Xylem (XYL) 10-K risk factor changes: FY2020 vs FY2019

*In evaluating our [removed: business, the following discussion of significant factors, events,] [added: business] and [removed: uncertainties that make an] investment in our [removed: securities risky] [added: securities, investors] should [removed: be] carefully [removed: considered, along] [added: 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 [removed: in these risk factors] [added: below] could, in circumstances that we may not be able to accurately predict, [removed: recognize,] [added: recognize] or control, have a material adverse effect on our business, financial condition, cash [removed: flow,] [added: flows,] results of operations or market price of our common stock.*

*These risk factors do not identify all [added: of] the risks we face.

[removed: We] [added: In addition, we] operate in a continually changing business, economic and geopolitical environment and as a result new risk factors may emerge from time to time.

[removed: In addition, the] [added: The] global economic and geopolitical [removed: climate] [added: climate, including the impacts of the COVID-19 pandemic,] amplifies many of [removed: these risks.*][added: the risks below.*]

Risks Related to our [removed: Business][added: Business and Operations]

Failure to compete successfully in our [removed: markets] [added: markets, including our ability to develop innovative] and disruptive [removed: technologies] [added: technologies,] could adversely affect our business.

We offer our technologies, products and services in [added: highly] competitive markets.

We believe the principal points of competition [removed: in our markets] 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 [added: our] service centers, effectiveness of our distribution channels, price and customers’ experience in [removed: conducting] [added: 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 [removed: disruption, including our continued investment in talent, manufacturing, technology and innovation, research and development, engineering, sales and marketing, customer service and support, and our distribution networks.][added: disruption.]

Our [added: competitive position and] future growth rate [removed: depends] [added: depend] upon a number of factors, including our ability [removed: to:] [added: to successfully:] (i) [added: innovate,] develop and maintain competitive products, services, business models and customer experience to address emerging trends and [removed: customer needs in our target markets,] [added: meet customers’ needs,] (ii) defend our market share against an ever-expanding number of competitors, many of which are new and non-traditional competitors from outside our [removed: industry] [added: industry,] such as [removed: major] [added: large] technology firms, or those out of emerging markets, (iii) enhance our product and service offerings by adding innovative features or disruptive technologies that differentiate them from those of our competitors and prevent commoditization, (iv) develop, manufacture and bring compelling new products and services to market quickly and cost-effectively, [removed: and] (v) [added: continue to cultivate, develop and maintain our distribution network of channel partners, (vi)] attract, develop and retain individuals with the requisite innovation and technical expertise and understanding of customers’ needs to develop new [removed: technologies and introduce new] [added: technologies,] products and [removed: services.][added: services, (vii) continue to invest in manufacturing, research and development, engineering, sales and marketing, customer service and support, and our distribution networks, (viii) win large contracts, and (ix) compete for business subject to applicable governmental procurement laws and policies, including the Buy America and Buy American Act requirements in the U.S., as they may evolve over time.]

The failure of our technologies, products or services to maintain and gain market acceptance due to more attractive offerings, [removed: as well as] [added: 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 [removed: standing and prospects.][added: position.]

Pricing pressures also could cause us to adjust the prices of certain products to stay competitive, [added: or we may not be able to continue to win large contracts,] which could adversely affect our market share and [removed: financial performance.][added: competitive position.]

[removed: Our business, products and services could be adversely affected by cyber threats] [added: Cybersecurity incidents] or other [removed: interruptions in] [added: disruptions to our] information [removed: technology,] [added: technology infrastructure,] communications networks and [removed: operations.][added: operations could adversely affect our business, products and services.]

Our business operations rely on information technology and communications networks, some of which are operated by third [removed: parties including, increasingly,] [added: parties, including] cloud-based service providers, to process, transmit and store our electronic information, including sensitive data such as confidential business information and personal data relating to employees, customers or other business partners.

We also rely on third parties’ information technology systems to manage or support a variety of [removed: critical] business processes and [removed: activities.]

Regardless of protection measures, essentially all systems are susceptible to damage, disruption or shut-down due to cybersecurity attacks, including ransomware, denial-of-service, computer viruses and security [removed: breaches, as well as human error or malfeasance,] [added: breaches;] equipment or system failure, including due to maintenance, obsolescence or [removed: age,] [added: age; and other events or circumstances, such as human error or malfeasance,] vandalism, natural [removed: disasters,] [added: disaster,] fire, [removed: power or] [added: power,] communication [removed: outages, shutdown, telecommunication] or [added: other] utility [added: outage, shutdown or utility] failure and other events.

[added: In] any such circumstances, our system redundancy and other business continuity and disaster recovery planning and response may be ineffective or inadequate.

In addition, we offer certain services and products, including pumps, controllers and [removed: meters, used by third parties for operational purposes or to collect data, which are] [added: meters that may be] digitally-enabled or connect to and are part of the “Internet of Things” [removed: (IoT).][added: (IoT), and are used by third parties for operational purposes or to collect data.]

Cybersecurity attacks may target hardware, software and information installed, stored or transmitted by our products after they have been purchased and incorporated into [removed: third-parties’] [added: third parties’] products, facilities or infrastructure.

A successful attack may result in the misappropriation, destruction, unauthorized access to or disclosure of third parties' confidential information, [removed: damage, disruption] [added: damage] or [removed: shut-down of] [added: disruption to] third parties’ operations, recall of our products or increased costs for security and remediation, as well as [removed: possible] damage to our brand reputation.

Like many multinational [removed: corporations,] [added: companies,] we, and some third parties upon which we rely, have experienced cybersecurity attacks on information technology networks and systems, products and services in the past and may experience them in the future, likely with more frequency and involving a broader range of devices and modes of attack.

Disruption to [removed: any of the] information technology and communications networks on which we rely, or an attack on our products and services, could interfere with our operations, disrupt our supply chain and service to our customers, interrupt production and shipments, result in theft or compromise of our and our customers’ intellectual property and trade secrets, damage employee, customer and business partner relationships, negatively impact our reputation, result in legal claims and proceedings or regulatory enforcement actions, and increase our costs for security and remediation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

[removed: Important] [added: Material economic and industry] factors impacting our businesses include the overall strength [removed: of these economies] [added: of,] and our customers’ confidence [removed: in both] [added: in,] local and global [removed: macro-economic] [added: macroeconomic] conditions; [removed: instability and uncertainties from the global geopolitical environment;] industrial and private sector [removed: spending,] [added: spending;] federal, state, local and municipal governmental [removed: fiscal and] [added: fiscal,] trade [added: and procurement] policies; [removed: the] strength of the residential and commercial real estate markets; [removed: interest rates;] [added: the] availability of commercial financing for our customers and end-users; [added: and] the [removed: availability] [added: degree] of funding for our public sector [removed: customers; and unemployment rates.][added: customers, including with respect to water infrastructure investments.]

[removed: A slowdown] [added: Future slowdowns] or prolonged [removed: downturn] [added: downturns] in the global economy or our markets [removed: has in the past, and] could have [removed: in the future a] material adverse [removed: effect] [added: effects] on our business, financial condition, cash [removed: flow] [added: flows] and results of operations.

We are exposed to [added: geopolitical, regulatory,] economic, [removed: geopolitical] [added: foreign exchange] and other risks associated with our [removed: international] [added: global] sales and operations.

[added: In 2020, 47% of our total revenue was from customers within the U.S. and 53% was from customers outside the U.S.] We expect our sales from international operations and export sales to continue to be a significant portion of our revenue.

[removed: We] [added: In the year ended December 31, 2020, 19% of our total revenues were generated in emerging markets and we] have placed a particular emphasis on increasing our growth and presence in emerging markets.

Many of our manufacturing operations, employees and suppliers are located outside of the [removed: United States.][added: U.S. Our operations and sales both within the U.S. and internationally are subject, in varying degrees, to risks inherent in doing business globally, including:]

[removed: | • |] [added: -] changes in trade protection measures, including embargoes, tariffs and other trade barriers, and import and export regulations and licensing requirements; [removed: |]

[removed: | • |] [added: -] instability and uncertainties arising from the global geopolitical environment, including economic nationalism, populism, [removed: and increasing] protectionism and anti-global sentiment; [removed: |]

[removed: | • |] [added: -] changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies; [removed: |]

[removed: | • |] [added: -] unanticipated changes in other laws and regulations or [removed: in] how such provisions are interpreted or administered; [removed: |]

[removed: | • | potential] [added: -] disruptions in our global supply chain; [removed: |]

[removed: | • | possibility of] [added: -] unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy; [removed: |]

[removed: | • |] [added: -] theft, compromise or misappropriation of technology or intellectual property; [removed: |]

[removed: | • |] [added: - foreign] currency exchange rate [removed: fluctuations and] [added: fluctuations,] restrictions on [removed: currency repatriation; |][added: repatriation of earnings or payment of distributions, dividends, loans or advances to us by foreign subsidiaries;]

[removed: | • |] [added: -] disruption of operations from labor [removed: and] [added: or] political disturbances; [removed: |]

[removed: | • |] [added: -] regional safety and security considerations; [removed: |]

[removed: | • |] [added: -] the transition away from [added: benchmark reference rates based on market participant judgments, such as] LIBOR [added: and EURIBOR,] to [added: rates based on observable transactions, such as] the Secured Overnight Financing [removed: Rate, SOFR, as a benchmark reference for short-term interests; |][added: Rate;]

Our business is also subject to general risks that affect many other companies.

Risks not currently known to us, or that we currently believe are immaterial, may impact our business operations, financial condition or share price.

Risks Related to Macroeconomic and Industry Factors

Industry and economic conditions may adversely affect our markets and our customers’ operating conditions, which can in turn affect our business, results of operations and financial condition.

With sales in over 150 countries, we compete in a wide range of geographic and product markets.

The downturn in the global economy due to the impacts of COVID-19 has, and continues to have, a material adverse effect on our business and results of operations.

- shocks to the global financial system, including due to global health crises, the effects of climate change, or due to idiosyncratic events, such as a terrorist attack;

The U.K. and the EU concluded a Trade and Cooperation Agreement (“TCA”) that has been provisionally applied since January 1, 2021, pending ratification by the EU Parliament.

The TCA creates a number of risks and uncertainties for our businesses.

It provides for duties on goods traded between the U.K. and EU, including a preferential treatment provision for no duties on goods that meet certain origin criteria.

Our businesses may not be able to benefit from the preferential treatment provision given the origin of certain components used in the manufacture of our products and related certification requirements.

The TCA does not specify rules for trade in services, and as such our services are subject to the World Trade Organization’s rules until the parties to the TCA resolve this trade issue.

