10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

or

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

For the transition period from             to             

Commission file number: 1-35229

Xylem Inc.

(Exact name of registrant as specified in its charter)

 

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

1 International Drive, Rye Brook, NY 10573

(Address of principal executive offices) (Zip code)

(914) 323-5700

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange of which registered
Common Stock, par value $0.01 per share	XYL	New York Stock Exchange
2.250% Senior Notes due 2023	XYL23	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☑   No  ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of October 25, 2019, there were 180,078,871 outstanding shares of the registrant’s common stock, par value $0.01 per share.

Xylem Inc.

Table of Contents

ITEM			PAGE
PART I – Financial Information
Item 1	-	Condensed Consolidated Financial Statements:
		Condensed Consolidated Income Statements for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	3
		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	4
		Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (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	37
Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4	-	Controls and Procedures	56
PART II – Other Information
Item 1	-	Legal Proceedings	57
Item 1A	-	Risk Factors	57
Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3	-	Defaults Upon Senior Securities	57
Item 4	-	Mine Safety Disclosures	57
Item 5	-	Other Information	57
Item 6	-	Exhibits	57
		Signatures	59

2

PART I

ITEM 1.             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

	Three Months					Nine Months
For the periods ended September 30,	2019			2018		2019			2018
Revenue	$	1,296		$	1,287	$	3,878		$	3,821
Cost of revenue	787			782		2,369			2,337
Gross profit	509			505		1,509			1,484
Selling, general and administrative expenses	273			279		870			868
Research and development expenses	44			46		142			137
Restructuring and asset impairment charges	33			4		58			19
Goodwill impairment charge	148			—		148			—
Operating income	11			176		291			460
Interest expense	16			21		52			63
Other non-operating (expense) income, net	(7		)	4		(2		)	9
Gain from sale of business	—			2		1			—
(Loss) income before taxes	(12		)	161		238			406
Income tax (benefit) expense	(77		)	31		(45		)	82
Net income	$	65		$	130	$	283		$	324
Earnings per share:
Basic	$	0.36		$	0.73	$	1.57		$	1.80
Diluted	$	0.36		$	0.72	$	1.56		$	1.79
Weighted average number of shares:
Basic	180.1			179.7		179.9			179.8
Diluted	181.2			181.1		181.2			181.2

See accompanying notes to condensed consolidated financial statements.

3

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions)

	Three Months						Nine Months
For the periods ended September 30,	2019			2018			2019			2018
Net income	$	65		$	130		$	283		$	324
Other comprehensive loss, before tax:
Foreign currency translation adjustment	(20		)	(9		)	(9		)	(61		)
Net change in derivative hedge agreements:
Unrealized loss	(5		)	—			(14		)	(9		)
Amount of loss reclassified into net income	3			3			7			1
Net change in postretirement benefit plans:
Net loss	(11		)	—			(11		)	—
Amortization of prior service credit	(1		)	(2		)	(3		)	(4		)
Amortization of net actuarial loss into net income	2			4			8			11
Settlement/Curtailment	8			—			8			1
Other comprehensive loss, before tax	(24		)	(4		)	(14		)	(61		)
Income tax expense (benefit) related to items of other comprehensive income	13			(3		)	14			7
Other comprehensive loss, net of tax	(37		)	(1		)	(28		)	(68		)
Comprehensive income	$	28		$	129		$	255		$	256
Less: comprehensive loss attributable to noncontrolling interests	—			(2		)	—			(2		)
Comprehensive income attributable to Xylem	$	28		$	131		$	255		$	258

See accompanying notes to condensed consolidated financial statements.

