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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number: 1-35229
Xylem Inc.
(Exact name of registrant as specified in its charter)
 
Indiana  45-2080495
(State or other jurisdiction of incorporation or
organization)
  (I.R.S. Employer Identification No.)
1 International Drive, Rye Brook, NY 10573
(Address of principal executive offices) (Zip code)
(914) 323-5700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange of which registered
Common Stock, par value $0.01 per shareXYLNew York Stock Exchange
2.250% Senior Notes due 2023XYL23New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes    No  
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
As of July 24, 2020, there were 179,959,293 outstanding shares of the registrant’s common stock, par value $0.01 per share.




Xylem Inc.
Table of Contents
ITEM
  
  
PAGE
PART I – Financial Information
Item 1-
Item 2-
Item 3-
Item 4-
PART II – Other Information
Item 1-
Item 1A-
Item 2-
Item 3-
Item 4-
Item 5-
Item 6-
2


PART I

ITEM 1.             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(in millions, except per share data)

 Three MonthsSix Months
For the period ended June 30,2020201920202019
Revenue$1,160  $1,345  $2,283  $2,582  
Cost of revenue726  819  1,440  1,582  
Gross profit434  526  843  1,000  
Selling, general and administrative expenses288  294  585  597  
Research and development expenses44  47  93  98  
Restructuring and asset impairment charges48  14  50  25  
Operating income54  171  115  280  
Interest expense18  18  34  36  
Other non-operating (expense) income, net(1) 3  (4) 5  
Gain from sale of business      1  
Income before taxes35  156  77  250  
Income tax expense4  17  8  32  
Net income$31  $139  $69  $218  
Earnings per share:
Basic$0.17  $0.77  $0.38  $1.21  
Diluted$0.17  $0.77  $0.38  $1.20  
Weighted average number of shares:
Basic180.0  180.0  180.1  179.9  
Diluted180.6  181.2  181.0  181.1  
See accompanying notes to condensed consolidated financial statements.

3


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
 
 Three MonthsSix Months
For the period ended June 30,2020201920202019
Net income$31  $139  $69  $218  
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment35  (18) (43) 11  
Net change in derivative hedge agreements:
Unrealized gain (loss)6    4  (9) 
Amount of loss reclassified into net income  2  3  4  
Net change in postretirement benefit plans:
Amortization of prior service credit(1) (1) (2) (2) 
Amortization of net actuarial loss into net income5  3  10  6  
Other comprehensive income (loss), before tax45  (14) (28) 10  
Income tax (benefit) expense related to items of other comprehensive income (loss)(7) (3) 7  1  
Other comprehensive income (loss), net of tax52  (11) (35) 9  
Comprehensive income$83  $128  $34  $227  
Less: comprehensive loss attributable to noncontrolling interests    (1)   
Comprehensive income attributable to Xylem $83  $128  $35  $227  
See accompanying notes to condensed consolidated financial statements.
4


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
 
June 30,
2020
December 31,
2019
  
ASSETS
Current assets:
Cash and cash equivalents$1,577  $724  
Receivables, less allowances for discounts, returns and doubtful accounts of $35 and $35 in 2020 and 2019, respectively956  1,036  
Inventories595  539  
Prepaid and other current assets173  151  
Total current assets3,301  2,450  
Property, plant and equipment, net635  658  
Goodwill2,820  2,839  
Other intangible assets, net1,108  1,174  
Other non-current assets580  589  
Total assets$8,444  $7,710  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$498  $597  
Accrued and other current liabilities663  628  
Short-term borrowings and current maturities of long-term debt212  276  
Total current liabilities1,373  1,501  
Long-term debt3,031  2,040  
Accrued postretirement benefits446  445  
Deferred income tax liabilities304  310  
Other non-current accrued liabilities425  447  
Total liabilities5,579  4,743  
Commitments and contingencies (Note 18)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 194.5 shares and 193.9 shares in 2020 and 2019, respectively2  2  
Capital in excess of par value2,012  1,991  
Retained earnings1,838  1,866  
Treasury stock – at cost 14.5 shares and 13.7 shares in 2020 and 2019, respectively(587) (527) 
Accumulated other comprehensive loss(409) (375) 
Total stockholders’ equity2,856  2,957  
Non-controlling interests9  10  
Total equity2,865  2,967  
Total liabilities and stockholders’ equity$8,444  $7,710  

