SEC Filing | Xylem

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xyl-20210331

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 March 31, 2021


☐			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 class

Trading Symbol(s)

Name of each exchange of which registered

Common Stock, par value $0.01 per share

XYL

New York Stock Exchange

2.250% Senior Notes due 2023

XYL23

New 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 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 filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of April 30, 2021, there were 180,041,590 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	-	Financial Statements:
		Condensed Consolidated Income Statements for the Three Months Ended March 3 1 , 202 1 and 20 20 (Unaudited)	3
		Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 3 1 , 202 1 and 20 20 (Unaudited)	4
		Condensed Consolidated Balance Sheets as of Mar ch 3 1 , 202 1 and December 31, 20 20 (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 3 1 , 202 1 and 20 20 (Unaudited)	6
		Notes to the Condensed Consolidated Financial Statements (Unaudited)	7
Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4	-	Controls and Procedures	43
PART II – Other Information
Item 1	-	Legal Proceedings	44
Item 1A	-	Risk Factors	44
Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3	-	Defaults Upon Senior Securities	44
Item 4	-	Mine Safety Disclosures	44
Item 5	-	Other Information	44
Item 6	-	Exhibits	44
		Signatures	47

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)




For the three months ended March 31,	2021		2020
Revenue	$	1,256	$	1,123
Cost of revenue	766		714
Gross profit	490		409
Selling, general and administrative expenses	301		297
Research and development expenses	50		49
Restructuring and asset impairment charges	6		2

Operating income	133		61
Interest expense	21		16
Other non-operating income (expense), net	2		(3)

Income before taxes	114		42
Income tax expense	27		4
Net income	$	87	$	38


Earnings per share:
Basic	$	0.49	$	0.21
Diluted	$	0.48	$	0.21
Weighted average number of shares:
Basic	180.3		180.2
Diluted	181.5		181.3

See accompanying notes to condensed consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in millions)



For the three months ended March 31,	2021		2020
Net income	$	87	$	38
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment	10		(78)

Net change in derivative hedge agreements:
Unrealized loss	(11)		(2)
Amount of (gain) loss reclassified into net income	(3)		3
Net change in post-retirement benefit plans:


Amortization of prior service credit	(1)		(1)
Amortization of net actuarial loss into net income	6		5


Other comprehensive income (loss), before tax	1		(73)
Income tax expense related to items of other comprehensive income (loss)	14		14
Other comprehensive loss, net of tax	(13)		(87)
Comprehensive income (loss)	$	74	$	(49)
Less: comprehensive loss attributable to noncontrolling interests	—		(1)
Comprehensive income (loss) attributable to Xylem	$	74	$	(48)

See accompanying notes to condensed consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)


	March 31, 2021		December 31, 2020

ASSETS
Current assets:
Cash and cash equivalents	$	1,688	$	1,875

Receivables, less allowances for discounts, returns and credit losses of $38 and $46 in 2021 and 2020, respectively	952		923
Inventories	596		558
Prepaid and other current assets	165		167

Total current assets	3,401		3,523
Property, plant and equipment, net	627		657
Goodwill	2,831		2,854
Other intangible assets, net	1,075		1,093
Other non-current assets	611		623
Total assets	$	8,545	$	8,750
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	530	$	569
Accrued and other current liabilities	714		787
Short-term borrowings and current maturities of long-term debt	600		600
Total current liabilities	1,844		1,956
Long-term debt	2,460		2,484
Accrued post-retirement benefits	502		519
Deferred income tax liabilities	257		242
Other non-current accrued liabilities	536		573
Total liabilities	5,599		5,774
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 195.2 shares and 194.9 shares in 2021 and 2020, respectively	2		2
Capital in excess of par value	2,049		2,037
Retained earnings	1,967		1,930
Treasury stock – at cost 15.2 shares and 14.5 shares in 2021 and 2020, respectively	(655)		(588)
Accumulated other comprehensive loss	(426)		(413)
Total stockholders’ equity	2,937		2,968
Non-controlling interests	9		8
Total equity	2,946		2,976
Total liabilities and stockholders’ equity	$	8,545	$	8,750

See accompanying notes to condensed consolidated financial statements.

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)


For the three months ended March 31,	2021		2020
Operating Activities
Net income	$	87	$	38
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation	30		29
Amortization	32		35
Share-based compensation	9		8
Restructuring and asset impairment charges	6		2


Other, net	2		4
Payments for restructuring	(12)		(8)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables	(42)		23
Changes in inventories	(46)		(54)
Changes in accounts payable	(29)		(68)



Other, net	(63)		(11)
Net Cash – Operating activities	(26)		(2)
Investing Activities
Capital expenditures	(39)		(51)


Proceeds from the sale of property, plant and equipment	1		—


Other, net	7		3
Net Cash – Investing activities	(31)		(48)
Financing Activities
Short-term debt issued, net	—		193
Short-term debt repaid	—		(3)


Repurchase of common stock	(67)		(60)
Proceeds from exercise of employee stock options	3		5
Dividends paid	(51)		(48)


Net Cash – Financing activities	(115)		87
Effect of exchange rate changes on cash	(15)		(22)
Net change in cash and cash equivalents	(187)		15
Cash and cash equivalents at beginning of year	1,875		724
Cash and cash equivalents at end of period	$	1,688	$	739
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	41	$	12
Income taxes (net of refunds received)	$	28	$	8

See accompanying notes to condensed consolidated financial statements.

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 17, "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, 2020 ("2020 Annual Report") in preparing these unaudited condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our 2020 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, post-retirement obligations and assets, revenue recognition, income taxes, valuation of intangible assets, goodwill and indefinite-lived intangible impairment testing and contingent liabilities. Actual results could differ from these estimates. The global outbreak of the novel coronavirus ("COVID-19") disease in March 2020, declared a pandemic by the World Health Organization, 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. Revenue

Disaggregation of Revenue

The following table illustrates the sources of revenue:


	Three Months Ended
	March 31,
(in millions)	2021		2020
Revenue from contracts with customers	$	1,211	$	1,074
Lease Revenue	45		49
Total	$	1,256	$	1,123

The following table reflects revenue from contracts with customers by application. The table below also reflects updates to the aggregation of applications to simplify and focus presentation.


	Three Months Ended
	March 31,
(in millions)	2021		2020
Water Infrastructure
Transport	$	370	$	318
Treatment	94		71

Applied Water
Commercial Building Services	147		137
Residential Building Services	67		50
Industrial Water	179		151

Measurement & Control Solutions
Water	283		265
Energy	71		82



Total	$	1,211	$	1,074

The following table reflects revenue from contracts with customers by geographical region. The presentation of geographic regions below has been updated to better align to how management currently focuses on revenue and growth platforms by geographic region. There has been no change to the Company's reportable segments.


	Three Months Ended
	March 31,
(in millions)	2021		2020
Water Infrastructure
United States	$	123	$	121
Western Europe	173		142
Emerging Markets (a)	122		86
Other	46		40

Applied Water
United States	194		191
Western Europe	92		74
Emerging Markets (a)	78		50
Other	29		23

Measurement & Control Solutions
United States	213		221
Western Europe	74		63
Emerging Markets (a)	46		41
Other	21		22

Total	$	1,211	$	1,074

(a)Emerging Markets revenue 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")

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, 2020	$	106	$	135
Additions, net	42		54
Revenue recognized from opening balance	—		(47)
Billings transferred to accounts receivable	(38)		—




Other	(4)		(4)
Balance at March 31, 2020	$	106	$	138

Balance at January 1, 2021	$	117	$	166
Additions, net	43		67
Revenue recognized from opening balance	—		(71)
Billings transferred to accounts receivable	(50)		—




Other	(1)		—
Balance at March 31, 2021	$	109	$	162

(a)Excludes receivable balances which are disclosed on the balance sheet

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 March 31, 2021, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to $428 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 3. Restructuring and Asset Impairment Charges

From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position ourselves. During the three months ended March 31, 2021, we recognized restructuring charges of $5 million, of which $4 million relates to actions previously announced in 2020. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment. During the three months ended March 31, 2020, we recognized restructuring charges of $2 million.

In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic, in June 2020 management committed to a restructuring plan that includes actions 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.

The following table presents the components of restructuring expense and asset impairment charges:


	Three Months Ended
	March 31,
(in millions)	2021		2020
By component:
Severance and other charges	$	4	$	2

Asset impairment	1		—


Total restructuring charges	$	5	$	2
Asset impairment charges	1		—
Total restructuring and asset impairment charges	$	6	$	2

By segment:
Water Infrastructure	$	4	$	2
Applied Water	1		—
Measurement & Control Solutions	1		—

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 three months ended March 31, 2021 and 2020:


(in millions)	2021		2020
Restructuring accruals - January 1	$	29	$	27
Restructuring charges	5		2
Cash payments	(12)		(8)
Asset impairment	(1)		—
Foreign currency and other	—		(1)
Restructuring accruals - March 31	$	21	$	20

By segment:
Water Infrastructure	$	2	$	1
Applied Water	1		1
Measurement & Control Solutions	14		17
Regional selling locations (a)	4		1

(a)Regional selling locations consist primarily of selling and marketing organizations and related support services that incurred restructuring expense which was allocated to the segments. The liabilities associated with restructuring expense were not allocated to the segments.

The following table presents expected restructuring spend in 2021 and thereafter:


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Corporate		Total
Actions Commenced in 2021:
Total expected costs	$	3	$	—	$	—	$	—	$	3
Costs incurred during Q1 2021	1		—		—		—		1


Total expected costs remaining	$	2	$	—	$	—	$	—	$	2

Actions Commenced in 2020:
Total expected costs	$	25	$	8	$	33	$	2	$	68
Costs incurred during 2020	19		4		30		—		53
Costs incurred during Q1 2021	2		1		1		—		4


Total expected costs remaining	$	4	$	3	$	2	$	2	$	11

The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2020 consist primarily of severance charges across segments and asset impairment charges in our Measurement & Control Solutions segment. These actions are expected to continue through 2021.

The Water Infrastructure actions commenced in 2021 consist primarily of severance charges. These actions are expected to continue through the third quarter of 2021.

Note 4. Income Taxes

Our quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items within periods presented. The comparison of our effective tax rate between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction and discrete items.

The income tax provision for the three months ended March 31, 2021 was $27 million resulting in an effective tax rate of 23.3%, compared to a $4 million expense resulting in an effective tax rate of 10.0% for the same period in 2020. The effective tax rate for the three month period ended March 31, 2021 was higher than the U.S. federal statutory rate primarily due to tax settlements and the Global Intangible Low Taxed Income ("GILTI") inclusion, partially offset by favorable earnings mix. Additionally, the effective tax rate for the three month period ended March 31, 2021 differs from the same period in 2020 due to the impact of the tax settlements in the current period, partially offset by the benefit from favorable equity compensation deductions in the prior year.

Unrecognized Tax Benefits

We recognize tax benefits from uncertain tax positions only if it is more likely than not that a tax position will be sustained on examination by taxing authorities or upon completion of the litigation process, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits at March 31, 2021 was $113 million, as compared to $114 million at December 31, 2020, which if ultimately recognized will reduce our effective tax rate. We do not believe it is reasonably possible that the unrecognized tax benefits will significantly change within the next twelve months. We classify interest expense relating to unrecognized tax benefits as a component of "Other non-operating (expense) income, net" and tax penalties as a component of "Income tax expense" in our Condensed Consolidated Income Statements. As of March 31, 2021, we had $8 million of interest accrued for unrecognized tax benefits.

During 2019, Xylem’s Swedish subsidiary received a tax assessment for the 2013 tax year related to the tax treatment of an intercompany transfer of certain intellectual property that was made in connection with a reorganization of our European businesses. The assessment asserts an aggregate amount of approximately $80 million for tax, penalties and interest. Xylem filed an appeal with the Administrative Court of Stockholm. Management, in consultation with external legal advisors, believes it is more likely than not that Xylem will prevail on the proposed assessment and is vigorously defending our position through litigation. As of March 31, 2021, we have not recorded any unrecognized tax benefits related to this uncertain tax position.

Note 5. Earnings Per Share

The following is a reconciliation of the shares used in calculating basic and diluted net earnings per share:


	Three Months Ended
	March 31,
	2021		2020
Net income (in millions)	$	87	$	38
Shares (in thousands):
Weighted average common shares outstanding	180,252		180,154
Add: Participating securities (a)	15		25
Weighted average common shares outstanding — Basic	180,267		180,179
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options	794		725
Dilutive effect of restricted stock units and performance share units	413		390

Weighted average common shares outstanding — Diluted	181,474		181,294
Basic earnings per share	$	0.49	$	0.21
Diluted earnings per share	$	0.48	$	0.21

(a)Restricted stock unit awards containing rights to non-forfeitable dividends that participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.

(b)Incremental shares from stock options, restricted stock units and performance share units are computed by the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock units and performance share units, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance or market conditions at the end of the reporting period. See Note 13, "Share-Based Compensation Plans", to the condensed consolidated financial statements for further detail on the performance share units.


	Three Months Ended
	March 31,
(in thousands)	2021	2020
Stock options	1,249	1,367
Restricted stock units	285	314
Performance share units	352	285

Note 6. Inventories

The components of total inventories are summarized as follows:


(in millions)	March 31, 2021		December 31, 2020
Finished goods	$	232	$	221
Work in process	58		49
Raw materials	306		288
Total inventories	$	596	$	558

Note 7. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2021 are as follows:


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Total
Balance as of January 1, 2021	$	668	$	529	$	1,657	$	2,854
Activity in 2021


Foreign currency and other	(6)		(3)		(14)		(23)
Balance as of March 31, 2021	$	662	$	526	$	1,643	$	2,831

As of March 31, 2021, goodwill included accumulated impairment loss of $206 million within the Measurement & Control Solutions segment.

Other Intangible Assets

Information regarding our other intangible assets is as follows:


	March 31, 2021						December 31, 2020
(in millions)	Carrying Amount		Accumulated Amortization		Net Intangibles		Carrying Amount		Accumulated Amortization		Net Intangibles
Customer and distributor relationships	$	939	$	(421)	$	518	$	941	$	(410)	$	531
Proprietary technology and patents	205		(134)		71		206		(131)		75
Trademarks	143		(65)		78		143		(63)		80
Software	510		(274)		236		500		(265)		235
Other	21		(18)		3		21		(18)		3
Indefinite-lived intangibles	169		—		169		169		—		169
Other Intangibles	$	1,987	$	(912)	$	1,075	$	1,980	$	(887)	$	1,093

Amortization expense related to finite-lived intangible assets was $32 million and $35 million for the three month periods ended March 31, 2021 and 2020, respectively.

Note 8. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions, and we principally manage our exposures to these risks through management of our core business activities. Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates that may impact revenue, expenses, cash receipts, cash payments, and the value of our stockholders' equity. We enter into derivative financial instruments to protect the value or fix the amount of certain cash flows in terms of the functional currency of the business unit with that exposure and reduce the volatility in stockholders' equity.

Cash Flow Hedges of Foreign Exchange Risk

We are exposed to fluctuations in various foreign currencies against our functional currencies. We use foreign currency derivatives, including currency forward agreements, to manage our exposure to fluctuations in the various exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.

Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty and Australian Dollar. We had foreign exchange contracts with purchased notional amounts totaling $400 million and

$0 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell British Pound and purchase Euro, purchase Polish Zloty and sell Euro, purchase U.S. Dollar and sell Canadian Dollar, and to sell Canadian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are $144 million, $131 million, $54 million, $21 million, $19 million and $17 million, respectively.

Hedges of Net Investments in Foreign Operations

We are exposed to changes in foreign currencies impacting our net investments held in foreign subsidiaries.

Cross Currency Swaps

Beginning in 2015, we entered into cross currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019 and third quarter of 2020 we entered into additional cross-currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $1,196 million and $1,249 million as of March 31, 2021 and December 31, 2020, respectively.

Foreign Currency Denominated Debt

On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. We designated the entirety of the outstanding balance, or $585 million and $610 million as of March 31, 2021 and December 31, 2020, respectively, net of unamortized discount, as a hedge of a net investment in certain foreign subsidiaries.

The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Income Statements and Statements of Comprehensive Income:


	Three Months Ended
	March 31,
(in millions)	2021		2020
Cash Flow Hedges
Foreign Exchange Contracts
Amount of (loss) recognized in OCI	$	(11)	$	(2)
Amount of (gain) loss reclassified from OCI into revenue	(2)		2
Amount of (gain) loss reclassified from OCI into cost of revenue	(1)		1

Net Investment Hedges
Cross Currency Swaps
Amount of gain recognized in OCI	$	30	$	45
Amount of income recognized in Interest Expense	5		4
Foreign Currency Denominated Debt
Amount of gain recognized in OCI	$	26	$	10

As of March 31, 2021, $11 million of net losses on cash flow hedges are expected to be reclassified into earnings in the next 12 months.

As of March 31, 2021, no gains or losses on the net investment hedges are expected to be reclassified into earnings over their duration.

The fair values of our derivative assets and liabilities are measured on a recurring basis using Level 2 inputs and are determined through the use of models that consider various assumptions including yield curves, time value and other measurements.

The fair values of our derivative contracts currently included in our hedging program were as follows:


(in millions)	March 31, 2021		December 31, 2020
Derivatives designated as hedging instruments





Liabilities
Cash Flow Hedges
Other current liabilities	$	(11)	$	—
Net Investment Hedges
Other non-current accrued liabilities	$	(86)	$	(117)

The fair value of our long-term debt, due in 2023, designated as a net investment hedge was $610 million and $640 million as of March 31, 2021 and December 31, 2020, respectively.

