Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Included pursuant to the Instruction to Item 401(b) of Regulation S-K.
PART I
The following discussion should be read in conjunction with the consolidated financial statements, including the notes, included elsewhere in this Annual Report on Form 10-K (this "Report").
Forward-Looking Statements
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," "outlook," “forecast,” “likely,” “believe,” “target,” “goal,” “objective,” “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 (including those related to our social, environmental and other sustainability 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 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, results of operations, and any forward-looking statements are subject to change and to inherent risks and uncertainties, many of which are beyond our control. 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: the impact of overall industry and general economic conditions, including industrial, governmental, and public and private sector spending, interest rates, availability of funding for customers, inflation and governments’ related monetary policy in response, and the strength of the real estate markets, on economic activity and our operations; geopolitical matters, including nationalism, protectionism and anti-global sentiment, volatility involving the U.S. and other governments, ongoing, escalation or outbreak of international conflicts, and regulatory, trade protection, economic and other risks associated with our global sales and operations; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, energy supply, supply chain shortages, logistics challenges, labor shortages, trade agreements, tariffs, and other trade protection measures, and other factors; demand for our products, disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents, data breaches, or other disruptions of information technology systems on which we or our customers rely, or involving our connected products and services; lack of availability or delays in receiving parts and raw materials from our supply chain, including semiconductors or other key components; operational disruptions at our facilities or that of third parties upon which we rely; safe and compliant treatment and handling of water, wastewater and hazardous materials; failure to successfully execute large projects, including as respects performance guarantees and customers’ budgets, timelines and safety requirements; our ability to retain, compete for and attract leadership, other key talent and labor; defects, security, warranty and liability claims, and recalls related to our products; uncertainty around productivity, simplification, restructuring and realignment actions and related costs and savings; our ability to execute strategic investments for growth, including acquisitions and divestitures; availability, regulation or interference with radio spectrum used by certain of our products; volatility in served markets or impacts on our business and operations due to weather conditions, volatile weather events, or changing climate patterns; risks related to our sustainability efforts and related disclosures; fluctuations in foreign currency exchange rates; difficulty predicting our financial results; risk of future impairments to goodwill and other intangible assets; changes in our effective tax rates or tax expenses; failure to comply with, or changes in, laws or regulations pertaining to our business conduct, operations, products and services, including anti-corruption, artificial intelligence, data privacy and security, trade, competition, the environment, and health and safety; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; matters related to intellectual property infringement or expiration of rights; and other factors set forth under “Item 1A. Risk Factors” in this Report and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).
Forward-looking and other statements in this Report regarding our environmental and other sustainability efforts, plans and goals are not an indication that these statements are necessarily material to investors, to our business, operating results, financial condition, outlook, or strategy, to our impacts on sustainability matters or other parties, or are required to be disclosed in our filings with the SEC or other regulatory authorities, and are not intended to create legal rights or obligations. In addition, historical, current, and forward-looking social, environmental and sustainability-related statements may be based on: standards for measuring progress that are still developing; internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. 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.
ITEM 1. BUSINESS
Business Overview
Xylem is a leading global water technology company with 2025 revenues of $9.0 billion and approximately 22,000 employees worldwide. We design, manufacture and service engineered products and solutions across a wide variety of critical applications, primarily in the water sector. Our broad portfolio of products, services and solutions addresses customer needs of scarcity, resilience, quality, and affordability across the water cycle, from the delivery, treatment, measurement and use of drinking water, to the collection, testing, analysis and treatment of wastewater, to the return of water to the environment.
We have differentiated market positions in core applications including transport and dewatering, process water and wastewater treatment, analytics, smart metering, digital software solutions and comprehensive services. Setting us apart is a unique set of global assets that include:
• Market-leading brands, some of which have been in use for more than 100 years
• Global distribution networks consisting of direct sales forces and independent channel partners serving a diverse customer base in approximately 150 countries
• A substantial global installed base of products and solutions across the water cycle that provides for steady parts, replacement and service revenue
• A strong history of providing innovative products, services, solutions and business models to customers
• A dedicated, experienced, qualified and technologically advanced group of employees focused on safely satisfying our customers' requirements to transport, treat or measure clean water or wastewater and measure energy usage
• A strong financial position and cash generation profile that enables us to fund strategic organic and inorganic growth initiatives, and consistently return capital to shareholders
• A demonstrated commitment to corporate governance, social and environmental sustainability and delivering a positive impact to our customers, communities and employees
Except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries.
Our Industry
Our vision is to create a world in which water issues are no longer a constraint to health, prosperity and sustainable development. Our purpose is to empower our employees, customers and communities to build a more water secure world.
Our planet faces serious water challenges. Less than 1% of the total water available on earth is fresh water, and the supply is threatened by factors such as the draining of aquifers, increased pollution and changing climate patterns. Demand for fresh water is rising rapidly due to population growth, industrial expansion, and increased agricultural development, with consumption estimated to double every 20 years. It is expected that there will be a 40% gap between global water supply and demand by 2030. Even in developed countries with sufficient clean water supply, existing water supply infrastructure is aging and often inefficient. In the U.S., deteriorating pipe systems, theft or inaccurate meters result in approximately one out of every five gallons of treated and transported water being lost prior to reaching the end customer. This problem of "non-revenue" water is a major financial challenge of many utilities globally, especially in developing markets where non-revenue water can represent 10% to more than 60% of net water produced and the treatment and energy costs to transport water is substantial. It is estimated that approximately 4% of the world's electricity is used to move and transport water. These and other challenges create opportunities for growth in the global water industry. We estimate the total addressable market size of the global water industry, excluding operational expenditures related to labor, energy, and chemicals, to be approximately $800 billion.
Global water needs cannot be met without streamlining the water industry’s cost structure with technologies that fundamentally change the provision and management of water. We compete in areas that are pivotal to improving "water affordability," "water quality," and "resilience", while reducing the impact of "water scarcity." "Water affordability" refers to the more efficient delivery, use and treatment of clean water and wastewater. "Water quality" refers to the suitability of water for a particular use based on its physical, chemical and biological characteristics. "Resilience" refers to the management of water-related risks, including adaptation to changing climate patterns, and the resilience of water infrastructure. "Water scarcity" refers to the management of the limited supply of water due to
environmental impacts, overpopulation and pollution. Our customers often face all four of these challenges, ranging from inefficient and aging water distribution networks and energy‑intensive or unreliable water and wastewater management systems (reducing water affordability); increasing variability in influent quality, alongside stormwater runoff, industrial discharges, and emerging contaminants (impacting water quality); exposure to natural disasters such as floods (requiring improvements in resilience); or droughts and pollution that limit the amount of water readily available (causing water scarcity). Additionally, we also provide solutions to enhance communications and efficiency, improve safety, and conserve resources to customers in the water sector. Delivering value in these areas creates significant opportunity for the Company.
The Global Water Industry Value Chain
The water industry value chain includes Equipment, Technology and Services companies, like Xylem, that address the unique challenges and demands of a diverse customer base. This customer base includes water and wastewater utilities that supply, treat and monitor clean water or transport, treat and analyze wastewater or storm water through an infrastructure network, and engineering, procurement and construction ("EPC") firms and third-party contractors, that work with utilities to design and build water and wastewater infrastructure networks, as depicted below. Utilities and other customers require products, services, solutions, technology and application expertise from their Equipment, Technology and Services providers to address trends such as rising pollution, stricter regulations, increasing operational costs and the increased outsourcing of process knowledge. In addition to utilities, Equipment, Technology and Service companies also provide distinct technologies, services, and application expertise to a wide array of entities, including farms, mines, power plants, industrial facilities, such as food and beverage and pharmaceutical manufacturers, and residential and commercial customers seeking to address similar trends.
Water Industry Supply Chain
Business Strategy
Our overarching strategy is to help customers solve the world's greatest water challenges with innovative products, services and solutions to deliver sustainable economic, social and environmental benefits. The following strategic pillars guide where and how we focus our efforts and resources to implement this strategy:
• Customer Centricity. We are putting the needs and experiences of our customers at the forefront of everything we do. By listening to our customers and understanding their challenges, we aim to deliver innovative solutions that not only meet but exceed their expectations. This approach helps us build strong, lasting relationships and aligns our products and services with customer needs. We leverage the 80/20 principle to focus on the most impactful opportunities to drive value for our customers. Additionally, we seek to create synergies across our businesses to enhance customer value and streamline operations. We are committed to simplifying how we do business and equipping our sales teams with the tools, training and
insights needed to engage with customers effectively. We emphasize transactional excellence to aim for every customer interaction to be seamless, efficient and value-driven. We aspire for our customers to be enthusiastic advocates for our brands.
• Profitable Growth. We prioritize profitable growth to drive long-term success. By applying the 80/20 principle, we focus on the most impactful opportunities to create significant customer value. We aim to expand our capabilities, optimize our product portfolio, and drive profitable revenue growth through strategic investments and partnerships. By implementing strategic pricing, we maximize profitability and enhance our competitive position. Additionally, we are dedicated to building high-margin, recurring revenue in growing markets, intelligent solutions and services. Our goal is to deliver consistent financial performance that benefits our shareholders and supports our long-term vision, building a stable and prosperous future for the Company.
• Operational Excellence. We are committed to being a leading operator by continuously improving our processes, systems and capabilities to enhance efficiency and effectiveness. By applying the 80/20 principle to streamline our business, we aim to enhance throughput, reduce inventory and improve product quality and customer response time. Implementing lean continuous improvement practices allows us to reduce waste and enhance the speed and ease with which customers do business with us, making our operations more efficient and effective. We are dedicated to modernizing our systems to support productivity for growth and maintain operations that are agile and responsive. Through our Xylem Management System and Goal Deployment Process, we align our efforts with our strategic objectives, driving disciplined execution and operational excellence. This commitment to excellence helps us remain competitive and enables us to respond quickly to changing market and customer demands. Ultimately, we aim to run our company with discipline, maintaining operations that are streamlined and consistently aligned with our strategic goals.
• Sustainability Leadership. We strive to be a sustainability leader by integrating sustainability into our business strategy, with a strong emphasis on advancing favorable long-term financial and sustainability outcomes for our customers through our products, services and solutions. We also aim to minimize our environmental impact, promote resource conservation and support our customers and the communities we serve together. Our priorities are focused in three areas: decarbonizing the water sector, accelerating corporate water stewardship, and advancing water, sanitation and hygiene ("WASH") access and capacity building. Additionally, we are partnering with venture impact funds, philanthropic organizations, customers and suppliers to develop long-term commercial opportunities in new markets. Our sustainability leadership, including volunteering by our employees, provides Xylem with distinct advantages in competitive talent markets.
• High-Impact Culture. We continuously refine Xylem’s operating model to better serve our customers and create value for our shareholders. Our organizational culture is fundamental to those objectives. We have activated our high-impact culture through three high-impact behaviors: inspired to innovate, empowered to lead, and accountable to deliver. These behaviors drive our employees to learn and innovate every day, to understand their role in contributing to our purpose and strategy, and to deliver on our commitments to our investors, customers and communities. Within the framework of these behaviors, we encourage a collaborative and inclusive work environment and are keenly focused on simplifying our organization and processes to drive daily and break-through efficiency and innovation.
Our strategy firmly embeds sustainability at the heart of our competitive advantage and unique business model and aligns each of our five strategic pillars to the overarching goal of integrating sustainability into everything we do.
While our strategy will evolve in response to the changing world, our four values are the enduring principles that go to the heart of who we are and guide how we conduct ourselves each day: Respect, Responsibility, Integrity and Creativity.
Business Segments, Distribution and Competitive Landscape
We have four reportable business segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, Measurement and Control Solutions, and Water Solutions and Services. See Note 21, “Segment and Geographic Data,” in our consolidated financial statements for financial information about segments and geographic areas.
The table and descriptions below provide an overview of our business segments:
Market
Applications
2025 Revenue
(in millions)
Revenue
Major Products
Primary Brands
Water
Infrastructure
Transport
• Water and wastewater pumps
• Filtration, disinfection and biological treatment equipment
• Flygt
• Ionpure
• Leopold
• Neptune Benson
• Sanitare
• Wallace & Tiernan
• Wedeco
Treatment
Applied
Water
Building Solutions
• Pumps
• Valves
• Heat exchangers
• Controls
• Dispensing equipment systems
• Bell & Gossett
• Flojet
• Goulds Water Technology
• Jabsco
• Lowara
• Rule
Industrial Water
Measurement and Control Solutions
Smart Metering and Other
• Smart meters
• Network communication devices
• Data analytics
• Test instruments
• Controls
• Sensor devices
• Software & managed services
• Critical infrastructure services
• Ebro
• Sensus
• Sentec
• Smith Blair
• WTW
• YSI
• Xylem Vue
Analytics
Water Solutions and Services
Capital and Other
• Preventative maintenance services
• Rapid response mobile services
• Digitally enabled/outsourced solutions
• Process and wastewater treatment systems
• Environmental remediation
• Odor and corrosion control
• Filtration
• Reverse osmosis
• Continuous deionization
• Mobile dewatering equipment and rental services
• Godwin
• Grindex
• Mar Cor
Services
Water Infrastructure
Through two closely linked applications, transport and treatment, our Water Infrastructure segment primarily supports the process that collects water from a source, treats it and distributes it to users, and then treats and returns the wastewater responsibly to the environment.
The customer base consists of two primary end markets: utility and industrial. The utility market includes public, private and public-private entities that support water, wastewater and storm water networks. The industrial market includes customers that require similar water and wastewater infrastructure applications to support various industrial operations.
Water Infrastructure sells through a combination of direct channels, indirect channels and service capabilities. Both utility and industrial facility customers increasingly require our teams’ global but locally proficient expertise to use our equipment in their specific applications. Several trends are increasing demand for this application expertise: (i) the need for efficient transport and treatment solutions due to the increase in water scarcity and electricity costs, (ii) the increase in both the type and amount of contaminants found in the water supply, (iii) the need to increase system resilience and efficiencies due to aged infrastructure and affordability, (iv) increasing environmental regulations, and (v) the need to reduce carbon emissions generated from transporting and treating water.
Given the highly fragmented nature of the water industry, the Water Infrastructure segment competes with a large number of businesses and no one business competes across all the markets Water Infrastructure serves. We differentiate ourselves in the market by focusing on product and service performance, quality and reliability, innovation, speed to market with new or disruptive technologies and business models, application expertise, brand reputation, energy efficiency, product security, product life-cycle cost, timeliness of delivery, effectiveness of our distribution channels, customers' experience and our global installed base.
Applied Water
Applied Water encompasses the uses of water to serve a diverse set of customers in the building solutions and industrial water end markets. Residential consumers represent the end users in the residential market, while owners and managers of properties, such as apartment buildings, retail stores, institutional buildings, restaurants, schools/universities, hospitals and hotels, are examples of end users in the commercial market. The industrial market includes original equipment manufacturers, exploration and production firms, agricultural customers, and developers and managers of industrial facilities, such as chemical manufacturers, marine, food and beverage companies, data centers and car washes.
In the Applied Water segment, end markets vary widely and, as a result, specialized distribution partners are often preferred. As such, the Applied Water segment provides the majority of its sales through strong indirect channels with the remaining sales going through our global direct sales channels. We have long-standing relationships with many of the leading independent distributors in the markets we serve and we provide incentives to distributors, such as specialized loyalty and training programs.
Population growth and urbanization, changing climate patterns and regulation on energy efficiency, and digitalization enabling self-service and preventive maintenance are macro growth drivers of these markets, driving the need for housing, commercial real estate, food, community services and retail goods within growing city centers.
Competition in the Applied Water segment focuses on brand reputation, application expertise, product delivery, performance and energy efficiency, quality, reliability and price. We compete by offering innovative and high-quality products, coupled with world-class application expertise. We believe our distribution through well-established channels and our reputation for quality significantly enhances our market position. Our ability to deliver innovative product offerings has enabled us to compete effectively, cultivate and maintain customer relationships and serve and expand into many niche and new markets.
Measurement and Control Solutions
Measurement and Control Solutions develops advanced technology solutions that enable intelligent use, optimization and conservation of critical water and energy resources. This segment delivers communications, smart metering, measurement and control capabilities 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 and outdoor water environments. Additionally, we offer software and services including cloud-based analytics, and remote monitoring and data management.
