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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, 2023  
  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.)
301 Water Street SE, Washington, DC 20003
(Address of principal executive offices and zip code)
(202) 869-9150
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareXYLNew 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  ¨
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
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, 2023 was approximately $26.9 billion. As of February 23, 2024, there were 241,770,413 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 2024 Annual Meeting of Shareowners, to be held in May 2024, 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, 2023
Table of Contents
 
ITEMPAGE
PART I
1
1A.
1B.
1C.
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. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include, among others, the following: the impact of overall industry and general economic conditions, including industrial, governmental, and public and private sector spending, interest rates, inflation and related monetary policy by governments in response to inflation, and the strength of the residential and commercial real estate markets, on economic activity and our operations; geopolitical events, including the ongoing and possible escalation of the conflicts involving Russia and Ukraine, and the Middle East, as well as regulatory, economic and other risks associated with our global sales and operations, including those related to domestic content requirements applicable to projects receiving governmental funding; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, energy supply, supply chain shortages, logistics challenges, tight labor markets, prevailing price changes, tariffs and other factors; demand for our products, 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 connected products and services; lack of availability or delays in receiving parts and raw materials from our supply chain, including electronic components (in particular, semiconductors); disruptions in operations at our facilities or that of third parties upon which we rely; uncertainty related to the realization of the benefits and synergies from our acquisition of Evoqua Water Technologies Corp.; safe and compliant treatment and handling of water, wastewater and hazardous materials; failure to successfully execute large projects, including with respect to meeting performance guarantees and customers’ budgets, timelines and safety requirements; our ability to retain and attract leadership and other diverse and key talent, as well as competition for overall talent and labor; defects, security, warranty and liability claims, and recalls related to our products; uncertainty around restructuring and realignment actions and related costs and savings; our ability to execute strategic investments for growth, including related to acquisitions and divestitures; availability, regulation or interference with radio spectrum used by certain of our products; volatility in served markets or impacts on our business and operations due to weather conditions, including the effects of climate change; risks related to our sustainability commitments and related disclosures; fluctuations in foreign currency exchange rates; difficulty predicting our financial results; risk of future impairments to goodwill and other intangible assets; changes in our effective tax rates or tax expenses; financial market risks related to our pension and other defined benefit plans; failure to comply with, or changes in, laws or regulations, including those pertaining to our business conduct, operations, products and services, including anti-corruption, data privacy and security, trade, competition, the environment, climate change and health and safety; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; matters related to intellectual property infringement or expiration of rights; 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 2023 revenues of $7.4 billion and approximately 23,000 employees worldwide. We design, manufacture and service highly engineered products and solutions across a wide variety of critical applications primarily in the water sector. Our broad portfolio of products, services and solutions addresses customer needs of scarcity, resilience, quality, and affordability across the water cycle, from the delivery, treatment, 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, analytic instrumentation and measurement, smart metering, infrastructure assessment services, digital software solutions for utilities, industrial processes, outsourced water services, filtration and separation, applied water systems for commercial and residential business services, disinfection, wastewater treatment, and anodes. 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 and replacement revenue
A strong history of bringing innovative products, solutions, and business models to customers
A dedicated, experienced, qualified and technologically advanced group of employees focused on safely satisfying our customers' requirements in the water and energy spaces
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

Our Industry
Our vision is to create a world in which water issues are no longer a constraint to health, prosperity and sustainable development.
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. It is expected that there will be a 40% gap between global water supply and demand by 2030. 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 $700 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," "water quality," 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. "Water quality" refers to the suitability of water for a particular use based on its physical, chemical and biological characteristics. "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 four 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,
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improve safety and conserve resources to customers in the water sector. Delivering value in these areas creates significant opportunity for the Company.

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 and services 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
supplychaindiagram2019.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 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 enable increased uptime, efficiency and resilience. We partner with them by providing powerful, integrated lifecycle services and solutions.
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Grow in the Emerging Markets. We continue to invest in regionalizing 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, Latin America and Africa. We seek to address the base of the pyramid population by providing water and sanitation needs with new and fit-for-market product portfolios, 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, profitable, growth 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 and insightful data analytics that help us tap into new markets through advanced technology and new business models.
Build a High Impact Culture. We seek to continue embedding a continuous improvement mindset throughout the Company, to further 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, equitable 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.
Business Segments, Distribution and Competitive Landscape
We have four reportable business segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, Measurement and Control Solutions and Integrated Solutions and Services. See Note 21, “Segment and Geographic Data,” in our consolidated financial statements for financial information about segments and geographic areas.
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The table and descriptions below provide an overview of our business segments:
Market
Applications
2023 Revenue
(in millions)
%
Revenue
Major ProductsPrimary Brands
Water
Infrastructure
Transport$2,172 73 %
 
•  Water and wastewater pumps
•  Filtration, disinfection and biological treatment equipment
• Mobile dewatering equipment and rental services


ADI
Flygt
Godwin
Ionpure
Leopold
Magneto
Neptune Benson
Sanitaire
Wallace & Tiernan
Wedeco
Xylem Vue

Treatment795 27 %
$2,967 100 %
  
Applied
Water
Building Solutions$1,025 55 %
 
•   Pumps
•   Valves
•   Heat exchangers
•   Controls
• Dispensing equipment systems

• A-C Fire Pump
• Bell & Gossett
•   Flojet
•   Goulds Water Technology
• Jabsco
•   Lowara
•   Standard
    Xchange
•   Xylem Vue
Industrial Water828 45 %
$1,853 100 %
Measurement and Control SolutionsWater$1,354 78 %
• Smart meters
• Networked communication devices
• Data analytics
• Test equipment
• Controls
• Sensor devices
• Software & managed services
• Critical infrastructure services

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




Energy375 22 %
$1,729 100 %
  
Integrated Solutions and Services$815 100 %
 
Preventative maintenance services
Rapid response mobile services
Digitally enabled/outsourced solutions
Process and wastewater systems
Environmental remediation
Odor and corrosion control
Filtration
Reverse osmosis
Ion exchange
Continuous deionization

AquaPro
WaterOne
Ion Pure
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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, scalable products, and related equipment, technology, 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 applications to support various industrial operations.
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 resilience and efficiencies 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., Grundfos, United Rentals, Trojan (Veralto Corporation), Veolia, De Nora, and ProMinent.
Applied Water
Applied Water encompasses the uses of water to 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 original equipment manufacturers ("OEMs"), exploration and production firms, agricultural customers, 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 and urbanization, climate and regulation on energy efficiency, and digitalization enabling self-service and preventive maintenance are macro growth drivers of these markets, driving the need for housing, food, community services and retail goods within growing city centers.
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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 and Control Solutions
Measurement and 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 capabilities and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure and analyze water quality, flow and level in clean water, wastewater, outdoor water 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 and to optimize their operational costs. 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 digital software solutions complement these offerings with intelligent applications 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 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 and automated meter infrastructure (“AMI"). 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 from efficiency of operating costs in meter reading and billing, as well as reduction of non-revenue water through improved meter accuracy, reduced theft and identification of leaks. Our YSI and WTW-branded instruments have a strong position in the analytical instrumentation market and provide critical readings of various water quality, level and flow parameters for customers. We provide a differentiated offering in the reliability and accuracy of our products often in rugged, remote, and hazardous locations. 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 and Control Solutions segment include Itron, Badger Meter, Landis+Gyr, Neptune (Roper), Kamstrup, Echologics (Mueller Water Products), Hach (Veralto Corporation) and Teledyne.
Integrated Solutions and Services
Our Integrated Solutions and Services segment provides application-specific solutions and full lifecycle services to treat process water, utility water, and wastewater for customers in a variety of end markets. Integrated Solutions and Services also provides odor and corrosion control services and drinking water treatment systems for municipalities. Integrated Solutions and Services offers customers outsourced water service contracts, capital
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systems and related recurring aftermarket services, parts and consumables, and emergency services. Our outsourced water service contracts include short-term service deionization contracts, averaging one to two years in duration, longer-term build-own-operate contracts, averaging eight to ten years in duration, and event driven mobile fleet deployments, including a growing portfolio of digitally connected technologies encompassed in our Water One® service platform. Key capital and related aftermarket service and product offerings include filtration, reverse osmosis, ion exchange and continuous deionization.
Integrated Solutions and Services supports service and aftermarket sales through what we believe to be the largest integrated industrial service branch network in North America, which is comprised of approximately 1,060 highly qualified professionals in field service and application engineering roles and our extensive fleet of mobile reverse osmosis and deionization water treatment systems. This is complemented by our digitally connected Water One® service platform, which uniquely combines our water expertise, proactive service, proven technology, and data intelligence to continually improve customers’ water operation management. Our remote monitoring capabilities enable us to optimize our routine service calls through predictive analytics and provide customers a more predictable, cost-efficient water solution.
Integrated Solutions and Services partners with customers through our direct sales and service team, which is organized geographically and by end market and is complemented by an inside sales force, field sales engineers, and a growing e-commerce platform.
Our key competitors in the Integrated Solutions and Services segment include Veolia, Ecolab, MPW Industrial Services, and Ovivo.
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)202320222021
$ Amount% of Total$ Amount% of Total$ Amount% of Total
United States$3,956 54 %$2,573 47 %$2,280 44 %
Western Europe1,655 22 %1,411 26 %1,414 27 %
Emerging Markets (a)1,182 16 %1,074 19 %1,066 21 %
Other571 8 %464 %435 %
Total$7,364 $5,522 $5,195 
(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, magnets, 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 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 have experienced price volatility or supply constraints when materials have not been 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
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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 5% of our consolidated revenues in 2023, 2022 or 2021.
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 $5,088 million at December 31, 2023 and $3,605 million at December 31, 2022. We anticipate that approximately 55% of the backlog at December 31, 2023 will be recognized as revenue during 2024.
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, services, solutions and application know-how that address anticipated customer needs and emerging trends. Our engineers are involved in new product, service, and solution development as well as improvement of existing products, services and solutions 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 $232 million, $206 million, and $204 million as a result of R&D investment spending in 2023, 2022 and 2021, respectively.
We have R&D and 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, services, 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 as well as other technology firms, 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, 2023 and 2022 we had net capitalized software used in sales and services to external customers of $209 million and $213 million, respectively.
Intellectual Property
We generally seek patent protection for inventions that we believe will improve our competitive position and are not suitable to be kept as a trade secret. 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 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.
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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 related to 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, 2023, we had estimated and accrued $4 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, regulations, and permits in the countries where we conduct business, including related 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; the environment; air emissions; potable and non-potable water; wastewater discharge; and the generation, handling, storage, use, transport, treatment and disposal of non-hazardous and hazardous materials and wastes, among other matters. We have policies and procedures in place to promote compliance with these laws, regulations, and permits. 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, Risks Related to Financial and Tax, and Risks Related to Legal and Regulatory.
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 2022 Sustainability Report, which is aligned to the Global Reporting Initiative and the Sustainability Accounting Standards Board frameworks.
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 ("GHG") emissions before 2050 across our value chain, further aligning our long-term commitment to sustainability with sector-wide moves towards reduced carbon footprint. In 2022, we submitted our 2030 GHG reduction targets to the Science Based Target Initiative for validation. As of December 31, 2023, we are working to determine the impact of the Evoqua Water Technologies Corp. ("Evoqua") acquisition on these targets.

