adjust the prices of certain products to stay competitive, or we may not be able to continue to win large contracts, which could adversely affect our market share and competitive position.
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Cybersecurity incidents or other disruptions to our information technology infrastructure, communications networks and operations could adversely affect our business, products and services.
Our business operations rely on information technology and communications networks, some of which are operated by third parties, including cloud-based service providers, to process, transmit and store our electronic information, including sensitive data such as confidential business information and personal data relating to employees, customers or other business partners. We have, or operate through, a concentration of operations on certain sites, such as production and shared service centers. With the COVID-19 pandemic impacting our business since March 2020, a significant portion of our workforce transitioned to remote working, which we expect to be the case for the foreseeable future, and they are reliant on our information technology infrastructure and communication networks to perform their jobs, as well as access to reliable and safe communication networks in their communities. We also rely on third parties’ information technology systems to manage or support a variety of business processes and activities, including with regard to remote work. Regardless of protection measures, essentially all systems are susceptible to damage, disruption or shut-down due to cybersecurity attacks, including ransomware, denial-of-service, computer viruses and security breaches; equipment or system failure, including due to maintenance, obsolescence or age; and other events or circumstances, such as human error or malfeasance, vandalism, natural disaster, fire, power, communication or other utility outage, shutdown or utility failure and other events. In any such circumstances, our system redundancy and other business continuity and disaster recovery planning and response may be ineffective or inadequate.
In addition, we offer certain services and products, including pumps, controllers and meters that are digitally-enabled or that connect to and are part of the “Internet of Things” (IoT), and are used by third parties for operational purposes or to collect data. Cybersecurity attacks may target hardware, software and information installed, stored or transmitted by our products after they have been purchased and incorporated into third parties’ products, facilities or infrastructure. While we attempt to provide security measures to safeguard our products and services from cyber threats, the potential for an attack remains. A successful attack may result in the misappropriation, destruction, unauthorized access to or disclosure of third parties' confidential information, damage or disruption to third parties’ operations, potentially with personal health and safety risks, recall of our products or increased costs for security and remediation, as well as damage to our brand reputation.
Like many multinational companies, we, and some third parties upon which we rely, have experienced cybersecurity attacks on information technology networks and systems, products and services in the past and may experience them in the future, likely with more frequency and involving a broader range of devices and modes of attack. To date, none have resulted in any material adverse impact to our business, operations, products, services or customers. We have adopted measures designed to mitigate potential risks associated with cybersecurity threats, breaches or other disruptions or damage to our information technology networks and systems, products and services but the unpredictability of the timing, nature and scope of such disruptions and threats could impact our business, operations, products and services. Disruption to information technology and communications networks on which we rely, or an attack on our products and services, could interfere with our operations, disrupt our supply chain and service to our customers, interrupt production and shipments, result in theft or compromise of our and our customers’ intellectual property and trade secrets, damage employee, customer and business partner relationships, negatively impact our reputation, result in legal claims and proceedings or regulatory enforcement actions, and increase our costs for security and remediation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Although we continue to assess these risks, implement measures to mitigate these risks and perform business continuity and disaster recovery planning, we cannot be sure that cybersecurity attacks or other interruptions with material adverse effects will not occur, or that our business continuity and disaster recovery efforts will be effective and adequate.
Lack of or delay in availability of products, parts and raw materials from our supply chain or the inability of suppliers to meet delivery and other requirements, could adversely affect our business.
Our business relies on a large and complex network of suppliers (and their suppliers), including contract manufacturing, commodity markets and freight and logistics providers, to secure and ship finished goods and raw materials, parts, electronic components and other components that are used in our products. We expect that our reliance on, and the complexity of, the supply chain will continue to increase. Parts and raw materials commonly used in our products include electronic components, particularly semiconductors, motors, fabricated parts, castings, bearings, seals, batteries, and PCBs, as well as commodities, including steel, brass, nickel, copper, aluminum and plastics. We are exposed to the availability of these parts, components, materials and finished goods, which have been and may in the future be subject to delay, curtailment or change due to, among other things, macroeconomic factors including supply and demand dynamics, labor shortages, changes in the strategy or production planning of
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suppliers including decisions to exit production of key components upon which we rely, interruptions in suppliers' production, labor disputes, the impaired financial condition of a particular supplier, suppliers’ capacity allocations to other purchasers, changes in trade agreements and trade protection measures including tariffs, exchange rates and prevailing price levels, ability to meet regulatory requirements, weather emergencies and associated effects of climate change, the ongoing effects of the COVID-19 pandemic or other public health crises or threatened or actual armed conflict, acts of war or terrorism. We have also experienced, and continue to experience, increased freight and logistics costs, delivery delays related to port congestion and other logistics- related challenges. Although we have insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any or all aspects of supply chain disruptions.