At the heart of our leading technologies are automation, data management and decision support. Our communication network enables customers to automate and optimize meter reading, bill customers, monitor flow rates and detect and enable rapid response to changing and unsafe conditions. In short, our communication offerings provide insights into operations and enable our customers to manage the entire scope of their operations remotely through their networks and to optimize their operational costs. At the center of our offering is the FlexNet communication network, which provides a common communication platform and infrastructure for essential metering services. This two-way communication technology remotely connects a wide variety of smart points in a given network with protocols, frequently on Federal Communications Commission ("FCC") licensed spectrum in the U.S., to enable reliable, resilient and secure transmissions. These technologies allow our customers to remotely and continuously monitor their water and energy distribution infrastructure, prioritize and manage maintenance, and use data to optimize many aspects of their networks. Our digital software solutions complement these offerings with intelligent applications that help utility decision-makers manage and maintain their networks more effectively in real time.
The majority of our sales in North America are conducted through strong, long-standing relationships with leading distributors and dedicated channel partners for the water and energy markets. Outside of North America, nearly all of our sales are for the water market. Direct sales are often made in markets without established distribution channels; however, some distribution channels are used in more developed markets. A direct sales approach, with key account management, is employed for large utilities and government programs.
Macro growth drivers include increasing regulation, aging infrastructure, optimizing operational costs and worldwide movement towards smart grid implementation and advanced metering infrastructure. Water scarcity and conservation, as well as the need to prevent revenue loss (via inaccurate meter readings, leaks or theft) are among the drivers of smart meter and leak detection technologies.
Our metering business is well positioned in the North America smart metering sector, the fastest growing sector of the global meter industry. We set ourselves apart in the industry by focusing on our communication network, innovation, new product development and service offerings which deliver tangible savings by supporting operational efficiencies in meter reading and billing, and reducing non-revenue water through improved meter accuracy, reduced theft, and leak identification. Our water quality instruments have a strong position in the analytical instrumentation market and provide critical readings of various water quality, level and flow parameters for customers. Xylem Vue is a unified software analytics platform built for water utilities to manage their operations from end-to-end. We provide a differentiated offering in the reliability and accuracy of our products often in rugged, remote and hazardous locations.
Water Solutions and Services
Our Water Solutions and Services segment provides tailored services and solutions, in collaboration with customers, 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 and pipeline assessment services, as well as leak detection, condition assessment and asset management and pressure monitoring solutions. The Water Solutions and Services segment also includes the sale and rental of specialty dewatering pumps, scalable products, and related equipment, technology and services, which provide the safe removal or draining of groundwater and surface water from construction sites or other industrial sites, and bypass pumping for the repair of aging utility infrastructure, as well as emergency water transport and removal during severe weather events.
Our Water Solutions and Services segment reaches customers across industrial vertical markets, such as life sciences, microelectronics, food and beverage, chemical processing and power generation, and various municipalities. In order to reach these customers, we leverage our application expertise in process water and
wastewater treatment, our internal and external partners, and extensive service branch networks across the globe, including a rental fleet of transfer and treatment assets.
Macro growth drivers include water scarcity, emerging contaminants, increasing regulation surrounding climate and energy efficiency, pressure to optimize energy efficiency and other operational costs, and demand arising from emergency response needs.
Geographic Profile
The table below illustrates the annual revenue and percentage of revenue by geographic area for each of the three years ended December 31.
Revenue
(in millions)
$ Amount
% of Total
$ Amount
% of Total
$ Amount
% of Total
United States
Western Europe
Emerging Markets (a)
Other
Total
(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 included in "Other")
Supply and Seasonality
We have a global manufacturing and assembly footprint, with production facilities in Europe, North America, Latin America, Asia and the Middle East. All of our businesses require various parts and raw materials, the availability and prices of which may fluctuate. Parts, components and raw materials commonly used in our products include motors, fabricated parts, castings, magnets, bearings, seals, batteries, printed circuit boards ("PCBs") and electronic components, including semiconductors, as well as commodities, including steel, brass, nickel, copper, aluminum, rare earth minerals and plastics. While we may recover some cost increases through operational improvements, we are still exposed to pricing risk, including due to duty and tariff assessments by the U.S. or other governments on foreign imports. We attempt to control costs through fixed-priced contracts with suppliers and various other programs, such as our global procurement initiative.
Our business relies on third-party suppliers, contract manufacturing and commodity markets to secure raw materials, parts and components used in our products. We typically acquire materials and components through a combination of blanket and scheduled purchase orders to support our materials requirements. For many of our products, we have existing alternate sources of supply, or such sources may be readily available.
We have experienced price volatility and supply constraints when materials have not been available from multiple sources. From time to time, we acquire certain inventory in anticipation of supply constraints or enter into longer-term pricing commitments with suppliers to improve the priority, price and availability of supply.
Our business segments experience a modest level of seasonality in their operations. This seasonality is dependent on factors such as customers' capital spending, as well as the effects of severe weather-related conditions, including heavy flooding, prolonged droughts and fluctuations in temperatures or weather patterns, all of which can positively or negatively impact portions of our business.
Customers
Our business is not dependent on any single customer or a few customers, the loss of which would have a material adverse effect on our Company. No individual customer accounted for more than 5% of our consolidated revenues in 2025, 2024 or 2023.
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, capital projects require longer lead production cycles and deployment schedules, and delays occur from time to time. Total backlog was $4,615 million at December 31, 2025
and $5,070 million at December 31, 2024. We anticipate that approximately 60% of the backlog at December 31, 2025 will be recognized as revenue during 2026.
Research and Development
Research and development (“R&D”) is a key foundation of our growth strategy, and we focus on the design and development of products, services, solutions and application know-how that address anticipated customer needs and emerging trends. Our engineers are involved in new product, service and solution development as well as improvement of existing products, services and solutions to increase customer value. Our businesses invest substantial resources into R&D. We anticipate we will continue to develop and invest in our R&D capabilities to promote a steady flow of innovative, high-quality and reliable products and integrated solutions to further strengthen our position in the markets we serve.
We have R&D capabilities around the world. R&D activities are initially conducted in our technology centers, some of which are located in conjunction with some of our major manufacturing facilities to enable an efficient and robust development process. We have several global technical centers and local development teams where we are supporting global needs and accelerating the customization of our products, services and solutions to address local needs. In some cases, our R&D activities are conducted at our piloting and testing facilities and at strategic customer sites. These piloting and testing facilities enable us to serve our strategic markets globally. As part of expanding our bandwidth and to increase our access to technology, we have built innovation eco-system partnerships with academic institutions as well as other technology firms, start-up accelerators and venture capital organizations.
Capitalized Software
We offer software as a product or service directly to external customers, which is included within "Other intangible assets, net" on our Consolidated Balance Sheets. As of December 31, 2025 and 2024, we had net capitalized software used in sales and services to external customers of $175 million and $185 million, respectively.
Intellectual Property
We generally seek patent protection for inventions that we believe will improve our competitive position and are not suitable to be kept as a trade secret. While we own, control or license a significant number of patents, trade secrets, proprietary information, trademarks, trade names, copyrights and other intellectual property rights which, in the aggregate, are important to our business, management believes that our business, as a whole, as well as each of our business segments, is not materially dependent on any one intellectual property right or related group of such rights.
Patents, patent applications and license agreements expire or terminate over time by operation of law, in accordance with their terms or otherwise. As the portfolio of our patents, patent applications and license agreements has evolved over time, we do not expect the expiration of any specific patent to have a material adverse effect on our financial position or results of operations.
Governmental Regulations
Environmental Regulations
Our global operations are subject to various laws and regulations governing the environment, such as those promulgated by the U.S. Environmental Protection Agency and similar state and foreign environmental agencies, including related to the discharge of pollutants and the management and disposal of hazardous substances. While environmental laws and regulations are subject to change, such changes can be difficult to predict reliably and the timing of potential changes is uncertain. We do not believe, based on current circumstances, that compliance costs pursuant to such regulations will have a material adverse effect on our financial position or results of operations. However, the effect of future legislative or regulatory changes could be material to our financial condition or results of operations.
We continue to be dedicated to environmental and sustainability programs to minimize the use of natural resources, reduce the utilization and generation of hazardous materials from our processes, and remediate identified environmental concerns. We are currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at a number of current and former manufacturing facilities. We do not anticipate these liabilities will have a material adverse effect on our consolidated financial position or results of operations. At December 31, 2025, we had estimated and accrued $4 million related to environmental matters.
Other Regulations
As a company with global operations, we are subject to complex U.S. federal, state and local and foreign laws, regulations and permits in the countries where we conduct business, including related to, among other matters: trade, such as tariffs and import and export restrictions; anti-bribery and corruption; antitrust and competition; data security and privacy, such as the EU General Data Protection Regulation (“GDPR”) and the China Personal Information Protection Law ('PIPL"); use of regulated radio spectrum, including that of the U.S. FCC; lobbying activity; health and safety; the environment; air emissions; potable and non-potable water; wastewater discharge; and the generation, handling, storage, use, transport, treatment and disposal of non-hazardous and hazardous materials and wastes. We have policies and procedures in place to promote compliance with these laws, regulations and permits. Additional information about the impact of government regulations on Xylem’s business is included in Item 1A. “Risk Factors” under the headings Risks Related to Geopolitical, Macroeconomic and Industry Factors, Risks Related to Our Business and Operations, Risks Related to Financial and Tax, and Risks Related to Legal and Regulatory.
Sustainability
At Xylem, sustainability is at the center of who we are and what we do – from our own operations to the solutions we provide to customers that impact communities around the world. As a leading global water technology company, we work to address some of the world’s most urgent sustainability challenges - responsible stewardship of our shared water resources and resiliency of communities to the effects of volatile weather patterns. Technology is playing an increasingly important role in helping the world solve water issues. We have a long history of innovation, and we are focusing on the powerful capabilities of smart technology, integrated management and data analytics.
We believe our financial performance and focus on sustainability go hand in hand. Xylem approaches sustainability as a way to generate economic value while also creating value for our customers and society, thus helping us meet the needs of both. Accordingly, in 2019, we evolved our approach to leverage sustainability in our decision making toward long-term value creation for our shareholders, customers, employees and communities in which we operate, and we announced a comprehensive slate of 2025 sustainability goals. Additionally, in 2024, we announced several new ambitious 2030 goals. We also remain focused on our efforts to reach Net Zero greenhouse gas ("GHG") emissions across our value chain before 2050. This goal reinforces our alignment with sector-wide efforts to reduce carbon footprints and advance sustainability. Following the 2023 acquisition of Evoqua, we updated our emissions baseline and 2030 science-based targets, which have been approved by the Science Based Target initiative ("SBTi").
As we look beyond 2025, we have established three high-impact pillars of our sustainability efforts aligned with our strategy and long-term value creation, that aim to deliver sustainable outcomes across our value chain, as well as where we believe we can provide outsized impact for our customers and communities. These pillars include decarbonizing the water sector, by providing solutions that support energy efficiency and reduced emissions for our customers; accelerating water stewardship, by enabling leading practices in effective water management; and advancing WASH for all, by providing innovative solutions designed to increase services to underserved communities around the world. For each pillar, we have set forth 2030 goals designed to drive impact across our value chain and for our customers and communities.
Our sustainability strategy and goals are informed by the United Nations Sustainable Development Goals ("UNSDGs"), not only to substantiate our contribution to helping achieve global objectives, but also to be transparent in our communication to stakeholders by providing details on our efforts to build a sustainable future. Our sustainability strategy and an update on our progress towards achieving our goals are outlined in our annual Sustainability Report, which has been prepared with reference to the Global Reporting Initiative and the Sustainability Accounting Standards Board frameworks.
To further enhance our understanding and management of risks and opportunities related to sustainability, we are focused on continued progress informed by the core principles of the United Nations Global Compact, CEO Water Mandate, Race to Zero, Women’s Empowerment Principles, and the Human Rights Campaign Foundation’s Global Business Coalition, among others.
In 2023, we entered into a five-year revolving credit facility (the "2023 Credit Facility") with Citibank, N.A., as Administrative Agent, and a syndicate of lenders. The 2023 Credit Facility includes a pricing grid that determines the applicable margin based on Xylem's credit rating, with a further adjustment based on Xylem's achievement of certain sustainability related key performance indicators (the "KPIs"). Facility fees under the 2023 Credit Facility are also adjusted based on Xylem's credit rating and the KPIs. In 2022, we announced investments in CNote’s Impact Cash™ platform, a mechanism through which we invest and deposit cash at scale in community finance institutions that strengthen and transform underserved communities. In 2021, in partnership with Goldman Sachs, we continued
our work towards further integrating our business and finance strategies with sustainability by creating a cash account tied to performance of select 2025 Sustainability goals. In 2020, Xylem completed a $1 billion Green Bond offering in senior unsecured notes, consisting of $500 million of 1.950% senior notes due in January 2028 and $500 million of 2.250% senior notes due in January 2031. The proceeds of this offering were allocated to green projects that help improve water accessibility, water affordability, and water systems resilience. Additionally, during the first quarter of 2021, we issued a special grant to certain employees of less than 0.1 million ESG performance share units.
Human Capital
Our colleagues around the globe are united by our purpose – to empower our customers and communities to build a more water-secure world – and, as such, are key to the Company’s success and execution of our strategy. We seek to foster a high-impact culture – one in which our colleagues are inspired to innovate, empowered to lead and accountable to deliver – creating an environment that is purpose-driven, people-centered, respectful and inclusive. We believe that our overall success and long-term growth depend, in part, on our continued ability to attract and retain highly skilled colleagues, with a variety of backgrounds, experiences and perspectives that reflect our customers and communities, including senior leaders and individuals with skills in our strategic competencies, such as engineering, innovation, digital technologies, sales excellence, sustainability and product and project management, as well as production, field service and technical services talent. The market for individuals with these competencies remains competitive, but we believe our culture and purpose are differentiators in attracting and retaining talent.
As of December 31, 2025, Xylem employed approximately 22,000 employees worldwide. We have approximately 9,000 employees in the U.S., 7,000 in western Europe, and 5,000 in the emerging markets, with the remaining 1,000 in other geographies in which we operate. Approximately 10% of our U.S. colleagues are represented by labor unions. Outside the United States, certain of our colleagues are represented by works councils. We believe that our relations with our employees are good, including relations with those represented by labor unions and/or works councils.
Our Purpose and Values
Our purpose is to empower our customers and communities to build a more water-secure world, and, together with our values, provides the foundation for how we want to grow as a company and behave as both an industry leader and an ethical corporate citizen. We devote our technology, time and talent to advance the smarter use of water in service of our purpose and our colleagues are guided by our core values, respect, responsibility, integrity and creativity.
Health and Safety
Protecting the safety, health and well-being of our colleagues is one of our highest priorities and is also regularly assessed in our business reviews. We have a strong Environmental, Health and Safety program that focuses on governance, risk reduction, training and education, and leadership accountability, and is designed to provide our colleagues with safe and healthy workplaces.
Based on employee survey feedback, we regularly augment our holistic well-being strategies, including the expansion of our Employee Assistance Program support across the globe, additional mental health resources, and student loan repayment support.
Compensation and Benefits
Xylem strives to provide our colleagues with competitive compensation and benefits offerings and takes a total rewards approach that integrates programs for compensation, benefits, recognition and well-being. Individual program components may differ by country, role or level. Our compensation programs are driven by our pay-for-performance philosophy and commitment to fair and equitable compensation. We conduct an annual pay equity assessment based on gender and U.S. minority classifications and make pay adjustments as appropriate based on the results.
Career Development
We are focused on enhancing the capabilities of our colleagues that are needed for the Company to win in the marketplace. We also are focused on internal talent movement across functions, geographies and businesses. We seek to foster a high-impact culture and a continuous improvement, 80/20 and learning mindset throughout all areas of the Company.
We have competitively differentiated approaches to talent development, with a strong focus on developing skills for strategically important capabilities, such as product management, artificial intelligence and leadership competence. These approaches are designed to facilitate the professional growth and leadership development of our colleagues and to strengthen our succession breadth and depth. We also have formal programs and trainings to attract, develop and retain the best talent, including entry-level talent recruitment programs and development programs for general managers, emerging high-potential leaders and people leaders.