4

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	453		$	296
Receivables, less allowances for discounts and doubtful accounts of $33 and $35 in 2019 and 2018, respectively	1,078			1,031
Inventories	580			595
Prepaid and other current assets	152			172
Total current assets	2,263			2,094
Property, plant and equipment, net	641			656
Goodwill	2,811			2,976
Other intangible assets, net	1,180			1,232
Other non-current assets	620			264
Total assets	$	7,515		$	7,222
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	521		$	586
Accrued and other current liabilities	634			546
Short-term borrowings and current maturities of long-term debt	306			257
Total current liabilities	1,461			1,389
Long-term debt	2,030			2,051
Accrued postretirement benefits	385			400
Deferred income tax liabilities	310			303
Other non-current accrued liabilities	434			297
Total liabilities	4,620			4,440
Commitments and contingencies (Note 19)
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 193.8 shares and 192.9 shares in 2019 and 2018, respectively	2			2
Capital in excess of par value	1,983			1,950
Retained earnings	1,791			1,639
Treasury stock – at cost 13.7 shares and 13.2 shares in 2019 and 2018, respectively	(526		)	(487		)
Accumulated other comprehensive loss	(364		)	(336		)
Total stockholders’ equity	2,886			2,768
Non-controlling interests	9			14
Total equity	2,895			2,782
Total liabilities and stockholders’ equity	$	7,515		$	7,222

See accompanying notes to condensed consolidated financial statements.

5

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

For the nine months ended September 30,	2019			2018
Operating Activities
Net income	$	283		$	324
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	88			87
Amortization	104			108
Share-based compensation	23			23
Restructuring and asset impairment charges	58			19
Goodwill impairment charge	148			—
Gain from sale of business	(1		)	—
Other, net	7			2
Payments for restructuring	(21		)	(18		)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables	(73		)	(76		)
Changes in inventories	(2		)	(115		)
Changes in accounts payable	(30		)	51
Changes in accrued taxes	(140		)	20
Other, net	7			(37		)
Net Cash – Operating activities	451			388
Investing Activities
Capital expenditures	(175		)	(171		)
Acquisitions of businesses, net of cash acquired	(18		)	(433		)
Proceeds from sale of business	(2		)	22
Cash received from investments	3			—
Other, net	7			3
Net Cash – Investing activities	(185		)	(579		)
Financing Activities
Short-term debt issued, net	317			410
Short-term debt repaid	(254		)	(50		)
Repurchase of common stock	(39		)	(58		)
Proceeds from exercise of employee stock options	10			7
Dividends paid	(131		)	(114		)
Other, net	(2		)	—
Net Cash – Financing activities	(99		)	195
Effect of exchange rate changes on cash	(10		)	(14		)
Net change in cash and cash equivalents	157			(10		)
Cash and cash equivalents at beginning of year	296			414
Cash and cash equivalents at end of period	$	453		$	404
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	46		$	47
Income taxes (net of refunds received)	$	94		$	60

See accompanying notes to condensed consolidated financial statements.

6

XYLEM INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Background and Basis of Presentation

Background

Xylem Inc. (“Xylem” or the “Company”) is a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment.

Xylem operates in three segments, Water Infrastructure, Applied Water and Measurement & Control Solutions. See Note 20, "Segment Information" to the condensed consolidated financial statements for further segment background information.

Except as otherwise indicated or unless the context otherwise requires, "Xylem," "we," "us," "our" and the "Company" refer to Xylem Inc. and its subsidiaries.

Basis of Presentation

The interim condensed consolidated financial statements reflect our financial position and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions between our businesses have been eliminated.

The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report") in preparing these unaudited condensed consolidated financial statements, with the exception of accounting standard updates described in Note 2. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our 2018 Annual Report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, postretirement obligations and assets, revenue recognition, income tax contingency accruals and valuation allowances, goodwill and indefinite lived intangible impairment testing, contingent liabilities and lease accounting. Actual results could differ from these estimates.

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the condensed consolidated financial statements included herein are described as ending on the last day of the calendar quarter.

Note 2. Recently Issued Accounting Pronouncements

Pronouncements Not Yet Adopted

In June 2016, the FASB issued guidance amending the accounting for the impairment of financial instruments, including trade receivables. Under current guidance, credit losses are recognized when the applicable losses have a probable likelihood of occurring and this assessment is based on past events and current conditions. The amended guidance eliminates the “probable” threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach

7

except for debt securities, which require a prospective transition approach. We are evaluating the impact of the guidance on our financial condition and results of operations.