There is also uncertainty as to whether the EU Parliament will ratify the TCA, amend or reject it in its entirety.

In addition, the new trading relationship between the U.K. and EU has increased, and will continue to increase, our costs, including for transportation and duties on products not otherwise eligible for preferential treatment under the TCA.

We have experienced, and may continue to experience, shipping delays given the need for customs inspections and other procedures at the border, including with respect to requirements to mitigate the risks of COVID-19.

Volatility in foreign currencies and other markets may also arise as the U.K. and EU work through the TCA or other new trade arrangements.

Additionally, once the TCA is formalized, there could be other near-or long-term negative impacts.

As a result, we face continued uncertainty and risks of disruptions in our supply chain and increased costs.

The COVID-19 pandemic has adversely impacted, and continues to pose risks to, our business, results of operations and financial condition, the nature and extent of which are highly uncertain and unpredictable.

Our global operations expose us to risks associated with public health crises, including epidemics and pandemics.

The COVID-19 pandemic has had, and may continue to have, an adverse impact on our employees, customers, supply chain, operations and sales.

The global spread of the COVID-19 pandemic has, and continues to, curtail the movement of people, goods and services worldwide, including in many of the regions where we sell our products and services and conduct operations.

Government-mandated precautions to mitigate the spread of COVID-19, including travel restrictions, quarantines, stay at home or similar measures in many of the areas in which we operate, resulted in temporary production impacts at several of our facilities in 2020, curtailed, and continues to curtail, the business and operations of some of our customers and suppliers, and also impacted, and continues to impact, our ability to access our customers’ sites.

If the COVID-19 pandemic continues or worsens, including mutations of the virus, we may experience a continued decline in sales and customer orders in certain of our businesses.

The COVID-19 pandemic also has, and continues to, impact our supply chain with unpredictable disruptions, capacity constraints or delays in shipment of materials necessary to the manufacture of our products.

While we have taken reasonable measures to mitigate these impacts, as the pandemic continues, or if it worsens, our manufacturing facilities and supply chain may continue to be significantly impacted.

Accordingly, the pandemic has negatively impacted our revenue growth in certain of our businesses.

It is uncertain how materially the COVID-19 pandemic, including any mutations of the virus, the corresponding rollout, efficacy or unanticipated consequences of such vaccines, and the pace of recovery will affect our global operations and sales if these impacts persist, worsen or re-emerge throughout 2021 and beyond.

The extent and duration of these impacts on us are dependent in part on demand for our products and services, customers’ budgets, spending, willingness to allow

us access to their job sites and continuation of planned projects, continued funding for infrastructure investments, particularly water infrastructure, our suppliers’ ability to continue to supply us with parts, components and raw materials, and logistics providers' ability to continue shipment of our products and supplies.

The COVID-19 pandemic has caused significant volatility and uncertainty in the financial and capital markets.

A further disruption of global financial markets or resulting economic downturn from the COVID-19 pandemic or other global health crises may reduce our ability to incur debt or access capital, or increase our cost of capital.

There are no assurances that the credit markets or the capital markets will be available to us in the future or that the lenders participating our credit facilities will be able to provide financing in accordance with their contractual obligations.

Additionally, concerns over the economic impacts of COVID-19 have caused, and may continue to cause, volatility in our stock price.

A sustained downturn may impact our liquidity position, including our ability to continue to pay dividends, or may impact our asset values resulting in the carrying value of our goodwill or other intangible assets exceeding their fair value, which may require us to recognize an impairment to those assets.

The effects of the COVID-19 pandemic, including remote working arrangements for employees, has not to date but could in the future impact our financial reporting systems and internal control over financial reporting.

We cannot reasonably estimate the length or severity of the COVID-19 pandemic or the associated economic downturn, impacts on our markets and other impacts to our business, financial position, results of operations and cash flows.

To the extent that COVID-19 conditions improve, the duration and sustainability of such improvements will be uncertain, and continuing adverse impacts or the degree of improvement may vary by business and/or geography.

Actions we may take in response to improvements in conditions may also vary by business and/or geography, and may be made with incomplete information.

There is a risk that such actions could be premature, insufficient or incorrect and could have a material adverse impact on our business and results of operations.

We could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks.

We may not be successful in maintaining our competitive position.

Our competitors or third parties from outside our industry may develop disruptive technologies, products and services more quickly than us or that are superior to ours, may develop new or more efficient or effective methods or business models to provide technologies, products and services, or may adapt more quickly than we do to new trends, disruptive technologies or evolving customer requirements.

Failure to continue competing successfully or to win large contracts could adversely affect our business, financial condition, cash flow or results of operations.

In

Our results of operations and financial condition are subject to global economic, geopolitical and financial market conditions.

We compete around the world in various geographic and product markets.

In 2019, 49%, 24% and 20% of our total revenue was from customers located in the United States, western Europe and emerging markets, respectively.

We expect revenue from these markets to be significant for the foreseeable future.

In 2019, 51% of our total revenue was from customers outside the United States, with 20% of total revenue generated in emerging markets.

Both our international operations and sales are subject, in varying degrees, to risks inherent in doing business outside the United States.

These risks include the following:

| | |

| --- | --- |

Changes in the geopolitical or economic environments in the countries and regions in which we operate could have a material adverse effect on our financial condition, results of operations or cash flows.

For example, changes in United States policy regarding international trade, including import and export regulation and international trade agreements, could negatively impact our business.

Volatility in foreign currencies is expected to continue as the United Kingdom executes its exit from the European Union.

If the United Kingdom and the European Union cannot conclude an agreement on their future relationship before the end of the transition period (referred to as a “hard Brexit”), trade would be based on World Trade Organization rules which would likely lead to increased costs from re-imposition of tariffs on trade between the United Kingdom and European Union, increased transportation costs, shipping delays because of the need for customs inspections and procedures and shortages of certain goods.

In the case of a “hard Brexit”, our exposure to disruptions to our supply chain, increased costs, the imposition of tariffs and currency devaluation in the United Kingdom could result in a material impact to our consolidated revenue, earnings and cash flow.

Further, any payment of distributions, loans or advances to us by our foreign subsidiaries could be subject to restrictions on, or taxation of, dividends or repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate.

product price increases.

Interruptions could cause an inability to meet customer demand or contractual commitments, increase our costs, reduce our sales, and impact our business processes and activities, including our ability to timely report financial results.

Factors that may impede a successful implementation include the retention of key employees, the impact of

We may not be able to identify suitable candidates, negotiate appropriate acquisition terms, obtain financing that may be needed to consummate acquisitions, complete proposed acquisitions, successfully integrate acquired businesses into our existing operations or expand into new markets.

In addition, we cannot make assurances that any acquisition will perform as planned, be accretive to earnings, or prove to be beneficial to our operations or cash flow.

We conduct approximately 51% of our business in various locations outside the United States.

For instance, our 2019 revenue decreased by 2.4% due to unfavorable foreign currency impacts.

A failure in effective succession planning, transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.

Additionally, in December 2017, the United States enacted tax reform legislation (“Tax Act”).

The legislation implements many new U.S. domestic and international tax provisions.

Many aspects of the Tax Act have been clarified through regulations, however several aspects remain unclear and additional clarifying guidance is expected to be issued (by the Internal Revenue Service (“IRS”), the U.S. Treasury Department or via a technical correction law change), although it may not be clarified for some time.

In addition, many U.S. states have not yet updated their laws to take into account the new federal legislation.

As a result, there may be further impacts of the new law on our results of operations and financial condition.

It is possible that the Tax Act, or interpretations under it, could change and could have an adverse effect on us, and such effect could be material.

Our indebtedness may affect our business and may restrict our operational flexibility.

| • | require that a substantial portion of our cash flow from operations be used for the payment of interest on our indebtedness instead of funding working capital, capital expenditures, acquisitions or other general corporate purposes; and |

If we incur additional debt or raise equity through the issuance of preferred stock, the terms of the debt or preferred stock issued may give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation.

Additionally, we may be required to change or cease operations at one or more

Heavy flooding due to weather conditions drives increased demand for these applications.

If we do not or cannot adequately protect our intellectual property, if third parties infringe or misappropriate our intellectual property rights, or if third parties claim that we are infringing or misappropriating their intellectual property rights, we may suffer competitive injury, expend significant resources enforcing our rights or defending against such claims, or be prevented from selling products or services.

*This section of this Form 10-K generally discusses [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] items and year-to-year comparisons between [removed: 2019] [added: 2020] and [removed: 2018.][added: 2019.]

Discussions of [removed: 2017] [added: 2018] items and year-to-year comparisons between [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] 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, [removed: 2018.*][added: 2019.*]

[removed: | • |] [added: -] *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. [removed: 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. |]

[removed: | • |] [added: -] *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. [removed: 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. |]

Management reviews key performance indicators including revenue, gross margins, segment operating income and [added: operating income] margins, [added: EBITDA and EBITDA margins,] orders growth, working capital and backlog, among others.

We consider the following items [removed: to] represent [added: the] non-GAAP measures [added: we consider 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 [removed: similarly titled] [added: similarly-titled] measures reported by other [removed: companies, to be key performance indicators:][added: companies.]