Available Information
We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports are available free of charge on our website www.xylem.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.
In addition, the public may read or copy any materials filed with the SEC, free of charge, at www.sec.gov.
ITEM 1A. RISK FACTORS
In evaluating our business and investment in our securities, investors should carefully consider the following discussion of material factors and events, along with all of the other information in this Report and in our other filings with the SEC. The events and consequences discussed below could, in circumstances that we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, financial condition, cash flows, results of operations and/or market price of our common stock. Some of the factors, events, and contingencies discussed below may have occurred in the past, and the disclosures below are not representations as to whether or not the factors, events or contingencies have occurred in the past, but are provided because future occurrences of such factors, events, or contingencies could have a material adverse effect.
These risk factors do not identify all of the risks we face. Our business is also subject to general risks that affect many other companies. In addition, we operate in a continually changing business, economic and geopolitical environment, and as a result, new risk factors, or changes to our risk profile, may emerge from time to time. Risks not currently known to us, or that we currently believe are immaterial, may impact our business, operations, financial condition or share price. The global macroeconomic and geopolitical climate amplify many of the risks below. Risks in this section are grouped in the following categories: (1) Risks Related to Geopolitical, Macroeconomic and Industry Factors; (2) Risks Related to Our Business and Operations; (3) Risks Related to Financial and Tax; and (4) Risks Related to Legal and Regulatory. Many risks affect more than one category, and as a result the risks are not in order of significance or probability of occurrence.
Risks Related to Geopolitical, Macroeconomic and Industry Factors
Industry and economic conditions may adversely affect our markets and our customers’ operating conditions and demand.
With sales, directly or indirectly, in approximately 150 countries, we compete across a wide range of geographies and end markets. Economic and industry factors that have had, or may in the future have, a material impact on our businesses and demand for our products and services include: (i) overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) inflation and related monetary policy actions by governments in response; (iii) overall strength of industrial, governmental, public and private sector spending; (iv) overall strength of the industrial, residential and commercial real estate markets; (v) federal, state, local and municipal governments’ environmental, energy efficiency, fiscal, trade and procurement laws, regulations and policies, including domestic content requirements; (vi) availability of commercial financing for our customers and end-users; and (vii) availability of funding for our public sector customers, including for water infrastructure investments. These and other macroeconomic impacts, including actual or potential economic slowdowns, recessions or other prolonged downturns in the global economy or our markets, supply chain dynamics and shortages, labor shortages, inflation, and significant government debt and deficit levels, have had and may in the future have, a material adverse effect on demand for our products and solutions and therefore our business, financial condition, cash flows, results of operations and stock price.
Geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales, supply chain and operations may adversely affect our business.
In 2025, 58% of our total revenue was from sales to U.S. customers and 42% was from sales to customers outside the U.S. We expect a similar revenue profile going forward. Many of our manufacturing operations, employees, suppliers and distribution channels are located outside of the U.S. Our operations, supply chain and sales both within the U.S. and internationally are subject, to varying degrees, to risks and uncertainties inherent in doing business globally, including:
• nationalism, populism, protectionism, anti-global sentiment and changes in trade protection measures, including the imposition of increased or new embargoes, tariffs and other trade barriers, import and export regulations or restrictions, licensing requirements, domestic content requirements, and retaliatory measures;
• uncertainty, volatility and impacts from the evolving global geopolitical environment involving the U.S. and other countries’ governments, including the relationships among the U.S., European Union (“EU”), Middle East, Latin America, Russia, India, China, Taiwan, or other foreign countries, and the international community at large;
• any actual or potential threat, outbreak, uncertainty or escalation of terrorism, political instability, insurrection, war, or other armed conflicts, including between Russia and Ukraine, the U.S. and Venezuela or Iran, and in the Middle East, and other global safety and security concerns;
• threat or outbreak of epidemics, global health crises, or pandemics and related uncertainties;
• impacts from significant shifts in U.S. immigration policy, such as a tightened labor market and inflation;
• disruptions in global or regional supply chains, our operations, or those of third parties upon which we rely, including due to labor disruptions, supply shortages, trade restrictions, increased or new tariffs and freight and logistics challenges;
• changes to applicable U.S. or host country laws, regulations or policies, including those related to tax, water quality, the environment, energy efficiency, infrastructure, data transmission, security or privacy, labor, and artificial intelligence (“AI”), as well as potential negative consequences from the interpretation, application and enforcement of such measures;
• theft, compromise, misappropriation or challenges in protecting our technology, intellectual property or data, including from cybersecurity and AI threats.
Beyond the risks indicated above, our operations in emerging markets are subject to additional risks and uncertainties, including: (i) imposition of or increases in withholding or other taxes on remittances and other payments to us; (ii) nationalization of our assets; (iii) imposition of or increases in investment barriers or other restrictions; (iv) difficulty enforcing commercial agreements or collecting receivables; (v) pricing pressure on our products and services; (vi) elevated business conduct risks; and (vii) challenges in attracting and retaining qualified talent and labor.
Geopolitical changes in China-Taiwan relations could disrupt the operations of companies in Taiwan that are critical to the global supply chain for semiconductors (“chips”) and other electronic components, as well as the supply of lithium batteries, carbide seals, and rare earth elements. Such changes could have significant negative effects on the global supply chain for these components and materials and could adversely affect our ability to manufacture certain of our digitally-enabled products, such as pumps, controllers and smart meters.
We cannot predict the impact that such factors might have on our business, financial condition, cash flows, results of operations an share price.
Inflation, tariffs, customs duties, and other manufacturing and operating cost increases or fluctuations have adversely affected, and may continue to adversely affect, our cash flows and results of operations.
Our manufacturing and operating costs fluctuate with volatility in the prices of commodities, parts, raw materials, energy, utilities, freight, logistics, and labor. These fluctuations have been, and may continue to be, driven by a variety of factors, such as inflation, tight labor markets, exchange rates, trade agreements, tariffs and other trade protection measures, and other macroeconomic, political or geopolitical factors. For example, ongoing or escalation of conflicts in Ukraine and the Middle East, and the increasing tensions or outbreak of conflict between China and Taiwan, could further increase logistics, energy and supply costs, and potentially delay customer shipments. We rely on a large and complex network of suppliers (and their suppliers) and contract manufacturers globally, including in China and Mexico. The U.S. has enacted or threatened various trade actions, including tariffs on goods imported from China, Mexico, Canada, Europe and other countries, which has or may result in retaliatory measures. On August 29, 2025, the U.S. Court of Appeals for the Federal Circuit ruled that many of the tariffs imposed by the U.S. federal government under the International Emergency Economic Powers Act exceed presidential authority and therefore are invalid. On February 20, 2026, the U.S. Supreme Court affirmed that ruling. As of the date of this filing, tariffs issued under the different statutes remain in place, and the scope and durability of existing and future tariffs, as well as tariffs in place prior to the U.S. Supreme Court’s ruling, remain uncertain. U.S. and international trade actions could increase the cost of our products, which we may not be able to offset through pricing or productivity, and could impair our competitiveness. In a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method. Actions we take to mitigate cost volatility may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
Risks Related to Our Business and Operations
We may be unable to compete successfully in our markets or develop and commercialize innovative and disruptive solutions and technologies.
We operate in highly competitive markets for our technologies, products and services. The principal points of competition are performance, quality, reliability, price, life cycle cost, security, speed of development and commercialization of new technologies, processes and business models, brand reputation, application expertise, energy efficiency, delivery timeliness, proximity of our service centers to customers, effectiveness of our distribution channels, and customers’ experience in doing business with us directly or through our channel partners. Maintaining
and improving our competitive position requires successful management of these factors in a volatile business environment marked by rapid change and disruption.
Our competitive position and future growth depend on a number of factors, including our ability to: (i) enhance and differentiate our offerings, business models and customer experience through efficiency, security, and the addition of innovative features or technologies, such as AI, that address emerging regulations and trends, meet customers’ needs, and prevent commoditization; (ii) defend our market share against an ever-expanding number of competitors, including new or non-traditional competitors from outside our industry, such as large technology firms; (iii) invest in and maintain our network of channel partners; (iv) attract, develop, retain and train talent with commercial, innovation, digital and technical expertise, and understanding of customers’ needs to develop and commercialize new technologies; (v) leverage and expand our ecosystem of innovation partners, including universities, venture capital, start-ups, and other technology innovators; (vi) invest in manufacturing, research and development, engineering, sales, marketing, systems modernization, AI, and digitization of customer solution and support tools; (vii) win and execute large contracts on schedule and on budget; and (viii) optimize our supply chain and manufacturing to enable predictable and efficient delivery to customers, and to compete for business subject to procurement laws, regulations and government policies, and regulations governing sustainability and domestic content in various jurisdictions. Competitors may develop and commercialize new technologies, such as AI, more effectively to drive internal efficiencies or create new or enhanced products or services that may adversely affect our competitiveness. Customers may be slow to adopt new solutions and technologies, delaying returns on our innovation investments and impacting our growth. Pricing pressures, tariffs, procurement policies, and disruptive or emerging technologies, such as AI, may require price adjustments or rationalization of certain of our offerings and affect our profitability.
As a result, we may not maintain our competitive position or market share, which could adversely affect our business, financial condition, cash flows or results of operations.
Cybersecurity incidents, data breaches, or other disruptions, and software and system implementations involving our enterprise or operational information technology, connected products and services, or information technology on which we or our customers rely, could materially and adversely affect our business.
We rely on information technology (“IT”), including operational technology and communication networks, to operate our manufacturing processes and equipment, enable business processes, support employee productivity, interface with customers and channel partners, and manage our electronic information, including confidential business information and data relating to employees, customers, and partners. We also rely on key third parties, such as direct and indirect suppliers, contract manufacturers, cloud-based service providers, and outsourced business process providers, including in our businesses and functions, such as Information Technology, Finance, Human Resources, Commercial Services, Procurement and Travel. Regardless of the protection measures we, or the third parties we rely on, have implemented, IT and communication networks may be susceptible to damage or disruption due to causes, such as: equipment, system or application failure, including as a result of maintenance, obsolescence, unsupportability or age; application upgrades or implementations; human error or malfeasance; vandalism; natural disasters; fire; utility outages; and cybersecurity incidents, including ransomware, denial-of-service, e-mail compromises, deepfake attacks, malware, phishing, and viruses resulting from a wide ranging threat landscape, including attacks by nation states and others. In addition to damage or disruption, these cybersecurity incidents may also result in security and data breaches. Cybersecurity and other IT disruption risks may increase during integration or separation of businesses or during the provision of transition services.
We provide certain digitally enabled or internet-connected products, which may include the use of AI, such as pumps, controllers, meters, intelligent solutions, remote monitoring and condition assessment capabilities, and an interoperability platform via Idrica, our strategic joint venture. These products and services are used by us and our customers for operational purposes or to collect data. Our connected products and services may be susceptible to damage or disruption from the same causes described above. Cybersecurity incidents may impact hardware, software and information installed, stored or transmitted by our products and services after they have been purchased and incorporated into customers’ and other third parties’ products, facilities, systems or infrastructure, including critical infrastructure applications. While we attempt to provide our customers with reasonable measures to safeguard our products and services from cybersecurity threats, the potential for a cybersecurity incident remains. In addition, certain of our customers continue to use older digitally enabled products that lack current security features.
A cybersecurity incident or other damage or disruption to IT and communications networks, or involving our connected products and services, may have adverse effects on us, our customers or third parties on which we rely by interfering with operations and services, potentially with public health and safety risks involving certain of our
customers; disrupting production, supply chain, shipments, billing, collections and customer service; disrupting data analytics or remote monitoring and control of operational systems; enabling unauthorized access, disclosure, misappropriation, misuse, destruction, compromise, or theft of our financial, operational or other proprietary information, including intellectual property and trade secrets, or data pertaining to our employees, customers or suppliers; damaging employee, customer or partner relationships; triggering product recalls, legal claims, or regulatory actions, fines or penalties; increasing prevention and response costs; and harming our brands and reputation. Additionally, application upgrades and software implementations, such as the launch of our Enterprise Resource Planning software, may increase our exposure to such risks as upgrades may have undiscovered vulnerabilities or provide threat actors with new avenues of attack. Any delay in or failure to detect a cybersecurity incident or the full extent of an incident could exacerbate the effects of the incident.
To mitigate risks, we maintain policies, standards, procedures, and technologies applicable to all employees and contractors, including: patching; passwords; network and data access; business continuity and disaster recovery plans; monitoring for external and insider risks; technology obsolescence or end-of-life of operating technologies or applications’ operating systems; IT general computing controls; network segmentation; secure software development; and system integration testing. As implementation and compliance is the responsibility of employees across the enterprise, we cannot guarantee full adherence with our policies, standards and procedures, or that our technologies will be sufficient to fully mitigate the aforementioned or evolving risks.
We, and some third parties upon which we rely, have previously experienced cybersecurity incidents or other attempts from unauthorized parties, including criminal threat actors, nation states, or insiders (including employees or contractors engaged in fraudulent or malicious activities), to gain unauthorized access to IT and connected products and services. As technology, including generative AI models, continue to evolve, such incidents may occur more frequently, affect a broader range of devices, and grow in sophistication, with threat actors leveraging these technologies to develop new attack methods that are increasingly automated, targeted, coordinated and difficult to defend against. To date, none have resulted in any material adverse impacts or theft, misuse, or loss of information of our business, operations, products and services, or customers.
Although we maintain a cybersecurity program that we believe is reasonably designed to protect our IT, products and services, the unpredictable and evolving nature of attacks and incidents, and the difficulty of detecting unauthorized access may prevent us from anticipating or preventing intrusions or implementing adequate protective or remedial measures. Additionally, it may take considerable time for us to investigate and evaluate the full impact of cybersecurity incidents, particularly for sophisticated attacks, which may inhibit our ability to provide prompt, full, and reliable information about an incident to our investors, customers, regulators, and the public.
While we maintain insurance coverage designed to address aspects of business interruption and cybersecurity risks, such coverage may not be sufficient to cover all losses or all types of claims that may arise. Although we assess risks, implement safeguards to mitigate risks, and conduct business continuity and disaster recovery planning, we cannot ensure that material cybersecurity incidents or other disruptions will not occur, or that our efforts will be fully effective. Any of the foregoing could materially and adversely affect our reputation, competitive position, results of operations, cash flows or financial condition.
Lack of or delays in availability of products, parts, raw materials, transportation, or energy from our supply chain, or supplier failures to meet requirements, could adversely affect our business.
Our business depends on a large and complex network of suppliers and indirect suppliers, contract manufacturers and subcontractors that perform manufacturing and customer-related services for us, commodities markets, and logistics providers to secure and ship finished goods and raw materials, parts, and electronic and other components used in our products. Certain key components are available only from sole- or single-source suppliers or a limited group of suppliers. We also have significant direct and indirect suppliers in China, Taiwan, Mexico and Europe. We expect that our reliance on, and the complexity of, this supply chain will remain significant and, in some cases, increase.
Parts, components and raw materials commonly used in our products include motors, fabricated parts, castings, magnets, bearings, seals, batteries, PCBs and electronic components, including semiconductors, as well as commodities, including steel, brass, nickel, copper, aluminum, rare earth minerals and plastics. Availability of these items has been, and may in the future be, affected by delays, shortages, curtailment, or changes due to macroeconomic, geopolitical and other factors, including: supply and demand dynamics; labor shortages or disputes; changes in supplier strategy or production planning including decisions to exit production of key components on which we rely; production interruptions from cybersecurity or information technology disruptions, or humanmade or natural disasters; supplier financial distress; capacity allocations to other purchasers; trade agreements, or trade protection measures including tariffs or export restrictions; ability to meet regulatory
requirements; weather emergencies and the effects of volatile weather patterns; public health crises; and threatened or actual terrorism, armed conflict or war. Actual or threatened escalation of these conditions may disrupt supply, increase energy or logistics costs, or delay or interrupt supplies from suppliers. We have experienced, and may continue to experience, fluctuating freight and logistics costs, and delivery delays from port congestion, labor actions and other challenges. If supply disruptions occur (including in rare earths, semiconductors, or other key inputs), or if our mitigation efforts are insufficient or unsuccessful, we may be delayed or unable to execute our backlog, fill new orders, or timely deliver products, which could materially and adversely affect our business, financial condition or results of operations. Although we maintain insurance coverage for business continuity and supply chain risks, such coverage may not remain available at a reasonable cost or adequately cover disruptions.