Recently Adopted Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance regarding the accounting for implementation costs of a hosting arrangement that is a service contract. The guidance establishes the requirement to capitalize certain implementation costs incurred in a hosting arrangement that is a service contract, effectively aligning with the requirement to capitalize certain implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. The requirements of the amended guidance may be applied using either a retrospective or prospective approach. We adopted this guidance prospectively as of April 1, 2019. This guidance did not have a material impact on our financial condition and results of operations.

In February 2016, the FASB issued guidance amending the accounting for leases. Specifically, the amended guidance requires all lessees to record a lease liability at lease inception, with a corresponding right of use ("ROU") asset, except for short-term leases. Lessor accounting is not fundamentally changed. This amended guidance is effective for interim and annual periods beginning after December 15, 2018 using a modified retrospective approach. Early adoption was permitted. We adopted this guidance as of January 1, 2019 using the modified retrospective approach whereby prior comparative periods were not retrospectively restated in the condensed consolidated financial statements. The adoption of the standard resulted in the recognition of ROU assets and lease liabilities of $267 million and $265 million, respectively, as well as deferred tax assets and deferred tax liabilities of $68 million, as of January 1, 2019, the date of initial application. The guidance did not have a material impact on our Condensed Consolidated Income Statements and Statements of Cash Flow. See Note 9, "Leases" for further details.

Note 3. Acquisitions and Divestitures

2019 Acquisitions

During the three and nine months ended September 30, 2019 we spent approximately $0 million and $18 million, net of cash received on acquisition activity, respectively.

2018 Acquisitions and Divestitures

Pure Technologies Ltd.

On January 31, 2018, we acquired all the issued and outstanding shares of Pure Technologies Ltd. (“Pure”), a leader in intelligent leak detection and condition assessment solutions for water distribution networks for approximately $420 million, net of cash received. Acquisition costs of $4 million were reflected as a component of selling, general and administrative expenses in our Condensed Consolidated Income Statement for the year ended December 31, 2018.

Pure’s results of operations were consolidated with the Company effective February 1, 2018 and are reflected in the Measurement & Control Solutions segment.

8

The Pure purchase price allocation as of January 31, 2018 is shown in the following table:

(in millions)	Amount
Cash	$	14
Receivables	23
Inventories	4
Prepaid and other current assets	2
Property, plant and equipment	22
Intangible assets	149
Other long-term assets	1
Accounts payable	(3		)
Accrued and other current liabilities	(12		)
Deferred income tax liabilities	(25		)
Other non-current accrued liabilities	(2		)
Total identifiable net assets	173
Goodwill	261
Total consideration	$	434

The fair values of Pure's assets and liabilities were determined based on estimates and assumptions which management believes are reasonable.

Goodwill arising from the acquisition consists largely of synergies and economies of scale expected from combining the operations of Pure and Xylem. All of the goodwill was assigned to the Measurement & Control Solutions segment and is not deductible for tax purposes.

The estimate of the fair value of Pure identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method. Some of the more significant assumptions inherent in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, the assessment of the intangible asset’s life cycle, as well as other factors. The following table summarizes key information underlying identifiable intangible assets related to the Pure acquisition:

Category	Life	Amount (in millions)
Customer Relationships	17 - 18 years	$	84
Technology	3 - 10 years	38
Tradenames	20 years	21
Internally Developed Software	3 years	6
Total		$	149

The following table summarizes, on an unaudited pro forma basis, the condensed combined results of operations of the Company for the three and nine month periods ended September 30, 2018 assuming the acquisition of Pure was made on January 1, 2017:

(in millions)	Three Months Ended September 30, 2018	Nine Months Ended September 30, 2018
Revenue	N/A	$	3,826
Net income	N/A	$	321

9

The foregoing unaudited pro forma results are for informational purposes only and are not necessarily indicative of the actual results of operations that might have occurred had the acquisition occurred on January 1, 2017, nor are they necessarily indicative of future results. The pro forma financial information includes the impact of purchase accounting and other nonrecurring items directly attributable to the acquisition, which include:

•Amortization expense of acquired intangibles

• Adjustments to the depreciation of property, plant and equipment reflecting the impact of the calculated fair value of those assets in accordance with purchase accounting

• Adjustments to interest expense to remove historical Pure interest costs and reflect Xylem's current debt profile

•The related tax impact of the above referenced adjustments

The pro forma results do not include any cost savings or operational synergies that may be generated or realized due to the acquisition of Pure.