[removed: | • | "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 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. [removed: |]

[removed: | • |] [added: -] "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. [removed: This approach is used for countries whose functional currency is not the U.S. dollar. |]

[removed: | • |] [added: -] "adjusted net income" and "adjusted earnings per share" defined as net income and earnings per share, respectively, adjusted to [removed: exclude, as applicable,] [added: exclude] restructuring and realignment costs, special charges, [removed: tax-related special items and gains and losses] [added: gain or loss] from [removed: the] sale of [removed: a business. A reconciliation of adjusted net income is provided below. |][added: businesses and tax-related special items, as applicable.]

| (in millions, except per share data) | | [removed: 2019] | | | | [added: 2020] | | | [removed: 2018] | | | | | | [added: 2019 | | | | | | | | | | | | | | |]

| Net income & Earnings per share | | [added: | | | |] $ | [removed: 401] [added: 254] | | $ | [removed: 2.21] [added: 1.40] | | | [added: | |] $ | [removed: 549] [added: 401] | | $ | [removed: 3.03] [added: 2.21] | | [added: | | | | | | | | |]

| Restructuring and realignment, net of tax of [removed: $19] [added: $17] and [removed: $12] [added: $19] | | [removed: 63] | | | [removed: 0.35] | [added: 60] | | | [removed: 36] [added: 0.33] | | | [removed: 0.20] | | | [added: 63 | | | 0.35 | | | | | | | | | | | |]

| Special charges, net of tax of [removed: $6] [added: $10] and [removed: $1] [added: $6] | | [removed: 172] | | | [removed: 0.95] | [added: 76] | | | [removed: 12] [added: 0.42] | | | [removed: 0.07] | | | [added: 172 | | | 0.95 | | | | | | | | | | | |]

| Tax-related special items | | [removed: (88] | | [removed: )] | [removed: (0.48] | [added: (16)] | [removed: )] | | [removed: (75] [added: (0.09)] | | [removed: )] | [removed: (0.42] | | [removed: )] | [added: (88) | | | (0.48) | | | | | | | | | | | |]

| (Gain) loss from sale of business, net of tax benefit of $0 | | [removed: (1] | | [removed: )] | [removed: (0.01] | [added: —] | [removed: )] | | [removed: —] [added: —] | | | [removed: —] | | | [added: (1) | | | (0.01) | | | | | | | | | | | |]

| Adjusted net income & Adjusted earnings per share | | [added: | | | |] $ | [removed: 547] [added: 374] | | $ | [removed: 3.02] [added: 2.06] | | | [added: | |] $ | [removed: 522] [added: 547] | | $ | [removed: 2.88] [added: 3.02] | | [added: | | | | | | | | |]

[removed: | ▪ | "adjusted] [added: ▪"adjusted] operating expenses" and "adjusted gross profit" defined as operating expenses and gross profit, respectively, adjusted to exclude restructuring and realignment costs and special charges. [removed: |]

[removed: | ▪ | "adjusted] [added: ▪"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. [removed: |]

[removed: | ▪ | “realignment] [added: ▪“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. [removed: |]

[removed: | ▪ | “special] [added: ▪“special] charges" defined as costs incurred by the Company, such as acquisition and integration related [removed: costs not included in "Sensus acquisition related costs",] [added: costs,] non-cash impairment charges and [removed: other special] [added: both operating and] non-operating [removed: items, such as] [added: adjustments for] pension [removed: adjustments. |][added: costs.]

[removed: | ▪ | "tax-related] [added: ▪"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. [removed: |]

| (in millions) | | [removed: 2019] | | | | [removed: 2018] [added: 2020] | | | [added: | | | 2019 | | | | | | | | |]

| Net cash provided by operating activities | | [added: | | | |] $ | [removed: 839] [added: 824] | | | [added: | |] $ | [removed: 586] [added: 839] | | [added: | | | | | |]

| Capital expenditures | | [removed: (226] | | [removed: )] | | [removed: (237] [added: (183)] | | [removed: )] | [added: | | | (226) | | | | | | | | |]

| Free cash flow | | [added: | | | |] $ | [removed: 613] [added: 641] | | | [added: | |] $ | [removed: 349] [added: 613] | | [added: | | | | | |]

| Net cash used in investing activities | | [added: | | | |] $ | [removed: (231] [added: (169)] | [removed: )] | | [added: | |] $ | [removed: (643] [added: (231)] | [removed: )] | [added: | | | | | |]

| Net cash [removed: used] [added: provided (used)] by financing activities | | [added: | | | |] $ | [removed: (177] [added: 473] | [removed: )] | | [added: | |] $ | [removed: (40] [added: (177)] | [removed: )] | [added: | | | | | |]

[removed: | ▪ | “EBITDA”] [added: ▪“EBITDA”] defined as earnings before interest, taxes, depreciation and amortization [removed: expense and "Adjusted] [added: 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, [added: special charges and] gain or loss from sale of [removed: businesses] [added: businesses,] and [removed: special charges. |][added: "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue.]

| [removed: Net Income] [added: Net income] | | [added: | | | |] $ | [removed: 401] [added: 254] | | | [added: | |] $ | [removed: 549] [added: 401] | | [added: | | | | | | | | | (36.7) | | % | | | | | | |]

| Income tax expense | | [removed: 15] | | | | [removed: 36] [added: 31] | | | [added: | | | 15 | | | | | | | | |]

| Interest [removed: expense (Income),] [added: expense,] net | | [removed: 62] | | | | [removed: 78] [added: 70] | | | [added: | | | 62 | | | | | | | | |]

| Depreciation | | [added: | | | |] 117 | | | | [added: | |] 117 | | | [added: | | | | | |]

| Amortization | | [removed: 140] | | | | [removed: 144] [added: 134] | | | [added: | | | 140 | | | | | | | | |]

| Share-based compensation | | [removed: 29] | | | | [removed: 30] [added: 26] | | | [added: | | | 29 | | | | | | | | |]

| Restructuring and realignment | | [removed: 82] | | | | [removed: 47] [added: 77] | | | [added: | | | 82 | | | | | | | | |]

| Special charges | | [removed: 178] | | | | [removed: 12] [added: 86] | | | [added: | | | 178 | | | | | | | | |]

| (Gain) loss from sale of business | | [removed: (1] | | [removed: )] | | [removed: —] [added: —] | | | [added: | | | (1) | | | | | | | | |]

| Adjusted EBITDA | | [added: | | | |] $ | [removed: 1,023] [added: 795] | | | [removed: $] | [removed: 1,013] | [added: $1,023] | [added: | | | | | | | |]

On a constant currency basis, revenue [removed: increased] [added: decreased] by [removed: $166 million, or 3.2%, primarily consisting of organic revenue growth of $188] [added: $366] million, or [removed: 3.6%,] [added: 7.0%,] driven by [removed: growth in] [added: an organic decline across] all end markets and across all [removed: segments.][added: segments during the year.]

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.

In addition, our pumps, heat exchangers and controls provide cooling to power plants and manufacturing facilities, circulation for food and beverage processing, as well as boosting systems for agricultural irrigation.

In the Applied Water segment, we provide the majority of our sales through long-standing relationships with many of the leading independent distributors in the markets we serve, with the remainder going directly to customers.

- *Measurement & Control Solutions* primarily serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas.

We also provide analytical instrumentation used to measure and analyze water quality, flow and level in clean water, wastewater, surface water and coastal environments.

Additionally, we offer software and services including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management and pressure monitoring solutions.

In the Measurement & Control Solutions segment, we generate our sales through a combination of long-standing relationships with leading distributors and dedicated channel partners as well as direct sales depending on the regional availability of distribution channels and the type of product.

COVID-19 Pandemic

The global spread of COVID-19 has curtailed the movement of people, goods and services worldwide, including in many of the regions where we sell our products and services and conduct operations.

This section summarizes the most significant impacts related to the COVID-19 pandemic that we have experienced to date, and we have included additional details as applicable throughout other sections of this Annual Report.

Many of these impacts did not begin to be felt broadly across our businesses until the latter part of the first quarter of 2020 and have continued through the remainder of the year.

As the COVID-19 pandemic began to unfold in the first quarter of 2020, Xylem deployed a COVID-19 Response Team, responsible for Xylem's Pandemic Plan, which is designed to aid in prevention, preparedness, response and recovery at our sites and across the Company.

Depending on the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences, we anticipate that it will become more difficult to distinguish specific aspects of our operational and financial performance that are most directly related to COVID-19 from those that are more broadly influenced by ongoing macroeconomic, market and industry dynamics that are, to varying degrees, related to the COVID-19 pandemic and its consequences.

Public health officials have recommended, or governments have mandated, precautions to mitigate the spread of COVID-19, including stay at home or similar measures, such as travel restrictions, for periods of time in many of the areas in which we operate.

Operationally, a number of our production facilities across the globe experienced reduced production levels due to such measures to varying degrees during the year, however our current overall operating capacity approximates normal levels globally.

In order to maintain a safe work environment, our production facilities continue to spread operations over multiple shifts and implement other protective measures such as testing, temperature screening and social distancing, while maintaining operational capabilities.

The COVID-19 pandemic is also adversely affecting, and is expected to continue to adversely affect, our operations, supply chains and businesses.

We expect to continue experiencing unpredictable interruptions with our external suppliers into 2021 that could lead to increased logistic costs.

We have enhanced our supplier pulsing and redundancy to help mitigate these challenges and do not expect these interruptions to result in a material impact to our business.

Additionally, we have in the past and may continue to take measures with respect to buffer stock to minimize freight and logistics delays.

If these interruptions are sustained, or additional interruptions occur, they could have a negative impact on our results of operations.

To date, the most significant operational impacts we have experienced are volume reductions ranging across all segments and major geographic regions.

Although regions such as Europe and China have started to recover and experienced organic revenue growth during the fourth quarter of 2020, recovery in regions such as the U.S., the Middle East and India continues to lag.

Future demand for our products and services is uncertain as the COVID-19 pandemic has also had an adverse impact on many of the customers we serve.

As such, we have, and may continue to, experience decreased or delayed demand for our products and services.

At the end of 2020, total backlog increased 17.9% as compared to December 31, 2019.

In many cases, Xylem’s products and services are considered "essential services" under various governmental mandates, and as a result we did not experience significant issues in our ability to distribute products or services, aside from customer-driven project delays, inability to access or travel to customer sites and shipping delays due to stay at home measures.

However, because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, the pandemic’s ongoing and future impacts on our business, financial condition, results of operations, and stock price remain uncertain and difficult to predict, and we expect that our results may continue to be adversely impacted beyond the year ending December 31, 2020.

In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, management committed to restructuring activities across our businesses and functions globally during the second quarter of 2020.

These initiatives are designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers.

In light of the uncertainty created by the COVID-19 pandemic, we also proactively took further cost reduction actions in 2020, which included a temporary 20% reduction in the base salary of the Company's Chief Executive Officer ("CEO") and all CEO direct reports, and a temporary 20% reduction in annual cash retainer fees payable to our Board of Directors effective from June 1, 2020 through December 31, 2020.

Additionally, in 2020 we committed to reduced capital expenditure and discretionary operating spending.

We anticipate that our capital expenditure spending will ramp up to more normal levels throughout 2021 as we see improvements in our markets.

Since the pandemic started, Xylem has taken measures to protect the health and safety of our employees, work with our customers to minimize potential disruptions and positively impact our communities.

In the first quarter of

2020, we implemented a support pay program for employees impacted by COVID-19, and an essential services premium pay program for the benefit of employees whose roles are classified as an “essential service” and, as such, are required to work either onsite at a Xylem facility or in the field supporting customers during periods of mandated stay at home or similar measures.

These programs will remain in place through the first quarter of 2021 and continue to be evaluated for continuation as necessary going forward.