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

In addition, as a result of the ongoing COVID-19 pandemic and broader global market supply and demand dynamics, we have experienced and may continue to experience shortages, capacity constraints and delays with respect to the supply of components, including electronic components (in particular, semiconductors), and other parts and raw materials. We have and continue to take measures, including with respect to buffer stock, the use of alternative suppliers and re-design of certain products, to mitigate the impacts of the ongoing supply chain, freight and logistics issues. However, if these shortages and disruptions continue, if additional disruptions occur, or if our efforts to mitigate these shortages and disruptions are insufficient or unsuccessful, we may be unable to, or delayed in our ability to execute on our backlog, fill new customer orders or timely deliver products to our customers and therefore could have a material adverse effect on our business, financial condition or results of operations.
A material disruption to any of our facilities or operations, or that of third parties upon which we rely, may adversely affect our business and financial performance.
Our facilities and operations rely on a complex global supply chain including suppliers (and their suppliers), distributors, contract manufacturers, and freight and logistics providers. In addition, we rely on certain third parties to supply critical business processes and activities, including in the areas of Finance, Human Resources, Procurement and Information Technology. We also have a concentration of operations at certain sites, such as production and shared services centers. Our facilities and operations and those of certain third parties on which we rely, have experienced, and may in the future experience, disruptions as a result of an actual or threatened event or circumstance, including due to a significant equipment or system failure, natural disaster, weather event, effects of climate change, power, water or communications outage, fire, explosion, critical supply chain failure, terrorism, cybersecurity attack, political disruption, the effects of COVID-19, outbreak of an epidemic, pandemic or other public health crisis, insurrection, armed conflict or war, labor dispute, work stoppage or slowdown, technology failure, adverse weather conditions or other reason. A significant disruption to any of our facilities or operations, or that of third parties upon which we rely, could cause material adverse impacts to our financial performance, operations and business, including an inability to meet customer demand or contractual commitments, increased costs, and reduced sales, and could impact our business processes and activities, including our ability to timely report financial results. Any interruption in capability may be lengthy and have lasting effects, require a significant amount of management and other employees' time and focus, and require us to make substantial expenditures to remedy the situation, which could negatively affect our operations, business processes and activities, profitability and financial condition. Any recovery under our insurance policies may not offset the lost sales, increased costs, or longer term loss of suppliers, sales or customers that we may experience as a result of a disruption, which could adversely affect our business, financial condition, cash flow and results of operations. Although we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot be sure that interruptions with material adverse effects on our operational and financial performance will not occur.
Failure to retain our existing senior management, engineering, technology, sales, services and other key talents or the inability to attract new qualified and diverse talent could negatively impact our business.
Our success has depended, and will continue to depend to a significant extent on our ability to attract and retain highly qualified employees in senior management positions, and in strategic or core competencies, including engineering, innovation, digital technologies, sales excellence, service, and project management, as well as general production-related labor. The market for highly-skilled talent, leaders and labor in our industry is increasingly competitive. As a result, our success in attracting and retaining employees has depended, and will continue to depend on our ability to offer attractive career growth opportunities, compensation, and benefits, particularly in the areas of services, digital technologies, innovation and data science. In addition, advancing our culture, including with respect to diversity, equity and inclusion is critical to attract and retain talent to enable the continued execution of our strategy, while driving innovation, remaining competitive and creating long-term value. We also need to continue to develop qualified talent to support business growth and robust succession plans, both of which are
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critical to our long-term success. A failure to attract or retain highly engaged and skilled talent and labor could adversely affect our ability to meet and exceed the needs of our customers, operate and grow our business and execute our strategy.
Our financial results can be difficult to predict.
Our business is impacted by a substantial amount of short cycle, and book-and-bill business, which we have limited insight into, particularly for the business that we transact through our significant distribution network. We are also impacted by our long cycle business, including large projects, which could be unexpectedly cancelled, or whose timing can change based upon customer requirements due to a number of factors affecting the project that are beyond our knowledge or control, such as funding, readiness of the project and regulatory approvals. Additionally, we rely on a complex global supply chain, which has been subject to dynamic conditions, unexpected changes and disruptions during 2021 and into 2022 due to macroeconomic factors associated with COVID-19. These supply chain challenges have affected, and may continue to affect, our production and ability to timely fill customer orders. We cannot predict when, or if, these conditions will ease or subside in the future. Accordingly, our financial results for any given period have been and will continue to be difficult to predict.
Defects, unanticipated use or inadequate disclosures with respect to our products could adversely affect our business, reputation and financial condition and results of operations.
Defects, inadequacies or quality issues in the manufacture, design, software, security or service of our products (including in products, parts or components that we source from third parties), unanticipated use, or inadequate disclosure of risks relating to the use of our products could result in product safety, product security, regulatory or environmental risks, including personal injury, death, property or environmental damage. These events could also lead to recalls, safety or security alerts relating to our products, result in the removal of a product from the market and/or result in warranty or liability claims against us. Although we have liability insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any or all aspects of liability claims. Manufacturing, design, software, security or service defects or inadequacies may also result in contractual damages against us, warranty expenses or issuance of credits, which could impact our profitability. Recalls, removals, and warranty, liability and quality claims can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and have a material adverse effect on our business, financial condition and results of operations.
A significant portion of our products and offerings in our Measurement & Control Solutions segment are affected by the availability, regulation of and interference with radio spectrum that we use.
A significant portion of the offerings in our Measurement & Control Solutions segment use radio spectrum, which is subject to government regulation. To the extent we introduce new products designed for use in the U.S. or another country, such products may require significant modification or redesign in order to meet frequency requirements and other regulatory specifications. Limitations on frequency availability or the cost of making necessary modifications may preclude us from selling our products in certain countries. The regulations that govern our use of radio spectrum may change, which may require us to modify our products or seek new partnerships, either directly or due to interference caused by new consumer products allowed under the regulations. The inability to modify our products to meet such requirements, the possible delays in completing or the cost of such modifications could have a material adverse effect on our business, financial condition, and results of operations. In addition, we may not be able to secure suitable partners for co-development of products.
In the U.S., our products are primarily designed to use FCC-licensed spectrum in the 900MHz range. If the FCC does not renew our existing spectrum licenses, or materially changes regulations affecting the use of these licenses, our business, financial condition, and results of operations could be adversely affected. In addition, there may be insufficient available frequencies in some markets to sustain or develop our planned operations at a commercially feasible price or at all.
Outside the U.S., certain of our products require the use of radio frequency and are subject to regulations. In some jurisdictions, radio station licenses may be granted for a fixed term and must be periodically renewed. Our advanced and smart metering systems offerings transmit to (and receive information from, if applicable) handheld, mobile, or fixed network reading devices in licensed bands made available to us through strategic partnerships and are reliant to some extent on the licensed spectrum continuing to be available through our partners or our customers. We may be unable to find partners or customers that have access to sufficient frequencies in some markets to sustain or develop our planned operations, or to find partners or customers that have access to sufficient frequencies in the relevant markets at a commercially feasible price or at all.
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We may not achieve some or all of the expected benefits of our restructuring and realignment plans or our restructuring and realignment may adversely affect our business.
In recent fiscal years, we initiated restructuring and realignment plans in an effort to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. Additionally, in 2020, in response to the business and economic conditions resulting from the COVID-19 pandemic, we initiated additional restructuring and realignment activity. We are also engaged in a multi-year effort to transform many of our support functions and related technologies, including Finance, Human Resources and Procurement. Challenges with the enabling technologies and delays in implementing planned restructuring and realignment activities have delayed the realization of some of the expected operational and financial benefits from such actions. As such, we may not be able to obtain all of the cost savings and benefits that were initially anticipated in connection with our restructuring and realignment plans. Additionally, as a result of these plans, we may experience a loss of continuity or, accumulated knowledge or inefficiencies during transitional periods and ongoing operations. Realignment and restructuring require a significant amount of management and other employees' time and focus, which may divert attention from operating and growing our business.
The successful implementation and execution of our restructuring and realignment actions are critical to achieving our expected cost savings, as well as effectively competing in the marketplace and positioning us for future growth. Factors that may impede a successful implementation include the retention of key employees, the impact of regulatory matters including tax, matters involving certain third-party service providers selected to assist us, including staffing, technology, and compliance of service providers with our internal controls over financial reporting, and adverse economic market conditions. If our restructuring and realignment actions are not executed successfully, it could have material adverse impacts on the effectiveness of our internal controls over financial reporting, our competitive position, business, financial condition, cash flows and results of operations.
Our strategy includes acquisitions, and we may be unable to successfully execute or effectively integrate acquisitions.
As part of our growth strategy, we plan to continue to pursue the acquisition of other companies, assets, technologies, product lines and customer channels that complement or expand our existing business or improve our competitive position. We may not be able to complete acquisitions with favorable terms or timing, or at all, or obtain financing that may be needed to consummate acquisitions. In addition, our results of operations may be adversely impacted by: (i) the failure to successfully integrate acquired businesses into our operations, technology, and financial and other systems, (ii) the failure of acquired businesses to meet or exceed expected returns, which in the past has led to, and in the future may lead to, accounting impairments, (iii) the discovery of unanticipated liabilities, labor relations difficulties, cybersecurity concerns, control or compliance issues, or other issues for which we lack contractual protections, insurance or indemnities.
Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: diversion of management’s attention from existing businesses and operations; insufficient internal controls over financial or compliance activities or financial reporting; the failure to realize expected synergies; the assumption of new material risks associated with the acquired businesses; and the loss of key employees of the acquired businesses. Failure to successfully execute our growth strategy via acquisitions and successfully integrate these acquisitions could adversely affect our competitive position, business, financial condition or results of operations.
Weather conditions, including the effects of climate change and associated efforts by governmental or regulatory authorities to mitigate such effects, may cause volatility in our served markets, and may affect our businesses, operations and financial results.
Globally, the frequency and severity of severe weather events due to the effects of climate change is increasing and our facilities, operations and business face related risks and opportunities. The unpredictable nature of weather conditions, including heavy flooding, water stress due to prolonged droughts, and fluctuations in temperatures or weather patterns, including as a result of climate change, can positively or negatively impact portions of our business. For example, heavy flooding and rain events attributable to the effects of global climate change may increase customer demand for some of our solutions that help manage water and storm water overflows, or remove and transfer excess or unwanted water. Prolonged drought conditions may increase demand for our pumping technology used in agriculture and turf irrigation applications. Demand for water reuse applications, including those provided by our treatment business, may also increase as communities look to address water scarcity challenges due to the effects of climate change. In addition, fluctuations in temperatures result in varying levels of demand for our products used in residential and commercial hydronic applications, where homes and buildings use circulating water to heat and cool living spaces. Significant fluctuations in these weather conditions and climate changes can therefore result in volatility in our financial results.
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Severe weather events and other effects of climate change have caused, and may in the future cause, disruptions to our facilities and operations, and those of our customers and suppliers. In 2021, a physical risk analysis using the Task Force on Climate Related Financial Disclosures (“TCFD”) framework indicated that certain of our facilities are at a moderate risk for exposure to water stress, coldwave and wildfire impacts due to the effects of climate change. While we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot be sure that disruptions with material adverse effects will not occur.
Governments may implement emissions trading schemes, carbon taxes, fuel taxes and other policies to reduce the impacts of climate change that could impact our business and financial results. The timing, scope and effect of governments’ implementation of carbon pricing and taxes are uncertain, but could significantly increase our expenses in the future and therefore have material adverse impacts on our business, financial condition, cash flows, results of operations and market price of our common stock.
Our commitments, goals, targets, objectives and initiatives related to sustainability, and our public statements and disclosures regarding them, expose us to numerous risks.
We have developed, and will continue to establish, goals, targets, and other objectives related to sustainability matters, including our sustainability goals as well as commitments to preliminary Science-Based Targets aligned to limiting global temperature increase to 1.5°C above pre-industrial level, in line with the Paris Agreement, by 2030 and net zero greenhouse gas (GHG) emissions (Scope 1, 2 and 3) before 2050. Achieving these goals and commitments will require evolving our business, capital investment and the development of technology that might not currently exist. We might incur additional expense or be required to recognize impairment charges in connection with our efforts. These commitments, goals, targets and other objectives reflect our current plans and there is no guarantee that they will be achieved. Our efforts to research, establish, accomplish, and accurately report on these commitments, goals, targets, and objectives expose us to operational, reputational, financial, legal, and other risks. Our ability to achieve any stated commitment, goal, target, or objective is subject to factors and conditions, many of which are outside of our control, including the pace of changes in technology, the availability of requisite financing, and the availability of suppliers that can meet our sustainability and other standards.