During the three months ended September 30, 2018 Pure had revenue and an operating loss of $25 million and $2 million, respectively. During the eight months ended September 30, 2018 Pure had revenue and an operating loss of $67 million and $5 million, respectively.

Other Acquisition Activity

During the three and nine months ended September 30, 2018 we spent approximately $3 million and $13 million net of cash received on other acquisition activity.

During the third quarter we divested our Precision Die Casting business for approximately $22 million, net of cash assumed. The sale resulted in an immaterial gain for the three and nine months ended September 30, 2018, which is reflected in gain from sale of business in our Condensed Consolidated Income Statement. The business, which was part of our Measurement & Controls Solutions segment, provided aluminum die casting products primarily to customers in the automotive sector. The business reported 2017 annual revenue of approximately $32 million.

Note 4. Revenue

Disaggregation of Revenue

The following table illustrates the sources of revenue:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Revenue from contracts with customers	$	1,231	$	1,222	$	3,690	$	3,642
Lease Revenue	65		65		188		179
Total	$	1,296	$	1,287	$	3,878	$	3,821

10

The following table reflects revenue from contracts with customers by application:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Water Infrastructure
Transport	$	369	$	380	$	1,111	$	1,114
Treatment	96		96		274		274
Applied Water
Building Services	207		208		636		608
Industrial Water	169		170		513		524
Measurement & Control Solutions
Water	193		168		587		514
Energy	90		90		248		254
Software as a Service/Other	26		26		75		96
Test	81		84		246		258
Total	$	1,231	$	1,222	$	3,690	$	3,642

The following table reflects revenue from contracts with customers by geographical region:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Water Infrastructure
United States	$	141	$	139	$	434	$	387
Europe	170		174		509		542
Asia Pacific	92		91		260		252
Other	62		72		182		207
Applied Water
United States	196		197		609		583
Europe	89		93		275		291
Asia Pacific	41		40		121		115
Other	50		48		144		143
Measurement & Control Solutions
United States	251		238		739		674
Europe	63		59		199		214
Asia Pacific	27		31		85		106
Other	49		40		133		128
Total	$	1,231	$	1,222	$	3,690	$	3,642

11

Contract Balances

We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Changes in contract assets and liabilities are due to our performance under the contract.

The table below provides contract assets, contract liabilities, and significant changes in contract assets and liabilities:

(in millions)	Contract Assets (a)			Contract Liabilities
Balance at January 1, 2018	$	89		$	107
Additions, net	68			92
Revenue recognized from opening balance	—			(83		)
Billings	(62		)	—
Other	(4		)	(6		)
Balance at September 30, 2018	$	91		$	110
Balance at January 1, 2019	$	96		$	113
Additions, net	71			97
Revenue recognized from opening balance	—			(82		)
Billings	(58		)	—
Other	9			(3		)
Balance at September 30, 2019	$	118		$	125

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

Performance obligations

Delivery schedules vary from customer to customer based upon their requirements. Typically, large projects require longer lead production cycles and delays can occur from time to time. As of September 30, 2019, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to $388 million. We expect to recognize the majority of revenue upon the completion of satisfying these performance obligations in the following 60 months. The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations that are part of a contract whose original expected duration is less than one year.

Note 5. Restructuring and Asset Impairment Charges

Restructuring

From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position ourselves based on the economic environment and customer demand. During the three and nine months ended September 30, 2019, we recognized restructuring charges of $26 million and $48 million, respectively. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions within our Applied Water segment.

