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What changed in Xylem Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Xylem Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+493 added−482 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-24)

Top changes in Xylem Inc.'s 2023 10-K

493 paragraphs added · 482 removed · 307 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

81 edited+17 added−4 removed54 unchanged
Biggest changeThe table and descriptions below provide an overview of our business segments: Market Applications 2022 Revenue (in millions) % Revenue Major Products Primary Brands Water Infrastructure Transport $ 1,943 82 % • Water and wastewater pumps • Filtration, disinfection and biological treatment equipment • Mobile dewatering equipment and rental services • Flygt • Godwin • Leopold • Sanitaire • Wedeco • Xylem Vue Treatment 421 18 % $ 2,364 100 % Applied Water Commercial Building Services $ 659 37 % • Pumps • Valves • Heat exchangers • Controls • Dispensing equipment systems • A-C Fire Pump • Bell & Gossett • Flojet • Goulds Water Technology • Jabsco • Lowara • Standard Xchange • Xylem Vue Residential Building Services 306 17 % Industrial Water 802 46 % $ 1,767 100 % Measurement & Control Solutions Water $ 1,126 81 % • Smart meters • Networked communication devices • Data analytics • Test equipment • Controls • Sensor devices • Software & managed services • Critical infrastructure services • Pure Technologies • Sensus • Smith Blair • WTW • YSI • Xylem Vue Energy 265 19 % $ 1,391 100 % Water Infrastructure Our Water Infrastructure segment primarily supports the process that collects water from a source, treats it and distributes it to users, and then treats and returns the wastewater responsibly to the environment through two closely linked applications: Transport and Treatment.
Biggest changeSee Note 21, “Segment and Geographic Data,” in our consolidated financial statements for financial information about segments and geographic areas. 6 The table and descriptions below provide an overview of our business segments: Market Applications 2023 Revenue (in millions) % Revenue Major Products Primary Brands Water Infrastructure Transport $ 2,172 73 % • Water and wastewater pumps • Filtration, disinfection and biological treatment equipment • Mobile dewatering equipment and rental services • ADI • Flygt • Godwin • Ionpure • Leopold • Magneto • Neptune Benson • Sanitaire • Wallace & Tiernan • Wedeco • Xylem Vue Treatment 795 27 % $ 2,967 100 % Applied Water Building Solutions $ 1,025 55 % • Pumps • Valves • Heat exchangers • Controls • Dispensing equipment systems • A-C Fire Pump • Bell & Gossett • Flojet • Goulds Water Technology • Jabsco • Lowara • Standard Xchange • Xylem Vue Industrial Water 828 45 % $ 1,853 100 % Measurement and Control Solutions Water $ 1,354 78 % • Smart meters • Networked communication devices • Data analytics • Test equipment • Controls • Sensor devices • Software & managed services • Critical infrastructure services • Pure Technologies • Sensus • Smith Blair • WTW • YSI • Xylem Vue Energy 375 22 % $ 1,729 100 % Integrated Solutions and Services $ 815 100 % • Preventative maintenance services • Rapid response mobile services • Digitally enabled/outsourced solutions • Process and wastewater systems • Environmental remediation • Odor and corrosion control • Filtration • Reverse osmosis • Ion exchange • Continuous deionization • AquaPro • WaterOne • Ion Pure 7 Water Infrastructure Our Water Infrastructure segment primarily supports the process that collects water from a source, treats it and distributes it to users, and then treats and returns the wastewater responsibly to the environment through two closely linked applications: Transport and Treatment.
Setting us apart is a unique set of global assets that include: • Market-leading brands, some of which have been in use for more than 100 years • Global distribution networks consisting of direct sales forces and independent channel partners serving a diverse customer base in approximately 150 countries • A substantial global installed base across the water cycle that provides for steady recurring and replacement revenue • A strong history of bringing innovative products, solutions, and business models to customers • A strong financial position and cash generation profile that enables us to fund strategic organic and inorganic growth initiatives, and consistently return capital to shareholders • A demonstrated commitment to corporate governance, social and environmental sustainability and delivering a positive impact to our customers, communities and employees • A dedicated, experienced, qualified and technologically advanced group of experienced employees focused on safely satisfying our customers' requirements in the water and energy spaces Our Industry Our vision is to create a world in which water issues are no longer a constraint to health, prosperity and sustainable development.
Setting us apart is a unique set of global assets that include: • Market-leading brands, some of which have been in use for more than 100 years • Global distribution networks consisting of direct sales forces and independent channel partners serving a diverse customer base in approximately 150 countries • A substantial global installed base across the water cycle that provides for steady recurring and replacement revenue • A strong history of bringing innovative products, solutions, and business models to customers • A dedicated, experienced, qualified and technologically advanced group of employees focused on safely satisfying our customers' requirements in the water and energy spaces • A strong financial position and cash generation profile that enables us to fund strategic organic and inorganic growth initiatives, and consistently return capital to shareholders • A demonstrated commitment to corporate governance, social and environmental sustainability and delivering a positive impact to our customers, communities and employees Our Industry Our vision is to create a world in which water issues are no longer a constraint to health, prosperity and sustainable development.
Several trends are increasing demand for this application expertise: (i) the increase in both the type and amount of contaminants found in the water supply, (ii) increasing environmental regulations, (iii) the need to increase system efficiencies and resilience to optimize energy and other operational costs, (iv) the retirement of an aging water industry workforce that has not been systematically renewed at utilities and other end-user customers, and (v) the build-out of water infrastructure in the emerging markets.
Several trends are increasing demand for this application expertise: (i) the increase in both the type and amount of contaminants found in the water supply, (ii) increasing environmental regulations, (iii) the need to increase system resilience and efficiencies to optimize energy and other operational costs, (iv) the retirement of an aging water industry workforce that has not been systematically renewed at utilities and other end-user customers, and (v) the build-out of water infrastructure in the emerging markets.
While we own, control or license a significant number of patents, trade secrets, proprietary information, trademarks, trade names, copyrights and other intellectual property rights which, in the aggregate, are of material importance to our business, management believes that our business, as a whole, as well as each of our core business segments, is not materially dependent on any one intellectual property right or related group of such rights.
While we own, control or license a significant number of patents, trade secrets, proprietary information, trademarks, trade names, copyrights and other intellectual property rights which, in the aggregate, are of material importance to our business, management believes that our business, as a whole, as well as each of our business segments, is not materially dependent on any one intellectual property right or related group of such rights.
In 2022, for our U.S. colleagues, we enhanced our paid parental leave and short-term disability coverage, provided for flexible time off, and expanded our health and welfare benefits, including with respect to reproductive care. While individual program components may differ by country, role or level, our culture and commitment to results and equity remain constant.
In 2022, for our U.S. colleagues, we enhanced our paid parental leave and short-term disability coverage, provided for flexible time off for exempt colleagues, and expanded our health and welfare benefits, including with respect to reproductive care. While individual program components may differ by country, role or level, our culture and commitment to results and equity remain constant.
R&D activities are initially conducted in our technology centers, located in conjunction with some of our major manufacturing facilities to enable an efficient and robust development process. We have several global technical centers and local development teams around the world where we are supporting global needs and accelerating the customization of our products and solutions to address local needs.
R&D activities are initially conducted in our technology centers, located in conjunction with some of our major manufacturing facilities to enable an efficient and robust development process. We have several global technical centers and local development teams around the world where we are supporting global needs and accelerating the customization of our products, services, and solutions to address local needs.
We continue to expand our long-term incentive program to reach deeper in the organization to recognize key talent and top performers and attract and retain digital technology talent. We have heard from many of our office-based colleagues that they greatly value the increased flexibility and autonomy that come with remote working.
We continue to expand our long-term incentive program to reach deeper in the organization to recognize key talent and top performers and attract and retain digital talent. We have heard from many of our office-based colleagues that they greatly value the increased flexibility and autonomy that come with remote working.
In addition to utilities, Equipment, Technology and Service companies also provide distinct technologies and application expertise to a wide array of entities, including farms, mines, power plants, industrial facilities (such as food and beverage and pharmaceutical manufacturers) and residential and commercial customers seeking to address similar trends.
In addition to utilities, Equipment, Technology and Service companies also provide distinct technologies and application expertise and services to a wide array of entities, including farms, mines, power plants, industrial facilities (such as food and beverage and pharmaceutical manufacturers) and residential and commercial customers seeking to address similar trends.
This seasonality is dependent on factors such as customers' capital spending, as well as the effects of climate change and weather conditions, including heavy flooding, prolonged droughts and fluctuations in temperatures or weather patterns, all of which can positively or negatively impact portions of our business.
This seasonality is dependent on factors such as customers' capital spending, as well as the effects of climate change and weather 10 conditions, including heavy flooding, prolonged droughts and fluctuations in temperatures or weather patterns, all of which can positively or negatively impact portions of our business.
Accordingly, in 2021, the Company expanded its sustainability-linked compensation for all of our senior leaders, as well as a broader group of executives, with a special, one-time grant of performance share units with goals that are based on 5 of our strategically transformative 2025 Sustainability goals.
Accordingly, in 2021, the Company expanded its sustainability-linked compensation for all of our senior leaders, as well as a broader group of executives, through a special, one-time grant of performance share units with goals that are based on 5 of our strategically transformative 2025 Sustainability goals.
Our broad portfolio of products, services and solutions addresses customer needs of scarcity, resilience, and affordability across the water cycle, from the delivery, measurement and use of drinking water, to the collection, testing, analysis and treatment of wastewater, to the return of water to the environment.
Our broad portfolio of products, services and solutions addresses customer needs of scarcity, resilience, quality, and affordability across the water cycle, from the delivery, treatment, measurement and use of drinking water, to the collection, testing, analysis and treatment of wastewater, to the return of water to the environment.
As part of expanding our bandwidth and to increase our access to technology, we have built innovation eco-system 11 partnerships with academic institutions as well as other technology firms, start-up accelerators and venture capital organizations.
As part of expanding our bandwidth and to increase our access to technology, we have built innovation eco-system partnerships with academic institutions as well as other technology firms, start-up accelerators and venture capital organizations.
Our Pure Technologies equipment and services are also well positioned in the leak detection sector, which is attracting considerable attention as aging infrastructure and increased regulatory scrutiny exert pressure on operating budgets. Our key competitors in the Measurement & Control Solutions segment include Itron, Badger Meter, Landis+Gyr, Neptune (Roper), Kamstrup, Echologics (Mueller Water Products), Hach (Danaher Corporation) and Teledyne.
Our Pure Technologies equipment and services are also well positioned in the leak detection sector, which is attracting considerable attention as aging infrastructure and increased regulatory scrutiny exert pressure on operating budgets. Our key competitors in the Measurement and Control Solutions segment include Itron, Badger Meter, Landis+Gyr, Neptune (Roper), Kamstrup, Echologics (Mueller Water Products), Hach (Veralto Corporation) and Teledyne.
The industrial market includes original equipment manufacturers ("OEMs"), exploration and production firms, and developers and managers of industrial facilities, such as electrical power generators, chemical manufacturers, machine shops, clothing manufacturers, marine, food and beverage companies and car washes. In the Applied Water segment, end markets vary widely and, as a result, specialized distribution partners are often preferred.
The industrial market includes original equipment manufacturers ("OEMs"), exploration and production firms, agricultural customers, and developers and managers of industrial facilities, such as electrical power generators, chemical manufacturers, machine shops, clothing manufacturers, marine, food and beverage companies and car washes. In the Applied Water segment, end markets vary widely and, as a result, specialized distribution partners are often preferred.
Our customers often face all three of these challenges, ranging from inefficient and aging water distribution networks and energy-intensive or unreliable water and wastewater management systems (requiring improvements in water affordability); droughts and pollution which limit the amount of water readily available (causing water scarcity); or exposure to natural disasters such as floods or droughts (requiring improvements in resilience).
Our customers often face all four of these challenges, ranging from inefficient and aging water distribution networks and energy-intensive or unreliable water and wastewater management systems (requiring improvements in water affordability); droughts and pollution which limit the amount of water readily available (causing water scarcity); or exposure to natural disasters such as floods or droughts (requiring improvements in resilience).
Additionally, during the first quarter of 2021, we issued a special grant of less than 0.1 million ESG performance share units. Human Capital Our colleagues around the globe are united in a shared purpose – to solve water – and, as such, are key to the Company’s success and execution of our strategy.
Additionally, during the first quarter of 2021, we issued a special grant to certain employees of less than 0.1 million ESG performance share units. Human Capital Our colleagues around the globe are united in a shared purpose – to solve water – and, as such, are key to the Company’s success and execution of our strategy.
We seek to 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.
We seek to continue embedding a continuous improvement mindset throughout the Company, to further improve our efficiency, simplify our business and manage costs to support continued growth. We are committed to eliminating business complexity by streamlining internal bureaucracy and expanding standard business platforms and processes to help people do their jobs.
Other Regulations As a company with global operations, we are subject to complex U.S. federal, state and local and foreign laws and regulations in the countries where we conduct business, including with respect to trade, such as tariffs, imports and exports; anti-bribery and corruption; antitrust and competition; data security and privacy, such as the EU General Data Protection Regulation (“GDPR”) and the China Personal Information Protection Law ('PIPL"); use of regulated radio spectrum, including that of the U.S.
Other Regulations As a company with global operations, we are subject to complex U.S. federal, state and local and foreign laws, regulations, and permits in the countries where we conduct business, including related to trade, such as tariffs, imports and exports; anti-bribery and corruption; antitrust and competition; data security and privacy, such as the EU General Data Protection Regulation (“GDPR”) and the China Personal Information Protection Law ('PIPL"); use of regulated radio spectrum, including that of the U.S.
The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC. In addition, the public may read or copy any materials filed with the SEC, free of charge, at www.sec.gov. 16
The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC. In addition, the public may read or copy any materials filed with the SEC, free of charge, at www.sec.gov. 15
Communications networks enable customers to automate and optimize meter reading, bill customers, monitor flow rates and detect and enable rapid response to changing and unsafe conditions. In short, they provide insight into operations and enable our customers to manage the entire scope of their operations remotely through their networks.
Communications networks enable customers to automate and optimize meter reading, bill customers, monitor flow rates and detect and enable rapid response to changing and unsafe conditions. In short, they provide insight into operations and enable our customers to manage the entire scope of their operations remotely through their networks and to optimize their operational costs.
We believe that our overall success and long-term growth depend, in part, on our continued ability to attract and retain diverse and highly skilled colleagues, including senior leaders and colleagues with skills in our strategic competencies, such as engineering, innovation, digital technologies, sales excellence, sustainability and product and project management, as well as production and technical services talent.
We believe that our overall success and long-term growth depend, in part, on our continued ability to attract and retain diverse and highly skilled colleagues, including senior leaders and individuals with skills in our strategic competencies, such as engineering, innovation, digital technologies, sales excellence, sustainability and product and project management, as well as production, field service and technical services talent.
The Transport application also includes sales and rental of specialty dewatering pumps and related equipment and services, which provide the safe removal or draining of groundwater and surface water from construction sites or other industrial sites and bypass pumping for the repair of aging utility infrastructure, as well as emergency water transport and removal during severe weather events.
The Transport application also includes sales and rental of specialty dewatering pumps, scalable products, and related equipment, technology, and services, which provide the safe removal or draining of groundwater and surface water from construction sites or other industrial sites and bypass pumping for the repair of aging utility infrastructure, as well as emergency water transport and removal during severe weather events.
The progress towards these goals can be found in our 2021 Sustainability Report, which is aligned to the Global Reporting Initiative and the Sustainability Accounting Standards Board frameworks.
The progress towards these goals can be found in our 2022 Sustainability Report, which is aligned to the Global Reporting Initiative and the Sustainability Accounting Standards Board frameworks.
We believe that our relations with our employees are good, including with our employees that are represented by labor unions or works councils. 13 We conduct regular employee engagement surveys to understand our employees’ perspectives, identify areas for additional focus and establish action plans.
We believe that our relations with our employees are good, including with our employees that are represented by labor unions and/or works councils. We conduct regular employee engagement surveys and listening sessions to understand our employees’ perspectives, identify areas for additional focus and establish action plans.
We anticipate that approximately 55% of the backlog at December 31, 2022 will be recognized as revenue during 2023. Research and Development Research and development (“R&D”) is a key foundation of our growth strategy and we focus on the design and development of products and application know-how that address anticipated customer needs and emerging trends.
We anticipate that approximately 55% of the backlog at December 31, 2023 will be recognized as revenue during 2024. Research and Development Research and development (“R&D”) is a key foundation of our growth strategy and we focus on the design and development of products, services, solutions and application know-how that address anticipated customer needs and emerging trends.
Third, we seek to help customers get the most out of their systems by providing world-class services that enable increased uptime, efficiency and resilience. We partner with them by providing powerful, integrated lifecycle services and solutions. 6 • Grow in the Emerging Markets. We continue to invest in localizing our capabilities in the emerging markets.
Third, we seek to help customers get the most out of their systems by providing world-class services that enable increased uptime, efficiency and resilience. We partner with them by providing powerful, integrated lifecycle services and solutions. 5 • Grow in the Emerging Markets. We continue to invest in regionalizing our capabilities in the emerging markets.
Capitalized Software We offer software as a product or service directly to external customers, which is included within "Other intangible assets, net" on our Consolidated Balance Sheets. As of December 31, 2022 and 2021 we had net capitalized software used in sales and services to external customers of $213 million and $211 million, respectively.
Capitalized Software We offer software as a product or service directly to external customers, which is included within "Other intangible assets, net" on our Consolidated Balance Sheets. As of December 31, 2023 and 2022 we had net capitalized software used in sales and services to external customers of $209 million and $213 million, respectively.
Each Employee Network Group is sponsored and supported by one or more senior leaders and all groups are open to all employees regardless of any diversity attributes with which they may identify. Collectively, approximately 3,900 colleagues participate as members of our network groups.
Each Employee Network Group is sponsored and supported by one or more senior leaders and all groups are open to all employees regardless of any diversity attributes with which they may identify. Collectively, approximately 4,400 colleagues participate as members of our network groups.
As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors. Typically, large projects require longer lead production cycles and deployment schedules, and delays occur from time to time. Total backlog was $3,605 million at December 31, 2022 and $3,240 million at December 31, 2021.
As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors. Typically, large projects require longer lead production cycles and deployment schedules, and delays occur from time to time. Total backlog was $5,088 million at December 31, 2023 and $3,605 million at December 31, 2022.
We believe that the diversity of our Board of Directors and senior leadership enhances our ability to evolve and execute our business strategy and to attract and retain diverse and highly-qualified talent, and also fuels our commitment to foster a culture of inclusion and provide our colleagues with equitable access to opportunities.
We believe that the diversity of our Board of Directors and senior leadership enhances our ability to evolve and execute our business strategy and to attract and retain diverse and highly-qualified talent, and also fuels our commitment to foster an environment of inclusion and provide our colleagues with equitable access to opportunities.
Customers Our business is not dependent on any single customer or a few customers, the loss of which would have a material adverse effect on our Company. No individual customer accounted for more than 10% of our consolidated revenues in 2022, 2021 or 2020.
Customers Our business is not dependent on any single customer or a few customers, the loss of which would have a material adverse effect on our Company. No individual customer accounted for more than 5% of our consolidated revenues in 2023, 2022 or 2021.
Diversity, Equity and Inclusion We are committed to a workplace that creates a sense of belonging for everyone: where all our colleagues feel involved, respected, valued, heard, connected and able to bring their authentic selves to work.
Diversity, Equity and Inclusion We are committed to a workplace that creates a sense of belonging for everyone: where all our colleagues feel involved, respected, valued, heard, connected, able to bring their authentic selves to the workplace, and empowered to do their best work.
Compensation and Benefits Xylem takes a total rewards approach that integrates programs for compensation, benefits, recognition and work-life balance and we strive to provide our colleagues with competitive compensation and benefits.
Compensation and Benefits Xylem strives to provide our colleagues with competitive compensation and benefits and takes a total rewards approach that integrates programs for compensation, benefits, recognition and work-life balance.
A more direct sales approach, with key account management, is employed for large utilities and government programs. Macro growth drivers include increasing regulation, aging infrastructure and worldwide movement towards smart grid implementation.
A direct sales approach, with key account management, is employed for large utilities and government programs. Macro growth drivers include increasing regulation, aging infrastructure and worldwide movement towards smart grid implementation and automated meter infrastructure (“AMI").