Our business may face increased scrutiny from the investment community, other stakeholders, regulators, and the media related to our sustainability activities, including our commitments, goals, targets, and objectives, and our methodologies and timelines for pursuing them. If our sustainability practices do not meet investor or other stakeholder expectations and standards, which continue to evolve, our reputation, our ability to attract or retain employees, and our attractiveness as an investment, business partner, or as an acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our commitments, goals, targets, and objectives, to comply with ethical, environmental, or other standards, regulations, or expectations, or to satisfy reporting standards with respect to these matters, within the timelines we announce, or at all, could have operational, reputational, financial and legal impacts.
Our debt obligations may adversely affect our business and our ability to meet our obligations and pay dividends.
As of December 31, 2021, our total outstanding indebtedness was $2,440 million as described under “Liquidity and Capital Resources" and we may incur additional debt in the future. Our indebtedness could have adverse consequences to us and our investors, including:
increasing our vulnerability to general adverse economic and industry conditions;
limiting our ability to obtain additional financing or borrow additional funds;
reducing or eliminating our ability to pay future dividends or repurchase our common stock;
limiting our flexibility in planning for, or reacting to, changes in our business and industry;
requiring a substantial portion of our cash flows from operations to make principal and interest payments;
reducing the cash flows available to fund working capital, capital expenditures, acquisitions or other investments to grow our business;
increasing the amount of interest expense that we must pay because some of our borrowings are at variable interest rates, which, as interest rates increase, would result in higher interest expense; and
increasing the risk of a future credit rating downgrade, which could increase future debt costs and limit the availability of debt financing.
In addition, there can be no assurance that future borrowings or equity financing will be available to us on favorable
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terms or at all for the payment or refinancing of our indebtedness. The terms of any future debt indentures may also impose additional and more stringent restrictions on our operations than we currently have.
Our ability to make scheduled principal payments of, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend on our future cash flows from operations, which may not be sufficient and may be affected by factors beyond our control. If we are unable to service our indebtedness, our business, financial condition and results of operations would be materially adversely affected.
We may incur additional impairment charges for our goodwill and other indefinite-lived intangible assets which would negatively impact our operating results.
We have a significant amount of goodwill and purchased intangible assets on our balance sheet as a result of acquisitions. As of December 31, 2021, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $3 billion. In accordance with generally accepted accounting principles, we evaluate these assets for impairment at least annually, or more frequently if changes in events or circumstances indicate it is more likely than not that a potential impairment could exist. Significant negative industry or economic trends, disruptions to our business or our customers’ business, inability to effectively integrate or scale acquired businesses, increases in cost of capital, unexpected significant changes or planned changes in use of the assets, failure of the FCC to renew radio spectrum licenses, and divestitures and market capitalization declines may cause impairment of our goodwill and other indefinite-lived intangible assets. For example, in 2020 we recorded goodwill impairment charges $58 million within our Measurement & Control Solutions segment primarily related to the performance of the business of the Pure Technologies Ltd. acquisition ("Pure") (as detailed in Note 12, “Goodwill and Other Intangible Assets”). We did not record goodwill impairment charges within our Measurement & Control Solutions segment in 2021. Material impairment charges have in the past and could in the future adversely affect our results of operations and financial condition.
Risks Related to Legal, Regulatory and Tax
Failure to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act, other applicable anti-corruption laws, trade regulations, and data privacy and security laws, could have a material adverse impact on our business, results of operations, financial condition and reputation.
Given our global operations, we are subject to regulation under a wide variety of U.S. and non-U.S. laws, regulations and policies, including laws and regulations related to anti-corruption, trade including export and import compliance, anti-trust and money laundering. Our policies mandate compliance with these laws and regulations. The U.S. Foreign Corrupt Practices Act (the "FCPA"), the U.K. Bribery Act of 2010 and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-corruption laws may conflict with local business customs and practices. We cannot guarantee that our internal controls, policies and procedures will always prevent and protect us from improper conduct of our employees or business partners. In the event that we believe or have reason to believe that our employees or business partners have or may have violated applicable laws, regulations or policies, including anti-corruption laws, we are required to investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, termination of relationships with business partners and curtailment of operations in certain jurisdictions, and as a result might materially and adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business.
Additionally, to conduct our operations, we regularly move data across borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations regarding data privacy, data protection and data security, including the California Consumer Protection Act, the EU's GDPR and China’s Personal Information Protection Law (“PIPL”). The scope of the laws that may be applicable to us is evolving, often uncertain and may be conflicting, particularly with respect to foreign laws. GDPR greatly increases the jurisdictional reach of EU law and adds a broad array of requirements for handling personal data, including the enforcement of data subject rights, enhanced security requirements, obligations to guarantee EU data subject rights are not compromised in countries outside the EU, and public disclosure of significant data breaches. Other countries, such as China with its PIPL, have enacted or are enacting data localization and security laws that require data to stay within their borders. All of these evolving legal and operational requirements impose significant costs of compliance that are likely to increase over time. In addition, any such violation could result in substantial fines, sanctions and/or civil penalties, damage to our reputation and might materially and adversely affect our business, results of operations or financial condition.
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Changes in our effective tax rates and tax expenses may adversely affect our financial results.
We sell our products in approximately 150 countries and 56% of our revenue was generated outside the U.S. in 2021. Given the global nature of our business, a number of factors may increase our effective tax rates and tax expense, including:
the geographic mix of jurisdictions in which profits are earned and taxed;
the statutory tax rates and tax laws in jurisdictions in which we conduct business;
the resolution of tax issues arising from tax examinations by various tax authorities; and
the valuation of our deferred tax assets and liabilities.
Additionally, tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. The recent agreement by countries in the Organization for Economic Cooperation and Development to implement additional legislative changes increases the uncertainty of future income tax positions, and such changes may result in additional tax expense and effective tax rate volatility.
Our businesses are regularly examined by various tax authorities throughout the world and the resolutions of these examinations do not typically have a significant impact on our effective tax rates and tax expenses but they could. For example, following an examination regarding aspects of the reorganization of our European business that occurred in 2013, the Swedish tax authority issued a tax assessment to Xylem’s Swedish subsidiary in 2019, which we are appealing as further described in Note 7, “Income Taxes.” This examination as well as other examinations can result in increased tax assessments, and settlement or litigation about the assessments and final resolution could be unfavorable to Xylem. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, including unrecognized tax benefits; however, developments in an audit or litigation could materially and adversely affect us. Although we believe our tax estimates and accruals are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in its historical income tax provisions, accruals and unrecognized tax benefits, which could materially and adversely affect our business, operating results, cash flows and financial condition.
We face risks related to legal and regulatory proceedings.
We are subject to various laws, regulations and other requirements of government authorities in the U.S. and foreign countries, any violation of which could potentially create substantial liability for us and damage our reputation. Changes in laws, ordinances, regulations or other government policies, the nature, timing, and effect of which are uncertain, may significantly increase our expenses and liabilities.
From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of previously-owned entities). These proceedings may seek remedies relating to environmental matters, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pensions, government contract issues and commercial or contractual disputes. Our continued transition to connected and digital technologies and solutions has increased our exposure to intellectual property litigation and we expect that this risk will continue to increase as we execute on our innovation and technology priorities.