A material disruption to any of our facilities or operations, or those of third parties upon which we rely, may adversely affect our business and financial performance.
Our operations and businesses depend on our facilities and a complex and highly reactive global supply chain, including suppliers, indirect suppliers, and multi-tiered suppliers, some of which are single- or sole-source, as well as distributors, contract manufacturers, subcontractors, joint venture partners, and utilities and logistics providers. We also outsource certain critical business processes and activities, including in the areas of Finance, Human Resources, Commercial Services, Procurement, Travel and Information Technology. Some of our businesses require us or our subcontractors to access customer sites to provide our products and services. Our facilities, operations, customers, and third parties on which we rely, have experienced, or may in the future experience, disruptions or delays from actual or threatened events or circumstances, including due to: equipment or system failure; application upgrades or implementations (such as our Enterprise Resource Planning software); natural disasters; weather events or volatile weather patterns; utility outages; fire; explosion; supply chain failures; export restrictions on critical materials; terrorism; cybersecurity incidents; political disruption; pandemics or other public health crises; insurrection; armed conflict or war; rising tensions or potential outbreak of conflict between China and Taiwan; labor disputes; or financial distress. Our facilities, or those of third parties on which we rely, may operate certain equipment and manufacturing technology that may be unique and difficult or slow to replace. Significant disruption to any of our facilities or operations, or that of customers or third parties on which we rely, could materially impact our business, by preventing us from meeting demand or contractual commitments, increasing costs, reducing market share or sales, and impacting our business processes and activities, including our ability to timely report financial results. Interruptions may be lengthy, have lasting effects, demand significant management time and focus, and require substantial mitigation costs, which could negatively affect our operations, profitability, financial condition and reputation. Any recovery under our insurance policies may not fully offset lost sales, increased costs, or longer-term supplier or customer losses resulting from disruptions. Although we assess our critical processes and risks, implement mitigation plans, and conduct business continuity and disaster recovery planning, we cannot guarantee that interruptions with material adverse effects on our operational and financial performance will not occur.
Water and wastewater treatment operations, including those related to emerging contaminants, as well as the generation, handling, storage, use, transport, treatment, release or disposal of hazardous materials may result in contamination, environmental, personal or other liabilities, or pose other significant risks that could result in significant costs and reputational harm.
Our water and wastewater treatment offerings involve unique risks and require compliance with a variety of laws and regulations, including the Clean Water Act and the Safe Drinking Water Act. System failures, spills, or operational errors could discharge untreated or partially treated wastewater onto property or into bodies of water and groundwater, causing environmental harm and triggering regulatory enforcement, litigation, and reputational damage. Emerging contaminants, such as PFAS, PFOA, selenium, microplastics, chemicals, or pathogens, pose additional risk. Failure to adequately handle emerging contaminants may result in illness, death, and significant liability. Changes in environmental laws or regulations, or increased public awareness of the presence and health impacts of human-made chemicals and naturally occurring contaminants in drinking water, could increase or decrease demand for our products and services, increase costs, render products obsolete, increase our potential liability with respect to the handling or disposal of these contaminants or lead to an interruption or suspension of our operations.
Our Water Solutions and Services segment engages in manufacturing, waste recycling, and treatment processes involving the use, treatment, storage, transfer, handling and/or disposal of hazardous and non-hazardous materials, chemicals and wastes, subject to applicable federal, state and local laws and regulations. The cost of compliance with these laws and regulations may increase, resulting in increased operating expenses, or require additional facility investments. These activities create risks of accidental contamination or injury to the environment, employees, customers, third parties, and the general public. Under environmental laws and regulations, such as the
Resource Conservation and Recovery Act ("RCRA") and the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), we could be strictly, jointly and severally liable for releases of regulated substances at our current or former properties or the properties of others, or by other businesses that previously owned or used our current or former properties. We could also face liability or reputational harm if we transport such materials, generate, or arrange for the disposal of such hazardous materials or waste if they are subsequently released or cause harm.
If these activities result in legal or environmental claims, damage or liabilities, we could incur significant costs, liabilities or reputational damage in connection with legal defense, investigation, remediation of environmental contamination, property or natural resource damage, or personal injuries. Such costs and liabilities could exceed our insurance coverage and materially and adversely affect our business, financial condition, results of operations, prospects, and reputation.
We may be unable to successfully execute large projects or meet customer timelines, budget, performance, or safety requirements.
A portion of our revenue comes from complex, multi-year projects that involve significant risks, including delays, cost overruns, scope changes, unanticipated site conditions, design and engineering issues, incorrect cost assumptions, rising material and labor costs, health and safety hazards, subcontractor performance issues, supply chain disruptions, weather events, and changes in laws, regulations or permitting requirements. Failure to manage these risks may result in higher costs, liquidated damages, and other liabilities, potentially reducing our profitability and harming our reputation.
Many customers require performance guarantees for effluent produced by our water treatment equipment and services. If our products and services fail to meet these guarantees, we may incur added costs related to engineering, replacement of parts, equipment, or consumables, or customer reimbursements. Estimating performance guarantee obligations involves uncertainties and judgments, including changing product designs, variations in customer installation processes, and differences in influent conditions. Substantial performance guarantee claims could materially and adversely affect our reputation, earnings, and future business prospects.
Many customers require us to meet safety standards to be allowed access to their sites, perform services, install products, and execute projects. Unsafe products or employee performance may cause delays or suspension of site access needed to service or deliver our products. Workplace or product-related accidents or near-accidents, or failure to follow our or our customers’ safety policies could damage our reputation, reduce demand for our products and services, increase costs, cause customer loss or litigation, or increase government or regulatory oversight.
We may be unable to retain key leadership, engineering, technology, sales, service and other talent or attract new qualified talent with diverse backgrounds, experiences and perspectives.
Our success depends to a significant extent on our ability to attract, retain and develop highly qualified employees in leadership positions, and in strategic or core areas, such as engineering, innovation, systems modernization, digital technologies, commercial excellence, service, project management, and production. The market for highly skilled talent, leaders and labor with diverse backgrounds, experiences and perspectives remains highly competitive in our industry. Success in attracting and retaining employees, particularly in the areas of services, digital technologies, including AI, innovation, and data science, depends in part on our ability to offer attractive career growth opportunities, work arrangements, compensation and benefits, and policies and ways of working that support employee well-being. We continue to evolve our culture, where colleagues are inspired to innovate, empowered to lead and accountable to deliver. This high-impact culture is critical to attracting and retaining the talent needed to execute our strategy, drive innovation, remain competitive and create long-term value. We must continue developing qualified talent to support growth and succession planning, which are critical to our long-term success. Failure to attract or retain highly engaged and skilled talent and labor could adversely affect our ability to meet and exceed the customer needs, grow our business and execute our strategy.
Defects, unanticipated or improper use, or inadequate disclosures about our products could adversely affect our business, reputation and financial condition.
Defects or quality issues in the manufacture, design, software, AI capabilities, security or service of our products (including finished goods, parts or components that we source from third parties), unanticipated or improper use, or inadequate disclosure of risks about the use of our products, could result in product safety, product security, regulatory or environmental risks, personal injury, death, and property or environmental damage. These events could trigger product recalls or withdrawals, safety or security alerts, issuance of credits, or warranty, liability or contractual claims and damages. Although we maintain liability insurance, coverage may not remain available at a reasonable cost or adequately cover all claims. Defects or inadequacies in manufacturing, design, software,
security, or service may result in significant costs, reduced profitability, and negative publicity and reputational harm, reducing demand for our products and materially affecting our business, financial condition and results of operations.
We may not achieve the expected benefits of our simplification, productivity, restructuring, or realignment plans, or such initiatives and plans may adversely affect our business.
Periodically, we have and may continue to initiate simplification, productivity, restructuring, and realignment actions for various reasons, including to optimize our cost structure, increase profitability, drive growth, improve our operational efficiency and effectiveness, and enable us to better serve our customers, or respond to business and economic conditions. Starting in 2024, we launched initiatives focused on improving margins and customer centricity through a range of business simplification, strategic pricing and productivity measures across our offerings, operations and customer base. Such measures may include differentiating our offerings and pricing among customers and channels; adjusting the prices of certain offerings; rationalizing certain of our offerings; modernizing our systems by standardizing key enterprise applications; rationalizing footprint; writing off assets; and simplifying our supply chain. These measures could adversely affect our market share, competitiveness, profitability and growth, and may cause unanticipated customer service disruptions.
We are engaged in an ongoing, multi-year effort to transform our operating model, including our businesses and supporting functions, and have initiated related restructuring and realignment actions. Challenges with enabling technologies, systems modernization, and implementing planned restructuring and realignment activities have and may continue to delay realization of some of the expected operational, financial and customer centricity benefits. We may not achieve the cost savings and benefits initially anticipated from our transformation, restructuring and realignment plans. These plans may also cause a loss of talent or reduced institutional knowledge, or inefficiencies during transitional periods. Transforming, realigning and restructuring our company requires significant management and employee time and focus, potentially diverting attention from operations and growth.
Successful implementation and execution of these actions are critical to achieving our strategy and long-range plan through cost savings, competitiveness, and growth. Factors that may impede success include failure to retain key customers or employees, regulatory or tax matters, challenges with third-party service providers selected to assist us, including staffing, technology, and compliance of service providers with our internal controls over financial reporting, and adverse economic conditions. If these actions are not executed successfully or we do not realize the anticipated benefits, our competitive position, business, financial condition, cash flows and results of operations could be materially and adversely affected.
Our strategy includes acquisitions and divestitures, which we may be unable to execute successfully.
To support our growth strategy, we continue to realign and enhance our portfolio by pursuing the acquisition of companies, assets, technologies, product lines and customer channels that complement or expand our business or improve competitiveness, while divesting non-core or less strategic businesses. We may be unable to complete acquisitions or divestitures on favorable terms, timing, or at all, or obtain financing needed to consummate acquisitions. In addition, we may be adversely impacted by: (i) failure to efficiently, effectively and timely integrate acquired businesses into our operations, technology, financial and other systems; (ii) failure of acquired businesses to meet expected returns, which in the past has led to, and in the future may lead to, accounting impairments; or (iii) failure to discover liabilities, adverse operational issues, cybersecurity issues, control or compliance issues, environmental matters, labor difficulties, or other issues for which we lack contractual protections, insurance or indemnities. Failure to successfully execute our growth strategy via acquisitions or successfully integrate them, or failure to execute divestitures could adversely affect our competitive position, business, financial condition or results of operations.
Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: diversion of management’s time and attention from existing businesses and operations; insufficient internal controls over financial or compliance activities or financial reporting of acquired businesses; failure to realize expected synergies; impact on our ability to achieve some or all of our sustainability aspirations; assumption of new material risks associated with the acquired businesses; and loss of key employees of the acquired businesses. As a result, the anticipated benefits of acquisitions may take longer to realize or not be fully realized, or may cost more than expected, which could materially and adversely affect our business, results of operations or financial condition.
A significant portion of our products and offerings in our Measurement and Control Solutions segment are affected by the availability, regulation of and interference with radio spectrum that we use.
A significant portion of the offerings in our Measurement and Control Solutions segment use radio spectrum that is subject to government regulation. In the U.S., our products are primarily designed to use FCC-licensed spectrum in
the 900MHz range. The FCC may decline to renew our licenses, or materially change regulations affecting these licenses. Some markets may lack sufficient frequencies to sustain or develop our operations at a feasible cost or at all.
Outside the U.S., certain products require the use of radio frequency and are subject to regulations. In some jurisdictions, radio station licenses may be granted for a fixed term and must be periodically renewed. Our advanced and smart metering systems offerings transmit to (and receive information from, if applicable) handheld, mobile, or fixed network reading devices in licensed bands made available to us through strategic partnerships and are reliant, to some extent, on the licensed spectrum continuing to be available through our partners or our customers. We may be unable to secure partners or customers that have access to sufficient frequencies in some markets to sustain or develop our planned operations, or that have access to sufficient frequencies at a commercially feasible cost or at all.
New products designed for use in the U.S. or another country may require significant modification or redesign to meet frequency requirements and other regulatory specifications. Limitations on frequency availability or the cost of making necessary modifications may preclude us from selling our products in certain countries. The regulations that govern our use of radio spectrum may change or new products may be allowed under the regulations that cause interference with our products, which may require us to modify our products or seek new partnerships. We may also be unable to secure suitable partners for co-development of products. Lack of radio spectrum availability or an inability or delay in modifying our products to meet frequency requirements, or the cost of completing such modifications, could materially and adversely affect our business, financial condition, and results of operations.
Weather conditions, including the effects of changing climate patterns and related governmental or regulatory efforts to mitigate such effects, may cause volatility in our served markets and demand for our products.
The unpredictable nature, frequency, and severity of, and changes in weather events, patterns and related conditions - such as heavy flooding, prolonged droughts, wildfires, rainfall amounts and intensity, sea levels, and fluctuations in temperatures - can positively or negatively impact portions of our business and create volatility in our financial results. For example, certain events may disrupt customer operations, causing shutdowns that prevent site access or delay performance of services or equipment sales. Heavy flooding and rain events may increase demand for our solutions that help manage water and stormwater overflows or remove and transfer excess or unwanted water. Prolonged drought conditions may increase demand for our pumping technology used in agriculture and turf irrigation applications. Demand for water reuse applications, such as those provided by our treatment business, may increase as communities address water scarcity. Temperature fluctuations may result in varying demand for our products used in residential and commercial hydronic applications, where homes and buildings use circulating water to heat and cool living spaces.
Some of our products, services and solutions enable our customers to meet increasingly stringent scarcity, efficiency, environmental and safety requirements, including laws limiting greenhouse gas (“GHG”) emissions, or improve water supply resilience and quality. Our future growth is dependent in part on the impact and timing of new or changing laws and regulations. If stricter laws or regulations are delayed, repealed, weakened, unenforced, or phased‑in slowly, demand for our products and services may decline. We cannot predict how legal and regulatory changes will affect demand for our products and services. Regulatory uncertainty or any corresponding negative impacts could materially and adversely affect our business, financial condition, results of operations or prospects.
Severe weather events and other effects of volatile weather patterns have caused, and may continue to cause, disruptions to our facilities and operations, and those of our customers and suppliers, as well as fluctuations in demand for our products and services, and increased competition. In 2024, a physical risk analysis of our facilities using the Task Force on Climate Related Financial Disclosures framework indicated that our exposure to certain reviewed physical hazards (e.g. drought, wildfire, temperature extremes, water stress, etc.) is expected to remain low through 2030 under assessed GHG emission mitigation scenarios; but as we approach 2050, exposure to drought and temperature extremes may increase. We cannot ensure that disruptions with material adverse effects will not occur despite our continued assessment of these risks, investments in resilience, and business continuity, and disaster recovery planning.
Sustainability-related laws, regulations, targets and objectives, and stakeholder expectations expose us to numerous risks.
In support of our strategy, we have and will continue to establish goals, targets, and other objectives related to sustainability matters. Achieving these goals, targets and objectives requires evolving our business, making capital investments, and developing new or existing technologies. These efforts may result in additional expenses or require us to recognize impairment charges. These goals, targets and objectives reflect our current plans but there
is no guarantee that they will be achieved or maintained. Efforts to establish, achieve and accurately report on these goals, targets and objectives expose us to operational, reputational, financial, legal, and other risks. Achievement of our goals, targets and objectives depends on varied factors and conditions, many of which are outside of our control, including the availability of renewable energy from the grid, the pace of changes in technology, the availability of requisite financing, and the availability of suppliers that can meet our sustainability and other standards.
We may face increased scrutiny from the investment community, regulators, media (including social media) and other stakeholders regarding our sustainability activities, goals, targets and objectives, and our methodologies and timelines for pursuing them. At the same time, some governmental representatives and other stakeholders have expressed or pursued opposing views, legal and investment expectations around sustainability initiatives, including the enactment or proposal of “anti-ESG” legislation, enforcement actions, or investigations.