In geographic regions where we are locally positioned to provide a quick response, customers have historically relied on us, rather than our competitors, for after-market products relating to our highly engineered and customized solutions. Our key competitors in the Water Infrastructure segment include KSB Inc., Sulzer Ltd., Grundfos, United Rentals, Trojan (Danaher Corporation) and Evoqua.
In geographic regions where we are locally positioned to provide a quick response, customers have historically relied on us, rather than our competitors, for after-market products relating to our highly engineered and customized solutions. Our key competitors in the Water Infrastructure segment include KSB Inc., Sulzer Ltd., Grundfos, United Rentals, Trojan (Veralto Corporation), Veolia, De Nora, and ProMinent.
In addition to investments made in software development, which were capitalized, we incurred $206 million, $204 million, and $187 million as a result of R&D investment spending in 2022, 2021 and 2020, respectively. We have R&D and product development capabilities around the world.
In addition to investments made in software development, which were capitalized, we incurred $232 million, $206 million, and $204 million as a result of R&D investment spending in 2023, 2022 and 2021, respectively. We have R&D and development capabilities around the world.
Our engineers are involved in new product development as well as improvement of existing products to increase customer value. Our businesses invest substantial resources into R&D.
Our engineers are involved in new product, service, and solution development as well as improvement of existing products, services and solutions to increase customer value. Our businesses invest substantial resources into R&D.
Our commitment to building a global, diverse, equitable and inclusive culture starts with our Board of Directors and senior leadership team members, who represent a broad spectrum of backgrounds and perspectives.
Our commitment to fostering a global, diverse, equitable and inclusive environment starts with our Board of Directors and senior leadership team members, who represent a broad spectrum of backgrounds, identities and perspectives.
We have differentiated market positions in core application areas including transport, treatment, dewatering, analytic instrumentation and measurement, smart metering, infrastructure assessment services, digital software solutions for utilities, and applied water systems for commercial and residential building services and industrial processes.
We have differentiated market positions in core application areas including transport, treatment, dewatering, analytic instrumentation and measurement, smart metering, infrastructure assessment services, digital software solutions for utilities, industrial processes, outsourced water services, filtration and separation, applied water systems for commercial and residential business services, disinfection, wastewater treatment, and anodes.
At Xylem, we recognize the power of diversity, equity and inclusion to drive innovation, make us more competitive, positively impact employee and customer satisfaction and the Company’s performance, better serve the communities in which we operate, create value for our shareholders and other stakeholders and advance social equity.
We believe that Xylem is strongest when we embrace the power of diversity, equity and inclusion to drive innovation, make us more competitive, positively impact employee and customer 13 satisfaction and the Company’s performance, better serve the communities in which we operate, create value for our shareholders and other stakeholders, and advance social equity.
Revenue (in millions) 2022 2021 2020 $ Amount % of Total $ Amount % of Total $ Amount % of Total United States $ 2,573 47 % $ 2,280 44 % $ 2,297 47 % Western Europe 1,411 26 % 1,414 27 % 1,259 26 % Emerging Markets (a) 1,074 19 % 1,066 21 % 919 19 % Other 464 8 % 435 8 % 401 8 % Total $ 5,522 $ 5,195 $ 4,876 10 (a) Emerging Markets includes results from the following regions: Eastern Europe, the Middle East and Africa, Latin America and Asia Pacific (excluding Japan, Australia and New Zealand, which are presented in "Other") Supply and Seasonality We have a global manufacturing and assembly footprint, with production facilities in Europe, North America, Latin America, Asia and the Middle East.
Revenue (in millions) 2023 2022 2021 $ Amount % of Total $ Amount % of Total $ Amount % of Total United States $ 3,956 54 % $ 2,573 47 % $ 2,280 44 % Western Europe 1,655 22 % 1,411 26 % 1,414 27 % Emerging Markets (a) 1,182 16 % 1,074 19 % 1,066 21 % Other 571 8 % 464 8 % 435 8 % Total $ 7,364 $ 5,522 $ 5,195 (a) Emerging Markets includes results from the following regions: Eastern Europe, the Middle East and Africa, Latin America and Asia Pacific (excluding Japan, Australia and New Zealand, which are presented in "Other") Supply and Seasonality We have a global manufacturing and assembly footprint, with production facilities in Europe, North America, Latin America, Asia and the Middle East.
We also provide on-demand/self-paced learning through our learning management systems. We prioritize employee engagement through regular, year-round discussions focused on employee performance feedback and development, opportunities to work on special projects, and volunteer activities involving Watermark, our corporate social responsibility program, as well as Xylem Ignite, our youth engagement program.
We prioritize employee engagement through regular, year-round discussions focused on performance feedback and development, opportunities to work on special projects, and volunteer activities involving Watermark, our corporate responsibility program, as well as Xylem Ignite, our youth engagement program.
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.
This will further strengthen our core product offerings, and deliver strategic, sustainable innovations and insightful data analytics that help us tap into new markets through advanced technology and new business models. • Build a High Impact Culture.
The industrial market includes customers that require similar water and wastewater infrastructure applications to support various industrial operations. 8 Water Infrastructure sells primarily through direct channels with remaining sales through indirect channels and service capabilities. Both utility and industrial facility customers increasingly require our teams’ global but locally proficient expertise to use our equipment in their specific applications.
Water Infrastructure sells primarily through direct channels with remaining sales through indirect channels and service capabilities. Both utility and industrial facility customers increasingly require our teams’ global but locally proficient expertise to use our equipment in their specific applications.
Accordingly, Xylem respects the legal rights of its employees to join or to refrain from joining such organizations. An employee’s decision to join or not join a labor organization will in no way result in any discrimination against that employee. Xylem informs managers at all levels of the importance of respecting the rights of colleagues to organize or be represented.
An employee’s decision to join or not join a labor organization will in no way result in any discrimination against that employee. Xylem informs managers at all levels of the importance of respecting the rights of colleagues to organize or be represented.
We have approximately 5,600 employees in the U.S., 7,100 in Western Europe, and 4,300 in the Emerging Markets, with the remaining 800 in other geographies in which we operate. Approximately 37% of our colleagues are represented by labor unions, including 16% of our U.S. colleagues. In certain foreign countries, our colleagues are represented by work councils.
We have approximately 9,300 employees in the U.S., 7,800 in Western Europe, and 4,700 in the Emerging Markets, with the remaining 1,000 in other geographies in which we operate. Approximately 11% of our U.S. colleagues are represented by labor unions. In certain foreign countries, our colleagues are represented by work councils.
ITEM 1. BUSINESS Business Overview Xylem is a leading global water technology company with 2022 revenues of $5.5 billion and approximately 17,800 employees worldwide. We design, manufacture and service highly engineered products and solutions across a wide variety of critical applications, primarily in the water sector, but also in energy.
ITEM 1. BUSINESS Business Overview Xylem is a leading global water technology company with 2023 revenues of $7.4 billion and approximately 23,000 employees worldwide. We design, manufacture and service highly engineered products and solutions across a wide variety of critical applications primarily in the water sector.
The customer base consists of two primary end markets: utility and industrial. The utility market includes public, private and public-private entities that support water, wastewater and storm water networks.
The customer base consists of two primary end markets: utility and industrial. The utility market includes public, private and public-private entities that support water, wastewater and storm water networks. The industrial market includes customers that require similar water and wastewater infrastructure applications to support various industrial operations.
"Water scarcity" refers to the management of limited supplies of water due to climate change, overpopulation and pollution.
"Resilience" refers to the management of water-related risks, including climate change mitigation, and the resilience of water infrastructure. "Water scarcity" refers to the management of limited supplies of water due to climate change, overpopulation and pollution.
We seek to align our human capital and sustainability strategies to support our mission-driven culture and further our shared value approach, which is designed to generate increased economic and social value for our investors and other stakeholders.
We seek to align our human capital and sustainability strategies to support our high-impact culture and further our shared value approach, which are both designed to generate long-term economic and social value for our investors and other stakeholders.
Delivering value in these areas creates significant opportunity for the Company. 5 The Global Water Industry Value Chain The water industry value chain includes Equipment, Technology and Services companies, like Xylem, that address the unique challenges and demands of a diverse customer base.
The Global Water Industry Value Chain The water industry value chain includes Equipment, Technology and Services companies, like Xylem, that address the unique challenges and demands of a diverse customer base.
“Risk Factors” under the headings Risks Related to Our Business and Operations, Risks Related to Financial and Tax, and Risks Related to Legal and Regulatory. 12 Sustainability At Xylem, sustainability is at the center of who we are and what we do.
Additional information about the impact of government regulations on Xylem’s business is included in Item 1A. “Risk Factors” under the headings Risks Related to Our Business and Operations, Risks Related to Financial and Tax, and Risks Related to Legal and Regulatory. Sustainability At Xylem, sustainability is at the center of who we are and what we do.
Population growth and urbanization, climate and regulation on energy efficiency, and digitalization enabling self-service and preventive maintenance are macro growth drivers of these markets, driving the need for housing, food, community services and retail goods within growing city centers.
Population growth and urbanization, climate and regulation on energy efficiency, and digitalization enabling self-service and preventive maintenance are macro growth drivers of these markets, driving the need for housing, food, community services and retail goods within growing city centers. 8 Competition in the Applied Water segment focuses on brand reputation, application expertise, product delivery, performance and energy efficiency, quality and reliability, and price.
Competition in the Applied Water segment focuses on brand reputation, application expertise, product delivery, performance and energy efficiency, quality and reliability, and price. We compete by offering a wide variety of innovative and high-quality products, coupled with world-class application expertise. We believe our distribution through well-established channels and our reputation for quality significantly enhance our market position.
We compete by offering a wide variety of innovative and high-quality products, coupled with world-class application expertise. We believe our distribution through well-established channels and our reputation for quality significantly enhance our market position.
We are continuing to explore ways to help our colleagues thrive in a variety of work settings and have formalized guidelines that support remote and hybrid work. To better support our colleagues in a more flexible workplace, we also provide high-touch global onboarding and leverage collaboration technologies.
We are continuing to explore ways to help our colleagues thrive in a variety of work settings and have formalized guidelines that support remote and hybrid work.
As the portfolio of our patents, patent applications and license agreements has evolved over time, we do not expect the expiration of any specific patent to have a material adverse effect on our financial position or results of operations.
As the portfolio of our patents, patent applications and license agreements has evolved over time, we do not expect the expiration of any specific patent to have a material adverse effect on our financial position or results of operations. 11 Governmental Regulations Environmental Regulations Our global operations are subject to various laws and regulations governing the environment and climate change, such as those promulgated by the U.S.
The market for production, technical services, leadership and highly-skilled talent is increasingly competitive, but we believe our culture is a differentiator and therefore important to our ability to attract and retain employees. As of December 31, 2022, Xylem employed approximately 17,800 employees worldwide.
The market for individuals with these competencies is increasingly competitive, but we believe our culture is a differentiator and therefore important to our ability to attract and retain employees. As of December 31, 2023, Xylem employed approximately 23,000 employees worldwide.
We will continue building innovation, product management and engineering teams in these regions, expanding our market coverage in key growth markets such as China, India, Eastern Europe, Latin America and Africa. We seek to address the base of the pyramid population by providing water and sanitation needs with new solutions and business models. • Strengthen Innovation and Technology.
We will continue building innovation, product management and engineering teams in these regions, expanding our market coverage in key growth markets such as China, India, Eastern Europe, Latin America and Africa.
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. 7 Business Segments, Distribution and Competitive Landscape We have t hree reportable business segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, and Measurement & Control Solutions.
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.
Our ability to deliver innovative product offerings has enabled us to compete effectively, to cultivate and maintain customer relationships and to serve and expand into many niche and new markets.
Our ability to deliver innovative product offerings has enabled us to compete effectively, to cultivate and maintain customer relationships and to serve and expand into many niche and new markets. Our key competitors in the Applied Water segment include Grundfos, Wilo SE, Pentair plc and Franklin Electric Co., Inc.
While environmental and climate change laws and regulations are subject to change, such changes can be difficult to predict reliably and the timing of potential changes is uncertain. Management does not believe, based on current circumstances, that compliance costs pursuant to such regulations will have a material adverse effect on our financial position or results of operations.
Management does not believe, based on current circumstances, that compliance costs pursuant to such regulations will have a material adverse effect on our financial position or results of operations. However, the effect of future legislative or regulatory changes could be material to our financial condition or results of operations.
Additionally, we also provide solutions to enhance communications and efficiency, improve safety and conserve resources to customers in the water and energy sectors.
Additionally, we also provide solutions to enhance communications and efficiency, 4 improve safety and conserve resources to customers in the water sector. Delivering value in these areas creates significant opportunity for the Company.
We compete in areas that are pivotal to improving "water affordability" and "resilience", while reducing the impact of "water scarcity". "Water affordability" refers to the more efficient delivery, use and treatment of clean water and wastewater. "Resilience" refers to the management of water-related risks, including climate change mitigation, and the resilience of water infrastructure.
We compete in areas that are pivotal to improving "water affordability," "water quality," and "resilience", while reducing the impact of "water scarcity". "Water affordability" refers to the more efficient delivery, use and treatment of clean water and wastewater. "Water quality" refers to the suitability of water for a particular use based on its physical, chemical and biological characteristics.
Demand for fresh water is rising rapidly due to population growth, industrial expansion, and increased agricultural development, with consumption estimated to double every 20 years. By 2025, more than 30% of the world’s population is expected to live in areas without adequate water supply.
Demand for fresh water is rising rapidly due to population growth, industrial expansion, and increased agricultural development, with consumption estimated to double every 20 years. It is expected that there will be a 40% gap between global water supply and demand by 2030.
In 2022, we submitted our 2030 GHG reduction targets to the Science Based Target Initiative for validation. As of year end, these are currently under review. In 2022, we announced investments in CNote’s Impact Cash™ platform, a mechanism through which we invest and deposit cash at scale in community finance institutions that strengthen and transform underserved communities.
In 2022, we announced investments in CNote’s Impact Cash™ platform, a mechanism through which we invest and deposit cash at scale in community finance institutions that strengthen and transform underserved communities.
Career Development We are committed to enhancing colleagues’ capabilities needed for the Company to win in the marketplace. We also are focused on internal talent mobility across functions, geographies and businesses. Through our continuous improvement program, we nurture and grow a continuous improvement mindset throughout all areas of the Company.
To better support our colleagues in a more flexible workplace, we also provide high-touch global onboarding and leverage collaboration technologies. 14 Career Development We are committed to enhancing colleagues’ capabilities needed for the Company to win in the marketplace. We also are focused on internal talent mobility across functions, geographies and businesses.
Governmental Regulations Environmental Regulations Our global operations are subject to various laws and regulations governing the environment and climate change, such as those promulgated by the U.S. Environmental Protection Agency and similar state and foreign environmental agencies, including the discharge of pollutants and the management and disposal of hazardous substances.
Environmental Protection Agency and similar state and foreign environmental agencies, including related to the discharge of pollutants and the management and disposal of hazardous substances. While environmental and climate change laws and regulations are subject to change, such changes can be difficult to predict reliably and the timing of potential changes is uncertain.
We have a broad range of talent development programs and experiences to facilitate the continued professional growth and leadership development of our colleagues and to support our succession plans. These programs span across all levels, businesses and functions, including entry-level talent recruitment programs, development programs for emerging leaders, people leader training and executive leadership development.
These programs span across all levels, businesses and functions, including entry-level talent recruitment programs, development programs for emerging leaders, people leader training and executive leadership development. We also provide on-demand/self-paced learning through our learning management systems.
We 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 are focused on building and enabling infrastructure for digital growth by making our hardware, networks and software applications interoperable and creating a common software experience.
We are focused on building and enabling infrastructure for digital growth by making our hardware, networks and software applications interoperable and creating a common software experience.
Our key competitors in the Applied Water segment include Grundfos, Wilo SE, Pentair plc and Franklin Electric Co., Inc. 9 Measurement & Control Solutions Measurement & Control Solutions develops advanced technology solutions that enable intelligent use and conservation of critical water and energy resources.
Measurement and Control Solutions Measurement and Control Solutions develops advanced technology solutions that enable intelligent use and conservation of critical water and energy resources.
This follows our 2019 execution of a five-year revolving credit facility (the “2019 Credit Facility”) with Citibank, N.A., as Administrative Agent, and a syndicate of lenders.
("Evoqua") acquisition on these targets. 12 In 2023, we entered into a five-year revolving credit facility (the "2023 Credit Facility") with Citibank, N.A., as Administrative Agent, and a syndicate of lenders.
We are currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at a number of current and former manufacturing facilities. We do not anticipate these liabilities will have a material adverse effect on our consolidated financial position or results of operations.
We do not anticipate these liabilities will have a material adverse effect on our consolidated financial position or results of operations. At December 31, 2023, we had estimated and accrued $4 million related to environmental matters.
However, the effect of future legislative or regulatory changes could be material to our financial condition or results of operations. We continue to be dedicated to environmental and sustainability programs to minimize the use of natural resources, reduce the utilization and generation of hazardous materials from our processes and remediate identified environmental concerns.
We continue to be dedicated to environmental and sustainability programs to minimize the use of natural resources, reduce the utilization and generation of hazardous materials from our processes and remediate identified environmental concerns. We are currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at a number of current and former manufacturing facilities.
We work to establish favorable employment conditions that promote positive relationships between our colleagues and their managers, facilitate communications among our colleagues and support their development. 15 Available Information We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC.
Available Information We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC.
FCC; lobbying activity; health and safety; and the environment, among other matters. We have policies and procedures in place to promote compliance with these laws and regulations. Additional information about the impact of government regulations on Xylem’s business is included in Item 1A.
FCC; lobbying activity; health and safety; the environment; air emissions; potable and non-potable water; wastewater discharge; and the generation, handling, storage, use, transport, treatment and disposal of non-hazardous and hazardous materials and wastes, among other matters. We have policies and procedures in place to promote compliance with these laws, regulations, and permits.
The 2019 Credit Facility includes a pricing grid that determines the applicable margin based on Xylem's credit rating, with a further adjustment depending on Xylem's annual Sustainalytics Environmental, Social and Governance (“ESG”) score, an important barometer of Xylem’s continued commitment to sustainability.
The 2023 Credit Facility includes a pricing grid that determines the applicable margin based on Xylem's credit rating, with a further adjustment based on Xylem's achievement of certain sustainability related key performance indicators (the "KPIs"). Facility fees under the 2023 Credit Facility are also adjusted based on Xylem's credit rating and the KPIs.
As of December 31, 2022 globally, 26% of our colleagues identify as female; in the U.S., 28% of our colleagues identify as U.S. minorities. Diversity and inclusion metrics are included in our regular business reviews to provide transparency and drive accountability by highlighting progress on goals and outlining steps to achieve them.
These and other diversity and inclusion metrics are included in our regular business reviews to provide transparency and drive accountability by highlighting progress on goals and outlining steps to achieve them, grounded in merit-based retention, promotion and recruitment. In addition, we publicly disclose various workforce metrics regarding gender, age and racial and ethnic diversity, including our U.S. EEO-1 report.
In addition, we publicly disclose various workforce metrics regarding gender, age and racial and ethnic diversity, including our U.S. EEO-1 report. One of our strategies for becoming a more diverse organization—and incorporating broader experiences, skill sets, and perspectives into our work—is expanding sourcing channels for diverse talent through external diversity partnerships and affiliations.
Key strategies for becoming a more diverse organization—and incorporating broader experiences, skill sets, and perspectives into our work— include expanding sourcing channels for diverse talent through external diversity partnerships and affiliations, and prioritizing diverse candidate slates when filling professional roles to increase the pool of qualified candidates considered.
In our 2021 employee engagement survey, we sought specific feedback from our colleagues on their efforts to manage stress and disconnect from work and, based on the survey responses, we have augmented our holistic well-being strategies, including providing mental health awareness training to our people leaders, which more than 500 people managers have participated in, and expanding our Employee Assistance Program support across the globe. 14 In response to the ongoing crisis in Ukraine, we continue to provide financial and logistical support to our colleagues and partners in Ukraine, including travel assistance and temporary accommodations near our facilities in Poland.
Based on historical employee engagement survey feedback, we have augmented our holistic well-being strategies, including the expansion of our Employee Assistance Program support across the globe and mental health awareness training to our people leaders.
Our Employee Network Groups foster inclusion and support the development of our colleagues by offering formal and informal leadership opportunities and creating visibility for colleagues. Labor Relations Xylem recognizes the work of labor organizations, work councils and trade unions to better the lives of working people.