Xylem Watermark, our corporate social responsibility program, is also supporting our communities in addressing the challenges posed by this global pandemic through its partnership with Americares and UNICEF, as well as the expansion of the Partner Community Grants program and matching donations program for employees and partners, and other philanthropic commitments.

| | |

| --- | --- |

| • | *Measurement & Control Solutions* primarily serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure and analyze water quality, flow and level in clean water, wastewater, surface water and coastal environments. Additionally, we offer software and services including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management and pressure monitoring solutions. We also offer smart lighting solutions that improve efficiency and public safety efforts across communities. In the Measurement & Control Solutions segment, we generate our sales through a combination of long-standing relationships with leading distributors and dedicated channel partners as well as direct sales depending on the regional availability of distribution channels and the type of product. |

| | | | | | | | | | | | | | | |

| ▪ | "Sensus acquisition related costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include integration costs, acquisition costs, costs related to the recognition of the backlog intangible asset amortization recorded in purchase accounting. |

| ▪ | "free cash flow" defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. 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. |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Cash paid for Sensus acquisition related costs | | — | | | | 1 | | |

| Free cash flow, excluding Sensus acquisition related costs | | $ | 613 | | | $ | 350 | |

| EBITDA | | $ | 735 | | | $ | 924 | |

Xylem reported revenue of $5,249 million for 2019, an increase of $42 million, or 0.8%, from $5,207 million reported in 2018.

A net decrease in revenue related to acquisition and divestiture impacts of $22 million partially offset the organic revenue growth during the year.

The slight increase in adjusted operating margin was primarily due to cost reductions from our global procurement and productivity initiatives, including restructuring savings, improved price realization and favorable volume impacts.

These impacts were partially offset by cost inflation, unfavorable mix, increased spending on strategic investments and increased cost of quality.

| • | Net income attributable to Xylem of $401 million, or $2.21 per diluted share ($547 million or $3.02 per diluted share on an adjusted basis, up 4.8% from 2018) |

| • | Cash from operating activities of $839 million, and free cash flow, excluding Sensus acquisition related costs, of $613 million up 75% from 2018 |

| • | Orders of $5,339 million, down 1.8% from $5,437 million in 2018 (up 0.9% on an organic basis) |

| • | Utilities increased approximately 6% for 2019 on an organic basis driven by strength in the United States, the emerging markets and western Europe, partially offset by weakness in Canada. For 2020, we expect organic growth in the low-single-digit range driven by healthy water and wastewater spending in the United States, smart meter and infrastructure analytics growth opportunities and steady low-single-digit growth in Europe. We also anticipate a healthy infrastructure investment focus in the emerging markets will continue in China, India and Africa. |

| • | Industrial increased by approximately 1% for 2019 on an organic basis driven by strength in the United States, Europe and the Middle East and Africa, partially offset by weakness in Latin America and Canada. For 2020, we expect organic revenue to remain relatively flat driven by soft growth within the North America Dewatering business during the first half of the year, as oil and gas markets continue to be soft. We anticipate mixed market conditions outside of the United States with modest strength in Asia Pacific offset by softness in the Middle East due to geopolitical and economic uncertainty. We anticipate that Europe will remain relatively flat during the year. |

| • | In the commercial markets, organic growth was approximately 3% for 2019 driven by strength in the emerging markets and North America, partially offset by weakness in western Europe. For 2020, we expect organic growth in the low-single-digit range as we anticipate that soft overall market conditions will recover during the second half of the year driven by continued strength in the United States and solid market conditions in Europe. The emerging markets will also continue to drive organic growth, led by initiatives in the China and India building markets. |

| • | In residential markets, organic growth was approximately 2% in 2019 driven by strength in the United States and Asia Pacific, partially offset by weakness in western Europe and the Middle East and Africa. For 2020, we expect low-single-digit growth primarily driven by the United States housing market and a strong outlook in Europe. We also anticipate modest growth opportunities for a second water supply in China and other countries within Asia. |

The priority of accelerating profitable growth encompasses our initiatives to drive commercial leadership, grow in emerging markets and strengthen innovation and technology through creation of new centers of excellence, a streamlined approach to product development and strategic acquisitions.

The priority of driving continuous improvement is an area where we will continue to work to create new opportunities to unlock savings by eliminating waste and increasing efficiencies, which is supported by efforts to expand and further deepen our talent pool.

We plan to continue to deploy capital in smart, disciplined ways to develop and acquire solutions to address our customers’ challenges.

Finally, we continue to work to improve cash performance and generate capital to return to our shareholders.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Revenue | | $ | 5,249 | | | $ | 5,207 | | | 0.8 | % |

| Net income | | $ | 401 | | | $ | 549 | | | (27.0 | )% |

Revenue generated for 2019 was $5,249 million, an increase of $42 million, or 0.8%, compared to $5,207 million in 2018.

This increase in revenue at constant currency was primarily driven by an increase in organic revenue of $188 million reflecting strong organic growth in the United States and the emerging markets, with the exception of Latin America, partially offset by declines in Canada and western Europe.

A net decrease in revenue related to acquisition and divestiture impacts of $22 million partially offset organic growth during the year.

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 2018 Revenue | $ | 2,176 | | | | | $ | 1,534 | | | | | $ | 1,497 | | | | | $ | 5,207 | | | |

| Organic Growth | 71 | | | 3.3 | % | | 36 | | | 2.3 | % | | 81 | | | 5.4 | % | | 188 | | | 3.6 | % |

| Constant Currency | 71 | | | 3.3 | % | | 36 | | | 2.3 | % | | 59 | | | 3.9 | % | | 166 | | | 3.2 | % |

| Foreign currency translation (a) | (70 | | ) | (3.2 | )% | | (29 | | ) | (1.9 | )% | | (25 | | ) | (1.7 | )% | | (124 | | ) | (2.4 | )% |

| Total change in revenue | 1 | | | — | % | | 7 | | | 0.5 | % | | 34 | | | 2.3 | % | | 42 | | | 0.8 | % |

Similarly, we are exposed to market risk as [removed: the] [added: a] result of changes in interest rates which may affect the cost of our financing.

We conduct approximately [removed: 51%] [added: 53%] of our business in various locations outside the [removed: United States.][added: U.S.]

These risks are also mitigated by natural hedges including the presence of manufacturing facilities outside the [removed: United States,] [added: U.S.,] global sourcing and other spending which occurs in foreign countries.

Our principal foreign currency transaction exposures primarily relate to the Euro, Swedish Krona, Polish Zloty, Canadian Dollar, British [removed: Pound,] [added: Pound] and Australian Dollar.

The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, Chinese Yuan, British Pound, Canadian Dollar, [removed: Swedish Krona and] Australian [removed: Dollar.][added: Dollar and Swedish Krona.]

We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when it is [removed: cost effective] [added: cost-effective] to do so, though we continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities and reassess whether there is a need to repatriate funds held internationally to support our U.S. operations.

We also hedge our investment in certain foreign subsidiaries via the use of [removed: cross currency] [added: cross-currency] swaps and the designation of our 2.25% Senior Notes of €500 million aggregate principal amount due March 2023 as a net investment hedge.

As of December 31, [removed: 2019,] [added: 2020,] our long-term debt portfolio is primarily comprised of [removed: four] [added: five] series of fixed-rate senior notes that total [removed: $2.1] [added: approximately $2.5] billion.

Effective July 1, 2018, Argentina was determined to be a highly inflationary economy, and as such we evaluated the impact of revaluing our monetary assets and liabilities under the applicable guidance and do not expect it to have a material impact.

[removed: Xylem, with 2019 revenues of $5.2 billion and approximately 16,300 employees,] [added: Xylem] is a leading global water technology [removed: company.][added: company with 2020 revenues of $4.9 billion and approximately 16,700 employees worldwide, of which approximately 1,100 were temporary or fixed-term employees or interns.]

We design, manufacture and service highly engineered products and solutions [removed: ranging] across a wide variety of critical applications primarily in the water sector, but also in [removed: electric and gas.][added: energy.]

Our broad portfolio of products, services and solutions addresses customer needs across the water cycle, from the delivery, measurement and use of drinking [removed: water] [added: water,] to the collection, testing, analysis and treatment of [removed: wastewater] [added: wastewater,] to the return of water to the environment.

We have differentiated market positions in core application areas including transport, treatment, [added: dewatering,] test, smart metering, infrastructure assessment services, digital solutions, [removed: condition assessment and leak detection,] commercial and residential building services and industrial [removed: processing.][added: processes.]

[removed: | • | Market leading] [added: - Market-leading] brands, some of which have been in use for more than 100 years [removed: |]

[removed: | • | Far-reaching global] [added: - Global] distribution networks consisting of direct sales forces and independent channel partners serving a diverse customer base in approximately 150 countries [removed: |]

[removed: | • |] [added: -] A substantial global installed base that provides for steady recurring revenue [removed: |]

[removed: | • |] [added: -] 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 [removed: |]

In the [removed: United States,] [added: 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.

We estimate [removed: the] [added: our] total [removed: addressable] [added: served] market size to be approximately [removed: $560] [added: $60] billion.

We compete in areas that are pivotal to improving [removed: water affordability] [added: "water affordability"] and [removed: resilience] [added: "resilience",] while reducing the impact of [removed: water scarcity.][added: "water scarcity".]

[removed: Water affordability] [added: "Water affordability"] refers to the more efficient delivery, use and treatment of clean water and wastewater.

[removed: Resilience] [added: "Resilience"] refers to the management of water-related [removed: risks] [added: risks, including climate change mitigation,] and the resilience of water infrastructure.

[removed: Water scarcity] [added: "Water scarcity"] refers to the management of limited supplies of water due to climate change, overpopulation and pollution.

Our customers often face all three of these challenges, ranging from inefficient and aging water distribution networks and energy-intensive or unreliable [added: water and] wastewater management systems (which require improvements in [removed: “water affordability”);] [added: water affordability);] droughts and pollution which limit the amount of water readily available (causing [removed: "water scarcity”);] [added: water scarcity);] or exposure to natural disasters such as floods or droughts (which require improvements in [removed: “resilience”).][added: resilience).]

Additionally, we also provide solutions to enhance communications and efficiency, improve safety and conserve resources to customers in the [removed: water, electric, gas,] [added: water] and [removed: lighting] [added: energy] sectors.

We estimate our [removed: total] served market size [added: in this sector] to be approximately [removed: $61] [added: $20] billion.

The water industry value chain includes Equipment, Technology and Services companies, like Xylem, [removed: which] [added: 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 [removed: or (EPC)] [added: ("EPC")] firms and third party contractors, [removed: which] [added: that] work with utilities to design and build water and wastewater infrastructure networks, as depicted below.