It is not possible to predict with certainty the outcome of claims, investigations, regulatory proceedings and lawsuits, and we could in the future incur judgments, fines or penalties or enter into settlements and claims that could have an adverse effect on our reputation, our business, results of operations and financial condition. Additionally, we may be required to change or cease operations at one or more facilities if a regulatory agency determines that we have failed to comply with laws, regulations or orders applicable to our business.
The global and diverse nature of our operations, coupled with the increase in regulation and enforcement in many regions of the globe, means that legal and compliance risks will continue to exist and additional legal and regulatory proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time. In addition, subsequent developments in legal and regulatory proceedings may affect our assessments and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our results of operations and financial condition.
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Infringement or expiration of our intellectual property rights, or allegations that we have infringed upon the intellectual property rights of third parties could negatively affect us.
We own numerous patents, trademarks, copyrights, trade secrets and other intellectual property and licenses to intellectual property owned by others, that are important to our business. Our intellectual property rights may provide us with competitive advantage because they may help us differentiate our technologies, products and services, including our growing portfolio of data analytics and digitally-enabled offerings. However, our current or future intellectual property rights may not be sufficiently broad or may be challenged, invalidated, circumvented, misappropriated, independently developed, or designed-around, particularly given our operations in countries where laws governing intellectual property rights are not highly developed, protected or enforced. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property, or detect or prevent circumvention, misappropriation or unauthorized use of such property, as well as the cost of enforcing our intellectual property rights, could adversely impact our business, financial condition and results of operations.
From time to time, we receive notices from third parties alleging intellectual property infringement or misappropriation. Any dispute or litigation regarding intellectual property could be costly and time-consuming to defend due to the complexity and uncertainty of intellectual property litigation. We may not be successful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to use critical technology, be unable to license critical technology or sell critical products and services, be required to pay substantial damages or license fees with respect to the use of third-party intellectual property rights, or be required to redesign our products at substantial cost, any of which could adversely impact our competitive position, financial condition and results of operations. Even if we successfully defend against claims of infringement or misappropriation, we may incur significant costs and diversion of management attention and resources, which could adversely affect our business, financial condition and results of operations.
Developments in, and compliance with, current and future environmental and climate change laws and regulations could impact our business, financial condition or results of operations.
Our business, operations, and product and service offerings are subject to and affected by many federal, state, local and foreign environmental laws and regulations, including those enacted in response to climate change concerns.
Increasing public and governmental awareness and concern regarding the effects of climate change has led to significant legislative and regulatory efforts to limit greenhouse gas emissions and will likely result in further environmental and climate change laws and regulations. Compliance with existing laws and regulations currently requires, and compliance with future laws is expected to continue to require, increasing operating and capital expenditures, including with respect to the design or re-design of our products in order to conform to changing environmental standards and regulations, which could impact our business, financial condition and results of operations. Furthermore, environmental laws and regulations may authorize substantial fines and criminal sanctions as well as facility shutdowns to address violations, and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations. Developments such as the adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency of other responsible parties could in the future have a material adverse effect on our financial condition and results of operations.
Our Spin-off from ITT Corporation may expose us to potential liabilities.
Pursuant to the Distribution Agreement and certain other agreements with ITT (now ITT LLC; acquired by Delticus HoldCo, L.P., a portfolio company of Warburg Pincus LLC, on July 1, 2021) and Exelis (acquired by Harris Corporation, now L3Harris Technologies, Inc.), ITT and Exelis agreed to indemnify us for certain liabilities, and we agreed to indemnify ITT and Exelis for certain liabilities. Indemnities that we may be required to provide ITT and Exelis may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that ITT or Exelis agreed to retain. Further, there can be no assurance that the indemnities from ITT and Exelis will be sufficient to protect us against the full amount of such liabilities, or that ITT and Exelis will be able to fully satisfy their indemnification obligations. Moreover, even if we ultimately were to succeed in recovering from ITT and Exelis any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations, cash flow and financial condition.
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Risks Related to Ownership of Our Common Stock
The market price of our common stock may fluctuate significantly.
We cannot predict the prices at which our common stock may trade. The market price of our common stock may fluctuate significantly, depending on many factors, some of which may be beyond our control, including:
actual or anticipated fluctuations in our operating results due to factors related to our business;
success or failure of our business strategy;
our ability to achieve long-term financial or non-financial, (including sustainability related) targets or commitments;
our quarterly or annual earnings, or those of other companies in our industry;
our ability to obtain financing as needed;
stock repurchases or payment of dividends;
announcements by us or our competitors of significant new business awards or technologies, product and service offerings;
announcements by us or our competitors of significant acquisitions or divestitures;
changes in accounting standards, policies, guidance, interpretations or principles;
changes in earnings estimates or guidance by us or analysts, or our ability to meet such guidance and estimates;
our ability to successfully execute restructuring and realignment actions;
the operating and stock price performance of other comparable companies;
our ability to secure necessary parts, components and materials from our global supply chain;
the impacts of inflation, including our ability to offset these impacts through pricing and productivity actions;
natural or environmental disasters, as well as the effects of climate change or climate-related considerations that investors believe may affect us;
uncertainty or instability arising from the global geopolitical environment or events, the ongoing COVID-19 pandemic or other actual or potential epidemics, pandemics, or other idiosyncratic events;
fluctuations in foreign currency impacts;
fluctuations in the budgets or spending of federal, state and local governmental entities around the world;
results from any material litigation, governmental or regulatory body investigation, or tax examination;
changes in laws and regulations affecting our business; 
impact of trade protection measures including tariffs and new and existing domestic content requirements; and
overall market fluctuations or general economic conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2.        PROPERTIES
We have approximately 345 locations in more than 50 countries. These properties total approximately 13 million square feet, of which more than 300 locations, or approximately 7 million square feet, are leased. We consider the offices, plants, warehouses and other properties that we own or lease to be in good condition and generally suitable for the purposes for which they are used. The following table shows our significant locations by segment:
LocationState or
Country
Principal Business ActivityApprox.
Square
Feet
Owned or
 Leased
Water Infrastructure
EmmabodaSwedenAdministration and Manufacturing1,197,000 Owned
VadodaraIndiaManufacturing and Research & Development254,000 Leased
StockholmSwedenAdministration and Research & Development182,000 Leased
BridgeportNJAdministration and Manufacturing136,000 Leased
ShenyangChinaManufacturing125,000 Owned
QueningtonUnited KingdomManufacturing86,000 Leased
Applied Water
Morton GroveILAdministration and Manufacturing530,000 Owned
MontecchioItalyAdministration and Manufacturing379,000 Owned
NanjingChinaManufacturing363,000 Owned
AuburnNYManufacturing273,000 Owned
AbonyHungaryManufacturing250,000 Leased
StockerauAustriaSales & Service Office234,000 Owned
StrzelinPolandManufacturing185,000 Owned
CheektowagaNYManufacturing147,000 Owned
Measurement & Control Solutions
LudwigshafenGermanyManufacturing318,000 Owned
TexarkanaARManufacturing254,000 Owned
UniontownPAManufacturing240,000 Leased
DuBoisPAManufacturing197,000 Owned
DurhamNCAdministration and Research & Development172,000 Leased
WeilheimGermanyManufacturing160,000 Leased
DuBoisPAManufacturing137,000 Leased
Yellow SpringsOHAdministration and Manufacturing112,000 Owned
Regional Locations
DubaiUnited Arab EmiratesManufacturing144,000 Owned
NottinghamshireUnited KingdomAdministration139,000 Leased
NanterreFranceSales & Service Office139,000 Leased
LangenhagenGermanySales & Service Office134,000 Owned
Corporate Headquarters
Rye BrookNYAdministration67,000 Leased