In 2023, approximately 89% of our colleagues participated in employee-led volunteerism, including through Watermark, enhancing the Company’s commitment to employee development, retention, recruiting and collaboration in the communities where we live and work. Our Employee Network Groups foster inclusion and support the development of our colleagues by offering formal and informal leadership opportunities and creating visibility for colleagues.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeDisruption to information technology and communications networks on which we rely, or an attack on our products and services, could interfere with our operations, disrupt our supply chain and service to our customers, interrupt production and shipments, result in theft or compromise of our and our customers’ intellectual property and trade secrets, damage employee, customer and business partner relationships, negatively impact our reputation, result in legal claims and proceedings or regulatory enforcement actions, and increase our costs for security and remediation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Biggest changeA cybersecurity Incident or other damage or disruption to information technology and communications networks or involving our connected products and services may have adverse effects on us, our customers or third parties on which we rely, including: interference with operations and services, potentially with public health and safety risks involving certain of our customers; disruption of production, supply chain, shipments, billing, collections and customer service; disruption to data analytics; disruption to remote monitoring and control of operational systems; unauthorized access, disclosure, misappropriation, misuse, destruction, compromise or theft of our financial, operational or other proprietary information, including intellectual property and trade secrets, or data pertaining to our employees, customers or suppliers; damage to employee, customer and business partner relationships; recall of our products; legal claims, proceedings or regulatory enforcement actions, and fines or penalties; increased costs to prevent, respond to or mitigate cybersecurity incidents; and damage our brands and reputation.
The failure of our technologies, products or services to maintain and gain market acceptance due to more attractive offerings, failure of our products to comply with new governmental regulations or policies, or customers’ slower-than-expected adoption of and investment in our new and innovative technologies could significantly reduce our revenues or market share and adversely affect our competitive position.
The failure of our technologies, products or services to maintain and gain market acceptance due to more attractive offerings, the failure of our products to comply with governmental regulations or policies, or customers’ slower-than-expected adoption of and investment in our new and innovative technologies could significantly reduce our revenues or market share and adversely affect our competitive position.
Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar. The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, Chinese Yuan, British Pound, Canadian Dollar, Australian Dollar, Swedish Krona and Indian Rupee. As the U.S.
Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar. The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, British Pound, Canadian Dollar, Chinese Yuan, Australian Dollar, Indian Rupee, and Swedish Krona. As the U.S.
We also need to continue to develop qualified talent to support business growth and robust succession plans, both of which are critical to our long-term success.
We also need to continue to develop qualified talent to support business growth and robust succession plans, both of which are 22 critical to our long-term success.
Beyond the general risks that we face outside the U.S., our operations in emerging markets are subject to additional risks and uncertainties, including: (i) governments may impose or increase withholding or other taxes on remittances and other payments to us; (ii) governments may seek to nationalize our assets; (iii) governments may impose or increase investment barriers or other restrictions affecting our business; (iv) difficulty in enforcing commercial agreements; (v) challenges collecting receivables, or protecting our intellectual property and other assets; (vi) pressure on the pricing of our products and services; (vii) higher business conduct risks; and (viii) challenges in our ability to attract and retain qualified talent and labor.
Beyond the general risks that we face outside the U.S., our operations in emerging markets are subject to additional risks and uncertainties, including: (i) governments may impose or increase withholding or other taxes on remittances and other payments to us; (ii) governments may seek to nationalize our assets; (iii) governments may impose or increase investment barriers or other restrictions affecting our business; (iv) difficulty in enforcing commercial agreements or collecting receivables; (v) challenges protecting our intellectual property and other assets; (vi) pricing pressure on our products and services; (viii) higher business conduct risks; and (ix) challenges in our ability to attract and retain qualified talent and labor.
Achieving these goals and commitments will require evolving our business, making capital investments and developing technologies that might not currently exist. We might incur additional expense or be required to recognize impairment charges in connection with our efforts. These commitments, goals, targets and other objectives reflect our current plans and there is no guarantee that they will be achieved.
Achieving these goals and commitments will require evolving our business, making capital investments and developing technologies that might not currently exist. We might incur additional expenses or be required to recognize impairment charges in connection with our efforts. These commitments, goals, targets and other objectives reflect our current plans and there is no guarantee that they will be achieved.
Defects, inadequacies or quality issues in the manufacture, design, software, security or service of our products (including finished goods, parts or components that we source from third parties), unanticipated use, or inadequate disclosure of risks relating to the use of our products could result in product safety, product security, regulatory or environmental risks, including personal injury, death, property or environmental damage.
Defects, inadequacies or quality issues in the manufacture, design, software, security or service of our products (including finished goods, parts or components that we source from third parties), unanticipated or improper use, or inadequate disclosure of risks relating to the use of our products, could result in product safety, product security, regulatory or environmental risks, including personal injury, death, and property or environmental damage.
Any interruption in capability may be lengthy and have lasting effects, require a significant amount of management and other employees' time and focus, and require us to make substantial expenditures to mitigate the situation, which could negatively affect our operations, business processes and activities, profitability, financial condition and reputation.
Any interruption may be lengthy, have lasting effects, require a significant amount of management and other employees' time and focus, and require us to make substantial expenditures to mitigate the situation, which could negatively affect our operations, business processes and activities, profitability, financial condition and reputation.
We may not be able to complete acquisitions with favorable terms or timing, or at all, or obtain financing that may be needed to consummate acquisitions.
We may not be able to complete acquisitions or divestitures with favorable terms or timing or at all, or obtain financing that may be needed to consummate acquisitions.
We have developed, and will continue to establish, goals, targets, and other objectives related to sustainability matters, including our sustainability goals and commitments to Science-Based Targets aligned to limiting global temperature increase to 1.5°C above pre-industrial level, in line with the Paris Agreement, by 2030 and net zero greenhouse gas (GHG) emissions (Scope 1, 2 and 3) before 2050.
We have and will continue to establish goals, targets, and other objectives related to sustainability matters, including our sustainability goals and commitments to Science-Based Targets aligned to limiting global temperature increase to 1.5°C above pre-industrial level, in line with the Paris Agreement, by 2030 and net zero greenhouse gas (“GHG”) emissions (Scope 1, 2 and 3) before 2050.
As a result, our success in attracting and retaining employees, particularly in the areas of services, digital technologies, innovation and data science, has depended, and will continue to depend on our ability to offer attractive career growth opportunities, work arrangements, compensation, and benefits, and also policies and ways of working that support employee wellbeing.
As a result, our success in attracting and retaining employees, particularly in the areas of services, digital technologies, innovation and data science, has depended, and will continue to depend, on our ability to offer attractive career growth opportunities, work arrangements, compensation, and benefits, and also policies and ways of working that support employee well-being.
In addition, our results of operations may be adversely impacted by: (i) the failure to successfully integrate acquired businesses into our operations, technology and financial and other systems, (ii) the failure of acquired businesses to meet or exceed expected returns, which in the past has led to, and in the future may lead to, accounting impairments, (iii) the discovery of unanticipated liabilities, labor relations difficulties, cybersecurity concerns, control or compliance issues, or other issues for which we lack contractual protections, insurance or indemnities.
In addition, our results of operations may be adversely impacted by: (i) the failure to efficiently, effectively and timely integrate acquired businesses into our operations, technology, financial and other systems, (ii) the failure of acquired businesses to meet or exceed expected returns, which in the past has led to, and in the future may lead to, accounting impairments, (iii) the discovery of unanticipated liabilities, labor relations difficulties, cybersecurity concerns, control or compliance issues, or other issues for which we lack contractual protections, insurance or indemnities.
We may be unable to find partners or customers that have access to sufficient frequencies in some markets to sustain or develop our planned operations, or to find partners or customers that have access to sufficient frequencies in the relevant markets at a commercially feasible price or at all.
We may be unable to find partners or customers that have access to sufficient frequencies in some markets to sustain or develop our planned operations, or that have access to sufficient frequencies at a commercially feasible price or at all.
In 2021, a physical risk analysis using the Task Force on Climate Related Financial Disclosures (“TCFD”) framework indicated that certain of our facilities are at a moderate risk for exposure to water stress, coldwave and wildfire impacts due to the effects of climate change.
In 2021, a physical risk analysis of legacy Xylem facilities using the Task Force on Climate Related Financial Disclosures framework indicated that certain of our facilities are at moderate risk for exposure to water stress, coldwave and wildfire impacts due to the effects of climate change.
While governmental exemptions and waivers may in the future be issued that negate the application of the Buy America mandate to some or all of our potential sales into IIJA and other federally funded projects, it is uncertain whether and to what extent such exemptions or waivers may be issued.
While governmental exemptions and waivers may be issued that negate the application of the Buy America mandate for some or all of our potential sales into IIJA and other federally funded projects, it is uncertain whether and to what extent such exemptions or waivers may be issued.
In addition, our facilities or that of third parties upon which we rely operate in certain circumstances with equipment that may be unique and difficult to replace or involve long lead times for replacement.
In addition, our facilities or those of third parties upon which we rely operate in certain circumstances with equipment and manufacturing technology that may be unique and difficult to replace or involve long lead times for replacement.
Our operations, supply chain and sales both within the U.S. and internationally are subject, in varying degrees, to risks and uncertainties inherent in doing business globally, including: • economic nationalism, populism, protectionism, anti-global sentiment and changes in trade protection measures, including embargoes, tariffs and other trade barriers, import and export regulations, licensing requirements, and new and existing domestic content requirements for projects receiving governmental funding; • instability of and impacts from the evolving global geopolitical environment, including with respect to the relationships among the U.S., European Union, China, Taiwan, or other foreign countries, and the international community at large; • threat, outbreak, uncertainty or escalation of terrorism, political instability, insurrection, war or other armed conflict, including between Russia and Ukraine; • threat or outbreak of epidemics, global health crises or pandemics, such as COVID-19, and related uncertainties; 17 • changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies, and changes in other laws and regulations or how such provisions are interpreted or administered; • disruptions in our global supply chain, operations or those of third parties upon which we rely, including due to labor or supply shortages, freight and logistics challenges; • actual or threatened war or armed conflict, labor actions, or civil, political or other disturbances; • unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy; • theft, compromise or misappropriation of our technology, intellectual property or data; • shocks to the global financial system, including due to the outbreak or threat of war, armed conflict, other geopolitical conflicts, terrorism or global health crises, the effects of climate change, or other idiosyncratic events; • foreign currency exchange rate fluctuations, restrictions on repatriation of earnings or payment of distributions, dividends, loans or advances to us by foreign subsidiaries; • global or regional safety and security considerations; and • increased costs and risks in developing, staffing and simultaneously managing our many global operations as a result of distance, remote work arrangements, language and cultural differences.
Our operations, supply chain and sales both within the U.S. and internationally are subject, in varying degrees, to risks and uncertainties inherent in doing business globally, including: • economic nationalism, populism, protectionism, anti-global sentiment and changes in trade protection measures, including embargoes, tariffs and other trade barriers, import and export regulations, licensing requirements, and new and existing domestic content requirements for projects receiving governmental funding; • instability of and impacts from the evolving global geopolitical environment, including concerning the relationships among the U.S., European Union, Middle East, Russia, China, Taiwan, or other foreign countries, and the international community at large; • threat, outbreak, uncertainty or escalation of terrorism, political instability, insurrection, war or other armed conflict, including between Russia and Ukraine and the Middle East, and the potential for regional escalation; • threat or outbreak of epidemics, global health crises or pandemics, and related uncertainties; • changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies, as well as changes in other laws and regulations or how such provisions are interpreted or administered; 16 • disruptions in global or regional supply chains, our operations, or those of third parties upon which we rely, including due to labor disruptions, supply shortages, and freight and logistics challenges; • unanticipated regulatory changes or unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy; • theft, compromise or misappropriation of our technology, intellectual property or data; • shocks to the global financial system, including due to the outbreak or threat of war, armed conflict, other geopolitical conflicts, terrorism or global health crises, the effects of climate change, or other idiosyncratic events; • foreign currency exchange rate fluctuations, restrictions on repatriation of earnings or payment of distributions, dividends, loans or advances to us by foreign subsidiaries; • global or regional safety and security considerations; and • increased costs and risks in developing, staffing and simultaneously managing our many global operations as a result of distance, remote work arrangements, language and cultural differences.
Similarly, our failure or perceived failure to pursue or fulfill our sustainability commitments, goals, targets, and objectives, to comply with ethical, environmental, or other standards, regulations, or expectations, or to comply with reporting requirements and standards with respect to these matters, within the timelines we announce, or at all, could have operational, reputational, financial and legal impacts.
Similarly, our failure or perceived failure to pursue or fulfill our sustainability commitments, goals, targets, and objectives, to comply with ethical, environmental or other standards, regulations, or expectations, or to comply with reporting and disclosure requirements and standards related to these matters, within the timelines we announce, or at all, could have adverse operational, reputational, financial and legal impacts.
A failure to attract or retain highly engaged and skilled talent and labor could adversely affect our ability to meet and exceed the needs of our customers, operate and grow our business and execute our strategy. Defects, unanticipated use or inadequate disclosures with respect to our products could adversely affect our business, reputation and financial condition and results of operations.
A failure to attract or retain highly engaged and skilled talent and labor could adversely affect our ability to meet and exceed the needs of our customers, operate and grow our business and execute our strategy. Defects, unanticipated or improper use or inadequate disclosures concerning our products could adversely affect our business, reputation and financial condition and results of operations.
In addition, if a sole or single source supplier were to cease or interrupt production or otherwise fail to supply a key component to us, it could adversely affect our product sales and operating results.
In addition, if a sole- or single-source supplier were to cease or interrupt production or otherwise fail to supply a key component to us, it could adversely affect our production, revenues and operating results.
A significant disruption to any of our facilities or operations, or that of third parties upon which we rely, could cause material adverse impacts to our financial performance, operations and business, including an inability to meet customer demand or contractual commitments, increased costs, and reduced sales, and could impact our business processes and activities, including our ability to timely report financial results.
A significant disruption to any of our facilities or operations, or that of customers or third parties on which we rely, could cause material adverse impacts on our operations and business, including an inability to meet customer demand or contractual commitments, increased costs and reduced sales, and could also impact our business processes and activities, including our ability to timely report financial results.
Complying with regulators’ disclosure requirements may impose substantial additional costs and require additional resources, including with respect to third-party attestation, to enable the capture, analysis and audit of appropriate data. Any actual or alleged failure to comply with regulatory requirements could result in fines, penalties and civil liabilities, and damage to our reputation.
Complying with regulators’ disclosure requirements may impose substantial additional costs and will require additional resources, including for third-party attestation, to enable the capture, analysis and audit of appropriate data. Any actual or alleged failure to comply with regulatory requirements around disclosures could result in fines, penalties and civil liabilities, and damage to our reputation.
With sales in approximately 150 countries, we compete across a wide range of geographic and end-markets.
With sales in approximately 150 countries, we compete across a wide range of geographies and end markets.
In addition, fluctuations in temperatures result in varying levels of demand for our products used in residential and commercial hydronic applications, where homes and buildings use circulating water to heat and cool living spaces.
Fluctuations in temperatures may result in varying demand for our products used in residential and commercial hydronic applications, where homes and buildings use circulating water to heat and cool living spaces.
Our operating costs are subject to fluctuations, particularly due to changes in prices for commodities, parts, raw materials, energy and related utilities, freight and logistics, and cost of labor, which have been and may continue to be driven by a variety of factors, including inflation, tight labor markets, prevailing price levels, exchange rates, changes in trade agreements and trade protection measures including tariffs, and other economic factors.
Our operating costs are subject to fluctuations, particularly due to volatility or changes in prices for commodities, parts, raw materials, energy and related utilities, freight and logistics, and the cost of labor., Price volatility and changes have been and may continue to be driven by a variety of factors, such as inflation, tight labor markets, 17 prevailing price levels, exchange rates, changes in trade agreements, tariffs and other trade protection measures, and other economic factors.
For example, the U.S.’ imposition of tariffs on goods imported from China or deemed to be of Chinese origin, as well as the potential for new tariffs, other governmental actions, trade embargoes or sanctions by the U.S., or countermeasures imposed by China in response, has in the past and could in the future have an adverse direct or indirect impact our global supply chain, manufacturing costs, and sales and operations in China.
The U.S.’s imposition of tariffs on goods imported from China or deemed to be of Chinese origin, as well as the potential for new tariffs, other governmental actions, trade embargoes or sanctions by the U.S., or countermeasures imposed by China in response, has in the past and could in the future have an adverse direct or indirect impact our global supply chain, manufacturing costs, business and operating results.
Our facilities and operations rely on a complex and highly reactive global supply chain, including suppliers (and their suppliers), some of which are a single-or sole-source, distributors, contract manufacturers, utilities providers, and freight and logistics providers.
Our facilities, operations and business rely on a complex and highly reactive global supply chain, including suppliers (and their suppliers), some of which are a single- or sole-source, distributors, contract manufacturers, subcontractors, joint venture partners, utilities providers, and freight and logistics providers.
Our competitive position and future growth rate depend upon a number of factors, including our ability to successfully: (i) innovate, develop and maintain competitive and secure products and services, as well as business models and customer experience, to address emerging regulations and trends and meet customers’ needs (including those related to social, environmental and sustainability matters), (ii) defend our market share against an ever-expanding number of competitors, many of which are new and non-traditional competitors from outside our industry, such as large technology firms, or those out of emerging markets, (iii) enhance our product and service offerings by adding innovative features, increased efficiency or disruptive technologies that differentiate them from those of our competitors and prevent commoditization, (iv) develop, manufacture and bring compelling, secure and efficient new products and services to market quickly and cost-effectively, (v) continue to cultivate, develop and maintain our distribution network of channel partners, (vi) attract, develop and retain individuals with the requisite innovation, digital and technical expertise and understanding of customers’ needs to develop and commercialize new technologies, products and services, (vii) continue to leverage and expand our external ecosystem of innovation partners from universities, venture capital, the start-up of community and other technology firms, (viii) continue to invest in our manufacturing, research and development, engineering, sales and marketing, digitization of customer service and support tools, and distribution networks, (ix) win large contracts, and (i) compete for business subject to applicable governmental procurement laws, regulations and policies, including new and existing domestic content requirements in the U.S. and globally, as they may evolve over time.
Our competitive position and future growth depend upon a number of factors, including our ability to successfully: (i) innovate, develop, bring to market and maintain competitive, compelling, secure and efficient technologies, products and services, business models and customer experience, to address emerging regulations and trends and meet customers’ needs (including those related to digitization of water, social, environmental and sustainability matters), (ii) defend our market share against an ever-expanding number of competitors, many of which are new and non-traditional from outside our industry, such as large technology firms, or those in the emerging markets, (iii) enhance our product and service offerings by adding innovative features, increased efficiency or disruptive or emerging technologies, such as artificial intelligence, that differentiate them from those of our competitors and prevent commoditization, (iv) continue to invest in, cultivate, develop and maintain our distribution network of channel partners, (v) attract, develop and retain individuals with the requisite innovation, digital and technical capabilities, expertise and understanding of customers’ needs to develop and commercialize new technologies, products and services, (vi) continue to leverage and expand our external ecosystem of innovation partners with joint venture partners, universities, venture capital, the start-up of community and other technology firms, (vii) continue to invest in our manufacturing, research and development, engineering, sales and marketing, and digitization of customer service and support tools, (viii) win large contracts and execute them on schedule and on budget, (ix) optimize our supply chain and manufacturing to enable predictable and efficient delivery to customers, and (x) compete for business subject to applicable governmental procurement laws, regulations and policies, including new and existing sustainability and domestic content requirements in the U.S. and globally, as they may evolve over time.
Risks Related to Financial and Tax Our business is subject to foreign currency exchange rates fluctuations. Sales outside of the U.S. for the year ended December 31, 2022 accounted for approximately 53% of our net sales. We also have significant operations in various locations outside of the U.S.
Risks Related to Financial and Tax Our business is subject to foreign currency exchange rate fluctuations. Sales outside of the U.S. for the year ended December 31, 2023 accounted for approximately 46% of our net sales. We also have significant operations in various locations outside of the U.S.
In 2022, 47% of our total revenue was from sales to U.S. customers and 53% was from sales to customers outside the U.S. We expect our sales from international operations and export sales to continue to be a significant portion of our revenue. Many of our manufacturing operations, employees, suppliers and distribution channels are located outside of the U.S.