We are subject to increasing regulatory requirements around sustainability-related disclosures in the U.S. (federal and state-level), EU, and other countries that are uncertain, inconsistent and evolving, which may expose us to unpredictable reporting obligations or business requirements. Complying with these disclosure requirements has, and will continue to, impose substantial costs and require additional resources, and we may also experience operational disruption. If our reporting or practices fail to meet evolving stakeholder expectations, standards and requirements, or if we are unable to satisfy all stakeholders in light of their varied and sometimes conflicting expectations, our reputation, ability to attract and retain talent, and attractiveness as an investment, business partner or acquiror could be negatively impacted. Failure or perceived failure to pursue or meet our goals, targets and objectives, or comply with evolving standards could have adverse operational, reputational, financial and legal impacts.
Risks Related to Financial and Tax
Our business is subject to foreign currency exchange rate fluctuations.
Sales outside the U.S. for the year ended December 31, 2025 accounted for approximately 42% of our net sales. We also have significant operations in various locations outside the U.S. Our principal currency exposures for which we enter into cash flow hedges include the Euro, Swedish Krona, Canadian Dollar, Polish Zloty, British Pound and Australian Dollar. Changes in the value of currencies of the countries in which we do business relative to the value of the U.S. Dollar or Euro could affect our ability to sell products competitively and control our cost structure, which has had and may continue to have a material adverse effect on our business, financial condition, cash flows and results of operations. We are also subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar and the Euro, Canadian Dollar, British Pound, Chinese Yuan, Swedish Krona and Indian Rupee. As the U.S. Dollar fluctuates against other currencies in which we transact business, revenue and income may be impacted. Refer to Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" for additional information on foreign exchange risk.
Our financial results may fluctuate from period to period and can be difficult to predict.
Our businesses are impacted by short cycle and book-and-bill business to varying degrees, which may be difficult to predict, or we may have limited visibility into particularly for the business we transact through our significant distribution network. Our businesses are also impacted by long-cycle business including large projects, which could be unexpectedly canceled, or whose timing can change based upon customer requirements due to a number of factors beyond our knowledge or control, such as funding, project readiness, or regulatory approvals. We rely on a complex global supply chain, which is subject to volatile and dynamic conditions, unexpected changes and disruptions from macroeconomic and geopolitical conditions. These supply chain challenges have affected, and may continue to affect, our costs, production, and ability to timely fill customer orders. As a result, our financial results for any given period have been, and will remain, difficult to predict.
We may incur impairment charges for our goodwill and other indefinite-lived intangible assets.
We have a significant amount of goodwill and purchased intangible assets on our Consolidated Balance Sheets as a result of acquisitions. As of December 31, 2025, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $9 billion. In accordance with generally accepted accounting principles, we evaluate these assets for impairment at least annually, or more frequently if changes in events or circumstances indicate it is more likely than not that a potential impairment could exist. Impairment may result from significant negative industry or economic trends, disruptions to our or our customers’ business, inability to effectively integrate or scale acquired businesses, increases in cost of capital, unexpected significant changes or planned changes in use of the assets, FCC non-renewal of our radio spectrum licenses, divestitures, or decline in our market
capitalization. Material impairment charges have, and could in the future, adversely affect our results of operations and financial condition.
Changes in our effective tax rates and tax expenses may adversely affect our financial results.
We have sales in approximately 150 countries and 42% of our revenue was generated outside the U.S. for the year ended December 31, 2025. Given the global nature of our business, a number of factors may increase our effective tax rates and tax expense, including: (i) the geographic mix of jurisdictions in which profits are earned and taxed; (ii) the statutory tax rates and tax laws in jurisdictions in which we conduct business; (iii) the resolution of tax issues arising from tax examinations by various tax authorities; and (iv) the valuation of our deferred tax assets and liabilities.
Tax laws, regulations, and administrative practices in various jurisdictions may change, with or without notice, due to economic, political and other conditions. Significant judgment is required in evaluating and estimating our tax provisions and accruals. We continue to monitor the developments and tax implications concerning changes in the global tax environment, including global minimum taxes. We will continue to monitor countries’ pending legislation and guidance and evaluate the potential impacts on our business in future periods.
Our businesses are regularly examined by various tax authorities worldwide. For example, following an examination regarding aspects of the 2013 reorganization of our European business, the Swedish tax authority issued a tax assessment to Xylem’s Swedish subsidiary in 2019, which we are appealing as further described in Note 7, “Income Taxes.” This and other examinations can result in increased tax assessments, and settlement or litigation outcomes that could be unfavorable to Xylem. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, including unrecognized tax benefits; however, unanticipated audit or litigation developments could materially and adversely affect us. Although we believe our tax estimates and accruals are reasonable, final determinations may differ materially from our historical income tax provisions, accruals and unrecognized tax benefits, which could materially and adversely affect our business, operating results, cash flows and financial condition.
Risks Related to Legal and Regulatory
Failure to comply with business conduct laws, regulations and policies, including anti-corruption, anti-trust, trade, and data privacy and security, could have a material adverse impact on us.
Our global operations are subject to a wide variety of U.S. and non-U.S. laws, regulations and policies related to anti-bribery and corruption, trade (such as tariffs, exports and imports), anti-trust and competition, money laundering, and employment. Our policies mandate compliance with these laws and regulations. The U.S. Foreign Corrupt Practices Act (the "FCPA"), the U.K. Bribery Act of 2010 and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-corruption laws may disadvantage us competitively with local businesses that may have less robust compliance frameworks. Despite our compliance efforts, we cannot guarantee that our internal controls, policies and procedures will prevent improper conduct by employees, agents, distributors, or other business partners. If we believe or have reason to believe that employees or business partners have or may have violated applicable anti-corruption or other laws, regulations or policies, we are required to investigate the relevant facts and circumstances. Investigations can be expensive and require significant time and attention from senior management. Violations could result in fines, sanctions, civil and/or criminal penalties, termination of relationships with business partners, or curtailment of operations, and as a result might materially and adversely affect our business, results of operations or financial condition. Actual or alleged violations could also harm our reputation and ability to do business.
To conduct our business and operations, we collect, process, use, maintain, and move data across borders and are continuing to implement AI. Consequently, we are subject to data privacy and cybersecurity laws, including California’s Consumer Protection Act, the EU's Data Act, the EU’s AI Act and GDPR, and China’s PIPL. The scope of these and other applicable laws continues to evolve, is often uncertain, and may conflict across jurisdictions. Privacy regulations expand and impose strict requirements for handling personal data, including the enforcement of data subject rights, enhanced security requirements, obligations to see that data subject rights are not compromised, and public disclosure of significant data breaches. Compliance costs associated with these legal and operational requirements are significant and are likely to increase over time. We cannot guarantee that we will at all times be in compliance with all requirements. Violations could result in fines, sanctions, civil penalties, and reputational harm and could materially and adversely affect our business, results of operations or financial condition.
Failure to comply with, and the cost of complying with, laws, regulations, policies and taxes applicable to our operations, products and services, including those involving the environment and health and safety, could have a material adverse impact on us.
Our operations, products and services are subject to various federal, state, and local or foreign laws and regulations designed to protect the public, employees and the environment, including those related to: emissions; potable and non-potable water; wastewater treatment and discharge; the generation, handling, storage, use, transport, treatment and disposal of non-hazardous and hazardous materials and wastes; use of U.S. FCC-licensed radio spectrum (as detailed above); and employee health and safety. These laws and regulations include the Occupational Health and Safety Act, the federal Safe Drinking Water Act, the Clean Water Act, the Clean Air Act, RCRA, CERCLA, the Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the EU’s Restriction of Hazardous Substance Directive, and the EU’s Registration, Evaluation and Authorization of Chemicals Directive, and others enacted to address environmental concerns. Some of our products may be subject to product safety regulations. For example, certain of our products supplied to the medical industry are subject to Section 510(k) of the U.S. Food, Drug and Cosmetic Act. These laws and regulations establish, among other things, criteria and standards we must comply with and may require licensing, permitting, approvals or reporting. We cannot guarantee that our operations, products or services will always comply fully with all applicable laws or regulations, or that we will be able to obtain or renew permits in a timely manner. Non-compliance or delays in obtaining permits could result in enforcement actions, fines, penalties, or operational restrictions.
Increasing public and governmental concern regarding the environment and the effects of volatile weather and changing climate patterns has, and may continue to, result in new or increased legal and regulatory requirements, policies and taxes intended to limit environmental damage and GHG emissions. These may encompass pollution and discharges, emissions trading schemes, and carbon, fuel or other taxes. In addition, as discussed above, we are subject to increasing regulatory requirements around disclosures of our business’ impacts on the environment. Compliance with all of these requirements is complex. Requirements change frequently and the timing and substance of future changes is uncertain and difficult to predict. We incur, and expect to continue to incur, increased costs to comply, including: i) operating and capital expenditures for our facilities and equipment; ii) R&D costs, including to design or re-design products to conform to changing emissions and efficiency requirements, and iii) costs for tools, talent, and resources to meet the increasing disclosure requirements (discussed above). Failure to comply may result in litigation and defense costs, fines, penalties and criminal sanctions; facility shutdowns to address violations; and investments in costly pollution control equipment or operational changes to limit emissions or discharges. Developments such as new environmental laws and regulations, enforcement actions, litigation, discovery of previously unknown or more extensive contamination conditions, product obsolescence, operational disruptions, inability to recover costs associated with any such developments, or the financial insolvency of other responsible parties, could have material adverse effects on our business, financial condition, cash flows, results of operations, and reputation.
We face risks related to legal and regulatory proceedings.
We are subject to various U.S. and foreign laws, regulations and other requirements, any violation of which could potentially create substantial liability and damage our reputation. Changes in laws, ordinances, regulations or other government policies -- the nature, timing, and effect of which are uncertain -- may significantly increase our expenses and liabilities.
From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our businesses (including that of acquired or previously owned entities). These proceedings may seek remedies relating to environmental matters, tax, securities, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pensions, governmental and commercial or contractual issues or disputes. Our connected products and services and digital technologies and solutions have increased our exposure to intellectual property litigation and to evolving AI, data privacy and cybersecurity laws and regulations, a risk we expect will grow as we execute on our innovation and technology priorities. We cannot predict with certainty the outcome of claims, investigations, regulatory proceedings, and lawsuits. We have in the past and could in the future incur judgments, fines or penalties, or enter into settlements. Regulatory determinations of non-compliance could require us to modify or cease operations at one or more facilities.
With global and diverse operations and increasing regulation and enforcement globally, we will continue to face legal and compliance risks. Additional legal and regulatory proceedings and other contingencies, the outcome of which cannot be predicted with certainty, have in the past and may in the future arise from time to time. Subsequent developments in legal and regulatory proceedings may affect our assessments and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of reserves. Any of these impacts could have an adverse effect on our business, results of operations, financial condition and reputation.
Infringement or expiration of our intellectual property rights, or allegations that we have infringed on the intellectual property rights of third parties could adversely affect us.
We rely on numerous patents, trademarks, copyrights, trade secrets, and other intellectual property, as well as licenses to third-party intellectual property that are important to our business. These rights help differentiate our technologies, products and services and may provide competitive advantage. However, our rights may be limited in scope or duration and could be challenged, invalidated, circumvented, misappropriated, independently developed by others, or designed around, particularly in jurisdictions where laws governing intellectual property rights are not highly developed, protected or enforced. Additionally, changes in intellectual property laws or regulations could adversely affect our ability to protect our rights, and rapid technological changes may render some intellectual property less valuable or useful, reducing our competitive advantage. Failure to obtain, maintain or protect intellectual property rights – or the cost of enforcing them - could adversely impact our business, financial condition and results of operations.
We periodically receive claims alleging infringement or misappropriation of third-party intellectual property. We may not prevail in defending against these claims, asserting a counterclaim, or negotiating licenses on favorable terms. As a result, we could lose rights to critical technology, be required to pay substantial damages or license fees, or incur significant costs to redesign our products, any of which could adversely impact our competitive position and financial results. Even if we successfully defended such claims, we may incur significant legal costs and it may result in diversion of management attention and resources, which could negatively impact our operations. Furthermore, the loss or renegotiation of licenses to third-party intellectual property could disrupt our operations or increase costs.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 1C. CYBERSECURITY.
Risk Management and Strategy
Cybersecurity is integrated into our Enterprise Risk Management (“ERM”) Program, which assesses and monitors risks across the Company, including cyber threats and related risk mitigation plans.
We maintain a comprehensive cybersecurity program covering enterprise information technology (“IT”), operational technology, and third-party systems on which we rely, as well as our connected products and services. This program is guided by the National Institute of Standards and Technology’s (“NIST”) Cybersecurity Framework and the ISA/IEC 62443 standard, respectively. Our program is designed to assess, identify and manage risks from cybersecurity threats in order to protect and preserve the security, resiliency, integrity and continued availability of the Company’s enterprise IT and operational technology systems and connected products and services, while also protecting the confidentiality and integrity of information owned by, or in the custody and care of, the Company. Key areas of responsibility include: governance, risk and compliance; threat analysis and incident response; security architecture and engineering; security operations; product security; software development; and innovation management. We employ policies, processes, tools, technology, training, incident response and regular testing – such as vulnerability scans and penetration tests of our enterprise and product security programs – to identify and mitigate cybersecurity risks. Third-party assessments of these programs are conducted periodically to assist with identifying, assessing, and managing cybersecurity risks.
We maintain cybersecurity policies that apply to all employees, as well as third-party vendors and contractors as required by applicable legal agreements. These policies specify roles and responsibilities, fundamental principles, and proper controls required for Xylem’s protection, and also require the use of certain risk management processes to onboard new suppliers and other third parties. We periodically review our policies to identify potential gaps or areas for improvement, considering changes in the Company and its connected products and services, as appropriate.
Our Cybersecurity Incident Response Plan (“IRP”) generally aligns with NIST's guidance and provides management with a standardized framework for responding to an actual or potential cybersecurity threat or incident. The IRP sets out procedures for investigating, containing, documenting and mitigating incidents, keeping management and other key stakeholders informed, reporting findings, and engaging third-party experts for advice and incident response, as appropriate. The IRP is tested at least annually for effectiveness and to identify areas for improvement in our processes and technologies. As specified by our IRP, we have protocols and processes by which certain cybersecurity incidents are escalated within the Company and, as appropriate, to the Board of Directors (“Board”).
Employees receive ongoing education and training on relevant cybersecurity risks and practices, including periodic refreshers on how to protect information and systems from cyber threats, as well as monthly phishing simulations.
We also maintain cyber insurance to mitigate potential financial exposure from certain incidents.
Governance
Our Board oversees cybersecurity, including strategy, risk and processes. At least semi-annually, the Board receives reports from the Chief Information Officer (“CIO”) or the Chief Information Security Officer (“CISO”). Reports may include updates on the Company’s cybersecurity risk profile, cyber program assessments, risk management strategy, measures implemented to identify and mitigate cybersecurity risks, the status of projects to strengthen the Company’s cybersecurity posture, the emerging threat landscape, and other relevant topics. The Board also reviews ERM Program findings, including those related to cybersecurity risk.
The Company’s Cyber Risk Committee (“CRC”), comprised of a cross-functional group of senior executives, advises on cybersecurity governance and strategic matters, and receives periodic briefings from the CISO or external experts, including related to cybersecurity risk posture, projects, issues, threat intelligence and escalations. T he CRC also receives briefings from the CISO on cybersecurity incidents, including incident response, recovery, remediation, and actual or potential impacts.
Our CISO has extensive cybersecurity knowledge and skills gained from over 25 years of relevant work experience, and is a Certified Information Systems Security Professional. The CISO is responsible for assessing, monitoring and advising the Company and the Board on risks from cybersecurity threats; implementing cybersecurity strategy, programs and processes across our enterprise and connected products and services; reviewing risk management measures to identify and mitigate cybersecurity risks; and overseeing our IRP. The CISO leads the Company’s Cybersecurity Team comprised of individuals with a broad range of cybersecurity skills, experiences and certifications. The Cybersecurity Team oversees the Company’s cybersecurity program and is responsible for the implementation, monitoring and maintenance of the Company’s cybersecurity practices in coordination with the business teams and functions.