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ITEM 3.        LEGAL PROCEEDINGS
From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of previously-owned 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 20, "Commitments and Contingencies", of the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding certain legal and regulatory proceedings we are involved in.

ITEM 4.        MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following information is provided regarding the executive officers of Xylem as of February 7, 2022:
NAMEAGECURRENT TITLEOTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS
Patrick K. Decker57President and Chief Executive Officer (2014)
Sandra E. Rowland50Senior VP and Chief Financial Officer (2020)
• Executive Vice President and Chief Financial Officer, Harman International Industries Inc. (2015)
Dorothy Capers60Senior VP, General Counsel (2022)
• Executive Vice President, Global General Counsel and Corporate Secretary, National Express Group (2015)
Franz Cerwinka52Senior VP and President, Emerging Markets (2020)
• Chief Executive Officer, Johnson Controls-Hitachi Air Conditioning (2015)
David Flinton51Senior VP and Chief Innovation, Technology & Product Management Officer (2019)
• Senior VP and President, Dewatering
   (2015)
Geri McShane48VP, Controller and Chief Accounting Officer (2019)
• Controller, Accounting and Reporting (2016)
Matthew Pine50Senior VP and President, Applied Water Systems and Americas Commercial Team (2020)
• President, Carrier Residential, United Technologies Corporation (2018)
VP and General Manager, Carrier Residential, United Technologies Corporation (2017)
Colin R. Sabol54Senior VP and President, Measurement & Control Solutions (2017)
Claudia S. Toussaint58Senior VP, Chief Human Resources and Sustainability Officer (2021)
• Senior VP, General Counsel - (2014)
Hayati Yarkadas53Senior VP and President, Water Infrastructure and Europe Commercial Team (2020)• Senior Vice President and President, Performance Materials, Trinseo S.A. (2015)
Note: Date in parentheses indicates the year in which the position was assumed.
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BOARD OF DIRECTORS
The following information is provided regarding the Board of Directors of Xylem as of February 3, 2022:
NAMETITLE
Robert F. FrielBoard Chair, Xylem Inc., Former Chairman, President and CEO, PerkinElmer, Inc.
Jeanne Beliveau-Dunn
Chief Executive Officer and President of Claridad, LLC
Patrick K. DeckerPresident and Chief Executive Officer, Xylem Inc.
Jorge M. GomezExecutive Vice President, Chief Financial Officer, Dentsply Sirona, Inc.
Victoria D. HarkerExecutive Vice President and Chief Financial Officer, TEGNA, Inc.
Steven R. LorangerFormer Chairman, President and Chief Executive Officer, ITT Corporation
Mark D. Morelli
President and Chief Executive Officer, Vontier Corporation
Surya N. Mohapatra, Ph.D.Former Chairman, President and Chief Executive Officer, Quest Diagnostics Incorporated
Jerome A. PeribereFormer President and Chief Executive Officer, Sealed Air Corporation
Markos I. TambakerasFormer Chairman, President and Chief Executive Officer, Kennametal, Inc.
Lila TretikovCorporate Vice President & Deputy Chief Technology Officer, Microsoft Corporation
Uday YadavPresident and Chief Operating Officer, Electrical Sector, Eaton Corporation PLC

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PART II
ITEM 5.        MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price and Dividends
Our common stock trades publicly on the New York Stock Exchange under the trading symbol “XYL”. As of January 31, 2022, there were 8,875 holders of record of our common stock.
Dividends are declared and paid on the common stock at the discretion of our Board of Directors and depend on our profitability, financial condition, capital needs, future prospects and other factors deemed relevant by our Board. Therefore, there can be no assurance as to what level of dividends, if any, will be paid in the future. In the first quarter of 2022, we declared a dividend of $0.30 per share to be paid on March 17, 2022 for shareholders of record on February 17, 2022.
There were no unregistered offerings of our common stock during 2021.
Fourth Quarter 2021 Share Repurchase Activity
The following table summarizes our purchases of our common stock for the quarter ended December 31, 2021:
(in millions, except per share amounts)
PeriodTotal Number of Shares PurchasedAverage Price Paid per Share (a)Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b)
10/1/21 - 10/31/21$228
11/1/21 - 11/30/21$228
12/1/21 - 12/31/21$228
(a)Average price paid per share is calculated on a settlement basis.
(b)On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during the three months ended December 31, 2021. There are up to $228 million in shares that may still be purchased under this plan as of December 31, 2021.


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PERFORMANCE GRAPH
CUMULATIVE TOTAL RETURN
The following graph compares the relative performance of our common stock, the S&P 500 Index and the S&P 500 Industrials Index. This graph covers the period from December 31, 2016 through December 31, 2021 and assumes that $100 was invested on December 31, 2016 in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.
xyl-20211231_g2.jpg
XYLS&P 500S&P 500
Industrials
Index
December 31, 2016100 100 100 
December 31, 2017140 122 121 
December 31, 2018138 116 105 
December 31, 2019165 153 136 
December 31, 2020216 181 150 
December 31, 2021257 233 182 
The graph is not, and is not intended to be, indicative of future performance of our common stock.
This performance graph shall not be deemed “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and should not be deemed incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.
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ITEM 6.        [ Reserved ]





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ITEM 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto. This discussion summarizes the significant factors affecting our results of operations and the financial condition of our business. Except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries.
This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Overview
Xylem is a leading global water technology company. We design, manufacture and service highly engineered products and solutions ranging across a wide variety of critical applications in utility, industrial, residential and commercial building services settings. Our broad portfolio of solutions addresses customer needs across the water cycle, from the delivery, measurement and use of drinking water to the collection, test, treatment and analysis of wastewater to the return of water to the environment. Our product and service offerings are organized into three reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water and Measurement & Control Solutions.
Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process. We also provide sales and rental of specialty dewatering pumps and related equipment and services. Additionally, our offerings use monitoring and control, smart and connected technologies to allow for remote monitoring of performance and enable products to self-optimize pump operations maximizing energy efficiency and minimizing unplanned downtime and maintenance for our customers. In the Water Infrastructure segment, we provide the majority of our sales directly to customers along with strong applications expertise, while the remaining amount is through distribution partners.
Applied Water serves the water usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning, and for fire protection systems to the residential and commercial building services markets. In addition, our pumps, heat exchangers and controls provide cooling to power plants and manufacturing facilities, circulation for food and beverage processing, as well as boosting systems for agricultural irrigation. In the Applied Water segment, we provide the majority of our sales through long-standing relationships with many of the leading independent distributors in the markets we serve, with the remainder going directly to customers.
Measurement & Control Solutions primarily serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure and analyze water quality, flow and level in clean water, wastewater, surface water and coastal environments. Additionally, we offer software and services including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management and pressure monitoring solutions. In the Measurement & Control Solutions segment, we generate our sales through a combination of long-standing relationships with leading distributors and dedicated channel partners as well as direct sales depending on the regional availability of distribution channels and the type of product.

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COVID-19 Pandemic Update
The global spread of COVID-19 has curtailed the movement of people, goods and services worldwide, including in many of the regions where we sell our products and services and conduct operations.
This section summarizes the most significant impacts related to the COVID-19 pandemic that we have experienced to date, and we have included additional details as applicable throughout other sections of this Annual Report. Xylem’s COVID-19 Response Team is responsible for Xylem's Pandemic Plan. The Pandemic Plan is designed to aid in prevention, preparedness, response and recovery at our sites and across the Company.
Given the magnitude and duration of the COVID-19 pandemic and its economic consequences, it has become more difficult to distinguish specific aspects of our operational and financial performance that are most directly related to the pandemic from those more broadly influenced by ongoing macroeconomic, market and industry dynamics that may be, to varying degrees, related to the pandemic and its consequences.
Public health officials have recommended, or governments have mandated, precautions to mitigate the spread of COVID-19, including travel restrictions, quarantine guidelines, or similar measures in many of the areas in which we operate. As a result, a number of our production facilities across the globe experienced reduced production levels due to such measures to varying degrees during the year, however our current overall operating capacity approximates normal levels globally. In order to maintain a safe work environment, our production facilities continue to spread operations over multiple shifts and implement other protective measures such as testing, temperature screening and social distancing, while maintaining operational capabilities.
The COVID-19 pandemic, as well as broader global market supply and demand dynamics, have adversely affected, and are expected to continue to adversely affect, our supply chains. We have experienced, and expect to continue experiencing shortages in the supply of components, including electronics, particularly semiconductors ("chips"), parts and raw materials. We have also experienced, and continue to experience, increased inflation, freight and logistics costs, issues with port congestion, delivery delays and labor. To help mitigate the effects of these challenges and increase the resilience of our supply chain, we continue to enhance and augment our risk management activities, including supplier pulsing and redundancy. Additionally, we have and continue to take measures with respect to buffer stock, the use of alternative suppliers or redesign of certain products to mitigate the impacts of the ongoing supply chain, freight and logistics delays and bolster our access to electronics, parts and raw materials. To some extent, we have been able to pass cost increases through to customers. If these shortages and interruptions continue, or if additional interruptions occur, they could have a negative impact on our results of operations.
These supply chain issues have also impacted our delivery times to customers. To some extent, mitigation strategies have alleviated these issues but our lead times continue to be impacted.
We have seen a recovery in demand for our products. At the end of 2021, total backlog increased 52.6% as compared to December 31, 2020. The severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, and the pandemic’s ongoing and future impacts on our business, financial condition, results of operations, and stock price remain uncertain and difficult to predict.
In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, management committed to restructuring activities across our businesses and functions globally during the second quarter of 2020. These initiatives were designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers. Since the pandemic started, Xylem has taken measures to protect the health and safety of our employees, work with our customers to minimize potential disruptions and positively impact our communities. In the first quarter of 2020, we implemented a support pay program for employees impacted by COVID-19, which is in place through the second quarter of 2022 and will be evaluated for continuation, as necessary.
Xylem Watermark, our corporate social responsibility program, continues to support our communities in addressing the challenges posed by this global pandemic by strengthening access to Water, Sanitation and Hygiene (WASH) facilities in schools and health centers through its partnership with Americares and UNICEF, as well as the Partner Community Grants program and matching donations program for employees and partners, and other philanthropic commitments.
Many of our offices globally remain in a substantially remote work from home status, with no material disruption to operations, financial reporting systems, internal control over financial reporting or disclosure controls and procedures. Our COVID-19 Response Team applies a set of health and safety guidelines for employees working in Xylem offices.
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We continue to assess the evolving nature of the pandemic and its possible implications to our business, employees, supply chain, customers and communities, and to take actions in an effort to mitigate adverse consequences.
Risks related to the impacts of COVID-19 as well as our supply chain are described in further detail under "Item 1A. Risk Factors" in the Company's 2021 Annual Report.

