Xylem XYL · USD

Segment and Geographic DataOur business has four reportable segments: Water Infrastructure, Applied Water, Measurement and Control Solutions and Water Solutions and Services. The Water Infrastructure segment focuses on the transportation and treatment of water, offering a range of products including water, wastewater and storm water pumps, controls and systems; and treatment equipment: filtration and separation, disinfection, wastewater solutions for municipal and industrial applications. 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 and 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 and 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, and remote monitoring and data management. The Water Solutions and Services segment provides tailored services and solutions, in collaboration with customers and backed by life‑cycle services, including on‑demand water, outsourced water, recycle/reuse, specialty dewatering and emergency response service alternatives to improve operational reliability, performance and environmental compliance. Key offerings within this segment also include equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment, and recycle/reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services, as well as leak detection, condition assessment and asset management and pressure monitoring solutions.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 that are managed at a corporate level and are not included in the business segments in evaluating performance or allocating resources.

Revenue Disaggregation of RevenueThe following table illustrates the sources of revenue:Year Ended December 31,(in millions)202520242023Revenue from contracts with customers$8,720 $8,273 $6,963 Lease Revenue315 289 401 Total$9,035 $8,562 $7,364 The following table reflects revenue from contracts with customers by application:Year Ended December 31,(in millions)202520242023Water InfrastructureTransport$1,556 $1,496 $1,421 Treatment1,080 1,057 795 Applied WaterBuilding Solutions1,037 997 1,025 Industrial Water812 796 828 Measurement and Control SolutionsSmart Metering and Other1,726 1,519 1,253 Analytics360 352 358 Water Solutions and ServicesCapital and Other1,144 1,081 804 Services1,005 975 479 Total$8,720 $8,273 $6,963 The following table reflects revenue from contracts with customers by geographical region:Year Ended December 31,(in millions)202520242023Water Infrastructure United States$1,005 $891 $744 Western Europe937 914 822 Emerging Markets (a)477 526 458 Other217 222 192 Applied Water United States1,018 942 970 Western Europe412 398 401 Emerging Markets (a)286 321 342 Other133 132 140 Measurement and Control Solutions United States1,373 1,267 1,042 Western Europe342 282 282 Emerging Markets (a)197 190 193 Other174 132 94 Water Solutions and ServicesUnited States1,597 1,570 916 Western Europe101 101 105 Emerging Markets (a)235 213 142 Other216 172 120 Total$8,720 $8,273 $6,963 (a)Emerging Markets includes results from the following regions: Eastern Europe, the Middle East and Africa, Latin America and Asia Pacific (excluding Japan, Australia and New Zealand, which are presented in "Other")Contract BalancesWe 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.

Commitments and ContingenciesLegal ProceedingsFrom time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (or the business operations of previously owned entities). These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government investigations or contract issues and commercial or contractual disputes. See Note 7, "Income Taxes," 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 $4 million as of both December 31, 2025 and 2024 for these general legal matters.Unconditional Purchase ObligationsWe have future unconditional purchase commitments which are legally binding and that specify all significant terms including price and/or quantity. Total future commitments for these obligations is $802 million, of which $775 million is committed within the next twelve months, excluding contracts that can be canceled without penalty.GuaranteesWe 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 December 31, 2025 and 2024, the amount of surety bonds, bank guarantees, insurance letters of credit and stand-by letters of credit was $822 million and $758 million, respectively.EnvironmentalIn 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. Our accrued liabilities 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.