Material Risks, Threats & Incidents
Although we have experienced actual and attempted cybersecurity threats and incidents in the past, we do not believe that the risks from any of these threats or incidents, individually or in the aggregate, have materially affected our business, operations or financial condition, or are reasonably likely to have such an effect. However, due to the evolving nature of cybersecurity threats, it has and will continue to be difficult to prevent, detect, mitigate, and remediate cybersecurity incidents. For further discussion of our cybersecurity risks, see “Item 1A. Risk Factors” in this Report.
ITEM 2. PROPERTIES
We have approximately 400 locations in more than 50 countries. These properties total approximately 15 million square feet, of which more than 300 locations, or approximately 9 million square feet, are leased. We consider the offices, plants, warehouses and other properties that we own or lease to be in good condition and generally suitable for the purposes for which they are used. The following table shows our significant locations by segment:
Location
State or
Country
Principal Business Activity
Approx.
Square
Feet
Owned or
Leased
Water Infrastructure
Emmaboda
Sweden
Administration and Manufacturing
Owned
Shenyang
China
Manufacturing
Owned
Thomasville
Manufacturing
Owned
Vadodara
India
Manufacturing and Research & Development
Leased
Stockholm
Sweden
Administration and Research & Development
Leased
Holland
Manufacturing
Owned
Applied Water
Morton Grove
Administration and Manufacturing
Owned
Montecchio
Italy
Administration and Manufacturing
Owned
Nanjing
China
Manufacturing
Owned
Guadalupe
Mexico
Manufacturing
Leased
Auburn
Manufacturing
Owned
Abony
Hungary
Manufacturing
Leased
Strzelin
Poland
Manufacturing
Owned
Cheektowaga
Manufacturing
Owned
Measurement and Control Solutions
Ludwigshafen
Germany
Manufacturing
Owned
Texarkana
Manufacturing
Owned
Uniontown
Manufacturing
Leased
DuBois
Manufacturing
Owned
Durham
Administration and Research & Development
Leased
Weilheim
Germany
Manufacturing
Leased
Dubois
Manufacturing
Owned
Water Solutions and Services
Rockford
Manufacturing
Owned
Bridgeport
Administration and Manufacturing
Leased
Houston
Service
Leased
Regional Locations
Dubai
United Arab Emirates
Manufacturing
Owned
Nottinghamshire
United Kingdom
Administration
Leased
Nanterre
France
Sales & Service Office
Leased
Langenhagen
Germany
Sales & Service Office
Owned
Schaffhausen
Switzerland
Administration
Leased
Corporate Headquarters
Washington
Administration
Leased
ITEM 3. 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 investigations or contract issues and commercial or contractual disputes.
See Note 20, "Commitments and Contingencies," of the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding certain legal and regulatory proceedings we are involved in.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following information is provided regarding the executive officers of Xylem as of February 10, 2026:
NAME
AGE
CURRENT TITLE
OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS
Matthew F. Pine
President and Chief Executive Officer (2024)
• Chief Operating Officer (2023)
• Senior VP and President, Americas, Applied Water Systems and Measurement and Control Systems (2022)
• Senior VP and President, Americas and Applied Water Systems (2020)
William K. Grogan
Executive VP, Chief Financial Officer (2023)
• Senior VP and Chief Financial Officer, IDEX Corporation, a diversified manufacturer of highly engineered products (2017)
Rodney O. Aulick
Executive VP and President, Water Solutions and Services (2023)
• Executive Vice President Water Solutions and Services, Evoqua Water Technologies Corp. (2018)
Albert Cho
Executive VP, Chief Strategy and External Affairs Officer (2022)
• Senior VP, Chief Strategy and Digital Officer (2020)
• VP and General Manager, Advanced Infrastructure Analytics (2018)
Meredith Emmerich
Executive VP and President, Applied Water Systems (2024)
• VP and General Manager, Americas Commercial HVAC, Carrier Global Corporate, a climate and energy solutions provider (2020)
Michael J. McGann
Executive VP and President, Measurement and Control Solutions (2023)
• VP, North America Utilities Commercial Team (2022)
• VP, Sensus Americas, Global Engineering and Assessment Services (2017)
Geri-Michelle McShane
Senior VP, Chief Accounting Officer (2025)
• VP, Controller, and Chief Accounting Officer (2019)
Claudia S. Toussaint
Executive VP, Chief People and Sustainability Officer (2021)
• Senior VP, General Counsel and Corporate Secretary (2014)
Hayati Yarkadas
Executive VP and President, Water Infrastructure (2020)
Stacy Cozad
Executive VP, Chief Legal Officer (2025)
• Senior VP, General Counsel and Corporate Secretary, Allegion plc, a provider of security products (2024)
• Executive VP, General Counsel and Corporate Secretary, Ingevity Corporation, a manufacturer and distributor of specialty chemicals (2021)
• Senior VP, General Counsel, Chief Compliance Officer and Secretary, Spirit AeroSystems, Inc., an aerospace company (2016)
Note: Date in parentheses indicates the year in which the position was assumed.
BOARD OF DIRECTORS
The following information is provided regarding the Board of Directors of Xylem as of February 4, 2026:
NAME
TITLE
Robert F. Friel
Board Chair, Xylem Inc., Former Chairman, President and CEO, PerkinElmer, Inc.
Matthew F. Pine
President and Chief Executive Officer, Xylem Inc.
Earl R. Ellis
Executive Vice President and Chief Financial Officer, Panera Bread
Lisa Glatch
Former President, LNG and Net-Zero Solutions and Chief Sustainability Officer, Sempra Infrastructure
Victoria D. Harker
Former Executive Vice President and Chief Financial Officer, TEGNA, Inc.
Mark D. Morelli
President and Chief Executive Officer, Vontier Corporation
Jerome A. Peribere
Former President and Chief Executive Officer, Sealed Air Corporation
Lila Tretikov
Partner, Head of Artificial Intelligence Strategy, New Enterprise Associates, Inc.
Uday Yadav
Chief Executive Officer, TK Elevator
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price and Dividends
Our common stock trades publicly on the New York Stock Exchange under the trading symbol “XYL”. As of January 31, 2026, there were 6,919 holders of record of our common stock.
Dividends are declared and paid on the common stock at the discretion of our Board and depend on our profitability, financial condition, capital needs, future prospects and other factors deemed relevant by our Board. Therefore, there can be no assurance as to what level of dividends, if any, will be paid in the future. In the first quarter of 2026, we declared a dividend of $0.43 per share to be paid on March 24, 2026 to shareholders of record on February 24, 2026.
There were no unregistered offerings of our common stock during 2025.
Fourth Quarter 2025 Share Repurchase Activity
The following table summarizes our repurchases of our common stock for the quarter ended December 31, 2025:
(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)
(a) Average price paid per share is calculated on a settlement basis.
(b) On August 24, 2015, our Board authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during the three months ended December 31, 2025. There are up to $182 million in shares that may still be purchased under this plan as of December 31, 2025.
PERFORMANCE GRAPH
CUMULATIVE TOTAL RETURN
The following graph compares the relative performance of our common stock, the S&P 500 Index and the S&P 500 Industrials Index. This graph covers the period from December 31, 2020 through December 31, 2025 and assumes that $100 was invested on December 31, 2020 in our common stock, the S&P 500 and the S&P 500 Industrials with the reinvestment of any dividends.
XYL
Industrials
Index
December 31, 2021
December 31, 2022
December 31, 2023
December 31, 2024
December 31, 2025
The graph is not, and is not intended to be, indicative of future performance of our common stock.
This performance graph shall not be deemed “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and should not be deemed incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.
ITEM 6. Reserved
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto. This discussion summarizes the significant factors affecting our results of operations and the financial condition of our business. Except as otherwise indicated or unless the context otherwise requires, “Xylem,” “we,” “us,” “our” and “the Company” refer to Xylem Inc. and its subsidiaries.
This section of this Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024.
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 four reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, Measurement and Control Solutions and Water Solutions and Services.
• Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process. 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. The Water Infrastructure segment also provides a range of highly differentiated and scalable products and technologies with product offerings in the filtration and separation, disinfection, and wastewater solutions, for municipal and industrial applications. In the Water Infrastructure segment we reach customers indirectly, through channel partners and distributors, directly and through our service capabilities.
• 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 solutions markets. In addition, our pumps, heat exchangers and controls provide cooling to power plants and manufacturing facilities, circulation for food and beverage processing, and 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 and Control Solutions primarily serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control capabilities 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 and outdoor water environments. Additionally, we offer software and services which have been further enhanced by our Xylem Vue platform to enable a holistic view of the water cycle for our customers through cloud-based analytics, remote monitoring and data management with the purpose of optimizing their operating efficiency. In the Measurement and 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.
• Water Solutions and Services provides tailored services and solutions, in collaboration with customers, including on‑demand water, outsourced water, recycle/reuse, pipeline assessment services, 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. In the Water Solutions and Services segment, we leverage our internal and
external partners, and extensive service branch networks across the globe, including a rental fleet of transfer and treatment assets to serve our customers.
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 non-GAAP measures 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 prior period 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 attributable to Xylem and corresponding earnings per share, respectively, adjusted to exclude restructuring and realignment costs, amortization of acquired intangible assets, gain or loss from sale of businesses, special charges and tax-related special items, as applicable. A reconciliation of adjusted net income and adjusted earnings per share is provided below.
(in millions, except per share data)
Net income attributable to Xylem & Earnings per share
Restructuring and realignment
Acquired intangible amortization
Special charges (a)
Gain on remeasurement of previously held equity interest
Tax-related special items (b)
Loss from sale of businesses
Tax effects of adjustments (c)
Adjusted net income & Adjusted earnings per share
Weighted average number of shares - diluted
(a) The special charges in the years end December 31, 2025 and 2024 primarily relate to $28 million and $50 million, respectively, of acquisition, divestiture and integration related costs.
(b) The tax-related special items primarily relate to one-time deferred tax benefits from internal reorganizations.
(c) The tax effects of adjustments are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction.
▪ "adjusted operating expenses" defined as operating expenses adjusted to exclude amortization of acquired intangible assets, restructuring and realignment costs and special charges, as applicable.
▪ "adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs, amortization of acquired intangible assets, gain or loss from sale of businesses, gain on remeasurement of previously held equity interest, special charges and tax-related special items, as applicable, and "adjusted operating margin" defined as adjusted operating income divided by total revenue.
▪ “EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense, "EBITDA margin" defined as EBITDA divided by total revenue, "adjusted EBITDA" reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, gain or loss from sale of businesses, gain on remeasurement of previously held equity interest and special charges, and "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue.
▪ “realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
▪ “special charges" defined as non-recurring costs incurred by the Company, such as those related to acquisitions and integrations, divestitures and non-cash impairment charges.
▪ "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.
(in millions)
Net cash provided by operating activities
Capital expenditures
Free cash flow
Net cash used in investing activities
Net cash used in financing activities
Executive Summary
Xylem reported revenue of $9,035 million for 2025, an increase of $473 million, or 5.5%, from $8,562 million reported in 2024. The increase consists of organic growth of $419 million and favorable foreign currency impacts of $71 million, partially offset by net revenue declines from acquisitions and divestitures of $17 million, reflecting organic growth across all segments and most major geographic regions, with organic growth in the U.S. and western Europe more than offsetting organic declines in the emerging markets.
Operating income for 2025 was $1,223 million, reflecting an increase of $214 million, or 21.2%, compared to $1,009 million in 2024. Operating margin was 13.5% in 2025, up 170 basis points from 11.8% in 2024. The operating margin increase included negative impacts from increases in restructuring and realignment costs of $42 million and purchased intangible amortization of $4 million, partially offset by a decrease in special charges of $21 million. Excluding the impact of these items, adjusted operating income was $1,612 million, with an adjusted operating margin of 17.8% in 2025 as compared to adjusted operating income of $1,373 million with an adjusted operating margin of 16.0% in 2024, an increase of 180 basis points.
Additional financial highlights for 2025 include the following:
• Net income attributable to Xylem of $957 million, or $3.92 per diluted share, up 7.4% ($1,240 million or $5.08 per diluted share on an adjusted basis, up 19.0% from 2024)
• Net cash provided by operating activities of $1,241 million, down 2% from 2024, and free cash flow of $910 million, down 3% from 2024
• Orders of $8,904 million, up 2.0% from $8,730 million in 2024 (up 1.6% on an organic basis)
• Dividends per share paid to shareholders increased 11% in 2025.
Results of Operations
(in millions)
Revenue
Gross profit
Gross margin
Total operating expenses
Expense to revenue ratio
Operating income
Operating margin
Interest and other non-operating expense, net
Gain on remeasurement of previously held equity interest
Loss on sale of businesses
Income tax expense
Tax rate
Net income
Net loss attributable to non-controlling interest
Net income attributable to Xylem
NM Not Meaningful
2025 versus 2024
Revenue
Revenue generated for 2025 was $9,035 million, an increase of $473 million, or 5.5%, compared to $8,562 million in 2024. The increase consists of organic growth of $419 million and favorable foreign currency impacts of $71 million, partially offset by net revenue declines from acquisitions and divestitures of $17 million, reflecting organic growth across all segments and most major geographic regions, with organic growth in the U.S. and western Europe more than offsetting organic declines in the emerging markets.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during 2025:
Water Infrastructure
Applied Water
Measurement and Control Solutions
Water Solutions and Services
Total Xylem
(in millions)
$ Change
% Change
$ Change
% Change
$ Change
% Change
$ Change
% Change
$ Change
% Change
2024 Revenue
Organic Growth
Acquisitions/(Divestitures)
Constant Currency
Foreign currency translation (a)
Total change in revenue
2025 Revenue
(a) Foreign currency translation impact for the year primarily due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, British Pound and the Swedish Krona, offset by the weakening in the Canadian Dollar.
Water Infrastructure
Water Infrastructure revenue increased $81 million, or 3.2%, to $2,636 million in 2025 compared to 2024. Revenue growth consisted of organic growth of $88 million, or 3.4%, $41 million of favorable foreign currency translation impacts and $48 million of negative impacts from net divestiture and acquisition activity. Organic revenue growth was led by the treatment application, with growth of $52 million being driven by strength in the U.S. and emerging markets due to strong price realization and backlog execution. This was partially offset by treatment declines in western Europe due to lower demand and reduced capital project work. Organic revenue for the transport applications grew by $36 million, led by strong price realization in the U.S., which was partially offset by reduced volume and reduced backlog execution due to softness in the emerging markets.
Applied Water
Applied Water revenue increased $56 million, or 3.1%, to $1,849 million in 2025 compared to 2024. Revenue growth included organic growth of $42 million and $14 million of favorable foreign currency translation. Organic growth included $35 million from building solutions, primarily in the commercial end markets, driven by strong price realization and higher demand in the U.S., partially offset by order softness in the emerging markets. The industrial applications grew by $7 million organically, driven by strong price realization and backlog execution in the U.S. and Canada, partially offset by order softness in the emerging markets.
Measurement and Control Solutions
Measurement and Control Solutions revenue increased $215 million, or 11.5%, to $2,086 million in 2025 compared to 2024. Revenue growth included organic revenue growth of $172 million, $30 million of revenue growth from acquisitions and favorable foreign currency translation of $13 million. Smart metering and other applications had $171 million of organic growth, led by energy growth in North America due to strong volume and price realization as well as water growth from project revenue in western Europe. This growth was partially offset by declines in water in North America due to lower demand following strong prior year backlog execution. Analytics grew $1 million organically, driven by increased volume and price realization in western Europe, partially offset by lower sales volume due to market softness in the emerging markets.
Water Solutions and Services
Water Solutions and Services revenue increased $121 million, or 5.2% to $2,464 million in 2025 compared to 2024. Revenue growth was driven by organic revenue growth of $117 million, favorable foreign currency translation of $3 million and revenue contributed by acquisitions of $1 million. Organic revenue growth was led by service growth of $62 million, due to favorable rental price realization in North America. Organic revenue growth from the capital and other applications of $55 million was driven by increased project revenue in North America.
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.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during 2025:
Water Infrastructure
Applied Water
Measurement and Control Solutions
Water Solutions and Services
Total Xylem
(in millions)
Change
Change
Change
Change
Change
Change
Change
Change
Change
Change
2024 Orders
Organic Impact
Acquisitions/(Divestitures)
Constant Currency
Foreign currency translation (a)
Total change in orders
2025 Orders
(a) Foreign currency translation impact for the year primarily due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, British Pound and the Swedish Krona, offset by the weakening in the Canadian Dollar.