[removed: ][added: ]

The table and descriptions below provide an overview of our business [removed: segments.][added: segments:]

| | | [removed: Market Applications] | | [removed: 2019 Revenue (in] [added: | | Market Applications | | | | | | 2020 Revenue (in] millions) | | | | [removed: % Revenue] | | [added: % Revenue] | [added: | | | | |] Major Products | | [added: | | | |] Primary Brands | [added: | |]

| [removed: Water Infrastructure] [added: Water Infrastructure] | | [added: | | | |] Transport | | [added: | | | |] $ | [removed: 1,780] [added: 1,679] | | | [removed: 82] | [added: | 81 | |] % | | [added: | |] • Water and wastewater pumps • Filtration, disinfection and biological treatment equipment • Mobile dewatering equipment | | [added: | | | |] • Flygt • Godwin • Leopold • Sanitaire • Wedeco | [added: | |]

| [removed: Applied Water] [added: Applied Water] | | [added: | | | |] Building Services [added: (a)] | | [added: | | | |] $ | [removed: 848] [added: 804] | | | [removed: 55] | [added: | 56 | |] % | | [added: | |] • Pumps • Valves • Heat exchangers • Controls • Dispensing equipment systems | | [added: | | | |] • A-C Fire Pump • Bell & Gossett • Flojet • Goulds Water Technology • Jabsco • Lowara • Standard Xchange | [added: | |]

| | [added: | |] Industrial Water | | [removed: 693] | | | | [removed: 45] [added: 630] | [added: | | | | | 44 | |] % | | | | | | [added: | | | | | | | | | |]

| Measurement & Control Solutions | | [added: | | | |] Water | | [added: | | | |] $ | [removed: 768] [added: 689] | | | [removed: 50] | [added: | 51 | |] % | | [added: | |] • Smart meters • Networked communication devices • Data analytics • Test equipment • Controls • Sensor devices • Software & managed services • Critical infrastructure services | | [added: | | | |] • [removed: EmNet] [added: BLU-X] • Pure • Sensus • Smith Blair • [removed: Visenti •] WTW • YSI | [added: | |]

| | | [added: | | | |] Software as a [removed: Service/Other] [added: Service] | | [removed: 99] | | | | [added: 92 | | | | | |] 7 | [added: |] % | | | | | [added: | | | | | | | |]

[added: The Transport application also includes sales and rental of] specialty dewatering pumps and related equipment and services, which provide the safe removal or draining of groundwater and surface water from construction sites or other industrial sites and bypass pumping for the repair of aging utility infrastructure, as well as emergency water transport and removal during severe weather events.

Both utility and industrial facility customers increasingly require our teams’ global but locally [removed: proficient expertise to use our equipment in their specific applications.]

Several trends are increasing demand for this application expertise: (i) the increase in both the type and amount of contaminants found in the water supply, (ii) increasing environmental regulations, (iii) the need to increase system efficiencies [added: and resilience] to optimize energy and other operational costs, (iv) the retirement of an aging water industry workforce that has not been systematically renewed at utilities and other end-user customers, and (v) the build-out of water infrastructure in the emerging markets.

We estimate our served market size in this sector to be approximately [removed: $18] [added: $20] billion.

Given the highly fragmented nature of the water industry, the Water Infrastructure segment competes with a large number of [removed: businesses.][added: 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 [removed: technologies,] [added: technologies and business models,] application expertise, brand reputation, energy efficiency, product [added: security, product] life-cycle cost, timeliness of delivery, proximity of service centers, effectiveness of our distribution [removed: channels] [added: channels, price] and [removed: price.][added: customers' experience in doing business with us.]

Applied Water encompasses the uses of water in two [removed: primarily] [added: primary] applications: Building Services and Industrial Water.

These applications serve a diverse set of [removed: end markets including: residential, commercial] [added: customers in the commercial, residential] and [removed: industrial.][added: industrial end markets.]

The industrial market includes OEMs, exploration and production firms, and developers and managers of industrial facilities, such as electrical power generators, chemical manufacturers, machine shops, clothing manufacturers, [added: marine,] food and beverage companies and car washes.

We estimate our served market size in this sector to be approximately [removed: $19] [added: $20] billion.

Competition in the Applied Water segment focuses on brand [removed: equity,] [added: reputation,] application expertise, product delivery, performance and energy efficiency, quality and [added: reliability, and] price.

[removed: 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 [removed: is] [added: are] automation, data management and decision support.

- A strong history of bringing innovative products, solutions, and business models to customers

- A demonstrated commitment to corporate governance, social and environmental sustainability and delivering a positive impact to our customers, communities and employees

- A dedicated, qualified and technologically advanced group of experienced employees focused on safely satisfying our customers' requirements in the water and energy spaces

Our vision is to create a world in which water issues are no longer a constraint to health, prosperity and sustainable development.

We estimate the total addressable market size, excluding operational expenditures related to labor, energy, and chemicals, to be approximately $600 billion.

Our strategy is to help customers solve the world's greatest water challenges with innovative products, services and solutions to deliver sustainable economic, social and environmental benefits.

The following strategic pillars guide where and how we focus our efforts and resources to implement this strategy:

- Drive Customer Success. We seek to partner with customers to meet their stakeholders’ needs through our broad portfolio of unmatched products, services and solutions.

We are focused on several key areas, beginning with making it easier for customers to do business with Xylem and access the full range of our capabilities.

As part of this, we implement a digital platform to discover, select, get price quotes, and purchase our offerings.

Second, we seek to lead the way as digital technologies transform our sector by further integrating our digital solution portfolio and broadening our solution sales, digital literacy and marketing capabilities company-wide.

Third, we seek to help customers get the most out of their systems by providing world-class services that ensure uptime, efficiency and resilience.

We partner with them by providing powerful, integrated lifecycle services and solutions.

- Grow in the Emerging Markets. We continue to invest in localizing our capabilities in the emerging markets.

We will continue building innovation, product management and engineering teams in these regions, expanding our market coverage in key growth markets such as China, India and Africa.

We seek to address the base of the pyramid population by serving water and sanitation needs with new solutions and business models.

- Strengthen Innovation and Technology. We seek to create new customer offerings that help them solve water challenges more powerfully than ever before, while also providing our company with rapid growth

opportunities.

We will focus on building and enabling infrastructure for digital growth by making our hardware, networks and software applications interoperable and creating a common software experience.

This will further strengthen our core product offerings, and deliver strategic, sustainable innovations that help us tap into new markets through advanced technology and new business models.

- Build a Culture of Continuous Improvement. We seek to continue embedding a continuous improvement mindset throughout the company, and will continue to improve our efficiency, simplify our business and manage costs to support continued growth.

We are committed to eliminating business complexity by streamlining internal bureaucracy and expanding standard business platforms and processes to help people do their jobs.

This will result in freeing up time to ensure that we focus on work that creates customer value.

Other focus areas include removing unnecessary costs from our end-to-end value chain to free up resources for growth; and building resilience and sustainability into our supply chain to protect our ability to serve customers.

- Cultivate Leadership and Talent Development. We continue to foster an empowering, mission-driven, diverse and inclusive culture.

We will continue to build leadership succession depth and breadth in keeping with our commitment to developing the next generation of leaders.

We will also align our incentives, including share-based compensation, and organizational structure to our strategy, favoring approaches to drive 'one company' skills, 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.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | Treatment | | | | | | 400 | | | | | | 19 | | % | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | $ | 2,079 | | | | | 100 | | % | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | $ | 1,434 | | | | | 100 | | % | | | | | | | | | | | | |

| | |

| --- | --- |

Key pillars of our long-term strategy include: (1) accelerate profitable growth; (2) increase profitability by driving continuous improvement initiatives; (3) develop leadership and talent; (4) focus on execution and accountability; and (5) create social value in everything we do.

Company History and Certain Relationships

On October 31, 2011, ITT Corporation ("ITT") completed the Spin-off (the “Spin-off”) of Xylem, formerly ITT’s water equipment and services businesses.

The Spin-off was completed pursuant to a Distribution Agreement, dated as of October 25, 2011 (the “Distribution Agreement”), among ITT (now ITT LLC), Exelis Inc., acquired by Harris Inc. on May 29, 2015 (“Exelis”), and Xylem.

Our strategy is to enhance shareholder value by providing distinctive solutions for our customers' most important water scarcity, affordability and resilience challenges, enabling us to grow revenue, organically and through strategic acquisitions, as we streamline our cost structure.

Key elements of our strategy are summarized below:

| • | Accelerate Profitable Growth. To accelerate growth, we continue to focus on several priorities: |

| • | Emerging Markets *\-* We seek to accelerate our growth, particularly in priority emerging markets through increased focus on product localization and channel development. |

| • | Innovation & Technology \- We seek to enhance our innovation efforts with increased focus on smart, digitally enabled technologies and innovation that can significantly improve customers’ productivity, quality and resilience. |

| • | Commercial Leadership \- We are strengthening our capabilities by simplifying and modernizing our commercial processes and supporting information technology systems. |

| • | Mergers and Acquisitions - We continue to evaluate and, where appropriate, act upon attractive acquisition candidates to accelerate our growth, including into adjacent markets. |

| • | Drive Continuous Improvement. We seek to embed continuous improvement into our culture and simplify our organization to make the Company more agile, more profitable and create room to reinvest in growth. To accomplish this, we will continue to strengthen our lean six sigma and global procurement capabilities, |

while also continuing to optimize our cost structure through business simplification, which aims to eliminate structural, process and product complexity.

| • | Develop Leadership and Talent. We continue to invest in attracting, developing and retaining world-class talent with a focus on leadership and talent development programs. We will continue to align individual performance with the objectives of the Company, its shareholders and its stakeholders. |

| • | Focus on Execution and Accountability. We seek to ensure the impact of these strategic focus areas by holding our people accountable and streamlining our performance management and goal deployment systems. |

| • | Create social value in everything we do. We seek to have a positive impact on communities through the combination of sustainable practices, corporate social responsibility and employee, customer, and stakeholder engagement. |

| | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Treatment | | 397 | | | | 18 | % | | | | | |

| | | | | $ | 2,177 | | | 100 | % | | | | |

| | | | | $ | 1,541 | | | 100 | % | | | | |

| | Energy | | 337 | | | | 22 | % | | | | | |

| | Test | | 327 | | | | 21 | % | | | | | |

| | | | | $ | 1,531 | | | 100 | % | | | | |

The Transport application also includes sales and rental of

We also offer smart lighting solutions that improve efficiency and public safety efforts across communities.

We estimate our served market size in this sector to be approximately $24 billion.

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

Revenue derived from emerging markets comprised approximately 20% of our revenue in each of the last three years.

