2017 2016
Planned reductions - January 1 188
82
Additional planned reductions 140
364
Actual reductions and reversals (223 ) (296 )
Planned reductions - September 30 105
150

The following table presents expected restructuring ~~spend:~~spend in 2023 and thereafter:


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Integrated Solutions & Services		Corporate		Total
Actions Commenced in 2023:
Total expected costs	$	4	$	2	$	6	$	7	$	33	$	52
Costs incurred during Q1 2023	1		1		3		—		—		5
Costs incurred during Q2 2023	2		—		1		4		22		29

Total expected costs remaining	$	1	$	1	$	2	$	3	$	11	$	18

(in millions) Water Infrastructure Applied Water Measurement & Control Solutions Corporate Total
Actions Commenced in 2017:
Total expected costs $ 12
$ 4
$ 2
$ —
$ 18
Costs incurred during Q1 2017 —
1
1
—
2
Costs incurred during Q2 2017 3
1
—
—
4
Costs incurred during Q3 2017 1
1
1
—
3
Total expected costs remaining $ 8

$ 1

$ —

$ —

$ 9

Actions Commenced in 2016:
Total expected costs $ 13
$ 14
$ 10
$ 2
$ 39
Costs incurred during 2016 11
10
6
2
29
Costs incurred during Q1 2017 2
2
1
—
5
Costs incurred during Q2 2017 —
1
1
—
2
Costs incurred during Q3 2017 —
1
—
—
1
Total expected costs remaining $ —

$ —

$ 2

$ —

$ 2

~~The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2017 consist primarily of severance charges and are expected to continue through the end of 2018.~~ The Water Infrastructure, Applied Water, Measurement & Control Solutions, Integrated Solutions & Services and Corporate actions commenced in ~~2016~~2023 consist primarily of severance ~~charges and~~charges. The actions are expected to continue through the end of ~~2018.~~2024.

Asset Impairment ~~Charges~~

During the first quarter of ~~2017~~2023, we determined that ~~certain assets~~internally developed in-process software within our ~~Applied Water~~Measurement & Control Solutions segment ~~including~~was impaired as a ~~tradename, were impaired. Accordingly~~result of actions taken to prioritize strategic investments and we therefore recognized an impairment charge of $5$2 million. Refer to Note 9, "Goodwill and Other Intangible Assets," for additional information.

Note 5.6. Income Taxes

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

The income tax provision for the three months ended ~~September~~June 30, ~~2017~~2023 was ~~$27 million resulting in an effective tax rate of 21.1%, compared to~~ $22 million resulting in an effective tax rate of ~~22.9%~~19.1%, compared to a $24 million expense resulting in an effective tax rate of 17.5% for the same period in ~~2016.~~2022. The income tax provision for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 was ~~$62~~$49 million resulting in an effective tax rate of ~~19.4%~~20.5%, compared to a $40 million expense resulting in an effective tax rate of ~~16.0%~~17.0% for the same period in ~~2016.~~2022. The effective tax rate for the six month period ended June 30, 2023 was lower than the ~~United States~~U.S. federal statutory rate primarily due to the ~~mix~~favorable impact of earnings ~~in jurisdictions in both periods. Additionally, the effective tax rate for the nine months ended September 30, 2016~~

~~was lower than the current period due to the release of an unrecognized tax benefit in 2016 due to the effective settlement of a tax examination,~~mix partially offset by ~~the nonrecurring repatriation of foreign earnings from 2016.~~nondeductible transaction costs.

Unrecognized Tax Benefits

~~We recognize~~During 2019, Xylem’s Swedish subsidiary received a tax ~~benefits from uncertain~~assessment for the 2013 tax ~~positions only if~~year related to the tax treatment of an intercompany transfer of certain intellectual property that was made in connection with a reorganization of our European businesses. Xylem filed an appeal with the Administrative Court of Växjö, which rendered a decision adverse to Xylem in June 2022 for SEK806 million (approximately $74 million), consisting of the full tax assessment amount plus penalties and interest. Xylem has appealed this decision with the intermediate appellate court, the Administrative Court of Appeal (the “Court”). At this time, management, in consultation with external legal advisors, continues to believe it is more likely than not that Xylem will prevail on the ~~tax~~proposed assessment and will continue to vigorously defend our position through the appellate process. Both parties will have the ability to seek appeal of the Court’s decision to the Supreme Administrative Court of Sweden. There can be ~~sustained on examination~~no assurance that the final determination by the ~~taxing~~ authorities ~~based on the technical merits~~will not be materially different than our position. As of the position. The tax benefits recognized in the condensed consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

~~The amount of~~June 30, 2023, we do not have any unrecognized tax benefits ~~at September 30, 2017 was $75 million, as compared~~related to ~~$67 million at December 31, 2016, which if ultimately recognized will reduce our effective~~this uncertain tax ~~rate. We do not believe that the unrecognized tax benefits will significantly change within the next twelve months.~~position.

We classify interest expense relating to unrecognized tax benefits as a component of other non-operating expense, net, and tax penalties as a component of income tax expense in our Condensed Consolidated Income Statements. As of September 30, 2017, we had $3.6 million of interest accrued for unrecognized tax benefits.

Note 6.7. Earnings Per Share

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

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net income attributable to Xylem (in millions) $ 105
$ 73
$ 260
$ 210
Shares (in thousands):
Weighted average common shares outstanding 179,578
179,272
179,564
178,951
Add: Participating securities (a) 23
36
28
37
Weighted average common shares outstanding — Basic 179,601
179,308
179,592
178,988
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options 774
593
658
462
Dilutive effect of restricted stock units and performance share units 502
409
460
388
Weighted average common shares outstanding — Diluted 180,877
180,310
180,710
179,838
Basic earnings per share $ 0.58
$ 0.41
$ 1.45
$ 1.17
Diluted earnings per share $ 0.58
$ 0.41
$ 1.44
$ 1.17


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

~~(b)~~

Incremental shares from stock options, restricted stock units and performance share units are computed by the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock units and performance share units, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance or market conditions at the end of the reporting period. See ~~Note 14, "Share-Based Compensation Plans" to the condensed consolidated financial statements for further detail on the performance share units.~~


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net income (in millions)	$	92	$	112	$	191	$	194
Shares (in thousands):
Weighted average common shares outstanding	205,505		180,123		192,938		180,164
Add: Participating securities (a)	34		33		29		29
Weighted average common shares outstanding — Basic	205,539		180,156		192,967		180,193
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options	872		438		747		513
Dilutive effect of restricted stock units and performance share units	329		56		315		129

Weighted average common shares outstanding — Diluted	206,740		180,650		194,029		180,835
Basic earnings per share	$	0.45	$	0.62	$	0.99	$	1.07
Diluted earnings per share	$	0.45	$	0.62	$	0.98	$	1.07

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2017 2016 2017 2016
Stock options 1,556
1,701
1,727
2,008
Restricted stock units 376
529
410
570
Performance share units 594
414
509
360
(a)Restricted stock units containing rights to non-forfeitable dividends that participate in undistributed earnings with common stockholders are considered participating securities for purposes of computing earnings per share.

(b)Incremental shares from stock options, restricted stock units and performance share units are computed by the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock units and performance share units, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards. Performance share units will be included in the treasury stock calculation of diluted earnings per share upon achievement of underlying performance or market conditions at the end of the reporting period. See Note 15, "Share-Based Compensation Plans," to the condensed consolidated financial statements for further detail on the performance share units.


	Three Months Ended		Six Months Ended
	June 30,		June 30,
(in thousands)	2023	2022	2023	2022
Stock options	2,107	1,647	1,732	1,491
Restricted stock units	606	362	469	346
Performance share units	318	270	279	252

Note 7.8. Inventories

The components of total inventories are summarized as follows:


(in millions)	June 30, 2023		December 31, 2022
Finished goods	$	408	$	286
Work in process	121		58
Raw materials	614		455
Total inventories	$	1,143	$	799

(in millions) September 30,
2017 December 31,
2016
Finished goods $ 234
$ 220
Work in process 55
42
Raw materials 273
260
Total inventories $ 562
$ 522

~~Note 8. Property, Plant and Equipment~~

~~The components of total property, plant and equipment, net are as follows:~~

(in millions) September 30,
2017 December 31,
2016
Land, buildings and improvements $ 325
$ 299
Machinery and equipment 791
731
Equipment held for lease or rental 242
218
Furniture and fixtures 108
95
Construction work in progress 89
76
Other 21
19
Total property, plant and equipment, gross 1,576
1,438
Less accumulated depreciation 939
822
Total property, plant and equipment, net $ 637
$ 616

Depreciation expense of $28 million and $83 million million was recognized in the three and nine months ended September 30, 2017, respectively, and $20 million and $61 million for the three and nine months ended September 30, 2016.

Note 9. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying value of goodwill by reportable segment for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 are as follows:

(in millions)
Water
Infrastructure
Applied Water Measurement & Control Solutions Total
Balance as of January 1, 2017 $ 1,074
$ 505
$ 1,053
$ 2,632
Activity in 2017
Divested/Acquired —
(2 ) 3
1
Foreign currency and other 46
20
42
108
Balance as of September 30, 2017 $ 1,120
$ 523
$ 1,098
$ 2,741


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Integrated Solutions & Services		Total
Balance as of January 1, 2023	$	638	$	502	$	1,579	$	—	$	2,719
Activity in 2023



Acquisitions	1,547		241		80		2,496		4,364
Foreign currency and other	6		5		13		1		25
Balance as of June 30, 2023	$	2,191	$	748	$	1,672	$	2,497	$	7,108

The Company has applied the acquisition method of accounting in accordance with ASC 805 and recognized assets acquired and liabilities assumed of Evoqua at their fair value as of the date of acquisition, with the excess purchase consideration recorded to goodwill. We have preliminarily allocated goodwill to segments of the Company that are expected to benefit from the synergies of the acquisition. As the Company finalizes the estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments to the amount of goodwill allocated to each segment may be necessary.

Other Intangible Assets

Information regarding our other intangible assets is as follows:

September 30, 2017 December 31, 2016
(in millions)
Carrying
Amount

Accumulated
Amortization

Net
Intangibles

Carrying
Amount

Accumulated
Amortization

Net
Intangibles
Customer and distributor relationships $ 905
$ (224 ) $ 681
$ 891
$ (168 ) $ 723
Proprietary technology and patents 162
(72 ) 90
156
(61 ) 95
Trademarks 142
(37 ) 105
139
(23 ) 116
Software 251
(118 ) 133
218
(118 ) 100
Other 25
(19 ) 6
26
(13 ) 13
Indefinite-lived intangibles 159
—
159
154
—
154
Other Intangibles $ 1,644
$ (470 ) $ 1,174
$ 1,584
$ (383 ) $ 1,201


	June 30, 2023						December 31, 2022
(in millions)	Carrying Amount		Accumulated Amortization		Net Intangibles		Carrying Amount		Accumulated Amortization		Net Intangibles
Customer and distributor relationships	$	2,749	$	(410)	$	2,339	$	784	$	(371)	$	413
Proprietary technology and patents	294		(126)		168		165		(118)		47
Trademarks	198		(87)		111		137		(80)		57
Software	595		(299)		296		514		(268)		246
Other	115		(7)		108		5		(3)		2
Indefinite-lived intangibles	166		—		166		165		—		165
Other Intangibles	$	4,117	$	(929)	$	3,188	$	1,770	$	(840)	$	930

Amortization expense related to finite-lived intangible assets was ~~$30~~$51 million and ~~$91~~$83 million for the three and ~~nine months~~six-month periods ended ~~September~~June 30, ~~2017,~~2023, respectively, and ~~$12~~$32 million and ~~$36~~$62 million for the three and ~~nine months~~six-month periods ended ~~September~~June 30, ~~2016,~~2022, respectively.

During the first quarter of ~~2017~~2023, we determined that ~~the intended use of a finite lived trade name~~internally developed in-process software within our ~~Applied Water~~Measurement & Control Solutions segment ~~had changed. Accordingly~~was impaired as a result of actions taken to prioritize strategic investments and we ~~recorded a $4 million~~therefore recognized an impairment ~~charge. The~~ charge was calculated using income approach, which is considered a Level 3 input for fair value measurement, and is reflected in “Restructuring and asset impairment charges” in our Condensed Consolidated Income Statements.of $2 million.

Note 10. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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

As a result of Evoqua terminating their interest rate swaps prior to the Company completing the acquisition, the Company received $38 million in proceeds during the quarter ended June 30, 2023 from the termination of the interest rate swaps.

Cash Flow Hedges of Foreign Exchange Risk

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

Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures for which we enter into cash flow hedges relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty and Australian ~~Dollar and Hungarian Forint.~~Dollar. We had foreign exchange contracts with ~~purchase~~purchased notional amounts totaling ~~$58~~$360 million and $255 million as of ~~September~~June 30, ~~2017.~~2023 and December 31, 2022, respectively. As of ~~September~~June 30, ~~2017,~~2023, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell ~~U.S. Dollar and purchase Euro, sell~~ British Pound and purchase Euro, ~~and to~~ purchase Polish Zloty and sell Euro, purchase U.S. Dollar and sell Canadian Dollar, sell Canadian Dollar and purchase Euro, purchase Canadian Dollar and Sell U.S. Dollar, and sell Australian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are ~~$26~~$144 million, $9$93 million, $8$39 million, $18 million, $17 million, $16 million, $16 million and $7$13 million, respectively. As of December 31, ~~2016 we did not hold any foreign exchange contracts.~~2022 the purchased notional amounts associated with these currency derivatives were $105 million, $73 million, $29 million, $13 million, $13 million, $13 million, $0 million and $9 million, respectively.

Hedges of Net Investments in Foreign Operations

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

~~Cross Currency~~Cross-Currency Swaps

Beginning in 2015, we entered into ~~cross currency~~cross-currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019, third quarter of 2020, and second quarter of 2022 we entered into additional cross-currency swaps. The total notional amount of derivative instruments designated as net investment hedges was ~~$440~~$1,659 million and ~~$391~~$1,616 million as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively.

Foreign Currency Denominated Debt

On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. ~~We designated~~On December 12th, 2022 our Senior Notes due March 2023 were settled with cash on hand for a total of $527 million.

Previously, the entirety of the outstanding balance ~~or $583 million, net of unamortized discount,~~was designated as a hedge of a net investment in certain foreign subsidiaries. On June 2, 2022, we de-designated the entirety of the outstanding balance of the €500 million 2.250% Senior Notes, or $533 million from the net investment hedge relationship.

Fair Value Hedges of Foreign Exchange Risk

The de-designation of our 2.250% Senior Notes of €500 million resulted in exposure to fluctuations in the Euro-U.S. Dollar exchange rate. We use currency forward agreements to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.

On June 2, 2022, we entered into a currency forward agreement with a total notional amount of €500 million, designating the agreement as a fair value hedge of our Euro denominated notes. On December 12, 2022 the currency forward agreement matured.

Effectiveness of derivatives designated as fair value hedges is assessed using the spot method. The changes in the fair value of these derivatives due to movements in spot exchange rates are recorded in Selling, general and administrative Expenses. Changes in the fair value of the 2.250% Senior Notes of €500 million related to spot exchange rates are also recorded in Selling, general and administrative expenses. Changes in the spot-forward differential and counterparty non-performance risk of the derivatives are excluded from the assessment of hedge effectiveness and will be recognized in Accumulated other comprehensive loss ("AOCL"). Amounts in AOCL are recognized in earnings, specifically Interest expense, using a systematic and rational method over the life of the hedging instrument.

The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Income Statements and Statements of Comprehensive Income. Items in the table below reflect changes in "Other comprehensive loss" ("OCL") within the Statements of Comprehensive Income:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2023		2022		2023		2022
Cash Flow Hedges
Foreign Exchange Contracts
Amount of gain (loss) recognized in OCL	$	(3)	$	(13)	$	1	$	(19)
Amount of (gain) loss reclassified from OCL into Revenue	(1)		2		2		4
Amount of loss reclassified from OCL into Cost of revenue	—		1		2		1

Net Investment Hedges
Cross-Currency Swaps
Amount of gain (loss) recognized in OCL	$	(37)	$	93	$	(59)	$	94
Amount of income recognized in Interest expense	8		7		15		13
Foreign Currency Denominated Debt
Amount of gain recognized in OCL	$	—	$	23	$	—	$	31

Fair Value Hedges
Foreign Exchange Contracts
Amount of gain recognized in OCL	$	—	$	4	$	—	$	4
Amount of (loss) recognized in Selling, general and administrative expenses	$	—	$	(11)	$	—	$	(11)
Amount recognized in Interest expense	$	—	$	(1)	$	—	$	(1)

Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2017 2016 2017 2016
Cash Flow Hedges
Foreign Exchange Contracts
Amount of gain recognized in OCI (a) $ 1
$ —
$ 6
$ —
Amount of gain reclassified from OCI into revenue (a) (2 ) (1 ) (3 ) (1 )
Amount of (gain) loss reclassified from OCI into cost of revenue (a) —
—
1
(1 )

Net Investment Hedges
Cross Currency Swaps
Amount of loss recognized in OCI (a) $ (14 ) $ (7 ) $ (45 ) $ (7 )
Foreign Currency Denominated Debt
Amount of loss recognized in OCI (a) $ (17 ) $ (5 ) $ (65 ) $ (10 )


~~(a)~~	~~Effective portion~~

As of ~~September~~June 30, ~~2017, $3~~2023, $1 million of net ~~gains~~losses on cash flow hedges are expected to be reclassified into earnings in the next 12 months. The ineffective portion of a cash flow hedge is recognized immediately in selling, general and administrative expenses in the Condensed Consolidated Income Statements and was not material for the three and nine months ended September 30, 2017 and 2016.