In 2023, 54% of our total revenue was from sales to U.S. customers and 46% was from sales to customers outside the U.S. We expect our sales from international operations and export sales to continue to be a significant portion of our revenue. Many of our manufacturing operations, employees, suppliers and distribution channels are located outside of the U.S.
Risks in this section are grouped in the following categories: (1) Risks Related to Geopolitical, Macroeconomic and Industry Factors; (2) Risks Related to Our Business and Operations; (3) Risks Related to Financial and Tax; (4) Risks Related to Legal and Regulatory; and (5) Risks Related to the Proposed Acquisition of Evoqua.
Risks in this section are grouped in the following categories: (1) Risks Related to Geopolitical, Macroeconomic and Industry Factors; (2) Risks Related to Our Business and Operations; (3) Risks Related to Financial and Tax; and (4) Risks Related to Legal and Regulatory.
Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: diversion of management’s attention from existing businesses and operations; insufficient internal controls over financial or compliance activities or financial reporting; the failure to realize expected synergies; the assumption of new material risks associated with the acquired businesses; and the loss of key employees of the acquired businesses.
Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: diversion of management’s time and attention from existing businesses and operations; insufficient internal controls over financial or compliance activities or financial reporting; the failure to realize expected synergies; impact our 23 ability to achieve our sustainability commitments; the assumption of new material risks associated with the acquired businesses; and the loss of key employees of the acquired businesses.
However, if these shortages and disruptions continue, if additional disruptions occur (including related to the aforementioned risk of disruption in the global semiconductor industry due to China-Taiwan geopolitical issues), or if our efforts to mitigate these shortages and disruptions are insufficient or unsuccessful, we may be unable to, or delayed in our ability to execute on our backlog, fill new customer orders or timely deliver products to our customers and therefore could have a material adverse effect on our business, financial condition or results of operations.
While supply conditions eased throughout 2023, if disruptions occur in the future (including related to the aforementioned risk of disruption in the global semiconductor industry due to China-Taiwan geopolitical issues), or if our efforts to mitigate these shortages and disruptions are insufficient or unsuccessful, we may be delayed or unable to execute on our backlog, fill new customer orders or timely deliver products to our customers and therefore could have a material adverse effect on our business, financial condition or results of operations.
Our ability to achieve any stated commitment, goal, target, or objective is subject to factors and conditions, many of which are outside of our control, including the pace of changes in technology, the availability of requisite financing, and the availability of suppliers that can meet our sustainability and other standards.
Our ability to achieve any stated commitment, goal, target, or objective is subject to factors and conditions, many of which are outside of our control, including the extent to which energy generated from renewable resources is available from the grid, the pace of changes in technology, the availability of requisite financing, and the availability of suppliers that can meet our sustainability and other standards.
Future slowdowns, economic recession, or other prolonged downturns in the global economy or our markets could have material adverse effects on our business, financial condition, cash flows, results of operations and stock price. We are exposed to geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales, supply chain and operations.
Future economic slowdowns or recession, or other prolonged downturns in the global economy or our markets could have material adverse effects on our business, financial condition, cash flows, results of operations and stock price. Our business may be materially adversely affected by geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales, supply chain and operations.
In the year ended December 31, 2022, 19% of our total revenues were generated in emerging markets and we have placed a particular emphasis in our strategy on increasing our growth and presence in emerging markets, including China, India, and key markets in Africa.
In the year ended December 31, 2023, 16% of our total revenues were generated in emerging markets and we have placed a particular emphasis in our strategy on increasing our growth and presence in emerging markets, including China, India, and key markets in Africa, Middle East and Southeast Asia.
Weather conditions, including the effects of climate change and associated efforts by governmental or regulatory authorities to mitigate such effects, may cause volatility in our served markets, and may affect our businesses, operations and financial results. Globally, the frequency and severity of weather events due to the effects of climate change is increasing.
Weather conditions, including the effects of climate change as well as associated efforts by governmental or regulatory authorities to mitigate such effects, may cause volatility in our served markets and affect our businesses, operations and financial results.
We are exposed to the availability of these parts, components, materials and finished goods, which throughout 2022 have been and may in the future be subject to delay, curtailment or change due to, among other things, macroeconomic factors including supply and demand dynamics, labor shortages, changes in the strategy or production planning of suppliers including decisions to exit production of key components upon which we rely, interruptions in suppliers' production, labor disputes, the impaired financial condition of a particular supplier, suppliers’ capacity allocations to other purchasers, changes in trade agreements and trade protection measures including tariffs, exchange rates and prevailing price levels, ability to meet regulatory requirements, weather emergencies and associated effects of climate change, the ongoing effects of the COVID-19 pandemic, or other public health crises, or threatened or actual terrorism, armed conflict, or war, including the ongoing conflict between Russia and Ukraine.
We are exposed to the availability of these items, which throughout 2023 have been and may in the future be subject to delay, curtailment or change due to, among other things, macroeconomic factors including: supply and demand dynamics; labor shortages or disputes; changes in the strategy or production planning of suppliers including decisions to exit production of key components upon which we rely; interruptions in suppliers' production, including as a result of fire or natural disaster; the impaired financial condition of a particular supplier; suppliers’ capacity allocations to other purchasers; changes in trade agreements and trade protection measures including tariffs, exchange rates and prevailing price levels; ability to meet regulatory requirements; weather emergencies and the effects of climate change; public health crises; and threatened or actual terrorism, armed conflict or war, including the ongoing conflicts between Russia and Ukraine, in the Middle East, and rebel attacks on commercial vessels in the Red Sea.
Furthermore, if our sustainability reporting and practices do not meet investor, regulator or other stakeholders’ expectations, standards and requirements, our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner or acquiror could be negatively impacted.
Furthermore, if our sustainability reporting and practices do not meet investors, regulators or other stakeholders’ expectations, standards and requirements, or if we are unable to satisfy all stakeholders, our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner or acquiror could be negatively impacted.
Although we continue to assess these risks, implement measures to mitigate these risks and perform business continuity and disaster recovery planning, we cannot be sure that cybersecurity attacks or other interruptions with material adverse effects will not occur, or that our business continuity and disaster recovery efforts will be effective and adequate.
Although we continue to assess the aforementioned risks, implement policies, processes, standards, measures, technologies and redundancies to mitigate these risks and perform business continuity and disaster recovery planning, we cannot be sure that cybersecurity incidents or other disruptions with material adverse effects will not occur, or that our business continuity and disaster recovery efforts will be effective and adequate.
These events could also lead to recalls, safety or security alerts relating to our products, result in the removal of a product from the market and/or result in warranty or liability claims against us.
These events could also lead to product recalls, safety or security alerts, or result in the removal of a product from the market, issuance of credits, warranty or liability claims or contractual damages against us.
Our facilities and operations and those of certain third parties on which we rely, have experienced, and may in the future experience, disruptions or delays as a result of an actual or threatened event or circumstance, including due to a significant equipment, technological or system failure, natural disaster, weather event, effects of climate change, power, energy curtailment or outage, water or communications outage, fire, explosion, critical supply chain failure, terrorism, cybersecurity attack, political disruption, the effects of COVID-19, outbreak of an epidemic, pandemic or other public health crisis, insurrection, armed conflict or war, labor dispute, work stoppage or slowdown, technology failure, financial viability or other reason.
Our facilities and operations and certain customers, contract manufacturers, subcontractors or other third parties on which we rely, have experienced, and may in the future experience, disruptions or delays resulting from an actual or threatened event or circumstance, including due to: a significant equipment, technological or system failure; natural disaster; weather event or effects of climate change; power or energy curtailment or outage; water or communications outage; fire; explosion; critical supply chain failure; terrorism; cybersecurity attack; political disruption; outbreak of a pandemic or other public health crisis; insurrection; armed conflict or war, including the ongoing conflicts involving Russia and Ukraine, the Middle East, and rebel attacks on vessels in the Red Sea; labor dispute, stoppage or slowdown; technology failure; lack of financial viability or other reason.
Our business relies on a large and complex network of suppliers (and their suppliers), including contract manufacturing, commodity markets and freight and logistics providers, to secure and ship finished goods and raw materials, parts, electronic components and other components that are used in our products.
Our business relies on a large and complex network of suppliers (and their suppliers), including contract manufacturers and subcontractors to perform manufacturing and customer-related services for us, as well as commodity markets and freight and logistics providers to secure and ship finished goods and raw materials, parts, electronic components and other components used in our products.
If our restructuring and realignment actions are not executed successfully, it could have material adverse impacts on the effectiveness of our internal controls over financial reporting, our competitive position, business, financial condition, cash flows and results of operations.
If our restructuring and realignment actions are not executed successfully, it could have material adverse impacts on the effectiveness of our internal controls over financial reporting, our competitive position, business, financial condition, cash flows and results of operations. The execution of our strategy includes acquisitions and divestitures, which we may be unable to successfully execute.
We expect our U.S. sales in 2023 and beyond to be similar. However, we may not be able to successfully compete for federally funded projects as some of our products may not comply with the domestic content requirements of the U.S. Buy America mandate under the Infrastructure Investment and Jobs Act (“IIJA”), as well as other federally funded projects.
However, on a case-by-case basis, we may not be able to successfully compete for a federally funded project as some of our products may not comply with the domestic content requirements of the U.S. Buy America mandate under the Infrastructure Investment and Jobs Act (“IIJA”) or other federally funded projects.
Material economic and industry factors impacting our businesses include: (i) the overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) inflation, (iii) overall strength of industrial, governmental, public and private sector spending; (iv) overall strength of the industrial, residential and commercial real estate markets; (v) federal, state, local and municipal governmental fiscal, trade and procurement laws, regulations and policies, including with respect to domestic content; (vi) the availability of commercial financing for our customers and end-users; and (vii) the degree of funding for our public sector customers, including with respect to water infrastructure investments.
Economic and industry factors that have had, or could in the future have, a material impacted on our businesses and demand for our products and services include: (i) the overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) inflation and related monetary policy actions by governments in response to inflation, (iii) overall strength of industrial, governmental, public and private sector spending; (iv) overall strength of the industrial, residential and commercial real estate markets; (v) federal, state, local and municipal governmental fiscal, trade and procurement laws, regulations and policies, including as respects domestic content; (vi) the availability of commercial financing for our customers and end-users; and (vii) the degree of funding for our public sector customers, including for water infrastructure investments.
Risks not currently known to us, or that we currently believe are immaterial, may impact our business, operations, financial condition or share price. The global economic and geopolitical climate, including as a result of the war between Russia and Ukraine, the coronavirus ("COVID-19") pandemic, and macroeconomic conditions, amplify many of the risks below.
Risks not currently known to us, or that we currently believe are immaterial, may impact our business, operations, financial condition or share price. The global macroeconomic and geopolitical climate amplify many of the risks below.
Pricing pressures could cause us to adjust the prices of certain products to stay competitive, or we may not be able to continue to win large contracts, which could adversely affect our market share and competitive position. 20 Cybersecurity incidents or other disruptions to our information technology infrastructure, communications networks and operations could adversely affect our business, products and services.
Pricing pressures could cause us to adjust the prices of certain products, services or projects to stay competitive, or we may not be able to continue to win large contracts, which could adversely affect our market share and competitive position. 18 Cybersecurity incidents and related data breaches or other disruptions to our enterprise information technology and operations, or to our connected products and services, including those of third parties on which we or our customers rely, could materially and adversely affect our business.
Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected. 19 Risks Related to Our Business and Operations Failure to compete successfully in our markets, including our ability to develop and commercialize innovative and disruptive technologies, could adversely affect our business.
Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
We expect that our reliance on, and the complexity of, the supply chain will continue to increase. Parts and raw materials commonly used in our products include electronic components, including semiconductors, motors, fabricated parts, castings, magnets, bearings, seals, batteries, and PCBs, as well as commodities, including steel, brass, nickel, copper, 21 aluminum and plastics.
Parts and raw materials commonly used in our products include motors, fabricated parts, castings, magnets, bearings, seals, batteries, PCBs and electronic components, including semiconductors, as well as commodities, including steel, brass, nickel, copper, aluminum and plastics.
We have also experienced, and continue to experience, increased freight and logistics costs, delivery delays related to port congestion and other logistics-related challenges. Although we have insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any or all aspects of supply chain disruptions.
Although we have insurance related to business continuity and supply chain, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any or all aspects of supply chain disruptions.
The U.S. has enacted various trade actions, including imposing tariffs on certain goods we import from China and other countries, which has resulted in retaliatory tariffs by China and other countries.
Additionally, the U.S. has enacted various trade actions, including imposing tariffs on certain goods we import from China and other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S., or further retaliatory trade measures taken by China or other countries, could increase the cost of our products.
Significant fluctuations in these weather conditions and climate changes can therefore result in volatility in our financial results. 24 Severe weather events and other effects of climate change have also caused, and may in the future cause, disruptions to our facilities and operations, as well as those of our customers and suppliers.
Severe weather events and other effects of climate change have also caused, and may in the future cause, disruptions to our facilities and operations, and those of our customers and suppliers.
Regardless of protection measures, essentially all systems are susceptible to damage, disruption or shut-down due to cybersecurity attacks, including ransomware, denial-of-service, computer viruses and security breaches; equipment or system failure, including due to maintenance, obsolescence or age; and other events or circumstances, such as human error or malfeasance, vandalism, natural disaster, fire, power, communication or other utility outage, shutdown or failure.
Regardless of protection measures, all information technology and communications networks are inherently susceptible to damage or disruption due to causes such as: equipment, system or application failure, including as a result of maintenance, obsolescence, unsupportability or age; human error or malfeasance; vandalism; natural disaster; fire; power, communication or other utility outage or failure; and cybersecurity incidents, including ransomware, denial-of-service, malware, phishing, and computer viruses.
The unpredictable nature of weather events and related conditions, including heavy flooding, water stress due to prolonged droughts, and fluctuations in temperatures or weather patterns, including as a result of climate change, can positively or negatively impact portions of our business.
The unpredictable nature, frequency, severity and changes in weather events, patterns and related conditions, such as heavy flooding, prolonged droughts, wildfires, rainfall amounts and intensity, sea levels, and fluctuations in temperatures, including as a result of climate change, can positively or negatively impact portions of our business and therefore result in volatility in our financial results.
Our success has depended, and will continue to depend on our ability to attract and retain highly qualified and diverse employees in senior management positions, and in strategic or core competencies, including engineering, innovation, digital technologies, commercial excellence, service, and project management, as well as general production-related talent.
Our success depends to a significant extent on our ability to attract and retain highly qualified and diverse employees in leadership positions, and in strategic or core competencies, including engineering, innovation, digital technologies, commercial excellence, service, and project management, as well as general production-related talent. The market for highly skilled talent, leaders and labor in our industry remains highly competitive.
In addition, as a result of the ongoing COVID-19 pandemic and broader global market supply and demand dynamics, we have experienced and may continue to experience shortages, capacity constraints and delays with respect to the supply of components, including electronic components (in particular, chips), and other parts and raw materials.
As a result of global market supply and demand dynamics, we have in the past and could in the future experience shortages, capacity constraints and delays in the supply of raw materials, parts, and components, including chips and other electronic components.
Macroeconomic impacts and dynamics, including as a result of the COVID-19 pandemic, with respect to supply chain shortages, logistics challenges, tight labor markets and inflation, have had, and continue to have, a material adverse effect on our business and results of operations.
Macroeconomic impacts, including actual or potential recession, and supply chain dynamics, including supply shortages, logistics challenges, tight labor markets, inflation, and significant government debt and deficit levels, have had, and continue to have, a material adverse effect on our business and results of operations.
Our business may face increased scrutiny from the investment community, regulators, media and other stakeholders related to our sustainability activities, including our commitments, goals, targets and objectives, and our methodologies and timelines for pursuing them. We are subject to increasing regulatory requirements around sustainability-related disclosures, including significant anticipated rulemaking by the SEC, which may continue to evolve.
We may face increased scrutiny from the investment community, regulators, media and other stakeholders related to our sustainability activities, commitments, goals, targets and objectives, and our methodologies and timelines for pursuing them.
We have significant sales, operations and direct or indirect suppliers located in China, which have been in the past, or could in the future be, adversely affected by China’s evolving laws, regulations and policies, including with respect to its evolving COVID Policy, import and export tariffs and restrictions, and information security and privacy.
We have significant sales, operations and direct or indirect suppliers located in China, which have been in the past, or could in the future be, adversely affected by: i) China’s evolving laws, regulations and policies, including as respects public health crises, import and export tariffs and restrictions, and information security and privacy, and ii) changes in the political and geopolitical environment involving China, including U.S.-China or China-Taiwan relations.
Inflation, tariffs, customs duties and other increases in manufacturing and operating costs have, and could continue to, adversely affect our cash flows and results of operations.
An inability to meet applicable domestic content requirements could have a material adverse impact on our business, financial condition or results of operations. Inflation, tariffs, customs duties and other increases in manufacturing and operating costs have, and could continue to, adversely affect our cash flows and results of operations.
Additional tariffs imposed by the U.S., or further retaliatory trade measures taken by China or other countries, could increase the cost of our products that we may not be able to offset through price increases or productivity. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method.
We may not be able to offset increases in our manufacturing costs through price increases or productivity. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method.
In addition, continuing to evolve our culture, which includes advancing diversity, equity and inclusion, is critical to attracting and retaining talent needed to execute our strategy, while also driving innovation, remaining competitive and creating long-term value.
In addition, we continue to evolve our culture, where colleagues are inspired to innovate, empowered to lead and accountable to deliver, and includes advancing diversity, equity and inclusion. These aspects of our culture have been and will remain critical to attracting and retaining talent needed to execute our strategy, while also driving innovation, remaining competitive and creating long-term value.
While we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot be sure that disruptions with material adverse effects will not occur. Governments may implement emissions trading schemes, carbon taxes, fuel taxes and other policies to reduce the impacts of climate change that could impact our business and financial results.
While we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot be sure that disruptions with material adverse effects will not occur.
Like many multinational companies, we, and some third parties upon which we rely, have experienced cybersecurity attacks on information technology networks and systems, products and services in the past and may experience them in the future, likely with more frequency and involving a broader range of devices and modes of attack.
We, and some third parties upon which we rely, have in the past experienced cybersecurity incidents or other attempts to gain unauthorized access to our information technology and connected products and services. As technology evolves, we may continue to experience such events, likely with more frequency and involving a broader range of devices and more sophisticated modes of attack.
The execution of our strategy includes acquisitions, which we may be unable to successfully execute or effectively integrate. 23 To execute our growth strategy, we plan to continue to pursue the acquisition of companies, assets, technologies, product lines and customer channels that complement or expand our existing business or improve our competitive position.
To execute our growth strategy, we plan to continue to realign and enhance our portfolio by pursuing the acquisition of companies, assets, technologies, product lines and customer channels that complement or expand our existing business or improve our competitive position, and divesting non-core or less strategic businesses.
Cybersecurity attacks may target hardware, software and information installed, stored or transmitted by our products after they have been purchased and incorporated into customers and other third parties’ products, facilities or infrastructure, including critical infrastructure applications. While we attempt to provide security measures to safeguard our products and services from cyber threats, the potential for an attack remains.
Cybersecurity incidents may impact hardware, software and information installed, stored or transmitted by our products and services after they have been purchased and incorporated into customers’ and other third parties’ products, facilities, systems or infrastructure, including critical infrastructure applications.
In addition, our customers may continue to use digitally-enabled products that were designed, manufactured and sold by us at a time when current security features were not available.
While we attempt to provide our customers with measures to safeguard our products and services from cybersecurity threats, the potential for a cybersecurity incident remains. In addition, certain of our customers continue to use digitally enabled products that we designed, manufactured and sold at a time when current security features were not available.
A significant portion of the offerings in our Measurement & Control Solutions segment use radio spectrum, which is subject to government regulation. To the extent we introduce new products designed for use in the U.S. or another country, such products may require significant modification or redesign in order to meet frequency requirements and other regulatory specifications.
To the extent we introduce new products designed for use in the U.S. or another country, such products may require significant modification or redesign in order to meet frequency requirements and other regulatory specifications. Limitations on frequency availability or the cost of making necessary modifications may preclude us from selling our products in certain countries.
In the U.S., our products are primarily designed to use FCC-licensed spectrum in the 900MHz range. If the FCC does not renew our existing spectrum licenses, or materially changes regulations affecting the use of these licenses, our business, financial condition, and results of operations could be adversely affected.
If the FCC does not renew our existing spectrum licenses, or materially changes regulations affecting the use of these licenses, our business, financial condition, and results of operations could be adversely affected. In addition, there may be insufficient available frequencies in some markets to sustain or develop our planned operations at a commercially feasible price or at all.