As

Environmental Matters and Regulation

Employees

As of December 31, 2019, Xylem had approximately 16,300 employees worldwide.

From time to [removed: time] [added: 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 [removed: environmental matters,] [added: matters including environmental,] tax, intellectual [removed: property matters,] [added: property,] acquisitions or divestitures, product [removed: liability and] [added: liability, property damage,] personal [removed: injury claims,] [added: injury,] privacy, employment, labor and [removed: pension matters,] [added: pension,] government contract issues and commercial or contractual disputes.

[removed: FORM 10-K][added: FORM 10-K]

| ☑ | | [added: | | | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF [removed: THE SECURITIES] [added: THE SECURITIES] EXCHANGE ACT OF 1934 | | | | [added: | | | | | | | |]

| | | [added: | | | |] For the fiscal year ended | [removed: 12/31/2019] | | [added: December 31, 2020] | [added: | | | | | | | |]

| ☐ | | [added: | | | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF [removed: THE SECURITIES] [added: THE SECURITIES] EXCHANGE ACT OF 1934 | | | | [added: | | | | | | | |]

Commission file [removed: number: 1-35229][added: number: 1-35229]

| Indiana | | [added: | | | |] 45-2080495 | [added: | |]

| *(State or other jurisdiction of incorporation [removed: or* *organization)*] [added: or organization)*] | | [added: | | | |] *(I.R.S. Employer Identification No.)* | [added: | |]

1 International [removed: Drive, Rye Brook, NY 10573][added: Drive, Rye Brook, NY 10573]

[removed: (914) 323-5700][added: (914) 323-5700]

| Securities registered pursuant to Section 12(b) of the Act: | | | [added: | | | | | |]

| Title of each class | [added: | |] Trading Symbol(s) | [added: | |] Name of each exchange on which registered | [added: | |]

| Common Stock, par value $0.01 per share | [added: | |] XYL | [added: | |] New York Stock Exchange | [added: | |]

| 2.250% Senior Notes due 2023 | [added: | |] XYL23 | [added: | |] New York Stock Exchange | [added: | |]

| Securities registered pursuant to Section 12(g) of the Act: None | | | [added: | | | | | |]

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 [removed: and post] such files).

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant as of June 30, [removed: 2019] [added: 2020] was approximately [removed: $14.0] [added: $11.6] billion.

As of February [removed: 21, 2020,] [added: 19, 2021,] there were [removed: 180,222,582] [added: 180,358,493] outstanding shares of the registrant’s common stock, par value $0.01 per share.

Portions of the registrant’s definitive proxy statement for its [removed: 2020] [added: 2021] Annual Meeting of Shareowners, to be held in May [removed: 2020,] [added: 2021,] are incorporated by reference into Part II and Part III of this Report.

For the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2019][added: 2020]

| ITEM | | [added: | | | |] PAGE | [added: | |]

| PART I | | | [added: | | | | | |]

| 1A. | [added: | |] [Risk [removed: Factors](#sCA153EAA26FC545EAB8D824B0F363F19)] [added: Factors](#i3a126c51d5544731b4157a83b3bf6191_16)] | [removed: [12](#sCA153EAA26FC545EAB8D824B0F363F19)] | [added: | [13](#i3a126c51d5544731b4157a83b3bf6191_16) | | |]

| 1B. | [added: | |] [Unresolved Staff [removed: Comments](#s63158A2DBB3E5E29A53AC693BD16623B)] [added: Comments](#i3a126c51d5544731b4157a83b3bf6191_19)] | [removed: [22](#s63158A2DBB3E5E29A53AC693BD16623B)] | [added: | [24](#i3a126c51d5544731b4157a83b3bf6191_19) | | |]

| 3 | [added: | |] [Legal [removed: Proceedings](#s01D79B5A126B56D39EDCF2A8323FE00B)] [added: Proceedings](#i3a126c51d5544731b4157a83b3bf6191_25)] | [removed: [23](#s01D79B5A126B56D39EDCF2A8323FE00B)] | [added: | [25](#i3a126c51d5544731b4157a83b3bf6191_25) | | |]

| 4 | [added: | |] [Mine Safety [removed: Disclosures](#s79F52A0C576B5D3D8B9194C482CEF191)] [added: Disclosures](#i3a126c51d5544731b4157a83b3bf6191_28)] | [removed: [24](#s79F52A0C576B5D3D8B9194C482CEF191)] | [added: | [26](#i3a126c51d5544731b4157a83b3bf6191_28) | | |]

| * | [added: | |] [Information about our Executive [removed: Officers](#s6311EA77171A5BC1BCFAC7956A557948)] [added: Officers](#i3a126c51d5544731b4157a83b3bf6191_31)] | [removed: [24](#s6311EA77171A5BC1BCFAC7956A557948)] | [added: | [26](#i3a126c51d5544731b4157a83b3bf6191_31) | | |]

| | [added: | |] [Board of [removed: Directors](#sA1EF338F501D5A7E84E30A8334198A0A)] [added: Directors](#i3a126c51d5544731b4157a83b3bf6191_34)] | [removed: [25](#sA1EF338F501D5A7E84E30A8334198A0A)] | [added: | [27](#i3a126c51d5544731b4157a83b3bf6191_34) | | |]

| PART II | | | [added: | | | | | |]

| 5 | [added: | |] [Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s2E767856979B55179D9091DAE9FCC516)] [added: Securities](#i3a126c51d5544731b4157a83b3bf6191_40)] | [removed: [26](#s2E767856979B55179D9091DAE9FCC516)] | [added: | [28](#i3a126c51d5544731b4157a83b3bf6191_40) | | |]

| 6 | [added: | |] [Selected Financial [removed: Data](#s577C3D706D0A5E93BB59F449B44FB391)] [added: Data](#i3a126c51d5544731b4157a83b3bf6191_43)] | [removed: [28](#s577C3D706D0A5E93BB59F449B44FB391)] | [added: | [30](#i3a126c51d5544731b4157a83b3bf6191_43) | | |]

| 7 | [added: | |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s024EC71BE09A53EABC67DD971477F7FC)] [added: Operations](#i3a126c51d5544731b4157a83b3bf6191_46)] | [removed: [29](#s024EC71BE09A53EABC67DD971477F7FC)] | [added: | [31](#i3a126c51d5544731b4157a83b3bf6191_46) | | |]

| 7A. | [added: | |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sA5C3C875342959E3B710A84949789FE0)] [added: Risk](#i3a126c51d5544731b4157a83b3bf6191_58)] | [removed: [48](#sA5C3C875342959E3B710A84949789FE0)] | [added: | [52](#i3a126c51d5544731b4157a83b3bf6191_58) | | |]

| 8 | [added: | |] [Financial Statements and Supplementary [removed: Data](#s274A1FB783535CD6ACD7D8CA7828283C)] [added: Data](#i3a126c51d5544731b4157a83b3bf6191_61)] | [removed: [49](#s274A1FB783535CD6ACD7D8CA7828283C)] | [added: | [53](#i3a126c51d5544731b4157a83b3bf6191_61) | | |]

| 9 | [added: | |] [Changes In and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#s6D3EAC3658415BD28F74DA5DB9E3CC87)] [added: Disclosure](#i3a126c51d5544731b4157a83b3bf6191_181)] | [removed: [104](#s6D3EAC3658415BD28F74DA5DB9E3CC87)] | [added: | [105](#i3a126c51d5544731b4157a83b3bf6191_181) | | |]

| 9A. | [added: | |] [Controls and [removed: Procedures](#sC77430D646B55A62B9A5BF9F20DC5347)] [added: Procedures](#i3a126c51d5544731b4157a83b3bf6191_184)] | [removed: [104](#sC77430D646B55A62B9A5BF9F20DC5347)] | [added: | [106](#i3a126c51d5544731b4157a83b3bf6191_184) | | |]

| PART III | | | [added: | | | | | |]

| 10 | [added: | |] [Directors, Executive Officers and Corporate [removed: Governance](#s9DD6DD79752954CC8C1F41BFD6057751)] [added: Governance](#i3a126c51d5544731b4157a83b3bf6191_196)] | [removed: [107](#s9DD6DD79752954CC8C1F41BFD6057751)] | [added: | [108](#i3a126c51d5544731b4157a83b3bf6191_196) | | |]

| 12 | [added: | |] [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sE653017883BD52BB88B2743ED57C7655)] [added: Matters](#i3a126c51d5544731b4157a83b3bf6191_202)] | [removed: [107](#sE653017883BD52BB88B2743ED57C7655)] | [added: | [108](#i3a126c51d5544731b4157a83b3bf6191_202) | | |]

| 13 | [added: | |] [Certain Relationships and Related Transactions, and Director [removed: Independence](#s82595CCEB4CA563D9ACDF80EDAE8544F)] [added: Independence](#i3a126c51d5544731b4157a83b3bf6191_205)] | [removed: [107](#s82595CCEB4CA563D9ACDF80EDAE8544F)] | [added: | [108](#i3a126c51d5544731b4157a83b3bf6191_205) | | |]

| 14 | [added: | |] [Principal Accounting Fees and [removed: Services](#s7D2ADE85544950CE9A8A7F3DB5A4A3A9)] [added: Services](#i3a126c51d5544731b4157a83b3bf6191_208)] | [removed: [107](#s7D2ADE85544950CE9A8A7F3DB5A4A3A9)] | [added: | [108](#i3a126c51d5544731b4157a83b3bf6191_208) | | |]

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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 ¨

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| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | |

| | | | | | | | | |

| 1 | | | [Business](#i3a126c51d5544731b4157a83b3bf6191_13) | | | [3](#i3a126c51d5544731b4157a83b3bf6191_13) | | |

| 2 | | | [Properties](#i3a126c51d5544731b4157a83b3bf6191_22) | | | [25](#i3a126c51d5544731b4157a83b3bf6191_22) | | |

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| | | | | | | | | |

| 9B. | | | [Other Information](#i3a126c51d5544731b4157a83b3bf6191_187) | | | [106](#i3a126c51d5544731b4157a83b3bf6191_187) | | |

| | | | | | | | | |

| | | | | | | | | |

| 11 | | | [Executive Compensation](#i3a126c51d5544731b4157a83b3bf6191_199) | | | [108](#i3a126c51d5544731b4157a83b3bf6191_199) | | |

| | | | | | | | | |

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| 16 | | | [Form 10-K Summary](#i3a126c51d5544731b4157a83b3bf6191_217) | | | [113](#i3a126c51d5544731b4157a83b3bf6191_220) | | |

| | | | [Signatures](#i3a126c51d5544731b4157a83b3bf6191_220) | | | [113](#i3a126c51d5544731b4157a83b3bf6191_220) | | |

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; or address possible or future results of operations or financial performance, including statements relating to orders, revenues, operating margins and earnings per share growth.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.

Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control.

Additionally, many of these risks and uncertainties are, and may continue to be, amplified by the coronavirus (“COVID-19”) pandemic.

| | | | | | |

| | | or | | | |

| | | |

| --- | --- | --- |

| 1 | [Business](#s9F2DFF7A97EF5F93A808EF82433A9E71) | [3](#s9F2DFF7A97EF5F93A808EF82433A9E71) |

| 2 | [Properties](#sE04A908F11365A7BBF4C3F2D1AB194A5) | [23](#sE04A908F11365A7BBF4C3F2D1AB194A5) |

| 9B. | [Other Information](#s78CA9D3FF7FA5434A25BC326FDC459BB) | [105](#s78CA9D3FF7FA5434A25BC326FDC459BB) |

| 11 | [Executive Compensation](#s94345A6B79095944ACD388192BA45258) | [107](#s94345A6B79095944ACD388192BA45258) |

| 16 | [Form 10-K Summary](#s384BAA0BEFA55E2A83D6D46DE9A3BADD) | [112](#s8D198DE0E609518B9A1B2841913D97A8) |

| | [Signatures](#s8D198DE0E609518B9A1B2841913D97A8) | [112](#s8D198DE0E609518B9A1B2841913D97A8) |

| | |

| --- | --- |

Except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries.

References in the consolidated financial statements to "ITT" or the "former parent" refer to ITT Corporation (now ITT LLC) and its consolidated subsidiaries (other than Xylem Inc.) as of the applicable periods.*

Forward-looking statements by their nature address matters that are, to different degrees, uncertain.

However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements include any statements that are not historical in nature, including any statements about the capitalization of the Company, the Company’s restructuring and realignment plans, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals.

All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future - including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results - are forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.

We have approximately [removed: 380] [added: 375] locations in more than [removed: 55] [added: 50] countries.

These properties total approximately 12 million square feet, of which more than [removed: 340] [added: 330] locations, or approximately [removed: 6.4] [added: 6.5] million square feet, are leased.

| Location | | [added: | | | |] State [removed: or Country] [added: or Country] | | [added: | | | |] Principal Business Activity | | [removed: Approx. Square Feet] | | | [added: | Approx. Square Feet | | | | | |] Owned [removed: or Leased] [added: or Leased] | [added: | |]

| | | | | [added: | | | | | | | |] Water Infrastructure | | | | | | [added: | | | | | | | | |]

| Emmaboda | | [added: | | | |] Sweden | | [added: | | | |] Administration and Manufacturing | | [added: | | | |] 1,197,000 | | | [added: | | |] Owned | [added: | |]

| Stockholm | | [added: | | | |] Sweden | | [added: | | | |] Administration and Research & Development | | [added: | | | |] 182,000 | | | [added: | | |] Leased | [added: | |]

| Bridgeport | | [added: | | | |] NJ | | [added: | | | |] Administration and Manufacturing | | [added: | | | |] 136,000 | | | [added: | | |] Leased | [added: | |]

| Shenyang | | [added: | | | |] China | | [added: | | | |] Manufacturing | | [added: | | | |] 125,000 | | | [added: | | |] Owned | [added: | |]

| Yellow Springs | | [added: | | | |] OH | | [added: | | | |] Administration and Manufacturing | | [added: | | | |] 112,000 | | | [added: | | |] Owned | [added: | |]

| Quenington | | [removed: UK] | | [added: | | United Kingdom | | | | | |] Manufacturing | | [added: | | | |] 86,000 | | | [added: | | |] Leased | [added: | |]

| | | | | [added: | | | | | | | |] Applied Water | | | | | | [added: | | | | | | | | |]

| Morton Grove | | [added: | | | |] IL | | [added: | | | |] Administration and Manufacturing | | [added: | | | |] 530,000 | | | [added: | | |] Owned | [added: | |]

| Montecchio | | [added: | | | |] Italy | | [added: | | | |] Administration and Manufacturing | | [added: | | | |] 379,000 | | | [added: | | |] Owned | [added: | |]

| Nanjing | | [added: | | | |] China | | [added: | | | |] Manufacturing | | [added: | | | |] 363,000 | | | [added: | | |] Owned | [added: | |]

| Auburn | | [added: | | | |] NY | | [added: | | | |] Manufacturing | | [added: | | | |] 273,000 | | | [added: | | |] Owned | [added: | |]

| Stockerau | | [added: | | | |] Austria | | [added: | | | |] Administration | | [added: | | | |] 234,000 | | | [added: | | |] Owned | [added: | |]

| Strzelin | | [added: | | | |] Poland | | [added: | | | |] Manufacturing | | [added: | | | |] 185,000 | | | [added: | | |] Owned | [added: | |]

| Cheektowaga | | [added: | | | |] NY | | [added: | | | |] Manufacturing | | [added: | | | |] 147,000 | | | [added: | | |] Owned | [added: | |]

| Vadodara | | [added: | | | |] India | | [added: | | | |] Manufacturing and Research & Development | | [added: | | | |] 133,000 | | | [added: | | |] Leased | [added: | |]

| | | | | [added: | | | | | | | |] Measurement & Control Solutions | | | | | | [added: | | | | | | | | |]

| Ludwigshafen | | [added: | | | |] Germany | | [added: | | | |] Manufacturing | | [added: | | | |] 318,000 | | | [added: | | |] Owned | [added: | |]

| Texarkana | | [added: | | | |] AR | | [added: | | | |] Manufacturing | | [added: | | | |] 254,000 | | | [added: | | |] Owned | [added: | |]

| Uniontown | | [added: | | | |] PA | | [added: | | | |] Manufacturing | | [added: | | | |] 240,000 | | | [added: | | |] Leased | [added: | |]

| DuBois | | [added: | | | |] PA | | [added: | | | |] Manufacturing | | [added: | | | |] 197,000 | | | [added: | | |] Owned | [added: | |]

| Durham | | [added: | | | |] NC | | [added: | | | |] Administration and Research & Development | | [removed: 154,000] | | | [added: | 170,000 | | | | | |] Leased | [added: | |]

| DuBois | | [added: | | | |] PA | | [added: | | | |] Manufacturing | | [added: | | | |] 137,000 | | | [added: | | |] Leased | [added: | |]

| | | | | [added: | | | | | | | |] Regional [removed: Selling] Locations | | | | | | [added: | | | | | | | | |]

| Dubai | | [added: | | | |] United Arab Emirates | | [added: | | | |] Manufacturing | | [added: | | | |] 144,000 | | | [added: | | |] Owned | [added: | |]

| Nottinghamshire | | [added: | | | |] United Kingdom | | [added: | | | |] Sales Office | | [added: | | | |] 139,000 | | | [added: | | |] Leased | [added: | |]

| Nanterre | | [added: | | | |] France | | [added: | | | |] Sales Office | | [added: | | | |] 139,000 | | | [added: | | |] Leased | [added: | |]

| Langenhagen | | [added: | | | |] Germany | | [added: | | | |] Sales Office | | [added: | | | |] 134,000 | | | [removed: Leased] | [added: | | Owned | | |]

| | | | | [added: | | | | | | | |] Corporate Headquarters | | | | | | [added: | | | | | | | | |]

| Rye Brook | | [added: | | | |] NY | | [added: | | | |] Administration | | [added: | | | |] 67,000 | | | [added: | | |] Leased | [added: | |]

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

The following information is provided regarding the executive officers of Xylem as of February [removed: 6, 2020:][added: 4, 2021:]

| [removed: NAME] [added: NAME] | | [removed: AGE] | | [removed: CURRENT TITLE] | | [removed: OTHER] [added: AGE | | | | | | CURRENT TITLE | | | | | | OTHER] BUSINESS EXPERIENCE DURING PAST 5 [removed: YEARS] [added: YEARS] | [added: | | | | |]

| Patrick K. Decker | | [removed: 55] | | [added: | | 56 | | | | | |] President and Chief Executive Officer (2014) | | [removed: • President and Chief Executive Officer, Harsco Corp. (diversified, worldwide industrial company) (2012)] | [added: | | | | | | | | |]

| David Flinton | | [removed: 49] | | [added: | | 50 | | | | | |] Senior VP and Chief Innovation, Technology & [removed: Products] [added: Product Management] Officer [removed: (2019), Acting President, Water Infrastructure and Europe Commercial Team] (2019) | | [removed: • Senior VP and President, Dewatering (2015)] | [added: | | | | | | | | |]

| Geri McShane | | [removed: 46] | | [added: | | 47 | | | | | |] VP, Controller and Chief Accounting Officer (2019) | | [added: | | | |] • Controller, Accounting and Reporting (2016) | [added: | | | | |]

| [removed: Kenneth Napolitano] [added: Matthew Pine] | | [removed: 57] | | [added: | | 49 | | | | | |] Senior VP and President, Applied Water Systems and Americas Commercial Team [removed: (2017)] [added: (2020)] | | [added: | | | |] • [removed: Senior VP and] President, [removed: Applied Water Systems (2012)] [added: Carrier Residential, United Technologies Corporation (2018) •VP and General Manager, Carrier Residential, United Technologies Corporation (2017)] | [added: | | | | |]

| Colin R. Sabol | | [removed: 52] | | [added: | | 53 | | | | | |] Senior VP and President, Measurement & Control Solutions (2017) | | [removed: • Senior VP and President, Analytics and Treatment (2015) • Senior VP and President, Dewatering (2013)] | [added: | | | | | | | | |]

| Kairus Tarapore | | [removed: 58] | | [added: | | 59 | | | | | |] Senior VP and Chief Human Resources Officer (2015) | | [removed: • Senior VP and Chief Administrative Officer, Babcock & Wilcox Company (energy and environmental technologies and services) (2013)] | [added: | | | | | | | | |]

| Claudia S. Toussaint | | [removed: 56] | | [added: | | 57 | | | | | |] Senior VP, General [removed: Counsel,] [added: Counsel and] Chief Sustainability Officer [removed: and Corporate Secretary] (2014) | | [removed: • Senior VP, General Counsel and Secretary, Barnes Group Inc. (international industrial and aerospace manufacturing) (2012)] | [added: | | | | | | | | |]