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 $4,615 million at December 31, 2025 and $5,070 million at December 31, 2024, a decrease of 9.0%. We anticipate that more than 60% of our total backlog at December 31, 2025 will be recognized as revenue during 2026.
Gross Margin
Gross margin as a percentage of consolidated revenue increased 100 basis points to 38.5% in 2025 as compared to 37.5% in 2024. The gross margin increase for the year included favorable operational impacts of 370 basis points, consisting of 230 basis points of productivity savings and 140 basis points of price realization. These impacts were partially offset by 290 basis points of unfavorable operating impacts, driven by 190 basis points of inflation and 60 basis points of unfavorable mix. The gross margin increase also included 20 basis points of favorable impacts from a net decrease in acquired intangible asset amortization, special charges, and realignment costs as compared to the prior year.
Operating Expenses
(in millions)
Change
Selling, general and administrative expenses
SG&A as a % of revenue
Research and development expenses
R&D as a % of revenue
Restructuring and asset impairment charges
Operating expenses
Expense to revenue ratio
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased by $12 million, or 0.6% in 2025, representing a decrease to 21.3% of revenue in 2025, as compared to 22.3% of revenue in 2024. Cost increases were driven by inflation, spending on strategic investments and currency impacts, largely offset by productivity savings.
Research and Development ("R&D") Expenses
R&D expense was $226 million, or 2.5% of revenue in 2025, consistent with the 2024 expense of $230 million, or 2.7% of revenue.
Restructuring and Asset Impairment Charges
Restructuring
From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position itself. Restructuring charges were $95 million in 2025 as compared to $55 million in 2024.
For the years ended December 31, 2025, the charges incurred primarily related to simplification actions, informed by 80/20 principles, to streamline the organization and better serve our customers. The charges incurred were across all of our segments, with the majority of the charges impacting the Water Infrastructure and Applied Water segments.
For the year ended December 31, 2024, the charges incurred primarily related to actions taken to further streamline our organization in order to strengthen our competitive positioning and ability to better serve our customers. The charges incurred were across all of our segments, with the majority of the charges impacting the Water Solutions and Services and Water Infrastructure segments.
Refer to Note 5, "Restructuring and Asset Impairment Charges" for more information.
The following is a roll-forward of employee position eliminations associated with restructuring activities for the years ended December 31, 2025 and 2024:
Planned reductions - January 1
Additional planned reductions
Actual reductions and reversals
Planned reductions - December 31
As a result of the actions initiated in 2025, we achieved savings of approximately $29 million in 2025 and estimate annual future net savings beginning in 2026 of approximately $80 million to $120 million, the majority of which is expected to be realized in 2026.
Asset Impairment
Refer to Note 12, "Goodwill and Other Intangible Assets," for more information on intangible asset impairment charges incurred during the years ended December 31, 2025 and 2024.
Operating Income, Net Income, and Adjusted EBITDA
Operating income was $1,223 million (operating margin of 13.5%) during 2025, an increase of $214 million, or 21.2%, when compared to operating income of $1,009 million (operating margin of 11.8%) during the prior year. Operating margin expansion included unfavorable impacts of 10 basis points from a net increase in restructuring and realignment costs, acquired intangible asset amortization, and special charges as compared to the prior year. Additionally, operating margin included 540 basis points of expansion from favorable operating impacts, driven by a 330 basis point increase from productivity savings and 190 basis points from price realization. Margin expansion was offset by 360 basis points of unfavorable impacts driven by 240 basis points of inflation and 50 basis points of unfavorable mix. Excluding restructuring and realignment costs, acquired intangible asset amortization, and special charges, adjusted operating income was $1,612 million (adjusted operating margin of 17.8%) for 2025 as compared to adjusted operating income of $1,373 million (adjusted operating margin of 16.0%) during the prior year.
Net income attributable to Xylem was $957 (net income margin of 10.6%) during 2025, an increase of $67 million as compared to net income attributable to Xylem in the prior year of $890 million (net income margin of 10.4%). The increase in net income attributable to Xylem was driven by increased operating income of $214 million as well as decreased interest and other non-operating expense of $17 million and $15 million less loss from sale of businesses as compared to the prior year. These increases were partially offset by the absence of a $152 million gain on joint venture remeasurement that did not recur in 2025, as well as increased income tax expense of $34 million. In addition to these fluctuations, net income attributable to Xylem excludes an increase of $7 million of net loss attributable to non-controlling interests. Adjusted EBITDA was $2,009 million (adjusted EBITDA margin of 22.2%) for 2025, an increase of $246 million, or 14.0%, when compared to adjusted EBITDA of $1,763 million (adjusted EBITDA margin of 20.6%) for the prior year. The increase in adjusted EBITDA margin was primarily due to the same factors impacting adjusted operating margin noted above.
The table below provides a reconciliation of total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin:
(In millions)
Change
Water Infrastructure
Operating income
Operating margin
Restructuring and realignment costs
Purchase accounting intangible amortization
Special charges
Adjusted operating income
Adjusted operating margin
Applied Water
Operating income
Operating margin
Restructuring and realignment costs
Adjusted operating income
Adjusted operating margin
Measurement and Control Solutions
Operating income
Operating margin
Restructuring and realignment costs
Purchase accounting intangible amortization
Special charges
Adjusted operating income
Adjusted operating margin
Water Solutions and Services
Operating income
Operating margin
Restructuring and realignment costs
Purchase accounting intangible amortization
Special charges
Adjusted operating income
Adjusted operating margin
Corporate and other
Operating loss
Restructuring and realignment costs
Purchase accounting intangible amortization
Special charges
Adjusted operating loss
Total Xylem
Operating income
Operating margin
Restructuring and realignment costs
Purchase accounting intangible amortization
Special charges
Adjusted operating income
Adjusted operating margin
NM Not Meaningful
The table below provides a reconciliation of net income attributable to Xylem to consolidated EBITDA and adjusted EBITDA:
(in millions)
Year Ended December 31,
Change
Net Income attributable to Xylem
Net Income margin
Depreciation
Amortization
Interest expense, net
Income tax expense
EBITDA
Share-based compensation
Restructuring and realignment
Special charges
Gain on remeasurement of previously held equity interest
Loss from sale of businesses
Loss attributable to non-controlling interest
Adjusted EBITDA
Adjusted EBITDA margin
NM Not Meaningful
The tables below provide a reconciliation of each segment's operating income (loss) to EBITDA and adjusted EBITDA:
Year Ended December 31, 2025
(in millions)
Water Infrastructure
Applied Water Systems
Measurement and Control Solutions
Water Solutions and Services
Operating Income
Operating margin
Loss (gain) attributable to non-controlling interests
Loss from sale of businesses
Depreciation
Amortization
Other non-operating expense, excluding interest
EBITDA
Share-based compensation
Restructuring and realignment
Special charges
Loss from sale of businesses
(Loss) gain attributable to non-controlling interests
Adjusted EBITDA
Adjusted EBITDA margin
Year Ended December 31, 2024
(in millions)
Water Infrastructure
Applied Water Systems
Measurement and Control Solutions
Water Solutions Services
Operating Income
Operating margin
Gain on remeasurement of previously held equity interest
Loss from sale of businesses
Depreciation
Amortization
Other non-operating (expense) income, excluding interest
EBITDA
Share-based compensation
Restructuring and realignment
Special charges
Loss from sale of businesses
Gain on remeasurement of previously held equity interest
Adjusted EBITDA
Adjusted EBITDA margin
2025 versus 2024
(in millions)
Water Infrastructure
Applied Water Systems
Measurement and Control Solutions
Water Solutions and Services
Operating Income (Loss)
Operating margin
Loss (gain) attributable to non-controlling interests
Gain on remeasurement of previously held equity interest
Loss from sale of businesses
Depreciation
Amortization
Other non-operating expense (income), excluding interest
EBITDA
Share-based compensation
Restructuring and realignment
Special charges
Loss from sale of businesses
Gain on remeasurement of previously held equity interest
(Loss) gain attributable to non-controlling interests
Adjusted EBITDA
Adjusted EBITDA margin
Water Infrastructure
Operating income was $462 million for our Water Infrastructure segment (operating margin of 17.5%) during 2025, an increase of $106 million, or 29.8%, when compared to operating income of $356 million (operating margin of 13.9%) during the prior year, or a total increase of 360 basis points of operating margin. Operating margin expansion included unfavorable impacts of 70 basis points from an increase in restructuring and realignment costs, offset by decreases in acquired intangible asset amortization and special charges as compared to the prior year. Additionally, operating margin increases included 830 basis points from favorable operating impacts, driven by 460 basis points from productivity savings, 230 basis points of price realization, and 70 basis points of favorable mix. Operating margin growth was partially offset by negative operating impacts of 400 basis points including 230 basis points of inflation and 90 basis points of unfavorable volume. Excluding restructuring and realignment costs, acquired intangible asset amortization, and special charges, adjusted operating income was $583 million (adjusted operating margin of 22.1%) during 2025 as compared to adjusted operating income of $455 million (adjusted operating margin of 17.8%) during the prior year.
Adjusted EBITDA was $641 million (adjusted EBITDA margin of 24.3%) during 2025, an increase of $112 million, or 21.2%, when compared to adjusted EBITDA of $529 million (adjusted EBITDA margin of 20.7%) during the prior year. The increase in adjusted EBITDA margin was primarily due to the same factors impacting the increase in adjusted operating margin; however, adjusted EBITDA did not benefit from decreased depreciation and software amortization expense.
Applied Water
Operating income was $312 million for our Applied Water segment (operating margin of 16.9%) during 2025, an increase of $41 million, or 15.1%, when compared to operating income of $271 million (operating margin of 15.1%) during the prior year, or a total increase of 180 basis points of operating margin. The increase in operating margin included unfavorable impacts of 60 basis points from increased restructuring and realignment costs as compared to the prior year. Operating margin also included favorable operating impacts of 690 basis points, driven by 540 basis points of productivity savings and 100 basis points of price realization. Operating margin expansion was partially offset by 450 basis points of unfavorable operating impacts, including of 290 basis points of inflation and 70 basis points of increased spending on strategic investments. Excluding restructuring and realignment costs, adjusted operating income was $340 million (adjusted operating margin of 18.4%) during 2025 as compared to adjusted operating income of $286 million (adjusted operating margin of 16.0%) during the prior year.
Adjusted EBITDA was $378 million (adjusted EBITDA margin of 20.4%) during 2025, an increase of $61 million, or 19.2%, when compared to adjusted EBITDA of $317 million (adjusted EBITDA margin of 17.7%) during the prior year. The increase in adjusted EBITDA margin was primarily due to the same factors impacting the increase in adjusted operating margin.
Measurement and Control Solutions
Operating income was $244 million for our Measurement and Control Solutions segment (operating margin of 11.7%) during 2025, a decrease of $3 million, or 1.2%, when compared to operating income of $247 million (operating margin of 13.2%) during the prior year, or a total decrease of 150 basis points of operating margin. The decrease in operating margin included unfavorable impacts of 90 basis points from increased acquired intangible asset amortization, restructuring and realignment costs, and special charges as compared to the prior year. Additionally, the operating margin decrease included 660 basis points from unfavorable operating impacts driven by 270 basis points unfavorable mix and 260 basis points of inflation. The decrease in operating margin was partially offset by 600 basis points of favorable impacts consisting of 330 basis points of productivity savings, 150 basis points of price realization and 120 basis points of increased volume. Excluding acquired intangible asset amortization, restructuring and realignment costs, and special charges, adjusted operating income was $353 million (adjusted operating margin of 16.9%) during 2025 as compared to adjusted operating income of $327 million (adjusted operating margin of 17.5%) during the prior year.
Adjusted EBITDA was $450 million (adjusted EBITDA margin of 21.6%) during 2025, an increase of $55 million, or 13.9%, when compared to adjusted EBITDA of $395 million (adjusted EBITDA margin of 21.1%) during the prior year. The increase in adjusted EBITDA margin was due to the same factors as those impacting the decrease in adjusted operating margin; however, adjusted EBITDA margin benefitted from a decrease non-operating expenses and was not negatively impacted by the relative impact of increases in depreciation and software amortization expense.
Water Solutions and Services
Operating income was $302 million for our Water Solutions and Services segment (operating margin of 12.3%) during 2025 an increase of $83 million, or 37.9%, when compared to operating income of $219 million (operating margin of 9.3%) during the prior year, or a total increase of 300 basis points of operating margin. The increase in operating margin included favorable impacts of 160 basis points from a net decrease in restructuring and realignment costs, special charges and acquired intangible asset amortization, as compared to the prior year. Additionally, the operating margin increase included 470 basis points from favorable operating impacts driven by 210 basis points of price realization, 100 basis points of productivity savings, 90 basis points of favorable volume, and 50 basis points of decreased spending on investments. Operating margin expansion was partially offset by 330 basis points of unfavorable operating impacts driven by 190 basis points of inflation and 70 basis points of unfavorable mix. Excluding restructuring and realignment costs, special charges, and acquired intangible asset amortization, adjusted operating income was $422 million (adjusted operating margin of 17.1%) during 2025 as compared to adjusted operating income of $368 million (adjusted operating margin of 15.7%) during the prior year.
Adjusted EBITDA was $595 million (adjusted EBITDA margin of 24.1%) during 2025, an increase of $47 million, or 8.6%, when compared to adjusted EBITDA of $548 million (adjusted EBITDA margin of 23.4%) during the prior year. The increase in adjusted EBITDA margin was due to the same factors as those impacting the increase in adjusted operating margin; however, adjusted EBITDA did not benefit from the impact of flat depreciation and software amortization expense relative to increased revenue.
Corporate and other
Operating loss was $97 million for corporate and other during 2025, an increase of $13 million, or 15.5% when comparing to operating loss of $84 million during the prior year. The increase in operating loss for the year was partially offset by lower special charges as compared to the prior year. Excluding special charges, restructuring and realignment costs, and acquired intangible asset amortization, adjusted operating loss increased $23 million during 2025 or 36.5%, compared to the prior year. The increase in adjusted operating loss is primarily driven by increased spending on strategic investments and sustainability goals, as well as inflation.
Interest Expense
Interest expense was $29 million and $44 million for 2025 and 2024, respectively. The decrease in interest expense was primarily driven by increased income generated on cross currency swaps offsetting interest expense, and lower debt due to the repayment of the term loan entered into in May 2023 for use in funding the acquisition of Evoqua, which was repaid on April 19, 2024. See Note 15, "Credit Facilities and Debt", of our consolidated financial statements for a description of our credit facilities and long-term debt and related interest.
Income Tax Expense
The income tax provision for 2025 was $231 million at an effective tax rate of 19.5% as compared to $197 million at an effective tax rate of 18.1% in 2024. The 2025 effective tax rate differs from that of 2024 primarily due to the tax effects of the gain on remeasurement of equity interest in the prior period, partially offset by one-time deferred tax benefits from internal reorganizations. See Note 7, "Income Taxes", of our consolidated financial statements for additional details on our tax attributes and related tax expense.
Liquidity and Capital Resources
The following table summarizes our sources and uses of cash:
Year Ended December 31,
(in millions)
Change
Operating activities
Investing activities
Financing activities
Foreign exchange (a)
Total
(a) The impact of foreign exchange is primarily due to strengthening of the Euro, Canadian Dollar, Chinese Yuan and the Chilean Peso.
Sources and Uses of Liquidity
Operating Activities
During 2025, net cash provided by operating activities was $1,241 million, compared to $1,263 million in 2024. The $22 million year-over-year decrease was primarily driven by an increase spending on long-term outsourced water projects, the liquidation of customer advances and deferred revenue, increased payments for strategic investments, and higher restructuring payments. These items were partially offset by higher cash earnings and decreased investment in net working capital, driven by lower growth in accounts receivables and inventory management initiatives.