In some jurisdictions, radio station licenses may be granted for a fixed term and must be periodically renewed.
Outside the U.S., certain of our products require the use of radio frequency and are subject to regulations. In some jurisdictions, radio station licenses may be granted for a fixed term and must be periodically renewed.
Failure to successfully execute our growth strategy via acquisitions and successfully integrate these acquisitions could adversely affect our competitive position, business, financial condition or results of operations. A significant portion of our products and offerings in our Measurement & Control Solutions segment are affected by the availability, regulation of and interference with radio spectrum that we use.
A significant portion of our products and offerings in our Measurement and Control Solutions segment are affected by the availability, regulation of and interference with radio spectrum that we use. A significant portion of the offerings in our Measurement and Control Solutions segment use radio spectrum, which is subject to government regulation.
Furthermore, geopolitical changes in China-Taiwan relations could disrupt the operations of several companies in Taiwan that are critical to our complex, global supply chain, including with respect to the supply of semiconductors (“chips”) and other electronic components.
Geopolitical changes in China-Taiwan relations could disrupt the operations of several companies in Taiwan that are critical to our complex global supply chain for semiconductors (“chips”) and other electronic components. Such changes could have significant negative effects on the global semiconductor industry and could adversely affect our ability to manufacture our digitally-enabled products, such as pumps, controllers and smart meters.
Demand for water reuse applications, including those provided by our treatment business, may also increase as communities look to address water scarcity challenges due to the effects of climate change.
Prolonged drought conditions may increase demand for our pumping technology used in agriculture and turf irrigation applications. Demand for water reuse applications, such as those provided by our treatment business, may also increase as communities look to address water scarcity challenges.
In addition, we have significant manufacturing operations in Europe, which could be adversely impacted by increased costs for energy as a result of the Russia-Ukraine conflict and governments' efforts to decrease dependence on Russia energy supplies.
For example, we have significant manufacturing operations in Europe, which could be adversely impacted by increased energy costs related to an actual or potential escalation in the ongoing Russia-Ukraine conflict.
Our business operations, including manufacturing, rely on information technology, operational technology, and communications networks, some of which are operated by third parties, including cloud-based service providers, to process, transmit and store our electronic information, including sensitive data such as confidential business information and personal data relating to employees, customers or other business partners.
Our enterprise consists of our businesses, functions, operations, manufacturing and employees. We rely on information technology, including operational technology, and communications networks to run our manufacturing processes and equipment, to enable business processes, and to process, transmit, store and manage our electronic information, including confidential business information and data relating to employees, customers or other business partners.
We continue to evaluate the risks associated with the Buy America mandate, as well as related mitigation options around sourcing and manufacturing, but there is no guarantee that we will be able to meet applicable domestic content requirements across all our product lines.
We continue to evaluate and implement mitigation measures around sourcing and localization of manufacturing for our most significantly impacted product lines, as well as consider alternative products that may meet both project specifications and domestic content requirements, but there is no guarantee that we will be able in all cases to meet applicable domestic content requirements of a project or across all our product lines.
In addition, we rely on certain third parties to supply critical business processes and activities, including in the areas of Finance, Human Resources, Procurement, Travel and Information Technology.
In addition, we 20 outsource to vendors certain critical business processes and activities, including in the areas of Finance, Human Resources, Procurement, Travel and Information Technology. Certain of our businesses require that we or our subcontractors have access to customer sites to provide our products and services.
Although we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot be sure that interruptions with material adverse effects on our operational and financial performance will not occur. 22 Failure to retain our existing senior management, engineering, technology, sales, services and other key talents or the inability to attract new qualified and diverse talent could negatively impact our business.
Although we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot guarantee that interruptions with material adverse effects on our operational and financial performance will not occur. We may not realize some or all the expected benefits and synergies from our acquisition of Evoqua.
Recalls, removals, and warranty, liability and quality claims can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and have a material adverse effect on our business, financial condition and results of operations.
Manufacturing, design, software, security or service defects or inadequacies may therefore result in significant costs, decreased profitability, negative publicity, and reputational damage, that could reduce demand for our products and have material adverse impacts on our business, financial condition and results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeSquare Feet Owned or Leased Water Infrastructure Emmaboda Sweden Administration and Manufacturing 1,197,000 Owned Vadodara India Manufacturing and Research & Development 366,000 Leased Stockholm Sweden Administration and Research & Development 182,000 Leased Bridgeport NJ Administration and Manufacturing 136,000 Leased Shenyang China Manufacturing 125,000 Owned Applied Water Morton Grove IL Administration and Manufacturing 530,000 Owned Montecchio Italy Administration and Manufacturing 379,000 Owned Nanjing China Manufacturing 363,000 Owned Auburn NY Manufacturing 273,000 Owned Abony Hungary Manufacturing 250,000 Leased Stockerau Austria Sales & Service Office 234,000 Owned Strzelin Poland Manufacturing 185,000 Owned Cheektowaga NY Manufacturing 147,000 Owned Measurement & Control Solutions Ludwigshafen Germany Manufacturing 318,000 Owned Texarkana AR Manufacturing 254,000 Owned Uniontown PA Manufacturing 240,000 Leased DuBois PA Manufacturing 197,000 Owned Durham NC Administration and Research & Development 172,000 Leased Weilheim Germany Manufacturing 160,000 Leased Dubois PA Manufacturing 137,000 Leased Regional Locations Dubai United Arab Emirates Manufacturing 144,000 Owned Nottinghamshire United Kingdom Administration 139,000 Leased Nanterre France Sales & Service Office 139,000 Leased Langenhagen Germany Sales & Service Office 134,000 Owned Schaffhausen Switzerland Administration 26,000 Leased Corporate Headquarters Washington DC Administration 18,000 Leased 31
Biggest changeSquare Feet Owned or Leased Water Infrastructure Emmaboda Sweden Administration and Manufacturing 1,197,000 Owned Shenyang China Manufacturing 271,000 Owned Vadodara India Manufacturing and Research & Development 240,000 Leased Stockholm Sweden Administration and Research & Development 182,000 Leased Bridgeport NJ Administration and Manufacturing 136,000 Leased Applied Water Morton Grove IL Administration and Manufacturing 530,000 Owned Montecchio Italy Administration and Manufacturing 379,000 Owned Nanjing China Manufacturing 363,000 Owned Auburn NY Manufacturing 273,000 Owned Abony Hungary Manufacturing 250,000 Leased Stockerau Austria Sales & Service Office 234,000 Owned Strzelin Poland Manufacturing 185,000 Owned Cheektowaga NY Manufacturing 147,000 Owned Measurement and Control Solutions Ludwigshafen Germany Manufacturing 318,000 Owned Texarkana AR Manufacturing 254,000 Owned Uniontown PA Manufacturing 240,000 Leased DuBois PA Manufacturing 197,000 Owned Durham NC Administration and Research & Development 172,000 Leased Weilheim Germany Manufacturing 160,000 Leased Dubois PA Manufacturing 137,000 Leased Integrated Solutions and Services Thomasville GA Manufacturing 211,000 Owned Rockford IL Manufacturing 165,000 Owned Holland MI Manufacturing 132,000 Owned Houston TX Service 107,000 Leased Regional Locations Dubai United Arab Emirates Manufacturing 144,000 Owned Nottinghamshire United Kingdom Administration 139,000 Leased Nanterre France Sales & Service Office 139,000 Leased Langenhagen Germany Sales & Service Office 134,000 Owned Schaffhausen Switzerland Administration 26,000 Leased Corporate Headquarters Washington DC Administration 18,000 Leased 32
ITEM 2. PROPERTIES We have approximately 370 locations in more than 50 countries. These properties total approximately 13 million square feet, of which more than 300 locations, or approximately 7 million square feet, are leased.
ITEM 2. PROPERTIES We have approximately 500 locations in more than 50 countries. These properties total approximately 15 million square feet, of which more than 400 locations, or approximately 8 million square feet, are leased.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 19, "Commitments and Contingencies", of the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding certain legal and regulatory proceedings we are involved in.
Biggest changeWe currently believe that it will not have a material adverse effect on our business, financial condition, results of operations, or prospects. See Note 20, "Commitments and Contingencies", of the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding certain legal and regulatory proceedings we are involved in.
These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government contract issues and commercial or contractual disputes.
These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government investigations or contract issues and commercial or contractual disputes.
Added
Evoqua previously disclosed in its public filings that the United States Attorney’s Office for the District of Massachusetts was investigating whether financial misstatements were made in Evoqua’s public filings and earnings announcements. That investigation has been moved to the United States Attorney’s Office for the District of Rhode Island. The Company is cooperating with the investigation.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest change(2015) Dorothy Capers 61 Senior VP, General Counsel (2022) • Executive Vice President, Global General Counsel and Corporate Secretary, National Express Group (2015) Franz Cerwinka 53 Senior VP and President, Emerging Markets and Applied Water Systems (2023) • Senior VP and President, Emerging Markets (2020) • Chief Executive Officer, Johnson Controls-Hitachi Air Conditioning (2015) Michael McGann 52 Senior VP and President, Americas and Measurement & Control Solutions (2023) • VP, North America Utilities Commercial Team (2022) - • VP, Sensus Americas, Global Engineering and Assessment Services (2017) - • VP, Quality, Sensus USA Inc.
Biggest changeMcGann 53 Senior VP and President, Americas and Measurement and Control Solutions (2023) • VP, North America Utilities Commercial Team (2022) • VP, Sensus Americas, Global Engineering and Assessment Services (2017) Geri-Michelle McShane 50 VP, Controller and Chief Accounting Officer (2019) • Controller, Accounting and Reporting (2016) Claudia S.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 32 INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following information is provided regarding the executive officers of Xylem as of February 7, 2023: NAME AGE CURRENT TITLE OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS Patrick K. Decker 58 President and Chief Executive Officer (2014) Sandra E.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following information is provided regarding the executive officers of Xylem as of February 7, 2024: NAME AGE CURRENT TITLE OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS Matthew F.
Peribere Former President and Chief Executive Officer, Sealed Air Corporation Markos I. Tambakeras Former Chairman, President and Chief Executive Officer, Kennametal, Inc. Lila Tretikov Corporate Vice President & Deputy Chief Technology Officer, Microsoft Corporation Uday Yadav Chief Executive Officer, TK Elevator 34 PART II
Morelli President and Chief Executive Officer, Vontier Corporation Jerome A. Peribere Former President and Chief Executive Officer, Sealed Air Corporation Lynn C. Swann President, Swann Inc. Lila Tretikov Corporate Vice President & Deputy Chief Technology Officer, Microsoft Corporation Uday Yadav Chief Executive Officer, TK Elevator 35 PART II
(2013) Geri McShane 49 VP, Controller and Chief Accounting Officer (2019) • Controller, Accounting and Reporting (2016) Matthew Pine 51 Chief Operating Officer (2023) • Senior VP and President, Americas, Applied Water Systems and Measurement & Control Systems (2022) • Senior VP and President, Americas and Applied Water Systems (2020) • President, Carrier Residential, United Technologies Corporations (2018) • VP and General Manager, Carrier Residential, United Technologies Corporations (2017) Claudia S.
Pine 52 President and Chief Executive Officer (2024) • Chief Operating Officer (2023) • Senior VP and President, Americas, Applied Water Systems and Measurement and Control Systems (2022) • Senior VP and President, Americas and Applied Water Systems (2020) • President, Carrier Residential, United Technologies Corporations (2018), a multinational industrial conglomerate William K.
Jeanne Beliveau-Dunn Chief Executive Officer and President of Claridad, LLC Patrick K. Decker President and Chief Executive Officer, Xylem Inc. Victoria D. Harker Executive Vice President and Chief Financial Officer, TEGNA, Inc. Steven R. Loranger Former Chairman, President and Chief Executive Officer, ITT Corporation Mark D. Morelli President and Chief Executive Officer, Vontier Corporation Jerome A.
Ellis Executive Vice President and Chief Financial Officer, ABM Industries Incorporated Lisa Glatch Former President, LNG and Net-Zero Solutions and Chief Sustainability Officer, Sempra Infrastructure Victoria D. Harker Executive Vice President and Chief Financial Officer, TEGNA, Inc. Steven R. Loranger Former Chairman, President and Chief Executive Officer, ITT Corporation Mark D.
Toussaint 59 Senior VP, Chief People and Sustainability Officer (2021) • Senior VP, General Counsel and Corporate Secretary (2014) Hayati Yarkadas 54 Senior VP and President, Europe, Water Infrastructure and Global Services (2020) • Senior Vice President and President, Performance Materials, Trinseo S.A.
Toussaint 60 Senior VP, Chief People and Sustainability Officer (2021) • Senior VP, General Counsel and Corporate Secretary (2014) Hayati Yarkadas 55 Senior VP and President, Europe, Water Infrastructure and Global Services (2020) • Senior VP and President, Performance Materials, Trinseo S.A., a specialty material solutions provider (2015) Note: Date in parentheses indicates the year in which the position was assumed. 34 BOARD OF DIRECTORS The following information is provided regarding the Board of Directors of Xylem as of February 7, 2024: NAME TITLE Robert F.
Removed
Rowland 51 Senior VP and Chief Financial Officer (2020) • Executive Vice President and Chief Financial Officer, Harman International Industries Inc.
Added
Grogan 45 Senior VP and Chief Financial Officer (2023) • Senior VP and Chief Financial Officer, IDEX Corporation, a diversified manufacturer of highly engineered products (2017) Rodney O. Aulick 56 Senior VP and President, Water Solutions and Services (2023) • Executive Vice President Integrated Solutions and Services, Evoqua Water Technologies Corp. (2018) Dorothy G.
Removed
(2015) Note: Date in parentheses indicates the year in which the position was assumed. 33 BOARD OF DIRECTORS The following information is provided regarding the Board of Directors of Xylem as of February 7, 2023: NAME TITLE Robert F. Friel Board Chair, Xylem Inc., Former Chairman, President and CEO, PerkinElmer, Inc.
Added
Capers 62 Senior VP, General Counsel (2022) • Executive Vice President, Global General Counsel and Corporate Secretary, National Express Group, a leading transport provider (2015) Franz W.
Added
Cerwinka 53 Senior VP and President, Applied Water Systems and Xylem Business Transformation (2023) • Senior VP and President, Emerging Markets (2020) • Chief Executive Officer, Johnson Controls Hitachi Air Conditioning, a multinational air conditioning manufacturing company (2015) Michael J.
Added
Friel Board Chair, Xylem Inc., Former Chairman, President and CEO, PerkinElmer, Inc. Matthew F. Pine President and Chief Executive Officer, Xylem Inc. Jeanne Beliveau-Dunn Chief Executive Officer and President of Claridad, LLC Earl R.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeXYL S&P 500 S&P 500 Industrials Index December 31, 2017 100 100 100 December 31, 2018 99 96 87 December 31, 2019 118 126 112 December 31, 2020 155 149 124 December 31, 2021 184 191 151 December 31, 2022 172 157 142 The graph is not, and is not intended to be, indicative of future performance of our common stock.
Biggest changeXYL S&P 500 S&P 500 Industrials Index December 31, 2019 120 131 129 December 31, 2020 157 156 144 December 31, 2021 186 200 174 December 31, 2022 174 164 164 December 31, 2023 182 207 194 The graph is not, and is not intended to be, indicative of future performance of our common stock.
(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, 2022.
(b) On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during the three months ended December 31, 2023.
This performance graph shall not be deemed “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and should not be deemed incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing. 36
This performance graph shall not be deemed “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and should not be deemed incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing. 37
Fourth Quarter 2022 Share Repurchase Activity The following table summarizes our purchases of our common stock for the quarter ended December 31, 2022: (in millions, except per share amounts) Period Total Number of Shares Purchased Average Price Paid per Share (a) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b) 10/1/22 - 10/31/22 — — — $182 11/1/22 - 11/30/22 — — — $182 12/1/22 - 12/31/22 — — — $182 (a) Average price paid per share is calculated on a settlement basis.
Fourth Quarter 2023 Share Repurchase Activity The following table summarizes our repurchases of our common stock for the quarter ended December 31, 2023: (in millions, except per share amounts) Period Total Number of Shares Purchased Average Price Paid per Share (a) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b) 10/1/23 - 10/31/23 — — — $182 11/1/23 - 11/30/23 — — — $182 12/1/23 - 12/31/23 — — — $182 (a) Average price paid per share is calculated on a settlement basis.
There are up to $182 million in shares that may still be purchased under this plan as of December 31, 2022. 35 PERFORMANCE GRAPH CUMULATIVE TOTAL RETURN The following graph compares the relative performance of our common stock, the S&P 500 Index and the S&P 500 Industrials Index.
There are up to $182 million in shares that may still be purchased under this plan as of December 31, 2023. 36 PERFORMANCE GRAPH CUMULATIVE TOTAL RETURN The following graph compares the relative performance of our common stock, the S&P 500 Index and the S&P 500 Industrials Index.
This graph covers the period from December 31, 2017 through December 31, 2022 and assumes that $100 was invested on December 31, 2017 in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.
This graph covers the period from December 31, 2018 through December 31, 2023 and assumes that $100 was invested on December 31, 2018 in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Price and Dividends Our common stock trades publicly on the New York Stock Exchange under the trading symbol “XYL”. As of January 31, 2023, there were 8,359 holders of record of our common stock.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Price and Dividends Our common stock trades publicly on the New York Stock Exchange under the trading symbol “XYL”. As of January 31, 2024, there were 7,833 holders of record of our common stock.
In the first quarter of 2023, we declared a dividend of $0.33 per share to be paid on March 22, 2023 for shareholders of record on February 22, 2023. There were no unregistered offerings of our common stock during 2022.
In the first quarter of 2024, we declared a dividend of $0.36 per share to be paid on March 20, 2024 to shareholders of record on February 21, 2024. There were no unregistered offerings of our common stock during 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

118 edited+40 added−68 removed48 unchanged
Biggest changeThe slight decrease in adjusted EBITDA margin was primarily due to the same factors impacting adjusted operating margin noted above; however, adjusted EBITDA margin did not benefit from a year over year reduction in depreciation and amortization expense. 48 The table below provides a reconciliation of total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin: (In millions) 2022 2021 Change Water Infrastructure Operating income $ 418 $ 387 8.0 % Operating margin 17.7 % 17.2 % 50 bp Restructuring and realignment costs 11 12 (8.3) % Adjusted operating income $ 429 $ 399 7.5 % Adjusted operating margin 18.1 % 17.8 % 30 bp Applied Water Operating income $ 258 $ 240 7.5 % Operating margin 14.6 % 14.9 % (30) bp Restructuring and realignment costs 13 7 85.7 % Special charges — 1 (100.0) % Adjusted operating income $ 271 $ 248 9.3 % Adjusted operating margin 15.3 % 15.4 % (10) bp Measurement & Control Solutions Operating income $ 2 $ 12 (83.3) % Operating margin 0.1 % 0.9 % (80) bp Restructuring and realignment costs 10 3 233.3 % Special charges 14 — NM % Adjusted operating income $ 26 $ 15 73.3 % Adjusted operating margin 1.9 % 1.1 % 80 bp Corporate and other Operating loss $ (56) $ (54) 3.7 % Special charges 2 3 (33.3) Adjusted operating loss $ (54) $ (51) 5.9 % Total Xylem Operating income $ 622 $ 585 6.3 % Operating margin 11.3 % 11.3 % — bp Restructuring and realignment costs 34 22 54.5 % Special charges 16 4 300.0 % Adjusted operating income $ 672 $ 611 10.0 % Adjusted operating margin 12.2 % 11.8 % 40 bp NM Not Meaningful 49 The table below provides a reconciliation of net income to consolidated EBITDA and adjusted EBITDA: (in millions) Year Ended December 31, 2022 2021 Change Net Income $ 355 $ 427 (17) % Net Income margin 6.4 % 8.2 % (180) bp Depreciation 111 118 (6) % Amortization 125 127 (2) % Interest expense, net 34 69 (51) % Income tax expense 85 84 1 % EBITDA $ 710 $ 825 (14) % Share-based compensation 37 33 12 % Restructuring & realignment 34 22 55 % U.K. pension settlement expense 140 — 100 % Special charges 20 12 67 % Gain from sale of business (1) (2) (50) % Adjusted EBITDA $ 940 $ 890 6 % Adjusted EBITDA margin 17.0 % 17.1 % (10) bp The tables below provide a reconciliation of each segment's operating income (loss) to EBITDA and adjusted EBITDA: Year Ended December 31, 2022 (in millions) Water Infrastructure Applied Water Systems Measurement & Control Solutions Operating Income $ 418 $ 258 $ 2 Gain from sale of business — — 1 Depreciation 44 17 33 Amortization 9 2 104 Other non-operating expense (4) (2) (2) EBITDA $ 467 $ 275 $ 138 Share-based compensation 2 4 6 Restructuring & realignment 11 13 10 Special charges — — 14 Gain from sale of business — — (1) Adjusted EBITDA $ 480 $ 292 $ 167 Adjusted EBITDA margin 20.3 % 16.5 % 12.0 % 50 Year Ended December 31, 2021 (in millions) Water Infrastructure Applied Water Systems Measurement & Control Solutions Operating Income $ 387 $ 240 $ 12 Gain from sale of business — 2 — Depreciation 43 20 38 Amortization 8 2 107 Other non-operating expense (5) (3) (2) EBITDA $ 433 $ 261 $ 155 Share-based compensation 2 4 6 Restructuring & realignment 12 7 3 Special charges — 1 — Gain from sale of business — (2) — Adjusted EBITDA $ 447 $ 271 $ 164 Adjusted EBITDA margin 19.9 % 16.8 % 12.3 % 2022 versus 2021 (in millions) Water Infrastructure Applied Water Systems Measurement & Control Solutions Operating Income (Loss) $ 31 $ 18 $ (10) Gain from sale of business — (2) 1 Depreciation 1 (3) (5) Amortization 1 — (3) Other non-operating expense 1 1 — EBITDA $ 34 $ 14 $ (17) Share-based compensation — — — Restructuring & realignment (1) 6 7 Special charges — (1) 14 Gain from sale of business — 2 (1) Adjusted EBITDA $ 33 $ 21 $ 3 Adjusted EBITDA margin 0.4 % (0.3) % (0.3) % Water Infrastructure Operating income was $418 million for our Water Infrastructure segment (operating margin of 17.7%) during 2022, an increase of $31 million, or 8.0%, when compared to operating income of $387 million (operating margin of 17.2%) during the prior year, or a total increase of 50 basis points.