As of ~~September~~June 30, ~~2017,~~2023, no gains or losses on the net investment hedges are expected to be reclassified into earnings over their duration. ~~The net investment hedges did not experience any ineffectiveness for the three and nine months ended September 30, 2017.~~

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

The fair values of our ~~foreign exchange~~derivative contracts currently included in our hedging program ~~designated as hedging instruments~~ were as follows:


(in millions)	June 30, 2023		December 31, 2022
Derivatives designated as hedging instruments
Assets
Cash Flow Hedges
Prepaid and other current assets	$	5	$	—
Net Investment Hedges
Other non-current assets	$	40	$	79
Liabilities
Cash Flow Hedges
Accrued and other current liabilities	$	(6)	$	—
Net Investment Hedges
Other non-current accrued liabilities	$	(25)	$	(6)

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

•Integrated Solutions & Services provides tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse, 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.

Evoqua Acquisition

On May 24, 2023, Xylem completed the acquisition of Evoqua. Commencing from the acquisition date, Xylem’s financial statements include the assets, liabilities, operating results and cash flows of Evoqua. Refer to Note 3, "Acquisitions and Divestitures," for additional information.

Coinciding with the Evoqua acquisition, Xylem has updated our adjusted operating income and adjusted earnings per share to add back non-cash purchase accounting intangible amortization and recast 2022 amounts to reflect the change on a comparative basis.

Executive Summary

Xylem reported revenue for the ~~third~~second quarter of ~~2017~~2023 of ~~$1,195~~$1,722 million, an increase of ~~33.2%~~26.2% compared to ~~$897~~$1,364 million reported in the ~~third~~second quarter of ~~2016. On a constant~~2022. The revenue increase consisted of strong organic growth of 14.6%, driven by strong revenue performance across the segments and in all of our major geographic regions, and increased revenue from the Evoqua acquisition of 13.0%, which was marginally offset by currency ~~basis, revenue~~translation headwinds of 1.4%.

We generated operating income of $119 million (margin of 6.9%) during the second quarter of 2023, as compared to $146 million (margin of 10.7%) in 2022. Operating income in the second quarter of 2023 included an increase in special charges of $66 million and an unfavorable impact from increased ~~30.8% mostly due~~restructuring and realignment costs of $29 million and an unfavorable increase to ~~$234~~intangible amortization from acquisitions of $18 million ~~of revenue related~~as compared to the ~~Sensus business acquisition and organic revenue growth of $44 million driven by growth in all end markets.~~

~~Operating income for the third~~second quarter of ~~2017~~2022. Excluding the impact of special charges, restructuring and realignment costs and intangible amortization from acquisitions, adjusted operating income was ~~$152~~$259 million ~~reflecting an increase~~(adjusted margin of ~~39.4%~~15.0%) during the second quarter of 2023 as compared to ~~$109~~$173 million (adjusted margin of 12.7%) in ~~the third quarter of 2016. Operating margin was 12.7% for 2017 versus 12.2% for 2016, an increase of 50 basis points.~~2022. The increase in adjusted operating margin was primarily due to ~~cost reductions resulting from progress in our global procurement and~~price realization, productivity ~~initiatives, restructuring~~ savings and ~~a decrease in Sensus acquisition related costs and restructuring and realignment charges.~~favorable volume. These ~~favorable~~ impacts ~~on operating margin were largely offset by cost inflation increases, Sensus purchase accounting impacts and special charges.~~

Adjusted operating income was $169 million with an operating margin of 14.1% in 2017 as compared to adjusted operating income of $131 million with an adjusted operating margin of 14.6% in the third quarter of 2016. The decrease in adjusted operating margin was mostly due to cost inflation increases and Sensus purchase accounting impacts which were partially offset by ~~cost reductions resulting from progress in our global procurement~~inflation, spending on strategic investments, unfavorable mix, and productivity initiatives and restructuring savings. The non-cash Sensus purchase accounting impact on adjusted operating margin for the quarter was 70 basis points, which if excluded would bring the adjusted operating margin to 14.8%, a 20 basis point increase over the prior year.

inventory management costs.

Additional financial highlights for the quarter ended ~~September~~June 30, ~~2017~~2023 include the following:

•Orders of ~~$1,249~~$1,856 million, up ~~32.0%~~10.2% from ~~$946~~$1,684 million in the prior year ~~up 6.1%~~period, and down 1.6% on an organic ~~basis~~basis.

•Earnings per share of ~~$0.58,~~$0.45, down 27.4% compared to prior year ($0.98, up ~~41.5% from~~32.4% versus prior year, on an adjusted basis).

•Net income as a percent of revenue of 5.3%, down 290 basis points compared to 8.2% in the prior year. EBITDA margin of 12.3%, down 280 basis points when compared to 15.1% in the prior year ~~($0.65, up 20.4%~~(EBITDA margin of 19.1% on an adjusted ~~basis)~~basis, up 250 basis points)

Cash flow from operating activities of $379 million for the nine months ended September 30, 2017, up 38.3% from the prior year, and free cash flow, excluding Sensus acquisition related costs, of $283 million as compared to $187 million, up 51.3% from the prior year

Key Performance Indicators and Non-GAAP Measures

Management reviews key performance indicators including revenue, gross ~~margin,~~margins, segment operating income ~~and~~ margins, ~~earnings per share,~~free cash flow, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or ~~“adjusted”~~"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 ~~which~~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~~similarly-titled measures reported by other ~~companies, to be key performance indicators:~~companies.

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

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

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


	Three Months Ended									Six Months Ended
	June 30,									June 30,
(in millions, except for per share data)	2023					2022				2023					2022
Net income & Earnings per share	$	92		$	0.45	$	112	$	0.62	$	191		$	0.98	$	194	$	1.07
Restructuring and realignment	37			0.18		8		0.04		48			0.25		12		0.07
Acquired intangible amortization	36			0.17		18		0.10		54			0.28		36		0.20
Special charges	67		(a)	0.33		3		0.02		92		(a)	0.47		5		0.03
Tax-related special items	—			—		(1)		(0.01)		—			—		(2)		(0.01)
(Gain) loss from sale of business	—			—		—		—		—			—		(1)		(0.01)
Tax effects of adjustments (b)	(30)			(0.15)		(6)		(0.03)		(39)			(0.20)		(13)		(0.07)
Adjusted net income & Adjusted earnings per share	$	202		$	0.98	$	134	$	0.74	$	346		$	1.78	$	231	$	1.28


(a) The special charges primarily relate to acquisition and integration costs related to the Evoqua transaction.
(b) 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.

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except for per share data) 2017 2016 2017 2016
Net income attributable to Xylem $ 105
$ 73
$ 260
$ 210
Restructuring and realignment, net of tax of $4 and $11 for 2017 and net of tax of $4 and $9 for 2016 5
8
21
23
Sensus acquisition related costs, net of tax of $2 and $7 for 2017 3
10
12
10
Special charges, net of tax of $1 and $3 for 2017 and net of tax of $2 and $7 for 2016 2
2
5
10
Tax-related special items 3
4
—
(7 )
Gain from sale of business, net of tax of $0 and $2 for 2017 1
—
(2 ) —
Adjusted net income $ 119
$ 97
$ 296
$ 246
Weighted average number of shares - Diluted 180.9
180.3
180.7
179.8
Adjusted earnings per share $ 0.65
$ 0.54
$ 1.64
$ 1.37

•"adjusted operating expenses" and "adjusted gross profit" defined as operating expenses ~~excluding~~and gross profit, respectively, adjusted to exclude amortization of acquired intangible assets, restructuring and realignment costs ~~Sensus acquisition related costs and special charges" defined as operating expenses, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs~~ and special charges.

•"adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs, ~~Sensus acquisition related costs~~amortization of acquired intangible assets, gain or loss from the sale of businesses, special charges and special ~~charges,~~tax related 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 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.

"Sensus acquisition related costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include transaction costs, integration costs and costs related to the recognition of the backlog intangible asset recorded in purchase accounting.

•“special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges ~~due diligence~~and both operating and non-operating adjustments for costs ~~initial acquisition costs not related to Sensus and other special non-operating items, as well as interest expense~~ related to the ~~early extinguishment of debt and financing costs on the bridge loan entered into for the Sensus acquisition during 2016.~~UK pension plan buyout.

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

•"free cash flow" defined as net cash from operating activities, as reported in the ~~statement~~Condensed Consolidated Statement of ~~cash flow,~~Cash Flows, less capital ~~expenditures, as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance.~~expenditures. Our definition of ~~free~~"free cash ~~flow~~flow" does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.


	Six Months Ended
	June 30,
(in millions)	2023		2022
Net cash provided by operating activities	$	9	$	32
Capital expenditures	(103)		(95)

Non-discretionary tax payments (R&D tax law adoption)	33		—
Free cash flow	$	(61)	$	(63)
Net cash used in investing activities	$	(489)	$	(84)
Net cash provided (used) by financing activities	$	235	$	(158)

Nine Months Ended
September 30,
(In millions) 2017 2016
Net cash provided by operating activities $ 379
$ 274
Capital expenditures (119 ) (90 )
Free cash flow $ 260
$ 184
Cash paid for Sensus related acquisition costs $ (23 ) $ (3 )
Free cash flow, excluding Sensus acquisition related costs $ 283
$ 187
2023 Outlook

“EBITDA” defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation and “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude restructuring and realignment costs, Sensus acquisition related costs, special charges and gain from sale of business.

Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2017 2016 2017 2016
Net Income $ 104
$ 73
$ 260
$ 210
Income tax expense 27
22
62
40
Interest expense (income), net 20
16
60
49
Depreciation 28
20
83
61
Amortization 30
12
91
36
Stock compensation 5
5
16
15
EBITDA $ 214
$ 148
$ 572
$ 411
Restructuring and realignment 9
12
32
32
Sensus acquisition related costs 3
10
12
10
Special charges 3
—
8
5
Gain from sale of business 1
—
(4 ) —
Adjusted EBITDA $ 230
$ 170
$ 620
$ 458

~~2017 Outlook~~

We ~~anticipate~~are updating our total revenue growth to approximately 30%, and organic revenue growth to be in the range of ~~24%~~9% to ~~25%~~10% in ~~2017 with organic revenue growth in the low-single-digits and the Sensus acquisition contributing most of the additional revenue growth.~~2023. The following is a summary of our organic revenue performance and the organic revenue outlook by end market.

~~Industrial market~~•Utilities revenue ~~was up low-single-digits~~increased by approximately 20% through the first half of the year on an organic basis through the third quarter. We expect oil and gas and mining markets to stabilize in North America through the balance of the year, and we expect market conditions in the United States to improve modestly throughoutdriven by strength across all major geographic regions. For the remainder of ~~the year. As a result,~~2023, we ~~expect organic revenue of low-single-digits for 2017.~~

~~Public utility revenue declined slightly through the September on an organic basis, primarily due to a difficult comparison to double-digit growth in the United States in the prior year. We~~now expect organic revenue growth in the ~~low-single-digits for 2017 with project activity fueling~~mid teens. On the clean water side, we anticipate growth from the conversion of our resilient backlog due to continued improvement in chip supply. Additionally, we expect strong order momentum from smart water demand. We expect wastewater utilities to remain focused on mission-critical applications in wastewater. Long-term capital expenditure outlook is strong due to aging infrastructure and the emerging ~~markets, primarily in China and India. We also anticipate~~markets’ continued advancement.

•Industrial revenue ~~from Sensus to contribute mid-single-digit growth over their historical performance,~~increased by approximately 12% through the first half of the year on an organic basis driven by ~~expected project deployments and traction from new products. On a pro forma basis that includes Sensus,~~strength across all major geographic regions. For 2023, we continue to expect organic revenue growth ~~of low to mid-single-digits for 2017.~~in the mid-single-digits. We anticipate resilient demand across most industrials. In light and general industry, we are seeing sustained demand globally, through resilient, recurring service revenue and healthy dewatering demand.

•In the ~~commercial~~building solutions markets, ~~organic growth was~~revenue increased by approximately 5%13% through the ~~September, primarily~~first half of the year on an organic basis driven by ~~growth~~strength in the ~~United States. In 2017~~U.S. and western Europe. For the remainder of 2023, we expect organic revenue growth in the ~~mid-single-digit range as we see~~mid-single-digits. In the ~~United States~~commercial market, ~~continuing to be strong while the European market is experiencing growth related to new energy efficient products and sales channel investments.~~

~~In residential markets, organic growth was into the low-double-digits through the third quarter primarily driven by strength in the United States and Asia Pacific. In 2017~~ we expect ~~full year organic revenue performance will be up~~resilient demand for energy efficiency related projects, particularly in ~~the high-single-digits.~~Europe. We continue to ~~expect~~monitor new construction, a smaller portion of our portfolio, for signs of moderation. In the ~~United States market to be competitive given the replacement nature of the sector we serve. We expect growth from the European~~residential market, which ~~looks~~are predominantly driven by solid replacement revenue serviced through our distribution network, we are continuing to ~~be modestly stronger as increased residential building permitting provides an indicator of sales. Additionally, we expect to benefit from~~experience market ~~share gains from channel disruption throughout~~softness, particularly in the ~~remainder of the year.~~U.S.

We will continue to strategically execute restructuring and realignment actions ~~primarily to reposition our European and North American business~~ in an effort to advance our integration of Evoqua, optimize our cost structure, ~~and~~ improve our operational efficiency and ~~effectiveness.~~effectiveness, strengthen our competitive positioning and better serve our customers. During ~~2017,~~2023, we expect to incur approximately ~~$50~~$90 million to $95 million in restructuring and realignment ~~costs, as well as Sensus acquisition related~~ costs. ~~We expect to realize approximately $20 million of~~

~~incremental net savings in 2017 from actions initiated in 2016, and an additional $6 million of net savings from our 2017 actions.~~

Additional strategic actions we are taking include strategic initiatives to drive above-market growth, advance continuous improvement activities to increase productivity, focus on improving cash performance and drive a disciplined capital deployment strategy. Additionally, with the acquisition of Sensus, we anticipate increased spending on research and development as a percentage of revenue as Sensus brings a higher profile of R&D given the investment required to support growth and new product launches.

Results of Operations

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2017 2016 Change 2017 2016 Change
Revenue $ 1,195
$ 897
33.2
% $ 3,430
$ 2,676
28.2
%
Gross profit 471
357
31.9
% 1,342
1,055
27.2
%
Gross margin 39.4 % 39.8 % (40 ) bp 39.1 % 39.4 % (30 ) bp
Operating expenses excluding restructuring and realignment costs, Sensus acquisition related costs and special charges 302
226
33.6
% 906
711
27.4
%
Expense to revenue ratio 25.3 % 25.2 % 10
bp 26.4 % 26.6 % (20 ) bp
Restructuring and realignment costs 9
12
(25.0 ) % 32
32
—
%
Sensus acquisition related charges 5
—
NM
19
—
NM

Special charges 3
10
NM
8
15
(46.7 ) %
Total operating expenses 319
248
28.6
% 965
758
27.3
%
Operating income 152
109
39.4
% 377
297
26.9
%
Operating margin 12.7 % 12.2 % 50
bp 11.0 % 11.1 % (10 ) bp
Interest and other non-operating expense, net 20
14
42.9
% 59
47
25.5
%
Gain on sale of business (1 ) —
NM
4
—
NM

Income tax expense 27
22
22.7
% 62
40
55.0
%
Tax rate 21.1 % 22.9 % (180 ) bp 19.4 % 16.0 % 340
bp
Net income $ 104
$ 73
42.5
% $ 260
$ 210
23.8
%


	Three Months Ended								Six Months Ended
	June 30,								June 30,
(in millions)	2023			2022			Change		2023			2022			Change
Revenue	$	1,722		$	1,364		26.2	%	$	3,170		$	2,636		20.3	%
Gross profit	651			520			25.2	%	1,197			987			21.3	%
Gross margin	37.8		%	38.1		%	(30)	bp	37.8		%	37.4		%	40	bp



Total operating expenses	532			374			42.2	%	947			730			29.7	%
Expense to revenue ratio	30.9		%	27.4		%	350	bp	29.9		%	27.7		%	220	bp
Restructuring and realignment costs	37			8			362.5	%	48			12			300.0	%
Purchase accounting intangible amortization	36			18			100.0	%	54			36			50.0	%
Special charges	67			1			6,600.0	%	92			2			4,500.0	%
Adjusted operating expenses	392			347			13.0	%	753			680			10.7	%
Adjusted operating expenses to revenue ratio	22.8		%	25.4		%	(260)	bp	23.8		%	25.8		%	(200)	bp
Operating income	119			146			(18.5)	%	250			257			(2.7)	%
Operating margin	6.9		%	10.7		%	(380)	bp	7.9		%	9.7		%	(180)	bp

Interest and other non-operating expense, net	5			10			(50.0)	%	10			24			(58.3)	%
Gain from sale of business	—			—			NM		—			1			(100.0)	%
Income tax expense	22			24			(8.3)	%	49			40			22.5	%
Tax rate	19.1		%	17.5		%	160	bp	20.5		%	17.0		%	350	bp
Net income	$	92		$	112		(17.9)	%	$	191		$	194		(1.5)	%

NM - Not meaningful ~~percentage~~ change

Revenue

Revenue generated during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 was ~~$1,195~~$1,722 million and ~~$3,430~~$3,170 million, reflecting increases of ~~$298~~$358 million, or ~~33.2%~~26.2%, and ~~$754~~$534 million, or ~~28.2%~~20.3%, respectively, compared to the same prior year periods. On a constant currency basis, revenue grew ~~30.8%~~27.6% and ~~28.3%~~22.7% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively. These increases in revenue were primarily driven~~2023. Revenue growth contributed by ~~an additional $234 million and $715 million, respectively, of revenue from the businesses acquired in the fourth quarter of 2016. Organic revenue increased from the prior year by $44 million and $47~~acquisitions was $178 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 and organic revenue increased $199 million and $420 million for the three and six months ended June 30, 2023, respectively, partially offset by negative impacts from foreign currency translation of $19 million and $64 million for the three and six months ended June 30, 2023, respectively. ~~These~~The increases reflect strong organic growth across all of our segments and in ~~emerging markets~~all of our major geographic regions for both ~~periods, particularly in Asia Pacific, as well as strength in North America for both~~ periods. ~~There was also organic growth in the quarter for western Europe; however, this region had slight organic declines year-to-date, driven by the United Kingdom.~~

The following ~~tables illustrate~~table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2023:

Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(In millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2016 Revenue $ 478
$ 343
$ 76
$ 897

Organic growth 32
6.7 % 8
2.3 % 4
5.3 % 44
4.9 %
Acquisitions/Divestitures —
NM
(2 ) (0.6 )% 234
307.9 % 232
25.9 %
Constant currency 32
6.7 % 6
1.7 % 238
313.2 % 276
30.8 %
Foreign currency translation (a) 10
2.1 % 5
1.5 % 7
9.2 % 22
2.4 %
Total change in revenue 42
8.8 % 11
3.2 % 245
322.4 % 298
33.2 %
2017 Revenue $ 520
$ 354
$ 321
$ 1,195


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2022 Revenue	589				429				346				—			1,364
Organic Growth	74		12.6	%	53		12.4	%	72		20.8	%	—		NM	199		14.6	%
Acquisitions/(Divestitures)	53		9.0	%	—		—	%	—		—	%	125		NM	178		13.0	%
Constant Currency	127		21.6	%	53		12.4	%	72		20.8	%	125		NM	377		27.6	%
Foreign currency translation (a)	(12)		(2.1)	%	(4)		(1.0)	%	(3)		(0.9)	%	—		NM	(19)		(1.4)	%
Total change in revenue	115		19.5	%	49		11.4	%	69		19.9	%	$	125	NM	358		26.2	%
2023 Revenue	$	704			$	478			$	415			$	125		$	1,722

(a)Foreign currency translation impact for the year due to the weakening in value of various currencies against the U.S. Dollar, the largest being the Chinese Yuan, the Canadian Dollar, the Australian Dollar and the Norwegian Krone.