Income Taxes The source of pre-tax income and the components of income tax expense are as follows:Year Ended December 31,(in millions)202520242023Income components:Domestic$695 $471 $123 Foreign486 616 512 Total pre-tax income$1,181 $1,087 $635 Income tax expense (income) components:Current:Domestic – federal$122 $108 $(4)Domestic – state and local36 35 23 Foreign108 90 86 Total Current$266 $233 $105 Deferred:Domestic – federal$(30)$(38)$(49)Domestic – state and local(7)(11)(8)Foreign2 13 (22)Total Deferred(35)(36)(79)Total income tax provision$(231)$(197)$(26)Effective income tax rate19.5 %18.1 %4.1 %Reconciliations between taxes at the U.S. federal statutory tax rate and taxes at our effective income tax rate on earnings before income taxes are as follows:Year Ended December 31,(in millions)2025U.S. federal statutory tax rate$248 21.0 %State & local income tax, net of federal benefit (NOFB)21 1.8 %(a)Foreign tax effectsSwitzerlandStatutory tax rate difference between Switzerland and U.S.(28)(2.4)%Effect of cantonal and communal income taxes9 0.7 %Other adjustments(3)(0.3)%LuxembourgChanges in valuation allowances17 1.5 %Tax effect of internal reorganization(18)(1.5)%Other adjustments3 0.3 %MaltaNotional interest deduction(19)(1.6)%Notional interest carryforward(36)(3.1)%Changes in valuation allowances36 3.1 %Other adjustments3 0.2 %Other foreign jurisdictions26 2.2 %Effect of cross-border tax lawsForeign exchange on repatriations13 1.1 %Other adjustments(5)(0.4)%Tax credits(10)(0.9)%Changes in valuation allowances2 0.2 %Nontaxable or nondeductible items4 0.3 %Changes in unrecognized tax benefits4 0.3 %Other adjustmentsDeferred tax effects of internal reorganization(42)(3.6)%(b)Other adjustments6 0.6 %Effective income tax rate$231 19.5 %(a) State and local taxes in California, Florida, Texas, Minnesota, New York, and Pennsylvania made up the majority (greater than 50 percent) of the tax effect in this category(b) $42 million benefit reflects a one-time deferred tax benefit recorded in connection with an internal reorganization executed during the year.Year Ended December 31,20242023Tax provision at U.S. statutory rate21.0 %21.0 %Increase (decrease) in tax rate resulting from:State income taxes1.8 1.7 Uncertain tax positions— (9.9)U.S. tax on foreign earnings1.2 2.5 Tax incentives(1.3)(2.6)Valuation allowance1.7 (5.8)Gain on remeasurement of previously held equity interest(3.0)— Rate change(0.6)(2.0)Federal R&D tax credit(0.6)(0.5)Stock compensation(0.

Share-Based Compensation PlansOur share-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of our shareholders. In addition, members of our Board of Directors participate in our share-based compensation program in connection with their service on our board. Share-based awards issued to employees include non-qualified stock options, restricted stock units and performance share units. Under the 2011 Omnibus Incentive Plan, the number of shares initially available for awards was 18 million. On May 24, 2023, there were an additional 2.7 million shares registered for issuance. As of December 31, 2025, there were approximately 4.7 million shares of common stock available for future awards.Total share-based compensation expense recognized for 2025, 2024 and 2023 was $53 million, $56 million, and $60 million, respectively. The unamortized compensation expense at December 31, 2025 related to our stock options, restricted share units and performance share units was $10 million, $36 million and $20 million, respectively, and is expected to be recognized over a weighted average period of 1.9, 1.7 and 1.8 years, respectively. See Note 5, "Restructuring and Asset Impairment Charges," for discussion of certain restructuring charges related to share-based compensation expense in 2023.The amount of cash received from the exercise of stock options was $20 million, $67 million and $62 million for 2025, 2024 and 2023 with a tax benefit of $9 million, $19 million and $12 million, respectively, realized associated with stock option exercises and vesting of restricted stock units. We classify as an operating activity the cash flows attributable to excess tax benefits arising from stock option exercises and restricted stock unit vestings.Stock Option GrantsOptions are awarded with a contractual term of 10 years, generally vest over a three-year period and are exercisable within the contractual term, except in certain instances of termination due to death, retirement, disability and other limited circumstances in accordance with the terms of the grant agreements. The exercise price per share is the fair market value of the underlying common stock on the date each option is awarded. At December 31, 2025, there were options to purchase an aggregate of 1.1 million shares of common stock outstanding.

The following is a summary of the changes in outstanding ROIC and EBITDA performance share units for 2025:Share units(in thousands)Weighted AverageGrant Date FairValue / ShareOutstanding at January 1, 202577 $105.02 Granted— — Adjustment for Performance Condition Achieved (a)19 86.77 Vested(44)86.77 Forfeited(5)113.87 Outstanding at December 31, 202547 $113.89 (a)Represents an increase in the number of original ROIC performance share units awarded based on the final performance condition achievement at the end of the performance period of such awards.Revenue Performance Share Unit GrantsThe fair value of the Revenue performance share unit awards is determined using the closing price of our common stock on date of grant.The following is a summary of our Revenue performance share unit grants for 2025:Share units (in thousands)WeightedAverageGrant DateFair Value / ShareOutstanding at January 1, 202577 $105.06 Granted— — Adjustment for Performance Condition Achieved (a)19 86.77 Vested(44)86.77 Forfeited(5)113.87 Outstanding at December 31, 202547 $113.89 (a)Represents an increase in the number of original revenue performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.TSR Performance Share Unit GrantsThe following is a summary of the changes in outstanding TSR performance share units for 2025:Share units(in thousands)Weighted AverageGrant Date FairValue / ShareOutstanding at January 1, 2025155 $125.42 Granted54 180.70 Adjustment for Market Condition Achieved (a)(14)71.19 Vested(37)71.19 Forfeited(12)150.24 Outstanding at December 31, 2025146 $157.