Biggest changeThe increase in adjusted EBITDA margin was primarily due to the same factors impacting adjusted operating margin noted above; however, adjusted EBITDA was not negatively impacted by the relative impact of depreciation and software amortization expense. 48 The table below provides a reconciliation of total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin: (In millions) 2023 2022 Change Water Infrastructure Operating income $ 419 $ 418 0.2 % Operating margin 14.1 % 17.7 % (360) bp Restructuring and realignment costs 22 11 100.0 % Purchase accounting intangible amortization 49 4 1,125.0 % Special charges 29 — NM % Adjusted operating income $ 519 $ 433 19.9 % Adjusted operating margin 17.5 % 18.3 % (80) bp Applied Water Operating income $ 310 $ 258 20.2 % Operating margin 16.7 % 14.6 % 210 bp Restructuring and realignment costs 14 13 7.7 % Purchase accounting intangible amortization — — NM % Special charges — — NM % Adjusted operating income $ 324 $ 271 19.6 % Adjusted operating margin 17.5 % 15.3 % 220 bp Measurement and Control Solutions Operating income $ 113 $ 2 5,550.0 % Operating margin 6.5 % 0.1 % 640 bp Restructuring and realignment costs 20 10 100.0 % Purchase accounting intangible amortization 66 68 (2.9) % Special charges 4 14 (71.4) % Adjusted operating income $ 203 $ 94 116.0 % Adjusted operating margin 11.7 % 6.8 % 490 bp Integrated Solutions and Services Operating income $ 8 $ — NM % Operating margin 1.0 % — % 100 bp Restructuring and realignment costs 15 — NM % Purchase accounting intangible amortization 61 — NM % Special charges 21 — NM % Adjusted operating income $ 105 $ — NM % Adjusted operating margin 12.9 % — % NM Corporate and other Operating loss $ (198) $ (56) 253.6 % Restructuring and realignment costs 35 — NM % Special charges 84 2 4,100.0 Adjusted operating loss $ (79) $ (54) 46.3 % Total Xylem Operating income $ 652 $ 622 4.8 % Operating margin 8.9 % 11.3 % (240) bp Restructuring and realignment costs 106 34 211.8 % Purchase accounting intangible amortization 176 72 144.4 % Special charges 138 16 762.5 % Adjusted operating income $ 1,072 $ 744 44.1 % Adjusted operating margin 14.6 % 13.5 % 110 bp NM Not Meaningful 49 The table below provides a reconciliation of net income to consolidated EBITDA and adjusted EBITDA: (in millions) Year Ended December 31, 2023 2022 Change Net Income $ 609 $ 355 72 % Net Income margin 8.3 % 6.4 % 190 bp Depreciation 193 111 74 % Amortization 243 125 94 % Interest expense, net 21 34 (38) % Income tax expense 26 85 (69) % EBITDA $ 1,092 $ 710 54 % Share-based compensation 60 37 62 % Restructuring and realignment 103 34 203 % U.K. pension settlement expense — 140 100 % Special charges 136 20 580 % Gain from sale of business 1 (1) (200) % Adjusted EBITDA $ 1,392 $ 940 48 % Adjusted EBITDA margin 18.9 % 17.0 % 190 bp The tables below provide a reconciliation of each segment's operating income (loss) to EBITDA and adjusted EBITDA: Year Ended December 31, 2023 (in millions) Water Infrastructure Applied Water Systems Measurement and Control Solutions Integrated Solutions and Services Operating Income $ 419 $ 310 $ 113 $ 8 Operating margin 14.1 % 16.7 % 6.5 % 1.0 % Depreciation 55 19 32 65 Amortization 55 2 107 65 Other non-operating expense 3 (2) (4) — EBITDA $ 532 $ 329 $ 248 $ 138 Share-based compensation 15 4 7 7 Restructuring and realignment 22 13 18 15 Special charges 29 — 4 21 Loss/(Gain) from sale of business — — 1 — Adjusted EBITDA $ 598 $ 346 $ 278 $ 181 Adjusted EBITDA margin 20.2 % 18.7 % 16.1 % 22.2 % 50 Year Ended December 31, 2022 (in millions) Water Infrastructure Applied Water Systems Measurement and Control Solutions Integrated Solutions Services Operating Income $ 418 $ 258 $ 2 $ — Operating margin 17.7 % 14.6 % 0.1 % NM (Loss)/Gain from sale of business — — 1 — Depreciation 44 17 33 — Amortization 9 2 104 — Other non-operating expense (4) (2) (2) — EBITDA $ 467 $ 275 $ 138 $ — Share-based compensation 2 4 6 — Restructuring and realignment 11 13 10 — Special charges — — 14 — Loss/(Gain) from sale of business — — (1) — Adjusted EBITDA $ 480 $ 292 $ 167 $ — Adjusted EBITDA margin 20.3 % 16.5 % 12.0 % NM 2023 versus 2022 (in millions) Water Infrastructure Applied Water Systems Measurement and Control Solutions Integrated Solutions and Services Operating Income (Loss) $ 1 $ 52 $ 111 $ 8 Operating margin (360) bps 210 bps 640 bps NM (Loss)/Gain from sale of business — — (1) — Depreciation 11 2 (1) 65 Amortization 46 — 3 65 Other non-operating expense 7 — (2) — EBITDA $ 65 $ 54 $ 110 $ 138 Share-based compensation 13 — 1 7 Restructuring and realignment 11 — 8 15 Special charges 29 — (10) 21 Loss/(Gain) from sale of business — — 2 — Adjusted EBITDA $ 118 $ 54 $ 111 $ 181 Adjusted EBITDA margin (0.1) % 2.2 % 4.1 % NM 51 Water Infrastructure Operating income was $419 million for our Water Infrastructure segment (operating margin of 14.1%) during 2023, an increase of $1 million, or 0.2%, when compared to operating income of $418 million (operating margin of 17.7%) during the prior year, or a total decrease of 360 basis points of operating margin.
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.
In the Applied Water segment, we provide the majority of our sales through long-standing relationships with many of the leading independent distributors in the markets we serve, with the remainder going directly to customers. • Measurement and Control Solutions primarily serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas.
The satisfaction of performance obligations in a contract is based upon when the customer obtains control over the asset. Depending on the nature of the performance obligation, control transfers either at a particular point in time, or over time, which determines the recognition pattern of revenue.
The satisfaction of performance obligations in a contract is based upon when the customer obtains control over the asset. Depending on the nature of the performance obligation, control transfers either at a particular point in time, or over time, which determines the pattern of revenue recognition.
To estimate variable consideration, we apply the expected value or the most likely amount method, based on whichever method most appropriately predicts the amount of consideration we expect to be entitled to. The method applied is typically based on historical experience and known trends.
To estimate variable consideration, we apply the expected value method or the most likely amount method, based on whichever method most appropriately predicts the amount of consideration we expect to be entitled to. The method applied is typically based on historical experience and known trends.
In addition, the identification of reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of each reporting unit also require judgment. Goodwill is tested for impairment at either the operating segment identified in Note 21, “Segment and Geographic Data,” of the consolidated financial statements, or one level below.
In addition, the identification of reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of each reporting unit also require judgment. Goodwill is tested for impairment at either the operating segment level identified in Note 21, “Segment and Geographic Data,” of the consolidated financial statements, or one level below.
Excluding revenue, 39 Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions.
Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions.
In these instances, the customer consumes the benefit of the service as Xylem performs. Certain businesses also enter into long-term construction-type sales contracts where revenue is recognized over time. In these instances, revenue is recognized using a measure of progress that applies an input method based on costs incurred in relation to total estimated costs.
In these instances, the customer consumes the benefit of the service as Xylem performs. Certain businesses also enter into long-term construction-type sales contracts where revenue is recognized over time. In these instances, revenue is recognized using a measure of progress that applies the input method based on costs incurred in relation to total estimated costs.
The pension discount rate was determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and 30 years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield 57 curve to develop a single-point discount rate matching the plan’s characteristics.
The pension discount rate was determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and 30 years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single-point discount rate matching the plan’s characteristics.
The valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates. 55 We have recorded net foreign withholding taxes and state income taxes on earnings that are expected to be repatriated to the U.S. parent.
The valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates. We have recorded net foreign withholding taxes and state income taxes on earnings that are expected to be repatriated to the U.S. parent.
Operations As we continue to grow our operations in the emerging markets and elsewhere outside of the U.S., we expect to continue to generate significant revenue from non-U.S. operations and expect that a substantial portion of our cash will be predominately held by our foreign subsidiaries.
Operations As we continue to grow our operations in the emerging markets and elsewhere outside of the U.S., we expect to continue to generate significant revenue from non-U.S. operations and expect that a substantial portion of our cash will be held by our foreign subsidiaries.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 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, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Fair Value of Plan Assets The plan assets of our pension plans comprise a broad range of investments, including domestic and foreign equity securities, interests in hedge funds, fixed income investments, insurance contracts, and cash and cash equivalents. A portion of our pension benefit plan assets portfolio comprises investments in hedge funds which are generally measured at net asset value.
Fair Value of Plan Assets The plan assets of our pension plans comprise a broad range of investments, including domestic and foreign equity securities, interests in hedge funds, fixed income investments, insurance contracts, and cash and cash equivalents. A portion of our pension benefit plan assets portfolio comprises investments in hedge funds that are generally measured at net asset value.
Based on our current global cash positions, cash flows from operations and access to the capital markets, we believe there is sufficient liquidity to meet our funding requirements and service debt and other obligations in both the U.S. and outside of the U.S. over the next 12 months.
Based on our current global cash positions, cash flows from operations and access to the capital markets, we believe there is sufficient liquidity to meet our funding requirements and service debt and other obligations in both the U.S. and outside of the U.S. over the next twelve months.
We will continue to evaluate goodwill on an annual basis as of the beginning of our fourth quarter and whenever events and changes in circumstances require us to do so. We determined that no material impairment of the indefinite-lived intangibles existed as of the measurement date in 2022.
We will continue to evaluate goodwill on an annual basis as of the beginning of our fourth quarter and whenever events and changes in circumstances require us to do so. We determined that no material impairment of the indefinite-lived intangibles existed as of the measurement date in 2023.
Except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Funded Status Funded status is derived by subtracting the respective year-end values of the projected benefit obligations from the fair value of plan assets. We estimate that every 25 basis point change in the discount rate impacts the funded status by approximately $10 million.
Funded Status Funded status is derived by subtracting the respective year-end values of the projected benefit obligations from the fair value of plan assets. We estimate that every 25 basis point change in the discount rate impacts the funded status by approximately $9 million.
Our product and service offerings are organized into three reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water and Measurement & Control Solutions. • Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process.
Our product and service offerings are organized into four reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, Measurement and Control Solutions and Integrated Solutions and Services. • Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process.
These major assumptions primarily relate to discount rates, expected long-term rates of return on plan assets, rate of future compensation increases, mortality, years of service and other factors (some of which are disclosed in Note 15, “Post-retirement Benefit Plans,” of the consolidated financial statements).
These assumptions primarily relate to discount rates, expected long-term rates of return on plan assets, rate of future compensation increases, mortality, years of service and other factors (some of which are disclosed in Note 16, “Post-retirement Benefit Plans,” of the consolidated financial statements).
The table below provides the weighted average assumptions used to estimate our defined benefit pension obligations and costs as of and for the years ended 2022 and 2021. 2022 2021 U.S. Int’l U.S.
The table below provides the weighted average assumptions used to estimate our defined benefit pension obligations and costs as of and for the years ended 2023 and 2022. 2023 2022 U.S. Int’l U.S.
For discussion of these arrangements, see Note 19, “Commitments and Contingencies” of the consolidated financial statements. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent liabilities.
For discussion of these arrangements, see Note 20, “Commitments and Contingencies” of the consolidated financial statements. 54 Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent liabilities.
This approach is used for countries whose functional currency is not the U.S. Dollar. • "adjusted net income" and "adjusted earnings per share" defined as net income and earnings per share, respectively, adjusted to exclude restructuring and realignment costs, special charges, gain or loss from sale of businesses and tax-related special items, as applicable.
This approach is used for countries whose functional currency is not the U.S. Dollar. • "adjusted net income" and "adjusted earnings per share" defined as net income and earnings per share, respectively, adjusted to exclude restructuring and realignment costs, amortization of acquired intangible assets, gain or loss from sale of businesses, special charges and tax-related special items, as applicable.
The adjustment recorded at December 31, 2022 and 2021 for these assets represented less than 1% of total plan assets in each respective year. Asset values for other positions were generally measured using market observable prices. We estimate that a 5% change in asset values will impact funded status by approximately $10 million.
The adjustment recorded at December 31, 2023 and 2022 for these assets represented less than 1% of total plan assets in each respective year. Asset values for other positions were generally measured using market observable prices. We estimate that a 5.00% change in asset values will impact funded status by approximately $11 million.
Int’l Benefit Obligation Assumptions Discount rate 5.25 % 4.13 % 3.00 % 1.55 % Rate of future compensation increase NM 2.79 % NM 2.84 % Net Periodic Benefit Cost Assumptions Discount rate 3.00 % 1.55 % 2.50 % 1.06 % Expected long-term return on plan assets 5.50 % 2.79 % 6.50 % 2.60 % Rate of future compensation increase NM 2.84 % NM 2.79 % NM Not meaningful.
Int’l Benefit Obligation Assumptions Discount rate 5.00 % 3.55 % 5.25 % 4.13 % Rate of future compensation increase NM 2.87 % NM 2.79 % Net Periodic Benefit Cost Assumptions Discount rate 5.25 % 4.13 % 3.00 % 1.55 % Expected long-term return on plan assets 6.00 % 5.85 % 5.50 % 2.79 % Rate of future compensation increase NM 2.79 % NM 2.84 % NM Not meaningful.
Higher dividend payments and lower proceeds from employee stock options partially offset these items. Funding and Liquidity Strategy Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to bank financing and the capital markets. We continually evaluate aspects of our spending, including capital expenditures, strategic investments and dividends.
Higher dividend payments partially offset these items. Funding and Liquidity Strategy Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to bank financing and the capital markets. We continually evaluate aspects of our spending, including capital expenditures, strategic investments and dividends.
Key Performance Indicators and Non-GAAP Measures Management reviews key performance indicators including revenue, gross margins, segment operating income and operating income margins, free cash flow, orders growth, working capital and backlog, among others.
Key Performance Indicators and Non-GAAP Measures Management reviews key performance indicators including revenue, gross margins, segment operating income and operating income margins, orders growth, working capital and backlog, among others.
Our weighted average discount rate for all pension plans effective January 1, 2023, is 4.35%. We estimate that every 25 basis point change in the discount rate impacts the expense b y less than $1 million. The rate of future compensation increase assumption reflects our long-term actual experience and future and near-term outlook.
Our weighted average discount rate for all pension plans effective January 1, 2024, is 3.79%. We estimate that every 25 basis point change in the discount rate impacts the expense by less than $1 million. The rate of future compensation increase assumption reflects our long-term actual experience and future and near-term outlook.
Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors.
Delivery schedules vary from customer to customer based on their requirements. Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors.
Operating margin declines included unfavorable impacts of 160 basis points from an increase in special charges (asset impairment) and restructuring and realignment costs as compared to the prior year.
Operating margin declines included unfavorable impacts of 280 basis points from an increase in acquired intangible asset amortization, special charges and restructuring and realignment costs as compared to the prior year.
If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its estimated fair value, then an impairment charge is recognized for that excess up to the amount of recorded goodwill. We estimate the fair value of our reporting units using an income approach.
If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its estimated fair value, then an impairment charge is recognized for that excess up to the amount of recorded goodwill.
Operating margin included unfavorable impacts of 40 basis points from increases in special charges and restructuring and realignment costs as compared to the prior year.
Operating margin included unfavorable impacts of 350 basis points from increases in special charges, acquired intangible asset amortization, and restructuring and realignment costs as compared to the prior year.
(c) The $32 million in tax effects of adjustments in the period primarily consists of $23 million related to the U.K. pension settlement expense and $3 million related to the asset impairment charge. ▪ "adjusted operating expenses" and "adjusted gross profit" defined as operating expenses and gross profit, respectively, adjusted to exclude restructuring and realignment costs and special charges. ▪ "adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs and special charges, and "adjusted operating margin" defined as adjusted operating income divided by total revenue. ▪ “EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense, "EBITDA margin" defined as EBITDA divided by total revenue, "adjusted EBITDA" reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, special charges and gain or loss from sale of businesses, and "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue. 40 ▪ “realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs. ▪ “special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges and both operating and non-operating adjustments for costs related to the U.K. pension plan buy-out. ▪ "tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments. ▪ "free cash flow" defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures.
(c) The tax effects of adjustments are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction. ▪ "adjusted operating expenses" defined as operating expenses adjusted to exclude amortization of acquired intangible assets, restructuring and realignment costs and special charges. ▪ "adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs and special charges, and "adjusted operating margin" defined as adjusted operating income divided by total revenue. ▪ “EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense, "EBITDA margin" defined as EBITDA divided by total revenue, "adjusted EBITDA" reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, gain or loss from sale of businesses and special charges, and "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue. ▪ “realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs. ▪ “special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges, and both operating and non-operating adjustments for costs related to the U.K. pension plan buy-out. ▪ "tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments. ▪ "free cash flow" defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures.
Research and Development ("R&D") Expenses R&D expense was $206 million, or 3.7% of revenue, in 2022 which was fairly consistent with the 2021 expense of $204 million, or 3.9% of revenue.
Research and Development ("R&D") Expenses R&D expense was $232 million, or 3.2% of revenue, in 2023 which was fairly consistent with the 2022 expense of $206 million, or 3.7% of revenue.
During the fourth quarter of 2022, we performed our annual impairment assessment and determined that the estimated fair values of our goodwill reporting units were substantially in excess of each of their carrying values. However, future goodwill impairment tests could result in a charge to earnings.
During the fourth quarter of 2023, we performed our annual impairment assessment and determined that our goodwill reporting units either did not need to be assessed quantitatively or the estimated fair values of our goodwill reporting units were substantially in excess of each of their carrying values. However, future goodwill impairment tests could result in a charge to earnings.
If our cash flows from operations are less than we expect, we may need to incur debt or issue equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing.
Historically, we have generated operating cash flow sufficient to fund our primary cash needs . If our cash flows from operations are less than we expect, we may need to incur debt or issue equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing.