Water Infrastructure Applied Water Measurement & Control Solutions Total Xylem
(In millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2016 Revenue $ 1,402
$ 1,042
$ 232
$ 2,676

Organic growth 24
1.7 % 16
1.5 % 7
3.0 % 47
1.8 %
Acquisitions/Divestitures —
— % (5 ) (0.5 )% 715
308.2 % 710
26.5 %
Constant currency 24
1.7 % 11
1.1 % 722
311.2 % 757
28.3 %
Foreign currency translation (b) (5 ) (0.4 )% (5 ) (0.5 )% 7
3.0 % (3 ) (0.1 )%
Total change in revenue 19
1.4 % 6
0.6 % 729
314.2 % 754
28.2 %
2017 Revenue $ 1,421
$ 1,048
$ 961
$ 3,430


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(In millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2022 Revenue	1,122				854				660				—			2,636
Organic Growth	155		13.8	%	94		11.0	%	171		25.9	%	—		NM	420		15.9	%
Acquisitions/(Divestitures)	53		4.7	%	—		—	%	—		—	%	125		NM	178		6.8	%
Constant Currency	208		18.5	%	94		11.0	%	171		25.9	%	125		NM	598		22.7	%
Foreign currency translation (a)	(37)		(3.3)	%	(17)		(2.0)	%	(10)		(1.5)	%	—		NM	(64)		(2.4)	%
Total change in revenue	171		15.2	%	77		9.0	%	161		24.4	%	$	125	NM	534		20.3	%
2023 Revenue	$	1,293			$	931			$	821			$	125		$	3,170


~~(a)~~	Foreign currency translation impact for the quarter due to fluctuations in the value of various currencies against the U.S. Dollar, primarily the Euro followed by Canadian Dollar, the Swedish Krona and the Australian Dollar.


~~(b)~~	Foreign currency translation impact for the nine months due to fluctuations in the value of various currencies against the U.S. Dollar, the largest being British Pound which was partially offset by the Euro and the South African Rand.

(a)Foreign currency translation impact for the year due to the weakening in value of various currencies against the U.S. Dollar, the largest being the Chinese Yuan, the British Pound, the Euro, the Canadian Dollar and the Norwegian Krone.

Water Infrastructure

Water Infrastructure revenue increased ~~$42~~$115 million, or ~~8.8%~~19.5%, for the ~~third~~second quarter of ~~2017 (6.7%~~2023 (21.6% increase aton a constant ~~currency) and increased $19 million, or 1.4%, for the nine months ended September 30, 2017 (1.7% increase at constant currency)~~currency basis) as compared to ~~2016.~~the prior year. Revenue ~~benefited~~growth for the quarter was partially made up of the revenue contributed by acquisitions from ~~$10~~the APT business of $53 million, with the remainder of the increase coming from organic revenue growth of $74 million, or 12.6%. Revenue was negatively impacted by $12 million of foreign currency translation, ~~for~~with the ~~three months ended September 30, 2017 and was negatively impacted by $5 million from foreign currency translation for nine months ended September 30, 2017. The~~ change at constant currency ~~included organic growth~~ of ~~$32 million, or 6.7%, in the third quarter and organic growth of $24 million, or 1.7%, for the nine months ended September 30, 2017.~~$127 million. Organic growth for the quarter was driven by strength in both the utilities and industrial end markets. The utilities end market experienced organic growth of $43 million across all major geographic regions, particularly in the U.S. driven by strong price realization and higher demand in our rental business. Western Europe also experienced strong organic growth due to robust demand in utilities' capital spending coupled with good price realization. The industrial end market ~~particularly in North America and the emerging markets, which was partially offset by declines in Europe. Organic~~had $31 million of organic growth ~~for the quarter was also driven~~led by strength in ~~the public utility end market, particularly in the Middle East and Africa,~~western Europe ~~and North America. This growth was partially offset by public utility declines in Asia Pacific. For the nine months ended September 30, 2017, organic growth was~~ driven by ~~continued improvement in~~capital projects and strong price realization and the industrial end market, particularly in the emerging markets as well as North America. Public utility declined organically year-to-date driven by reductions in municipal spending in western Europe and difficult comparisonsU.S. due to ~~the prior year in the United States where we had double digit growth rates in the United States.~~good price realization.

From an application perspective, ~~for~~excluding the ~~third quarter of 2017,~~$53 million contributed by acquisitions, organic revenue growth was primarily driven by our transport applications. Transport experienced $60 million of revenue growth, across all three of our major geographic regions. Growth was led by the U.S., driven by strong price realization, increased

sales volume and higher demand in our rental business. Western Europe also experienced growth due to utility and other capital projects and price realization. Organic revenue for the treatment application grew by $14 million for the quarter, led by organic revenue growth in the U.S., due to project timing and increases in the emerging markets from project timing due to COVID recovery in China.

For the six months ended June 30, 2023, revenue increased $171 million, or 15.2% (18.5% increase on a constant currency basis) as compared to the prior year. Revenue growth was partially made up of the revenue contributed by acquisitions from the APT business of $53 million. Revenue was negatively impacted by $37 million of foreign currency translation, with the change at constant currency coming from organic growth of $155 million or 13.8%. Organic growth for the period was driven by strength in both the utility and industrial end markets. The utilities end market experienced organic growth across all of our major geographic regions totaling $89 million. Organic growth for the period was driven by the U.S., where we experienced strong price realization, project timing and higher demand in our rental business. Western Europe also experienced strong organic growth due to robust demand in utilities' capital spending coupled with good price realization. The industrial end market had $66 million of organic growth across all major geographies, particularly in western Europe driven by capital projects and strong price realization and growth in the U.S. due to good price realization. The emerging markets also experienced growth due to projects in Latin America.

From an application perspective, excluding the $53 million contributed by acquisitions, organic revenue growth during the six-month period was driven by our transport applications with $139 million of revenue growth. The increase in organic revenue was led by the ~~industrial end market due to strength~~U.S., where we experienced strong price realization and sales volume, as well as increased rental volumes in the dewatering business ~~which benefited~~when compared to the prior year. Western Europe also experienced increases due to strong price realization along with demand from ~~distribution strength and improved construction, oil and gas, and mining~~utility capital projects. The emerging markets ~~particularly in North America.~~

~~The treatment application~~ also had strong ~~industrial~~ growth ~~driven by strong project deliveries in the emerging markets.~~

~~For the nine months ended September 30, 2017, organic revenue growth was driven~~ primarily ~~by our transport application in the industrial end market~~ due to ~~strength in the dewatering business which benefited from a strong distribution channel and improved mining markets, primarily~~increased projects in Latin America and China. Organic revenue for the ~~United States. Our~~ treatment application ~~had flat overall~~also contributed $16 million of organic ~~revenue with~~sales growth ~~in the industrial end markets, primarily in Asia Pacific, offset by declines in public utility~~across all major geographic regions driven by ~~a difficult prior year comparison in the United States, as well as slower bidding activity in the Middle East where the oil~~project timing and ~~gas market downturn impacted municipal spending.~~strong backlog execution.

Applied Water

Applied Water revenue increased ~~$11~~$49 million, or ~~3.2%~~11.4%, for the ~~third~~second quarter of ~~2017 (1.7%~~2023 (12.4% increase aton a constant ~~currency) and increased $6 million, or 0.6%, for the nine months ended September 30, 2017 (1.1% increase at constant currency)~~currency basis) as compared to the ~~respective 2016 periods.~~prior year. Revenue ~~benefited by $5 million due to foreign currency translation for the three months ended September 30, 2017 and~~ was negatively impacted by $5$4 million ~~due to~~of foreign currency translation, ~~for nine months ended September 30, 2017. The revenue growth included~~with the change at constant currency coming entirely from organic growth of ~~$8 million, or 2.3%, in the third quarter of 2017 and $16 million, or 1.5%, for the nine months ended September 30, 2017, which~~$53 million. Organic growth was ~~driven by growth in commercial and residential end markets, partially offset by declines in the industrial market.~~

~~From an application perspective, organic revenue growth in the third quarter of 2017 was led by growth in commercial building services,~~ driven by strength in ~~North America~~the commercial and Europe as well as project deliveries in China. Residential building service revenue also grew organically, primarily driven by continued strength in Asia Pacific from demand for second water supply sourcing. This organic growth wasindustrial end markets/applications, partially offset by a decline in ~~industrial applications, primarily driven by unfavorable weather conditions impacting~~ the ~~agriculture business~~residential end market/application versus the comparable period. Organic revenue growth in the ~~United States.~~

~~For the nine months ended September 30, 2017, growth in residential building services~~second quarter was ~~primarily driven~~led by strength in commercial building solutions of $45 million, primarily in the ~~United States,~~U.S. where we benefited from ~~timing~~strong price realization and backlog execution. Industrial water had strong organic growth in the quarter of ~~promotions and modest share gains, and continue~~$20 million, across all three of our major geographic regions, driven primarily by recovery from prior year COVID-19 impacts in the emerging markets. Residential building solutions was down $12 million organically for the quarter, primarily in the U.S. due to healthy order intake in the prior year that did not recur.

For the six months ended June 30, 2023, revenue increased $77 million, or 9.0% (11.0% increase on a constant currency basis) as compared to the prior year. Revenue was negatively impacted by $17 million of foreign currency translation during the six month period, with the change at constant currency coming primarily from organic growth of $94 million. Organic growth during the period was driven by all major geographic regions, with particular strength in ~~Asia Pacific. Commercial~~the U.S. commercial building ~~services also~~solutions grew ~~primarily in North America, Asia Pacific and Europe,~~$71 million organically during the period, driven by ~~new product traction~~strong price realization in the U.S. The industrial water application achieved organic growth of $36 million, led by the emerging markets due to recovery from prior year COVID-19 impacts and ~~sales channel investments. This growth was partially offset by~~in western Europe due to strong price realization and healthy demand. The residential building solutions application saw a decline in ~~industrial applications,~~revenue of $13 million, primarily ~~driven by weaker than expected industrial market conditions~~ in the ~~United States, partially offset by strength in western Europe.~~emerging markets and U.S.

Measurement & Control Solutions

Measurement & Control Solutions revenue increased ~~$245~~$69 million, or ~~322.5%~~19.9%, for the ~~third~~second quarter of ~~2017 (313.2% at constant currency) and increased $729 million, or 314.2%, for the nine months ended September 30, 2017 (311.2% at~~2023 (20.8% increase on a constant ~~currency)~~currency basis) as compared to the ~~respective 2016 periods.~~prior year. Revenue was negatively impacted by $3 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $72 million, or 20.8%. The segment experienced organic revenue growth across all three major geographic regions and in both of the segment's end markets for the quarter, driven by $70 million of organic growth in the utility end market, primarily in the U.S., and to a lesser extent, in western Europe, driven by increased demand, enabled by recovery on prior year component constraints and price realization. The industrial end market saw $2 million organic revenue growth.

From an application perspective, organic revenue growth during the quarter was driven by both the water and energy applications. The water application had strong organic growth of $47 million, primarily in the U.S. and to a lesser extent in western Europe, driven by increased demand, enabled by recovery on prior year component constraints and backlog execution. The energy applications grew $25 million organically, primarily in the U.S. where we saw greater electronic component availability.

For the six months ended June 30, 2023, revenue increased $161 million, or 24.4% (25.9% increase on a constant currency basis) as compared to the prior year. Revenue was negatively impacted by $10 million of foreign currency translation, with the change at constant currency coming from an organic increase of $171 million (25.9% increase). The segment experienced organic revenue growth across all three major geographic regions and in both of the segment's end markets for the quarter, driven by $161 million of organic growth in the utility end market, primarily in the U.S., driven by increased demand, enabled by recovery on prior year component constraints and backlog execution. Western Europe also experienced increases driven by backlog execution. The industrial end market grew organically by $10 million across all geographic regions driven by backlog execution in our test business.

From an application perspective, organic revenue growth during the six-month period consisted of growth in the water application of $123 million, primarily in the U.S. and to a lesser extent in western Europe, driven by increased demand, enabled by recovery on prior year component constraints and backlog execution. Energy applications saw organic growth of $48 million, driven by metrology sales in the U.S. due to improved electronic component availability.

Integrated Solutions & Services

Integrated Solutions & Services consists entirely of revenues of $125 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 was almost entirely made up of the revenue~~2023 contributed by the fourth quarter 2016 acquisitions, primarily Sensus, of $234 million and $715 million, respectively. Over 65% of the Sensus revenue was generated in the United States with additional revenue coming primarily from western Europe and China. The majority of Sensus revenue came from water applications with gas and electric applications making up most of the remaining sales in both periods. Organic revenue growth in the Measurement & Control Solutions segment was $4 million, or 5.3%, and $7 million, or 3.0%, for the three and nine months ended September 30, 2017, respectively. The organic growth in both periods was driven by strength in the test applications primarily from the ~~environmental monitoring business in the United States.~~Evoqua acquisition.

Orders / Backlog

An order represents a legally enforceable, written document that includes the scope of work or services to be performed or equipment to be supplied to a customer, the corresponding price and the expected delivery date for the applicable products or services to be provided. An order often takes the form of a customer purchase order or a signed quote from a Xylem business. Orders received during the ~~third~~second quarter of ~~2017~~2023 were ~~$1,249~~$1,856 million, an increase of ~~$303~~$172 million, or ~~32.0%~~10.2%, over the ~~third quarter of the~~ prior year ~~(29.7%~~(11.6% increase aton a constant ~~currency)~~currency basis). Orders received during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 were ~~$3,598~~$3,426 million, an increase of ~~$841~~$27 million, or ~~30.5%~~0.8%, ~~from~~over the prior year ~~(30.6%~~(3.0% increase ~~at constant currency). The order growth at~~on a constant currency basis). Orders contributed by acquisitions were $222 million in the three and six months ended June 30, 2023. Order intake was ~~primarily driven~~negatively impacted by ~~additional orders from the fourth quarter 2016 acquisitions of $225~~$23 million and ~~$688~~$76 million ~~as well as organic order growth~~ of ~~6.1% and 5.7%,~~foreign currency translation for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, respectively.