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In 2023, we entered into a five-year revolving credit facility (the "2023 Credit Facility") with Citibank, N.A., as Administrative Agent, and a syndicate of lenders. The 2023 Credit Facility includes a pricing grid that determines the applicable margin based on Xylem's credit rating, with a further adjustment based on Xylem's achievement of certain sustainability related key performance indicators (the "KPIs"). Facility fees under the 2023 Credit Facility are also adjusted based on Xylem's credit rating and the KPIs. In 2022, we announced investments in CNote’s Impact Cash™ platform, a mechanism through which we invest and deposit cash at scale in community finance institutions that strengthen and transform underserved communities. 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. Additionally, during the first quarter of 2021, we issued a special grant to certain employees 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 seek to foster a high-impact culture - that is, one in which our colleagues are inspired to innovate, empowered to lead, and accountable to deliver – creating an environment that is mission-driven, people-centered, diverse, equitable and inclusive. 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 individuals with skills in our strategic competencies, such as engineering, innovation, digital technologies, sales excellence, sustainability and product and project management, as well as production, field service and technical services talent. The market for individuals with these competencies 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, 2023, Xylem employed approximately 23,000 employees worldwide. We have approximately 9,300 employees in the U.S., 7,800 in Western Europe, and 4,700 in the Emerging Markets, with the remaining 1,000 in other geographies in which we operate. Approximately 11% of our U.S. colleagues are represented by labor unions. In certain foreign countries, our colleagues are represented by work councils. We believe that our relations with our employees are good, including with our employees that are represented by labor unions and/or works councils.
We conduct regular employee engagement surveys and listening sessions to understand our employees’ perspectives, identify areas for additional focus and establish action plans. In 2023, we changed our approach in order to gather more frequent and specific feedback from our wired colleagues through shorter, pulse surveys that provide insights into employee engagement, customer focus, company culture and organizational effectiveness. In addition, we periodically conduct ad hoc surveys to gain insights into other relevant topics, including well-being, safety and professional development.
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.
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, heard, connected, able to bring their authentic selves to the workplace, and empowered to do their best work. We believe that Xylem is strongest when we embrace the power of diversity, equity and inclusion to drive innovation, make us more competitive, positively impact employee and customer
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satisfaction and the Company’s performance, better serve the communities in which we operate, create value for our shareholders and other stakeholders, and advance social equity.
Our commitment to fostering a global, diverse, equitable and inclusive environment starts with our Board of Directors and senior leadership team members, who represent a broad spectrum of backgrounds, identities and perspectives. 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 foster an environment of inclusion and provide our colleagues with equitable access to opportunities.
As of December 31, 2023, 25% of our colleagues globally identify as female; in the U.S., 26% of our colleagues identify as U.S. minorities. These and other diversity and inclusion metrics are included in our regular business reviews to provide transparency and drive accountability by highlighting progress on goals and outlining steps to achieve them, grounded in merit-based retention, promotion and recruitment. In addition, we publicly disclose various workforce metrics regarding gender, age and racial and ethnic diversity, including our U.S. EEO-1 report. Key strategies for becoming a more diverse organization—and incorporating broader experiences, skill sets, and perspectives into our work— include expanding sourcing channels for diverse talent through external diversity partnerships and affiliations, and prioritizing diverse candidate slates when filling professional roles to increase the pool of qualified candidates considered.
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 4,400 colleagues participate as members of our network groups.
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.
Based on historical employee engagement survey feedback, we have augmented our holistic well-being strategies, including the expansion of our Employee Assistance Program support across the globe and mental health awareness training to our people leaders.
Compensation and Benefits
Xylem strives to provide our colleagues with competitive compensation and benefits and takes a total rewards approach that integrates programs for compensation, benefits, recognition and work-life balance. In 2022, for our U.S. colleagues, we enhanced our paid parental leave and short-term disability coverage, provided for flexible time off for exempt colleagues, and expanded our health and welfare benefits, including with respect to reproductive care. While individual program components may differ by country, role or level, our culture and commitment to results and equity remain constant. We are currently conducting a pay equity assessment based on gender and U.S. minority classifications and will use the results of this assessment to continue to support our commitment to equitable pay by role.
We seek to align our human capital and sustainability strategies to support our high-impact culture and further our shared value approach, which are both designed to generate long-term economic and social value for our investors and other stakeholders. Accordingly, in 2021, the Company expanded its sustainability-linked compensation for all of our senior leaders, as well as a broader group of executives, through a special, one-time grant of performance share units with goals that are based on 5 of our strategically transformative 2025 Sustainability goals. We continue to expand our long-term incentive program to reach deeper in the organization to recognize key talent and top performers and attract and retain digital talent.
We have heard from many of our office-based colleagues that they greatly value the increased flexibility and autonomy that come with remote working. We believe that an appropriately tailored approach that balances in the office, fully remote and hybrid arrangements increases our ability to retain and attract the best, most diverse talent, while reducing our carbon footprint associated with unnecessary commuting and business travel. We are continuing to explore ways to help our colleagues thrive in a variety of work settings and have formalized guidelines that support remote and hybrid work. To better support our colleagues in a more flexible workplace, we also provide high-touch global onboarding and leverage collaboration technologies.
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Career Development
We are committed to enhancing colleagues’ capabilities needed for the Company to win in the marketplace. 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, people leader training and executive leadership development. We also provide on-demand/self-paced learning through our learning management systems.
We prioritize employee engagement through regular, year-round discussions focused on performance feedback and development, opportunities to work on special projects, and volunteer activities involving Watermark, our corporate responsibility program, as well as Xylem Ignite, our youth engagement program. In 2023, approximately 89% of our colleagues participated in employee-led volunteerism, including through Watermark, enhancing the Company’s commitment to employee development, retention, recruiting and collaboration in the communities where we live and work. 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.
Labor Relations
Xylem recognizes the work of labor organizations, works councils and trade unions to better the lives of working people. Accordingly, Xylem respects the legal rights of its employees 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 result in any discrimination against that employee. Xylem informs managers at all levels of the importance of respecting the rights of colleagues to organize or be represented. We work to establish favorable employment conditions that promote positive relationships between our colleagues and their managers, facilitate communication among our colleagues and support their development.
Evoqua Acquisition
Xylem recognizes that the retention and integration of key talent is critical to the success of our acquisition of Evoqua. Accordingly, in connection with this acquisition, we provided cash and stock incentives to help retain and motivate key colleagues. We held change management sessions for people leaders whose teams were most affected by the acquisition and communicated extensively with our colleagues to help with integration, including visits by members of our senior leadership team to key sites for town halls and individual discussions with our colleagues as well as other targeted outreach to key talent.
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, or changes to our risk profile, 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 macroeconomic and geopolitical climate amplify many of the risks below. Risks in this section are grouped in the following categories: (1) Risks Related to Geopolitical, Macroeconomic and Industry Factors; (2) Risks Related to Our Business and Operations; (3) Risks Related to Financial and Tax; and (4) Risks Related to Legal and Regulatory. 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 Geopolitical, 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 across a wide range of geographies and end markets. Economic and industry factors that have had, or could in the future have, a material impacted on our businesses and demand for our products and services include: (i) the overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) inflation and related monetary policy actions by governments in response to inflation, (iii) overall strength of industrial, governmental, public and private sector spending; (iv) overall strength of the industrial, residential and commercial real estate markets; (v) federal, state, local and municipal governmental fiscal, trade and procurement laws, regulations and policies, including as respects domestic content; (vi) the availability of commercial financing for our customers and end-users; and (vii) the degree of funding for our public sector customers, including for water infrastructure investments. Macroeconomic impacts, including actual or potential recession, and supply chain dynamics, including supply shortages, logistics challenges, tight labor markets, inflation, and significant government debt and deficit levels, have had, and continue to have, a material adverse effect on our business and results of operations. Future economic slowdowns or recession, or other prolonged downturns in the global economy or our markets could have material adverse effects on our business, financial condition, cash flows, results of operations and stock price.
Our business may be materially adversely affected by geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales, supply chain and operations.
In 2023, 54% of our total revenue was from sales to U.S. customers and 46% was from sales to 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, suppliers and distribution channels are located outside of the U.S. Our operations, supply chain and sales both within the U.S. and internationally are subject, in varying degrees, to risks and uncertainties inherent in doing business globally, including:
economic nationalism, populism, protectionism, anti-global sentiment and 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 of and impacts from the evolving global geopolitical environment, including concerning the relationships among the U.S., European Union, Middle East, Russia, China, Taiwan, or other foreign countries, and the international community at large;
threat, outbreak, uncertainty or escalation of terrorism, political instability, insurrection, war or other armed conflict, including between Russia and Ukraine and the Middle East, and the potential for regional escalation;
threat or outbreak of epidemics, global health crises or pandemics, and related uncertainties;
changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies, as well as changes in other laws and regulations or how such provisions are interpreted or administered;
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disruptions in global or regional supply chains, our operations, or those of third parties upon which we rely, including due to labor disruptions, supply shortages, and freight and logistics challenges;
unanticipated regulatory changes or unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy;
theft, compromise or misappropriation of our technology, intellectual property or data;
shocks to the global financial system, including due to the outbreak or threat of war, armed conflict, other geopolitical conflicts, terrorism or global health crises, the effects of climate change, or other idiosyncratic events;
foreign currency exchange rate fluctuations, restrictions on repatriation of earnings or payment of distributions, dividends, loans or advances to us by foreign subsidiaries;
global or regional safety and security considerations; and
increased costs and risks in developing, staffing and simultaneously managing our many global operations as a result of distance, remote work arrangements, language and cultural differences.
In the year ended December 31, 2023, 16% 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, including China, India, and key markets in Africa, Middle East and Southeast Asia. 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 or increase withholding or other taxes on remittances and other payments to us; (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 commercial agreements or collecting receivables; (v) challenges protecting our intellectual property and other assets; (vi) pricing pressure on our products and services; (viii) higher business conduct risks; and (ix) challenges in our ability to attract and retain qualified talent and labor. We cannot predict the impact that such factors might have on our business, financial condition, cash flows, results of operations and stock price.
We have significant sales, operations and direct or indirect suppliers located in China, which have been in the past, or could in the future be, adversely affected by: i) China’s evolving laws, regulations and policies, including as respects public health crises, import and export tariffs and restrictions, and information security and privacy, and ii) changes in the political and geopolitical environment involving China, including U.S.-China or China-Taiwan relations. The U.S.’s imposition of tariffs on goods imported from China or deemed to be of Chinese origin, as well as the potential for new tariffs, other governmental actions, trade embargoes or sanctions by the U.S., or countermeasures imposed by China in response, has in the past and could in the future have an adverse direct or indirect impact our global supply chain, manufacturing costs, business and operating results. Geopolitical changes in China-Taiwan relations could disrupt the operations of several companies in Taiwan that are critical to our complex global supply chain for semiconductors (“chips”) and other electronic components. Such changes could have significant negative effects on the global semiconductor industry and could adversely affect our ability to manufacture our digitally-enabled products, such as pumps, controllers and smart meters.
In the year ended December 31, 2023, 54% of our revenues were from sales to U.S. customers, which included sales of some products for federally funded projects. We expect our U.S. sales in 2024 and beyond to be similar. However, on a case-by-case basis, we may not be able to successfully compete for a federally funded project as some of our products may not comply with the domestic content requirements of the U.S. Buy America mandate under the Infrastructure Investment and Jobs Act (“IIJA”) or other federally funded projects. We continue to evaluate and implement mitigation measures around sourcing and localization of manufacturing for our most significantly impacted product lines, as well as consider alternative products that may meet both project specifications and domestic content requirements, but there is no guarantee that we will be able in all cases to meet applicable domestic content requirements of a project or across all our product lines. While governmental exemptions and waivers may be issued that negate the application of the Buy America mandate for 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 could have a material adverse impact on our business, financial condition or results of operations.
Inflation, tariffs, customs duties and other increases in manufacturing and operating costs have, and could continue to, adversely affect our cash flows and results of operations.
Our operating costs are subject to fluctuations, particularly due to volatility or changes in prices for commodities, parts, raw materials, energy and related utilities, freight and logistics, and the cost of labor., Price volatility and changes have been and may continue to be driven by a variety of factors, such as inflation, tight labor markets,
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prevailing price levels, exchange rates, changes in trade agreements, tariffs and other trade protection measures, and other economic factors. Throughout 2023 our operating costs were adversely impacted by price inflation, including the cost of certain raw materials, components, energy, commodities, freight and logistics, which could continue in 2024 to varying degrees depending, in part, on broader macroeconomic or geopolitical conditions. For example, we have significant manufacturing operations in Europe, which could be adversely impacted by increased energy costs related to an actual or potential escalation in the ongoing Russia-Ukraine conflict. Our global supply chain includes shipping routes through the Red Sea, where vessels have been and may continue to be impacted by armed conflicts involving rebel groups; and continued conflicts or escalation of conflict in the Middle East could adversely impact our logistics costs and could also result in an increase in our costs for energy and supplies, and potentially delay shipments to customers. Additionally, 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. We may not be able to offset increases in our manufacturing costs through price increases or productivity. 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.
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 depend upon a number of factors, including our ability to successfully: (i) innovate, develop, bring to market and maintain competitive, compelling, secure and efficient technologies, products and services, business models and customer experience, to address emerging regulations and trends and meet customers’ needs (including those related to digitization of water, 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 from outside our industry, such as large technology firms, or those in the emerging markets, (iii) enhance our product and service offerings by adding innovative features, increased efficiency or disruptive or emerging technologies, such as artificial intelligence, that differentiate them from those of our competitors and prevent commoditization, (iv) continue to invest in, cultivate, develop and maintain our distribution network of channel partners, (v) attract, develop and retain individuals with the requisite innovation, digital and technical capabilities, expertise and understanding of customers’ needs to develop and commercialize new technologies, products and services, (vi) continue to leverage and expand our external ecosystem of innovation partners with joint venture partners, universities, venture capital, the start-up of community and other technology firms, (vii) continue to invest in our manufacturing, research and development, engineering, sales and marketing, and digitization of customer service and support tools, (viii) win large contracts and execute them on schedule and on budget, (ix) optimize our supply chain and manufacturing to enable predictable and efficient delivery to customers, and (x) compete for business subject to applicable governmental procurement laws, regulations and policies, including new and existing sustainability and 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, the failure of our products to comply with governmental regulations or policies, 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, services or projects 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 and related data breaches or other disruptions to our enterprise information technology and operations, or to our connected products and services, including those of third parties on which we or our customers rely, could materially and adversely affect our business.