Note 9. Accrued and Other Current Liabilities

The components of total accrued and other current liabilities are as follows:


(in millions)	March 31, 2021		December 31, 2020
Compensation and other employee-benefits	$	211	$	258
Customer-related liabilities	180		186
Accrued taxes	93		103
Lease liabilities	64		63
Accrued warranty costs	51		54
Other accrued liabilities	115		123
Total accrued and other current liabilities	$	714	$	787

Note 10. Credit Facilities and Debt

Total debt outstanding is summarized as follows:


(in millions)	March 31, 2021		December 31, 2020

4.875% Senior Notes due 2021 (a)	$	600	$	600
2.250% Senior Notes due 2023 (a)	587		612
3.250% Senior Notes due 2026 (a)	500		500
1.950% Senior Notes due 2028 (b)	500		500
2.250% Senior Notes due 2031 (b)	500		500
4.375% Senior Notes due 2046 (a)	400		400





Debt issuance costs and unamortized discount (c)	(27)		(28)

Total debt	3,060		3,084
Less: short-term borrowings and current maturities of long-term debt	600		600
Total long-term debt	$	2,460	$	2,484

(a)The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2021 was $613 million and $620 million as of March 31, 2021 and December 31, 2020, respectively. The fair value of our Senior Notes due 2023 was $610 million and $640 million as of March 31, 2021 and December 31, 2020, respectively. The fair value of our Senior Notes due 2026 was $542 million and $563 million as of March 31, 2021 and December 31, 2020 respectively. The fair value of our Senior Notes due 2046 was $455 million and $496 million as of March 31, 2021 and December 31, 2020, respectively.

(b)The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2028 was $500 million and $529 million as of March 31, 2021 and December 31, 2020, respectively. The fair value of our Senior Notes due 2031 was $491 million and $527 million as of March 31, 2021 and December 31, 2020, respectively.

(c)The debt issuance costs and unamortized discount are recognized as a reduction in the carrying value of the Senior Notes in the Condensed Consolidated Balance Sheets and are being amortized to interest expense in our Condensed Consolidated Income Statements over the expected remaining terms of the Senior Notes.

Senior Notes

On June 26, 2020, we issued 1.950% Senior Notes of $500 million aggregate principal amount due January 2028 (the “Senior Notes due 2028”) and 2.250% Senior Notes of $500 million aggregate principal amount due January 2031 (the “Senior Notes due 2031" and, together with the Senior Notes due 2028, the “Green Bond”).

The Green Bond includes covenants that restrict our ability, and the ability of our restricted subsidiaries, to incur debt secured by liens on certain property above a threshold, to engage in certain sale and leaseback transactions involving certain property above a threshold, and to consolidate or merge, or convey or transfer all or substantially all of our assets. We may redeem the Green Bond at any time, at our option, subject to certain conditions, at specified redemption prices, plus accrued and unpaid interest to the redemption date.

If a change of control triggering event (as defined in the applicable Green Bond indenture) occurs, we will be required to make an offer to purchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase.

Interest on the Green Bond is payable on January 30 and July 30 of each year. As of March 31, 2021, we are in compliance with all covenants for the Green Bond.

On September 20, 2011, we issued 4.875% Senior Notes of $600 million aggregate principal amount due October 2021 (the "Senior Notes due 2021"). On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023 (the "Senior Notes due 2023"). On October 11, 2016, we issued 3.250% Senior Notes of $500 million aggregate principal amount due October 2026 (the “Senior Notes due 2026”) and 4.375% Senior Notes of $400 million aggregate principal amount due October 2046 (the “Senior Notes due 2046” and, together with the Senior Notes due 2021, the Senior Notes due 2023 and the Senior Notes due 2026, the “Senior Notes”).

The Senior Notes include covenants that restrict our ability, and the ability of our restricted subsidiaries, to incur debt secured by liens on certain property above a threshold, to engage in certain sale and leaseback transactions

involving certain property above a threshold, and to consolidate or merge, or convey or transfer all or substantially all of our assets. We may redeem the Senior Notes, as applicable, in whole or in part, at any time at a redemption price equal to the principal amount of the Senior Notes to be redeemed, plus a make-whole premium. We may also redeem the Senior Notes in certain other circumstances, as set forth in the applicable Senior Notes indenture.

If a change of control triggering event (as defined in the applicable Senior Notes indenture) occurs, we will be required to make an offer to purchase the Senior Notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase.

Interest on the Senior Notes due 2021 is payable on April 1 and October 1 of each year. Interest on the Senior Notes due 2023 is payable on March 11 of each year. Interest on the Senior Notes due 2026 and the Senior Notes due 2046 is payable on May 1 and November 1 of each year. As of March 31, 2021, we are in compliance with all covenants for the Senior Notes.

Credit Facilities

2019 Five-Year Revolving Credit Facility

On March 5, 2019, Xylem entered into a Five-Year Revolving Credit Facility (the “2019 Credit Facility”) with Citibank, N.A., as Administrative Agent, and a syndicate of lenders. The 2019 Credit Facility provides for an aggregate principal amount of up to $800 million (available in U.S. Dollars and in Euros), with increases of up to $200 million for a maximum aggregate principal amount of $1 billion at the request of Xylem and with the consent of the institutions providing such increased commitments.

Interest on all loans under the 2019 Credit Facility is payable either quarterly or at the expiration of any LIBOR or EURIBOR interest period applicable thereto. Borrowings accrue interest at a rate equal to, at Xylem's election, a base rate or an adjusted LIBOR or EURIBOR rate plus an applicable margin. The 2019 Credit Facility includes customary provisions for implementation of replacement rates for LIBOR-based and EURIBOR-based loans. The 2019 Credit Facility also 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, determined based on the methodology in effect as of March 5, 2019. Xylem will also pay quarterly fees to each lender for such lender’s commitment to lend accruing on such commitment at a rate based on our credit rating, whether such commitment is used or unused, as well as a quarterly letter of credit fee accruing on the letter of credit exposure of such lender during the preceding quarter at a rate based on the credit rating of Xylem (as adjusted for the ESG score).

The 2019 Credit Facility requires that Xylem maintain a consolidated total debt to consolidated EBITDA ratio (or maximum leverage ratio), which will be based on the last four fiscal quarters; and in addition contains a number of customary covenants, including limitations on the incurrence of secured debt and debt of subsidiaries, liens, sale and lease-back transactions, mergers, consolidations, liquidations, dissolutions and sales of assets. The 2019 Credit Facility also contains customary events of default. Finally, Xylem has the ability to designate subsidiaries that can borrow under the 2019 Credit Facility, subject to certain requirements and conditions set forth in the 2019 Credit Facility.

On June 22, 2020, Xylem entered into Amendment No. 1 to the 2019 Credit Facility (the "Amendment") which modified the financial covenant from a test based on the maximum leverage ratio (defined as consolidated total debt to consolidated EBITDA) to a test based on the net leverage ratio (defined as consolidated total debt less unrestricted cash and cash equivalents to consolidated EBITDA). This modification is effective through the quarter ending September 30, 2021, after which the covenant will revert back to the prior maximum leverage ratio test. The Amendment also restricts stock repurchases until March 31, 2021, except for shares of common stock in an amount not to exceed the number of shares issued after the date of the Amendment, subject to customary exceptions. As of March 31, 2021, the 2019 Credit Facility was undrawn and we are in compliance with all revolver covenants.

Commercial Paper

U.S. Dollar Commercial Paper Program

Our U.S. Dollar commercial paper program generally serves as a means of short-term funding with a $600 million maximum issuing balance and a combined limit of $800 million inclusive of the 2019 Credit Facility. As of March 31, 2021 and December 31, 2020, none of the Company's $600 million U.S. Dollar commercial paper

program was outstanding. We have the ability to continue borrowing under this program going forward in future periods.

Euro Commercial Paper Program

On June 3, 2019 Xylem entered into a Euro commercial paper program with ING Bank N.V., as administrative agent, and a syndicate of dealers. The Euro commercial paper program provides for a maximum issuing balance of up to €500 million (approximately $587 million) which may be denominated in a variety of currencies. The maximum issuing balance may be increased in accordance with the Dealer Agreement. As of March 31, 2021 and December 31, 2020, none of the Company's Euro commercial paper program was outstanding. We have the ability to continue borrowing under this program going forward in future periods.

Note 11. Post-retirement Benefit Plans

The components of net periodic benefit cost for our defined benefit pension plans are as follows:


	Three Months Ended
	March 31,
(in millions)	2021		2020
Domestic defined benefit pension plans:
Service cost	$	1	$	1
Interest cost	1		1
Expected return on plan assets	(2)		(2)

Amortization of net actuarial loss	1		1
Net periodic benefit cost	$	1	$	1
International defined benefit pension plans:
Service cost	$	4	$	3
Interest cost	3		4
Expected return on plan assets	(4)		(4)

Amortization of net actuarial loss	4		3

Net periodic benefit cost	$	7	$	6
Total net periodic benefit cost	$	8	$	7

The components of net periodic benefit cost other than the service cost component are included in the line item "Other non-operating expense, net" in the Condensed Consolidated Income Statements.

The total net periodic benefit cost for other post-retirement employee benefit plans was less than $1 million, including net credits recognized into other comprehensive income of less than $1 million, for the three months ended March 31, 2021 and 2020.

We contributed $6 million and $12 million to our defined benefit plans during the three months ended March 31, 2021 and 2020, respectively. Additional contributions ranging between approximately $13 million and $21 million are expected during the remainder of 2021.

During the first quarter of 2020, the Company purchased a bulk annuity policy with an insurance company for its largest defined benefit plan in the U.K., as a plan asset, to facilitate the termination and buy-out of the plan. The bulk annuity fully insures the benefits payable to the participants of the plan until a full buy-out of the plan can be executed, which is expected to occur in late 2021 or early 2022. Included in the Company's first quarter 2020 contributions is $5 million paid to meet the shortfall between the cost of the bulk annuity policy and the plan assets.

Note 12. Equity

The following table shows the changes in stockholders' equity for the three months ended March 31, 2021:


	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-Controlling Interest		Total
Balance at January 1, 2021	$	2	$	2,037	$	1,930	$	(413)	$	(588)	$	8	$	2,976
Other	—		—		—		—		—		1		1

Net income	—		—		87		—		—		—		87
Other comprehensive loss, net	—		—		—		(13)		—		—		(13)
Dividends declared ($0.28 per share)	—		—		(50)		—		—		—		(50)
Stock incentive plan activity	—		12		—		—		(7)		—		5
Repurchase of common stock	—		—		—		—		(60)		—		(60)
Balance at March 31, 2021	$	2	$	2,049	$	1,967	$	(426)	$	(655)	$	9	$	2,946

The following table shows the changes in stockholders' equity for the three months ended March 31, 2020:


	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-Controlling Interest		Total
Balance at January 1, 2020	$	2	$	1,991	$	1,866	$	(375)	$	(527)	$	10	$	2,967
Cumulative effect of change in accounting principle	—		—		(2)		—		—		—		(2)
Net income	—		—		38		—		—		—		38
Other comprehensive loss, net	—		—		—		(86)		—		(1)		(87)
Dividends declared ($0.26 per share)	—		—		(48)		—		—		—		(48)
Stock incentive plan activity	—		13		—		—		(10)		—		3
Repurchase of common stock	—		—		—		—		(50)		—		(50)
Balance at March 31, 2020	$	2	$	2,004	$	1,854	$	(461)	$	(587)	$	9	$	2,821

Note 13. Share-Based Compensation Plans

Share-based compensation expense was $9 million and $8 million during the three months ended March 31, 2021 and 2020, respectively. The unrecognized compensation expense related to our stock options, restricted stock units and performance share units was $10 million, $33 million and $17 million, respectively, at March 31, 2021 and is expected to be recognized over a weighted average period of 2.3, 2.4 and 2.9 years, respectively. The amount of cash received from the exercise of stock options was $3 million and $5 million for the three months ended March 31, 2021 and 2020, respectively.

Stock Option Grants

The following is a summary of the changes in outstanding stock options for the three months ended March 31, 2021:


	Share units (in thousands)	Weighted Average Exercise Price / Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2021	1,961	$	56.66	6.4
Granted	257	102.23
Exercised	(51)	57.01
Forfeited and expired	(1)	24.60
Outstanding at March 31, 2021	2,166	$	62.04	6.6	$	92
Options exercisable at March 31, 2021	1,440	$	51.46	5.3	$	77
Vested and expected to vest as of March 31, 2021	2,073	$	60.95	6.5	$	91

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the three months ended March 31, 2021 was $2.3 million.

Stock Option Fair Value

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for 2021 grants:


Volatility	26.30		%
Risk-free interest rate	0.86		%
Dividend yield	1.10		%
Expected term (in years)	5.7
Weighted-average fair value / share	$	23.20

Expected volatility is calculated based on an analysis of historic volatility measures for Xylem. We use historical data to estimate option exercise and employee termination behavior within the valuation model. Employee groups and option characteristics are considered separately for valuation purposes. The expected term represents an estimate of the period of time options are expected to remain outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.

Restricted Stock Unit Grants

The following is a summary of restricted stock unit activity for the three months ended March 31, 2021. The fair value of the restricted share unit awards is determined using the closing price of our common stock on date of grant:


	Share units (in thousands)	Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2021	537	$	74.62
Granted	191	102.23
Vested	(197)	76.56
Forfeited	(2)	80.74
Outstanding at March 31, 2021	529	$	83.77

ROIC Performance Share Unit Grants

The following is a summary of Return on Invested Capital ("ROIC") performance share unit grants for the three months ended March 31, 2021. The fair value of the ROIC performance share units is equal to the closing share price on the date of the grant:


	Share units (in thousands)	Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2021	182	$	76.12
Granted	60	102.23


Forfeited	(58)	75.10
Outstanding at March 31, 2021	184	$	84.55

TSR Performance Share Unit Grants

The following is a summary of our Total Shareholder Return ("TSR") performance share unit grants for the three months ended March 31, 2021:


	Share units (in thousands)	Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2021	182	$	96.98
Granted	60	117.56
Adjustment for Market Condition Achieved (a)	35	98.79
Vested	(93)	98.79

Outstanding at March 31, 2021	184	$	102.82

(a) Represents an increase in the number of original TSR performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.

The fair value of TSR performance share units was calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The following are weighted-average assumptions for 2021 grants:




Volatility	33.5	%
Risk-free interest rate	0.24	%

ESG Performance Share Unit Grants

During the first quarter of 2021, we issued a special grant of less than 0.1 million ESG performance share units. The shares will vest after 5 years based on our performance against certain of the Company's 2025 sustainability goals.

Note 14. Capital Stock

For the three months ended March 31, 2021 and March 31, 2020, the Company repurchased approximately 0.7 million shares of common stock for $67 million and approximately 0.8 million shares of common stock for $60 million, respectively. Repurchases include both share repurchase programs approved by the Board of Directors and repurchases in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units. The details of repurchases by each program are as follows:

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 approximately 0.6 million shares repurchased for $60 million under the program for the three months ended March 31, 2021. For the three months ended March 31, 2020, we repurchased approximately 0.7 million shares for $50 million. There are up to $228 million in shares that may still be purchased under this plan as of March 31, 2021.

Aside from the aforementioned repurchase program, we repurchased approximately 0.1 million shares and approximately 0.1 million shares for $7 million and $10 million for the three months ended March 31, 2021 and 2020, respectively, in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units.

Note 15. Accumulated Other Comprehensive Loss

The following table provides the components of accumulated other comprehensive loss for the three months ended March 31, 2021:


(in millions)	Foreign Currency Translation		Post-retirement Benefit Plans		Derivative Instruments		Total
Balance at January 1, 2021	$	(86)	$	(330)	$	3	$	(413)
Foreign currency translation adjustment	10		—		—		10
Tax on foreign currency translation adjustment	(14)		—		—		(14)


Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income (expense), net	—		5		—		5





Income tax impact on amortization of postretirement benefit plan items	—		(1)		—		(1)
Unrealized loss on derivative hedge agreements	—		—		(11)		(11)
Income tax benefit on unrealized loss on derivative hedge agreements	—		—		1		1


Reclassification of unrealized gain on foreign exchange agreements into revenue	—		—		(2)		(2)
Reclassification of unrealized gain on foreign exchange agreements into cost of revenue	—		—		(1)		(1)


Balance at March 31, 2021	$	(90)	$	(326)	$	(10)	$	(426)

The following table provides the components of accumulated other comprehensive loss for the three months ended March 31, 2020:


(in millions)	Foreign Currency Translation		Post-retirement Benefit Plans		Derivative Instruments		Total
Balance at January 1, 2020	$	(103)	$	(269)	$	(3)	$	(375)

Foreign currency translation adjustment	(77)		—		—		(77)
Tax on foreign currency translation adjustment	(13)		—		—		(13)


Amortization of prior service cost and net actuarial loss on post-retirement benefit plans into other non-operating income (expense), net	—		4		—		4


Income tax impact on amortization of post-retirement benefit plan items	—		(1)		—		(1)
Unrealized loss on derivative hedge agreements	—		—		(2)		(2)


Reclassification of unrealized loss on foreign exchange agreements into revenue	—		—		2		2
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—		—		1		1


Balance at March 31, 2020	$	(193)	$	(266)	$	(2)	$	(461)

Note 16. Commitments and Contingencies

Legal Proceedings

From time to time we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of previously-owned entities). These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government contract issues and commercial or contractual disputes.

From time to time, claims may be asserted against Xylem alleging injury caused by any of our products resulting from asbestos exposure. We believe there are numerous legal defenses available for such claims and would defend ourselves vigorously. Pursuant to the Distribution Agreement among ITT Corporation (now ITT LLC), Exelis (acquired by Harris Corporation, now L3Harris Technologies, Inc.) and Xylem, ITT Corporation (now ITT LLC) has an obligation to indemnify, defend and hold Xylem harmless for asbestos product liability matters, including settlements, judgments, and legal defense costs associated with all pending and future claims that may arise from past sales of ITT’s legacy products. We believe ITT Corporation (now ITT LLC) remains a substantial entity with sufficient financial resources to honor its obligations to us.

See Note 4, "Income Taxes", of our condensed consolidated financial statements for a description of a pending tax litigation matter.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claims, we do not believe it is reasonably possible that any asserted or unasserted legal claims or proceedings, individually or in aggregate, will have a material adverse effect on our results of operations, or financial condition. We have estimated and accrued $5 million and $6 million as of March 31, 2021 and December 31, 2020, respectively, for these general legal matters.