The following table illustrates the impact from organic growth, recent acquisitions or divestitures, and foreign currency translation in relation to orders during the three and six months ended June 30, 2023:


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2022 Orders	$	731			$	480			$	473			$	—		$	1,684
Organic Impact	(26)		(3.6)	%	(29)		(6.0)	%	28		5.9	%	—		NM	(27)		(1.6)	%
Acquisitions/(Divestitures)	59		8.1	%	—		—	%	—		—	%	163		NM	222		13.2	%
Constant Currency	33		4.5	%	(29)		(6.0)	%	28		5.9	%	163		NM	195		11.6	%
Foreign currency translation (a)	(13)		(1.8)	%	(6)		(1.3)	%	(4)		(0.8)	%	—		NM	(23)		(1.4)	%
Total change in orders	20		2.7	%	(35)		(7.3)	%	24		5.1	%	163		NM	172		10.2	%
2023 Orders	$	751			$	445			$	497			$	163		$	1,856

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


	Water Infrastructure				Applied Water				Measurement & Control Solutions				Integrated Solutions & Services			Total Xylem
(in millions)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change	$ Change		% Change
2022 Orders	$	1,391			$	985			$	1,023			$	—		$	3,399
Organic Impact	(18)		(1.3)	%	(33)		(3.4)	%	(68)		(6.6)	%	—		NM	(119)		(3.5)	%
Acquisitions/(Divestitures)	59		4.2	%	—		—	%	—		—	%	163		NM	222		6.5	%
Constant Currency	41		2.9	%	(33)		(3.4)	%	(68)		(6.6)	%	163		NM	103		3.0	%
Foreign currency translation (a)	(42)		(3.0)	%	(24)		(2.4)	%	(10)		(1.0)	%	—		NM	(76)		(2.2)	%
Total change in orders	(1)		(0.1)	%	(57)		(5.8)	%	(78)		(7.6)	%	163		NM	27		0.8	%
2023 Orders	$	1,390			$	928			$	945			$	163		$	3,426

Water Infrastructure

Water Infrastructure segment orders increased ~~$37~~$20 million, or ~~7.1%~~2.7%, to ~~$558~~$751 million ~~(4.8% increase at constant currency) for the quarter as compared to the same prior year period. The order~~(4.5% increase on a constant currency ~~basis consisted entirely~~basis) for the second quarter of 2023 as compared to the prior year. The order increase included orders from recent acquisitions of $59 million from the APT business partially offset by an ~~increase~~organic order decline of $26 million, or 3.6%. Order intake for the period was negatively impacted by $13 million of foreign currency translation. Organic orders decreased during the quarter primarily in ~~organic orders. Organic order growth spanned all of~~ the ~~applications. The~~ transport applications ~~had growth~~due to declines in orders in the U.S. driven by ~~increased strength~~large infrastructure projects in ~~dewatering from distributor~~the prior period which did not recur in the current period. This decline in order ~~strength~~

~~and increased weather related activity in North America. This growth~~intake was partially offset by ~~organic declines against~~order growth in the dewatering business, primarily driven by rental orders and increased activity in the mining industry in Latin America. The treatment application saw a ~~strong prior year for transport applications~~slight decrease in ~~emerging markets as there was a large~~orders driven by western Europe due to project ~~booking~~order wins in ~~our wastewater transport business~~ the prior year. ~~Treatment applications had strong order intake, primarily from a large project wins~~Orders in the ~~United States, as well as order strength in Europe.~~

~~For the nine months ended September 30, 2017 orders increased $81 million, or 5.5%, to $1,546 million (5.8% increase at constant currency)~~treatment application remained relatively flat as compared to the ~~same~~ prior ~~year period. The order increase on a constant currency basis consisted entirely~~year.

For the six months ended June 30, 2023, orders decreased by $1 million, which was partially made up of the orders contributed by acquisitions from the APT business of $59 million, offset by an ~~increase~~$18 million, or 1.3%, decrease in organic orders. Order intake for the period was negatively impacted by $42 million of foreign currency translation. Organic ~~order growth spanned all applications. The~~orders decreased during the quarter primarily in the transport applications ~~had year-to-date organic order growth~~due to declines in orders in the U.S. driven by ~~growth~~large infrastructure projects in the ~~United States for transport projects and dewatering distributor orders, as well as strong project orders~~prior period which did not recur in ~~China and India and dewatering rental~~the current period. This decline in order intake was partially offset by order strength in ~~Latin America from increased mining activity. Treatment applications had strong order intake~~the dewatering business, led by rental orders primarily in ~~North America and~~ the emerging ~~markets, as well as~~markets. The treatment application saw a slight decrease in orders driven by western ~~Europe.~~Europe due to project order wins in the prior year.

Applied Water

Applied Water segment orders ~~increased $32~~decreased $35 million, or ~~9.4%~~7.3%, to ~~$374~~$445 million ~~(8.2% increase at~~(6.0% decrease on a constant ~~currency)~~currency basis) for the ~~third~~second quarter of 2023 as compared to the ~~same~~ prior ~~year period. The order increase~~year. Order intake for the ~~third~~ quarter ~~on a constant~~was negatively impacted by $6 million of foreign currency ~~basis included~~translation. The decrease in organic ~~order growth of 8.8%~~orders was driven by ~~strong commercial performance~~weakness in the ~~United States~~U.S. from lower demand and ~~strength in the emerging markets. For the nine months ended September 30, 2017~~timing of orders, increased $46 million, or 4.4%, to $1,103 million (4.9% increase at constant currency) as compared to the same prior year period. The order increase on a constant currency basis included organic order growth of 5.4% drivenwhich was partially offset by strength in the emerging markets ~~strong residential and commercial performance~~due to recovery from prior year COVID-19 impacts.

For the six months ended June 30, 2023, orders decreased $57 million, or 5.8%, to $928 million (3.4% decrease on a constant currency basis) as compared to the prior year. Order intake for the period was negatively impacted by $24 million of foreign currency translation. Weakness in the ~~United States as well as industrial~~U.S. from lower demand and timing of orders was partially offset by strength in the ~~Americas.~~emerging markets due to recovery from prior year COVID-19 impacts.

Measurement & Control Solutions

Measurement & Control Solutions segment orders increased ~~$234~~$24 million, or ~~281.9%~~5.1%, to ~~$317~~$497 million ~~(274.7%~~(5.9% increase aton a constant ~~currency)~~currency basis) for the ~~third~~second quarter of ~~2017~~2023 as compared to the ~~same~~ prior ~~year period. The order increase included orders from recent acquisitions, mostly Sensus,~~year. Order growth for the quarter was negatively impacted by $4 million of ~~$225 million and organic~~foreign currency translation. Organic order growth ~~of $3~~was driven primarily by the water application in the U.S. and emerging markets. Order growth within water applications was due to large project orders in the U.S., which was partially offset by declines across our energy applications in the U.S., due to lower demand.

For the six months ended June 30, 2023, orders decreased $78 million or ~~3.6% from test application strength in China and the United States. For the nine months ended ended September 30, 2017 orders increased $714 million, or 303.8%~~7.6%, to ~~$949~~$945 million ~~(301.3% increase at~~(6.6% decrease on a constant ~~currency)~~currency basis) as compared to the ~~same~~ prior ~~year~~year. Order intake for the period ~~and included orders from recent acquisitions,~~was negatively impacted by $10 million of foreign currency translation. The order decrease on a constant currency basis consisted primarily ~~Sensus,~~ of ~~$693 million and~~ organic order ~~growth~~declines of ~~$15~~$68 million or ~~6.4% from test~~6.6%. Organic order intake was negatively impacted by lower demand across the energy application, ~~strength~~particularly in the ~~United States~~U.S., lapping strong order growth in the second quarter. This decline was partially offset by growth in the U.S., due to increased demand in water applications.

Integrated Solutions & Services

The Integration Solutions & Services segment contributed total orders of $163 million for the three and ~~China.~~six months ended June 30, 2023. See Note 3, "Acquisitions and Divestitures," to the condensed consolidated financial statements for further information.

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 ~~can~~ occur from time to time. Total backlog was ~~$1,556~~$5,271 million at ~~September~~June 30, ~~2017,~~2023, an increase of ~~$781~~$1,514 million or ~~100.8%~~40.3%, as compared to ~~September~~June 30, ~~2016, which did not include the Sensus acquisition,~~2022 backlog of $3,757 million, and an increase of ~~$264~~$1,666 million or ~~20.4%~~46.2%, as compared to December 31, ~~2016~~2022 backlog of $1,292 million. The December 31, 2016 backlog balance has been revised to include contractual agreements that Sensus has with customers that do not have minimum commitments but which we believe will be executed upon over$3,605 million, driven by the ~~terms of~~order intake in the ~~contracts.~~quarter outpacing revenue. We anticipate that approximately ~~40%~~39% of the backlog at ~~September~~June 30, ~~2017~~2023 will be recognized as revenue in the remainder of ~~2017.~~2023. There were no significant order cancellations during the quarter.

Gross Margin

Gross margin as a percentage of revenue decreased 30 and increased 40 basis points to ~~39.4% and 30 basis points to 39.1%, respectively,~~37.8% for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, as compared to ~~39.8%~~38.1% and ~~39.4%, respectively,~~37.4% for the comparative ~~2016 periods.~~2022 period. The gross margin ~~declines were driven~~decrease for the quarter included favorable impacts of price realization offset by ~~cost inflation, unfavorable mix and Sensus gross margins, which include unfavorable purchase accounting impacts. The~~ negative impacts toof inflation and mix. The gross margin ~~were largely~~increase for the six month period included favorable impacts of price realization and productivity savings offset by ~~cost reductions from global procurement~~negative impacts of inflation and ~~continuous improvement initiatives.~~unfavorable mix.

Operating Expenses

The following table presents operating expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2017 2016 Change 2017 2016 Change
Selling, general and administrative expenses ("SG&A") $ 270
$ 219
23.3
% $ 812
$ 665
22.1
%
SG&A as a % of revenue 22.6 % 24.4 % (180 ) bp 23.7 % 24.9 % (120 ) bp
Research and development expenses ("R&D") 45
23
95.7
% 131
75
74.7
%
R&D as a % of revenue 3.8 % 2.6 % 120
bp 3.8 % 2.8 % 100
bp
Restructuring and asset impairment charges, net 4
6
(33.3 ) % 22
18
22.2
%
Operating expenses $ 319
$ 248
28.6
% $ 965
$ 758
27.3
%
Expense to revenue ratio 26.7 % 27.6 % (90 ) bp 28.1 % 28.3 % (20 ) bp
2022:


	Three Months Ended								Six Months Ended
	June 30,								June 30,
(in millions)	2023			2022			Change		2023			2022			Change
Selling, general and administrative expenses	$	446		$	314		42.0	%	$	800		$	618		29.4	%
SG&A as a % of revenue	25.9		%	23.0		%	290	bp	25.2		%	23.4		%	180	bp
Research and development expenses	58			53			9.4	%	111			105			5.7	%
R&D as a % of revenue	3.4		%	3.9		%	(50)	bp	3.5		%	4.0		%	(50)	bp
Restructuring and asset impairment charges	28			7			300.0		36			7			414.3	%

Operating expenses	$	532		$	374		42.2	%	$	947		$	730		29.7	%
Expense to revenue ratio	30.9		%	27.4		%	350	bp	29.9		%	27.7		%	220	bp

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

SG&A expenses increased by ~~$51~~$132 million to ~~$270~~$446 million, or ~~22.6%~~25.9% of revenue, in the ~~third~~second quarter of ~~2017,~~2023, as compared to ~~$219~~$314 million, or ~~24.4%~~23.0% of revenue, in the comparable ~~2016~~2022 period; and increased by ~~$147~~$182 million to ~~$812~~$800 million, or ~~23.7%~~25.2% of revenue, in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, as compared to ~~$665~~$618 million, or 24.9% of revenue for the nine months ended in 2016. The increases in SG&A expenses include approximately $49 million and $145 million of additional SG&A spending for the Sensus business, respectively. Additionally we have incurred Sensus acquisition related costs of $5 million and $19 million for the three and nine months ended September 30, 2017, respectively versus $10 million in both comparative prior year periods. Excluding these impacts, SG&A expenses increased by $7 million over the three months as inflation increases, spending on strategic investments and negative currency impacts were only partially offset by savings from restructuring actions and global procurement and continuous improvement initiatives. For the nine month period, excluding the the Sensus acquisition impacts, SG&A expenses decreased by $7 million as savings from global procurement and continuous improvement initiatives and restructuring actions more than offset inflation increases and spending on strategic investments.

~~Research and Development Expenses~~

~~R&D spending was $45 million or 3.8% of revenue in the third quarter of 2017 as compared to $23 million or 2.6%~~23.4% of revenue, in the comparable ~~period~~2022 period. Increases in SG&A in the second quarter of ~~2016;~~2023 as compared to the prior year primarily consisted of increased restructuring and realignment costs of $29 million, increased special charges of $51 million, $34 million of additional SG&A from the acquisition and $13 million of inflation. Increases in SG&A in the six months ended June 30, 2023 as compared to the prior year were driven by increased restructuring and realignment costs of $36 million, an increase of $74 million in special charges, $34 million of additional SG&A from the acquisition and $27 million of inflation.

Research and Development ("R&D") Expenses

R&D expense was ~~$131~~$58 million, or ~~3.8%~~3.4% of revenue, in the ~~nine months ended September 30, 2017~~second quarter of 2023, as compared to ~~$75~~$53 million, or ~~2.8%~~3.9% of revenue in the second quarter of 2022; and was $111 million, or 3.5% of revenue, in the six months ended June 30, 2023, as compared to $105 million, or 4.0% of revenue, in the comparable ~~period of 2016.~~2022 period. The R&D spend has remained fairly consistent year over year with a small increase in R&D ~~spending for~~expense as a result of less R&D being captialized in the ~~three and nine months ended September 30, 2017 was primarily due~~current year as compared to ~~higher rates of investment in new products and technology, primarily within our most recently acquired Sensus business, and to drive revenue growth synergies between Xylem and the Sensus business.~~prior year.

Restructuring ~~Charges~~ and Asset Impairment Charges

Restructuring

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we ~~recognized~~incurred restructuring ~~charges~~costs of $4$28 million and ~~$17~~$34 million, respectively. We incurred these charges primarily as a result of our acquisition of Evoqua. Approximately, $14 million of the charges related to ~~actions taken~~stock based compensation expense due to acceleration clauses in ~~2017~~equity compensation agreements and approximately $14 million of the charges represented the reduction of headcount. Additionally, we incurred $6 million of charges related to our efforts to reposition our European and North American businesses to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers. The charges were incurred across all of our segments.

During the three and six months ended June 30, 2022, we incurred restructuring charges of $6 million. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount ~~and consolidation of facilities within our Applied Water and Water Infrastructure segments, as well as headcount reductions within our Measurement & Control Solutions segment. Included in~~across all segments.

The following is a roll-forward for the ~~charges recorded during the three and nine~~six months ended ~~September~~June 30, ~~2017 were $1 million~~2023 and ~~$8 million, respectively, related to actions commenced in prior years.~~2022 of employee position eliminations associated with restructuring activities:


	2023	2022
Planned reductions - January 1	102	60
Additional planned reductions	106	69
Actual reductions and reversals	(132)	(48)
Planned reductions - June 30	76	81

During the three and nine months ended September 30, 2016, we recognized restructuring charges of $6 million and $18 million, respectively. We incurred these charges related to actions taken in 2016 primarily in an effort to reposition our European and North American businesses to optimize our cost structure and improve our

operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Applied Water and Water Infrastructure segments, as well as Corporate headcount reductions. Included in the charges recorded during the three and nine months ended September 30, 2016 were $1 million related to actions commenced in prior years.

The following table presents expected restructuring ~~spend:~~

(in millions) Water Infrastructure Applied Water Measurement & Control Solutions Corporate Total
Actions Commenced in 2017:
Total expected costs $ 12
$ 4
$ 2
$ —
18
Costs incurred during Q1 2017 —
1
1
—
2
Costs incurred during Q2 2017 3
1
—
—
4
Costs incurred during Q3 2017 1
1
1
—
3
Total expected costs remaining $ 8

$ 1

$ —

$ —

$ 9

Actions Commenced in 2016:
Total expected costs $ 13
$ 14
$ 10
$ 2
$ 39
Costs incurred during 2016 11
10
6
2
29
Costs incurred during Q1 2017 2
2
1
—
5
Costs incurred during Q2 2017 —
1
1
—
2
Costs incurred during Q3 2017 —
1
—
—
1
Total expected costs remaining $ —
$ —
$ 2
$ —
$ 2

~~The Water Infrastructure, Applied Water,~~spend in 2023 and ~~Measurement & Control Solutions~~thereafter relating to actions commenced in ~~2017 consist primarily of severance charges and are expected to continue through the end of 2018.~~ 2023:


(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Integrated Solutions & Services		Corporate		Total







Actions Commenced in 2023:
Total expected costs	$	4	$	2	$	6	$	7	$	33	$	52
Costs incurred during Q1 2023	1		1		3		—		—		5
Costs incurred during Q2 2023	2		—		1		4		22		29

Total expected costs remaining	$	1	$	1	$	2	$	3	$	11	$	18

The Water Infrastructure, Applied Water, Measurement & Control Solutions, Integrated Solutions Services and Corporate actions commenced in ~~2016~~2023 consist primarily of severance ~~charges and~~charges. The actions are expected to continue through the end of ~~2018.~~2024.

We currently expect to incur ~~approximately $20~~between $55 million and $60 million in restructuring costs for the full year. AsThese restructuring costs are primarily a result of ~~all~~our acquisition of ~~the actions taken~~Evoqua and ~~expected~~are also related to ~~be taken in 2017, we anticipate approximately $5 million of total net savings~~efforts to ~~be realized during 2017.~~optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers.

Asset Impairment

During the first quarter of ~~2017~~2023, we determined that ~~certain assets~~internally developed in-process software within our ~~Applied Water~~Measurement & Control Solutions segment ~~including~~was impaired as a ~~tradename were impaired. Accordingly we~~result of actions taken to prioritize strategic investments and recognized an impairment charge of $5$2 million. Refer to Note 9,8, "Goodwill and Other Intangible Assets," for additional information.

Operating Income and Adjusted EBITDA

~~We generated~~Operating income was $119 million (operating margin of 6.9%) during the second quarter of 2023, a decrease of $27 million, or 18.5%, when compared to operating income of ~~$152~~$146 million ~~(margin~~(operating margin of 10.7%) during the prior year. Operating loss contributed by acquisitions was $47 million for the second quarter of 2023. Operating margin decreased 380 basis points and included unfavorable impacts of 610 basis points from increases in special charges, restructuring and realignment costs and acquired intangible asset amortization as compared to the prior year. Additionally, operating margin included 940 basis points of expansion from favorable operating impacts, consisting of a 470 basis point increase from price realization, 300 basis points from productivity savings and 170 basis points from favorable volume. Margin expansion was offset by 710 basis points of unfavorable impacts driven by 350 basis points of inflation,120 basis points of increased spending on strategic investments, 110 basis points of unfavorable mix and 40 basis points related to unfavorable inventory management costs. Excluding special charges, restructuring and realignment costs and acquired intangible asset amortization, adjusted operating income was $259 million (adjusted operating margin of 15.0%) for the second quarter of 2023 as compared to adjusted operating income of $173 million (adjusted operating margin of 12.7%) during the ~~third~~comparable quarter in the prior year.