Key Performance Indicators and Non-GAAP Measures
Management reviews key performance indicators including revenue, gross margins, segment operating income and operating income margins, free cash flow, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, dividends, acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures 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.
"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, gain or loss from sale of businesses and tax-related special items, as applicable. A reconciliation of adjusted net income and adjusted earnings per share is provided below.
(in millions, except per share data)20212020
Net income & Earnings per share$427 $2.35 $254 $1.40 
Restructuring and realignment, net of tax of $5 and $17 17 0.09 60 0.33 
Special charges, net of tax of $2 and $1010 0.06 76 0.42 
Tax-related special items  (16)(0.09)
(Gain) loss from sale of business, net of tax benefit of $0 (2)(0.01)— — 
Adjusted net income & Adjusted earnings per share$452 $2.49 $374 $2.06 
"adjusted operating expenses" and "adjusted gross profit" defined as operating expenses and gross profit, respectively, adjusted to exclude restructuring and realignment costs and special charges.
"adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs and special charges, and "adjusted operating margin" defined as adjusted operating income divided by total revenue.
“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense, "EBITDA margin" defined as EBITDA divided by total revenue, "adjusted EBITDA" reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, special charges and
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gain or loss from sale of businesses, and "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue.
“realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
“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 UK pension plan buy-out.
"tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments.
"free cash flow" defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures. Our definition of "free cash flow" does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.
(in millions)20212020
Net cash provided by operating activities$538 $824 
Capital expenditures(208)(183)
Free cash flow$330 $641 
Net cash used in investing activities$(183)$(169)
Net cash provided (used) by financing activities$(855)$473 

Executive Summary
Xylem reported revenue of $5,195 million for 2021, an increase of $319 million, or 6.5%, from $4,876 million reported in 2020. On a constant currency basis, revenue increased by $197 million, or 4.0%, during the year. The increase at constant currency was driven by an increase in organic revenue of $210 million reflecting strong organic growth in the industrial, commercial and residential end markets, partially offset by organic declines in utilities, largely as a result of component shortages in our Measurement & Controls Solutions segment.
Operating income for 2021 was $585 million, reflecting an increase of $218 million, or 59.4%, compared to $367 million in 2020. Operating margin was 11.3% for 2021 versus 7.5% for 2020, an increase of 380 basis points. Operating margin benefited from decreases in special charges of $77 million and decreases in restructuring and realignment costs of $55 million during the year. Excluding the impact of these items, adjusted operating income was $611 million, with an adjusted operating margin of 11.8% in 2021 as compared to adjusted operating income of $525 million with an adjusted operating margin of 10.8% in 2020, an increase of 100 basis points. The increase in adjusted operating margin was primarily due to cost reductions from our productivity, restructuring and other cost saving initiatives, favorable volume and price realization. These impacts were partially offset by cost inflation and increased spending on strategic investments.
Additional financial highlights for 2021 include the following:
Net income of $427 million, or $2.35 per diluted share ($452 million or $2.49 per diluted share on an adjusted basis, up 20.9% from 2020)
Net cash provided by operating activities of $538 million and free cash flow of $330 million, down 49% from 2020
Orders of $6,300 million, up 25.2% from $5,033 million in 2020 (up 22.6% on an organic basis)
Dividends paid to shareholders increased 8% in 2021.
2022 Business Outlook
We anticipate total revenue growth in the range of 1% to 3% in 2022, with organic revenue growth anticipated to be in the range of 3% to 5%. The following is a summary of our 2021 organic revenue performance and 2022 organic revenue outlook by end market.
Utilities revenue decreased by approximately 3% for 2021 on an organic basis driven by weakness in United States, partially offset by strength in western Europe, with relatively flat growth in the emerging markets. For 2022, we expect organic revenue growth in the low-single-digit range as utilities remain
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focused on mission-critical applications. We expect uneven growth from China and India as multi-year government funding programs are deployed. The timing of large clean water utility project deployments has been impacted by the global shortage of electronic components. We anticipate that these deployments will ramp up when supply constraints ease in the second half of 2022 based on our strong backlog position and orders momentum. Additionally, we expect healthy momentum in the global test and treatment markets with rising demand and focus on pipeline assessment services and increased demand for our smart water solution and digital offerings.

Industrial revenue increased by approximately 14% for 2021 on an organic basis driven by strength across all major geographic regions. For 2022, we expect organic revenue growth in the mid-single-digit range as activity rebounds globally. We continue to see healthy growth in our dewatering business, especially in the emerging markets from mining demand as well as in the U.S. and Europe reflecting our strong orders and backlog.

In the commercial markets, organic revenue in 2021 increased by approximately 7% driven across all major geographic regions. For 2022, we expect organic revenue growth in the mid-single-digit range. We expect continued solid replacement business in the U.S. and an acceleration of construction activity. In Europe we expect modest share gains, with demand for eco-friendly products supported by increase in funding for green buildings.

In residential markets, organic revenue increased by approximately 10% in 2021 driven by strength across all major geographic regions. This market is primarily driven by replacement revenue serviced through our distribution network. For 2022, we expect organic revenue growth in the low-single-digit to mid-single-digit range. We anticipate demand and activity to moderate and remain healthy from increased residential users in the U.S. and western Europe. Additionally, we continue to anticipate strong demand in China for secondary water supply product applications.

We will continue to strategically execute restructuring and realignment actions in an effort to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. During 2021, we incurred $6 million and $16 million in restructuring and realignment costs, respectively. We realized approximately $33 million of incremental net savings in 2021 from actions initiated in 2020, and an additional $2 million of net savings from our 2021 actions. As a result of our 2020 and 2021 actions we expect to realize approximately $8 million of incremental net savings in 2022 and beyond. During 2022, we currently expect to incur between $25 million and $30 million in restructuring and realignment costs.
We plan to continue to take actions and focus spending in 2022 on areas that allow us to make progress on our strategic priorities as well on our top priorities for 2022, which include converting our strong demand momentum into top-line growth by maximizing chip allocation and price realization, continuing our commitment to deliver margin expansion by mitigating supply chain and inflation headwinds and executing on strategic capital deployment opportunities.