Indemnifications

As part of our 2011 spin-off from our former parent, ITT Corporation (now ITT LLC), Exelis Inc. (acquired by Harris Corporation, now L3Harris Technologies, Inc.) and Xylem will indemnify, defend and hold harmless each of the other parties with respect to such parties’ assumed or retained liabilities under the Distribution Agreement and breaches of the Distribution Agreement or related spin agreements. ITT LLC's indemnification obligations include asserted and unasserted asbestos and silica liability claims that relate to the presence or alleged presence of asbestos or silica in products manufactured, repaired or sold prior to October 31, 2011, the Distribution Date, subject to limited exceptions with respect to certain employee claims, or in the structure or material of any building or facility, subject to exceptions with respect to employee claims relating to Xylem buildings or facilities. The

indemnification associated with pending and future asbestos claims does not expire. Xylem has not recorded a liability for material matters for which we expect to be indemnified by the former parent or Exelis Inc. through the Distribution Agreement and we are not aware of any claims or other circumstances that would give rise to material payments from us under such indemnifications.

Guarantees

We obtain certain stand-by letters of credit, bank guarantees, surety bonds and insurance letters of credit from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance-related requirements. As of March 31, 2021 and December 31, 2020, the amount of surety bonds, bank guarantees, insurance letters of credit and stand-by letters of credit was $392 million and $378 million, respectively.

Environmental

In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of sites in various countries. These sites are in various stages of investigation and/or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned and/or operated by Xylem or for which we are responsible under the Distribution Agreement, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations.

Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. Our accrued liabilities for these environmental matters represent our best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees. These estimates, and related accruals, are reviewed quarterly and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. Liabilities for these environmental expenditures are recorded on an undiscounted basis. We have estimated and accrued $3 million as of March 31, 2021 and December 31, 2020 for environmental matters.

It is difficult to estimate the final costs of investigation and remediation due to various factors, including incomplete information regarding particular sites and other potentially responsible parties, uncertainty regarding the extent of investigation or remediation and our share, if any, of liability for such conditions, the selection of alternative remedial approaches, and changes in environmental standards and regulatory requirements. We believe the total amount accrued is reasonable based on existing facts and circumstances.

Warranties

We warrant numerous products, the terms of which vary widely. In general, we warrant products against defect and specific non-performance. The table below provides changes in the combined current and non-current product warranty accruals over each period:


(in millions)	2021		2020
Warranty accrual – January 1	$	65	$	41
Net charges for product warranties in the period	8		22
Settlement of warranty claims	(9)		(7)
Foreign currency and other	(2)		(1)
Warranty accrual - March 31	$	62	$	55

Note 17. Segment Information

Our business has three reportable segments: Water Infrastructure, Applied Water and Measurement & Control Solutions. The Water Infrastructure segment focuses on the transportation and treatment of water, offering a range of products including water, wastewater and storm water pumps, treatment equipment, and controls and systems. The Applied Water segment serves many of the primary uses of water and focuses on the residential, commercial and industrial markets. The Applied Water segment's major products include pumps, valves, heat exchangers, controls and dispensing equipment. The Measurement & Control Solutions segment focuses on developing advanced technology solutions that enable intelligent use and conservation of critical water and energy resources as well as analytical instrumentation used in the testing of water. The Measurement & Control Solutions segment's major products include smart metering, networked communications, measurement and control technologies, critical infrastructure technologies, software and services including cloud-based analytics, remote monitoring and data management, leak detection and pressure monitoring solutions and testing equipment.

Additionally, we have Regional selling locations, which consist primarily of selling and marketing organizations and related support services, that offer products and services across our reportable segments. Corporate and other consists of corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs, as well as charges related to certain matters, such as environmental matters, that are managed at a corporate level and are not included in the business segments in evaluating performance or allocating resources.

The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 1 in the 2020 Annual Report). The following table contains financial information for each reportable segment:


	Three Months Ended
	March 31,
(in millions)	2021		2020
Revenue:
Water Infrastructure	$	509	$	438
Applied Water	393		338
Measurement & Control Solutions	354		347
Total	$	1,256	$	1,123
Operating Income:
Water Infrastructure	$	71	$	39
Applied Water	66		47
Measurement & Control Solutions	9		(12)
Corporate and other	(13)		(13)
Total operating income	$	133	$	61
Interest expense	$	21	$	16
Other non-operating income (expense), net	2		(3)

Income before taxes	$	114	$	42
Depreciation and Amortization:
Water Infrastructure	$	13	$	15
Applied Water	6		6
Measurement & Control Solutions	36		36
Regional selling locations (a)	5		4
Corporate and other	2		3
Total	$	62	$	64
Capital Expenditures:
Water Infrastructure	$	11	$	10
Applied Water	4		9
Measurement & Control Solutions	21		27
Regional selling locations (b)	3		4
Corporate and other	—		1
Total	$	39	$	51

(a)Depreciation and amortization expense incurred by the Regional selling locations was included in an overall allocation of Regional selling location costs to the segments; however, a certain portion of that expense was not specifically identified to a segment. That expense is captured in this Regional selling location line.

(b)Represents capital expenditures incurred by the Regional selling locations not allocated to the segments.


ITEM 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements, including the notes, included elsewhere in this report on Form 10-Q (this "Report").

This Report contains “forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” "contemplate," "predict," “project,” “forecast,” “likely,” “believe,” “target,” “will,” “could,” “would,” “should,” "potential," "may" and similar expressions or their negative, may, but are not necessary to, identify forward-looking statements. By their nature, forward-looking statements address uncertain matters and include any statements that: are not historical, such as statements about our strategy, financial plans, outlook, objectives, plans, intentions or goals; or address possible or future results of operations or financial performance, including statements relating to orders, revenues, operating margins and earnings per share growth.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Additionally, many of these risks and uncertainties are, and may continue to be, amplified by the coronavirus (“COVID-19”) pandemic. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include, among others, the following: overall industry and economic conditions, including industrial, governmental and private sector spending and the strength of the residential and commercial real estate markets; geopolitical, regulatory, economic and other risks associated with international operations; continued uncertainty around the COVID-19 pandemic’s magnitude, duration and impacts on our business, operations, growth, and financial condition, as well as uncertainty around approved vaccines and the pace of recovery when the pandemic subsides; actual or potential other epidemics, pandemics or global health crises; manufacturing and operating cost increases due to inflation, prevailing price changes, tariffs and other factors; fluctuations in foreign currency exchange rates; disruption, competition and pricing pressures in the markets we serve; cybersecurity incidents or other disruptions of information technology systems on which we rely, or involving our products; disruptions in operations at our facilities or that of third parties upon which we rely; availability of products, parts, electronic components and raw materials from our supply chain; availability, regulation and interference with radio spectrum used by some of our products; our ability to retain and attract senior management and other key talent; uncertainty related to restructuring and realignment actions and related charges and savings; our ability to continue strategic investments for growth; our ability to successfully identify, execute and integrate acquisitions; risks relating to products, including defects, security, warranty and liability claims, and recalls; difficulty predicting our financial results, including uncertainties due to the nature of our short- and long-cycle businesses; volatility in our results due to weather conditions; our ability to borrow or refinance our existing indebtedness and the availability of liquidity sufficient to meet our needs; risk of future impairments to goodwill and other intangible assets; failure to comply with, or change in, laws or regulations, including those pertaining to anti-corruption, data privacy and security, export and import, competition, and the environment and climate change; changes in our effective tax rates or tax expenses; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Annual Report") and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

All forward-looking statements made herein are based on information currently available to us as of the date of this Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

Xylem is a leading global water technology company. We design, manufacture and service highly engineered products and solutions ranging across a wide variety of critical applications in utility, industrial, residential and commercial building services settings. Our broad portfolio of solutions addresses customer needs across the water cycle, from the delivery, measurement and use of drinking water to the collection, test, treatment and analysis of wastewater to the return of water to the environment. Our product and service offerings are organized into three reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water and Measurement & Control Solutions.

•Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process. We also provide sales and rental of specialty dewatering pumps and related equipment and services. Additionally, our offerings use monitoring and control, smart and connected technologies to allow for remote monitoring of performance and enable products to self-optimize pump operations maximizing energy efficiency and minimizing unplanned downtime and maintenance for our customers. In the Water Infrastructure segment, we provide the majority of our sales directly to customers along with strong applications expertise, while the remaining amount is through distribution partners.

•Applied Water serves the water usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning, and for fire protection systems to the residential and commercial building services markets. In addition, our pumps, heat exchangers and controls provide cooling to power plants and manufacturing facilities, circulation for food and beverage processing, as well as boosting systems for agricultural irrigation. In the Applied Water segment, we provide the majority of our sales through long-standing relationships with many of the leading independent distributors in the markets we serve, with the remainder going directly to customers.

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

COVID-19 Pandemic Update

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

The COVID-19 pandemic as well as broader market dynamics have adversely affected, and are expected to continue to adversely affect, our supply chains. We have experienced shortages in the supply of components, parts and raw materials, as well as unpredictable interruptions with our external suppliers in 2021 that have led to increased logistics costs. We continue to enhance our supplier pulsing and redundancy to help mitigate these challenges. Additionally, we have in the past and may continue to take measures with respect to buffer stock or use of alternative suppliers to mitigate the impacts of freight and logistics delays and bolster our access to raw materials and components. If these shortages and interruptions are sustained, or if additional interruptions occur, they could have a negative impact on our results of operations. Our current overall operating capacity approximates normal levels globally.

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

Xylem continues to focus on the health and safety of our employees, working with our customers to help them minimize potential disruptions and positively impact our communities. Our support pay program for employees impacted by COVID-19 remains in place and is evaluated for continuation, as necessary.

Many of our offices globally remain in a substantially remote work from home status and our COVID-19 Response Team applies a set of Xylem "Return to Workplace" health and safety guidelines for remote workers to return to our facilities.

We continue to assess the evolving nature of the pandemic and its possible implications to our business, employees, supply chain, customers and communities, and to take actions in an effort to mitigate adverse consequences.

Risk related to the impact of COVID-19 as well as our supply chain are described in further detail under "Item 1A. Risk Factors" in the Company's 2020 Annual Report.

Executive Summary

Xylem reported revenue for the first quarter of 2021 of $1,256 million, an increase of 11.8% compared to $1,123 million reported in the first quarter of 2020. On a constant currency basis, revenue increased by $89 million, or 7.9%, driven by organic revenue growth in all end markets.

We generated operating income of $133 million (margin of 10.6%) during the first quarter of 2021, as compared to $61 million (margin of 5.4%) in 2020. Operating income in the first quarter of 2021 included an unfavorable impact from special charges incurred during the quarter of $2 million, partially offset by a decrease in restructuring and realignment costs of $1 million as compared to the first quarter of 2020. Excluding the impact of these items, adjusted operating income was $143 million (adjusted margin of 11.4%) during the first quarter of 2021 as compared to $70 million (adjusted margin of 6.2%) in 2020. The increase in adjusted operating margin was primarily due to cost reductions from our productivity, restructuring and other cost saving initiatives, favorable volume, impacted by COVID-19 recovery, and decreased quality management costs. These impacts were partially offset by cost inflation, increased spending on strategic investments, unfavorable mix and other lesser impacts.

Additional financial highlights for the quarter ended March 31, 2021 include the following:

•Orders of $1,538 million, up 22.0% from $1,261 million in the prior year, and up 18.6% on an organic basis across all segments.

•Earnings per share of $0.48, up 128.6% when compared to the prior year ($0.56, up 143.5% on an adjusted basis).

•EBITDA margin of 17.1%, up 480 basis points compared to 12.3% in the prior year (Net Income as a percent of revenue of 6.9%, up 350 basis points compared to 3.4% in the prior year)

•Net cash flow used by operating activities of $26 million for the three months ended March 31, 2021, an increase of $24 million from cash used in the prior year. Negative free cash flow of $65 million, down $12 million from the prior year.

Key Performance Indicators and Non-GAAP Measures

Management reviews key performance indicators including revenue, gross margins, segment operating income and operating income margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, dividends, acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following items to represent the non-GAAP measures we consider to be key performance indicators, as well as the related reconciling items to the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures may not be comparable to similarly-titled measures reported by other companies.

•"organic revenue" and "organic orders" defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales or discontinuance of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.

•"constant currency" defined as financial results adjusted for foreign currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. Dollar.

•"adjusted net income" and "adjusted earnings per share" defined as net income and earnings per share, respectively, adjusted to exclude restructuring and realignment costs, special charges, gain or loss from sale of businesses and tax-related special items, as applicable. A reconciliation of adjusted net income and adjusted earnings per share is provided below.


	Three Months Ended
	March 31,
(In millions, except for per share data)	2021				2020
Net income & Earnings per share	$	87	$	0.48	$	38	$	0.21
Restructuring and realignment, net of tax of $2 and $2	6		0.03		7		0.04

Special charges, net of tax of $0 and $0	3		0.02		1		—
Tax-related special items	6		0.03		(4)		(0.02)

Adjusted net income & Adjusted earnings per share	$	102	$	0.56	$	42	$	0.23

•"adjusted operating expenses" defined as operating expenses 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.


	Three Months Ended
	March 31,
(in millions)	2021			2020
Net Income	$	87		$	38
Income tax expense	27			4
Interest expense, net	19			14
Depreciation	30			29
Amortization	32			35
EBITDA	$	195		$	120
EBITDA Margin	15.5		%	10.7		%
Share-based compensation	$	9		$	8
Restructuring and realignment	8			9

Special charges	3			1

Adjusted EBITDA	$	215		$	138
Adjusted EBITDA Margin	17.1		%	12.3		%

•“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 pension costs.

•"tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments.

•"free cash flow" defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures. Our definition of "free cash flow" does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.


	Three Months Ended
	March 31,
(In millions)	2021		2020
Net cash used by operating activities	$	(26)	$	(2)
Capital expenditures	(39)		(51)
Free cash flow	$	(65)	$	(53)
Net cash used by investing activities	$	(31)	$	(48)
Net cash (used) provided by financing activities	$	(115)	$	87

2021 Outlook

We anticipate total revenue growth in the range of 8% to 10% in 2021, with organic revenue growth anticipated to be in the range of 5% to 7%. The following is a summary of our organic revenue outlook by end markets:

•Utilities revenue increased by approximately 3% organically in the first quarter driven by strength in Asia Pacific, western Europe and the Middle East, partially offset by weakness in North America. For 2021, we expect organic revenue growth in the mid to high-single-digit range with continued resilience on the wastewater side, as utilities remain focused on mission-critical applications and anticipate modest growth on a global basis through the year. Additionally, we expect that large clean water utility project deployments will be ramping up beginning in the second quarter and increasing throughout the end of the year. We expect to gain momentum behind key multi-year wins setting up healthy longer term growth and will be monitoring the global shortage of electronic components as the year progresses.

•Industrial revenue increased by approximately 14% organically in the first quarter driven by strength across all major geographic regions. For 2021, we expect organic revenue growth in the mid-single-digit range as activity across all segments rebound globally and our dewatering business in North America begins to recover as demand increases and site access restrictions continue to ease. We anticipate strong growth in the emerging markets and Europe during the first half of the year with North America lagging and tougher compares in the second half of the year.

•In the commercial markets, organic revenue growth was approximately 5% in the first quarter driven by strength in western Europe, Asia Pacific and the Middle East, partially offset by weakness in the U.S. and Latin America. For 2021, we expect organic revenue growth in the low-single-digit range. We expect replacement business in the U.S. to be relatively stable during the year and anticipate continued healthy activity in Europe. We expect new construction activity in North America to be soft, however we are optimistic that conditions will begin to recover late in the year.

•In the residential markets, organic revenue growth was approximately 31% in the first quarter driven by strength in Asia Pacific, North America and western Europe. This market is primarily driven by replacement revenue serviced through our distribution network. For 2021, we expect organic revenue growth in the high-single-digit to low-double-digit range, driven by healthy demand activity from increased residential users in the U.S. and Europe. Additionally, we anticipate strong demand in China for secondary water supply product applications.

We will continue to strategically execute restructuring and realignment actions in an effort to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. During 2021, we expect to incur between $50 million and $60 million in restructuring and realignment costs. We expect to realize approximately $40 million of net savings in 2021, consisting of approximately $35 million of incremental net savings from restructuring and realignment actions initiated in 2020, and approximately $5 million of net savings from the restructuring, realignment and other structural cost actions initiated during this year.

Results of Operations


	Three Months Ended
	March 31,
(In millions)	2021			2020			Change
Revenue	$	1,256		$	1,123		11.8	%
Gross profit	490			409			19.8	%
Gross margin	39.0		%	36.4		%	260	bp



Total operating expenses	357			348			2.6	%
Expense to revenue ratio	28.4		%	31.0		%	(260)	bp
Restructuring and realignment costs	8			9			(11.1)	%

Special charges	2			—			NM
Adjusted operating expenses	347			339			2.4	%
Adjusted operating expenses to revenue ratio	27.6		%	30.2		%	(260)	bp
Operating income	133			61			118.0	%
Operating margin	10.6		%	5.4		%	520	bp
Interest and other non-operating expense, net	19			19			—	%

Income tax expense	27			4			575.0	%
Tax rate	23.3		%	10.0		%	1,330	bp
Net income	$	87		$	38		128.9	%

NM - Not meaningful change

Revenue

Revenue generated during the three months ended March 31, 2021 was $1,256 million, reflecting an increase of $133 million, or 11.8%, compared to the same prior year period. On a constant currency basis, revenue grew 7.9% for the three months ended March 31, 2021. The increase on a constant currency basis was driven by an increase in organic revenue of $91 million during the quarter, reflecting strong organic growth across the emerging markets, particularly in China where we saw significant recovery from the impact of the COVID-19 pandemic in the prior year, and in western Europe. Strong organic growth in these regions was marginally offset by organic declines in the U.S. during the quarter.