Adjusted EBITDA was $329 million (adjusted EBITDA margin of 19.1%) during the second quarter of ~~2017, a $43~~2023, an increase of $103 million, ~~increase~~or 2.5%, when compared to ~~$109~~adjusted EBITDA of $226 million ~~(margin~~(adjusted EBITDA margin of ~~12.2%~~16.6%) during the comparable quarter in the prior year, an increase to adjusted EBITDA margin of 250 basis points. Adjusted EBITDA margin contributed by acquisitions 50 basis points. Excluding the impact from acquisitions, adjusted EBITDA margin was impacted by the same offsetting factors impacting the adjusted operating margin.

Operating income for the six months ended June 30, 2023 was $250 million (operating margin of 7.9%), reflecting a decrease of $7 million or 2.7% when compared to $257 million (operating margin of 9.7%) in 2016. The increase in operating income was largely driven by the inclusion of Sensus operating income in the current year. Additionally, the increase in operating income and operating margin was primarily due to cost reductions from our global procurement and productivity initiatives, favorable volume impacts, restructuring savings and2022 or a decrease of 180 basis points . Operating loss contributed by acquisitions was $47.4 million for the six months ended June 30, 2023. Operating margin declines included unfavorable impacts of 420 basis points from increases in ~~Sensus acquisition related costs~~acquired intangible asset amortization, special charges and restructuring and realignment ~~charges. These favorable impacts on operating income and~~as compared to the prior year. Additionally, operating margin ~~were largely offset~~included unfavorable impacts of 890 basis points, driven by ~~cost inflation increases,~~430 basis points of inflation,130 basis points from increased spending on strategic investments, ~~and Sensus purchase accounting impacts.~~

Adjusted operating income was $169 million (adjusted margin of 14.1%) during the third quarter of 2017 as compared to $131 million (adjusted margin of 14.6%) in 2016. The increase in operating income of $38 million was largely driven by the inclusion of Sensus operating income in the current year. The decrease in adjusted operating margin was mostly due130 basis points from unfavorable mix, 50 basis points related to cost ~~inflation increases, spending on strategic initiatives~~of quality and ~~Sensus purchase accounting impacts, which~~30 basis points of unfavorable foreign currency impacts. Operating margin declines were ~~partially~~ offset by ~~cost reductions from global procurement and~~

~~productivity initiatives,~~1.130 basis points of favorable impacts, consisting of 570 basis points price realization, 240 basis points for favorable volume ~~impacts~~ and ~~restructuring~~320 basis points from productivity savings. ~~The non-cash Sensus purchase accounting impact on adjusted operating margin for the quarter was 70 basis points.~~

We generated operating income of $377 million (margin of 11.0%) during the nine months ended September 30, 2017, an $80 million increase compared to the $297 million (margin of 11.1%) in 2016. The increase in operating income was largely driven by the inclusion of Sensus operating income in the current year. Sensus acquisition related costs andExcluding special charges, ~~increased $9 million and $3 million, respectively, while~~ restructuring and realignment costs ~~remained flat as compared to the nine months ended September 30, 2016. Excluding these costs,~~and acquired intangible asset amortization, adjusted operating income was ~~$436~~$444 million ~~(adjusted~~with an adjusted operating margin of ~~12.7%)~~14.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 as compared to ~~$344~~adjusted operating income of $307 million ~~(adjusted margin of 12.9%) in 2016. Adjusted operating margin was negatively impacted by several factors~~ with ~~cost inflation, Sensus operating margins which include unfavorable purchase accounting impacts and unfavorable product mix being among the largest. These negative impacts on~~an adjusted operating margin ~~were largely offset~~of 11.6% in 2022.

Adjusted EBITDA for the six months ended June 30, 2023 was $565 million (adjusted EBITDA margin of 17.8%), an increase of $158 million, or 38.8%, when compared to adjusted EBITDA of $407 million (adjusted EBITDA margin of 15.4%) during the comparable period in prior year. Adjusted EBITDA margin contributed by ~~cost savings from our global procurement and productivity initiatives, as well as restructuring savings and favorable volume impacts.~~acquisitions was 40 basis points for the six months ended June 30, 2023. The ~~non-cash Sensus purchase accounting impact on~~adjusted EBITDA margin was impacted by the same offsetting factors impacting the adjusted operating ~~margin for the year-to-date period was 70 basis points.~~margin.

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

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2017 2016 Change 2017 2016 Change
Water Infrastructure
Operating income $ 91
$ 75
21.3
% $ 205
$ 192
6.8
%
Operating margin 17.5 % 15.7 % 180
bp 14.4 % 13.7 % 70
bp
Restructuring and realignment costs 3
5
(40.0 ) % 12
14
(14.3 ) %
Special charges —
—
NM
—
2
NM

Adjusted operating income $ 94
$ 80
17.5
% $ 217
$ 208
4.3
%
Adjusted operating margin 18.1 % 16.7 % 140
bp 15.3 % 14.8 % 50
bp
Applied Water
Operating income $ 51
$ 50
2.0
% $ 136
$ 140
(2.9 ) %
Operating margin 14.4 % 14.6 % (20 ) bp 13.0 % 13.4 % (40 ) bp
Restructuring and realignment costs 5
3
66.7
% 14
9
55.6
%
Special charges —
—
NM
5
—
NM

Adjusted operating income $ 56
$ 53
5.7
% $ 155
$ 149
4.0
%
Adjusted operating margin 15.8 % 15.5 % 30
bp 14.8 % 14.3 % 50
bp
Measurement & Control Solutions
Operating income $ 26
$ 4
550.0
% $ 80
$ 11
627.3
%
Operating margin 8.1 % 5.3 % 280
bp 8.3 % 4.7 % 360
bp
Sensus acquisition related costs 4
—
NM
13
—
NM

Restructuring and realignment costs 1
4
(75.0 ) 6
7
(14.3 ) %
Special charges —
—
NM
—
3
NM

Adjusted operating income $ 31
$ 8
287.5
% $ 99
$ 21
371.4
%
Adjusted operating margin 9.7 % 10.5 % (80 ) bp 10.3 % 9.1 % 120
bp
Corporate and other
Operating loss $ (16 ) $ (20 ) (20.0 ) % $ (44 ) $ (46 ) (4.3 ) %
Restructuring and realignment costs —
—
NM
—
2
NM

Sensus acquisition related costs 1
10
(90.0 ) 6
10
(40.0 )
Special charges 3
—
NM
3
—
NM

Adjusted operating loss $ (12 ) $ (10 ) 20.0
% $ (35 ) $ (34 ) 2.9
%
Total Xylem
Operating income $ 152
$ 109
39.4
% $ 377
$ 297
26.9
%
Operating margin 12.7 % 12.2 % 50
bp 11.0 % 11.1 % (10 ) bp
Restructuring and realignment costs 9
12
(25.0 ) % 32
32
—
%
Sensus acquisition related costs 5
10
(50.0 ) 19
10
90.0

Special charges 3
—
NM
8
5
60.0
%
Adjusted operating income $ 169
$ 131
29.0
% $ 436
$ 344
26.7
%
Adjusted operating margin 14.1 % 14.6 % (50 ) bp 12.7 % 12.9 % (20 ) bp


	Three Months Ended								Six Months Ended
	June 30,								June 30,
(in millions)	2023			2022			Change		2023			2022			Change
Water Infrastructure
Operating income	$	106		$	108		(1.9)	%	$	176		$	182		(3.3)	%
Operating margin	15.1		%	18.3		%	(320)	bp	13.6		%	16.2		%	(260)	bp
Restructuring and realignment costs	3			3			—	%	6			4			50.0	%
Purchase accounting intangible amortization	8			1			700.0	%	9			2			350.0	%
Special charges	12			—			NM		12			—			NM
Adjusted operating income	$	129		$	112		15.2	%	$	203		$	188		8.0	%
Adjusted operating margin	18.3		%	19.0		%	(70)	bp	15.7		%	16.8		%	(110)	bp
Applied Water
Operating income	$	84		$	61		37.7	%	$	167		$	120		39.2	%
Operating margin	17.6		%	14.2		%	340	bp	17.9		%	14.1		%	380	bp
Restructuring and realignment costs	2			2			—	%	5			3			66.7	%
Purchase accounting intangible amortization	—			—			NM		—			—			NM
Special charges	—			—			NM		—			—			NM
Adjusted operating income	$	86		$	63		36.5	%	$	172		$	123		39.8	%
Adjusted operating margin	18.0		%	14.7		%	330	bp	18.5		%	14.4		%	410	bp
Measurement & Control Solutions
Operating income (loss)	$	26		$	(5)		620.0	%	$	46		$	(15)		406.7	%
Operating margin	6.3		%	(1.4)		%	770	bp	5.6		%	(2.3)		%	790	bp

Restructuring and realignment costs	3			3			—	%	8			5			60.0	%
Purchase accounting intangible amortization	17			17			—	%	34			34			—	%
Special charges	—			1			(100.0)	%	2			1			100.0	%
Adjusted operating income	$	46		$	16		(187.5)	%	$	90		$	25		(260.0)	%
Adjusted operating margin	11.1		%	4.6		%	650	bp	11.0		%	3.8		%	720	bp
Integrated Solutions & Services
Operating loss	$	(7)		$	—		NM		$	(7)		$	—		NM
Operating margin	(5.6)		%	—		%	NM		(5.6)		%	—		%	NM
Restructuring and realignment costs	7			—			NM		7			—			NM
Purchase accounting intangible amortization	11			—			NM		11			—			NM
Special charges	7			—			NM		7			—			NM
Adjusted operating income	$	18		$	—		NM		$	18		$	—		100.0	%
Adjusted operating margin	14.4		%	—		%	NM		14.4		%	—		%	NM
Corporate and other
Operating loss	$	(90)		$	(18)		400.0	%	$	(132)		$	(30)		340.0	%
Restructuring and realignment costs	22			—			NM		22			—			NM

Special charges	48			—			NM		71			1			(7,000.0)	%
Adjusted operating loss	$	(20)		$	(18)		11.1	%	$	(39)		$	(29)		34.5	%
Total Xylem
Operating income	$	119		$	146		(18.5)	%	$	250		$	257		(2.7)	%
Operating margin	6.9		%	10.7		%	(380)	bp	7.9		%	9.7		%	(180)	bp
Restructuring and realignment costs	37			8			362.5	%	48			12			300.0	%
Purchase accounting intangible amortization	36			18			100.0	%	54			36			50.0	%

Special charges	67			1			6,600.0	%	92			2			4,500.0	%
Adjusted operating income	$	259		$	173		49.7	%	$	444		$	307		44.6	%
Adjusted operating margin	15.0		%	12.7		%	230	bp	14.0		%	11.6		%	240	bp

NM - Not meaningful percentage change

The table below provides a reconciliation of net income to consolidated EBITDA and adjusted EBITDA:


	Three Months Ended								Six Months Ended
(in millions)	June 30, 2023								June 30, 2023
	2023			2022			Change		2023			2022			Change
Net Income	92			112			(18)	%	191			194			(2)	%
Net Income margin	5.3		%	8.2		%	(290)	bp	6.0		%	7.4		%	(140)	bp
Depreciation	41			28			46	%	69			56			23	%
Amortization	51			32			59	%	83			62			34	%
Interest expense, net	5			10			(50)	%	7			21			(67)	%
Income tax expense	22			24			(8)	%	49			40			23	%
EBITDA	$	211		206			2	%	$	399		373			7	%
Share-based compensation	15			9			67	%	27			18			50	%
Restructuring & realignment	36			8			350	%	47			12			292	%

Special charges	67			3			2133	%	92			5			1740	%
Gain from sale of business	—			—			NM	%	—			(1)			(100)	%
Adjusted EBITDA	$	329		$	226		46	%	$	565		$	407		39	%
Adjusted EBITDA margin	19.1%			16.6%			250	bp	17.8%			15.4%			240	bp

The tables below provide a reconciliation of each segment's operating income (loss) to EBITDA and adjusted EBITDA:


	Three Months Ended
	June 30, 2023
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income	$	106		$	84		$	26		$	(7)
Operating margin	15.1		%	17.6		%	6.3		%	(5.6)		%

Depreciation	14			4			9			8
Amortization	10			1			26			12
Other non-operating expense	1			—			—			—
EBITDA	$	131		$	89		$	61		$	13
Share-based compensation	5						2			3
Restructuring & realignment	3			2			2			7
Special charges	12			—			—			7

Adjusted EBITDA	$	151		$	91		$	65		$	30
Adjusted EBITDA margin	21.4		%	19.0		%	15.7		%	24.0		%


	Three Months Ended
	June 30, 2022
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income	$	108		$	61		$	(5)		$	—
Operating margin	18.3		%	14.2		%	(1.4)		%	—		%

Depreciation	11			4			8			—
Amortization	3			1			26			—
Other non-operating expense	1			—			(1)			—
EBITDA	$	123		$	66		$	28		$	—
Share-based compensation	—			1			2			—
Restructuring & realignment	3			2			3			—
Special Charges	—			—			1

Adjusted EBITDA	$	126		$	69		$	34		$	—
Adjusted EBITDA margin	21.4		%	16.1		%	9.8		%	—		%


	Three Months Ended
	2023 versus 2022
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income (Loss)	$	(2)		$	84		$	31		$	(7)
Operating margin	(3.2)		%	3.4		%	7.7		%	(5.6)		%

Depreciation	3			—			1			8
Amortization	7			—			—			12
Other non-operating expense	—			—			1			—
EBITDA	$	8		$	23		$	33		$	13
Share-based compensation	5			(1)			—			3
Restructuring & realignment	—			—			(1)			7
Special charges	12			—			(1)			7

Adjusted EBITDA	$	25		$	22		$	31		$	30
Adjusted EBITDA margin	19.8		%	31.9		%	91.2		%	NM


	Six Months Ended
	June 30, 2023
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income	$	176		$	167		$	46		$	(7)
Operating margin	13.6		%	17.9		%	5.6		%	(5.6)		%

Depreciation	26			9			16			8
Amortization	12			1			53			12
Other non-operating expense	1			(1)			—			—
EBITDA	$	215		$	176		$	115		$	13
Share-based compensation	7			1			4			3
Restructuring & realignment	6			5			7			7
Special charges	12			—			2			7

Adjusted EBITDA	$	240		$	182		$	128		$	30
Adjusted EBITDA margin	18.6		%	19.5		%	15.6		%	24.0		%


	Six Months Ended
	June 30, 2022
(in millions)	Water Infrastructure			Applied Water Systems			Measurement & Control Solutions			Integrated Solutions & Services
Operating Income	$	182		$	120		$	(15)		$	—
Operating margin	16.2		%	14.1		%	(2.3)		%	—		%
Gain from sale of business	$	—		—			1			—
Depreciation	$	22		9			17			—
Amortization	$	5		1			51			—
Other non-operating expense	$	(3)		(1)			(1)			—
EBITDA	$	206		$	129		$	53		$	—
Share-based compensation	$	1		2			3			—
Restructuring & realignment	$	4		3			5			—
Special charges	$	—		—			1			—
Gain from sale of business	$	—		—			(1)			—
Adjusted EBITDA	$	211		$	134		$	61		$	—
Adjusted EBITDA margin	18.8		%	15.7		%	9.2		%	—		%


	Six Months Ended
	2023 versus 2022
(in millions)	Water Infrastructure		Applied Water Systems		Measurement & Control Solutions			Integrated Solutions & Services
Operating Income (Loss)	(6)		47		$	61		$	(7)
Operating margin	(2.6)	%	3.8	%	7.9		%	—		%
Gain from sale of business	—		—		$	(1)		$	—
Depreciation	4		—		$	(1)		$	8
Amortization	7		—		$	2		$	12
Other non-operating expense	4		—		$	1		$	—
EBITDA	9		47		$	62		$	13
Share-based compensation	6		(1)		$	1		$	3
Restructuring & realignment	2		2		$	2		$	7
Special charges	12		—		$	1		$	7
Gain from sale of business	—		—		$	1		$	—
Adjusted EBITDA	29		48		$	67		$	30
Adjusted EBITDA margin	(0.2)	%	3.8	%	6.4		%	NM

Water Infrastructure

Operating income for our Water Infrastructure segment ~~increased $16~~was $106 million (operating margin of 15.1%) during the second quarter of 2023, a decrease of $2 million, or ~~21.3%~~1.9%, ~~for~~when compared to operating income of $108 million (operating margin of 18.3%) during the ~~third quarter~~prior year, or a total decrease of ~~2017~~320 basis points. Operating margin declines included unfavorable impacts of 250 basis points from increases in special charges, amortization of acquired intangible assets and restructuring and realignment costs as compared to the prior ~~year, with~~year. Additionally, operating margin ~~also increasing~~declines included 930 basis points of unfavorable operating impacts, driven by 350 basis points of inflation, 200 basis points of unfavorable mix,180 basis points of increased spending on strategic investments, 60 basis points related to unfavorable inventory management impacts and . Margin declines were offset by 860 basis points from ~~15.7% to 17.5%. Operating margin was positively impacted~~favorable operating impacts driven by ~~decreased restructuring~~500 basis points of price realization, 240 basis points of productivity savings and ~~realignment costs~~90 basis points of ~~$2 million in 2017.~~favorable volume and 40 basis of negative impact from the Evoqua acquisition. Excluding ~~these~~amortization of purchased intangibles, special charges and restructuring and realignment costs, adjusted operating income was $129 million (adjusted operating margin of 18.3%) for the second quarter of 2023 as compared to adjusted operating income of $112 million (adjusted operating margin of 19.0%) for the second quarter of 2022.