The following information is provided regarding the Board of Directors of Xylem as of February [removed: 6, 2020:][added: 4, 2021:]

| NAME | | [added: | | | |] TITLE | [added: | |]

| Markos I. Tambakeras | | [removed: Chairman, Xylem Inc.,] [added: | | | |] Former Chairman, President and Chief Executive Officer, Kennametal, Inc. | [added: | |]

| [removed: Curtis J. Crawford, Ph.D.] [added: Patrick K. Decker] | | [added: | | | |] President and Chief Executive Officer, [removed: XCEO,] [added: Xylem] Inc. | [added: | |]

| [removed: Patrick K. Decker] [added: Robert F. Friel] | | [added: | | | | Board Chair, Xylem Inc., Former Chairman,] President and Chief Executive Officer, [removed: Xylem] [added: PerkinElmer,] Inc. | [added: | |]

| [removed: Robert F. Friel] [added: Steven R. Loranger] | | [added: | | | |] Former Chairman, President and Chief Executive Officer, [removed: PerkinElmer, Inc.] [added: ITT Corporation] | [added: | |]

| Jorge M. Gomez | | [added: | | | |] Executive Vice President, Chief Financial Officer, Dentsply Sirona, Inc. | [added: | |]

| Victoria D. Harker | | [added: | | | | Executive Vice President and] Chief Financial Officer, TEGNA, Inc. | [added: | |]

| Sten E. Jakobsson | | [added: | | | |] Former President and Chief Executive Officer, ABB AB | [added: | |]

| [removed: Steven R. Loranger] [added: Jerome A. Peribere] | | [added: | | | |] Former [removed: Chairman,] President and Chief Executive Officer, [removed: ITT] [added: Sealed Air] Corporation | [added: | |]

| Surya N. Mohapatra, Ph.D. | | [added: | | | |] Former Chairman, President and Chief Executive Officer, Quest Diagnostics Incorporated | [added: | |]

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | |

| Sandra E. Rowland | | | | | | 49 | | | | | | Senior VP and Chief Financial Officer (2020) | | | | | | • Executive Vice President and Chief Financial Officer, Harman International Industries Inc. (2015) | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | |

| Franz Cerwinka | | | | | | 51 | | | | | | Senior VP and President, Emerging Markets (2020) | | | | | | • Chief Executive Officer, Johnson Controls-Hitachi Air Conditioning (2015) | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | |

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| | | | | | | | | | | | | | | | | | | | | | | | |

| Hayati Yarkadas | | | | | | 52 | | | | | | Senior VP and President, Water Infrastructure and Europe Commercial Team (2020) | | | | | | • Senior Vice President and President, Performance Materials, Trinseo S.A. (2015) | | | | | |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | |

| Jeanne Beliveau-Dunn | | | | | | CEO and President of Claridad, LLC | | |

| | | | | | | | | |

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| | | | | | | | | |

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| | | | | | | | | |

| | | | | | | | | |

| | | | | | | | | |

| Lila Tretikov | | | | | | Corporate Vice President & Deputy Chief Technology Officer, Microsoft | | |

| | | | | | | | | |

| Uday Yadav | | | | | | President and Chief Operating Officer, Electrical Sector, Eaton | | |

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| E. Mark Rajkowski | | 61 | | Senior VP and Chief Financial Officer (2016) | | • Senior VP and Chief Financial Officer, MeadWestvaco Corp. (worldwide packaging company) (2004) |

| Pak Steven Leung | | 63 | | Senior VP and President, Emerging Markets (2015) | | • VP, Global Sales, Valves and Controls, Pentair Plc (diversified, worldwide industrial manufacturing company) (2013) |

| | | |

| --- | --- | --- |

| Jeanne Beliveau-Dunn | | Former Vice President and General Manager, Cisco Systems, Inc. |

| Jerome A. Peribere | | Former President and Chief Executive Officer, Sealed Air Corporation |

As of January 31, [removed: 2020,] [added: 2021,] there were [removed: 10,046] [added: 9,526] holders of record of our common stock.

In the first quarter of [removed: 2020,] [added: 2021,] we declared a dividend of [removed: $0.26] [added: $0.28] per share to be paid on March [removed: 26, 2020] [added: 18, 2021] for shareholders of record on February [removed: 27, 2020.][added: 18, 2021.]

There were no unregistered offerings of our common stock during [removed: 2019.][added: 2020.]

*Fourth [removed: Quarter* *2019* *Share] [added: Quarter 2020 Share] Repurchase Activity*

The following table summarizes our purchases of our common stock for the quarter ended December 31, [removed: 2019:][added: 2020:]

| (in millions, except per share amounts) | | | | | | | | | [added: | | | | | | | | | | | | | | | | | |]

| Period | | [added: | | | |] Total Number of Shares Purchased | | [added: | | | |] Average Price Paid per Share (a) | | [added: | | | |] Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | | [added: | | | |] Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b) | [added: | |]

[removed: | (a) | Average] [added: (a)Average] price paid per share is calculated on a settlement basis. [removed: |]

This graph covers the period from December 31, [removed: 2014] [added: 2015] through December 31, [removed: 2019] [added: 2020] and assumes that $100 was invested on December 31, [removed: 2014] [added: 2015] in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.

[removed: ][added: ]

| | [added: | |] XYL | | | [added: | | |] S&P 500 | | | [added: | | |] S&P [removed: 500 Industrials Index] [added: 500 Industrials Index] | | [added: |]

| December 31, [removed: 2014] [added: 2015] | [added: | |] 100 | | | [added: | | |] 100 | | | [added: | | |] 100 | | [added: |]

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 10/1/20 - 10/31/20 | | | | | | — | | | | | | — | | | | | | — | | | | | | $288 | | |

| 11/1/20 - 11/30/20 | | | | | | — | | | | | | — | | | | | | — | | | | | | $288 | | |

| 12/1/20 - 12/31/20 | | | | | | — | | | | | | — | | | | | | — | | | | | | $288 | | |

(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, 2020.

There are up to $288 million in shares that may still be purchased under this plan as of December 31, 2020.

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| December 31, 2016 | | | 138 | | | | | | 112 | | | | | | 119 | | |

| December 31, 2017 | | | 192 | | | | | | 136 | | | | | | 143 | | |

| December 31, 2018 | | | 190 | | | | | | 130 | | | | | | 124 | | |

| December 31, 2019 | | | 227 | | | | | | 171 | | | | | | 160 | | |

| December 31, 2020 | | | 297 | | | | | | 203 | | | | | | 177 | | |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 10/1/19 - 10/31/19 | | — | | — | | — | | $338 |

| 11/1/19 - 11/30/19 | | — | | — | | — | | $338 |

| 12/1/19 - 12/31/19 | | — | | — | | — | | $338 |

| | |

| --- | --- |

| (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, 2019. There are up to $338 million in shares that may still be purchased under this plan as of December 31, 2019. |

| December 31, 2015 | 97 | | | 101 | | | 97 | |

| December 31, 2016 | 134 | | | 113 | | | 116 | |

| December 31, 2017 | 187 | | | 138 | | | 139 | |

| December 31, 2018 | 185 | | | 132 | | | 120 | |

| December 31, 2019 | 221 | | | 174 | | | 156 | |

The following table sets forth selected consolidated financial data for the five years ended December 31, [removed: 2019.][added: 2020.]

| | [added: | |] Year [removed: Ended December] [added: Ended December] 31, | | | | | | | | | | | | | | | | | | | [added: | | | | | | | |]

| (in millions, except per share data) | [removed: 2019] [added: | | 2020] (a) (b) | | | | [added: | | 2019 (a) (b) | | | | | |] 2018 (b) | | | | [removed: 2017 (c)] | | [added: 2017] | | [removed: 2016 (c)] | | | | [removed: 2015] [added: 2016 (c)] | | |

| Results of Operations Data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Revenue | [added: | |] $ | [removed: 5,249] [added: 4,876] | | | [added: | |] $ | [removed: 5,207] [added: 5,249] | | | [added: | |] $ | [removed: 4,707] [added: 5,207] | | | [added: | |] $ | [removed: 3,771] [added: 4,707] | | | [added: | |] $ | [removed: 3,653] [added: 3,771] | |

| Gross profit | [removed: 2,046] | | [added: 1,830] | | [added: | | | | 2,046 | | | | | |] 2,026 | | | | [removed: 1,847] | | [added: 1,847] | | [removed: 1,462] | | | | [removed: 1,407] [added: 1,462] | | |

| *Gross margin* | [removed: 39.0] | | [added: 37.5 | |] % | | [removed: *38.9*] | | [added: *39.0* | |] *%* | | [removed: *39.2*] | | [added: *38.9* | |] *%* | | [removed: *38.8*] | | [added: *39.2* | |] *%* | | [removed: *38.5*] | | [added: *38.8* | |] *%* |

| Operating income | [removed: 486] | | [added: 367] | | [added: | | | | 486 | | | | | |] 654 | | | | [removed: 552] | | [added: 552] | | [removed: 408] | | | | [removed: 454] [added: 408] | | |

| *Operating margin* | [removed: 9.3] | | [added: 7.5 | |] % | | [removed: *12.6*] | | [added: *9.3* | |] *%* | | [removed: *11.7*] | | [added: *12.6* | |] *%* | | [removed: *10.8*] | | [added: *11.7* | |] *%* | | [removed: *12.4*] | | [added: *10.8* | |] *%* |

| Net income attributable to Xylem | [removed: 401] | | [added: 254] | | [added: | | | | 401 | | | | | |] 549 | | | | [removed: 331] | | [added: 331] | | [removed: 260] | | | | [removed: 340] [added: 260] | | |

| Per Share Data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Earnings per share: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Basic | [added: | |] $ | [removed: 2.23] [added: 1.41] | | | [added: | |] $ | [removed: 3.05] [added: 2.23] | | | [added: | |] $ | [removed: 1.84] [added: 3.05] | | | [added: | |] $ | [removed: 1.45] [added: 1.84] | | | [added: | |] $ | [removed: 1.88] [added: 1.45] | |

| Diluted | [removed: 2.21] | | [added: 1.40] | | [added: | | | | 2.21 | | | | | |] 3.03 | | | | [removed: 1.83] | | [added: 1.83] | | [removed: 1.45] | | | | [removed: 1.87] [added: 1.45] | | |

| Basic shares outstanding | [removed: 180.0] | | [added: 180.1] | | [added: | | | | 180.0 | | | | | |] 179.8 | | | | [removed: 179.6] | | [added: 179.6] | | [removed: 179.1] | | | | [removed: 180.9] [added: 179.1] | | |

| Diluted shares outstanding | [removed: 181.2] | | [added: 181.1] | | [added: | | | | 181.2 | | | | | |] 181.1 | | | | [removed: 180.9] | | [added: 180.9] | | [removed: 180.0] | | | | [removed: 181.7] [added: 180.0] | | |