Leases Leasing ArrangementsWe lease certain offices, manufacturing buildings, transportation equipment, machinery, computers and other equipment. Our most significant lease liabilities relate to real estate leases. These leases include renewal, termination or purchase options, and we have assessed these to determine whether it is reasonably certain for us to exercise any of the previously mentioned options. All periods relating to options that are reasonably certain to be exercised have been included in the lease term of the respective leases.We evaluated whether any events or conditions during the 12-month period ended December 31, 2025 to indicate that a reassessment or re-measurement of our existing leases was required. As a result, we recognized a ROU asset impairment of approximately $1 million for the 12-month period ended December 31, 2025 due to strategic decisions to close certain locations and to impair office locations that were no longer being used as intended or weren't able to be subleased.Our current operating lease liabilities of $87 million and $82 million are included in "accrued and other current liabilities" as of December 31, 2025 and 2024, respectively. Our non-current operating lease liabilities of $321 million and $242 million are included in "Other non-current accrued liabilities" as of December 31, 2025 and 2024, respectively. Our net operating lease ROU asset balances of $391 million and $309 million are included in "other non-current assets" as of December 31, 2025 and 2024, respectively.Our current finance lease liabilities of $34 million and $27 million are included in accrued and other current liabilities as of December 31, 2025 and 2024, respectively. Our non-current finance lease liabilities of $91 million and $76 million are included in "other non-current accrued liabilities" as of December 31, 2025 and 2024, respectively. Our net finance lease ROU asset balances of $118 million and $97 million are included in "other non-current assets" as of December 31, 2025 and 2024, respectively.

Acquisitions and Divestitures2025 Asset AcquisitionVacom Systems, LLCAt the beginning of the second quarter, we acquired Vacom Systems, LLC ("Vacom"), a wastewater treatment company that specializes in non-fouling, non-scaling evaporator and crystallizer systems, headquartered in Utah, U.S. The transaction has a total cash consideration of $42 million, of which $37 million was paid at closing. The remaining cash consideration will be paid over the next 12 to 18 months, subject to working capital and other customary adjustments. Additionally, the transaction consideration contained an earn out of 5% royalty on future revenue generated in connection with Vacom's proprietary technologies during the first five years following the acquisition. The earn out has a maximum pay out of $25 million. The Vacom transaction was accounted for as an asset acquisition because substantially all of the fair value of gross assets acquired were concentrated in its developed technology. On the acquisition date, the developed technology recognized in the condensed consolidated balance sheet is $49 million. The developed technology has a useful life of 15 years and will be amortized over its useful life on a straight-line basis within the Water Solutions and Services segment.2025 Business CombinationPac MachineOn December 2, 2025, we acquired Pac Machine Company ("Pac Machine"), a leading distributor specializing in the sale, rental and service of pumps, generators, and other dewatering equipment for mining, construction, agriculture, energy and marine sectors. The acquisition strengthens the Company's presence in Northern California and Nevada, while providing synergy opportunities. The total fair value of consideration transferred was $63 million ($59 million net of cash), of which $54 million ($50 million, net of cash) was paid at closing. The remaining consideration of $9 million will be paid over the next four years, subject to working capital and other customary adjustments. As a result of purchase price allocation, we provisionally recognized $19 million of intangible assets, and $34 million of goodwill, subject to future measurement period adjustments. Our consolidated financial statements include Pac Machine's results of operations within the Water Solutions and Services segment.EMX Holdings, Inc.On July 23, 2025, we acquired 100% ownership interest in EMX Holdings, Inc. and its subsidiary ("EnviroMix"). EnviroMix is headquartered in South Carolina, U.S.