Adjusted EBITDA was $151 million (adjusted EBITDA margin of 21.4%) for the second quarter of 2023, an increase of $25 million, when compared to adjusted EBITDA of $126 million (adjusted EBITDA margin of 21.4%) during the prior year. The acquisition impacted the adjusted EBITDA margin negatively by 20 basis points. was impacted by the same offsetting factors impacting the adjusted operating margin; however, adjusted EBITDA margin was not negatively impacted by increased ~~$14~~stock based compensation expense.

Operating income was $176 million for our Water Infrastructure segment (operating margin of 13.6%) for the six months ended June 30, 2023, an decrease of $6 million, or ~~17.5%~~3.3%, ~~with adjusted operating margin increasing from 16.7%~~when compared to 18.1%. The increase in adjusted operating margin for the quarter was primarily due to cost reductions from global procurement and continuous improvement initiatives, favorable volume, as well as restructuring savings, which were partially offset by cost inflation increases, spending on strategic investments and negative transactional currency impacts.

~~For the nine months ended September 30, 2017,~~ operating income ~~increased $13~~of $182 million (operating margin of 16.2%) during the prior year, or ~~6.8%,~~a total decrease of 260 basis points. Operating margin declines included unfavorable impacts of 150 basis points from increases in acquired intangible asset amortization, special charges and restructuring and realignment costs as compared to the prior ~~year, with~~year. Additionally, operating margin ~~also increasing~~declines included 1,100 basis points of unfavorable operating impacts, driven by 420 basis points of inflation, 240 basis points of unfavorable mix, 180 basis points of increased spending on strategic investments, 90 basis points related to inventory management costs and 40 basis points related to increased employee costs. Margin declines were offset by 990 basis points from ~~13.7% to 14.4%. Operating margin was positively impacted by~~favorable operating impacts consisting of 620 basis points of price realization, 240 basis points of productivity savings and 130 basis points of favorable volume. Excluding amortization of acquired intangible assets, special charges ~~of $2 million in 2016 that did not recur~~ and ~~decreased~~ restructuring and realignment costs, ~~of $2 million in 2017 compared with the prior year. Excluding these items,~~ adjusted operating income ~~increased $9~~was $203 million (adjusted operating margin of 15.7%) for the six months ended

June 30, 2023 as compared to adjusted operating income of $188 million (adjusted operating margin of 16.8%) for the six months ended June 30, 2023.

Adjusted EBITDA for the six months ended June 30, 2023 was $240 million (adjusted EBITDA margin of 18.6%), an increase of $29 million, or ~~4.3%~~0.2%, ~~with~~when compared to adjusted ~~operating~~EBITDA of $211 million (adjusted EBITDA margin ~~increasing from 14.8% to 15.3%.The increase~~of 18.8%) during the comparable period in prior year. The decrease in adjusted ~~operating~~EBITDA margin was primarily due to ~~cost reductions~~the same factors impacting operating margin noted above, however, adjusted EBITDA margin was not negatively impacted by increased stock based compensation expense and also benefited from ~~global procurement and continuous improvement initiatives~~a decrease in other non-operating expense as well as restructuring savings and favorable volume. These drivers were partially offset by increases in cost inflation and spending on strategic investments, as well as negative transactional currency impacts.compared to the prior year.

Applied Water

Operating income for our Applied Water segment ~~increased $1~~was $84 million (operating margin of 17.6%) during the second quarter of 2023, an increase of $23 million, or ~~2.0%~~37.7%, ~~for~~when compared to operating income of $61 million (operating margin of 14.2%) during the ~~third quarter~~prior year, or a total increase of ~~2017~~340 basis points. Operating margin expansion included an unfavorable impact of 10 basis points from an increase in restructuring and realignment costs as compared to the prior ~~year, with~~year. Additionally, operating margin ~~decreasing~~expansion included 940 basis points from ~~14.6%~~favorable operating impacts, consisting of 600 basis points of price realization and 340 basis points of productivity savings. Margin expansion was offset by negative operating impacts of 610 basis points driven by 350 basis points of inflation,70 basis points related to ~~14.4%. Operating margin was negatively impacted by~~unfavorable currency impacts, 60 basis points of increased ~~restructuring~~spending on strategic investments, 60 basis points of unfavorable volume, and ~~realignment costs~~60 basis points of ~~$2 million.~~unfavorable mix. Excluding restructuring and realignment costs, adjusted operating income ~~increased $3~~was $86 million (adjusted operating margin of 18.0%) for the first quarter of 2023 as compared to adjusted operating income of $63 million (adjusted operating margin of 14.7%) for the second quarter of 2022.

Adjusted EBITDA was $91 million (adjusted EBITDA margin of 19.0%) for the second quarter of 2023, an increase of $22 million, or ~~5.7%~~2.9%, ~~with~~when compared to adjusted ~~operating~~EBITDA of $69 million (adjusted EBITDA margin ~~increasing from 15.5% to 15.8%.~~of 16.1%) during the prior year. The increase in adjusted ~~operating~~EBITDA margin was primarily due to ~~cost reductions~~the same factors impacting the increase in adjusted operating margin.

Operating income for our Applied Water segment was $167 million (operating margin of 17.9%) during the six months ended June 30, 2023, an increase of $47 million or 39.2%, when compared to operating income of $120 million (operating margin of 14.1%) during the prior year, or a total increase of 380 basis points. Operating margin expansion included unfavorable impacts of 30 basis points from ~~our global procurement and continuous improvement initiatives and restructuring savings, which were partially offset by~~ increases in ~~cost inflation~~restructuring and ~~spending on strategic initiatives, as well as unfavorable impacts from mix, price and transactional currency.~~

~~For the nine months ended September 30, 2017, operating income decreased $4 million, or 2.9%,~~realignment costs as compared to the prior ~~year, with operating margin also decreasing from 13.4% to 13.0%.~~year. Operating margin increases included 1,090 basis points of favorable operating impacts, driven by 700 basis points from price realization and 360 basis points from productivity savings. Margin expansion was ~~negatively impacted~~offset by ~~higher special charges for a non-cash impairment~~negative operating impacts of ~~$5 million~~690 basis points consisting of 460 basis points of inflation, 70 basis points of increased spending on strategic investments and ~~increased~~60 basis points of unfavorable mix. Excluding restructuring and realignment costs, ~~of $5 million. Excluding these items,~~ adjusted operating income ~~increased $6~~was $172 million (adjusted operating margin of 18.5%) for the six months ended June 30, 2023 as compared to adjusted operating income of $123 million (adjusted operating margin of 14.4%) for the six months ended June 30, 2023.

Adjusted EBITDA was $182 million (adjusted EBITDA margin of 19.5%) for the six months ended June 30, 2023, a increase of $48 million, or ~~4.0%~~3.8%, ~~with~~when compared to adjusted ~~operating~~EBITDA of $134 million (adjusted EBITDA margin ~~increasing from 14.3% to 14.8%.~~of 15.7% ) during the prior year. The increase in adjusted ~~operating~~EBITDA margin was primarily due to ~~cost reductions from global procurement and continuous improvement initiatives, which were partially offset by increases~~the same factors impacting the increase in ~~cost inflation and unfavorable mix and currency impacts.~~adjusted operating margin.

Measurement & Control Solutions

Operating income for our Measurement & Control Solutions segment ~~increased $22~~was $26 million (operating margin of 6.3%) during the second quarter of 2023, an increase of $31 million, or ~~550.0%~~620.0%, ~~for the third quarter of 2017~~when compared to operating loss of $5 million (operating margin of (1.4)%) during the prior year, ~~primarily due to the inclusion~~or a total increase of ~~Sensus operating income of in the current year results, with operating margin also increasing from 5.3% to 8.1%.~~770 basis points. Operating margin was negatively impacted by $4 million of Sensus acquisition related costs incurred during the quarter which were partially offset by $3 million related to special charges in 2016 that did not recur. Excluding these items, adjusted operating income increased $23 million, or 287.5%, with most of the increase coming from the inclusion of the operating income for Sensus in the current year. Adjusting operating margin decreased from 10.5% to 9.7%. The decrease in adjusted operating margins was largely due to the inclusion of Sensus margins, which are negatively impacted by purchase accounting, and unfavorable mix, which is partially offset by cost reductions from global procurement and continuous improvement initiatives and restructuring savings. Non-cash Sensus purchase accounting negatively impacted the segment's operating margin in the quarter by 230 basis points.

~~For the nine months ended September 30, 2017, operating income increased $69 million, or 627.3%, as compared to the prior year,~~ ~~primarily due to the inclusion of Sensus operating income of in the current year results,~~ with operating margin also increasing from 4.7% to 8.3%. Operating margin was negatively impacted by $13 million of Sensus acquisition related costs which were partially offset by $3 million related to special charges in 2016 that did not recur, as well as a $1 million decrease in restructuring and realignment costs. Excluding these items, adjusted operating income increased $78 million, or 371.4%, ~~with most of the increase coming from the inclusion of the operating income for Sensus in the current year.~~ ~~Adjusted operating margin increased from 9.1%~~

~~to 10.3%.~~ The increase in adjusted operating income and margin was primarily due to cost reductions from global procurement and continuous improvement initiatives, restructuring savings as well as volume and otherexpansion included favorable impacts ~~which were partially offset by unfavorable mix and the inclusion~~ of ~~Sensus margins, which were negatively impacted by purchase accounting. Non-cash Sensus purchase accounting negatively impacted the segment's year-to-date operating margin in the quarter by 230~~120 basis ~~points.~~

~~Corporate and other~~

Operating expense for corporate and other decreased $4 million for the third quarter of 2017 as compared to the prior year, primarily due to a $9 million decrease in Sensus acquisition related costs. This was partially offset by $3 million of special charges incurred during the current quarter. Excluding these costs, adjusted operating expense increased $2 million for the quarter, mostly driven by increased employee related costs. For the nine months ended September 30, 2017 operating expense decreased $2 million as compared with the prior year. This decrease in operating expense was primarily due to a decrease of Sensus acquisition related costs and a reduction inpoints from acquired intangible asset amortization, restructuring and realignment costs ~~which were partially offset by an increase in~~and special charges as compared to the prior year. Additionally, operating margin expansion included 1,470 basis points of favorable operating impacts,consisting of 730 basis points of favorable volume, 380 basis points of productivity savings and 360 basis points of price realization. Margin expansion was offset by negative operating impacts of 820 basis points driven by 400 basis points of inflation, 130 basis points from a decrease in capitalized R&D, 70 basis points of increased spending on strategic investments, 60 basis points of unfavorable mix and 50 basis points from increased employee costs . Excluding ~~these~~acquired intangible asset amortization, restructuring and realignment costs and special charges, adjusted operating income was $46 million (adjusted operating margin of 11.1%) for the second quarter of 2023 as compared to adjusted operating income of $16 million (adjusted operating margin of 4.6%) for the second quarter of 2022.

Adjusted EBITDA was $65 million (adjusted EBITDA margin of 15.7%) for the second quarter of 2023, an increase of $31 million, or 5.9%, when compared to adjusted EBITDA of $34 million (adjusted EBITDA margin of 9.8%) 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 margin did not benefit from the relative impact of depreciation and software amortization expense.

Operating income for our Measurement & Control Solutions segment was $46 million (operating margin of 5.6%) during the six months ended June 30, 2023, an increase of $61 million, or 406.7%, when compared to operating loss of $15 million (operating margin of (2.3)%) during the prior year, or a total increase of 790 basis points. Operating margin expansion included favorable impacts of 70 basis points from the net changes to acquired intangible asset amortization, restructuring and realignment costs and special charges as compared to the prior year. Additionally, operating margin expansion included 1,680 basis points of favorable operating impacts, driven by 920 basis points of favorable volume, 400 basis points of price realization and 350 basis points of productivity savings. Margin expansion was offset by negative operating impacts of 960 basis points driven by 410 basis points of inflation, 160 basis points due to unfavorable mix, 100 basis points related to a decrease in capitalized R&D, 90 basis points of increased spending on strategic investments and 50 basis points related to increased employee costs,. Excluding acquired intangible asset amortization, special charges and restructuring and realignment costs, adjusted operating ~~expense~~income was $90 million (adjusted operating margin of 11.0%) for the second quarter of 2023 as compared to adjusted operating income of $25 million (adjusted operating margin of 3.8%) for the second quarter of 2022.

Adjusted EBITDA was $128 million (adjusted EBITDA margin of 15.6%) for the six months ended June 30, 2023, an increase of $67 million, or 6.4%, when compared to adjusted EBITDA of $61 million (adjusted EBITDA margin of 9.2%) 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 margin did not benefit from the relative impact of depreciation and software amortization expense.

Integrated Solutions & Services

Operating loss for our Integrated Solutions & Services segment for the three and six months ended was $7 million (operating margin of negative 5.6%) . Excluding amortization of acquired intangible asset amortization, special charges and restructuring and realignment costs, adjusted operating income was $18 million (adjusted operating margin of 14.4%).

Adjusted EBITDA for our Integrated Solutions & Services segment for the three and six months ended was $30 million (adjusted EBITDA margin of 24.0%).

Corporate and Other

Operating loss for corporate and other ~~was essentially flat~~increased $72 million, or 400%, during the second quarter of 2023 compared to the prior year period. For the six months ended June 30, 2023, operating loss for corporate and other increased $102 million, or 340%, compared to the same prior period. The increase in operating loss for the ~~nine~~three months ended ~~September~~June 30,2023 was primarily due to special charges related to acquisition and integration costs resulting from the acquisition of Evoqua and increased restructuring and realignment costs. Additional corporate costs driven by the Evoqua acquisition also contributed to the increase in operating loss for the quarter. The increase in operating loss for the six months ended June 30, ~~2017 as compared~~2023 was primarily driven by special charges related to ~~2016.~~acquisition and integration costs resulting from the acquisition of Evoqua and increased restructuring and realignment costs, The timing of corporate initiatives, higher employee benefit costs, increased strategic initiatives and additional corporate costs driven by the acquisition of Evoqua also contributed to the higher operating loss. Excluding special charges and restructuring and realignment costs, adjusted operating loss for corporate and other increased $2 million and $10 million for the three months and six months ended June 30, 2023, respectively driven by the factors previously noted.

Interest Expense

Interest expense was ~~$21 million and $62~~$12 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, and $16~~2023, flat with the comparable prior year period. For the six months ended June 30, 2023 interest expense was $21 million ~~and $50~~compared to $25 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016.~~2022. The increased interest expense for the three and nine month periods includes additional interest expense in 2017 related to debt entered into in the third quarter of 2016 to fund our acquisition of Sensus. The increasedecrease in interest expense was ~~partially offset~~primarily driven by ~~the reduction in special~~ interest ~~charges of $8 million and $4 million that were~~expense incurred ~~in the second quarter of 2016 in connection with the early extinguishment of~~during 2022 related to our 2.250% Senior Notes due 2023 that were paid off in ~~2016~~December 2022 and reduced expense generated by cross currency swaps. Partially offsetting these items was interest expense on several debt facilities including, a term loan entered into in May 2023 for use in funding the acquisition of Evoqua, securitization and equipment financing ~~charges on the bridge loan related to the Sensus~~facilities assumed as part of our acquisition ~~in the third quarter~~ of ~~2016, respectively, neither of which recurred in 2017.~~Evoqua and commercial paper. See Note 9, “Derivative Financial Instruments” and Note 12, "Credit Facilities and ~~Debt"~~Debt," of our condensed consolidated financial statements for a description of our net investment hedges and credit facilities and long-term debt, ~~and related interest.~~respectively.

Income Tax Expense

The income tax provision for the three months ended ~~September~~June 30, ~~2017~~2023 was ~~$27 million resulting in an effective tax rate of 21.1%, compared to~~ $22 million resulting in an effective tax rate of ~~22.9% for the same period in 2016. The income tax provision for the nine months ended September 30, 2017 was $62~~19.1%, compared to a $24 million expense resulting in an effective tax rate of ~~19.4%, compared to $40 million resulting in an effective tax rate of 16.0%~~17.5% for the same period in ~~2016.~~2022. The ~~effective tax rate was lower than the United States federal statutory rate primarily due to the mix of earnings in jurisdictions in both periods. Additionally, the~~ effective tax rate for the nine months ended September 30, 2016 was lower than the current period due to the release of an unrecognized tax benefit in 2016 related to the effective settlement of a tax examination offset in part by the nonrecurring repatriation of foreign earnings from 2016.

~~Other Comprehensive Income~~

~~Other comprehensive income was $21 million for the~~ three months ended ~~September~~June 30, ~~2017 compared to a loss of $3 million for the same period in~~2016. This increase in other comprehensive income was driven primarily by favorable foreign currency translation impacts, primarily due to the strengthening of the Great British Pound and the Canadian Dollar against the U.S. Dollar in 2017 as compared to the weakening of these currencies in the prior year. Additionally, the Euro continued to strengthen as compared to the U.S. Dollar year over year for the quarter, which was partially mitigated by the Euro movement on the Company's net investment hedge during the same period. The tax impact on the foreign currency translation related to the net investment hedge also contributed to the year over year increase.

~~For the nine months ended September 30, 2017 Other comprehensive income was $119 million as compared to a loss of $17 million for~~2023 differs from the same period in ~~2016. This increase was driven primarily by favorable foreign currency translation impacts, primarily~~2022 due to the ~~increased strengthening~~impact of ~~the Euro~~earnings mix and Brazilian Real against the U.S. Dollar as compared to the prior year. Additionally, the strengthening of the Great British Pound against the U.S. Dollar in the current year as compared to the weakening of this currency in the prior year. Partially offsetting these favorable movements, was the Euro movement on the Company's net investment hedge as compared to the prior year. The tax impact on the foreign currency translation related to the net investment hedge also contributed to the year over year increase.nondeductible transaction costs recorded.