During the three and nine months ended September 30, 2018, we recognized restructuring charges of $4 million and $19 million, respectively. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions within our Applied Water segment.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
By component:
Severance and other charges	$	26	$	4	$	46	$	18
Lease related charges	—		—		1		1
Other restructuring charges	—		—		1		—
Total restructuring charges	$	26	$	4	$	48	$	19
Asset impairment	7		—		10		—
Total restructuring and asset impairment charges	$	33	$	4	$	58	$	19
By segment:
Water Infrastructure	$	6	$	2	$	17	$	8
Applied Water	2		1		4		2
Measurement & Control Solutions	25		1		37		9

The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within accrued and other current liabilities, for the nine months ended September 30, 2019 and 2018:

(in millions)	2019			2018
Restructuring accruals - January 1	$	5		$	7
Restructuring charges	48			19
Cash payments	(21		)	(18		)
Foreign currency and other	(2		)	(1		)
Restructuring accruals - September 30	$	30		$	7
By segment:
Water Infrastructure	$	1		$	1
Applied Water	1			1
Measurement & Control Solutions	21			3
Regional selling locations (a)	7			2
Corporate and other	—			—

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

The following is a roll-forward for the nine months ended September 30, 2019 and 2018 of employee position eliminations associated with restructuring activities:

	2019		2018
Planned reductions - January 1	69		47
Additional planned reductions	621		176
Actual reductions and reversals	(465	)	(135	)
Planned reductions - September 30	225		88

13

The following table presents expected restructuring spend for actions commenced as of September 30, 2019:

(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Corporate		Total
Actions Commenced in 2019:
Total expected costs	$	18	$	5	$	27	$	—	$	50
Costs incurred during Q1 2019	3		—		3		—		6
Costs incurred during Q2 2019	7		2		5		—		14
Costs incurred during Q3 2019	6		2		18		—		26
Total expected costs remaining	$	2	$	1	$	1	$	—	$	4
Actions Commenced in 2018:
Total expected costs	$	8	$	1	$	7	$	—	$	16
Costs incurred during 2018	7		1		7		—		15
Costs incurred during Q1 2019	1		—		—		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	—	$	—	$	—	$	—	$	—
Actions Commenced in 2017:
Total expected costs	$	12	$	7	$	4	$	—	$	23
Costs incurred during 2017	5		4		2		—		11
Costs incurred during 2018	2		1		1		—		4
Costs incurred during Q1 2019	—		—		1		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	5	$	2	$	—	$	—	$	7

The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2019 consist primarily of severance charges and are expected to continue through the end of 2019. The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2018 consist primarily of severance charges and are complete. 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 fourth quarter of 2020.

Asset Impairment

During the third quarter of 2019 we determined that certain assets within our Measurement & Control Solutions segment, including customer relationships, internally developed software, proprietary technology, and plant property & equipment, were impaired. Accordingly we recognized an impairment charge of $7 million. Refer to Note 10, "Goodwill and Other Intangible Assets," for additional information.

During the first quarter of 2019 we determined that certain assets within our Measurement & Control Solutions segment, including a customer relationship, were impaired. Accordingly we recognized an impairment charge of $3 million. Refer to Note 10, "Goodwill and Other Intangible Assets," for additional information.

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Note 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 and discrete items.

The income tax provision for the three months ended September 30, 2019 was a benefit of $77 million resulting in an effective tax rate of 623.6% (on a pre-tax loss for the period), compared to a $31 million charge resulting in an effective tax rate of 19.0% for the same period in 2018. The income tax provision for the nine months ended September 30, 2019 was a benefit of $45 million resulting in an effective tax rate of (18.9)%, compared to an $82 million charge resulting in an effective tax rate of 20.1% for the same period in 2018. The effective tax rates for the three and nine month periods ended September 30, 2019 differ from the United States federal statutory rate primarily due to the income tax benefit that resulted from changes in tax law in Switzerland and the impact of the goodwill impairment charge on income before taxes in 2019.

Unrecognized Tax Benefits

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities or litigation, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits at September 30, 2019 was $126 million, as compared to $136 million at December 31, 2018, which if ultimately recognized will reduce our effective tax rate. We believe that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $4 million within the next 12 months as a result of the expiration of certain statutes of limitations. 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, 2019, we had $8 million of interest accrued for unrecognized tax benefits.