Our enterprise consists of our businesses, functions, operations, manufacturing and employees. We rely on information technology, including operational technology, and communications networks to run our manufacturing processes and equipment, to enable business processes, and to process, transmit, store and manage our electronic information, including confidential business information and data relating to employees, customers or other business partners. We also rely on key third parties, including: i) direct and indirect suppliers, ii) strategic joint venture partners that provide certain aspects of our digital services and offerings, iii) contract manufacturers, iv) cloud-based service providers, and v) outsourced business process providers, including in the areas of Information Technology, Finance, Human Resources, Procurement and Travel. Together, we depend on information technology infrastructure and communication networks for access to reliable and secure networks in order to run our and their businesses. Regardless of protection measures, all information technology and communications networks are inherently susceptible to damage or disruption due to causes such as: equipment, system or application failure, including as a result of maintenance, obsolescence, unsupportability or age; human error or malfeasance; vandalism; natural disaster; fire; power, communication or other utility outage or failure; and cybersecurity incidents, including ransomware, denial-of-service, malware, phishing, and computer viruses. In addition to damage or disruption, these cybersecurity incidents may lead to security and data breaches.
We provide certain digitally-enabled or internet-connected products, such as pumps, controllers, meters and other equipment, and services, such as Water One® and other remote monitoring capabilities, condition assessment, and an interoperability platform via a strategic joint venture partner. These products and services are used by us and our customers for operational purposes or to collect data. Our connected products and services are inherently susceptible to damage or disruption from a myriad of causes as described above, including cybersecurity incidents. Cybersecurity incidents may impact hardware, software and information installed, stored or transmitted by our products and services after they have been purchased and incorporated into customers’ and other third parties’ products, facilities, systems or infrastructure, including critical infrastructure applications. While we attempt to provide our customers with measures to safeguard our products and services from cybersecurity threats, the potential for a cybersecurity incident remains. In addition, certain of our customers continue to use digitally enabled products that we designed, manufactured and sold at a time when current security features were not available.
A cybersecurity Incident or other damage or disruption to information technology and communications networks or involving our connected products and services may have adverse effects on us, our customers or third parties on which we rely, including: interference with operations and services, potentially with public health and safety risks involving certain of our customers; disruption of production, supply chain, shipments, billing, collections and customer service; disruption to data analytics; disruption to remote monitoring and control of operational systems; unauthorized access, disclosure, misappropriation, misuse, destruction, compromise or theft of our financial, operational or other proprietary information, including intellectual property and trade secrets, or data pertaining to our employees, customers or suppliers; damage to employee, customer and business partner relationships; recall of our products; legal claims, proceedings or regulatory enforcement actions, and fines or penalties; increased costs to prevent, respond to or mitigate cybersecurity incidents; and damage our brands and reputation. Moreover, a delay in or failure to detect a cybersecurity incident or the full extent of an incident could exacerbate the effects of the incident. As such, any of the foregoing could have a material adverse effect on our reputation, competitive position, results of operations, cash flows or financial condition.
To mitigate reliability and cybersecurity risks related to our enterprise and connected products and services, we maintain relevant policies, standards, procedures and technologies that are applicable to all Xylem employees and contractors, including: patching; passwords; network and data access, including requirements and rights; business continuity and disaster recovery; monitoring for external and insider risks; obsolescence or end-of-life of operating technologies or applications’ operating systems; IT general computing controls; secure software development. We are also operationalizing our strategy to establish segmentation between our information technology and operational technology. As implementation and compliance is the responsibility of employees across the enterprise, we cannot guarantee adherence in all instances with our policies, standards and procedures, or that our technologies will be sufficient to fully mitigate the aforementioned or evolving risks.
We, and some third parties upon which we rely, have in the past experienced cybersecurity incidents or other attempts to gain unauthorized access to our information technology and connected products and services. As technology evolves, we may continue to experience such events, likely with more frequency and involving a broader range of devices and more sophisticated modes of attack. To date, none have resulted in any material adverse impact to or theft, misuse or loss of information of our business, operations, products and services, or customers.
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We have implemented processes, procedures and technologies designed to detect and respond to cybersecurity incidents and mitigate potential risks associated with cybersecurity threats and incidents involving our information technology, products and services. However, because the timing, nature and modes of cybersecurity attacks and incidents change frequently, evolve and are unpredictable, and because unauthorized accesses may be difficult to detect for long periods of time, we may be unable to anticipate these intrusions or implement adequate protective or remedial measures.
While we maintain insurance coverage designed to address certain aspects of business interruption and cybersecurity risks, it may not be sufficient to cover all losses or all types of claims. Although we continue to assess the aforementioned risks, implement policies, processes, standards, measures, technologies and redundancies to mitigate these risks and perform business continuity and disaster recovery planning, we cannot be sure that cybersecurity incidents or other disruptions 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, raw materials and energy 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 manufacturers and subcontractors to perform manufacturing and customer-related services for us, as well as commodity markets and freight and logistics providers to secure and ship finished goods and raw materials, parts, electronic components and other components used in our products. We expect that our reliance on, and the complexity of, the supply chain and contract manufacturers and subcontractors will continue to be significant and, in some cases, increase.
Parts and raw materials commonly used in our products include motors, fabricated parts, castings, magnets, bearings, seals, batteries, PCBs and electronic components, including semiconductors, as well as commodities, including steel, brass, nickel, copper, aluminum and plastics. We are exposed to the availability of these items, which throughout 2023 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 or disputes; changes in the strategy or production planning of suppliers including decisions to exit production of key components upon which we rely; interruptions in suppliers' production, including as a result of fire or natural disaster; 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 the effects of climate change; public health crises; and threatened or actual terrorism, armed conflict or war, including the ongoing conflicts between Russia and Ukraine, in the Middle East, and rebel attacks on commercial vessels in the Red Sea. Any threatened or actual escalation of the aforementioned conflicts and related impacts, such as disruption to or increased cost of energy supply or logistics, could delay or interrupt our supplies from suppliers. We have also experienced, and continue to experience, fluctuating freight and logistics costs, delivery delays related to port congestion and other logistics-related challenges. Although we have insurance related to business continuity and supply chain, 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 production, revenues and operating results.
As a result of global market supply and demand dynamics, we have in the past and could in the future experience shortages, capacity constraints and delays in the supply of raw materials, parts, and components, including chips and other electronic components. While supply conditions eased throughout 2023, if disruptions occur in the future (including related to the aforementioned risk of disruption in the global semiconductor industry due to China-Taiwan geopolitical issues), or if our efforts to mitigate these shortages and disruptions are insufficient or unsuccessful, we may be delayed or unable 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, operations and business rely on a complex and highly reactive global supply chain, including suppliers (and their suppliers), some of which are a single- or sole-source, distributors, contract manufacturers, subcontractors, joint venture partners, utilities providers, and freight and logistics providers. In addition, we
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outsource to vendors certain critical business processes and activities, including in the areas of Finance, Human Resources, Procurement, Travel and Information Technology. Certain of our businesses require that we or our subcontractors have access to customer sites to provide our products and services. Our facilities and operations and certain customers, contract manufacturers, subcontractors or other third parties on which we rely, have experienced, and may in the future experience, disruptions or delays resulting from an actual or threatened event or circumstance, including due to: a significant equipment, technological or system failure; natural disaster; weather event or effects of climate change; power or energy curtailment or outage; water or communications outage; fire; explosion; critical supply chain failure; terrorism; cybersecurity attack; political disruption; outbreak of a pandemic or other public health crisis; insurrection; armed conflict or war, including the ongoing conflicts involving Russia and Ukraine, the Middle East, and rebel attacks on vessels in the Red Sea; labor dispute, stoppage or slowdown; technology failure; lack of financial viability or other reason. In addition, our facilities or those of third parties upon which we rely operate in certain circumstances with equipment and manufacturing technology that may be unique and difficult to replace or involve long lead times for replacement. A significant disruption to any of our facilities or operations, or that of customers or third parties on which we rely, could cause material adverse impacts on our operations and business, including an inability to meet customer demand or contractual commitments, increased costs and reduced sales, and could also impact our business processes and activities, including our ability to timely report financial results. Any interruption may be lengthy, have lasting effects, require a significant amount of management and other employees' time and focus, and require us to make substantial expenditures to mitigate the situation, which could negatively affect our operations, business processes and activities, profitability, financial condition and reputation. 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. Although we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot guarantee that interruptions with material adverse effects on our operational and financial performance will not occur.
We may not realize some or all the expected benefits and synergies from our acquisition of Evoqua.
On May 24, 2023, we completed the acquisition of Evoqua. The success of this acquisition will depend, in part, on our ability to realize the anticipated benefits from combining our and Evoqua’s businesses. We have and continue to devote substantial management attention and resources to the integration of the combined company’s business practices and operations so that we can fully realize the anticipated benefits of the acquisition, including cost and revenue synergies. Nonetheless, difficulties may arise during the integration process that could result in the failure to achieve the anticipated cost or revenue synergies, including: loss of key talent that may be difficult to replace; disruption of the combined company’s ongoing business; inconsistencies in each company’s standards, controls, procedures and policies; and our ability to maintain and expand relationships with customers, partners, suppliers or creditors. As a result, the anticipated benefits of the acquisition may not be realized fully within the expected timeframe or at all, may take longer to realize, or may cost more than expected, which could materially and adversely affect our business, results of operations or financial condition, as well as adversely impact the stock price of the combined company.
Water and wastewater treatment operations, including those related to emerging contaminants, as well as the generation, handling, storage, use, transport, treatment, release or disposal of hazardous materials may result in contamination, environmental, personal or other liabilities or pose other significant risks that could cause us to incur significant costs and reputational harm.
Water and wastewater treatment involve various unique risks and require compliance with a variety of laws or regulations, including the Clean Water Act and the Safe Drinking Water Act. If our treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby bodies of water and groundwater, causing various liabilities, damages and injuries, including environmental. In addition, a number of emerging contaminants might be found in water that we treat, including PFAS, PFOA, selenium, micro-plastics, chemicals or pathogens, that may cause illness or death if not eliminated during the treatment process,. Liabilities resulting from such events, damages and injuries could materially adversely affect our business, financial condition, results of operations or prospects. Changes in environmental requirements, laws and regulations, or increased public awareness around the presence and health impacts of human-made chemicals and naturally occurring contaminants in drinking water, could increase or decrease demand for our products and services, increase our cost of operations, result in the obsolescence of our products, or lead to an interruption of suspension of our operations.
Furthermore, certain of our business activities, such as those of our historical Integrated Solutions and Services segment and new Water Solutions and Services segment , include manufacturing and waste recycling and treatment processes that currently involve the use, treatment, storage, transfer, handling and/or disposal of non-hazardous and hazardous materials, chemicals and wastes, which are subject to applicable federal, state, and local
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laws and regulations. The cost of compliance with these laws and regulations may become significant, result in increased operating costs or require additional investment in facilities, and therefore could have a material adverse effect on our business, financial condition, results of operations or prospects. These business activities also create a risk of accidental contamination or injury to our employees, customers and other third parties, the general public (as end-users of our industrial and municipal customers’ products and services), and the environment. As such, these activities create a risk of significant legal and environmental liabilities and reputational damage. For example, under applicable environmental laws and regulations, including RCRA and CERCLA, we could be strictly, jointly and severally liable for releases of regulated substances by us at our current or former properties or the properties of others, or by other businesses that previously owned or used our current or former properties. We could also be liable or incur reputational damage if we transport such materials, generate hazardous materials or wastes, or merely arrange for their transportation, disposal, or treatment, and they are subsequently released or cause harm. If our business activities and water and wastewater treatment operations result in legal or environmental claims, damage or liabilities, including those described above, we could incur significant costs, liabilities or reputational damage in connection with legal defense, investigation, remediation of environmental contamination, damage to property or natural resources or personal injuries. Such costs and liabilities could exceed any applicable insurance coverage we may have.
If we are unable to successfully execute large projects or meet customers’ timelines, budget, performance and safety requirements, this could have a material adverse effect on our sales and profitability.
A portion of our revenue is derived from large projects that are technically complex and may occur over multiple years. These projects are subject to a number of significant risks, including project delays, cost overruns, changes in scope, unanticipated site conditions, design and engineering issues, incorrect cost assumptions, increases in the cost of materials and labor, health and safety hazards, subcontractor performance issues, weather issues and changes in laws or permitting requirements. If we are unable to manage these risks, we may incur higher costs, liquidated damages, and other liabilities to our customers, which may decrease our profitability and harm our reputation.
Furthermore, our project-based customers typically require performance guarantees around the effluent produced by our water treatment equipment and services. Failure of our products and services to meet performance guarantees may require additional engineering, replacement of parts and equipment and frequent replacement of consumables, monetary reimbursement to a customer, or could otherwise increase our costs or result in liability to our customers. There are significant uncertainties and judgments involved in estimating performance guarantee obligations, including changing product designs, differences in customer installation processes and failure to identify or disclaim certain variables in a customer’s influent. To the extent that we incur substantial performance guarantee claims in any period, our reputation, earnings, and ability to obtain future business could be materially adversely affected.
Many of our customers also have safety performance requirements that we must meet to be allowed access to their sites to perform our services, install our products and execute projects. Risks arising from unsafe products or performance by our employees include, among other things, delays in or suspension of site access to service or timely deliver our products. Workplace accidents or near-accidents, product-related accidents, or the failure to follow our own or our customers’ safety policies could also damage our reputation or our customers’ perception of our safety record, which could have a material adverse impact on demand for our products and services, result in additional costs to our business, the loss of customers or litigation against us, or increase government or regulatory oversight over us.
Failure to retain our existing leadership, 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 depends to a significant extent on our ability to attract and retain highly qualified and diverse employees in leadership positions, and in strategic or core competencies, including engineering, innovation, digital technologies, commercial excellence, service, and project management, as well as general production-related talent. The market for highly skilled talent, leaders and labor in our industry remains highly competitive. As a result, our success in attracting and retaining employees, particularly in the areas of services, digital technologies, innovation and data science, has depended, and will continue to depend, on our ability to offer attractive career growth opportunities, work arrangements, compensation, and benefits, and also policies and ways of working that support employee well-being. In addition, we continue to evolve our culture, where colleagues are inspired to innovate, empowered to lead and accountable to deliver, and includes advancing diversity, equity and inclusion. These aspects of our culture have been and will remain critical to attracting and retaining talent needed to execute our strategy, while also 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.