Liquidity and Capital Resources

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


	Six Months Ended
	June 30,
(in millions)	2023		2022		Change
Operating activities	$	9	$	32	$	(23)
Investing activities	(489)		(84)		(405)
Financing activities	235		(158)		393
Foreign exchange (a)	9		(26)		35
Total	$	(236)	$	(236)	$	—

Nine Months Ended
September 30,
(In millions) 2017 2016 Change
Operating activities $ 379
$ 274
$ 105
Investing activities (122 ) (155 ) 33
Financing activities (299 ) (150 ) (149 )
Foreign exchange (a) 17
10
7
Total $ (25 ) $ (21 ) $ (4 )
(a)The impact is primarily due to strengthening of the Euro, Polish Zloty and Chinese Yuan.


~~(a)~~	~~The impact is primarily due to the strengthening of the Euro against the U.S. Dollar.~~

Sources and Uses of Liquidity

Operating Activities

~~During the nine months ended September 30, 2017, net cash provided~~Cash generated by operating activities ~~increased by $105~~was $9 million for the six months ended June 30, 2023 as compared to $32 million in the ~~same~~comparable prior year period. The ~~year-over-year increase~~reduction in cash provided was primarily driven by ~~increased~~higher tax payments, the investment in a distribution agreement of select technology and the payment of transaction costs associated with the acquisition of Evoqua. Reductions in inventory levels and higher cash ~~from the operating activities of the Sensus business acquired in the fourth quarter of 2016. This increase was~~earnings partially offset ~~by increased use of working capital as well as increased payments for restructuring charges and interest as compared to the prior year.~~these items.

Investing Activities

Cash used in investing activities was ~~$122~~$489 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 as compared to $155 million in the comparable prior year period. This decrease was mainly driven by the $70 million spent on the acquisition of Tideland Signal Corporation during the nine months ended September 30, 2016 versus the $16 million spent for acquisitions in 2017. Additionally, we received $10 million of proceeds from the sale of a business we divested in the first quarter of 2017, which was offset by increased spending of $29 million over the prior year on capital projects, including spending on capitalized software in the Sensus business.

~~Financing Activities~~

~~Cash used by financing activities was $299 million for the nine months ended September 30, 2017 as compared to cash used of $150~~$84 million in the comparable prior year period. The ~~net~~ increase in cash used reflects payments related to the acquisition of Evoqua, cash paid for equity investments and increased capital expenditures. The sale of a business and cash received from the termination of acquired interest rate swaps partially offset these items.

Financing Activities

Cash generated by financing activities was $235 million for the six months ended June 30, 2023 as compared to cash used of $158 million in the comparable prior year period. The increase in cash provided was primarily driven by ~~increases~~cash received from a new term loan facility, the issuance of commercial paper, a reduction in stock repurchases and proceeds for the exercise of employee stock options. Higher dividend payments partially offset these cash used for repayment of debt, net of debt issuance proceeds in the prior year, increases in share repurchase activity of $22 million to offset dilution, reductions to proceeds from stock option exercises of $14 million, and an increase in dividends paid of $13 million.inflows.

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. ~~Historically, we have generated operating cash flow sufficient to fund~~We continually evaluate aspects of our ~~primary cash needs centered on operating activities, working capital,~~spending, including capital expenditures, strategic investments and ~~strategic investments.~~ dividends.

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 12, "Credit Facilities and Debt", of our condensed consolidated financial statements for a description of limitations on obtaining additional funding.

We monitor our global funding requirements and seek to meet our liquidity needs on a ~~cost effective~~cost-effective basis. ~~Based on our current global cash positions, cash flows from operations and access to the commercial paper markets, we believe there is sufficient liquidity to meet our funding requirements.~~ In addition, our existing committed credit facilities and access to the public debt markets would provide further liquidity if required.

~~We anticipate that~~Based on our ~~present sources of funds, including funds~~current global cash positions, cash flows from operations and ~~additional borrowings, will provide us with~~access to the capital markets, we believe there is sufficient liquidity ~~and capital resources~~ to meet our ~~liquidity~~funding requirements and ~~capital needs~~service debt and other obligations in both

the ~~United States~~U.S. and outside of the ~~United States over~~U.S. during the ~~next twelve months.~~year. As of June 30, 2023, we have $925 million available under our 2023 Credit Facility and $708 million of cash and cash equivalents, resulting in available liquidity of $1.6 billion.

Risks related to these items are described in our risk factor disclosures referenced under “Item 1A. Risk Factors" in our 2022 Annual Report.

Credit Facilities & Long-Term Contractual Commitments

See Note 12, "Credit Facilities and ~~Debt"~~Debt," of our condensed consolidated financial statements for a description of our credit facilities and long-term debt.

Non-U.S. Operations

We generated approximately ~~53%~~49% and 54% of our revenue from non-U.S. operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~59% for the three and nine months ended September 30, 2016.~~2022, respectively. As we continue to grow our operations in the emerging markets and elsewhere outside of the ~~United States,~~U.S., we expect to continue to generate significant revenue from non-U.S. operations and we expect that a substantial portion of our cash will be ~~predominately~~ held by our foreign subsidiaries. We expect to manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when we believe it is ~~cost effective~~cost-effective to do so. We continually review our domestic and foreign cash profile and our, expected future cash generation and investment opportunities, ~~which support our current designation of a portion of these funds as being indefinitely reinvested~~ and reassess whether there is a ~~demonstrated~~ need to repatriate funds held internationally to support our U.S. operations. ~~If,~~As of June 30, 2023, we have provided a deferred tax liability of $22 million for net foreign withholding taxes and state income taxes on $650 million of earnings expected to be repatriated to the U.S. parent as ~~a result of our review, it is determined that all or a portion of the funds may be needed for our operations~~deemed necessary in the ~~United States, we may be required to accrue additional U.S. taxes. As of September 30, 2017, our foreign subsidiaries were holding $267 million in cash or marketable securities.~~future.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and capital resources are based on our condensed consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. We believe the most complex and sensitive judgments, because of their significance to the condensed consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~2016~~2022 Annual Report describes the critical accounting estimates used in preparation of the condensed consolidated financial statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in the information concerning our critical accounting estimates as stated in our ~~2016~~2022 Annual Report.

~~New Accounting Pronouncements~~

~~See~~ ~~Note 2~~, "Recently Issued Accounting Pronouncements," to the condensed consolidated financial statements for a complete discussion of recent accounting pronouncements. We are currently evaluating the impact of certain recently issued guidance on our financial condition and results of operations in future periods.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the information concerning market risk as stated in our ~~2016~~2022 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

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

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

PART II

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in legal and regulatory proceedings that are incidental to the operation of our ~~businesses. Some~~businesses (or the business operations of ~~these~~previously-owned entities). These proceedings may seek remedies relating to matters including environmental, ~~matters,~~tax, intellectual property, ~~matters,~~acquisitions or divestitures, product liability, property damage, personal injury, ~~claims,~~privacy, employment, labor and pension, ~~matters,~~ government contract issues and commercial or contractual ~~disputes, sometimes related to acquisitions or divestitures.~~disputes. See Note 1718, "Commitments and ~~Contingencies"~~Contingencies," to the condensed consolidated financial statements for further information and any updates.

ITEM 1A. RISK FACTORS

~~There have been no~~Information regarding our risk factors appears in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 24, 2023 (“Annual Report”). These risk factors describe some of the assumptions, risks, uncertainties and other factors that could materially and adversely affect our business, financial condition or operating results. In addition, the following risk factors represent material changes ~~from the~~in our risk factors ~~previously~~from those disclosed in Item 1A. of our~~2016~~ Annual Report.

Wastewater treatment operations and the handling, storage, release or disposal of hazardous materials may result in contamination, environmental or other liabilities or pose other significant risks that could cause us to incur significant costs and reputational harm.

Wastewater treatment involves various unique risks. If our treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby bodies of water and groundwater, causing various damages and injuries, including environmental. Liabilities resulting from such events, damages and injuries could materially adversely affect our business, financial condition, results of operations or prospects.

Furthermore, certain of our business activities, including those of our ISS segment, include manufacturing processes and waste recycling and treatment processes that currently involve the use, treatment, storage, transfer, handling and/or disposal of hazardous materials, chemicals, and wastes. These business activities create a risk of accidental contamination or injury to our employees, customers and other third parties, the general public (as end-users of our industrial and municipal customers’ products and services), and the environment. As such, these activities create a risk of significant legal and environmental liabilities and reputational damage. For example, under applicable environmental laws and regulations, including RCRA and CERCLA, we could be strictly, jointly, and severally liable for releases of regulated substances by us 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 be liable or incur reputational damage if we merely generate hazardous materials or wastes, or arrange for their transportation, disposal, or treatment, or we transport such materials, and they are subsequently released or cause harm.

In the event that our business activities and wastewater treatment operations result in legal or environmental claims, damage or liabilities, including those described above, we could incur significant costs or reputational damage in connection with legal defense, investigation and remediation of environmental contamination, and damages related to property damage, personal injuries and natural resources. Such costs and liabilities could exceed any applicable insurance coverage we may have.

Additionally, we are subject to, on an ongoing basis, federal, state, and local laws and regulations governing the use, storage, handling and disposal of hazardous materials and specified waste products. The cost of compliance with these laws and regulations may become significant and could have a material adverse effect on our business, financial condition, results of operations or prospects.

If we are unable to successfully execute large projects and meet customers’ timelines and performance and safety requirements, this could have a material adverse effect on our sales and profitability.

A portion of our revenue is derived from large projects that are technically complex and may occur over multiple years. These projects are subject to a number of significant risks, including project delays, cost overruns, changes

in scope, unanticipated site conditions, design and engineering issues, incorrect cost assumptions, increases in the cost of materials and labor, health and safety hazards, subcontractor performance issues, weather issues and changes in laws or permitting requirements. If we are unable to manage these risks, we may incur higher costs, liquidated damages, and other liabilities to our customers, which may decrease our profitability and harm our reputation.

Furthermore, our project-based customers typically require performance guarantees as to the effluent water produced by our water treatment equipment and services. Failure of our products and services to meet our performance guarantees may increase costs by requiring additional engineering, replacement of parts and equipment and frequent replacement of consumables, or monetary reimbursement to a customer, and could otherwise result in liability to our customers. There are significant uncertainties and judgments involved in estimating performance guarantee obligations, including changing product designs, differences in customer installation processes and failure to identify or disclaim certain variables in a customer’s influent. To the extent that we incur substantial performance guarantee claims in any period, our reputation, earnings, and ability to obtain future business could be materially adversely affected.

Many of our customers also have safety performance requirements that we must meet in order to be allowed access to their sites to perform our services, install our products and execute projects. Risks arising from unsafe products or performance by our employees include, among other things, delays in or suspension of site access to service or timely deliver our products. Workplace accidents or near-accidents, product-related accidents, or the failure to follow our own or our customers’ safety policies could also damage our reputation or our customers’ perception of our safety record, which could have a material adverse impact on demand for our products and services, result in additional costs to our business or the loss of customers, result in litigation against us or increase government or regulatory oversight over us.

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

The following table presents information with respect to purchases of the Company's common stock by the Company during the three months ended ~~September~~June 30, ~~2017~~:

2023:

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

PERIOD

TOTAL NUMBER OF SHARES PURCHASED

AVERAGE PRICE PAID PER SHARE (a)

TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS (b)

APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (b)

7/4/1/1723 - ~~7/31/17~~4/30/23

—

$~~413~~182

8/5/1/1723 - 8/5/31/1723

—

$~~413~~182

9/6/1/1723 - 9/6/30/1723

—

$~~413~~182

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


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

~~(b)~~

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

(b)On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during three months ended September 30, 2017. There are up to $413 million in shares that may still be purchased under this plan as of September 30, 2017.

~~On August 18, 2012,~~ our Board of Directors authorized the repurchase of up to ~~2.0~~$500 million in shares ~~of common stock~~ with no expiration date. The program's objective is to ~~offset dilution associated with various Xylem employee stock plans by acquiring shares~~deploy our capital in ~~the open market from time to time.~~a manner that benefits our stockholders and maintains our focus on growth. There were no shares repurchased under this program ~~during~~for the three months ended ~~September~~June 30, ~~2017, as we had exhausted the authorized amount~~2023. There are up to ~~repurchase~~$182 million in shares that may still be purchased under this plan ~~during the second quarter~~as of ~~2017.~~June 30, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~(c) Trading Plans

During the quarter ended June 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

ITEM 6. EXHIBITS

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

~~SIGNATURES~~

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

XYLEM INC.

EXHIBIT INDEX



		~~XYLEM INC.~~
		~~(Registrant)~~

		~~/s/ Paul Stellato~~
		~~Paul Stellato~~
		~~Vice President, Controller and Chief Accounting Officer~~

~~October 31, 2017~~

~~XYLEM INC.~~

~~EXHIBIT INDEX~~



Exhibit Number	~~Description~~	Description	Location

2.1		Agreement and Plan of Merger, dated as of January 22, 2023, among Xylem Inc., Fore Merger Sub, Inc. and Evoqua Water Technologies Corp.	Incorporated by reference to Exhibit 2.1 of Xylem Inc.’s Form 8-K filed on January 23, 2023 (CIK No. 1524472, File No. 1-24339)

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

3.2	~~Forth~~	Fifth Amended and Restated By-laws of Xylem Inc.	Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 8-K filed on ~~May~~November 15, ~~2017~~2022 (CIK No. 1524472, File No. 1-35229).














~~11.0~~10.1		Term Loan Agreement dated as of May 9, 2023 among Xylem Europe GmbH, as borrower, Xylem Inc. as parent guarantor and ING Bank, N.V. as lender (including Form of Parent Guarantee)	Filed herewith.

10.2	#	EWT Holdings I Corp. Stock Option Plan	Incorporated by reference to Exhibit 10.17 to Amendment No. 2 to EWT Holdings I Corp’s Evoqua’s Registration Statement ~~Re-Computation~~on Form S-1 filed on October 17, 2017 (File No. 333-220785)

10.3	#	Form of ~~Per Share Earnings~~EWT Holdings I Corp. Nonqualified Stock Option Agreement	~~Information required~~Incorporated by reference to ~~be presented in~~ Exhibit ~~11 is provided~~10.29 to Amendment No. 2 to EWT Holdings I Corp’s Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785))

10.4	#	Form of EWT Holdings I Corp. 2017 Annual Incentive Plan	Incorporated by reference to Exhibit 10.31 to Amendment No. 2 to EWT Holdings I Corp’s Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)

10.5	#	Form of Nonqualified Stock Option Agreement under ~~“Earnings Per Share” in Note 6~~the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Condensed Consolidated Financial Statements in Part I, Item 1 “Condensed Consolidated Financial Statements” of this Report in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification 260, ~~Earnings Per Share~~.Registrant’s Form 8-K filed on April 4, 2018 (File No. 001-38272

10.6	#	Form of Restricted Stock Unit Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (Employee Form)	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on April 4, 2018 (File No. 001-38272)

10.7	#	Form of Nonqualified Stock Option Award Agreement under Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on May 10, 2019 (File No. 001-38272)

10.8	#	Form of Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q filed on May 10, 2019 (File No. 001-38272)

10.9	#	Form of Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (RSUs Received in Connection with AIP Payment)	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 6, 2019 (File No. 001-38272)

10.10	#	Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on May 6, 2020 (File No. 001-38272)

10.11	#	Form of Non-Employee Director Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.33 to the Registrant’s Form 10-K filed on November 17, 2021 (File No. 001-38272)

10.12	#	Form of Special Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)


Exhibit Number		Description	Location
10.13	#	Form of Special Performance Share Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)

10.14	#	Form of Restricted Stock Unit Award-Notice of Grant under the Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (for awards made after fiscal 2021)	Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q filed on February 1, 2022 (File No. 001-38272)

10.15	#	Form of Performance Share Unit Award-Notice of Grant under the Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (for awards made after fiscal 2021)	Incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q filed on February 1, 2022 (File No. 001-38272)

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

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

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

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

101.0		The following materials from Xylem Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September~~June 30, ~~2017,~~2023, formatted in ~~XBRL (Extensible~~Inline Extensible Business Reporting ~~Language)~~Language (Inline XBRL): (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements	The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

104.0		The cover page from Xylem Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2023 formatted in Inline XBRL and contained in Exhibit 101.0.