The following table illustrates the impact from organic growth, recent divestitures, and foreign currency translation in relation to revenue during the three months ended March 31, 2021:


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Total Xylem
(In millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
2020 Revenue	$	438			$	338			$	347			$	1,123
Organic Growth	47		10.7	%	44		13.0	%	—		—	%	91		8.1	%
Divestitures	—		—	%	—		—	%	(2)		(0.6)	%	(2)		(0.2)	%
Constant Currency	47		10.7	%	44		13.0	%	(2)		(0.6)	%	89		7.9	%
Foreign currency translation (a)	24		5.5	%	11		3.3	%	9		2.6	%	44		3.9	%
Total change in revenue	71		16.2	%	55		16.3	%	7		2.0	%	133		11.8	%
2021 Revenue	$	509			$	393			$	354			$	1,256

(a)Foreign currency translation impact for the quarter due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, the Chinese Yuan and the Australian Dollar.

Water Infrastructure

Water Infrastructure revenue increased $71 million, or 16.2%, for the first quarter of 2021 (10.7% increase on a constant currency basis) as compared to the prior year. Revenue benefited from $24 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $47 million. Organic growth for the quarter was driven by strength in the utility end market, particularly in Asia Pacific, where China benefited from healthy order intake coming into the year as they recovered from prior year negative COVID-19 impacts, and in western Europe. Organic growth for the quarter was also driven by strength in the industrial end market, particularly across the emerging markets, which included strong growth from China COVID-19 recovery, and in western Europe. Organic growth in the industrial end market was partially offset by declines in the U.S. due to continued soft market conditions in oil and gas and mining.

From an application perspective, organic revenue growth for the first quarter was primarily driven by our transport application. The transport application had strong revenue growth across the emerging markets, where we benefited from a favorable prior year comparison in China and strong mining activities in Africa during the quarter, as well strong growth from healthy order intake in western Europe. Organic revenue from our treatment application also contributed to the segment's growth driven by recovery from COVID-19 volume impacts and project delays in the prior year in China, as well as strength in Europe and the United States during the quarter.

Applied Water

Applied Water revenue increased $55 million, or 16.3%, for the first quarter of 2021 (13.0% increase on a constant currency basis) as compared to the prior year. Revenue benefited from $11 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $44 million. Organic growth for the quarter was driven by strength in every end market and across all major geographic regions, with particular strength in emerging markets and western Europe.

From an application perspective, organic revenue growth in the first quarter was led by strength in the industrial water application which was primarily driven by market growth in the emerging markets, particularly in Asia Pacific where the industry was more significantly impacted by the COVID-19 pandemic in the prior year, and strong order intake in North America and strong backlog execution in western Europe. The residential building services application revenue also had strong organic growth, primarily driven by strong second water supply business and a favorable prior year comparison in China, as markets conditions recover from the COVID-19 pandemic. Strength in North America, where we benefited from healthy backlog execution coming into the year, and market growth in western Europe, also contributed organic revenue growth during the quarter. The commercial building services application contributed more modest organic growth during the quarter, primarily driven by strength in western Europe and China, which was partially offset by a decline in the U.S. where the construction industry is taking longer to recover from the COVID-19 pandemic.

Measurement & Control Solutions

Measurement & Control Solutions revenue increased $7 million, or 2.0%, for the first quarter of 2021 (0.6% decrease on a constant currency basis) as compared to the prior year. Revenue benefited from $9 million of foreign currency translation, with the change at constant currency driven by $2 million of reduced revenue related to divestiture impacts. Organic revenue remained essentially flat during the quarter as weakness in the utility end market, primarily driven by the U.S., was offset by strength in the industrial end market.

In order to simplify and focus the application discussion, beginning with the first quarter of 2021, we are aggregating the test application into the water application and the software as a service and other application into the water and energy applications, as applicable, as both of these sub-applications provide products and services to the broader, ultimate applications of water and energy. From an application perspective, organic revenue in the energy application declined during the quarter driven by slower project deployments in the gas business, where large project deployments in the U.S. during the prior year did not repeat and we experienced project delays driven by the COVID-19 pandemic during the quarter. This decline was offset by organic revenue growth during the quarter in the water application, primarily driven by the test business which experienced strong backlog execution in western Europe and China, coupled with COVID-19 recovery in China.

Orders / Backlog

An order represents a legally enforceable, written document that includes the scope of work or services to be performed or equipment to be supplied to a customer, the corresponding price and the expected delivery date for the applicable products or services to be provided. An order often takes the form of a customer purchase order or a signed quote from a Xylem business. Orders received during the first quarter of 2021 were $1,538 million, an increase of $277 million, or 22.0%, over the prior year (18.1% increase on a constant currency basis). Order intake benefited from $49 million of foreign currency translation during the quarter. The order increase on a constant currency basis primarily consisted of organic order growth of $235 million, or 18.6%.

The following table illustrates the impact from organic growth, recent divestitures, and foreign currency translation in relation to orders during the three months ended March 31, 2021:


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
2020 Orders	$	514			$	372			$	375			$	1,261
Organic Growth	70		13.6	%	92		24.7	%	73		19.5	%	235		18.6	%
Divestitures	—		—	%	—		—	%	(7)		(1.9)	%	(7)		(0.5)	%
Constant Currency	70		13.6	%	92		24.7	%	66		17.6	%	228		18.1	%
Foreign currency translation (a)	27		5.3	%	13		3.5	%	9		2.4	%	49		3.9	%
Total change in orders	97		18.9	%	105		28.2	%	75		20.0	%	277		22.0	%
2021 Orders	$	611			$	477			$	450			$	1,538

(a)

Water Infrastructure

Water Infrastructure segment orders increased $97 million, or 18.9%, to $611 million (13.6% increase on a constant currency basis) for the first quarter of 2021 as compared to the prior year. Order growth for the quarter benefited from $27 million of foreign currency translation. The order increase on a constant currency basis consisted primarily of organic order growth in the transport application. Organic growth in the transport application was driven by strength in the emerging markets, particularly strong order expansion in India during the quarter, as well as healthy market conditions in Europe and North America, which were impacted by recovery from the COVID-19 pandemic impact in the prior year. Organic orders for the treatment application also increased during the quarter, primarily driven by strength in Asia Pacific, North America and Europe, which partially offset the order decline in Latin America from lapping of a large prior year order.

Applied Water

Applied Water segment orders increased $105 million, or 28.2%, to $477 million (24.7% increase on a constant currency basis) for the first quarter of 2021 as compared to the prior year. Order growth for the quarter benefited from $13 million of foreign currency translation. The order increase on a constant currency basis was driven by organic order growth across all end markets, primarily in the U.S., where we benefited from strong demand, amplified by early ordering being done to mitigate longer lead times, and to a lesser extent, in western Europe and the emerging markets, particularly in China whose order intake was weakened by COVID-19 impacts in the prior year.

Measurement & Control Solutions

Measurement & Control Solutions segment orders increased $75 million, or 20.0%, to $450 million (17.6% increase on a constant currency basis) for the first quarter of 2021 as compared to the prior year. Order growth for the quarter benefited from $9 million of foreign currency translation. The order increase on a constant currency basis included organic order growth of $73 million, or 19.5%, which was partially offset by a $7 million reduction in orders related to divestiture impacts during the quarter. Organic order growth was led by the water application, which experienced strong order intake in the U.S. and western Europe and benefited from a favorable comparison

in the emerging markets, driven by COVID-19 recovery. Order intake in the energy application also grew organically during the quarter, primarily driven by large project deployments in North America.

Backlog

Backlog includes orders on hand as well as contractual customer agreements at the end of the period. Delivery schedules vary from customer to customer based on their requirements. Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors. Typically, large projects require longer lead production cycles and deployment schedules and delays occur from time to time. Total backlog was $2,403 million at March 31, 2021, an increase of $516 million or 27.3%, as compared to March 31, 2020 backlog of $1,887 million, and an increase of $279 million or 13.1%, as compared to December 31, 2020 backlog of $2,124 million driven by the significant increase in orders in the quarter. We anticipate that approximately 54% of the backlog at March 31, 2021 will be recognized as revenue in the remainder of 2021. There were no significant order cancellations during the quarter.

Gross Margin

Gross margin as a percentage of revenue increased 260 basis points to 39.0% for the three months ended March 31, 2021, as compared to 36.4% for the comparative 2020 period. The gross margin increase for the quarter was primarily driven by cost reductions from our global procurement and productivity improvement initiatives, decreased quality management costs and favorable volume, impacted by COVID-19 recovery, which were partially offset by cost inflation and other lesser impacts.

Operating Expenses

The following table presents operating expenses for the three months ended March 31, 2021 and 2020:


	Three Months Ended
	March 31,
(In millions)	2021			2020			Change
Selling, general and administrative expenses ("SG&A")	$	301		$	297		1.3	%
SG&A as a % of revenue	24.0		%	26.4		%	(240)	bp
Research and development expenses ("R&D")	50			49			2.0	%
R&D as a % of revenue	4.0		%	4.4		%	(40)	bp
Restructuring and asset impairment charges	6			2			200.0	%

Operating expenses	$	357		$	348		2.6	%
Expense to revenue ratio	28.4		%	31.0		%	(260)	bp

Selling, General and Administrative ("SG&A") Expenses

SG&A expenses increased by $4 million to $301 million, or 24.0% of revenue, in the first quarter of 2021, as compared to $297 million, or 26.4% of revenue, in the comparable 2020 period. The improvement in SG&A as a percent of revenue for the quarter was primarily driven by cost reductions from our productivity, restructuring and other cost saving initiatives, which were partially offset by cost inflation and additional investments in strategic growth initiatives.

Research and Development ("R&D") Expenses

R&D expense was $50 million, or 4.0% of revenue, in the first quarter of 2021, as compared to $49 million, or 4.4% of revenue, in the comparable period of 2020. The decrease in R&D as a percent of revenue for the quarter was primarily driven by the increase in revenue in the first quarter.

Restructuring and Asset Impairment Charges

During the three months ended March 31, 2021, we recognized restructuring charges of $5 million, of which $4 million relates to actions previously announced in 2020. These charges included reduction of headcount across all segments and asset impairments within our Measurement & Control Solutions segment. During the three months ended March 31, 2020, we recognized restructuring charges of $2 million.

The following is a roll-forward for the three months ended March 31, 2021 and 2020 of employee position eliminations associated with restructuring activities:


	2021	2020
Planned reductions - January 1	319	196
Additional planned reductions	57	50
Actual reductions and reversals	(148)	(60)
Planned reductions - March 31	228	186

The following table presents expected restructuring spend in 2021 and thereafter:


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Corporate		Total
Actions Commenced in 2021:
Total expected costs	$	3	$	—	$	—	$	—	$	3
Costs incurred during Q1 2021	1		—		—		—		1


Total expected costs remaining	$	2	$	—	$	—	$	—	$	2

Actions Commenced in 2020:
Total expected costs	$	25	$	8	$	33	$	2	$	68
Costs incurred during 2020	19		4		30		—		53
Costs incurred during Q1 2021	2		1		1		—		4

Total expected costs remaining	$	4	$	3	$	2	$	2	$	11

The Water Infrastructure actions commenced in 2021 consist primarily of severance charges. These actions are expected to continue through the third quarter of 2021.

We currently expect to incur between $35 million and $45 million in restructuring costs for the full year. These restructuring charges are primarily related to actions taken in response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic as well as other efforts to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. We expect to realize approximately $35 million of incremental net savings in 2021 from restructuring actions initiated in 2020. As a result of all of the actions taken and expected to be taken in 2021, we anticipate approximately $4 million of total net savings to be realized during 2021.

Operating Income

Operating income during the first quarter of 2021 was $133 million, reflecting an increase of 118.0% compared to $61 million in the first quarter of 2020. Operating margin was 10.6% for the first quarter of 2021 versus 5.4% for the comparable period in 2020, an increase of 520 basis points. Operating margin included an unfavorable impact from special charges incurred during the quarter of $2 million, partially offset by a decrease in restructuring and realignment costs of $1 million as compared to the first quarter of 2020. Excluding the impact of these items, adjusted operating income was $143 million with an adjusted operating margin of 11.4% in the first quarter of 2021 as compared to adjusted operating income of $70 million with an adjusted operating margin of 6.2% in the first quarter of 2020. The increase in adjusted operating margin was primarily due to cost reductions from our productivity, restructuring and other cost saving initiatives, favorable volume, impacted by COVID-19 recovery, and decreased quality management costs. These impacts were partially offset by cost inflation, increased spending on strategic investments, unfavorable mix and other lesser impacts.

The table below provides a reconciliation of the total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin:


	Three Months Ended
	March 31,
(In millions)	2021			2020			Change
Water Infrastructure
Operating income	$	71		$	39		82.1	%
Operating margin	13.9		%	8.9		%	500	bp
Restructuring and realignment costs	5			5			—	%

Adjusted operating income	$	76		$	44		72.7	%
Adjusted operating margin	14.9		%	10.0		%	490	bp
Applied Water
Operating income	$	66		$	47		40.4	%
Operating margin	16.8		%	13.9		%	290	bp
Restructuring and realignment costs	1			2			(50.0)	%
Special charges	1			—			NM
Adjusted operating income	$	68		$	49		38.8	%
Adjusted operating margin	17.3		%	14.5		%	280	bp
Measurement & Control Solutions
Operating income (loss)	$	9		$	(12)		175.0	%
Operating margin	2.5		%	(3.5)		%	600	bp

Restructuring and realignment costs	2			2			—	%

Adjusted operating income (loss)	$	11		$	(10)		210.0	%
Adjusted operating margin	3.1		%	(2.9)		%	600	bp
Corporate and other
Operating loss	$	(13)		$	(13)		—	%


Special charges	1			—			NM
Adjusted operating loss	$	(12)		$	(13)		(7.7)	%
Total Xylem
Operating income	$	133		$	61		118.0	%
Operating margin	10.6		%	5.4		%	520	bp
Restructuring and realignment costs	8			9			(11.1)	%

Special charges	2			—			NM
Adjusted operating income	$	143		$	70		104.3	%
Adjusted operating margin	11.4		%	6.2		%	520	bp

NM - Not meaningful percentage change

Water Infrastructure

Operating income for our Water Infrastructure segment increased $32 million, or 82.1%, for the first quarter of 2021 compared to the prior year, with operating margin also increasing from 8.9% to 13.9%. Operating margin was impacted by $5 million in restructuring and realignment costs in both years. Excluding these restructuring and realignment costs, adjusted operating income increased $32 million, or 72.7%, with adjusted operating margin increasing from 10.0% to 14.9%. The increase in adjusted operating margin for the quarter was primarily due to cost reductions from our productivity, restructuring and other cost saving initiatives and favorable volume, impacted by COVID-19 recovery. These impacts were partially offset by cost inflation, increased spending on strategic investments, unfavorable mix, increased customer-related reserves, increased inventory management costs and other lesser impacts.

Applied Water

Operating income for our Applied Water segment increased $19 million, or 40.4%, for the first quarter of 2021 compared to the prior year, with operating margin also increasing from 13.9% to 16.8%. Operating margin benefited from a decrease in restructuring and realignment costs of $1 million during the quarter which was offset by $1 million of special charges incurred in 2021. Excluding these items, adjusted operating income increased $19 million, or 38.8%, with adjusted operating margin increasing from 14.5% to 17.3%. The increase in adjusted operating margin for the quarter was primarily due to cost reductions from our productivity, restructuring and other cost saving initiatives and favorable volume, impacted by COVID-19 recovery. These impacts were partially offset by cost inflation, increased logistics costs, increased spending on strategic investments, unfavorable mix and other lesser impacts.

Measurement & Control Solutions

Operating income for our Measurement & Control Solutions segment increased $21 million, or 175.0%, for the first quarter of 2021 compared to the prior year, with operating margin increasing from (3.5)% to 2.5%. Operating margin was impacted by $2 million in restructuring and realignment costs in both years. Excluding these restructuring and realignment costs, adjusted operating income increased $21 million, or 210.0%, with adjusted operating margin increasing from (2.9)% to 3.1%. The increase in adjusted operating margin for the quarter was primarily due to cost reductions from our restructuring, productivity and other cost saving initiatives, and decreased quality management costs, primarily due to a specific warranty charge recorded during the prior year that did not recur related to a firmware issue that was identified and addressed timely. These impacts were partially offset by cost inflation and other lesser impacts.

Corporate and other

Operating loss for corporate and other of $13 million during the first quarter of 2021 remained constant as compared to the prior year, negatively impacted by $1 million of special charges incurred in 2021.

Interest Expense

Interest expense was $21 million for the three months ended March 31, 2021 and $16 million for the three months ended March 31, 2020. The increase in interest expense for the period is primarily driven by the issuance of our Green Bond during the second quarter of 2020. See Note 10, "Credit Facilities and Debt", of our condensed consolidated financial statements for a description of our credit facilities and long-term debt and related interest.

Income Tax Expense

Liquidity and Capital Resources

The following table summarizes our sources and (uses) of cash:


	Three Months Ended
	March 31,
(In millions)	2021		2020		Change
Operating activities	$	(26)	$	(2)	$	(24)
Investing activities	(31)		(48)		17
Financing activities	(115)		87		(202)
Foreign exchange (a)	(15)		(22)		7
Total	$	(187)	$	15	$	(202)

(a)The impact is primarily due to the strengthening of the Canadian Dollar, the Russian Ruble and various other currencies against the U.S. Dollar.

Sources and Uses of Liquidity

Operating Activities

Net cash used by operating activities was $26 million for the three months ended March 31, 2021 as compared to $2 million in the comparable prior year period. This increase in cash used was primarily driven by increased working capital levels to support year-over-year growth, as well as higher interest and tax payments and timing of compensation related payments, partially offset by increased cash earnings.

Investing Activities

Cash used in investing activities was $31 million for the three months ended March 31, 2021 as compared to $48 million in the comparable prior year period. This decrease in cash used of $17 million was mainly driven by lower spending on capital expenditures compared to the prior year.

Financing Activities

Cash used by financing activities was $115 million for the three months ended March 31, 2021 as compared to cash generated of $87 million in the comparable prior year period. This net increase in cash used for financing activities during the period was primarily due to higher levels of short-term debt during the first quarter of 2020 and an increase in share repurchase activity and dividend payments in the first quarter of 2021.