See accompanying notes to condensed consolidated financial statements.
5


XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the six months ended June 30,20202019
Operating Activities
Net income$69  $218  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation58  58  
Amortization68  69  
Share-based compensation16  16  
Restructuring and asset impairment charges50  25  
Gain from sale of business  (1) 
Other, net18  4  
Payments for restructuring(12) (12) 
Changes in assets and liabilities (net of acquisitions):
Changes in receivables48  (68) 
Changes in inventories(63) (10) 
Changes in accounts payable(86) (23) 
Other, net13  (70) 
Net Cash – Operating activities179  206  
Investing Activities
Capital expenditures(95) (129) 
Acquisitions of businesses, net of cash acquired   (18) 
Proceeds from sale of business  (2) 
Other, net7  3  
Net Cash – Investing activities(88) (146) 
Financing Activities
Short-term debt issued, net359  257  
  Short-term debt repaid(422) (113) 
Long-term debt issued, net987    
Repurchase of common stock(60) (39) 
Proceeds from exercise of employee stock options5  8  
Dividends paid(95) (87) 
Other, net  (1) 
Net Cash – Financing activities774  25  
Effect of exchange rate changes on cash(12) 2  
Net change in cash and cash equivalents853  87  
Cash and cash equivalents at beginning of year724  296  
Cash and cash equivalents at end of period$1,577  $383  
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$45  $45  
Income taxes (net of refunds received)$11  $74  
See accompanying notes to condensed consolidated financial statements.
6


XYLEM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Background and Basis of Presentation
Background
Xylem Inc. (“Xylem” or the “Company”) is a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment.
Xylem operates in three segments, Water Infrastructure, Applied Water and Measurement & Control Solutions. See Note 19, "Segment Information", to the condensed consolidated financial statements for further segment background information.
Except as otherwise indicated or unless the context otherwise requires, "Xylem," "we," "us," "our" and the "Company" refer to Xylem Inc. and its subsidiaries.
Basis of Presentation
The interim condensed consolidated financial statements reflect our financial position and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions between our businesses have been eliminated.
The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair statement of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Annual Report") in preparing these unaudited condensed consolidated financial statements, with the exception of accounting standard updates described in Note 2. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our 2019 Annual Report.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, postretirement obligations and assets, revenue recognition, income tax contingency accruals and valuation allowances, goodwill and indefinite lived intangible impairment testing, contingent liabilities and lease accounting. The global outbreak of the novel coronavirus (COVID-19) disease was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has created significant global volatility, uncertainty and economic disruption. The COVID-19 pandemic also has caused increased uncertainty in estimates and assumptions affecting the condensed consolidated financial statements. Actual results could differ from these estimates.
Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the condensed consolidated financial statements included herein are described as ending on the last day of the calendar quarter.

Note 2. Recently Issued Accounting Pronouncements
Recently Adopted Pronouncements
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," amending the accounting for the impairment of financial instruments, including trade receivables. Under previous guidance, credit losses were recognized when the applicable losses had a probable likelihood of occurring and this assessment was based on past events and current conditions. The amended current guidance eliminates the “probable” threshold and requires an entity to use a broader range of
7


information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach except for debt securities, which require a prospective transition approach. We adopted this guidance as of January 1, 2020. The adoption of this guidance did not have a material impact on our financial condition and results of operations.

Note 3. Acquisitions and Divestitures
Acquisitions
During the three and six months ended June 30, 2020 we spent approximately $0 million, net of cash received on acquisition activity.

During the three and six months ended June 30, 2019 we spent approximately $13 million and $18 million, net of cash received on acquisition activity, respectively.