Defects, unanticipated or improper use or inadequate disclosures concerning 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 finished goods, parts or components that we source from third parties), unanticipated or improper 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, and property or environmental damage. These events could also lead to product recalls, safety or security alerts, or result in the removal of a product from the market, issuance of credits, warranty or liability claims or contractual damages 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 therefore result in significant costs, decreased profitability, negative publicity, and reputational damage, that could reduce demand for our products and have material adverse impacts on our business, financial condition and results of operations.
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.
From time to time, we have and may continue to initiate restructuring and realignment actions for various reasons, including to optimize our cost structure, improve our operational efficiency and effectiveness, and enable us to better serve our customers, or in response to impacts from business and economic conditions. 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. 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 and execution 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.
The execution of our strategy includes acquisitions and divestitures, which we may be unable to successfully execute.
To execute our growth strategy, we plan to continue to realign and enhance our portfolio by pursuing the acquisition of companies, assets, technologies, product lines and customer channels that complement or expand our existing business or improve our competitive position, and divesting non-core or less strategic businesses. We may not be able to complete acquisitions or divestitures 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 efficiently, effectively and timely integrate acquired businesses into our operations, technology, 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. 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.
Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: diversion of management’s time and attention from existing businesses and operations; insufficient internal controls over financial or compliance activities or financial reporting; the failure to realize expected synergies; impact our
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ability to achieve our sustainability commitments; the assumption of new material risks associated with the acquired businesses; and the loss of key employees of the acquired businesses. As a result, the anticipated benefits of acquisitions may not be realized fully within the expected timeframe or at all, may take longer to realize, or may cost more than expected, which could materially and adversely affect our business, results of operations or financial condition.
A significant portion of our products and offerings in our Measurement and 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 and 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 or new products may be allowed under the regulations that cause interference with our products, which may require us to modify our products or seek new partnerships. In addition, we may not be able to secure suitable partners for co-development of products. An inability or delay in modifying our products to meet such requirements, or the cost of completing such modifications, could have material adverse effects on our business, financial condition, and results of operations.
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 that have access to sufficient frequencies at a commercially feasible price or at all.
Weather conditions, including the effects of climate change as well as associated efforts by governmental or regulatory authorities to mitigate such effects, may cause volatility in our served markets and affect our businesses, operations and financial results.
The unpredictable nature, frequency, severity and changes in weather events, patterns and related conditions, such as heavy flooding, prolonged droughts, wildfires, rainfall amounts and intensity, sea levels, and fluctuations in temperatures, including as a result of climate change, can positively or negatively impact portions of our business and therefore result in volatility in our financial results. For example, certain events may disrupt the operations of our customers, creating customer shutdowns that prevent site access or defer our performance of services or sale of equipment. Heavy flooding and rain events may increase demand for our solutions that help manage water and stormwater 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, such as those provided by our treatment business, may also increase as communities look to address water scarcity challenges. Fluctuations in temperatures may result in varying demand for our products used in residential and commercial hydronic applications, where homes and buildings use circulating water to heat and cool living spaces. Severe weather events and other effects of climate change have also 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 of legacy Xylem facilities using the Task Force on Climate Related Financial Disclosures framework indicated that certain of our facilities are at 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.
In addition, certain of our products, services and solutions assist our customers in meeting increasingly stringent scarcity, efficiency, environmental and safety requirements, including via laws or regulations enacted for the purpose of limiting greenhouse gas emissions or making water supplies more resilient, cleaner and safer. Our future growth is dependent in part on the impact and timing of potential new laws and regulations, as well as potential changes to
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existing laws and regulations. If stricter laws or regulations are delayed, not enacted, repealed, amended to be less strict, not enforced or are enacted with prolonged phase‑in periods, demand for our products and services may be reduced. We are currently unable to predict whether changes to laws and regulations will affect demand for our products and services. To the extent that such changes increase uncertainty or have a negative impact on us, our business, financial condition, results of operations or prospects may be materially and adversely impacted.
Our sustainability commitments, goals, targets, objectives and initiatives, and our public statements and disclosures regarding them, expose us to numerous risks.
We have and will continue to establish goals, targets, and other objectives related to sustainability matters, including our sustainability goals and commitments to 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, making capital investments and developing technologies that might not currently exist. We might incur additional expenses 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 extent to which energy generated from renewable resources is available from the grid, the pace of changes in technology, the availability of requisite financing, and the availability of suppliers that can meet our sustainability and other standards.
We may face increased scrutiny from the investment community, regulators, media and other stakeholders related to our sustainability activities, commitments, goals, targets and objectives, and our methodologies and timelines for pursuing them. At the same time, certain governmental representatives and other stakeholders have increasingly expressed or pursued opposing views, legislation and investment expectations around sustainability initiatives, including the enactment or proposal of “anti-ESG” legislation or policies. We are subject to increasing regulatory requirements around sustainability-related disclosures, including significant rulemaking by the EU related to the Corporate Sustainability Reporting Directive and anticipated rulemaking by the SEC, which may continue to evolve. Complying with regulators’ disclosure requirements may impose substantial additional costs and will require additional resources, including for third-party attestation, to enable the capture, analysis and audit of appropriate data. Any actual or alleged failure to comply with regulatory requirements around disclosures could result in fines, penalties and civil liabilities, and damage to our reputation. Furthermore, if our sustainability reporting and practices do not meet investors, regulators or other stakeholders’ expectations, standards and requirements, or if we are unable to satisfy all stakeholders, our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner or acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our sustainability commitments, goals, targets, and objectives, to comply with ethical, environmental or other standards, regulations, or expectations, or to comply with reporting and disclosure requirements and standards related to these matters, within the timelines we announce, or at all, could have adverse operational, reputational, financial and legal impacts.
Risks Related to Financial and Tax
Our business is subject to foreign currency exchange rate fluctuations.
Sales outside of the U.S. for the year ended December 31, 2023 accounted for approximately 46% of our net sales. We also have significant operations in various locations outside of the U.S. Our principal currency exposures for which we enter into cash flow hedges relate 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 translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, British Pound, Canadian Dollar, Chinese Yuan, Australian Dollar, Indian Rupee, and Swedish Krona. 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.
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Our financial results may fluctuate from period to period and can be difficult to predict.
Our businesses, including that of our Applied Water segment, are impacted by a substantial amount of short cycle and book-and-bill business, which we have limited visibility into, particularly for the business that we transact through our significant distribution network. In addition, our businesses, including our Measurement and Control Solutions segment, and our legacy Integrated Services and Solutions segment and the new Water Solutions and Services segment, are impacted by long-cycle business including large projects, which could be unexpectedly canceled, 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. We rely on a complex global supply chain, which has been subject to dynamic conditions, volatility, unexpected changes and disruptions due to macroeconomic and geopolitical conditions, including the ongoing conflicts between Russia and Ukraine and the Middle East, and high inflation. These supply chain challenges have affected, and may continue to affect, our cost structure, production and ability to timely fill customer orders. We cannot predict how, when, or if, these conditions will worsen, ease or subside in the future. Accordingly, our financial results for any given period have been and will continue to be difficult to predict.
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 Consolidated Balance Sheets as a result of acquisitions. As of December 31, 2023, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $8 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 of $58 million within our Measurement and 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 and Control Solutions segment in 2021, 2022 or 2023. Material impairment charges have in the past and could in the future adversely affect our results of operations and financial condition.
Changes in our effective tax rates and tax expenses may adversely affect our financial results.
We sell our products in approximately 150 countries and 46% of our revenue was generated outside the U.S. for the year ended December 31, 2023. 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. Significant judgment is required in evaluating and estimating our provision and accruals for these taxes. We continue to monitor the developments and tax implications surrounding changes in the global tax environment, including the Organization for Economic Co-operation and Development’s model rules that propose a global minimum tax rate of 15%. Certain countries, including EU member states, have enacted or are expected to enact legislation to be effective as early as 2024, with widespread implementation of a global minimum tax expected by 2025. We will continue to monitor pending legislation and implementation by individual countries and evaluate the potential impact on our business in future periods. Based on currently enacted legislation, we do not expect a material impact on our effective tax rate and cash tax liabilities in the near term. However, additional guidance and details regarding implementation of these rules continue to be released. Any implementation of these rules via domestic legislation of countries or via international treaties could have a material impact on our effective tax rate or result in higher cash tax liabilities.
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
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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 our historical income tax provisions, accruals and unrecognized tax benefits, which could materially and adversely affect our business, operating results, cash flows and financial condition.
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 it is necessary or we consider it advantageous to do so. Risks to the Company include significant changes in market interest rates and inflation, decreases in fair value of plan assets, changes in discount rates, or changes in minimum funding requirements established by governments, taxing authorities or other agreements, any of which could increase our funding obligations and adversely impact our earnings, financial condition and cash flows in future periods. In addition to cash funding, we attempt to mitigate these risks, including through investments in assets intended to hedge market risk and in insurance solutions to transfer risk. However, 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, changes in laws , 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 Legal and Regulatory
Failure to comply with laws, regulations and policies related to our business conduct, 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 related to anti-bribery and corruption, trade including tariffs, exports and imports, anti-trust and competition, money laundering, and employment. 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 by our employees or business partners, including distributors. 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. This can be expensive and require significant time and attention from senior management. Any violation could result in substantial fines, sanctions, civil and/or criminal penalties, termination of relationships with business partners, or 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 business and operations, we regularly move data across borders, and consequently we are subject to the continuously evolving legal and regulatory landscape regarding data privacy, data protection and data security, including the California Consumer Protection Act, the EU's General Data Protection Regulation (“GDPR”) and the China Personal Information Protection Law (“PIPL”). The scope of these and other laws that may be applicable to us continues to evolve, is often uncertain and may be conflicting, particularly as respects 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, as well as various reporting requirements. All of these evolving legal and operational requirements impose significant costs of compliance that are likely to increase over time. We cannot guarantee that we will at all times be in compliance with all requirements. In addition, any violation could result in
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substantial fines, sanctions and/or civil penalties, damage to our reputation and could materially and adversely affect our business, results of operations or financial condition.
Failure to comply with, and the cost of complying with, laws, regulations, policies and taxes applicable to our operations, products and services, including those involving the environment, climate change, and health and safety, could have a material adverse impact on our business, results of operations, financial condition and reputation.
Certain of our operations, products and services are governed by various federal, state, and local or foreign environmental, health and safety laws and regulations for the protection of the public, our employees and the environment, including as respects: emissions; potable and non-potable water; wastewater treatment and discharge; the generation, handling, storage, use, transport, treatment and disposal of non-hazardous and hazardous materials and wastes; the use of U.S. FCC-licensed radio spectrum (as detailed above); and our employees’ health and safety. Such laws and regulations include the Occupational Health and Safety Act, the federal Safe Drinking Water Act, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the EU’s Restriction of Hazardous Substance Directive, and the EU’s Registration, Evaluation and Authorization of Chemicals Directive, as well as others enacted in response to environmental and climate change concerns. In addition, certain of our products may be subject to product safety regulations. For example, our Mar Cor product line provides US Food and Drug Administration 510(k) cleared water purification systems to the dialysis industry. The aforementioned laws and regulations establish, among other things, criteria and standards we must comply with and may require licensing, permitting, approval or reporting. We cannot provide assurance that our operations, products or services will at all times be in compliance with all applicable laws, regulations and permits or that we will be able to obtain or renew all required permits.
Increasing public and governmental concern regarding the environment and the effects of climate change has, and may continue to, result in new or increased legal and regulatory requirements, policies and taxes intended to limit environmental damage and GHG emissions, including as respects pollution and discharges, emissions trading schemes, carbon, fuel or other taxes. In addition, as discussed above, we expect to be subject to increasing regulatory requirements around disclosures related to our business’ impact on climate change. Compliance with all of these requirements is complex. Applicable requirements change frequently and the timing and substance of future changes is uncertain and difficult to predict. We incur, and expect to continue to incur, costs to comply with applicable requirements, including: i) increased operating and capital expenditures related to our facilities and equipment; ii) increased research and development costs, including with respect to the design or re-design of our products in order to conform to changing emissions and efficiency standards and regulations, and iii) costs for tools, talent and resources to meeting the increasing disclosures requirements (discussed above). Our failure to comply with applicable laws, regulations, policies and taxes may result in substantial litigation and defense costs, fines, penalties and criminal sanctions; facility shutdowns to address violations; and investments in costly pollution control equipment or operational changes to limit emissions or discharges. Developments such as the adoption of new environmental or climate change laws and regulations, enforcement actions or litigation, discovery of previously unknown or more extensive contamination conditions, obsolescence of our products, interruption or suspension of our operations, an inability to recover costs associated with any such developments, or the financial insolvency of other responsible parties, could have material adverse effects on our business, financial condition, cash flows, results of operations, and reputation.
We face risks related to legal and regulatory proceedings.
We are subject to various laws, regulations and other requirements of governmental authorities in the U.S. and foreign countries, any violation of which could potentially create substantial liability 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 (including that of acquired or previously owned entities). These proceedings may seek remedies relating to environmental matters, tax, securities, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pensions, governmental and commercial or contractual issues or disputes. In addition, our continued transition to connected products and services 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
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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 we will continue to face legal and compliance risks. Additional legal and regulatory proceedings and other contingencies, the outcome of which cannot be predicted with certainty, have in the past and may in the future 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.
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 infringement or misappropriation claims, we could lose our rights to use or license critical technology, 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.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.
None.