Investing Activities
Cash used in investing activities was $471 million in 2025, compared to $482 million in 2024. The year-over-year decrease in cash used of $11 million reflects increased proceeds from the sale of businesses, including the sale of the former Evoqua Magneto business, less cash used for acquisitions, and higher proceeds from the sale of assets. These items were partially offset by spending on an asset acquisition, increased cash paid for investments, and higher capital expenditures.
Financing Activities
Cash used in financing activities was $501 million in 2025, compared to $615 million in 2024. The year-over-year decrease in cash used reflects the repayment of a term loan in 2024, partially offset by increased repayments of equipment financing debt, lower proceeds from employee stock options, and higher dividend payments.
Funding and Liquidity Strategy
Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to bank financing and the capital markets. We continually evaluate aspects of our spending, including capital expenditures, strategic investments and dividends. Historically, we have generated operating cash flow sufficient to fund our primary cash needs .
If our cash flows from operations are less than we expect, we may need to incur debt or issue equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing. 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 15, "Credit Facilities and Debt", of our consolidated financial statements for a description of limitations on obtaining additional funding.
We monitor our global funding requirements and seek to meet our liquidity needs on a cost-effective basis. In addition, our existing committed credit facilities and access to the public debt markets would provide further liquidity, if required.
Based on our current global cash positions, cash flows from operations, and access to the capital markets, we believe there is sufficient liquidity to meet our funding requirements and service debt and other obligations in both the U.S. and outside of the U.S. over the next twelve months. Currently, we have available liquidity of approximately $2.5 billion, consisting of $1.5 billion of cash and $1 billion of available credit facilities as disclosed in Note 15, "Credit Facilities and Debt", of our consolidated financial statements.
Contractual Obligations
Material contractual obligations arising in the normal course of business primarily consist of debt obligations and related interest payments, lease obligations and unconditional purchase obligations.
The Company has future unconditional purchase commitments that are legally binding and specify all significant terms including price and/or quantity, which are not reflected within the liabilities on our Consolidated Balance Sheets. Total future commitments within the next twelve months for these obligations is $775 million, excluding contracts that can be canceled without penalty.
See Note 15, "Credit Facilities and Debt," and Note 11, "Leases" of our consolidated financial statements for additional information on our contractual commitments.
Non-U.S. Operations
As we continue to grow our operations in the emerging markets and elsewhere outside of the U.S., we expect to continue to generate significant revenue from non-U.S. operations and expect that a substantial portion of our cash will be held by our foreign subsidiaries. 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.
Off-Balance Sheet Arrangements
We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of these arrangements, see Note 20, “Commitments and Contingencies” of our consolidated financial statements.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Significant accounting policies used in the preparation of the consolidated financial statements are discussed in Note 1, “Summary of Significant Accounting Policies,” of our consolidated financial statements. Accounting estimates and assumptions discussed in this section are those that we consider most critical to an understanding of our financial statements because they are inherently uncertain, involve significant judgments and include areas where different estimates reasonably could have been used, and because changes in such estimates that are reasonably possible could materially impact the financial statements. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management’s estimates under different assumptions or conditions.
Revenue Recognition. Xylem recognizes revenue in a manner that depicts the transfer of promised goods and services to customers in an amount that reflects the consideration to which it expects to be entitled for providing those goods and services. For each arrangement with a customer, we identify the contract and the associated performance obligations within the contract, determine the transaction price of that contract, allocate the transaction price to each performance obligation and recognize revenue as each performance obligation is satisfied.
The satisfaction of performance obligations in a contract is based upon when the customer obtains control over the asset. Depending on the nature of the performance obligation, control transfers either at a particular point in time, or over time, which determines the pattern of revenue recognition.
For product sales, other than long-term construction-type contracts, we recognize revenue once control has passed at a point in time, which is generally when products are shipped. In instances where contractual terms include a provision for customer acceptance, revenue is recognized when either (i) we have previously demonstrated that the product meets the specified criteria based on either seller or customer-specified objective criteria, or (ii) upon formal acceptance received from the customer where the product has not been previously demonstrated to meet customer-specified objective criteria. We recognize revenue on product sales to channel partners, including resellers, distributors or value-added solution providers, at the point in time when control is transferred, which is determined based on when the risks and rewards, possession and title have transferred to the customer, which usually occurs at the point of delivery.
Service revenue is primarily related to outsourced water services, maintenance, repair, preventive and inspection services, software as a service ("SaaS") subscriptions, and spare parts sales related to these service offerings. Revenue from performance obligations related to services is primarily recognized over time, as the performance obligations are satisfied. In these instances, the customer consumes the benefit of the service as Xylem performs.
Certain businesses also enter into long-term construction-type sales contracts where revenue is recognized over time. In these instances, revenue is recognized using a measure of progress that applies an input method based on costs incurred in relation to total estimated costs. We also recognize revenue for certain of these arrangements using the output method and measure progress based on shipments of product where control has transferred to the customer.
If shipping and handling activities are performed after a customer obtains control of a good, we account for the shipping and handling activities as activities to fulfill a promise to transfer a good. Shipping and handling related costs are accrued as revenue is recognized.
For all contracts with customers, we determine the transaction price in the arrangement and allocate the transaction price to each performance obligation identified in the contract. Judgment is required to determine the appropriate unit of account, and we separate the performance obligations if they are capable of being distinct and are distinct within the context of the contract. We base our allocation of the transaction price to the performance obligations on the relative stand-alone selling prices for the goods or services contained in a particular performance obligation. The stand-alone selling prices are determined first by reference to observable prices. In the event observable prices are not available, we estimate the stand-alone selling price by maximizing observable inputs and applying an adjusted market assessment approach, expected cost plus margin approach, or a residual approach in limited situations. Revenue in these instances is recognized on individual performance obligations within the same contract as they are satisfied.
The transaction price is adjusted for our estimate of variable consideration which may include a right of return, discounts, rebates, penalties, retainage, and warranties. To estimate variable consideration, we apply the expected value or the most likely amount method, based on whichever method most appropriately predicts the amount of consideration we expect to receive. The method applied is typically based on historical experience and known trends. We limit the amounts of variable consideration that are included in the transaction price, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when uncertainties around the variable consideration are resolved.
We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer, for example sales, use, value added and some excise taxes.
For all contracts with customers, payment received for our products and services may not necessarily follow the same pattern of revenue recognition to which it relates and are dictated by the terms and conditions of our contracts with customers. Payments received for product sales typically occur following delivery and the satisfaction of the performance obligations based upon the terms outlined in the contracts. Payments received for services typically occur following the services being rendered. For long-term construction-type projects, payments are typically made throughout the contract as progress is made.
In limited situations, contracts with customers include financing components where payment terms exceed one year; however, we believe that the financing effects are not significant to Xylem. In addition, we apply a practical expedient and do not adjust the promised amount of consideration in a contract for the effects of significant financing components when we expect payment terms to be one year or less from the time the goods or services are transferred until ultimate payment.
We offer standard warranties for our products to enable compliance with agreed-upon specifications in our contracts. Standard warranties do not give rise to performance obligations and represent assurance-type warranties. In certain instances, product warranty terms are adjusted to account for the specific nature of the contract. In these instances, we assess the warranties to determine whether they represent service-type warranties, and should be accounted for as a separate performance obligation in the contract.
Costs to obtain a contract include incremental costs that the Company has incurred that it expects to recover. Incremental costs only include costs that the Company would not have incurred had the contract not been obtained. Costs that would have been incurred regardless of whether or not the contract was obtained are expensed as incurred, unless they are explicitly chargeable to the customer whether or not the contract is obtained.
Costs to obtain contracts are capitalized when incurred, and are then amortized in a manner that is consistent with the pattern of transfer of the related goods or services provided in the contract. The Company elects to apply the practical expedient to expense costs to obtain contracts when the associated amortization period of those costs would be one year or less.
Income Taxes. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates in effect for the year in which we expect the differences will reverse. Based on the evaluation of available evidence, we recognize future tax benefits, such as net operating loss carryforwards, to the extent that we believe it is more likely than not we will realize these benefits. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes to our estimate of the amount we are more likely than not to realize in the valuation allowance, with a corresponding adjustment to earnings or other comprehensive income, as appropriate.
In assessing the need for a valuation allowance, we look to the future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax planning strategies and estimated future taxable income. The valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates.
We have recorded net foreign withholding taxes and state income taxes on earnings that are expected to be repatriated to the U.S. parent. We have not recorded any deferred taxes on the amounts that the Company currently does not intend to repatriate. The determination of deferred taxes on this amount is not practicable.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws in a multitude of jurisdictions across our global operations. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. Furthermore, we recognize the tax benefit from an uncertain tax position only if based on the technical merits of the position it is more likely than not that the tax position will be sustained on examination by the taxing authorities or upon completion of the litigation process. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
We adjust our liability for uncertain tax positions in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional tax expense would result. If a payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.
Business Combinations. We record acquisitions using the acquisition method of accounting. Under this method, we recognize the identifiable assets acquired, liabilities assumed, contractual contingencies, and any contingent consideration at their estimated fair values as of the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill.
The determination of the fair value of acquired assets and assumed liabilities requires the use of significant estimates and assumptions. These include judgments about the selection of valuation methodologies, the determination of appropriate discount rates and market‑participant assumptions, estimates of future cash flows attributable to the acquired assets, and expected cost synergies or other benefits arising from the acquisition. For certain assets such as technology‑based intangibles, customer‑related intangibles, and trade names, valuation techniques may require assumptions about replacement cost, expected economic obsolescence, projected revenue growth, customer attrition, and the weighted‑average cost of capital.
We develop these fair value estimates using historical experience, information obtained from the management of the acquired business, and, when appropriate, the assistance of independent third‑party valuation specialists. These estimates are inherently uncertain, rely on judgment, and may be affected by unanticipated events or changes in economic conditions. As a result, actual results may differ materially from the estimates used in acquisition accounting.
Goodwill and Intangible Assets. We review goodwill and indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We also review the carrying value of our finite-lived intangible assets for potential impairment when impairment indicators arise. We conduct our annual impairment test as of the first day of the fourth quarter. For goodwill, the estimated fair value of each reporting unit is compared to the carrying value of the net assets assigned to that reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its estimated fair value, then an impairment charge is recognized for that excess up to the amount of recorded goodwill. We estimate the fair value of our reporting units using both the income approach and market approach. Weighting is equally attributed to both the market and income approaches in arriving at the fair value of the reporting units. To determine the reasonableness of the calculated fair values, we review the assumptions to ensure that neither the income approach nor the market approach yielded significantly different valuations. Our projected cash flows are discounted using weighted costs of capital and are derived using revenue growth rates and operating margin estimates, taking into consideration industry and market conditions. In instances where we have completed an acquisition shortly before our annual impairment assessment we perform a qualitative assessment to determine if a quantitative assessment is necessary. We estimate the fair value of our intangible assets with indefinite lives using either the income approach or the market approach. Under the income approach, we calculate fair value based on the present value of estimated future cash flows. Under the market approach, we calculate fair value based on recent sales and selling prices of similar assets.
Determining the fair value of a reporting unit or an indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions and identification of appropriate market comparable data. In addition, the identification of reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of each reporting unit also require judgment. Goodwill is tested for impairment at either the operating segment level identified in Note 21, “Segment and Geographic Data,” of the consolidated financial statements, or one level below. The fair values of our reporting units and indefinite-lived intangible assets are based on estimates and assumptions that are believed to be reasonable. Significant changes to these estimates and assumptions could adversely impact our conclusions. Actual future results may differ from those estimates.
The risks around impairment of our assets are included in our risk factor disclosures referenced under “Item 1A. Risk Factors".
During the fourth quarter of 2025, we performed our annual impairment assessment and determined that the estimated fair values of our goodwill reporting units and indefinite-lived intangible assets exceeded their respective carrying values. As a result, no impairments were recognized. However, future goodwill or indefinite-lived intangible asset impairment tests could result in a charge to earnings. We will continue to evaluate goodwill and indefinite-lived intangible assets on an annual basis as of the beginning of our fourth quarter and whenever events and changes in circumstances require us to do so.
Post-retirement Benefit Plans. Company employees around the world participate in numerous defined benefit plans. The determination of projected benefit obligations and the recognition of expenses related to these plans are dependent on various assumptions. These assumptions primarily relate to discount rates, expected long-term rates of return on plan assets, rate of future compensation increases, mortality, years of service and other factors. Actual results that differ from our assumptions are accumulated and amortized on a straight-line basis only to the extent they exceed 10% of the higher of the market-related value or projected benefit obligation, over the average remaining service period of active plan participants, or for plans with all or substantially all inactive participants, over the average remaining life expectancy.
Significant Assumptions
Management develops each assumption using relevant Company experience, in conjunction with market-related data for each individual country in which such plans exist. All assumptions are reviewed annually with third-party consultants and are adjusted as necessary. The table below provides the weighted average assumptions used to estimate our defined benefit pension obligations and costs as of and for the years ended 2025 and 2024.
Int’l
Int’l
Benefit Obligation Assumptions
Discount rate
Rate of future compensation increase
Net Periodic Benefit Cost Assumptions
Discount rate
Expected long-term return on plan assets
Rate of future compensation increase
NM Not meaningful. The pension benefits for future service for all the U.S. pension plans are based on years of service and not impacted by future compensation increases.
We determine the expected long-term rate of return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, the Company analyzes the estimated future returns based on independent estimates of asset class returns and evaluates historical broad market returns over long-term timeframes based on the strategic asset allocation, which is detailed in Note 16, “Post-retirement Benefit Plans” of the consolidated financial statements.
For the recognition of net periodic pension cost, the calculation of the expected return on plan assets is generally derived by applying the expected long-term rate of return to the market-related value of plan assets. The market-related value of plan assets is based on average asset values at the measurement date over the last five years. The use of fair value, rather than a calculated value, could materially affect net periodic pension cost. The weighted average expected long-term rate of return for all of our plan assets to be used in determining net periodic benefit
costs for 2026 is estimated at 5.55%. We estimate that every 25 basis point change in the expected return on plan assets impacts the expense by less than $1 million.
The discount rate reflects our expectation of the present value of expected future cash payments for benefits at the measurement date. A decrease in the discount rate increases the present value of benefit obligations and increases pension expense. We base the discount rate assumption on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate was determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and 30 years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single-point discount rate matching the plan’s characteristics. Our weighted average discount rate for all pension plans effective January 1, 2026, is 4.19%. We estimate that every 25 basis point change in the discount rate impacts the expense by less than $1 million.
The rate of future compensation increase assumption reflects our long-term actual experience and future and near-term outlook. Effective January 1, 2026, our expected rate of future compensation increase is 2.98% for all pension plans. The estimated impact of a 25 basis point change in the expected rate of future compensation is less than $1 million.
We currently anticipate making contributions to our pension and post-retirement benefit plans in the range of $19 million to $25 million during 2026. Approximately $6 million of contributions are expected to be made in the first quarter.
Funded Status
Funded status is derived by subtracting the respective year-end values of the projected benefit obligations from the fair value of plan assets. We estimate that every 25 basis point change in the discount rate impacts the funded status by approximately $12 million.
Fair Value of Plan Assets
The plan assets of our pension plans comprise a broad range of investments, including domestic and foreign equity securities, interests in hedge funds, fixed income investments, insurance contracts, and cash and cash equivalents.
A portion of our pension benefit plan assets portfolio comprises investments in hedge funds that are generally measured at net asset value. However, in certain instances, the values reported by the asset managers were not current at the measurement date. Accordingly, we made estimate adjustments to the last reported value where necessary to measure the assets at fair value at the measurement date. These adjustments consider information received from the asset managers, as well as general market information. The adjustment recorded at December 31, 2025 and 2024 for these assets represented less than 1% of total plan assets in each respective year. Asset values for other positions were generally measured using market observable prices. We estimate that a 5.00% change in asset values will impact funded status by approximately $12 million.
New Accounting Pronouncements
See Note 2, “Recently Issued Accounting Pronouncements,” of the consolidated financial statements for a complete discussion of recent accounting pronouncements.
2026 Business Outlook
We anticipate total revenue growth of 1% to 3% in 2026, with organic revenue growth anticipated to be in the range of 2% to 4%. Our outlook reflects our current visibility and expectations based on the current market environment and other factors. Our ability to meet our expectations is subject to a number of risks, including, but not limited to, those described in "Item 1A. Risk Factors."