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. As a result of uncertainties caused by the COVID-19 pandemic, we continue to evaluate aspects of our spending, including capital expenditures, strategic investments and dividends. We will continue to evaluate aspects of our spending as the year progresses and anticipate our capital expenditures will gradually begin to increase to normal levels during the year as the markets we operate in recover.

Historically, we have generated operating cash flow sufficient to fund our primary cash needs. We will continue to monitor the economic effects of the COVID-19 pandemic and its impact on the Company's future operating cash flows going forward. 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. Our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (i) our credit ratings or absence of a credit rating, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy. There can be no assurance that such financing will be available to us on acceptable terms or that such financing will be available at all. Our securities are rated investment grade. A significant change in credit rating could impact our ability to borrow at favorable rates. Refer to Note 10, "Credit Facilities and Debt", of our condensed 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. As of March 31, 2021, the COVID-19 pandemic has not materially impacted our borrowing costs or other costs of capital, however the future impact of the COVID-19 pandemic is uncertain and may increase our borrowing costs

and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity.

We have considered the impacts of the COVID-19 pandemic on our liquidity and capital resources and do not currently expect it to impact our ability to meet future liquidity needs or continue to comply with debt covenants. 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. during the year. In addition, we believe our existing committed credit facilities and access to the public debt markets would provide further liquidity if required. Currently, we have available liquidity of approximately $2.5 billion, consisting of $1.7 billion of cash and $800 million of available credit facilities as disclosed in Note 10, "Credit Facilities and Debt", of our condensed consolidated financial statements. Our debt repayment obligations in 2021 consist of $600 million in Senior Notes, which we expect to pay out of cash. Our next long-term debt maturity is March 2023.

Risk related to these items are described in our risk factor disclosures referenced under “Item 1A. Risk Factors" in our 2020 Annual Report.

Credit Facilities & Long-Term Contractual Commitments

See Note 10, "Credit Facilities and Debt", of our condensed consolidated financial statements for a description of our credit facilities and long-term debt.

Non-U.S. Operations

We generated approximately 56% and 50% of our revenue from non-U.S. operations for the three months ended March 31, 2021 and 2020. 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. 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. We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when we believe it is cost-effective to do so. 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. As of March 31, 2021, we have provided a deferred tax liability of $6 million for net foreign withholding taxes and state income taxes on $356 million of earnings expected to be repatriated to the U.S. parent as deemed necessary in the future.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and capital resources are based on our condensed consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. We believe the most complex and sensitive judgments, because of their significance to the condensed consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain, particularly at this time and moving forward given the uncertainty around the magnitude and duration of the COVID-19 pandemic. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2020 Annual Report describes the critical accounting estimates used in preparation of the condensed consolidated financial statements. Actual results in these areas could differ from management’s estimates. Other than as discussed below, there have been no significant changes in the information concerning our critical accounting estimates as stated in our 2020 Annual Report.

In the third quarter of 2020, management updated forecasts of future cash flows for the Advanced Infrastructure Analytics ("AIA") businesses, which reflected significant negative volume impacts from the COVID-19 pandemic, primarily on our assessment services business. Our ongoing investment in the AIA businesses also continues to impact near-term profitability. Based on these factors we determined that there were indicators that the AIA reporting unit’s goodwill may be impaired, and accordingly, we performed an interim goodwill impairment test as of July 1, 2020. The results of the impairment test showed that the fair value of the AIA reporting unit was lower than the carrying value, resulting in a $58 million goodwill impairment charge. As of March 31, 2021 the remaining goodwill balance in our AIA reporting unit after recording the goodwill impairment charge was $112 million.

The uncertainty of the future impact of the COVID-19 pandemic may also contribute to further deterioration of our future cash flows. If we do not achieve our forecasts, it is possible that the goodwill of the AIA reporting unit could be deemed to be impaired again in a future period. The risks and potential impacts of COVID-19 on the fair value of our assets are included in our risk factor disclosures referenced under “Item 1A. Risk Factors" in the Company's 2020 Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the information concerning market risk as stated in our 2020 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in "Item 1A. Risk Factors" of our 2020 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents information with respect to purchases of the Company's common stock by the Company during the three months ended March 31, 2021:


(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)
1/1/21 - 1/31/21	—	—	—	$288
2/1/21 - 2/28/21	0.3	100.07	0.3	$258
3/1/21 - 3/31/21	0.3	101.07	0.3	$228

This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.

(a)Average price paid per share is calculated on a settlement basis.

(b)On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. For the three months ended March 31, 2021, we repurchased 0.6 million shares for $60 million. There are up to $228 million in shares that may still be purchased under this plan as of March 31, 2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

See the Exhibit Index for a list of exhibits filed as part of this report and incorporated herein by reference.

XYLEM INC.

EXHIBIT INDEX


Exhibit Number		Description	Location

3.1		Fourth Amended and Restated Articles of Incorporation of Xylem Inc.	Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 8-K filed on May 15, 2017 (CIK No. 1524472, File No. 1-35229).

3.2		Fourth Amended and Restated By-laws of Xylem Inc.	Incorporated by reference to Exhibit 3.2 of Xylem Inc.’s Form 8-K filed on May 15, 2017 (CIK No. 1524472, File No. 1-35229).

10.1	#	Letter Agreement between Xylem Inc. and Matthew Pine.	Filed herewith.

10.2	#	Individual Employment Contract between Xylem Europe GmbH and Hayati Yarkadas.	Filed herewith.

10.3	#	Form of Xylem 2011 Omnibus Incentive Plan Non-Qualified Stock Option Award Agreement (2021).	Filed herewith.

10.4	#	Form of 2011 Omnibus Incentive Plan Performance Share Unit Agreement (2021).	Filed herewith.

10.5	#	Form of 2011 Omnibus Incentive Plan Restricted Stock Unit Agreement (2021).	Filed herewith.

10.6	#	Form of 2011 Omnibus Incentive Plan ESG Performance Share Unit Agreement (2021).	Filed herewith.

31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.


Exhibit Number	Description	Location
101.0	The following materials from Xylem Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements	The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
104.0	The cover page from Xylem Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2021 formatted in Inline XBRL and contained in Exhibit 101.0.

#Management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						XYLEM INC.
						(Registrant)

						/s/ Geri McShane
						Geri McShane
						Vice President, Controller and Chief Accounting Officer

May 4, 2021

Document

EXHIBIT 10.1

February 26, 2020

Matthew Pine

[ADDRESS ON FILE WITH THE COMPANY]

Dear Matthew:

We are pleased to present you with this offer of employment with Xylem Inc. for the position of Senior Vice President & President, Applied Water Systems and Americas Commercial Team reporting directly to Patrick Decker, Xylem’s President and Chief Executive Officer. We are anticipating your start date to be around March 17, 2020, but no later than March 30, 2020. You can operate remotely from your home office for the first twelve months from your joining, within which time we expect to finalize an appropriate Xylem business location for you to relocate to, for which relocation support will be provided, as per Xylem company policy. This offer also confirms that the background check and drug screen has been completed successfully.

•Base Salary: You will be compensated on a bi-weekly basis in the amount of $19,230.77 which is equivalent to $500,000 annually. Annual merit increases are normally scheduled for March of each year and are at the discretion of management. You will be able to participate in the merit increase program beginning in 2021. This position is considered Exempt and not entitled to overtime compensation as provided by Federal Law.

•Incentive Plan: You will be eligible for participation in the Annual Incentive Plan (AIP) beginning with performance year 2020 according to the approved parameters of the plan and provided targets are met. Your bonus target is 75% of base salary. For 2020, you will be eligible for the full year annual incentive, approved bonus awards are typically paid in March for performance from the previous calendar year.

•Annual Long-Term Incentive Plan: You will be eligible to participate in the Xylem Long-Term Incentive Plan (LTIP) and will have an annual target award of $1,100,000 to be provided as 50% Performance Share Units (PSUs), 25% Restricted Stock Units (RSUs) and 25% Stock Options. RSUs and Stock Options vest one-third after each year and the PSUs vest 100% after three years and payable based on the Company's performance. Subsequent annual grants may vary due to management discretion with regard to individual performance and market competitiveness and are subject to approval by the Leadership Development and Compensation Committee (LDCC) of Xylem's Board of Directors.

Your first annual LTIP award will be made effective on/about May 7, 2020 (the first day of the next open window after the trading restriction period after your hire date). The vesting terms, performance targets and grant agreement will be consistent as other senior executives' most recent annual LTIP award expected to be granted on February 27, 2020.

•Special Sign-on LTI Grants: You will be eligible to receive a one-time special sign-on LTIP grant of $5,000,000 which will be awarded as $3,000,000 in Restricted Stock Units and $2,000,000 Stock Options with both vesting one-third after each year over three years. The special sign-on LTIP grant will be issued at the same time as the Annual LTIP above.

•Relocation: You and your family will have the support to relocate per the terms of the US Domestic Relocation Policy (details attached) once an appropriate business location is

determined (anticipated to be determined within 12 months from date of hire). This offer of relocation assistance is contingent upon your relocation being completed no later than December 31, 2021.

•Benefit Plans: A complete benefits package will be made available to you and your eligible dependents, which includes immediate enrollment in medical plans and subject to any enrollment waiting periods as defined by certain life insurance coverage plans. You will also be required to bring in the original birth certificate(s) for your dependent children (if applicable) and your marriage certificate (if applicable) if you wish to cover your dependents under any Xylem sponsored benefit program (i.e., health insurance). A benefits summary is attached for your reference. You will be scheduled for a comprehensive benefit orientation during your first week of employment.

•Paid Time Off (PTO): Xylem provides Paid Time off (PTO) to benefits-eligible employees to enable time off from work for rest and relaxation and to balance their lives. Paid Time Off provides a single bank of hours employees can use for sick, vacation and/or other personal reasons. You will accrue paid time off at the bi-weekly accrual rate of 6.16 hours per pay period (equivalent to 20 days annually) beginning on your date of hire and is based on total eligible hours worked and/or utilized during each pay period. Below is the PTO accrual schedule for completed years of service.

Completed Years of Service

Bi-Weekly
Accrual Rate
(Full-Time)

Equivalent Days Annually
(Full-Time)

Hourly Accrual Rates

Exec. New Hire

6.16 hours

20 days (160 hours)

0.077

7.08 hours

23 days (184 hours)

0.089

7.70 hours

25 days (200 hours)

0.097

9.24 hours

30 days (240 hours)

0.116

•Holidays: Xylem recognizes twelve paid holidays per calendar year for eligible employees. Some of these are floating holidays, which may be assigned and are pro-rated based upon date of hire.

As with all new hires, our offer is contingent on the verification of credentials and other information, including the completion of a criminal history check and, if applicable a credit history check. Your employment is also dependent upon a satisfactory pre-employment drug screening. We can confirm as of the date of this letter, you have successfully passed these pre-employment verifications and screenings. Please note, we will require presentation of documentation verifying your identity and legal ability to work in the United States (I-9). The information must be provided within three (3) days of your hire date.

Additionally, your employment is contingent on your not having entered into a signed agreement with a previous employer that contains a non-competition clause that might affect your ability to accept employment with Xylem. If you have entered into such an agreement, please forward a copy of it to me so we can do a legal review from our side. Your employment and compensation with Xylem are “at will” in that they can be terminated with or without cause, and with or without notice, at any time, at the option of either the Company or yourself. This offer does not constitute a contract of employment or an agreement for a definite or specified period of employment.

At Xylem, our corporate compass is our Code of Conduct. We are committed to conducting business according to the highest ethical standards, treating all employees with respect, creating fair workplaces, and ensuring that our co-workers help us strengthen and protect our reputation as a great employer, business partner and community member. Our Code of Conduct sets the rules that outline the appropriate

business conduct and expected behaviors of all our employees. Each employee will take a required training within three (3) days of their hire date.

Enclosed with this offer is our Business Proprietary Information Agreement, please review this document carefully, and sign and return a copy along with your acceptance of our offer.

Matthew, we are confident you will contribute a great deal to our organization and look forward to having you join the team. Please acknowledge your acceptance of our offer as per terms above, by signing a copy of this letter and sending a scanned copy back to me at Kairus.Tarapore@xyleminc.com no later than March 1, 2020.

Sincerely,

/s/ Kairus Tarapore

Kairus Tarapore

SVP & Chief Human Resources Officer

The above offer is accepted subject to the foregoing conditions.


/s/ Matthew Pine						February 27, 2020
Matthew Pine						Date

Cc: Patrick Decker

Enclosures

•Business Proprietary Information Agreement

•Xylem 2020 Employee Benefits Summary

•Xylem Retirement Savings Plan and Supplemental Retirement Savings Plan Quick Reference

•Xylem U.S. Relocation Policy Overview

•Xylem Stock Ownership Guidelines

•Xylem Senior Executive Severance Pay Plan

•Xylem Special Senior Executive Severance Pay Plan

•Xylem 2019 Executive Compensation brochure

Document

EXHIBIT 10.2


Hayati Yarkadas						February 26, 2020

Individual Employment Contract

BETWEEN

Xylem Europe GmbH,

Bleicheplatz 6

CH-8200 Schaffhausen

HEREINAFTER REFERRED TO AS “Company” ON THE FIRST HAND

AND

Hayati Yarkadas

[ADDRESS ON FILE WITH THE COMPANY]

HEREINAFTER REFERRED TO AS “Employee” ON THE OTHER HAND

THE PARTIES AGREE AS FOLLOWS:

1.APPOINTMENT AND SCOPE OF THE EMPLOYMENT

The Company hereby employs the Employee and the Employee agrees to accept employment in the role of Senior Vice President and President, Water Infrastructure and Europe Commercial Team of the Company on and subject to the terms and conditions specified herein.

This position reports solid line to the President and Chief Executive Officer.

2.DUTIES OF THE EMPLOYEE

The Employee is qualified as a “senior executive” of the Company.

3.TERM AND TERMINATION

The Employment shall commence on/before March 16 and shall last for an unlimited period of time.

The probation period is 2 months.

The Employee represents and warrants that he is not bound by or subject to any court order, agreement, arrangement or undertaking which may in any way restrict or prohibit the Employee from entering into this Agreement or from performing the Employee’s duties under this Agreement.

4.WORKING HOURS, PLACE OF WORK AND OVERTIME

The Employee shall perform the service hereunder in Schaffhausen. The Employee may be required to regularly travel for his work.

As a senior executive and member of the management the Employee shall schedule his working hours by his own. However, he shall consider the demands and needs of the Company and particularly also those of clients and the staff. Whenever necessary, he shall be present.

Compensation for additional hours (=Überstunden) and overtime (=Überzeit) is included in the Employee’s salary and will not be compensated by time off, payments or any other benefits.

5.REMUNERATION

5.1 Basic Annual Salary

The Company shall pay to the Employee a basic annual salary of gross CHF 500,000 per year.

5.2 Incentive

The Employee is at the Company’s discretion eligible to receive an annual incentive target award of 75% of the base salary. For 2020, you will be eligible for the full year annual incentive, approved bonus awards are typically paid in March for performance from the previous calendar year.

The Employee acknowledges that he has no right to receive a guaranteed incentive payment and will not acquire such a right merely by virtue of having received one or more incentive payments during the course of his employment.

5.3 Long-Term Incentive Plan

The Employee is eligible to participate in the Xylem Long-Term Incentive Plan (LTIP) and will have an annual target award of $900,000 be provided as 50% Performance Share Units (PSUs), 25% Restricted Stock Units (RSUs) and 25% Stock Options. RSUs and Stock Options vest one-third after each year and the PSUs vest 100% after three years and payable based on the Company’s performance. Subsequent annual grants may vary due to management discretion with regard to individual performance and market competitiveness and are subject to approval by the Leadership Development and Compensation Committee (LDCC) of Xylem’s Board of Directors.

The Employee will receive the first annual LTIP award effective on/about May 7, 2020 (the first day of the next open window after the trading restriction period after your hire date). The vesting terms and performance targets will be consistent as other senior executives’ most recent annual LTIP award expected to be granted on February 27, 2020.

The equity program is implemented and administered as per approved program parameters as specified in grant agreements to be provided at the time of the grants and subject to review and approval by the LDCC of Xylem’s Board of Directors. Details of the 2019 program are outlined in the enclosed Executive Compensation Brochure (details for 2020 will be published in mid-March, 2020).

5.4 Special One-Time Sign-on Restricted Stock Units (RSUs)

To help make the Xylem offer even more attractive and to give the Employee additional immediate equity compensation linked to the future success of Xylem, the Employee will also be eligible for a one-time, Special Sign-On RSU grant of $250,000. The vesting schedule for the sign-on RSUs will provide that, subject to your continued employment, one-third of the sign-on RSUs vests on each anniversary of the grant date.

The Special Sign-On RSUs will be granted at the same time as the annual LTIP above.

6.CASH ALLOWANCE FOR CAR

A gross cash allowance of CHF 21,350 per annum is paid to the employee in lieu of a company car.

7.DATA PROTECTION

As part of terms and conditions of employment, the Employee gives the Company permission to collect, retain and process information about him, such as age and sex. This will only be used so that the Company can monitor the compliance with law and best practice in terms of equal opportunity and nondiscrimination. The information that the Company holds will be checked with the Employee from time to time to ensure that it remains up to date. Should the Employee’s personal circumstances change the Employee should notify the human resources department immediately.

8.COMMUNICATION INFRASTRUCTURE

The Employee shall comply with the Company’s policies and instructions regarding the use of the Company’s telephones, computers, e-mail system, internet services and software programs (“Communication Infrastructure”). The Employee shall at all times refrain from using the Communication Infrastructure for any inappropriate or illegal purpose.

9.RESTITUTION OF THE COMPANY’S EQUIPMENT

Both, the Company and the Employee, shall make restitution for everything they have received during the period of the employment relationship from the other party, or from third parties for their account at the end of this employment relationship.

In particular, the Employee shall restitute without delay all Company’s tools, materials, data carrier as well as records of any kind.