ITEM 1C.    CYBER SECURITY.
We have implemented a comprehensive cybersecurity program guided by recognized industry practices and frameworks and we continue to evolve the program in order to be able to assess, identify and manage risks from the continually evolving cybersecurity threat landscape. Our cybersecurity program encompasses our enterprise information technology, including operational technology and technology of third parties on which we rely, and connected products and services. Although we maintain a cybersecurity program that we believe is reasonably designed to protect the Company, cybersecurity threats may result in adverse effects on the confidentiality, integrity, and availability of our information systems or those of third parties on which we rely, and our connected products and services.
Management and Internal Cybersecurity Team
Our Chief Information Officer (“CIO”), who has over 30 years of relevant work experience in information technology, including cybersecurity, is responsible for the Company’s information technology systems and cybersecurity and is an integral part of the Company’s management of cybersecurity and related risks. The CIO reports to the Senior Vice President, Operations and Supply Chain, who reports directly to the Chief Executive Officer.
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Our Chief Information Security Officer ("CISO"), who has extensive cybersecurity knowledge and skills gained from over 25 years of relevant work experience and holds the Certified Information Systems Security Professional certification, reports to the CIO. The CISO is responsible for assessing, monitoring and advising the Company’s businesses, management and the Board of Directors (“Board”) on the Company’s risks from cybersecurity threats; implementing cybersecurity strategy, programs and processes across our enterprise and connected products and services; reviewing the risk management measures implemented by the Company to identify and mitigate cybersecurity risks; and overseeing the maintenance and deployment of the Cybersecurity Incident Response Plan.
The Company’s Cybersecurity Team (“Team”), comprised of individuals with a broad range of cybersecurity skills, experiences and certifications, is led by the CISO. The Team is responsible for the implementation, monitoring and maintenance of the Company’s cybersecurity practices in coordination with its businesses, operations and functions, and oversees the Company’s cybersecurity program, including infrastructure, governance and incident response as detailed below. On a regular basis, the CISO receives reports from the Team on these cybersecurity program matters. In addition, the CISO also receives reports and updates on incident response and cybersecurity threats.
Risk Management and Strategy
The CISO and Team manage a program for enterprise cybersecurity that is guided by the National Institute of Standards and Technology’s (“NIST”) Cybersecurity Framework. Key areas of responsibility in the program include governance, risk and compliance, threat analysis and response, security architecture and engineering, security operations, and secure manufacturing operations. The CISO and Team also manage a program for connected products and services cybersecurity risk management that is guided by the ISA/IEC 62443 standard to enable protection and resiliency across products and services. Key areas of responsibility include product security, software development, innovation management, threat analysis and incident response. Both the enterprise and connected products and services programs are designed to assess, identify and manage risks from cybersecurity threats in order to protect and preserve the security, integrity and continued availability of the Company’s information technology systems and connected products and services, and also to protect the confidentiality and integrity of information owned by, or in the custody and care of, the Company. Elements of the programs include policies, standards, architecture, processes, tools, technology, employee education and training, and incident response. Our risk management processes undergo at least quarterly review to identify potential gaps and areas for additional investment, resources and focus. Our enterprise and product security programs undergo regular testing, including periodic vulnerability scanning and penetration testing. In addition, we also periodically engage third parties to assess our enterprise and product security programs and provide consultation and advice to assist with assessing, identifying, and managing cybersecurity risks. Our Enterprise Risk Management (“ERM”) Program annually assesses and, on an ongoing basis, monitors the Company’s key risks, including cybersecurity risk.
We maintain a suite of policies – the Cybersecurity Policy, the Product Cybersecurity Policy and the Acceptable Use of Information Technology Resources Policy – that apply globally to all of our employees, businesses and functions, as well as third-party vendors and contractors as required by our legal agreements with them. These policies specify roles and responsibilities, fundamental principles and proper controls required for Xylem’s protection. Our policies are reviewed annually to identify potential gaps or areas for improvement, considering changes in the Company, and its connected products and services, as appropriate. Our Code of Conduct, implemented by the Board, requires our employees’ adherence with our policies and practices, including with respect to cybersecurity risk management.
Employees receive ongoing annual education and training regarding relevant cybersecurity risks and practices, including how to protect information and systems from cyber threats. We also conduct monthly phishing simulations to increase employees’ ability to detect and prevent such threats. Through our internal social media channel, we provide cybersecurity alerts and education. In addition, our policies require the use of a cyber risk management process to onboard new suppliers and other third parties.
The Company’s cybersecurity risk mitigation strategy includes the use of risk transfer via insurance that provides protection against certain potential losses arising from certain cybersecurity incidents.
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Board of Directors
Our Board recognizes the importance of maintaining the trust and confidence of our customers, suppliers, employees and shareholders. In line with its broader strategic oversight, the Board oversees cybersecurity, including strategy and processes. To assist with oversight of cybersecurity, the Board has delegated to the Audit Committee responsibility to oversee certain aspects of cybersecurity, including controls and reporting. As part of its independent oversight of the key risks facing the Company, the Board and Audit Committee devote considerable time and attention to the oversight of management’s approach to cybersecurity and related risk mitigation, including strategy, controls. resources, policies, standards, processes and practices. At least semi-annually, the Audit Committee or full Board receive reports from the CIO and CISO. Such reports include updates on the Company’s cybersecurity risk profile, assessments of the Company’s enterprise and product security programs, management’s strategy for managing risks, measures implemented to identify and mitigate cybersecurity risks, the status of projects to strengthen the Company’s cybersecurity posture, the emerging cybersecurity threat landscape, and other relevant topics. We have protocols and processes by which certain cybersecurity incidents, as specified by our Cybersecurity Incident Response Plan, are escalated within the Company and, as appropriate, to the Audit Committee. These escalation protocols are periodically reviewed and updated, as needed.
The Board receives a report on the results of the Company’s annual ERM Program risk assessment, as well periodic updates on the ERM Program, including ongoing monitoring of the Company’s risks, as appropriate. The ERM Program has identified cybersecurity as one of the Company’s primary risks.
Key Internal Governance Bodies
Xylem has a number of committees to bolster business resilience, protect shareholder value and enable compliance with regulatory requirements. The Enterprise Risk Committee (“ERC”), a key component of the Company’s ERM Program, is comprised of senior executives and is responsible for reviewing the Company’s key risks as identified by the ERM Program, including cybersecurity, and overseeing the Company’s identification, assessment, management, mitigation and ongoing monitoring of these risks. As such, the ERC periodically receives reports from the CISO on cybersecurity risk.
The Cyber Risk Committee (“CRC”), comprised of a cross-functional group of senior executives including the CIO, CISO, Chief Financial Officer and General Counsel, provides advice and governance regarding the Company’s strategic management of cybersecurity across the Company, including cybersecurity risk posture, projects, issues, threat intelligence and escalations. The CRC meets at least quarterly and receives reports and presentations from the CISO or third parties on internal and external cybersecurity matters; and, as appropriate, briefings from the CISO on cybersecurity incidents, the Company’s incident response, recovery and remediation, and actual or potential impacts.
Incident Response
Our Cybersecurity Incident Response Plan (“IRP”), which generally aligns with NIST's guidance, provides management with a standardized framework for responding to an actual or potential cybersecurity threat or incident. The IRP sets out a coordinated approach to investigating, containing, documenting and mitigating incidents, including reporting findings and keeping senior management and other key stakeholders informed and involved as appropriate. The IRP also specifies the use of third-party experts for legal advice, consulting and incident response, as appropriate. The IRP undergoes at least annual tabletop exercises, where the Incident Response Team and relevant business and functions drill our response to a simulated cyber incident. The results of these drills are used to identify areas for improvement in our processes and technologies.
Material Cybersecurity Risks, Threats & Incidents
Due to evolving cybersecurity threats, it has and will continue to be difficult to prevent, detect, mitigate, and remediate cybersecurity incidents. While we have not experienced any material cybersecurity threats or incidents as of the date of this Report, our cybersecurity program might not be able to prevent or mitigate future successful attacks, threats or incidents.
As detailed elsewhere in this Report, we also rely on information technology and other third-party vendors and strategic joint venture partners to support our business and operations, including our secure processing of personal, confidential, financial, sensitive, proprietary and other types of information, and to enable our connected product and service offerings. Despite ongoing efforts to improve our and third parties’ ability to protect against cyber threats, we may not be able to protect all information systems or connected products and services. Cybersecurity incidents may lead to reputational harm, revenue and client loss, legal actions, statutory penalties, among other consequences. For a more detailed discussion of these risks see the discussion set forth under “Item 1A. Risk Factors” in this Report.
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ITEM 2.        PROPERTIES
We have approximately 500 locations in more than 50 countries. These properties total approximately 15 million square feet, of which more than 400 locations, or approximately 8 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
ShenyangChinaManufacturing271,000 Owned
VadodaraIndiaManufacturing and Research & Development240,000 Leased
StockholmSwedenAdministration and Research & Development182,000 Leased
BridgeportNJAdministration and Manufacturing136,000 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 and 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
Integrated Solutions and Services
ThomasvilleGAManufacturing211,000 Owned
RockfordILManufacturing165,000 Owned
HollandMIManufacturing132,000 Owned
HoustonTXService107,000 Leased
Regional Locations
DubaiUnited Arab EmiratesManufacturing144,000 Owned
NottinghamshireUnited KingdomAdministration139,000 Leased
NanterreFranceSales & Service Office139,000 Leased
LangenhagenGermanySales & Service Office134,000 Owned
SchaffhausenSwitzerlandAdministration26,000 Leased
Corporate Headquarters
WashingtonDCAdministration18,000 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 investigations or contract issues and commercial or contractual disputes.
Evoqua previously disclosed in its public filings that the United States Attorney’s Office for the District of Massachusetts was investigating whether financial misstatements were made in Evoqua’s public filings and earnings announcements. That investigation has been moved to the United States Attorney’s Office for the District of Rhode Island. The Company is cooperating with the investigation. We currently believe that it will not have a material adverse effect on our business, financial condition, results of operations, or prospects.
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.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following information is provided regarding the executive officers of Xylem as of February 7, 2024:
NAMEAGECURRENT TITLEOTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS
Matthew F. Pine
52
President and Chief Executive Officer (2024)
Chief Operating Officer (2023)
Senior VP and President, Americas, Applied Water Systems and Measurement and Control Systems (2022)
Senior VP and President, Americas and Applied Water Systems (2020)
President, Carrier Residential, United Technologies Corporations (2018), a multinational industrial conglomerate
William K. Grogan
45Senior VP and Chief Financial Officer (2023)
• Senior VP and Chief Financial Officer, IDEX Corporation, a diversified manufacturer of highly engineered products (2017)
Rodney O. Aulick
56Senior VP and President, Water Solutions and Services (2023)
Executive Vice President Integrated Solutions and Services, Evoqua Water Technologies Corp. (2018)
Dorothy G. Capers
62Senior VP, General Counsel (2022)
• Executive Vice President, Global General Counsel and Corporate Secretary, National Express Group, a leading transport provider (2015)
Franz W. Cerwinka
53Senior VP and President, Applied Water Systems and Xylem Business Transformation (2023)
Senior VP and President, Emerging Markets (2020)
Chief Executive Officer, Johnson Controls Hitachi Air Conditioning, a multinational air conditioning manufacturing company (2015)
Michael J. McGann
53Senior VP and President, Americas and Measurement and Control Solutions (2023)
VP, North America Utilities Commercial Team (2022)
VP, Sensus Americas, Global Engineering and Assessment Services (2017)
Geri-Michelle McShane
50VP, Controller and Chief Accounting Officer (2019)
Controller, Accounting and Reporting (2016)
Claudia S. Toussaint
60Senior VP, Chief People and Sustainability Officer (2021)• Senior VP, General Counsel and Corporate Secretary (2014)
Hayati Yarkadas55Senior VP and President, Europe, Water Infrastructure and Global Services (2020)
• Senior VP and President, Performance Materials, Trinseo S.A., a specialty material solutions provider (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 7, 2024:
NAMETITLE
Robert F. FrielBoard Chair, Xylem Inc., Former Chairman, President and CEO, PerkinElmer, Inc.
Matthew F. Pine
President and Chief Executive Officer, Xylem Inc.
Jeanne Beliveau-Dunn
Chief Executive Officer and President of Claridad, LLC
Earl R. EllisExecutive Vice President and Chief Financial Officer, ABM Industries Incorporated
Lisa GlatchFormer President, LNG and Net-Zero Solutions and Chief Sustainability Officer, Sempra Infrastructure
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
Jerome A. PeribereFormer President and Chief Executive Officer, Sealed Air Corporation
Lynn C. SwannPresident, Swann Inc.
Lila TretikovCorporate Vice President & Deputy Chief Technology Officer, Microsoft Corporation
Uday YadavChief Executive Officer, TK Elevator