We currently anticipate making contributions to our pension and post-retirement benefit plans in the range of $18 million to $26 million during 2023. Approximately $5 million of contributions are expected to be made in the first quarter.
We currently anticipate making contributions to our pension and post-retirement benefit plans in the range of $31 million to $37 million during 2024. Approximately $8 million of contributions are expected to be made in the first quarter.
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 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. Off-Balance Sheet Arrangements We are a party to certain off-balance sheet arrangements including certain guarantees.
A decrease in the discount rate increases the present value of benefit obligations and increases pension expense. We base the discount rate assumption on current investment yields of high-quality fixed income investments during the retirement benefits maturity period.
The discount rate reflects our expectation of the present value of expected future cash payments for benefits at the measurement date. A decrease in the discount rate increases the present value of benefit obligations and increases pension expense. We base the discount rate assumption on current investment yields of high-quality fixed income investments during the retirement benefits maturity period.
The fair value of our reporting units and indefinite-lived intangible assets is based on estimates and assumptions that are believed to be reasonable. Significant changes to these estimates and assumptions could adversely impact our conclusions.
The fair values of our reporting units and indefinite-lived intangible assets are based on estimates and assumptions that are believed to be reasonable. Significant changes to these estimates and assumptions could adversely impact our conclusions. Actual future results may differ from those estimates.
Adjusted EBITDA was $292 million (adjusted EBITDA margin of 16.5%) during 2022, an increase of $21 million, or 7.7%, when compared to adjusted EBITDA of $271 million (adjusted EBITDA margin of 16.8%) during the prior year. The decrease in adjusted EBITDA margin was primarily due to the same factors impacting the decrease in adjusted operating margin.
Adjusted EBITDA was $346 million (adjusted EBITDA margin of 18.7%) during 2023, an increase of $54 million, or 18.5%, when compared to adjusted EBITDA of $292 million (adjusted EBITDA margin of 16.5%) during the prior year. The increase in adjusted EBITDA margin was due to the same factors impacting the increase in adjusted operating margin.
Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 54 Significant accounting policies used in the preparation of the consolidated financial statements are discussed in Note 1, “Summary of Significant Accounting Policies,” of the consolidated financial statements.
Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes to our estimate of the amount we are more likely than not to realize in the valuation allowance, with a corresponding adjustment to earnings or other comprehensive income, as appropriate.
We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes to our estimate of the amount we are more likely than not to realize in the valuation allowance, with a corresponding adjustment to earnings or other comprehensive income, as appropriate. 55 In assessing the need for a valuation allowance, we look to the future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax planning strategies and estimated future taxable income.
Excluding special charges and restructuring and realignment costs, adjusted operating income was $271 million (adjusted operating margin of 15.3%) during 2022 as compared to adjusted operating income of $248 million (adjusted operating margin of 15.4%) during the prior year.
Excluding restructuring and realignment costs, adjusted operating income was $324 million (adjusted operating margin of 17.5%) during 2023 as compared to adjusted operating income of $271 million (adjusted operating margin of 15.3%) during the prior year.
Additionally, operating margin included 1020 basis points of expansion from favorable operating impacts, driven by a 670 basis point increase from price realization, 280 basis points from productivity savings and 70 basis points from favorable volume.
Additionally, operating margin included 780 basis points of expansion from favorable operating impacts, consisting of a 370 basis point increase from price realization, 280 basis points from productivity savings and 130 basis points from favorable volume.
Determining the fair value of a reporting unit or an indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows.
Under the market approach, we calculate fair value based on recent sales and selling prices of similar assets. 56 Determining the fair value of a reporting unit or an indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows.
Restructuring and Asset Impairment Charges Restructuring From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position itself. Restructuring charges were $15 million in 2022 as compared to $6 million in 2021.
Restructuring and Asset Impairment Charges Restructuring From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position itself. Restructuring charges were $72 million in 2023 as compared to $15 million in 2022. During 2023, we incurred these charges primarily as a result of our acquisition of Evoqua.
Adjusted EBITDA was $167 million (adjusted EBITDA margin of 12.0%) during 2022, an increase of $3 million, or 1.8%, when compared to adjusted EBITDA of $164 million (adjusted EBITDA margin of 12.3%) during the prior year.
Adjusted EBITDA was $278 million (adjusted EBITDA margin of 16.1%) during 2023, an increase of $111 million, or 66.5%, when compared to adjusted EBITDA of $167 million (adjusted EBITDA margin of 12.0%) during the prior year.
Actual future results may differ from those estimates. 56 The risks around impairment of our assets are included in our risk factor disclosures referenced under “Item 1A. Risk Factors".
The risks around impairment of our assets are included in our risk factor disclosures referenced under “Item 1A. Risk Factors".
Adjusted EBITDA was $940 million (adjusted EBITDA margin of 17.0%) during 2022, an increase of $50 million, or 5.6%, when compared to adjusted EBITDA of $890 million (adjusted EBITDA margin of 17.1%) during the prior year.
Adjusted EBITDA was $1,392 million (adjusted EBITDA margin of 18.9%) during 2023, an increase of $452 million, or 48.1%, when compared to adjusted EBITDA of $940 million (adjusted EBITDA margin of 17.0%) during the prior year.
Accordingly, we recognized an impairment charge of $14 million. Refer to Note 11, "Goodwill and Other Intangible Assets," for additional information. Operating Income and Adjusted EBITDA Operating income was $622 million (operating margin of 11.3%) during 2022, an increase of $37 million, or 6.3%, when compared to operating income of $585 million (operating margin of 11.3%) during the prior year.
Refer to Note 12,"Goodwill and Other Intangible Assets," for additional information. 47 Operating Income and Adjusted EBITDA Operating income was $652 million (operating margin of 8.9%) during 2023, an increase of $30 million, or 4.8%, when compared to operating income of $622 million (operating margin of 11.3%) during the prior year.
We will continue to strategically execute restructuring and realignment actions in an effort to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. During 2022, we incurred $15 million and $19 million in restructuring and realignment costs, respectively. We realized approximately $3 million of net savings from our 2022 actions.
The integration of Evoqua is on track with our integration plan, and we will continue to strategically execute restructuring and realignment actions in an effort to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. During 2023, we incurred $72 million and $34 million in restructuring and realignment costs, respectively.
Excluding special charges and restructuring and realignment costs, adjusted operating income was $429 million (adjusted operating margin of 18.1%) during 2022 as compared to adjusted operating income of $399 million (adjusted operating margin of 17.8%) during the prior year.
Excluding acquired intangible asset amortization, special charges and restructuring and realignment costs, adjusted operating income was $519 million (adjusted operating margin of 17.5%) during 2023 as compared to adjusted operating income of $433 million (adjusted operating margin of 18.3%) during the prior year.
Margin declines were offset by 1280 basis points from favorable operating impacts, which were driven by 930 basis points of price realization, 340 basis points from productivity savings and 10 basis points from favorable volume.
Operating margin declines were offset by 760 basis points of favorable impacts, consisting of 420 basis points of price realization, 230 basis points from productivity savings and 110 basis points of favorable volume.
Operating income for 2022 was $622 million, reflecting an increase of $37 million, or 6.3%, compared to $585 million in 2021. Operating margin was 11.3% for both 2022 and 2021.
Operating income for 2023 was $652 million, reflecting an increase of $30 million, or 4.8%, compared to $622 million in 2022. Operating margin was 8.9% and 11.3% for 2023 and 2022, respectively.
During 2022 we incurred these charges primarily as a continuation of our efforts to reposition our business to optimize our cost structure and improve our operational efficiency and effectiveness. The charges primarily included the reduction of headcount across all segments.
During 2022, we incurred restructuring charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness.
We experienced organic revenue growth across all three major geographic regions and in both of the segment's end markets for the year, driven by $91 million of organic growth in the utility end market, primarily in the U.S. as a result of the easing of electronic component shortage and strong price realization, followed by $18 million in the industrial end market driven by strong backlog execution in our test business.
We experienced organic revenue growth across all three major geographic regions and in both of the segment's end markets for the year, driven by $327 million of organic growth in the utility end market, primarily in the U.S., driven by increased sales volume and backlog execution, enabled by significant improvement of supply chain constraints, and $12 million in the industrial end market driven by strong backlog execution in our test business.
Excluding special charges and restructuring and realignment costs, adjusted operating income was $672 million (adjusted operating margin of 12.2%) for 2022 as compared to adjusted operating income of $611 million (adjusted operating margin of 11.8%) during the prior year.
Excluding special charges, acquired intangible asset amortization, and restructuring and realignment costs, adjusted operating income was $203 million (adjusted operating margin of 11.7%) during 2023 as compared to adjusted operating income of $94 million (adjusted operating margin of 6.8%) during the prior year.
On a constant currency basis, revenue increased by $586 million, or 11.3%, during the year. The increase at constant currency was driven by an increase in organic revenue of $595 million reflecting strong organic growth in all end markets as well as across all major geographic regions.
On a constant currency basis, revenue increased by $1,867 million, or 33.8%, during the year. The increase at constant currency consists of revenue from acquisitions of $1,177 million and an increase in organic revenue of $690 million reflecting strong organic growth in all segments as well as across all major geographic regions.
Operating margin declines included unfavorable impacts of 20 basis points from an increase in restructuring and realignment costs and special charges as compared to the prior year.
Operating margin increases included favorable impacts of 150 basis points from a decrease in special charges, acquired intangible asset amortization, and restructuring and realignment costs as compared to the prior year.
See Note 14, "Credit Facilities and Debt", of our consolidated financial statements for a description of our credit facilities and long-term debt and a description of limitations on obtaining additional funding. 53 We monitor our global funding requirements and seek to meet our liquidity needs on a cost-effective basis.
Refer to Note 15, "Credit Facilities and Debt", of our consolidated financial statements for a description of limitations on obtaining additional funding. We monitor our global funding requirements and seek to meet our liquidity needs on a cost-effective basis. In addition, our existing committed credit facilities and access to the public debt markets would provide further liquidity if required.
Adjusted EBITDA was $480 million (adjusted EBITDA margin of 20.3%) during 2022, an increase of $33 million, or 7.4%, when compared to adjusted EBITDA of $447 million (adjusted EBITDA margin of 19.9%) during the prior year.
Adjusted EBITDA was $598 million (adjusted EBITDA margin of 20.2%) during 2023, an increase of $118 million, or 24.6%, when compared to adjusted EBITDA of $480 million (adjusted EBITDA margin of 20.3%) during the prior year.
The industrial end market had $115 million of organic growth across all major geographic regions, particularly in western Europe due to strong backlog execution and good price realization, and in the emerging markets, driven by mining projects and price realization in both Latin America and Africa. From an application perspective, organic revenue growth was driven by our transport applications.
The industrial end market had $105 million of organic growth across all major geographic regions, due to strong price realization and increased sales volume in the U.S. and timing of capital projects and strong price realization in western Europe. From an application perspective, excluding the $362 million contributed by acquisitions, organic revenue growth was driven by our transport applications.
Liquidity and Capital Resources The following table summarizes our sources and uses of cash: Year Ended December 31, (in millions) 2022 2021 Change Operating activities $ 596 $ 538 $ 58 Investing activities (191) (183) (8) Financing activities (790) (855) 65 Foreign exchange (a) (20) (26) 6 Total $ (405) $ (526) $ 121 (a) The decrease in negative impact of foreign exchange as compared to 2021 is primarily due to strengthening of the Euro partially offset by weakening of the Chinese Yuan.
Liquidity and Capital Resources The following table summarizes our sources and uses of cash: Year Ended December 31, (in millions) 2023 2022 Change Operating activities $ 837 $ 596 $ 241 Investing activities (628) (191) (437) Financing activities (157) (790) 633 Foreign exchange (a) 23 (20) 43 Total $ 75 $ (405) $ 480 (a) The favorable impact of foreign exchange as compared to 2022 is primarily due to strengthening of the Euro, Chinese Yuan and the Canadian Dollar.
Measurement & Control Solutions Operating income was $2 million for our Measurement & Control Solutions (operating margin of 0.1%) during 2022, a decrease of $10 million, or 83.3%, when compared to operating income of $12 million (operating margin of 0.9%) during the prior year, or a total decrease of 80 basis points.
Measurement and Control Solutions Operating income was $113 million for our Measurement and Control Solutions (operating margin of 6.5%) during 2023, an increase of $111 million, or 5,550.0%, when compared to operating income of $2 million (operating margin of 0.1%) during the prior year, or a total increase of 640 basis points of operating margin.
Specifically, the Company analyzes the estimated future returns based on independent estimates of asset class returns and evaluates historical broad market returns over long-term timeframes based on the strategic asset allocation, which is detailed in Note 15, “Post-retirement Benefit Plans,” of the consolidated financial statements.
Specifically, the Company analyzes the estimated future returns based on independent estimates of asset class returns and evaluates historical broad market returns over long-term timeframes based on the strategic asset allocation, which is detailed in Note 16, “Post-retirement Benefit Plans” of the consolidated financial statements. 57 For the recognition of net periodic pension cost, the calculation of the expected return on plan assets is generally derived by applying the expected long-term rate of return to the market-related value of plan assets.
Margin expansion was offset by 980 basis points of unfavorable impacts driven by 660 basis points of inflation, 180 basis points of increased spending on strategic investments, 40 basis points of inventory management costs and 30 basis points of unfavorable mix.
Margin expansion was offset by 670 basis points of unfavorable impacts driven by 310 basis points of inflation, 110 basis points of increased spending on strategic investments, 80 basis points of unfavorable mix, and 50 basis points of increased employee related costs.
Effective January 1, 2023, our expected rate of future compensation is 2.94% for all pension plans. The estimated impact of a 25 basis point change in the expected rate of future compensation is less than $1 million. The Company initiated the process for a full buy-out of its largest defined benefit plan in the U.K. in 2019.
Effective January 1, 2024, our expected rate of future compensation increase is 2.99% for all pension plans. The estimated impact of a 25 basis point change in the expected rate of future compensation is less than $1 million.
Revenue was negatively impacted by $149 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $266 million. Organic growth for the year was driven by strength in both the utility and industrial end markets.
Revenue was negatively impacted by $10 million of foreign currency translation, with the change at constant currency coming entirely from organic growth during the year of $96 million.
Excluding special charges and restructuring and realignment costs, adjusted operating income was $26 million (adjusted operating margin of 1.9%) during 2022 as compared to adjusted operating income of $15 million (adjusted operating margin of 1.1%) during the prior year.
Excluding special charges, acquired intangible asset amortization, and restructuring and realignment costs, adjusted operating income was $1,072 million (adjusted operating margin of 14.6%) for 2023 as compared to adjusted operating income of $744 million (adjusted operating margin of 13.5%) during the prior year.
Declines in the energy applications were driven by impacts from electronic component shortages in the U.S. during the first half of the year, more than offsetting modest growth in the second half of the year. 44 Orders/Backlog An order represents a legally enforceable, written document that includes the scope of work or services to be performed or equipment to be supplied to a customer, the corresponding price and the expected delivery date for the applicable products or services to be provided.
Orders/Backlog An order represents a legally enforceable, written document that includes the scope of work or services to be performed or equipment to be supplied to a customer, the corresponding price and the expected delivery date for the applicable products or services to be provided.
Operating income for 2022 included an increase in special charges of $12 million and an unfavorable impact from increased restructuring and realignment costs of $12 million as compared to 2021 .
The increase in operating income for 2023 included an increase in special charges of $122 million, an increase in purchased intangible amortization of $104 million, and an increase in restructuring and realignment costs of $72 million as compared to 2022.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during 2022: Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem (in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change 2021 Orders $ 2,471 $ 1,860 $ 1,969 $ 6,300 Organic Impact 302 12.2 % 2 0.1 % (50) (2.5) % 254 4.0 % Acquisitions/(Divestitures) — — % — — % (18) (0.9) % (18) (0.3) % Constant Currency 302 12.2 % 2 0.1 % (68) (3.5) % 236 3.7 % Foreign currency translation (a) (166) (6.7) % (68) (3.7) % (45) (2.3) % (279) (4.4) % Total change in orders 136 5.5 % (66) (3.5) % (113) (5.7) % (43) (0.7) % 2022 Orders $ 2,607 $ 1,794 $ 1,856 $ 6,257 (a) Foreign currency translation impact for the year primarily due to the weakening in value of various currencies against the U.S.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during 2023: Water Infrastructure Applied Water Measurement and Control Solutions Integrated Solutions and Services Total Xylem (in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change $ Change % Change 2022 Orders $ 2,607 $ 1,794 $ 1,856 $ — $ 6,257 Organic Impact 124 4.8 % (6) (0.3) % (53) (2.9) % — NM 65 1.0 % Acquisitions/(Divestitures) 352 13.5 % — — % — — % 868 NM 1,220 19.5 % Constant Currency 476 18.3 % (6) (0.3) % (53) (2.9) % 868 NM 1,285 20.5 % Foreign currency translation (a) (23) (0.9) % (18) (1.0) % — — % — NM (41) (0.7) % Total change in orders 453 17.4 % (24) (1.3) % (53) (2.9) % 868 NM 1,244 19.9 % 2023 Orders $ 3,060 $ 1,770 $ 1,803 $ 868 $ 7,501 (a) Foreign currency translation impact for the year primarily due to the weakening in value of various currencies against the U.S.
Operating margin impacts included 790 basis points from favorable operating impacts consisting of 450 basis points of price realization, 230 basis points from productivity savings and 70 basis points from favorable volume.
Additionally, the operating margin increase included 1,310 basis points from favorable operating impacts consisting of 630 basis points from favorable volume, 350 basis points from productivity savings and 330 basis points of price realization.
Operating margin expansion included favorable impacts of 20 basis points from a decrease in restructuring and realignment costs as compared to the prior year. Additionally, operating margin expansion included 940 basis points from favorable operating impacts, driven by 560 basis points of price realization, 270 basis points from productivity savings and 110 basis points of favorable volume.
Operating margin expansion was partially offset by unfavorable impacts of 10 basis points from increases in restructuring and realignment costs as compared to the prior year. Operating margin increases included 820 basis points of favorable operating impacts, consisting of 470 basis points of price realization and 350 basis points from productivity savings.
Excluding the impact of these items, adjusted operating income was $672 million, with an adjusted operating margin of 12.2% in 2022 as compared to adjusted operating income of $611 million with an adjusted operating margin of 11.8% in 2021, an increase of 40 basis points.
Excluding the impact of these items, adjusted operating income was $1,072 million, with an adjusted operating margin of 14.6% in 2023 as compared to adjusted operating income of $744 million with an adjusted operating margin of 13.5% in 2022, an increase of 110 basis points.
Other less significant restructuring actions taken in 2021 resulted in $3 million of charges during 2021 and are included in the information presented below. 46 The following is a roll-forward of employee position eliminations associated with restructuring activities for the years ended December 31, 2022 and 2021: 2022 2021 Planned reductions - January 1 60 319 Additional planned reductions 203 83 Actual reductions and reversals (161) (342) Planned reductions - December 31 102 60 The following table presents the total costs expected to be incurred, the amount incurred in the period, and the cumulative costs incurred to date for our 2020, 2021 and 2022 restructuring actions: (in millions) Water Infrastructure Applied Water Measurement & Control Solutions Corporate Total Actions Commenced in 2022: Total expected costs $ 6 $ 4 $ 4 $ — $ 14 Costs incurred during 2022 6 4 4 — 14 Total expected costs remaining $ — $ — $ — $ — $ — Actions Commenced in 2021: Total expected costs $ 3 $ — $ — $ — $ 3 Costs incurred during 2021 3 — — — 3 Costs incurred during 2022 — — — — — Total expected costs remaining $ — $ — $ — $ — $ — Actions Commenced in 2020: Total expected costs $ 23 $ 6 $ 30 $ — $ 59 Costs incurred during 2020 19 4 30 — 53 Costs incurred during 2021 4 2 — — 6 Costs incurred during 2022 — — — — — Total expected costs remaining $ — $ — $ — $ — $ — During 2022, we also incurred charges of $1 million within the Measurement & Control Solutions segment, related to actions commenced prior to 2020.