10.SECRECY

Employee shall not during the term of this Agreement or thereafter make use for his own purpose or disclosure to any third party any confidential information having come to his attention before or during the term of this Agreement pertaining to the Company’s business. All such information and knowledge shall be kept strictly confidential beyond the term of employment.

11.COMPETITION BAN / NON-ENTICEMENT / NON-SOLICITATION

The Employee shall not, for as long as the Employee remains an Employee of the Employer and during a period of six months following the termination of this Agreement, alone, or jointly with, or as manager of, agent for, or Employee of any person or as a shareholder directly or indirectly carry on or be engaged, concerned or interested in any business competitive to the business of the Company with an effect in the city of Schaffhausen plus a radius of 30 km.

The Employee shall not, for as long as he remains an Employee of the Company and during a period of six of months following the termination of this Agreement whether direct nor indirect as manager, agent, employee, shareholder or partner of another entity, solicit, induce or attempt to induce any person who is an Employee of the Company, to leave the Company or to engage in any business that competes with the Company, hire or assist in the hiring of any person who is an Employee of the Company to work for any business that competes with the Company or to solicit, induce or attempt to induce any person or company that is a customer of the Company to discontinue or modify its customer relationship with the Company.

For any violation of this competition ban or non-enticement/non-solicitation clause the Employee hereby undertakes to pay a penalty equal to 3 times Employee’s last monthly salary. Payment of such amount shall not relieve the Employee of the Employee’s obligation not to compete as set out in this clause and the Company remains entitled to seek further damages sustained as a result of Employee’s violation. The Employee acknowledges that the Company may, in addition to the penalty and the compensation of its damages, also ask for the removal of the situation in violation of this competition ban and also ask for an injunction restraining the Employee from violation of this competition ban in accordance with the principles set out in Art. 340b of the Swiss Code of Obligations.

12.FORMER CONTRACTS

This Agreement shall be in substitution for any previous letters of appointment, agreements or arrangements, whether written or oral relating to the Employment. The parties expressly exclude any provisions regarding the “dismissal with the option of altered conditions of employment” (=Änderungskündigung).

13.ENTIRE AGREEMENT

If any part, term or provision of this Agreement shall be held void, illegal, unenforceable, or in conflict with any law having jurisdiction over this Agreement, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to this Employment Contract to the fullest extent possible and the validity of the remaining provisions shall not be affected thereby.

14.AMENDMENT

This Agreement may be modified or amended only by written agreement between the parties and any provision hereof may be waived only by a document signed by the party waiving such provision.

15.ADDITIONAL PROVISIONS, TERMS AND CONDITIONS

The following regulation(s), terms and conditions form an integral part of the employment relationship:

16.EMPLOYEE HANDBOOK

If provisions of said document(s) are differing from the individual employment contract, provisions of the individual employment contract shall prevail. If provisions of said documents are contradictory amongst themselves, the provisions in the document prior to the other documents as according to the order stated hereinabove shall prevail. The statutory provisions of the Code of Obligations (OR) and the Employment Act remain reserved.

The Employee herewith confirms, that he has received the above mentioned documents before signing this employment contract and that he agrees to them.

17.WORK PERMIT / RESIDENCE PERMIT

This Employment Contract becomes effective under the suspensive condition that the Employee has been granted a valid work and residence permission, which the Company will support and sponsor obtaining for the Employee.

18.APPLICABLE LAW

This Agreement and all the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of Switzerland.

The place of jurisdiction for disputes arising from this employment relationship shall be either the domicile of the defendant or the place where the Employee usually performs work.


Schaffhausen, February 26, 2020						[PLACE ON FILE WITH THE COMPANY], 27 February 2020



Place, date						Place, date


The Company						The Employee


/s/ Lou Corapi						/s/ Hayati Yarkadas
Lou Corapi						Hayati Yarkadas
VP Finance, Water Infrastructure
and Europe Commercial Team

cc: Patrick Decker

Kairus Tarapore

Enclosures

•Business Proprietary Information Agreement

•Xylem Europe GmbH Pension Fund details

•Xylem Stock Ownership Guidelines

•Xylem Senior Executive Severance Pay Plan

•Xylem Special Senior Executive Severance Pay Plan

•Xylem 2019 Executive Compensation brochure

Document

EXHIBIT 10.3

XYLEM

2011 OMNIBUS INCENTIVE PLAN

[YEAR] NON-QUALIFIED STOCK OPTION AWARD AGREEMENT

This Agreement (the “Agreement”) between Xylem Inc. (the “Company”) and ###PARTICIPANT_NAME### (the “Participant”) is effective as of ###GRANT_DATE###. Terms used in this Agreement that are not defined in this Agreement are defined in the Company’s 2011 Omnibus Incentive Plan (the “Plan”). This Agreement is only being provided in English. The Participant is an employee of the Company or an Affiliate. In recognition of the Participant’s valued services, the Company, through the Leadership Development and Compensation Committee of its Board of Directors (the “Committee”), is providing the Participant an inducement to remain employed and an incentive for increased efforts while employed. In consideration of the terms and conditions in this Agreement, the parties agree as follows:

1.Grant of Non-Qualified Stock Options. The Company confirms the grant on ###GRANT_DATE###, (the “Grant Date”) to the Participant of the option to purchase from the Company all or any part of an aggregate of ###TOTAL_AWARDS### shares (the “Options”), at the purchase price of ###GRANT_PRICE### per share (the “Exercise Price”).

Nature of the Grant:

(a) The grant of Options is voluntary and occasional and does not create any contractual or other right to receive future grants of Options, or benefits in lieu of Options, even if Options have been granted in the past. All decisions with respect to future grants will be at the sole discretion of the Company;

(b) The Participant is voluntarily participating in the Plan;

(c) The Options are not part of normal or expected compensation for any purpose, including for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, pension or retirement or welfare benefits or similar payments;

(d) Future value of the underlying shares is unknown, indeterminable and cannot be predicted with certainty;

(e) No claim or entitlement to compensation or damages will arise from forfeiture of the Options resulting from the termination of the Participant's employment; and

(f) The Company will not be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the Options or of any amounts due to the Participant on exercise of the Options or on the subsequent sale of any shares acquired on exercise.

2.Terms and Conditions. The Options are subject to the following additional terms and conditions:

(a) Expiration Date. The Options will expire on ###EXPIRY_DATE###, or, if the Participant’s employment terminates before that date, on the date specified in subsection 2(e) below.

(b) Exercise of Options. The Options cannot be exercised until vested.

(c) Vesting. Options will vest if the Participant has been actively employed by the Company or an Affiliate from the Grant Date through the vesting date. Active employment does not include any potential severance period.

Subject to subsections 2(a), 2(d), and 2(e), the Options will vest in 3 installments as follows:

###VEST_SCHEDULE_TABLE###

March 1, 2021, March 1, 2022, March 1, 2023 are the respective “Vest Period Start Dates” for each of the 3 installments.

(d) Effect of Change in Control. In the event of a Change in Control prior to the vesting date, if the acquiring or surviving company in the transaction assumes or continues any then outstanding Options, then the unvested Options will continue to vest based on the Options’ service-based vesting criteria until the vesting date. If the Participant's active employment with the Company or an Affiliate is terminated by the Company or an Affiliate without Cause or by the Participant (for applicable Participants only) for Good Reason within 2 years of a Change in Control, any unvested and any converted Options will become 100% vested on the termination date. Any vested Options will expire on the earlier of ###EXPIRY_DATE###, or the date 3 months after the Participant's termination of active employment.

“Cause” means (i) the Participant’s willful and continued failure to substantially perform his, her or their duties with the Company or an Affiliate (other than any such failure resulting from the Participant’s incapacity due to physical or mental illness) or (ii) the Participant willfully engaging in conduct that demonstrably and materially injures the Company or its Affiliates, monetarily or otherwise. “Willful” means the action is done or omitted in bad faith or without reasonable belief that the action or omission was in the best interests of the Company.

“Good Reason” means (i) a reduction in annual target total cash compensation (base salary and target bonus), (ii) the assignment of any duties inconsistent in any material adverse respect with the Participant’s position, authority, duties or responsibilities, (iii) any other action by the Company or an Affiliate which results in a material diminution in such position, authority, duties or responsibilities; or (iv) the Company or an Affiliate requiring the Participant to relocate to a work location 50 miles or more from the location where the Participant was principally working immediately prior to the Change in Control. The Participant must give notice within 90 days of any Good Reason event.

Good Reason only applies to Company or Affiliate employees who are, at the time of termination of employment, covered by the Xylem Special Senior Executive Severance Pay Plan or the Xylem Enhanced Severance Pay Plan and will exclude an isolated, insubstantial and inadvertent action not taken in bad faith that is resolved by the Company or an Affiliate within 30 days of receiving notice.

(e) Effect of Termination of Employment. Options will only vest while the Participant is actively employed by the Company or an Affiliate. If the Participant's active employment with the Company or an Affiliate is terminated for any reason prior to the vesting date, and such termination constitutes a “separation from service” within the meaning of Section 409A of the Code and any related regulations or other effective guidance promulgated thereunder (“Section 409A”), subject to subsection 2(d), the following would apply to any outstanding Options:

(i) Termination due to Death or Disability. Any unvested Options will immediately become 100% vested on the Participant’s termination of employment. Any vested Options will expire on the

earlier of ###EXPIRY_DATE###, or the date 3 years after the Participant’s termination of employment.

(ii) Termination due to Retirement or while Retirement Eligible. A prorated portion (as described below) of the unvested Options with a vesting date within 12 months of termination will immediately vest on the Participant’s termination of employment. All other unvested Options will automatically be forfeited. Any vested Options will expire on the earlier of ###EXPIRY_DATE###, or the date 3 years after the Participant’s termination of employment.

(iii) Termination other than for Death, Disability and Retirement. Any unvested Options will automatically forfeit on the date of the Participant’s termination of employment. Any vested portion of the Options will expire on the earlier of ###EXPIRY_DATE###, or the date 3 months after the Participant’s termination of employment.

“Disability” means the complete and permanent inability of the Participant to perform all duties under the terms of his, her or their employment, as determined by the Company based on evidence, including independent medical reports and data, as deemed appropriate or necessary.

“Retirement” means the termination of the Participant's employment (either by the Company or an Affiliate, or the Participant), if, at the time of such termination, the Participant is at least age 55 and has completed 10 years of service with the Company or an Affiliate, or the Participant is age 65 or older.

Prorated Vesting Upon Retirement. The prorated portion of the Options that vests on the Participant’s termination of employment due to the Participant's Retirement will be determined by multiplying the total number of unvested Options with a vesting date within 12 months of termination by a fraction, of which the numerator is the number of full months (not to exceed 12) the Participant has been continually employed since the Vest Period Start Date, and the denominator is 12. For this purpose, full months of employment will be based on monthly anniversaries of the Grant Date, not calendar months.

(f) Payment of Exercise Price. Permissible methods for payment of the Exercise Price on exercise of the Options are described in Section 6.6 of the Plan, or, if the Plan is amended, successor provisions. In addition to the methods of exercise permitted by Section 6.6 of the Plan, the Participant may exercise all or part of the Options by way of (i) broker-assisted cashless exercise in a manner consistent with the Federal Reserve Board's Regulation T, unless the Committee determines that this is prohibited by law, or (ii) net-settlement, where the Participant directs the Company to withhold shares that otherwise would be issued upon exercise of the Options having an aggregate Fair Market Value on the date of the exercise equal to the Exercise Price, or the portion being exercised by way of net-settlement (rounding up to the nearest whole share).

(g) Tax Withholding. The Company will have the power and the right to deduct or withhold, or require the Participant to remit to the Company, all applicable federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to the exercise of the Options. The Participant may elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares that otherwise would be issued upon exercise of the Options, with the number of shares withheld having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction (or such other amount that will not cause an adverse accounting consequence or cost) (rounding up to the nearest whole share). Any election will be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.

(h) Automatic Exercise in Certain Circumstances. Subject to subsection 2(i) of this Agreement, if any Options held by an active Participant are otherwise exercisable but remain unexercised at the

close of business on ###EXPIRY_DATE###, and if on that date the Fair Market Value of the shares subject to the exercisable but unexercised Options exceeds the aggregate payment that would have been required to exercise the Options, the Participant will automatically be paid an amount of Company shares having a Fair Market Value equal to such excess (rounding up to the nearest whole share), if any, and the Options will be cancelled. An automatic exercise will not occur if the Participant (and, if applicable, the Participant’s authorized legal representative) waives this subsection 2(h) in writing.

The Participant acknowledges that tax and other legal requirements must be met prior to any settlement of Options under this subsection and consents to any tax or other consequences that may arise in connection with this subsection.

(i) Compliance with Laws and Regulations. Notwithstanding anything to the contrary in this Agreement, the Company will not be obligated to issue any shares under this Agreement issuance of the shares, or the exercise of the Options by the Participant, violates or is not in compliance with any laws, rules or regulations of the United States or any state or country. The Participant understands that, if applicable, the laws of the country where the Participant is working at the time of grant, vesting, and/or exercise of the Options (including any rules or regulations governing securities, foreign exchange, tax, labor or other matters) may restrict or prevent exercise of the Options or may subject the Participant to additional procedural or regulatory requirements that the Participant is solely responsible for and that the Participant will have to independently fulfill. The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, awards under the Plan, and any shares acquired under the Plan, if the Company determines the requirement is necessary or advisable to comply with applicable law or facilitate the administration of the Plan.

(j) Participant Acknowledgements. The Participant acknowledges and agrees that:

(i) Participant Obligations. In partial consideration for the award of these Options, if at any time during the period between the Grant Date and the 12-month period following the Participant’s termination of Employment (the “Obligation Period”), the Participant: (i) directly or indirectly, hires or solicits or arranges for the hiring or solicitation of any employee or customer of the Company or its Affiliates, or encourages any employee to leave the Company or an Affiliate; (ii) uses, discloses, misappropriates or transfers confidential or proprietary information concerning the Company or its Affiliates (except as required by the Participant’s work responsibilities with the Company or its Affiliates); or (iii) engages in any activity in violation of Company policies, including the Company’s Code of Conduct, or engages in conduct adverse to the best interests of the Company or its Affiliates; then the Options, whether previously vested or not, will be cancelled in full, and the Participant will be required to return to the Company any shares received on exercise of vested Options or the pre-tax income derived from any disposition of any shares received upon exercise of vested Options, unless the Company, in its sole discretion, elects not to cancel the Options.

The obligations in this subsection are in addition to any other agreements related to non-solicitation and preservation of Company confidential and proprietary information entered into between the Participant and the Company, or otherwise applicable to the Participant, and nothing in this Agreement is intended to waive, modify, alter or amend the terms of any such other agreement. THE PARTICIPANT UNDERSTANDS THAT THIS SUBSECTION IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE AWARD IN FULL AND A RETURN TO THE COMPANY OF ANY SHARES RECEIVED UPON SETTLEMENT OF EXERCISED VESTED OPTIONS OR THE GROSS TAXABLE PROCEEDS FROM THE DISPOSITION OF ANY SHARES RECEIVED UPON SETTLEMENT OF EXERCISED VESTED OPTIONS IF THE PARTICIPANT SHOULD CHOOSE TO VIOLATE THIS PARAGRAPH DURING THE

OBLIGATION PERIOD. Nothing in this Agreement prohibits the Participant from voluntarily communicating, without notice to or approval by the Company, with any federal government agency about a potential violation of a federal law or regulation.

(ii) Electronic Delivery and Acceptance. The Participant consents to electronic delivery of any Plan documents. The Participant consents to any and all procedures that the Company has established or may establish for an electronic signature system for delivery and acceptance of Plan related documents. The Participant agrees that his, her or their electronic signature is the same as, and will have the same force and effect as, his, her or their manual signature. Participant agrees that these procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

(iii) Right of Set-Off. If the Company in its reasonable judgment determines that the Participant owes the Company or an Affiliate any amount due to any loan, obligation or indebtedness, including amounts owed under the Company’s tax equalization program or the Company’s policies with respect to travel and business expenses, and if the Participant has not satisfied such obligation(s), then the Company may instruct the plan administrator to withhold and/or sell shares acquired by the Participant on exercise of the Options (to the extent such shares are not subject to Code Section 409A), or the Company may deduct funds equal to the amount of the obligation from other funds due to the Participant from the Company to the maximum extent permitted by Code Section 409A.

(iv) Data Privacy. Participant acknowledges and consents to the collection, use, processing and transfer of personal data. Participant is not obliged to consent to such collection, use, processing and transfer of personal data. However, failure to provide the consent may affect Participant’s ability to participate in the Plan. The Company holds certain personal information about Participant, that may include his/her name, home address and telephone number, date of birth, social security number or other employee identification number, salary grade, hire data, salary, nationality, job title, or details of all options or performance stock units or any other entitlement to shares of stock awarded, canceled, purchased, vested, or unvested, for the purpose of managing and administering the Plan (“Data”). The Company and its Affiliates will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of Participant’s participation in the Plan, and the Company or its Affiliates may each further transfer Data to any third parties assisting the Company with the implementation, administration and management of the Plan. These recipients may be located throughout the world, including the United States. The Participant authorizes them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing participation in the Plan, including any transfer of Data that may be required for the administration of the Plan and/or the subsequent holding of shares of stock on Participant’s behalf to a broker or other third party with whom Participant may elect to deposit any shares of stock acquired pursuant to the Plan. Participant may, at any time, review Data, require any necessary amendments to it or withdraw this consent in writing by contacting Participant’s designated Human Resources professional; however, withdrawing consent may affect Participant’s ability to participate in the Plan. All Data will be managed in compliance with the Company’s Data Privacy Guidelines and applicable employee notifications, which may contain more stringent requirements, but in any case will not be less stringent than subsection 2(j)(iv).

(k) Governing Law. This Agreement is issued, and the Options are granted, in Rye Brook, New York and will be governed and construed in accordance with the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

By signing a copy of this Agreement, the Participant acknowledges that s/he has received a copy of the Plan and that s/he has read and understands the Plan and this Agreement and agrees to their terms and conditions. The Participant also acknowledges that the Options awarded under to this Agreement must be exercised prior to the expiration date, that it is the Participant's responsibility to exercise the Options, and that the Company has no further responsibility to notify the Participant of the expiration of the Options.