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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, 2024, there were 7,833 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 2024, we declared a dividend of $0.36 per share to be paid on March 20, 2024 to shareholders of record on February 21, 2024.
There were no unregistered offerings of our common stock during 2023.
Fourth Quarter 2023 Share Repurchase Activity
The following table summarizes our repurchases of our common stock for the quarter ended December 31, 2023:
(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)
10/1/23 - 10/31/23$182
11/1/23 - 11/30/23$182
12/1/23 - 12/31/23$182
(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, 2023. There are up to $182 million in shares that may still be purchased under this plan as of December 31, 2023.


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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, 2018 through December 31, 2023 and assumes that $100 was invested on December 31, 2018 in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.
Item 5 Chart.gif

XYLS&P 500S&P 500
Industrials
Index
December 31, 2019120 131 129 
December 31, 2020157 156 144 
December 31, 2021186 200 174 
December 31, 2022174 164 164 
December 31, 2023182 207 194 
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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 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, 2022.
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 four reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, Measurement and Control Solutions and Integrated Solutions and Services.
Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process. We also provide sales and rental of specialty dewatering pumps and related equipment and services. Additionally, our offerings use monitoring and control, smart and connected technologies to allow for remote monitoring of performance and enable products to self-optimize pump operations maximizing energy efficiency and minimizing unplanned downtime and maintenance for our customers. In the Water Infrastructure segment, we provide the majority of our sales directly to customers along with strong applications expertise, while the remaining amount is through distribution partners. The Water Infrastructure segment also includes legacy-Evoqua's Applied Product Technologies ("APT") segment. APT provides a range of highly differentiated and scalable products and technologies with product offerings in the filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology, and aquatics technologies and solutions spaces.
Applied Water serves the water usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning, and for fire protection systems to the residential and commercial building services 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 and 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, and outdoor 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 and 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.
Integrated Solutions and Services serves the industrial and municipal sectors with tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse, and emergency response service alternatives to improve operational reliability, performance, and environmental compliance. Key offerings within this segment also include
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equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment, and recycle / reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services.
Evoqua Acquisition
On January 22, 2023, Xylem entered into a definitive agreement to acquire Evoqua, a leader in mission-critical water treatment solutions and services, in an all-stock transaction that reflected an implied enterprise value of approximately $7.5 billion. The transaction closed on May 24, 2023. See Note 3, "Acquisitions and Divestitures," to the consolidated financial statements for further information.
Coinciding with the Evoqua acquisition, Xylem has updated our adjusted operating income and adjusted earnings per share to add back non-cash purchase accounting intangible amortization and recast 2022 amounts to reflect the change on a comparative basis
Evoqua, a leader in North America water treatment, complements Xylem’s distinctive portfolio of solutions with advanced water and wastewater treatment capabilities, a powerful and extensive network of service professionals and access to a number of attractive industrial markets with resilient, recurring revenue streams.
Key Performance Indicators and Non-GAAP Measures
Management reviews key performance indicators including revenue, gross margins, segment operating income and operating income margins, 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, amortization of acquired intangible assets, gain or loss from sale of businesses, special charges and tax-related special items, as applicable. A reconciliation of adjusted net income and adjusted earnings per share is provided below.
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(in millions, except per share data)20232022
Net income and Earnings per share$609 $2.79 $355 $1.96 
Restructuring and realignment106 0.49 34 0.19 
Acquired intangible amortization176 0.81 72 0.40 
Special charges138 (a)0.63 160 (b)0.88 
Tax-related special items(115)(0.53)0.01 
(Gain) loss from sale of business1  (1)(0.01)
Tax effects of adjustments (c)(90)(0.41)(51)(0.28)
Adjusted net income and Adjusted earnings per share$825 $3.78 $570 $3.15 
(a)The special charges in the year primarily relate to $126 million of acquisition and integration related costs.
(b)The special charges in the year primarily relate to the U.K. pension settlement expense of $140 million and asset impairment charges of $14 million recorded in the period.
(c)The tax effects of adjustments are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction.
"adjusted operating expenses" defined as operating expenses adjusted to exclude amortization of acquired intangible assets, restructuring and realignment costs and special charges.
"adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs 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, gain or loss from sale of businesses and special charges, and "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue.
“realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
“special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges, and both operating and non-operating adjustments for costs related to the U.K. 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)20232022
Net cash provided by operating activities$837 $596 
Capital expenditures(271)(208)
Non-discretionary tax payments (R&D tax law adoption)33 — 
Free cash flow$599 $388 
Net cash used in investing activities$(628)$(191)
Net cash provided (used) by financing activities$(157)$(790)