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Results of Operations
(in millions)202120202021 v. 2020
Revenue$5,195 $4,876 6.5 %
Gross profit1,975 1,830 7.9 %
Gross margin38.0 %37.5 %50 bp
Realignment costs4 (33.3)%
Adjusted gross profit1,979 1,836 7.8 %
Adjusted gross margin38.1 %37.7 %40 bp
Total operating expenses1,390 1,463 (5.0)%
Expense to revenue ratio26.8 %30.0 %(320)bp
Restructuring and realignment costs(18)(71)(74.6)%
Special charges(4)(81)(95.1)%
Adjusted operating expenses1,368 1,311 4.3 %
Adjusted operating expenses to revenue ratio26.3 %26.9 %(60)bp
Operating income585 367 59.4 %
Operating margin11.3 %7.5 %380 bp
Interest and other non-operating expense, net76 82 (7.3)%
Gain (loss) from sale of business2 — NM
Income tax expense84 31 171.0 %
Tax rate16.3 %10.9 %540 bp
Net income$427 $254 68.1 %
NM     Not Meaningful

2021 versus 2020
Revenue
Revenue generated for 2021 was $5,195 million, an increase of $319 million, or 6.5%, compared to $4,876 million in 2020. On a constant currency basis, revenue grew 4.0% during 2021. The increase at constant currency was driven by an increase in organic revenue of $210 million reflecting strong organic growth in the industrial, commercial and residential end markets, partially offset by organic declines in utilities, largely as a result of component shortages in our Measurement & Controls Solutions segment.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during 2021:
Water InfrastructureApplied WaterMeasurement & Control SolutionsTotal Xylem
(in millions)$ Change% Change$ Change% Change$ Change% Change$ Change% Change
2020 Revenue$2,079 $1,434 $1,363 $4,876 
Organic Impact103 5.0 %145 10.1 %(38)(2.8)%210 4.3 %
Acquisitions/(Divestitures)— — %— — %(13)(1.0)%(13)(0.3)%
Constant Currency103 5.0 %145 10.1 %(51)(3.7)%197 4.0 %
Foreign currency translation (a)65 3.1 %34 2.4 %23 1.7 %122 2.5 %
Total change in revenue168 8.1 %179 12.5 %(28)(2.1)%319 6.5 %
2021 Revenue$2,247 $1,613 $1,335 $5,195 
(a)Foreign currency translation impact for the year primarily due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, the Chinese Yuan, the British Pound, the Australian Dollar and the Canadian Dollar.
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Water Infrastructure
Water Infrastructure revenue increased $168 million, or 8.1%, to $2,247 million in 2021 (5.0% increase on a constant currency basis) compared to 2020. Revenue benefited from $65 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $103 million. Organic growth during the year was driven by the industrial end market across all of our major geographic regions, with particular strength across the emerging markets, especially in Africa where we had strong dewatering sales, and in Latin America, where prior year COVID-19 impacts caused significant project delays. Industrial also had strong growth in western Europe and Oceania from continued general industrial strength. Organic growth was partially offset by weakness in the utility end market, driven by softness in the dewatering business in the U.S., and weakness in the emerging markets partially offset by strength in western Europe, where operational spending and project execution was strong.
From an application perspective, organic revenue growth was driven by our transport applications. The transport applications had strong dewatering revenue growth across the emerging markets, where we experienced market recovery from COVID-19 impacts and strength in mining, and growth from aftermarket parts and services revenue in western Europe. Transport growth in these regions was partially offset by weakness in the U.S. driven by declines in the dewatering construction market. Organic revenue from our treatment applications also contributed to the segment's growth during the year, driven by market recovery in western Europe, and project orders in the emerging markets, which were partially offset by the timing of project deliveries Latin America.

Applied Water
Applied Water revenue increased $179 million, or 12.5%, in 2021 (10.1% increase on a constant currency basis) compared to 2020. Revenue benefited from $34 million of foreign currency translation, with the change at constant currency coming entirely from organic growth during the year of $145 million. Organic growth for the year included growth across all three of the applications and end markets in the segment. The organic growth was led by strength in industrial, which was primarily driven by market recovery and good backlog execution in the emerging markets, particularly in China and India, as well as strength in specialty flow control applications in both the U.S. and western Europe. Commercial building services had strong organic growth as we executed on healthy backlog coming into the year in the U.S., saw good COVID-19 recovery in western Europe and growth in the emerging markets, driven by project and backlog execution in China. Residential building services also had strong organic growth in the U.S. as we executed on healthy backlog coming into the year, as well as in the emerging markets, where we experienced strong second water supply business in China.

Measurement & Control Solutions
Measurement & Control Solutions revenue decreased $28 million, or 2.1%, in 2021 (3.7% decrease on a constant currency basis) compared to 2020. Revenue benefited from $23 million of foreign currency translation during the year, with the change at constant currency driven by an organic decline of $38 million, or 2.8%, and to a lesser extent, $13 million of reduced revenue related to divestiture impacts during the year. Organic weakness for the year was driven by declines in the utility end market, primarily in North America, partially offset by modest strength in western Europe and the emerging markets. Strength in the industrial end market, across all major geographies, partially offset revenue declines in the segment.
In order to simplify and focus the application discussion, beginning with the first quarter of 2021, have been aggregating the test application into the water application and the software as a service and other application into the water and energy applications, as applicable, as both of these sub-applications provide products and services to the broader, ultimate applications of water and energy. From an application perspective, organic revenue decline during the year was driven by declines in the electric business within the energy application in North America due to electronic component shortages. The water application had modest organic growth in western Europe largely attributable to our test business and growth in the emerging markets. This growth was largely offset by declines in our metrology business in the U.S. due to deployment constraints as a result of chip shortages.


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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 2021 increased by $1,267 million, or 25.2%, to $6,300 million (22.4% increase on a constant currency basis). Order intake during the year benefited from $140 million of foreign currency translation. The increase on a constant currency basis primarily consisted of organic order growth of $1,139 million, or 22.6%, over the prior year.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during 2021:
Water InfrastructureApplied WaterMeasurement & Control SolutionsTotal Xylem
(in millions)$ Change% Change$ Change% Change$ Change% Change$ Change% Change
2020 Orders$2,134 $1,483 $1,416 $5,033 
Organic Impact261 12.2 %338 22.8 %540 38.1 %1,139 22.6 %
Acquisitions/(Divestitures)— — %— — %(12)(0.8)%(12)(0.2)%
Constant Currency261 12.2 %338 22.8 %528 37.3 %1,127 22.4 %
Foreign currency translation (a)76 3.6 %39 2.6 %25 1.8 %140 2.8 %
Total change in orders337 15.8 %377 25.4 %553 39.1 %1,267 25.2 %
2021 Orders$2,471 $1,860 $1,969 $6,300 
(a)Foreign currency translation impact for the year primarily due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, the Chinese Yuan, the British Pound, the Australian Dollar and the Canadian Dollar.
Water Infrastructure
Water Infrastructure segment orders increased $337 million, or 15.8%, to $2,471 million (12.2% increase on a constant currency basis). Order intake during the year benefited from $76 million of foreign currency translation. The order increase on a constant currency basis consisted of organic order growth in both the transport and treatment applications. Organic growth in the transport application was driven by healthy market conditions in the U.S. and strong order intake in western Europe, as well as increased demand for dewatering applications in the emerging markets. Organic orders for the treatment application also increased during the year due to strong order intake in the first half of the year, driven by strength in the U.S. and western Europe.