Agreed to:						XYLEM INC.


						/s/ Patrick K. Decker


Participant						Patrick K. Decker, President and CEO


(Online Acceptance Constitutes Agreement)


Dated:									Dated: ###GRANT_DATE###

Enclosures

Document

EXHIBIT 10.4

XYLEM

2011 OMNIBUS INCENTIVE PLAN

[YEAR] PERFORMANCE SHARE UNIT AGREEMENT

This Agreement (the “Agreement”) between Xylem Inc. (the “Company”) and ###PARTICIPANT_NAME### (the “Participant”) is effective as of ###GRANT_DATE###. Capitalized terms that are not defined in this Agreement are defined in the Company’s 2011 Omnibus Incentive Plan (the “Plan”). This Agreement is only being provided in English. The Participant is an employee of the Company or an Affiliate. In recognition of the Participant’s valued services, the Company, through the Leadership Development and Compensation Committee of its Board of Directors (the “Committee”), is providing the Participant an inducement to remain employed and an incentive for increased efforts while employed. In consideration of the terms and conditions in this Agreement, the parties agree as follows:

1.Grant of Performance Share Units. The Company confirms the grant on ###GRANT_DATE### (the “Grant Date”) to the Participant, the target number of ###TOTAL_AWARDS### Performance Share Units (“PSUs”). All PSUs granted under this agreement are intended to be Performance Based Awards. The PSUs are notional units of measurement denominated in shares of common stock (i.e., one Performance Share Unit is equivalent in value to one share of common stock of the Company).

The PSUs represent an unfunded, unsecured right to receive shares and dividend equivalent payments in the future if the conditions in the Plan and this Agreement are satisfied.

Nature of the Grant:

(a) The grant of the PSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of PSUs, or benefits in lieu of PSUs, even if PSUs have been granted in the past. All decisions with respect to future PSUs or other grants, if any, will be at the sole discretion of the Company;

(b) The Participant is voluntarily participating in the Plan;

(c) The PSUs and the shares subject to the PSUs, are not part of normal or expected compensation for any purpose, including for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, pension or retirement or welfare benefits or similar payments;

(d) Future value of the underlying shares is unknown, indeterminable and cannot be predicted with certainty;

(e) No claim or entitlement to compensation or damages will arise from forfeiture of the PSUs resulting from the termination of the Participant's employment; and

(f) The Company will not be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the PSUs or of any amounts due to the Participant pursuant to the settlement of the PSUs or the subsequent sale of any shares acquired upon settlement.

2.Terms and Conditions. The PSUs are subject to the following additional terms and conditions:

(a) Restrictions. Except as otherwise provided in the Plan and this Agreement, the PSUs cannot be sold, assigned, pledged, exchanged, transferred, hypothecated or encumbered, other than to the Company as a result of forfeiture.

(b) Voting and Dividend Equivalent Rights. The Participant will not have any privileges of a stockholder of the Company with respect to the PSUs, including without limitation any right to vote such shares or to receive dividends, unless and until shares are delivered to the Participant on the vesting of the PSUs. Dividend equivalents will be earned for each PSU that vests and the amount will equal the total dividends declared on a share, where the record date of the dividend is between the Grant Date of this Award and the date a share is issued on vesting of the PSU. Any dividend equivalents earned will be paid in cash to the Participant as and when the shares subject to the vested PSUs are issued. No dividend equivalents will be earned or paid with respect to any portion of the PSUs that are not earned and/or do not vest. Dividend equivalents will not accrue interest.

(c) Earning of PSUs. The Participant can earn between 0% and 175% of the target number of PSUs granted under this Agreement, with vesting to be based on the achievement of a 3-year average Xylem adjusted operational Return on Invested Capital (“ROIC”) performance target and 3-year Xylem Total Shareholder Return (“TSR”) relative to companies in the S&P 500 index (excluding Financial Services companies) pursuant to the performance scales set forth on Exhibit A, by the end of the 3-year performance period covering fiscal years [Grant Date]-year-[Grant Date + 3 years]-year (the “Performance Period”). The Committee will determine and certify the results of the level of achievement against such targets and the associated number of PSUs earned as described in Exhibit A.

Vesting and Payment. Any earned PSUs will vest on [Grant Date + 3 years] (the “Vesting Date”) so long as the Participant has been actively employed by the Company or an Affiliate from the Grant Date through the Vesting Date. Active employment does not include any potential severance period.

Except as provided in subsection 2(h), on vesting of the PSUs, including vesting pursuant to subsections 2(d) or 2(e), the Company will deliver to the Participant (i) one share for each vested PSU, with any fractional shares resulting from proration pursuant to subsection 2(d) and 2(e) to be rounded to the nearest whole share, and (ii) an amount in cash attributable to dividend equivalents earned in accordance with subsection 2(b), less shares withheld in accordance with subsection 2(f).

(d) Effect of Change in Control. In the event of a Change in Control prior to the end of the Performance Period, if the acquiring or surviving company in the transaction assumes or continues any then-outstanding PSUs, any unvested PSUs will be deemed to have satisfied all applicable performance targets at the target level (i.e. 100%), and will be converted to service-based restricted stock units, which will continue to vest based on the PSUs’ service-based vesting criteria until the Vesting Date.

If the Participant’s active employment with the Company or an Affiliate is terminated by the Company or an Affiliate without Cause or by the Participant for Good Reason (for applicable Participants only) within 2 years of a Change in Control, any converted and any unvested PSUs will become 100% vested on the termination date.

If the acquiring or surviving company in the transaction does not assume or continue outstanding awards under the Plan, immediately prior to the Change in Control, any unvested PSUs will become 100% vested based on deemed performance at the target level (i.e. 100%).

“Good Reason” means, without the Participant’s express written consent (i) a reduction in annual target total cash compensation (base salary and target bonus), (ii) the assignment of any duties inconsistent in any material adverse respect with the Participant’s position, authority, duties or responsibilities, (iii) any other action by the Company or an Affiliate which results in a material diminution in such position, authority, duties or responsibilities; or (iv) the Company or an Affiliate requiring the Participant to relocate to a work location 50 miles or more from the location where the Participant was principally working immediately prior to the Change in Control. The Participant must give notice within 90 days of any Good Reason event.

Good Reason only applies to Company or Affiliate employees who are at the time of termination of employment, or were at any time during the 2 year period immediately preceding the Change in Control, covered by the Xylem Special Senior Executive Severance Pay Plan or the Xylem Enhanced Severance Pay Plan and will exclude an isolated, insubstantial and inadvertent action not taken in bad faith that is resolved by the Company or an Affiliate within 30 days of receiving notice.

(e) Effect of Termination of Employment. Earned PSUs will only vest if the Participant is actively employed by the Company or an Affiliate through the Vesting Date. If the Participant's active employment is terminated for any reason prior to the Vesting Date, and the termination constitutes a “separation from service” within the meaning of Section 409A of the Code and any related regulations or other effective guidance promulgated thereunder (“Section 409A”), subject to subsection 2(d), the following would apply to any unvested PSUs:

(i) Termination due to Death, Disability, or Retirement. A prorated portion (as described below) of the unvested PSUs will remain outstanding and therefore continue to be eligible to vest based on actual Company performance during the Performance Period. A prorated portion (as described below) of the earned PSUs will be paid out on the Vesting Date.

(ii) Termination other than for Death, Disability, or Retirement. All PSUs will automatically be forfeited.

“Disability” means the complete and permanent inability of the Participant to perform all duties under the terms of his, her or their employment, as determined by the Committee upon the basis of such evidence, including independent medical reports and data, as the Committee deems appropriate or necessary.

Prorated Vesting. The prorated portion of the PSUs that vests on the Vesting Date following the Participant's Death, Disability or Retirement (or while Retirement Eligible) will be determined by multiplying the total number of PSUs the Participant would have earned based on actual performance by a fraction, of which the numerator is the number of months (not to exceed 36) the Participant had been continually employed since the beginning of the Performance Period until his, her or their Death, Disability or Retirement and the denominator is 36.

(f) Tax Withholding. The Company may make such provisions and take such actions as necessary for the withholding of all applicable taxes attributable to the PSUs and any related dividend equivalents. Unless the Committee determines otherwise, the minimum statutory tax withholding required to be withheld on delivery of the shares (or such other amount that will not cause an adverse accounting consequence or cost) and payment of dividend equivalents will be satisfied by withholding a number of shares having an aggregate Fair Market Value equal to the minimum statutory tax required to be withheld (or such other amount that will not cause an adverse accounting consequence or cost). If this withholding would result in a fractional share being withheld, the number of shares withheld will be rounded up to the nearest whole share. Notwithstanding the foregoing, the Participant may elect to satisfy these tax withholding requirements by timely remitting this amount by cash or check or any other method that is acceptable to the Company, rather than by withholding of shares. This election must be made in accordance with any conditions and restrictions the Company may establish. If FICA taxes are required to be withheld while the PSUs are outstanding, the withholding will be made in a manner determined by the Company.

(g) Participant Acknowledgements. The Participant acknowledges and agrees that:

(i) Participant Obligations. In partial consideration for the award of these PSUs, if at any time during the period between the Grant Date and the 12-month period following the Participant’s termination of Employment (the “Obligation Period”), the Participant: (i) directly or indirectly, hires or solicits or arranges for the hiring or solicitation of any employee of the Company or its Affiliates, or encourages any employee to leave the Company or an Affiliate; (ii) directly or indirectly, assist in soliciting in competition with the Company the business of any current customer, distributor or dealer or other sales or distribution channel partners of the Company; (iii) uses, discloses, misappropriates or transfers confidential or proprietary information concerning the Company or its Affiliates (except as required by the Participant’s work responsibilities with the Company or its Affiliates); or (iv) engages in any activity in violation of Company policies, including the Company’s Code of Conduct, or engages in conduct materially adverse to the best interests of the Company or its Affiliates; the PSUs, whether previously vested or not, may be cancelled in full, and the Participant may be required to return to the Company any shares received on settlement of vested PSUs or the net after-tax income from any disposition of any shares received upon settlement of vested PSUs, unless the Committee, in its sole discretion, elects not to cancel the PSUs and/or elects not to recover any income from settled and vested PSUs or unless applicable law prohibits such action.

The obligations in this subsection are in addition to any other agreements related to non-solicitation and preservation of Company confidential and proprietary information entered into between the Participant and the Company, or otherwise applicable to the Participant, and nothing in this Agreement is intended to waive, modify, alter or amend the terms of any such other agreement. THE PARTICIPANT UNDERSTANDS THAT THIS SUBSECTION IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE AWARD IN FULL AND A RETURN TO THE COMPANY OF ANY SHARES RECEIVED ON SETTLEMENT OF VESTED PSUS OR THE NET AFTER-TAX INCOME FROM THE DISPOSITION OF ANY SHARES RECEIVED UPON SETTLEMENT OF VESTED PSUS IF THE PARTICIPANT SHOULD CHOOSE TO VIOLATE THIS PARAGRAPH DURING THE OBLIGATION PERIOD. Nothing in this Agreement prohibits the Participant from voluntarily communicating, without notice to or approval by the Company, with any federal government agency about a potential violation of a federal law or regulation.

(iii) Right of Set-Off. If the Company in its reasonable judgment determines that the Participant owes the Company or an Affiliate any amount due to any loan, obligation or indebtedness, including amounts owed under the Company’s tax equalization program or the Company’s policies with respect to travel and business expenses, and the Participant has not satisfied these obligation(s), the Company may instruct the plan administrator to withhold and/or sell shares acquired by the Participant on settlement of the PSUs (to the extent such PSUs are not subject to Code Section 409A), or the Company may deduct funds equal to the amount of the obligation from other funds due to the Participant from the Company to the maximum extent permitted by Code Section 409A.

(iv) Data Privacy. Participant acknowledges and consents to the collection, use, processing and transfer of personal data. Participant is not obliged to consent to such collection, use, processing and transfer of personal data. However, failure to provide the consent may affect Participant’s ability to participate in the Plan. The Company holds certain personal information about Participant, that may include his/her name, home address and telephone number, date of birth, social security number or other employee identification number, salary grade, hire data, salary, nationality, job title, or details of all options or performance stock units or any other entitlement to shares of stock awarded, canceled, purchased, vested, or unvested, for the purpose of managing and administering the Plan (“Data”). The Company and its Affiliates will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of Participant’s participation in the Plan, and the Company or its Affiliates may each further transfer Data to any third parties assisting the Company with the implementation, administration and management of the Plan. These recipients may be located throughout the world, including the United States. The Participant authorizes them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing participation in the Plan, including any transfer of Data that may be required for the administration of the Plan and/or the subsequent holding of shares of stock on Participant’s behalf to a broker or other third party with whom Participant may elect to deposit any shares of stock acquired pursuant to the Plan. Participant may, at any time, review Data, require any necessary amendments to it or withdraw consent in writing by contacting Participant’s designated Human Resources professional; however, withdrawing consent may affect Participant’s ability to participate in the Plan. All Data will be managed in compliance with the Company’s Data Privacy Guidelines and applicable employee notifications, which may contain more stringent requirements, but in any case will not be less stringent than subsection 2(g)(iv).

(v) Stock Ownership Guidelines. If the Participant is or becomes subject to the Company’s Stock Ownership Guidelines and applicable retention requirements, the Participant may be limited in selling shares obtained upon settlement of the PSUs.

(vi) Clawback Policy. If the Participant is covered by the Company’s Clawback Policy, the Participant agrees that the PSUs are subject to the Policy and may be subject to recovery (in whole or in part) by the Company. The Participant agrees that the Clawback Policy may be amended from time to time by the Committee, including amendments to comply with applicable laws, regulations or stock exchange listing requirements.

(h) Section 409A Compliance. It is intended that the Plan and this Agreement comply with the requirements of Section 409A to the extent applicable and the Plan and this Agreement will be interpreted accordingly.

(i) If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, and if the Participant is a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of the Code, at the time of the Participant’s separation from service, then, to the extent required under Section 409A, any shares that would otherwise be distributed (along with the cash value of all dividend equivalents that would be payable) on the Participant’s separation from service, will instead be delivered (and, in the case of the dividend equivalents, paid) on the earlier of (x) the first business day of the seventh month following the date of the Participant’s separation from service or (y) the Participant’s death.

(ii) If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, upon an Change in Control that does not constitute a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of a corporation’s assets” (as those terms are used in Section 409A), the PSUs will vest at the time of the Change in Control, but distribution of any PSUs (or related dividend equivalents) that constitute deferred compensation for the purposes of Section 409A will not be accelerated (i.e., distribution will occur when it would have occurred absent the Change in Control).

(i) Governing Law. This Agreement is issued, and the PSUs are granted, in Rye Brook, New York, and will be governed and construed in accordance with the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.


Agreed to:						XYLEM INC.


						/s/ Patrick K. Decker


Participant						Patrick K. Decker, President and CEO


(Online Acceptance Constitutes Agreement)


Dated:									Dated: ###GRANT_DATE###

Enclosures

Exhibit A

Three-year Performance Targets and Payout Scale

The payout scale for performance metrics below provides for PSUs to be earned above 100% for above target performance and below 100% for below target performance.


			Adjusted Operational ROIC (50%)						Relative TSR* (50%)

https://cdn.kscope.io/949294d5183baaa6761854e25d63a102-image2.jpg

https://cdn.kscope.io/949294d5183baaa6761854e25d63a102-image1.jpg

Results are interpolated between threshold and the bottom end of the target range, and between the

top end of the target range and maximum.

*Measured against S&P 500 less Financial Services companies. Payout capped at target if Xylem’s 3-year TSR is negative.

Document

EXHIBIT 10.5

XYLEM

2011 OMNIBUS INCENTIVE PLAN

[YEAR] RESTRICTED STOCK UNIT AGREEMENT

This Agreement (the “Agreement”) between Xylem Inc. (the “Company”) and [Participant Name] (the “Participant”) is effective as of [Grant Date]. Capitalized terms that are not defined in this Agreement are defined in the Company’s 2011 Omnibus Incentive Plan (the “Plan”). This Agreement is only being provided in English. The Participant is an employee of the Company or an Affiliate. In recognition of the Participant’s valued services, the Company, through the Leadership Development and Compensation Committee of its Board of Directors (the “Committee”), is providing the Participant an inducement to remain employed and an incentive for increased efforts while employed. In consideration of the terms and conditions in this Agreement, the parties agree as follows:

1. Grant of Restricted Stock Units. The Company hereby confirms the grant on [Grant date] (the “Grant Date”) to the Participant of [#,###] Restricted Stock Units (“RSUs”). The RSUs are notional units of measurement denominated in shares of common stock (i.e., one Restricted Stock Unit is equivalent in value to one share of common stock of the Company).

The RSUs represent an unfunded, unsecured right to receive shares and dividend equivalent payments in the future if the conditions in the Plan and this Agreement are satisfied.

Nature of the Grant:

(a) The grant of the RSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past. All decisions with respect to future RSUs or other grants, if any, will be at the sole discretion of the Company;

(b) The Participant is voluntarily participating in the Plan;

(c) The RSUs and the shares subject to the RSUs, are not part of normal or expected compensation for any purpose, including for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, pension or retirement or welfare benefits or similar payments;

(d) Future value of the underlying shares is unknown, indeterminable and cannot be predicted with certainty;

(e) No claim or entitlement to compensation or damages will arise from forfeiture of the RSUs resulting from the termination of the Participant's employment; and

(f) The Company will not be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the RSUs or of any amounts due to the Participant pursuant to the settlement of the RSUs or the subsequent sale of any shares acquired upon settlement.

2. Terms and Conditions. It is understood and agreed that the RSUs are subject to the following terms and conditions:

(a) Restrictions. Except as otherwise provided in the Plan and this Agreement, neither this Award nor any RSUs subject to this Award may be sold, assigned, pledged, exchanged, transferred, hypothecated or encumbered, other than to the Company as a result of forfeiture of the RSUs.