		# Management contract or compensatory plan or arrangement

SIGNATURES

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


						XYLEM INC.
						(Registrant)

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

August 4, 2023



Indiana						45-2080495
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



ITEM			PAGE
PART I – Financial Information
Item 1	-	~~Condensed Consolidated~~ Financial Statements:
		Condensed Consolidated Income Statements for the Three Months and ~~Nine~~Six Months Ended ~~September~~June 30 ~~2017~~, 2023 and ~~2016~~2022 (Unaudited)	3
		Condensed Consolidated Statements of Comprehensive Income for the Three Monthsand ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022 (Unaudited)	4
		Condensed Consolidated Balance Sheets as of ~~September~~June 30 ~~2017~~,2023 and December 31, ~~2016~~2022 (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~ Six Months Ended ~~September~~June 30 ~~2017~~, 2023 and ~~2016~~2022 (Unaudited)	6
		Notes to the Condensed Consolidated Financial Statements (Unaudited)	7
Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3136
Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	4860
Item 4	-	Controls and Procedures	4861
PART II – Other Information
Item 1	-	Legal Proceedings	4962
Item 1A	-	Risk Factors	4962
Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	4963
Item 3	-	Defaults Upon Senior Securities	4963
Item 4	-	Mine Safety Disclosures	4963
Item 5	-	Other Information	4964
Item 6	-	Exhibits	5064
		Signatures	5167


	June 30, 2023		December 31, 2022

ASSETS
Current assets:
Cash and cash equivalents	$	708	$	944

Receivables, less allowances for discounts, returns and credit losses of $45 and $50 in 2023 and 2022, respectively	1,659		1,096
Inventories	1,143		799
Prepaid and other current assets	225		173

Total current assets	3,735		3,012
Property, plant and equipment, net	1,144		630
Goodwill	7,108		2,719
Other intangible assets, net	3,188		930
Other non-current assets	922		661
Total assets	$	16,097	$	7,952
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	968	$	723
Accrued and other current liabilities	1,074		867
Short-term borrowings and current maturities of long-term debt	240		—
Total current liabilities	2,282		1,590
Long-term debt	2,267		1,880
Accrued post-retirement benefits	293		286
Deferred income tax liabilities	738		222
Other non-current accrued liabilities	607		471
Total liabilities	6,187		4,449
Commitments and contingencies (Note 18)
Stockholders’ equity:
Common stock – par value $0.01 per share:
Authorized 750.0 shares, issued 256.6 shares and 196.0 shares in 2023 and 2022, respectively	3		2
Capital in excess of par value	8,495		2,134
Retained earnings	2,344		2,292
Treasury stock – at cost 15.9 shares and 15.8 shares in 2023 and 2022, respectively	(717)		(708)
Accumulated other comprehensive loss	(226)		(226)
Total stockholders’ equity	9,899		3,494
Non-controlling interests	11		9
Total equity	9,910		3,503
Total liabilities and stockholders’ equity	$	16,097	$	7,952



	September 30, 2017			December 31, 2016

ASSETS
Current assets:
Cash and cash equivalents	$	283		$	308
Receivables, less allowances for discounts and doubtful accounts of $30 and $30 in 2017 and 2016, respectively	990			843
Inventories	562			522
Prepaid and other current assets	160			166
Total current assets	1,995			1,839
Property, plant and equipment, net	637			616
Goodwill	2,741			2,632
Other intangible assets, net	1,174			1,201
Other non-current assets	236			186
Total assets	$	6,783		$	6,474
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	477		$	457
Accrued and other current liabilities	562			521
Short-term borrowings and current maturities of long-term debt	97			260
Total current liabilities	1,136			1,238
Long-term debt	2,189			2,108
Accrued postretirement benefits	429			408
Deferred income tax liabilities	324			352
Other non-current accrued liabilities	225			161
Total liabilities	4,303			4,267
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 192.0 shares and 191.4 shares in 2017 and 2016, respectively	2			2
Capital in excess of par value	1,900			1,876
Retained earnings	1,188			1,033
Treasury stock – at cost 12.4 shares and 11.9 shares in 2017 and 2016, respectively	(428		)	(403		)
Accumulated other comprehensive loss	(199		)	(318		)
Total stockholders’ equity	2,463			2,190
Non-controlling interests	17			17
Total equity	2,480			2,207
Total liabilities and stockholders’ equity	$	6,783		$	6,474


(in millions)	Fair Value of Purchase Consideration
Xylem Common Stock issued to Evoqua stockholders (58,779,096 shares)	$	6,121
Estimated replacement equity awards	160
Payment of certain Evoqua indebtedness	619
Total	$	6,900



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


											Three Months				Six Months
	Three Months					Nine Months
For the periods ended September 30,	2017			2016		2017		2016
For the period ended June 30,										For the period ended June 30,	2023		2022		2023		2022
Revenue	$	1,195		$	897	$	3,430	$	2,676	Revenue	$	1,722	$	1,364	$	3,170	$	2,636
Cost of revenue	724			540		2,088		1,621		Cost of revenue	1,071		844		1,973		1,649
Gross profit	471			357		1,342		1,055		Gross profit	651		520		1,197		987
Selling, general and administrative expenses	270			219		812		665		Selling, general and administrative expenses	446		314		800		618
Research and development expenses	45			23		131		75		Research and development expenses	58		53		111		105
Restructuring and asset impairment charges, net	4			6		22		18
Restructuring and asset impairment charges										Restructuring and asset impairment charges	28		7		36		7

Operating income	152			109		377		297		Operating income	119		146		250		257
Interest expense	21			16		62		50		Interest expense	12		12		21		25

Other non-operating income, net	1			2		3		3		Other non-operating income, net	7		2		11		1
Gain from sale of business	(1		)	—		4		—		Gain from sale of business	—		—		—		1
Income before taxes	131			95		322		250		Income before taxes	114		136		240		234
Income tax expense	27			22		62		40		Income tax expense	22		24		49		40
Net income	104			73		260		210		Net income	$	92	$	112	$	191	$	194
Less: Net loss attributable to non-controlling interests	(1		)	—		—		—
Net income attributable to Xylem	$	105		$	73	$	260	$	210

Earnings per share:										Earnings per share:
Basic	$	0.58		$	0.41	$	1.45	$	1.17	Basic	$	0.45	$	0.62	$	0.99	$	1.07
Diluted	$	0.58		$	0.41	$	1.44	$	1.17	Diluted	$	0.45	$	0.62	$	0.98	$	1.07
Weighted average number of shares:										Weighted average number of shares:
Basic	179.6			179.3		179.6		179.0		Basic	205.5		180.2		193.0		180.2
Diluted	180.9			180.3		180.7		179.8		Diluted	206.7		180.6		194.0		180.8
Dividends declared per share	$	0.1800		$	0.1549	$	0.5400	$	0.4647


For the six months ended June 30,	2023		2022
Operating Activities
Net income	191		194
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	69		56
Amortization	83		62
Share-based compensation	27		18
Restructuring and asset impairment charges	36		7


Gain from sale of business	—		(1)
Other, net	(5)		6
Payments for restructuring	(9)		(5)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables	(122)		(119)
Changes in inventories	(57)		(189)
Changes in accounts payable	36		40

Changes in accrued and deferred taxes	(86)		(2)

Other, net	(154)		(35)
Net Cash – Operating activities	9		32
Investing Activities
Capital expenditures	(103)		(95)
Acquisitions of businesses, net of cash acquired	(476)		—
Proceeds from sale of business	91		1
Proceeds from the sale of property, plant and equipment	—		3
Cash received from investments	—		4
Cash paid for investments	—		(7)
Cash paid for equity investments	(56)		(1)
Cash received from interest rate swaps	38		—
Cash received from cross-currency swaps	14		11
Other, net	3		—
Net Cash – Investing activities	(489)		(84)
Financing Activities
Short-term debt issued, net	74		—

Long-term debt issued, net	275		—
Long-term debt repaid	(1)		—
Repurchase of common stock	(9)		(52)
Proceeds from exercise of employee stock options	40		3
Dividends paid	(139)		(110)

Other, net	(5)		1
Net Cash – Financing activities	235		(158)
Effect of exchange rate changes on cash	9		(26)
Net change in cash and cash equivalents	(236)		(236)
Cash and cash equivalents at beginning of year	944		1,349
Cash and cash equivalents at end of period	$	708	$	1,113
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	30	$	40
Income taxes (net of refunds received)	$	135	$	42



For the nine months ended September 30,	2017			2016
Operating Activities
Net income	$	260		$	210
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	83			61
Amortization	91			36
Share-based compensation	16			15
Restructuring and asset impairment charges	22			18
Gain from sale of business	(4		)	—
Other, net	18			8
Payments for restructuring	(25		)	(11		)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables	(114		)	(27		)
Changes in inventories	(14		)	(42		)
Changes in accounts payable	3			14
Other, net	43			(8		)
Net Cash – Operating activities	379			274
Investing Activities
Capital expenditures	(119		)	(90		)
Acquisition of business, net of cash acquired	(16		)	(70		)
Proceeds from sale of assets and business	11			—
Cash received from investments	10			—
Cash paid for investments	(11		)	—
Other, net	3			5
Net Cash – Investing activities	(122		)	(155		)
Financing Activities
Short-term debt issued, net	—			62
Short-term debt repaid	(184		)	(80		)
Long-term debt issued	—			540
Long-term debt repaid	—			(608		)
Repurchase of common stock	(25		)	(3		)
Proceeds from exercise of employee stock options	8			22
Dividends paid	(97		)	(84		)
Other, net	(1		)	1
Net Cash – Financing activities	(299		)	(150		)
Effect of exchange rate changes on cash	17			10
Net change in cash and cash equivalents	(25		)	(21		)
Cash and cash equivalents at beginning of year	308			680
Cash and cash equivalents at end of period	$	283		$	659
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	46		$	34
Income taxes (net of refunds received)	$	58		$	60


(in millions)	Fair Value
Cash and cash equivalents	$	143
Receivables	432
Inventories	288

Prepaid and other current assets	75

Assets held for sale	8
Property, plant and equipment, net	511
Goodwill	4,364
Other intangible assets, net	2,307


Other non-current assets	191
Non-current assets held for sale	86
Accounts payable	(207)


Accrued and other current liabilities	(342)

Short-term borrowings and current maturities of long-term debt	(166)
Liabilities held for sale	(1)
Long-term debt	(111)


Other non-current accrued liabilities	(124)
Deferred income tax liabilities	(551)
Non-current liabilities held for sale	(3)
Total	$	6,900



(in millions)	Amount
Cash	$	56
Receivables	104
Inventories	79
Prepaid and other current assets	19
Property, plant and equipment	176
Intangible assets	782
Other long-term assets	5
Accounts payable	(69		)
Accrued and other current liabilities	(90		)
Deferred income tax liabilities	(198		)
Accrued post retirement benefits	(84		)
Other non-current accrued liabilities	(60		)
Total identifiable net assets	720

Goodwill	1,063
Non-controlling interest	(17		)
Total consideration	$	1,766


(in millions)	Useful Life (in years)	Fair Value (in millions)
Trademarks	6	$	60
Proprietary technology and patents	4 - 9	150
Customer and distributor relationships	7 - 17	1,960
Backlog	1 - 8	110
Software	1 - 3	27
Total		$	2,307



Category	Life	Amount (in millions)
Customer and Distributor Relationships	2 - 18 years	$	543
Tradenames	10 - 25 years	98
Internally Developed Network Software	7 years	60
FCC Licenses	Indefinite lived	24
Technology	5 - 15 years	39
Other	1 - 16 years	18
Total		$	782


	(Unaudited) Three Months Ended June 30,				(Unaudited) Six Months Ended June 30,
(in millions)	2023		2022		2023		2022
Revenue	$	2,025	$	1,803	$	3,952	$	3,502
Net income	$	63	$	92	$	170	$	76



(in millions)	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Revenue	$	1,123	$	3,365
Net income	$	80	$	263


(in millions)	Contract Assets (a)		Contract Liabilities
Balance at January 1, 2022	$	125	$	164
Additions, net	63		97
Revenue recognized from opening balance	—		(75)
Billings transferred to accounts receivable	(61)		—
Foreign currency and other	(4)		(3)
Balance at June 30, 2022	$	123	$	183

Balance at January 1, 2023	$	151	$	183
Opening balance from the acquisition of Evoqua	110		107
Additions, net	85		94
Revenue recognized from opening balance	—		(80)
Billings transferred to accounts receivable	(73)		—
Foreign currency and other	1		(5)
Balance at June 30, 2023	$	274	$	299



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in millions)	2017		2016			2017			2016
By component:
Severance and other charges	$	3	$	6		$	17		$	18
Lease related charges	—		1			—			1
Other restructuring charges	1		—			1			—
Reversal of restructuring accruals	—		(1		)	(1		)	(1		)
Total restructuring charges	$	4	$	6		$	17		$	18
Asset impairment	—		—			5			—
Total restructuring and asset impairment charges	$	4	$	6		$	22		$	18

By segment:
Water Infrastructure	$	1	$	4		$	6		$	11
Applied Water	2		1			12			4
Measurement & Control Solutions	1		1			4			1
Corporate and other	—		—			—			2


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



	September 30, 2017							December 31, 2016
(in millions)	Carrying Amount		Accumulated Amortization			Net Intangibles		Carrying Amount		Accumulated Amortization			Net Intangibles
Customer and distributor relationships	$	905	$	(224	)	$	681	$	891	$	(168	)	$	723
Proprietary technology and patents	162		(72		)	90		156		(61		)	95
Trademarks	142		(37		)	105		139		(23		)	116
Software	251		(118		)	133		218		(118		)	100
Other	25		(19		)	6		26		(13		)	13
Indefinite-lived intangibles	159		—			159		154		—			154
Other Intangibles	$	1,644	$	(470	)	$	1,174	$	1,584	$	(383	)	$	1,201


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


	June 30, 2023
(in millions)	Gross		Net
Property, plant, and equipment, net	$	76	$	75
Receivables, net	2		2
Prepaid and other current assets	4		4
Other non-current assets	55		54
	$	137	$	135


(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-Controlling Interest		Total
Balance at January 1, 2023	$	2	$	2,134	$	2,292	$	(226)	$	(708)	$	9	$	3,503


Net income	—		—		99		—		—		—		99
Other comprehensive income, net	—		—		—		35		—		—		35
Other activity	—		—		—		—		—		2		2
Dividends declared ($0.33 per share)	—		—		(60)		—		—		—		(60)
Stock incentive plan activity	—		18		—		—		(8)		—		10

Balance at March 31, 2023	$	2	$	2,152	$	2,331	$	(191)	$	(716)	$	11	$	3,589


Net income	—		—		92		—		—		—		92
Other comprehensive income, net	—		—		—		(35)		—		—		(35)
Issuance of common stock	1		6,120		—		—		—		—		6,121
Issuance of replacement equity awards			160		—		—		—		—		160
Dividends declared ($0.33 per share)	—		—		(79)		—		—		—		(79)
Stock incentive plan activity	—		63		—		—		(1)		—		62

Balance at June 30, 2023	$	3	$	8,495	$	2,344	$	(226)	$	(717)	$	11	$	9,910



	Share units (in thousands)		Weighted Average Exercise Price / Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2017	2,126		$	33.71	6.9
Granted	501		48.43
Exercised	(257	)	31.87
Forfeited and expired	(50	)	42.08
Outstanding at September 30, 2017	2,320		$	36.91	7.0	$	60
Options exercisable at September 30, 2017	1,383		$	32.89	5.8	$	41
Vested and expected to vest as of September 30, 2017	2,219		$	35.87	6.8	$	58


	Share units (in thousands)	Weighted Average Exercise Price / Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2023	1,935	$	67.55	5.9	$	83
Granted	2,153	38.13
Exercised	(1,412)	28.26
Forfeited and expired	(14)	98.95
Other	14	73.16
Outstanding at June 30, 2023	2,676	$	64.42	6.0	$	129
Options exercisable at June 30, 2023	1,979	$	58.18	5.1	$	108
Vested and expected to vest as of June 30, 2023	2,603	$	63.69	5.7	$	127



Volatility	25.40		%
Risk-free interest rate	2.07		%
Dividend yield	1.49		%
Expected term (in years)	5.1
Weighted-average fair value / share	$	10.66


Volatility	27.30		%
Risk-free interest rate	4.25		%
Dividend yield	1.31		%
Expected term (in years)	5.4
Weighted-average fair value / share	$	29.06


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2023	553	$	88.88
Granted	1,005	103.29
Vested	(264)	101.43
Forfeited	(22)	95.65
Outstanding at June 30, 2023	1,272	$	96.05



~~Volatility~~	~~30.2~~	%
Volatility	35.9	%
Risk-free interest rate	~~1.50~~4.66	%


(in millions)	Foreign Currency Translation		Post-retirement Benefit Plans		Derivative Instruments		Total
Balance at January 1, 2023	$	(180)	$	(41)	$	(5)	$	(226)
Foreign currency translation adjustment	22		—		—		22
Tax on foreign currency translation adjustment	5		—		—		5


Amortization of actuarial gain on post-retirement benefit plans into other non-operating income, net	—		(1)		—		(1)





Income tax impact on amortization of post-retirement benefit plan items	—		1		—		1
Unrealized gain on derivative hedge agreements	—		—		4		4
Income tax benefit on unrealized gain on derivative hedge agreements	—		—		(1)		(1)


Reclassification of unrealized loss on foreign exchange agreements into revenue	—		—		3		3
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—		—		2		2


Balance at March 31, 2023	$	(153)	$	(41)	$	3	$	(191)
Foreign currency translation adjustment	(38)		—		—		(38)
Tax on foreign currency translation adjustment	9		—		—		9


Amortization of prior service credit and actuarial gain on post-retirement benefit plans into other non-operating income, net	—		(1)		—		(1)

Foreign currency translation adjustment for post-retirement benefit plans	—		(1)		—		(1)




Unrealized loss on derivative hedge agreements	—		—		(3)		(3)

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


Balance at June 30, 2023	$	(182)	$	(43)	$	(1)	$	(226)



(in millions)	Foreign Currency Translation			Postretirement Benefit Plans			Derivative Instruments			Total
Balance at July 1, 2017	$	(51	)	$	(173	)	$	4		$	(220	)
Foreign currency translation adjustment	7			—			—			7
Tax on foreign currency translation adjustment	12			—			—			12
Amortization of net actuarial loss on postretirement benefit plans into:
Cost of revenue	—			1			—			1
Selling, general and administrative expenses	—			2			—			2
Restructuring				1						1
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Unrealized gain on derivative hedge agreements	—			—			1			1
Reclassification of unrealized gain on derivative hedge agreements into revenue	—			—			(2		)	(2		)
Balance at September 30, 2017	$	(32	)	$	(170	)	$	3		$	(199	)


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


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


~~(a)~~	~~The Regional selling locations have assets that consist primarily of cash, accounts receivable and inventory which are not allocated to the segments.~~


~~(b)~~	Corporate and other consists of items pertaining to our corporate headquarters function, which principally consist of cash, deferred tax assets, pension assets and certain property, plant and equipment.