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

Measurement & Control Solutions
Measurement & Control Solutions segment orders increased $553 million, or 39.1%, to $1,969 million (37.3% increase on a constant currency basis). Order intake during the year benefited from $25 million of foreign currency translation. The order increase on a constant currency basis included organic order growth of $540 million, or 38.1% which was partially offset by a $12 million reduction in orders related to divestiture impacts during the year. Organic order growth was led by the water application, primarily in our metrology business, but also from our test business. Order intake in the energy application also grew organically during the year, where the electric and gas businesses benefited from COVID-19 recovery, coupled with increased order intake due to the known chip shortages.
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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 $3,240 million at December 31, 2021 and $2,124 million at December 31, 2020, an increase of 52.6%. We anticipate that approximately 60% of our total backlog at December 31, 2021 will be recognized as revenue during 2022.
Gross Margin
Gross margin as a percentage of consolidated revenue increased 50 basis points to 38.0% in 2021 as compared to 37.5% in 2020. The gross margin increase for the year was primarily driven by cost reductions from our productivity, restructuring and other cost saving initiatives, price realization and favorable volume, partially offset by inflation.
Operating Expenses
(in millions)20212020Change
Selling, general and administrative expenses$1,179 $1,143 3.1 %
SG&A as a % of revenue22.7 %23.4 %(70)bp
Research and development expenses204 187 9.1 %
R&D as a % of revenue3.9 %3.8 %10 bp
Restructuring and asset impairment charges7 75 (90.7)%
Goodwill impairment charge 58 (100.0)%
Operating expenses$1,390 $1,463 (5.0)%
Expense to revenue ratio26.8 %30.0 %(320)bp
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased by $36 million (increase of 3.1%) to 22.7% of revenue in 2021, as compared to 23.4% of revenue in 2020. Revenue growth was higher than SG&A increases resulting in a lower SG&A as a percentage of sales. Cost increases were driven by increased investments in strategic growth initiatives and inflation, partially offset by cost reductions from our productivity, restructuring and other cost saving initiatives.
Research and Development ("R&D") Expenses
R&D expense was $204 million, or 3.9% of revenue, in 2021 as compared to $187 million, or 3.8% of revenue, in 2020. The increase in R&D as a percent of revenue for year was primarily driven by the Company's continued focus on strategic investments during the year.
Restructuring and Asset Impairment Charges
Restructuring
In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, on June 2, 2020 management committed to a restructuring plan that includes actions across our businesses and functions globally. The plan was designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers.
As a result of this action, during 2021, we recognized restructuring charges of $4 million and $2 million in our Water Infrastructure and Applied Water segments, respectively. These charges included reduction of headcount across both segments. Other, less significant, restructuring actions taken in 2021 resulted in $3 million of charges during 2021 and are included in the information presented below.
As a result of this action, during 2020, we recognized restructuring charges of $19 million, $4 million and $30 million in our Water Infrastructure, Applied Water and Measurement & Control Solutions segments, respectively. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment. Immaterial restructuring charges incurred during the first quarter of 2020 are included in the 2020 plan information presented below.
The following is a roll-forward of employee position eliminations associated with restructuring activities for the years ended December 31, 2021 and 2020:
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20212020
Planned reductions - January 1319 196 
Additional planned reductions83 811 
Actual reductions and reversals(342)(688)
Planned reductions - December 3160 319 
The following table presents the total costs expected to be incurred, the amount incurred in the period, and the cumulative costs incurred to date for our 2020 and 2021 restructuring actions:
(in millions)Water InfrastructureApplied WaterMeasurement & Control SolutionsCorporateTotal
Actions Commenced in 2021:
Total expected costs$$— $$— $
Costs incurred during 2021— — — 
Total expected costs remaining$1 $ $1 $ $2 
Actions Commenced in 2020:
Total expected costs$23 $$30 $— $59 
Costs incurred during 202019 30 — 53 
Costs incurred during 2021— — 
Total expected costs remaining$ $ $ $ $ 
During the third quarter of 2021, we recorded an adjustment of $3 million to decrease the liability within the Measurement & Control Solutions segment, related to actions commenced in 2019. As a result of this adjustment, the estimated total cost of the actions commenced in 2019 decreased to $24 million for the Measurement & Control Solutions segment. The actions commenced in 2019 are complete.
The Water Infrastructure and Measurement & Control Solutions actions commenced in 2021 consist primarily of severance charges. These actions are expected to continue through the end 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 complete.
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.
As a result of the actions initiated in 2021, we achieved savings of approximately $1 million in 2021 and estimate annual future net savings beginning in 2022 of approximately $2 million, resulting in $1 million of incremental savings from 2021 actions.
Asset Impairment
During the second and third quarters of 2020, we determined that certain assets within our Measurement & Control Solutions segment, including software, proprietary technology, and internally developed in-process software, were impaired. Accordingly we recognized impairment charges of $21 million during the year. Refer to Note 12, "Goodwill and Other Intangible Assets," for additional information.

Goodwill Impairment Charge
During the third quarter of 2020, the Company recorded a goodwill impairment charge of $58 million related to the Advanced Infrastructure Analytics (“AIA”) goodwill reporting unit within our Measurement & Control Solutions segment. The AIA goodwill reporting unit is comprised of our assessment services business (primarily the Pure acquisition) as well as our decision intelligence solutions business. The impairment resulted from management's updated forecast of future cash flows for the AIA businesses, which reflected significant negative volume impacts, primarily on our assessment services business, due to travel restrictions and site closures as a result of the COVID-19 pandemic. These factors drove a decrease in the fair value, based on a discounted cash flow valuation,
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of the AIA goodwill reporting unit that was below its carrying value, requiring an impairment charge. Refer to Note 12, "Goodwill and Other Intangible Assets," for additional information.
Operating Income and Adjusted EBITDA
Operating income was $585 million (operating margin of 11.3%) during 2021, an increase of $218 million, or 59.4%, when compared to operating income of $367 million (operating margin of 7.5%) during the prior year. Operating margin benefited from decreases in special charges of $77 million and decreases in restructuring and realignment costs of $55 million as compared to the prior year. Excluding these special charges and restructuring and realignment costs, adjusted operating income was $611 million (adjusted operating margin of 11.8%) for 2021 as compared to adjusted operating income of $525 million (adjusted operating margin of 10.8%) during the prior year. The increase in adjusted operating margin was primarily due to cost reductions from our productivity, restructuring and other cost saving initiatives, favorable volume and price realization. These impacts were partially offset by cost inflation and increased spending on strategic investments.
Adjusted EBITDA was $890 million (Adjusted EBITDA margin of 17.1%) during 2021, an increase of $95 million, or 11.9%, when compared to Adjusted EBITDA of $795 million (Adjusted EBITDA margin of 16.3%) during the prior year. The increase in Adjusted EBITDA margin was primarily due to the same factors impacting operating margin noted above.
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The table below provides a reconciliation of total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin:
(In millions)20212020Change
Water Infrastructure
Operating income$387 $318 21.7 %
Operating margin17.2 %15.3 %190 bp
Restructuring and realignment costs12 28 (57.1)%
Adjusted operating income$399 $346 15.3 %
Adjusted operating margin17.8 %16.6 %120 bp
Applied Water
Operating income$240 $205 17.1 %
Operating margin14.9 %14.3 %60 bp
Restructuring and realignment costs7 (22.2)%
Special charges1 — NM%
Adjusted operating income$248 $214 15.9 %
Adjusted operating margin15.4 %14.9 %50 bp
Measurement & Control Solutions
Operating income (loss)$12 $(106)(111.3)%
Operating margin0.9 %(7.8)%870 bp
Restructuring and realignment costs3 40 (92.5)%
Special charges 79 (100.0)%
Adjusted operating income$15 $13 15.4 %
Adjusted operating margin1.1 %1.0 %10 bp
Corporate and other
Operating loss$(54)$(50)8.0 %
Special charges3 NM
Adjusted operating loss$(51)$(48)6.3 %
Total Xylem
Operating income$585 $367 59.4 %
Operating margin11.3 %7.5 %380 bp
Restructuring and realignment costs22 77 (71.4)%
Special charges4 81 (95.1)%
Adjusted operating income$611 $525 16.4 %
Adjusted operating margin11.8 %10.8 %100 bp
NM    Not Meaningful










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The table below provides a reconciliation of total and each segment's adjusted EBITDA to Consolidated EBITDA and net income:
2021
Net Income$427
Net Income margin8.2 %
Depreciation118
Amortization127
Interest expense, net69
Income tax expense84
EBITDA$825
Water InfrastructureApplied WaterMeasurement & Control SolutionsOther*Total
EBITDA$433$261$155$(24)$825
Restructuring and realignment1273022
Share-based compensation2462133
Special charges0101112
(Gain) loss from sale of business0(2)0(2)
Adjusted EBITDA$447$271$164$8$890
Adjusted EBITDA margin19.9 %16.8 %12.3 %NM17.1 %
* Other includes Regional selling locations, corporate and other items.

2020
Net Income$254
Net Income margin5.2 %
Depreciation117
Amortization134
Interest expense, net70
Income tax expense31
EBITDA$606
Water InfrastructureApplied WaterMeasurement & Control SolutionsOther*Total
EBITDA$365$228$35$(22)$606
Restructuring and realignment28940077
Share-based compensation2351626
Special charges0079786
Adjusted EBITDA$395$240$159$1$795
Adjusted EBITDA margin19.0 %16.7 %11.7 %NM16.3 %
* Other includes Regional selling locations, corporate and other items.

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2021 versus 2020
Water InfrastructureApplied WaterMeasurement & Control SolutionsOther*Total
Adjusted EBITDA$52$31$5$7$95
Adjusted EBITDA margin0.9 %0.1 %0.6 %NM0.8 %
Restructuring and realignment(16)(2)(37)0(55)
Share-based compensation01157
Special charges01(79)4(74)
(Gain) loss from sale of business0(2)00(2)
EBITDA$68$33$120$(2)$219
* Other includes Regional selling locations, corporate and other items.