(b) Voting and Dividend Equivalent Rights. The Participant will not have any privileges of a stockholder of the Company with respect to the RSUs or any shares that may be delivered under this Agreement, including without limitation any right to vote the shares or to receive dividends, unless and until the shares are delivered on vesting of the RSUs. Dividend equivalents will be earned with respect to each RSU that vests and the amount will be equal to the total dividends declared on a share, where the record date of the dividend is between the Grant Date of this Award and the date a share is issued on vesting of the RSU. Any dividend equivalents earned will be paid in cash to the Participant when the shares subject to the vested RSUs are issued. No dividend equivalents will be earned or paid with respect to any portion of the RSUs that do not vest. Dividend equivalents will not accrue interest.

(c) Vesting and Payment. RSUs will vest as long as the Participant has been actively employed by the Company or an Affiliate from the Grant Date through the vesting date. Active employment does not include any potential severance period. The RSUs will vest in 3 installments as follows:

• 1/3rd of the RSUs will vest [ ],

• 1/3rd of the RSUs will vest [ ], and

• 1/3rd of the RSUs will vest [ ].

[ ], [ ], and [ ] are the respective “Vest Period Start Date” for each of the 3 installments.

Except as provided in subsection 2(i), on vesting of the RSUs, including vesting pursuant to subsections 2(d) or 2(e), the Company will deliver to the Participant (i) one share for each vested RSU, with any fractional shares resulting from proration pursuant to subsection 2(e), if applicable, to be rounded to the nearest whole share, and (ii) an amount in cash attributable to dividend equivalents earned in accordance with subsection 2(b), less shares withheld in accordance with subsection 2(f).

(d) Effect of Change in control. In the event of a Change in Control prior to the end of the vesting date, if the acquiring or surviving company in the transaction assumes or continues any then-outstanding RSUs under the Plan, any unvested RSUs will continue to vest based on the RSUs’ service-based vesting criteria until the vesting date.

If the Participant’s active employment with the Company or an Affiliate is terminated by the Company or an Affiliate without Cause or by the Participant for Good Reason (for applicable Participants only) within 2 years of a Change in Control, any assumed unvested RSUs will become 100% vested on the termination date.

If the acquiring or surviving company in the transaction does not assume or continue outstanding awards under the Plan, immediately prior to the Change in Control any unvested RSUs will become 100% vested.

(e) Effect of Termination of Employment. RSUs will only vest if the Participant is actively employed by the Company or an Affiliate prior to the vesting date. If the Participant's active employment with the Company or an Affiliate is terminated for any reason prior to the vesting date, and the termination constitutes a “separation from service” within the meaning of Section 409A of the Code and any related regulations or other effective guidance promulgated thereunder (“Section 409A”), subject to subsection 2(d), the following would apply to any unvested RSUs on the date of the Participant’s termination of employment:

(i) Termination due to Death or Disability. Any unvested RSUs will immediately become 100% vested.

(ii) Termination due to Retirement or while Retirement Eligible. A prorated portion (as described below) of unvested RSUs with a vesting date within 12 months of termination shall immediately vest on the Participant’s termination of employment. All other unvested RSUs will automatically be forfeited.

(iii) Termination other than for Death, Disability and Retirement. All unvested RSUs will automatically be forfeited.

Prorated Vesting Upon Retirement. The prorated portion of the RSUs that vests upon the Participant’s termination of employment due to the Participant's Retirement will be determined by multiplying the total number of unvested RSUs with vesting date within 12 months of termination by a fraction, of which the numerator is the number of full months (not to exceed 12) the Participant has been continually employed since the most recent Vest Period Start Date, and the denominator is 12. For this purpose, full months of employment shall be based on monthly anniversaries of the Vest Period Start Date, not calendar months.

(f) Tax Withholding. The Company may make such provisions and take such actions as it may deem necessary for the withholding of all applicable taxes attributable to the RSUs and any related dividend equivalents. Unless the Committee determines otherwise, the minimum statutory tax withholding required to be withheld upon delivery of the shares (or such other amount that will not cause an adverse accounting consequence or cost) and payment of dividend equivalents will be satisfied by withholding a number of shares having an aggregate Fair Market Value equal to the minimum statutory tax required to be withheld (or such other amount that will not cause an adverse accounting consequence or cost). If this withholding would result in a fractional share being withheld, the number of shares withheld will be rounded up to the nearest whole share. Notwithstanding the foregoing, the Participant may elect to satisfy these tax withholding requirements by timely remitting this amount by cash or check or any other method that is acceptable to the Company, rather than by withholding of shares. This election must be made in accordance with any conditions and restrictions the Company may establish. If FICA taxes are required to be withheld while the RSUs are outstanding, the withholding will be made in a manner determined by the Company.

(g) Participant Acknowledgements. The Participant acknowledges and agrees that:

(i) Participant Obligations. In partial consideration for the award of these RSUs, if at any time during the period between the Grant Date and the 12-month period following the Participant’s termination of Employment (the “Obligation Period”), the Participant: (i) directly or indirectly, hires or solicits or arranges for the hiring or solicitation of any employee or customer of the Company or its Affiliates, or encourages any employee to leave the Company or an Affiliate; (ii) directly or indirectly, assist in soliciting in competition with the Company the business of any current customer, distributor or dealer or other sales or distribution channel partners of the Company; (iii) uses, discloses, misappropriates or transfers confidential or proprietary information concerning the Company or its Affiliates (except as required by the Participant’s work responsibilities with the Company or its Affiliates); or (iv) engages in any activity in violation of Company policies, including the Company’s Code of Conduct, or engages in conduct materially adverse to the best interests of the Company or its Affiliates; the RSUs, whether previously vested or not, may be cancelled in full, and the Participant may be required to return to the Company any shares received on settlement of vested RSUs or the net after-tax income from the disposition of any shares received upon settlement of vested RSUs, unless the Committee, in its sole discretion, elects not to cancel the RSUs and/or elects not to recover any income from settled RSUs or unless applicable law prohibits such action.

The obligations in this subsection are in addition to any other agreements related to non-solicitation and preservation of Company confidential and proprietary information entered into between the Participant and the Company, or otherwise applicable to the Participant, and nothing in this Agreement is intended to waive, modify, alter or amend the terms of any such other agreement. THE PARTICIPANT UNDERSTANDS THAT THIS SUBSECTION IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE AWARDS IN FULL AND A RETURN TO THE COMPANY OF ANY SHARES RECEIVED UPON SETTLEMENT OF VESTED RSUS OR THE NET AFTER-TAX INCOME FROM THE DISPOSITION OF ANY SHARES RECEIVED UPON SETTLEMENT OF VESTED RSUS IF THE PARTICIPANT SHOULD CHOOSE TO VIOLATE THIS SUBSECTION DURING THE OBLIGATION PERIOD. Nothing in this Agreement prohibits the Participant from voluntarily communicating, without notice to or approval by the Company, with any federal government agency about a potential violation of a federal law or regulation.

(ii) Electronic Delivery and Acceptance. The Participant consents to electronic delivery of any Plan documents. The Participant consents to any and all procedures that the Company has

established or may establish for an electronic signature system for delivery and acceptance of Plan related documents. The Participant agrees that his, her or their electronic signature is the same as, and will have the same force and effect as, his, her or their manual signature. Participant agrees that these procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

(iii) Right of Set-Off. If the Company in its reasonable judgment determines that the Participant owes the Company or an Affiliate any amount due to any loan, obligation or indebtedness, including amounts owed under the Company’s tax equalization program or the Company’s policies with respect to travel and business expenses, and the Participant has not satisfied these obligation(s), the Company may instruct the plan administrator to withhold and/or sell shares acquired by the Participant on settlement of the RSUs (to the extent such RSUs are not subject to Code Section 409A), or the Company may deduct funds equal to the amount of the obligation from other funds due to the Participant from the Company to the maximum extent permitted by Code Section 409A.

(vi) Clawback Policy. If the Participant is covered by the Company’s Clawback Policy, the Participant agrees that the RSUs are subject to the Policy and may be subject to recovery (in whole or in part) by the Company. The Participant agrees that the Clawback Policy may be amended from time to time by the Committee, including amendments to comply with applicable laws, regulations or stock exchange listing requirements.

(h) Section 409A Compliance. It is intended that the Plan and this Agreement comply with the requirements of Section 409A to the extent applicable, and the Plan and this Agreement shall be interpreted accordingly.

(i) If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, and if the Participant is a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of the Code, at the time of the Participant ’s separation from service, then, to the extent required under Section 409A, any shares that would otherwise be distributed (along with the cash value of all dividend equivalents that would be payable) upon the Participant ’s separation from service, shall instead be delivered (and, in the case of the dividend equivalents, paid) on the earlier of (x) the first business day of the seventh month following the date of the Participant ’s separation from service or (y) the Participant ’s death.

(ii) If it is determined that all or a portion of the Award constitutes deferred compensation for the purposes of Section 409A, upon an Change in Control that does not constitute a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of a corporation’s assets” (as those terms are used in Section 409A), the RSUs will vest at the time of the Change in Control, but distribution of any RSUs (or related dividend equivalents) that constitute deferred compensation for the purposes of Section 409A will not be accelerated (i.e., distribution will occur when it would have occurred absent the Change in Control).

(i) Governing Law. This Agreement is issued and the RSUs are granted in Rye Brook, New York, and will be governed and construed in accordance with the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.


Agreed to:						XYLEM INC.


						/s/ Patrick K. Decker


Participant						Patrick K. Decker, President and CEO


(Online Acceptance Constitutes Agreement)


Dated:									Dated: [Grant Date]

Enclosures

Document

EXHIBIT 10.6

XYLEM

2011 OMNIBUS INCENTIVE PLAN

2021 ESG PERFORMANCE SHARE UNIT AGREEMENT

1. Grant of Performance Share Units. The Company confirms the grant on ###GRANT_DATE### (the “Grant Date”) to the Participant, the target number of ###TOTAL_AWARDS### Performance Share Units (“PSUs”). All PSUs granted under this agreement are intended to be Performance Based Awards. The PSUs are notional units of measurement denominated in shares of common stock (i.e., one Performance Share Unit is equivalent in value to one share of common stock of the Company).

The PSUs represent an unfunded, unsecured right to receive shares and dividend equivalent payments in the future if the conditions in the Plan and this Agreement are satisfied.

Nature of the Grant:

(b) The Participant is voluntarily participating in the Plan;

(d) Future value of the underlying shares is unknown, indeterminable and cannot be predicted with certainty;

(e) No claim or entitlement to compensation or damages will arise from forfeiture of the PSUs resulting from the termination of the Participant's employment; and

(f) The Company will not be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the PSUs or of any amounts due to the Participant pursuant to the settlement of the PSUs or the subsequent sale of any shares acquired upon settlement.

2. Terms and Conditions. The PSUs are subject to the following additional terms and conditions:

(c) Earning of PSUs. The Participant can earn between 0% and 100% of the target number of PSUs granted under this Agreement, with vesting to be based on the achievement relative to 5 sustainability-based performance targets (Women in Leadership, Process Water Recycling, CO2 Reduction, Pollution Prevention, and Non-Revenue Water Reduction) and set forth on Exhibit A, by the end of the 5-year performance period covering fiscal years 2021-2025 (the “Performance Period”). The Committee will determine and certify the results of the level of achievement against such targets and the associated number of PSUs earned as described in Exhibit A.

Vesting and Payment. Any earned PSUs will vest on March 1, 2026 (the “Vesting Date”) so long as the Participant has been actively employed by the Company or an Affiliate from the Grant Date through the Vesting Date. Active employment does not include any potential severance period.

conduct that demonstrably and materially injures the Company or its Affiliates, monetarily or otherwise. “Willful” means the action is done or omitted in bad faith or without reasonable belief that the action or omission was in the best interests of the Company.

(ii) Termination other than for Death, Disability, or Retirement. All PSUs will automatically be forfeited.

Prorated Vesting. The prorated portion of the PSUs that vests on the Vesting Date following the Participant's Death, Disability or Retirement (or while Retirement Eligible) will be determined by multiplying the total number of PSUs the Participant would have earned based on actual performance by a fraction, of which the numerator is the number of months (not to exceed 60) the Participant had been continually employed since the beginning of the Performance Period until his, her or their Death, Disability or Retirement and the denominator is 60.

(f) Tax Withholding. The Company may make such provisions and take such actions as necessary for the withholding of all applicable taxes attributable to the PSUs and any related dividend

equivalents. Unless the Committee determines otherwise, the minimum statutory tax withholding required to be withheld on delivery of the shares (or such other amount that will not cause an adverse accounting consequence or cost) and payment of dividend equivalents will be satisfied by withholding a number of shares having an aggregate Fair Market Value equal to the minimum statutory tax required to be withheld (or such other amount that will not cause an adverse accounting consequence or cost). If this withholding would result in a fractional share being withheld, the number of shares withheld will be rounded up to the nearest whole share. Notwithstanding the foregoing, the Participant may elect to satisfy these tax withholding requirements by timely remitting this amount by cash or check or any other method that is acceptable to the Company, rather than by withholding of shares. This election must be made in accordance with any conditions and restrictions the Company may establish. If FICA taxes are required to be withheld while the PSUs are outstanding, the withholding will be made in a manner determined by the Company.

(g) Participant Acknowledgements. The Participant acknowledges and agrees that:

(i) Participant Obligations. In partial consideration for the award of these PSUs, if at any time during the period between the Grant Date and the 12-month period following the Participant’s termination of Employment (the “Obligation Period”), the Participant: (i) directly or indirectly, hires or solicits or arranges for the hiring or solicitation of any employee of the Company or its Affiliates, or encourages any employee to leave the Company or an Affiliate; (ii) directly or indirectly, assists in soliciting in competition with the Company the business of any current customer, distributor or dealer or other sales or distribution channel partners of the Company; (iii) uses, discloses, misappropriates or transfers confidential or proprietary information concerning the Company or its Affiliates (except as required by the Participant’s work responsibilities with the Company or its Affiliates); or (iv) engages in any activity in violation of Company policies, including the Company’s Code of Conduct, or engages in conduct materially adverse to the best interests of the Company or its Affiliates; the PSUs, whether previously vested or not, may be cancelled in full, and the Participant may be required to return to the Company any shares received on settlement of vested PSUs or the net after-tax income from any disposition of any shares received upon settlement of vested PSUs, unless the Committee, in its sole discretion, elects not to cancel the PSUs and/or elects not to recover any income from settled and vested PSUs or unless applicable law prohibits such action.

The obligations in this subsection are in addition to any other agreements related to non-solicitation and preservation of Company confidential and proprietary information entered into between the Participant and the Company, or otherwise applicable to the Participant, and nothing in this Agreement is intended to waive, modify, alter or amend the terms of any such other agreement. THE PARTICIPANT UNDERSTANDS THAT THIS SUBSECTION IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE AWARD IN FULL AND A RETURN TO THE COMPANY OF ANY SHARES RECEIVED ON SETTLEMENT OF VESTED PSUS OR THE NET AFTER-TAX INCOME FROM THE DISPOSITION OF ANY SHARES RECEIVED UPON SETTLEMENT OF VESTED PSUS IF THE PARTICIPANT SHOULD CHOOSE TO VIOLATE THIS PARAGRAPH DURING THE OBLIGATION PERIOD. Nothing in this Agreement prohibits the Participant from voluntarily communicating, without notice to or approval by the Company, with any federal government agency about a potential violation of a federal law or regulation.

the same as, and will have the same force and effect as, his, her or their manual signature. Participant agrees that these procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

(iii) Right of Set-Off. If the Company in its reasonable judgment determines that the Participant owes the Company or an Affiliate any amount due to any loan, obligation or indebtedness, including amounts owed under the Company’s tax equalization program or the Company’s policies with respect to travel and business expenses, and the Participant has not satisfied these obligation(s), the Company may instruct the plan administrator to withhold and/or sell shares acquired by the Participant on settlement of the PSUs (to the extent such PSUs are not subject to Code Section 409A), or the Company may deduct funds equal to the amount of the obligation from other funds due to the Participant from the Company to the maximum extent permitted by Code Section 409A.


Agreed to:						XYLEM INC.


						/s/ Patrick K. Decker


Participant						Patrick K. Decker, President and CEO


(Online Acceptance Constitutes Agreement)


Dated:									Dated: ###GRANT_DATE###

Enclosures

Exhibit A

2021-2025 Performance Targets and Payout Calculations

For the 2021-2025 performance period, the LDCC has decided that the ESG PSUs will be granted at target (100%) with actual payout based on the following:

• 5 equally-weighted targets (20% each of target)

• Discrete performance for each target; that is, simple “pass/fail” payout per target (i.e., 100% payout for achieving/ exceeding and 0% for missing the applicable PSU target)

Category

Goals

PSU Targets

1. Company

Women in Leadership

Within at least x% of x%

2. Company

Process Water Recycling

(at x major facilities)

At least x using x% process
water recycling

3. Customer

CO2 Footprint Reduction

(million metric tons; cumulative)

Within at least x% of x
(i.e. x – 2020 actual achievement)

4. Customer

Pollution Prevention

(billion cubic meters; cumulative)

Within at least x% of x
(i.e. x – 2020 actual achievement)

5. Customer

Non-Revenue Water Reduction

(billion cubic meters; cumulative)

Within at least x% of x
(i.e. x – 2020 actual achievement)

Document

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick K. Decker, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended March 31, 2021;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2021


			/s/ Patrick K. Decker
			Patrick K. Decker President and Chief Executive Officer

Document

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sandra E. Rowland, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended March 31, 2021;

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2021


			/s/ Sandra E. Rowland
			Sandra E. Rowland Senior Vice President and Chief Financial Officer

Document

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Xylem Inc. (the “Company”) for the period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick K. Decker, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Patrick K. Decker
Patrick K. Decker
President and Chief Executive Officer
May 4, 2021

A signed original of this written statement required by Section 906 has been provided to Xylem Inc. and will be retained by Xylem Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Document

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Xylem Inc. (the “Company”) for the period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sandra E. Rowland, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Sandra E. Rowland
Sandra E. Rowland
Senior Vice President and Chief Financial Officer
May 4, 2021