41


Executive Summary
Xylem reported revenue of $7,364 million for 2023, an increase of $1,842 million, or 33.4%, from $5,522 million reported in 2022. On a constant currency basis, revenue increased by $1,867 million, or 33.8%, during the year. The increase at constant currency consists of revenue from acquisitions of $1,177 million and an increase in organic revenue of $690 million reflecting strong organic growth in all segments as well as across all major geographic regions.
Operating income for 2023 was $652 million, reflecting an increase of $30 million, or 4.8%, compared to $622 million in 2022. Operating margin was 8.9% and 11.3% for 2023 and 2022, respectively. The increase in operating income for 2023 included an increase in special charges of $122 million, an increase in purchased intangible amortization of $104 million, and an increase in restructuring and realignment costs of $72 million as compared to 2022. Excluding the impact of these items, adjusted operating income was $1,072 million, with an adjusted operating margin of 14.6% in 2023 as compared to adjusted operating income of $744 million with an adjusted operating margin of 13.5% in 2022, an increase of 110 basis points.
Additional financial highlights for 2023 include the following:
Net income of $609 million, or $2.79 per diluted share, up 42.3% ($825 million or $3.78 per diluted share on an adjusted basis, up 20.0% from 2022)
Net cash provided by operating activities of $837 million and free cash flow of $599 million, up 54% from 2022
Orders of $7,501 million, up 19.9% from $6,257 million in 2022 (up 1.0% on an organic basis)
Dividends paid to shareholders increased 10% in 2023.
Results of Operations
(in millions)202320222023 v. 2022
Revenue$7,364 $5,522 33.4 %
Gross profit2,717 2,084 30.4 %
Gross margin36.9 %37.7 %(80)bp
Total operating expenses2,065 1,462 41.2 %
Expense to revenue ratio28.0 %26.5 %150 bp
Restructuring and realignment costs(102)(30)240.0 %
Acquired intangible asset amortization(176)(72)144.4 %
Special charges(106)(16)562.5 %
Adjusted operating expenses1,681 1,344 25.1 %
Adjusted operating expenses to revenue ratio22.8 %24.3 %(150)bp
Operating income652 622 4.8 %
Operating margin8.9 %11.3 %(240)bp
U.K. pension settlement expense 140 NM
Interest and other non-operating expense, net16 43 (62.8)%
Gain/(loss) from sale of business(1)(200.0)%
Income tax expense26 85 (69.4)%
Tax rate4.1 %19.2 %(1,510)bp
Net income$609 $355 71.5 %
NM     Not Meaningful

2023 versus 2022
Revenue
Revenue generated for 2023 was $7,364 million, an increase of $1,842 million, or 33.4%, compared to $5,522 million in 2022. On a constant currency basis, revenue grew 33.8% during 2023. The increase at constant currency consists of revenue from acquisitions of $1,177 million and an increase in organic revenue of $690 million, reflecting strong organic growth in all segments as well as across all major geographic regions.
42


The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during 2023:
Water InfrastructureApplied WaterMeasurement and Control SolutionsIntegrated Solutions and ServicesTotal Xylem
(in millions)$ Change% Change$ Change% Change$ Change% Change$ Change% Change$ Change% Change
2022 Revenue$2,364 $1,767 $1,391 $— $5,522 
Organic Growth255 10.8 %96 5.4 %339 24.4 %— NM690 12.5 %
Acquisitions/(Divestitures)362 15.3 %— — %— — %815 NM1,177 21.3 %
Constant Currency617 26.1 %96 5.4 %339 24.4 %815 NM1,867 33.8 %
Foreign currency translation (a)(14)(0.6)%(10)(0.5)%(1)(0.1)%— NM(25)(0.4)%
Total change in revenue603 25.5 %86 4.9 %338 24.3 %815 NM1,842 33.4 %
2023 Revenue$2,967 $1,853 $1,729 $815 $7,364 
(a)Foreign currency translation impact for the year primarily due to the weakening in value of various currencies against the U.S. Dollar, the largest being the Chinese Yuan, the Canadian Dollar and the Norwegian Krone
Water Infrastructure
Water Infrastructure revenue increased $603 million, or 25.5%, to $2,967 million in 2023 (26.1% increase on a constant currency basis) compared to 2022. Revenue growth was partially made up of the revenue contributed by acquisitions from APT of $362 million, with the remainder of the increase coming from organic revenue growth of $255 million, or 10.8%. Revenue was negatively impacted by $14 million of foreign currency translation. Organic growth for the year was driven by strength in both the utility and industrial end markets. The utilities end market experienced organic growth of $150 million led by strength in the U.S. driven by strong price realization, increased sales volume bolstered by backlog execution, and higher rental revenue. Western Europe also experienced strong organic growth due to demand from utility capital projects and strong price realization. The emerging markets grew organically due to increased project revenue. The industrial end market had $105 million of organic growth across all major geographic regions, due to strong price realization and increased sales volume in the U.S. and timing of capital projects and strong price realization in western Europe.
From an application perspective, excluding the $362 million contributed by acquisitions, organic revenue growth was driven by our transport applications. Transport experienced $240 million of revenue growth. All three of our major geographic regions contributed to the organic revenue growth in transport, led by the U.S. due to strong backlog execution and price realization and higher volume in the dewatering business. Western Europe also experienced increases driven by strong price realization and delivery on capital projects. Organic revenue growth for the treatment application was $15 million for the year due to increased sales volume in the U.S. driven by strong backlog execution.
Applied Water
Applied Water revenue increased $86 million, or 4.9%, in 2023 (5.4% increase on a constant currency basis) compared to 2022. Revenue was negatively impacted by $10 million of foreign currency translation, with the change at constant currency coming entirely from organic growth during the year of $96 million. Organic growth was led by strength in building solutions, with commercial revenue growth of $97 million, driven by the U.S. with increased sales volume from backlog execution in the first half of the year and strong price realization, partially offset by the residential declines in revenue of $33 million primarily in the emerging markets, driven by softness in the Middle East, and volume declines in the U.S. The industrial water application had organic growth of $32 million, led by the emerging markets due to increased sales volume, and western Europe where we benefited from strong price realization.
43


Measurement and Control Solutions
Measurement and Control Solutions revenue increased $338 million, or 24.3%, in 2023 (24.4% increase on a constant currency basis) compared to 2022. Revenue was negatively impacted by $1 million of foreign currency translation during the year, with the change at constant currency coming entirely from organic growth during the year of $339 million. We experienced organic revenue growth across all three major geographic regions and in both of the segment's end markets for the year, driven by $327 million of organic growth in the utility end market, primarily in the U.S., driven by increased sales volume and backlog execution, enabled by significant improvement of supply chain constraints, and $12 million in the industrial end market driven by strong backlog execution in our test business.
From an application perspective, organic revenue growth during the year was led by growth in the water application of $229 million led by the U.S., where we saw increased sales volume, enabled by recovery on prior year component constraints, and western Europe, due to strong backlog execution. We also had organic revenue growth in the energy application of $110 million, driven by improved component availability and metrology sales in the U.S.
Integrated Solutions and Services
Integrated Solutions and Services revenue consists entirely of $815 million for the year ended December 31, 2023 contributed from the Evoqua acquisition.
Orders/Backlog
An order represents a legally enforceable, written document that includes the scope of work or services to be performed or equipment to be supplied to a customer, the corresponding price and the expected delivery date for the applicable products or services to be provided. An order often takes the form of a customer purchase order or a signed quote from a Xylem business. Orders received during 2023 increased by $1,244 million, or 19.9%, to $7,501 million (20.5% increase on a constant currency basis). Order intake increased due to $1,220 million of increased orders related to the Evoqua acquisition. The increase in orders was partially offset by $41 million of unfavorable foreign currency translation. Organic order growth for the year was $65 million, or 1.0%.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during 2023:
Water InfrastructureApplied WaterMeasurement and Control SolutionsIntegrated Solutions and ServicesTotal Xylem
(in millions)
Change