The charges included the reduction of headcount across the Water Infrastructure, Applied Water and Measurement and Control Solutions segments The following is a roll-forward of employee position eliminations associated with restructuring activities for the years ended December 31, 2023 and 2022: 2023 2022 Planned reductions - January 1 102 60 Additional planned reductions 454 203 Actual reductions and reversals (443) (161) Planned reductions - December 31 113 102 46 The following table presents the total costs expected to be incurred, the amount incurred in the period, and the cumulative costs incurred to date for our 2023, 2022 and 2021 restructuring actions: (in millions) Water Infrastructure Applied Water Measurement and Control Solutions Integrated Solutions and Services Corporate Total Actions Commenced in 2023: Total expected costs $ 18 $ 16 $ 12 $ 7 $ 34 $ 87 Costs incurred during 2023 15 6 11 4 35 71 Total expected costs remaining $ 3 $ 10 $ 1 $ 3 $ (1) $ 16 Actions Commenced in 2022: Total expected costs $ 6 $ 5 $ 4 $ — $ — $ 15 Costs incurred during 2022 6 4 4 — — 14 Costs incurred during 2023 — 1 — — — 1 Total expected costs remaining $ — $ — $ — $ — $ — $ — Actions Commenced in 2021: Total expected costs $ 3 $ — $ — $ — $ — $ 3 Costs incurred during 2021 3 — — — — 3 Costs incurred during 2022 — — — — — — Costs incurred during 2023 — — — — — — Total expected costs remaining $ — $ — $ — $ — $ — $ — The Water Infrastructure, Applied Water, Measurement and Control Solutions, Integrated Solutions and Services and Corporate actions commenced in 2023 consist primarily of severance charges.
Order intake during the year was negatively impacted by $68 million of foreign currency translation, making organic order growth relatively flat. Weakness in the U.S. from lapping strong demand in the prior year was partially offset by strength in the emerging markets and western Europe as a result of strong project orders and stocking by channel partners.
Order intake during the year was negatively impacted by $18 million of foreign currency translation, with organic orders being essentially flat. Weakness in the U.S. from lower demand and timing of orders was partially offset by strength in the emerging markets due to strong project orders and recovery from prior year COVID-19 impacts.
An order often takes the form of a customer purchase order or a signed quote from a Xylem business. Orders received during 2022 decreased by $43 million, or 0.7%, to $6,257 million (3.7% increase on a constant currency basis).
An order often takes the form of a customer purchase order or a signed quote from a Xylem business. Orders received during 2023 increased by $1,244 million, or 19.9%, to $7,501 million (20.5% increase on a constant currency basis). Order intake increased due to $1,220 million of increased orders related to the Evoqua acquisition.
The increase in adjusted EBITDA margin was primarily due to the same factors impacting the increase in adjusted operating margin. 51 Applied Water Operating income was $258 million for our Applied Water segment (operating margin of 14.6%) during 2022, an increase of $18 million, or 7.5%, when compared to operating income of $240 million (operating margin of 14.9%) during the prior year, or a total decrease of 30 basis points.
Applied Water Operating income was $310 million for our Applied Water segment (operating margin of 16.7%) during 2023, an increase of $52 million, or 20.2%, when compared to operating income of $258 million (operating margin of 14.6%) during the prior year, or a total increase of 210 basis points of operating margin.
Risk Factors" in the Company's 2022 Annual Report. Evoqua Acquisition On January 23, 2023, Xylem entered into a definitive agreement under which Xylem will acquire Evoqua, a leader in mission-critical water treatment solutions and services, in an all-stock transaction that reflects an implied enterprise value of approximately $7.5 billion.
Evoqua Acquisition On January 22, 2023, Xylem entered into a definitive agreement to acquire Evoqua, a leader in mission-critical water treatment solutions and services, in an all-stock transaction that reflected an implied enterprise value of approximately $7.5 billion. The transaction closed on May 24, 2023. See Note 3, "Acquisitions and Divestitures," to the consolidated financial statements for further information.
During 2021, we recorded a reduction of $3 million within the Measurement & Control Solutions segment, related to actions commenced prior to 2020. The Water Infrastructure, Applied Water and Measurement & Control Solutions actions commenced in 2022 consist primarily of severance charges. The actions commenced in 2022 are complete.
The actions are expected to continue through the end of 2024. The Water Infrastructure, Applied Water and Measurement and Control Solutions actions commenced in 2022 consist primarily of severance charges. The actions commenced in 2022 are complete. The Water Infrastructure actions commenced in 2021 consist primarily of severance charges. The actions commenced in 2021 are complete.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" for additional information on foreign exchange risk. Our financial results can be difficult to predict. Our business is impacted by a substantial amount of short cycle and book-and-bill business, which we have limited insight into, particularly for the business that we transact through our significant distribution network.
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk, primarily related to foreign currency exchange rates and interest rates. These exposures are actively monitored by management. Our exposure to foreign exchange rate risk is due to certain costs, revenue and borrowings being denominated in currencies other than one of our subsidiaries' functional currency.
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Our businesses, including that of our Measurement & Control Solutions segment, are also impacted by our long-cycle business, including large projects, which could be unexpectedly cancelled, or whose timing can change based upon customer requirements due to a number of factors affecting the project that are beyond our knowledge or control, such as funding, readiness of the project and regulatory approvals.
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Similarly, we are exposed to market risk as a result of changes in interest rates which may affect the cost of our financing. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures.
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We rely on a complex global supply chain, which has been subject to dynamic conditions, volatility, unexpected changes and disruptions due to international conditions, including as a result of the war between Russia and Ukraine, the COVID-19 pandemic and macroeconomic conditions, including high inflation.
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Foreign Currency Exchange Rate Risk Approximately 46% of our 2023 revenues were from customers in various locations outside the U.S. Our economic foreign currency risk primarily relates to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies.
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These supply chain challenges have affected, and may continue to affect, our cost structure, production and ability to timely fill customer orders. We cannot predict when, or if, these conditions will ease or subside in the future. Accordingly, our financial results for any given period have been and will continue to be difficult to predict.
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We may use derivative financial instruments to offset risk related to receipts from customers and payments to suppliers, when it is believed that the exposure will not be limited by our normal operating and financing activities.
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We may incur additional impairment charges for our goodwill and other indefinite-lived intangible assets which would negatively impact our operating results. We have a significant amount of goodwill and purchased intangible assets on our balance sheet as a result of acquisitions.
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We enter into currency forward contracts periodically in order to manage the exchange rate fluctuation risk on certain intercompany transactions associated with third-party sales and purchases. These risks are also mitigated by natural hedges including the presence of manufacturing facilities outside the U.S., global sourcing and other spending which occurs in foreign countries.
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As of December 31, 2022, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $3 billion. In accordance with generally accepted accounting principles, we evaluate these assets for impairment at least annually, or more frequently if changes in events or circumstances indicate it is more likely than not that a potential impairment could exist.
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Our principal foreign currency transaction exposures primarily relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Australian Dollar, and Polish Zloty. We estimate that a hypothetical 10% movement in foreign currency exchange rates would not have a material economic impact to Xylem’s financial position and results of operations.
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Significant negative industry or economic trends, disruptions to our business or our customers’ business, inability to effectively integrate or scale acquired businesses, increases in cost of capital, unexpected significant changes or planned changes in use of the assets, failure of the FCC to renew radio spectrum licenses, and divestitures and market capitalization declines may cause impairment of our goodwill and other indefinite-lived intangible assets.
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Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar. The translation risk is primarily concentrated in the exchange rate between the U.S. Dollar and the Euro, British Pound, Canadian Dollar, Chinese Yuan, Australian Dollar, Indian Rupee, and Swedish Krona. As the U.S.
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For example, in 2020 we recorded goodwill impairment charges $58 million within our Measurement & Control Solutions segment primarily related to the performance of the business of the Pure Technologies Ltd. acquisition ("Pure") (as detailed in Note 11, “Goodwill and Other Intangible Assets”).
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Dollar strengthens against other currencies in which we transact business, revenue and income will generally be negatively impacted, and if the U.S. Dollar weakens, revenue and income will generally be positively impacted. We expect to continue to generate significant revenue from non-U.S. operations and we expect the cash generated from that revenue to be predominately held by our foreign subsidiaries.
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We did not record goodwill impairment charges within our Measurement & Control Solutions segment in 2021 or 2022. Material impairment charges have in the past and could in the future adversely affect our results of operations and financial condition. Changes in our effective tax rates and tax expenses may adversely affect our financial results.
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We expect to manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed.
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We sell our products in approximately 150 countries and 53% of our revenue was generated outside the U.S. for the year ended December 31, 2022.
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We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when it is 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.
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Given the global nature of our business, a number of factors may increase our effective tax rates and tax expense, including: • the geographic mix of jurisdictions in which profits are earned and taxed; • the statutory tax rates and tax laws in jurisdictions in which we conduct business; • the resolution of tax issues arising from tax examinations by various tax authorities; and • the valuation of our deferred tax assets and liabilities.
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We also hedge our investment in certain foreign subsidiaries via the use of cross-currency swaps. Accordingly, we estimate that a 10% movement of the U.S. Dollar to various foreign currency exchange rates we translate from, in aggregate would not have a material economic impact on our financial position and results of operations.
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Additionally, tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.
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Interest Rate Risk As of December 31, 2023, our long-term debt portfolio is primarily comprised of four series of fixed-rate senior notes that total approximately $1.9 billion. The senior notes are not exposed to interest rate risk as the bonds are at a fixed rate until maturity.
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The recent agreement by countries in the Organization for Economic Cooperation and Development to implement additional legislative changes increases the uncertainty of future income tax positions, and such changes may result in additional tax expense and effective tax rate volatility.
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In addition to the senior notes, we also have $75 million in equipment financings with fixed interest rates.
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Our businesses are regularly examined by various tax authorities throughout the world and the resolutions of these examinations do not typically have a significant impact on our effective tax rates and tax expenses, but they could.
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Our long-term debt portfolio also includes $326 million of variable rate debt, primarily comprised of the $278 million for the Term Facility (as defined in Note 15, “Credit Facilities and Debt” to the consolidated financial statements) and $48 million of equipment financings with variable interest rates .
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For example, following an examination regarding aspects of the reorganization of our European business that occurred in 2013, the Swedish tax authority issued a tax assessment to Xylem’s Swedish subsidiary in 2019, which we are appealing as further described in Note 6, “Income Taxes.” This examination as well as other examinations can result in increased tax assessments, and settlement or litigation about the assessments and final resolution could be unfavorable to Xylem.
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We estimate that a 1% movement in interest rates would not have a material economic impact on our financial position and results of operations. Based on the current interest rate market we do not anticipate material risk associated with our debt refinancing within the target time frame of maturity.
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We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, including unrecognized tax benefits; however, developments in an audit or litigation could materially and adversely affect us.
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Commodity Price Exposures For a discussion of risks relating to commodity prices, refer to “Item 1A. Risk Factors.” 60
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Although we 26 believe our tax estimates and accruals are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in its historical income tax provisions, accruals and unrecognized tax benefits, which could materially and adversely affect our business, operating results, cash flows and financial condition.
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Our pension and other defined benefit plans are subject to financial market risks that could adversely impact our earnings, financial condition and cash flows in future periods. Certain current and retired employees are covered by pension and other defined benefit plans (collectively, “post-retirement benefit plans”).
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We make contributions to fund our post-retirement benefit plans when we consider it necessary or advantageous to do so.
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Significant changes in market interest rates, decreases in fair value of or investment losses on plan assets, changes in discount rates, or changes in minimum funding requirements established by governments, taxing authorities or other agreements, could increase our funding obligations and adversely impact our earnings, financial condition and cash flows in future periods.
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In addition, the cost of our post-retirement benefit plans is incurred over long periods of time and involves factors that can be volatile and unpredictable, including rates of return on plan assets, discount rates used to calculate liabilities and expenses, change in laws and regulatory actions, and changes in actuarial experience and assumptions, which could adversely impact our earnings, results of operations, financial condition and cash flows.
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Our debt obligations may adversely affect our business and our ability to meet our obligations and pay dividends. As of December 31, 2022, our total outstanding indebtedness was $1,880 million as described under “Liquidity and Capital Resources" and we may incur additional debt in the future.
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Our current or future indebtedness could have adverse consequences to us and our investors, including: • increasing our vulnerability to general adverse economic and industry conditions; • limiting our ability to obtain additional financing or borrow additional funds; • reducing or eliminating our ability to pay future dividends or repurchase our common stock; • limiting our flexibility in planning for, or reacting to, changes in our business and industry; • requiring a substantial portion of our cash flows from operations to make principal and interest payments; • reducing the cash flows available to fund working capital, capital expenditures, acquisitions or other investments to grow our business; • increasing the amount of interest expense that we must pay if future borrowings are at variable interest rates, which, as interest rates increase, would result in higher interest expense; and • increasing the risk of a future credit rating downgrade, which could increase future debt costs and limit the availability of debt financing.
Removed
In addition, there can be no assurance that future borrowings or equity financing will be available to us on favorable terms or at all for the payment or refinancing of our indebtedness. The terms of any future debt indentures, including those related to green financing, may also impose additional and more stringent restrictions on our operations than we currently have.
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Our ability to make scheduled principal payments of, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend on our future cash flows from operations, which may not be sufficient or may be affected by factors beyond our control.
Removed
If we are unable to service our indebtedness, our business, financial condition, results of operations and share price could be materially adversely affected. Risks Related to Legal and Regulatory Failure to comply with laws, regulations and policies, including the U.S.
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Foreign Corrupt Practices Act, other applicable anti-corruption laws, trade regulations, and data privacy and security laws, could have a material adverse impact on our business, results of operations, financial condition and reputation.
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Given our global operations, we are subject to regulation under a wide variety of U.S. and non-U.S. laws, regulations and policies, including laws and regulations related to anti-corruption, trade including export and import compliance, anti-trust and money laundering. Our policies mandate compliance with these laws and regulations. The U.S. Foreign Corrupt Practices Act (the "FCPA"), the U.K.
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Bribery Act of 2010 and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to 27 government officials or other persons for the purpose of obtaining or retaining business.
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We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-corruption laws may conflict with local business customs and practices. We cannot guarantee that our internal controls, policies and procedures will always prevent and protect us from improper conduct of our employees or business partners.
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In the event that we believe or have reason to believe that our employees or business partners have or may have violated applicable laws, regulations or policies, including anti-corruption laws, we are required to investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.
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Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, termination of relationships with business partners and curtailment of operations in certain jurisdictions, and as a result might materially and adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business.
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Additionally, to conduct our operations, we regularly move data across borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations regarding data privacy, data protection and data security, including the California Consumer Protection Act, the EU's GDPR and PIPL.
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The scope of the laws that may be applicable to us is evolving, often uncertain and may be conflicting, particularly with respect to foreign laws.
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GDPR greatly increases the jurisdictional reach of EU law and adds a broad array of requirements for handling personal data, including the enforcement of data subject rights, enhanced security requirements, obligations to guarantee EU data subject rights are not compromised in countries outside the EU, and public disclosure of significant data breaches.
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Other countries, such as China with its PIPL, have enacted or are enacting data localization and security laws that require data to stay within their borders. All of these evolving legal and operational requirements impose significant costs of compliance that are likely to increase over time.
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In addition, any such violation could result in substantial fines, sanctions and/or civil penalties, damage to our reputation and might materially and adversely affect our business, results of operations or financial condition. We face risks related to legal and regulatory proceedings.
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We are subject to various laws, regulations and other requirements of government authorities in the U.S. and foreign countries, any violation of which could potentially create substantial liability for us and damage our reputation. Changes in laws, ordinances, regulations or other government policies, the nature, timing, and effect of which are uncertain, may significantly increase our expenses and liabilities.
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From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of previously owned entities).
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These proceedings may seek remedies relating to environmental matters, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pensions, government contract issues and commercial or contractual disputes.
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Our continued transition to connected and digital technologies and solutions has increased our exposure to intellectual property litigation and we expect that this risk will continue to increase as we execute on our innovation and technology priorities.
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It is not possible to predict with certainty the outcome of claims, investigations, regulatory proceedings and lawsuits, and we could in the future incur judgments, fines or penalties or enter into settlements and claims that could have an adverse effect on our reputation, our business, results of operations and financial condition.
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Additionally, we may be required to change or cease operations at one or more facilities if a regulatory agency determines that we have failed to comply with laws, regulations or orders applicable to our business.
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The global and diverse nature of our operations, coupled with the increase in regulation and enforcement in many regions of the globe, means that legal and compliance risks will continue to exist and additional legal and regulatory proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time.
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In addition, subsequent developments in legal and regulatory proceedings may affect our assessments and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our results of operations and financial condition. 28 Infringement or expiration of our intellectual property rights, or allegations that we have infringed upon the intellectual property rights of third parties could negatively affect us.
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We own numerous patents, trademarks, copyrights, trade secrets and other intellectual property and licenses to intellectual property owned by others, that are important to our business. Our intellectual property rights may provide us with competitive advantage because they may help us differentiate our technologies, products and services, including our growing portfolio of data analytics and digitally-enabled offerings.
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However, our current or future intellectual property rights may not be sufficiently broad or may be challenged, invalidated, circumvented, misappropriated, independently developed, or designed-around, particularly given our operations in countries where laws governing intellectual property rights are not highly developed, protected or enforced.
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Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property, or detect or prevent circumvention, misappropriation or unauthorized use of such property, as well as the cost of enforcing our intellectual property rights, could adversely impact our business, financial condition and results of operations.
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From time to time, we receive notices from third parties alleging intellectual property infringement or misappropriation. Any dispute or litigation regarding intellectual property could be costly and time-consuming to defend due to the complexity and uncertainty of intellectual property litigation.
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We may not be successful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation.
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In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to use critical technology, be unable to license critical technology or sell critical products and services, be required to pay substantial damages or license fees with respect to the use of third-party intellectual property rights, or be required to redesign our products at substantial cost, any of which could adversely impact our competitive position, financial condition and results of operations.
Removed
Even if we successfully defend against claims of infringement or misappropriation, we may incur significant costs and diversion of management attention and resources, which could adversely affect our business, financial condition and results of operations. Developments in, and compliance with, current and future environmental and climate change laws and regulations could impact our business, financial condition or results of operations.
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Our business, operations, and product and service offerings are subject to and affected by many U.S. federal, state, local and foreign environmental laws and regulations, including those enacted in response to climate change concerns.
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Increasing public and governmental awareness and concern regarding the effects of climate change has led to significant legislative and regulatory efforts to limit greenhouse gas emissions and will likely result in further environmental and climate change laws and regulations.
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Compliance with existing laws and regulations currently requires, and compliance with future laws is expected to continue to require, increasing research and development, operating and capital expenditures, including with respect to the design or re-design of our products in order to conform to changing environmental standards and regulations, including with respect to emissions and efficiency, which could impact our business, financial condition and results of operations.
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Furthermore, environmental laws and regulations may authorize substantial fines and criminal sanctions as well as facility shutdowns to address violations, and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations.
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Developments such as the adoption of new environmental laws and regulations, stricter enforcement of laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination conditions, litigation involving environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency of other responsible parties could have a material adverse effect on our financial condition and results of operations.
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Risks Related to the Proposed Acquisition of Evoqua We may not realize some or all the expected benefits and synergies from our proposed acquisition of Evoqua. On January 23, 2023, we announced that we entered into a definitive merger agreement under which we will acquire Evoqua.
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While we and Evoqua will continue to operate independently until the completion of the acquisition, the success of the acquisition will depend, in part, on our ability to realize the anticipated benefits from successfully combining our and Evoqua’s businesses.
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We plan on devoting substantial management attention and resources to integrating our and Evoqua’s business practices and operations so that we can fully realize the anticipated benefits and synergies of the acquisition.
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Nonetheless, difficulties may arise during the integration process that could result in the failure to achieve the synergies that we anticipate, including the loss of key talent that may be difficult to replace, the disruption of each company’s ongoing business or inconsistencies in each company’s standards, 29 controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, partners, suppliers or creditors.
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As a result, the anticipated benefits of the acquisition may not be realized fully within the expected timeframe or at all, may take longer to realize, or may cost more than expected, which could materially and adversely affect our business, results of operations or financial condition, as well as adversely impact the stock price of the combined company.
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In addition, at times, the attention of certain members of each company’s management and each company’s resources may be focused on completion of the merger and the integration of the businesses of the two companies, which may divert attention from day-to-day business operations and disrupt each company’s ongoing business, as well as the business of the combined company.
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Furthermore, we and Evoqua could potentially become targets of securities class actions or derivative lawsuits in connection with the acquisition, which could result in diversion of management’s attention and resources and substantial costs, and could delay or prevent the acquisition from being completed.

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Other XYL 10-K year-over-year comparisons