Note 4. Revenue
Disaggregation of Revenue
The following table illustrates the sources of revenue:
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2020201920202019
Revenue from contracts with customers$1,114  $1,281  $2,188  $2,459  
Lease Revenue46  64  95  123  
Total$1,160  $1,345  $2,283  $2,582  
The following table reflects revenue from contracts with customers by application:
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2020201920202019
Water Infrastructure
     Transport$350  $396  $668  $742  
     Treatment105  101  176  178  
Applied Water
     Building Services187  216  374  429  
     Industrial Water150  178  301  344  
Measurement & Control Solutions
     Water161  195  344  394  
     Energy70  85  142  158  
     Software as a Service23  25  44  49  
     Test68  85  139  165  
Total$1,114  $1,281  $2,188  $2,459  
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The following table reflects revenue from contracts with customers by geographical region:
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2020201920202019
Water Infrastructure
     United States$144  $160  $265  $293  
     Europe177  179  334  339  
Asia Pacific81  94  140  168  
Other53  64  105  120  
Applied Water
     United States183  212  374  413  
     Europe81  92  163  186  
Asia Pacific36  41  60  80  
Other38  49  79  94  
Measurement & Control Solutions
     United States212  252  433  488  
     Europe58  64  132  136  
Asia Pacific25  27  47  59  
Other26  47  56  83  
Total$1,114  $1,281  $2,188  $2,459  
Contract Balances

We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Changes in contract assets and liabilities are due to our performance under the contract.
The table below provides contract assets, contract liabilities, and significant changes in contract assets and liabilities:
(in millions)Contract Assets (a)Contract Liabilities
Balance at January 1, 2019$96  $113  
  Additions, net55  84  
  Revenue recognized from opening balance—  (66) 
  Billings(50) —  
  Other10    
Balance at June 30, 2019$111  $131  
Balance at January 1, 2020$106  $135  
  Additions, net63  85  
  Revenue recognized from opening balance—  (70) 
  Billings(60) —  
  Other(2) (4) 
Balance at June 30, 2020$107  $146  
(a)Excludes receivable balances which are disclosed on the balance sheet
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Performance obligations
Delivery schedules vary from customer to customer based upon their requirements. Typically, large projects require longer lead production cycles and delays can occur from time to time. As of June 30, 2020, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to $467 million. We expect to recognize the majority of revenue upon the completion of satisfying these performance obligations in the following 60 months. The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations that are part of a contract whose original expected duration is less than one year.

Note 5. Restructuring and Asset Impairment Charges
Restructuring
In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, on June 2, 2020 management committed to restructuring activities across our businesses and functions globally. The plan is designed to support our long-term financial resilience and simplify our operations, strengthen our competitive positioning and better serve our customers.
As a result of this action, during the three and six months ended June 30, 2020, we recognized restructuring charges of $38 million and $40 million, respectively. These charges included reduction of headcount across segments and asset impairments within our Measurement & Control Solutions segment. Immaterial restructuring charges incurred during the first quarter are included in the plan information presented below.
During the three and six months ended June 30, 2019, we recognized restructuring charges of $14 million and $22 million, respectively. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions within our Applied Water segment.
The following table presents the components of restructuring expense and asset impairment charges:
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2020201920202019
By component:
Severance and other charges$21  $13  $23  $20  
Lease related charges      1  
Asset impairment17  1  17  1  
Total restructuring charges$38  $14  $40  $22  
Asset impairment10    10  3  
Total restructuring and asset impairment charges$48  $14  $50  $25  
By segment:
Water Infrastructure$6  $7  $8  $11  
Applied Water2  2  2  2  
Measurement & Control Solutions40  5  40  12  
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The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within "accrued and other current liabilities" and "other non-current accrued liabilities", for the six months ended June 30, 2020 and 2019:
(in millions)20202019
Restructuring accruals - January 1$27  $5  
Restructuring charges40  22  
Cash payments(12) (12) 
Asset impairment(17) (1) 
Foreign currency and other(1)   
Restructuring accruals - June 30$37  $14  
By segment:
Water Infrastructure$4  $4  
Applied Water1  2  
M