Change

Change

Change

Change

Change

Change

Change

Change

Change
2022 Orders$2,607 $1,794 $1,856 $— $6,257 
Organic Impact124 4.8 %(6)(0.3)%(53)(2.9)%— NM65 1.0 %
Acquisitions/(Divestitures)352 13.5 %— — %— — %868 NM1,220 19.5 %
Constant Currency476 18.3 %(6)(0.3)%(53)(2.9)%868 NM1,285 20.5 %
Foreign currency translation (a)(23)(0.9)%(18)(1.0)%— — %— NM(41)(0.7)%
Total change in orders453 17.4 %(24)(1.3)%(53)(2.9)%868 NM1,244 19.9 %
2023 Orders$3,060 $1,770 $1,803 $868 $7,501 
(a)Foreign currency translation impact for the year primarily due to the weakening in value of various currencies against the U.S. Dollar, the largest being the Chinese Yuan, the Canadian Dollar and the Norwegian Krone
44


Water Infrastructure
Water Infrastructure segment orders increased $453 million, or 17.4%, to $3,060 million, with $352 million in contributions from the acquisition of the APT business, and organic order growth of $124 million or 4.8%. Order intake for the period was negatively impacted by $23 million of foreign currency translation. Organic orders increased during the year primarily in the transport applications, led by the dewatering business in the U.S., where we benefited from strong price realization and demand, the emerging markets, where we had increased capital project orders, and western Europe where we saw increased demand and capital project orders. The treatment applications also saw organic growth primarily in the U.S. and in the emerging markets where we saw higher capital project orders in these regions.
Applied Water
Applied Water segment orders decreased $24 million, or 1.3%, to $1,770 million (flat on a constant currency basis). Order intake during the year was negatively impacted by $18 million of foreign currency translation, with organic orders being essentially flat. Weakness in the U.S. from lower demand and timing of orders was partially offset by strength in the emerging markets due to strong project orders and recovery from prior year COVID-19 impacts.
Measurement and Control Solutions
Measurement and Control Solutions segment orders decreased $53 million, or 2.9%, to $1,803 million, with no impact from foreign currency translation. Organic order weakness for the year was driven by the energy applications, particularly in the U.S., where we saw lower demand in gas metrology. Order declines were marginally offset by growth in the water applications, primarily in the U.S., and western Europe, driven by increased digital and service orders, as well as demand in our pipeline assessment services business.
Integrated Solutions and Services
The Integration Solutions and Services segment contributed total orders of $868 million for the year ended December 31, 2023 See Note 3, "Acquisitions and Divestitures," to the consolidated financial statements for further information.
Backlog
Backlog includes orders on hand as well as contractual customer agreements at the end of the period. Delivery schedules vary from customer to customer based on their requirements. Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors. Typically, large projects require longer lead production cycles and deployment schedules and delays occur from time to time. Total backlog was $5,088 million at December 31, 2023 and $3,605 million at December 31, 2022, an increase of 41.1%, with backlog from the acquisition of Evoqua contributing $1,268 million, or 35.2%, of the increase. We anticipate that more than 50% of our total backlog at December 31, 2023 will be recognized as revenue during 2024.
Gross Margin
Gross margin as a percentage of consolidated revenue decreased 80 basis points to 36.9% in 2023 as compared to 37.7% in 2022. The gross margin decline for the year included 60 basis points from increases in acquired intangible asset amortization and special charges as compared to the prior year. Additionally, the gross margin decline for the year included 530 basis points of negative operating impacts, driven by 230 basis points of inflation, 140 basis points of unfavorable impacts from the Evoqua acquisition, 80 basis points of unfavorable mix, and 30 basis points of increased spending on strategic investments. These impacts were partially offset by favorable impacts of 510 basis points, driven by 270 basis points of price realization and 210 basis points of productivity savings.
45


Operating Expenses
(in millions)20232022Change
Selling, general and administrative expenses$1,757 $1,227 43.2 %
SG&A as a % of revenue23.9 %22.2 %170 bp
Research and development expenses232 206 12.6 %
R&D as a % of revenue3.2 %3.7 %(50)bp
Restructuring and asset impairment charges76 29 162.1 %
Operating expenses$2,065 $1,462 41.2 %
Expense to revenue ratio28.0 %26.5 %150 bp
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased by $530 million (increase of 43.2%) to 23.9% of revenue in 2023, as compared to 22.2% of revenue in 2022. Cost increases were driven by $188 million of additional operational SG&A from the acquisition of Evoqua, increased special charges (mostly Evoqua acquisition related costs) and realignment costs of $115 million, increased acquired intangible asset amortization of $58 million, $54 million of inflation, and $51 million in increased spending on strategic investments.
Research and Development ("R&D") Expenses
R&D expense was $232 million, or 3.2% of revenue, in 2023 which was fairly consistent with the 2022 expense of $206 million, or 3.7% of revenue.
Restructuring and Asset Impairment Charges
Restructuring
From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position itself. Restructuring charges were $72 million in 2023 as compared to $15 million in 2022.
During 2023, we incurred these charges primarily as a result of our acquisition of Evoqua. Approximately $27 million of the charges related to stock-based compensation expense due to acceleration clauses in Evoqua's equity compensation agreements. Approximately $15 million of the charges represented the reduction of headcount related to the integration of Evoqua. Additionally, during 2023 we incurred $30 million of charges related to our efforts to reposition our businesses to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. The charges were incurred across all of our segments.
During 2022, we incurred restructuring charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount across the Water Infrastructure, Applied Water and Measurement and Control Solutions segments
The following is a roll-forward of employee position eliminations associated with restructuring activities for the years ended December 31, 2023 and 2022:
20232022
Planned reductions - January 1102 60 
Additional planned reductions454 203 
Actual reductions and reversals(443)(161)
Planned reductions - December 31113 102 
46


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 2023, 2022 and 2021 restructuring actions:
(in millions)Water InfrastructureApplied WaterMeasurement and Control SolutionsIntegrated Solutions and ServicesCorporateTotal
Actions Commenced in 2023:
Total expected costs$18 $16 $12 $$34 $87 
Costs incurred during 202315 11 35 71 
Total expected costs remaining$3 $10 $1 $3 $(1)$16 
Actions Commenced in 2022:
Total expected costs$$$$— $— $15 
Costs incurred during 2022— — 14 
Costs incurred during 2023— — — — 
Total expected costs remaining$ $ $ $ $ $ 
Actions Commenced in 2021:
Total expected costs$$— $— $— $— $
Costs incurred during 2021— — — — 
Costs incurred during 2022— — — — — — 
Costs incurred during 2023— — — — — — 
Total expected costs remaining$ $ $ $ $ $ 
The Water Infrastructure, Applied Water, Measurement and Control Solutions, Integrated Solutions and Services and Corporate actions commenced in 2023 consist primarily of severance charges. The actions are expected to continue through the end of 2024.
The Water Infrastructure, Applied Water and Measurement and Control Solutions actions commenced in 2022 consist primarily of severance charges. The actions commenced in 2022 are complete.
The Water Infrastructure actions commenced in 2021 consist primarily of severance charges. The actions commenced in 2021 are complete.
As a result of the actions initiated in 2023, we achieved savings of approximately $9 million in 2023 and estimate annual future net savings beginning in 2024 of approximately $51 million, resulting in $42 million of incremental savings from 2023 actions.
Asset Impairment
During the fourth quarter of 2023, we determined that internally developed in-process software within our Measurement and Control Solutions segment was impaired as a result of actions taken to prioritize strategic investments and we therefore recognized an impairment charge of $1 million. Refer to Note 12, "Goodwill and Other Intangible Assets," for additional information.
During the third quarter of 2023, we recognized a $1 million impairment charge for certain fixed assets within our Measurement and Control Solutions segment.
During the first quarter of 2023, we determined that internally developed in-process software within our Measurement and Control Solutions segment was impaired as a result of actions taken to prioritize strategic investments and we therefore recognized an impairment charge of $2 million. Refer to Note 12, "Goodwill and Other Intangible Assets," for additional information.
During the third quarter of 2022, we determined that certain assets including software and customer relationships within our Measurement and Control Solutions segment were impaired. Accordingly, we recognized an impairment charge of $14 million. Refer to Note 12,"Goodwill and Other Intangible Assets," for additional information.

47


Operating Income and Adjusted EBITDA
Operating income was $652 million (operating margin of 8.9%) during 2023, an increase of $30 million, or 4.8%, when compared to operating income of $622 million (operating margin of 11.3%) during the prior year. Operating margin included unfavorable impacts of 350 basis points from increases in special charges, acquired intangible asset amortization, and restructuring and realignment costs as compared to the prior year. Additionally, operating margin included 780 basis points of expansion from favorable operating impacts, consisting of a 370 basis point increase from price realization, 280 basis points from productivity savings and 130 basis points from favorable volume. Margin expansion was offset by 670 basis points of unfavorable impacts driven by 310 basis points of inflation, 110 basis points of increased spending on strategic investments, 80 basis points of unfavorable mix, and 50 basis points of increased employee related costs. Excluding special charges, acquired intangible asset amortization, and restructuring and realignment costs, adjusted operating income was $1,072 million (adjusted operating margin of 14.6%) for 2023 as compared to adjusted operating income of $744 million (adjusted operating margin of 13.5%) during the prior year.
Adjusted EBITDA was $1,392 million (adjusted EBITDA margin of 18.9%) during 2023, an increase of $452 million, or 48.1%, when compared to adjusted EBITDA of $940 million (adjusted EBITDA margin of 17.0%) during the prior year. The increase in adjusted EBITDA margin was primarily due to the same factors impacting adjusted operating margin noted above; however, adjusted EBITDA was not negatively impacted by the relative impact of depreciation and software amortization expense.
48


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)20232022Change
Water Infrastructure
Operating income$419 $418 0.2 %
Operating margin14.1 %17.7 %(360)bp
Restructuring and realignment costs22 11 100.0 %
Purchase accounting intangible amortization49 1,125.0 %
Special charges29 — NM%
Adjusted operating income$519 $433 19.9 %
Adjusted operating margin17.5 %18.3 %(80)bp
Applied Water
Operating income$310 $258 20.2 %
Operating margin16.7 %14.6 %210 bp
Restructuring and realignment costs14 13 7.7 %
Purchase accounting intangible amortization — NM%
Special charges — NM%
Adjusted operating income$324 $271 19.6 %
Adjusted operating margin17.5 %15.3 %220 bp
Measurement and Control Solutions
Operating income$113 $5,550.0 %
Operating margin6.5 %0.1 %640 bp
Restructuring and realignment costs20 10 100.0 %
Purchase accounting intangible amortization66 68 (2.9)%
Special charges4 14 (71.4)%
Adjusted operating income$203 $94 116.0 %
Adjusted operating margin11.7 %6.8 %490 bp
Integrated Solutions and Services
Operating income
$8