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

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Note 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,
	2019		2018		2019		2018
Net income (in millions)	$	65	$	130	$	283	$	324
Shares (in thousands):
Weighted average common shares outstanding	180,044		179,650		179,909		179,760
Add: Participating securities (a)	28		26		29		28
Weighted average common shares outstanding — Basic	180,072		179,676		179,938		179,788
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options	790		895		819		903
Dilutive effect of restricted stock units and performance share units	350		519		402		475
Weighted average common shares outstanding — Diluted	181,212		181,090		181,159		181,166
Basic earnings per share	$	0.36	$	0.73	$	1.57	$	1.80
Diluted earnings per share	$	0.36	$	0.72	$	1.56	$	1.79

(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 16, "Share-Based Compensation Plans" to the condensed consolidated financial statements for further detail on the performance share units.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(in thousands)	2019	2018	2019	2018
Stock options	1,390	1,292	1,401	1,290
Restricted stock units	351	334	360	338
Performance share units	391	415	439	490

Note 8. Inventories

The components of total inventories are summarized as follows: 

(in millions)	September 30, 2019		December 31, 2018
Finished goods	$	231	$	248
Work in process	54		45
Raw materials	295		302
Total inventories	$	580	$	595

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Note 9. Leases

As discussed in Note 2, “Recently Issued Accounting Pronouncements,” Xylem adopted the new guidance on accounting for leases.

Leasing Arrangements

We lease certain offices, manufacturing buildings, transportation equipment, machinery, computers and other equipment. Our most significant lease liabilities relate to real estate leases. These leases include renewal, termination or purchase options, and we have assessed these to determine whether it is reasonably certain for us to exercise any of the previously mentioned options. All periods relating to options that are reasonably certain to be exercised have been included in the lease term of the respective leases.

We have recorded ROU assets for lease arrangements that are reasonably certain to extend beyond 12 months. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease. ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit rate within our leases is generally not determinable, and we use our incremental borrowing rate at the lease commencement date to determine the net present value of lease payments. The determination of the appropriate incremental borrowing rate requires judgment. We determine the appropriate incremental borrowing rate for each lease using our current borrowing rate, adjusted for various factors including geographic region, level of collateralization and term, to align with the term of the underlying lease.

Many of our leases are subject to payment adjustments to reflect annual changes in price indexes, such as the Consumer Price Index. While associated lease liabilities are not re-measured as a result of changes in the applicable price indexes, changes to required lease payments are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

Leases with a lease term of 12 months or less, including renewal options that are reasonably certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise, are not recorded on the balance sheet. Instead, lease payments for these leases are recognized as a lease cost on a straight-line basis over the lease term.

We elected the package of practical expedients, which among other things, does not require reassessment of lease classification. Additionally, we have made an accounting policy election whereby we chose not to separate non-lease components from lease components in agreements in all leases which we are the lessee.

We did not identify any events or conditions during the three and nine month periods ended September 30, 2019 to indicate that a reassessment or re-measurement of our existing leases was required. There were also no impairment indicators identified during the three and nine month periods ended September 30, 2019 that required an impairment test for the Company’s ROU assets or other long-lived assets in accordance with ASC 360-10.

Our current lease liabilities of $60 million are included in "Accrued and other current liabilities" and our non-current lease liabilities of $184 million are included in "Other non-current accrued liabilities" as of September 30, 2019. Our ROU asset balances are included in "Other non-current assets". The net balance of our ROU assets as of September 30, 2019 was $247 million. These balances include an immaterial amount related to finance leases.

The components of our lease cost were as follows:

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	Three Months Ended		Nine Months Ended
(in millions)	September 30, 2019		September 30, 2019
Lease cost
Operating lease cost	$	20	$	58
Short-term lease cost	2		7
Variable lease cost	3		13
Total lease cost	$	25	$	78

The supplemental cash flow information related to leases are as follows:

	Nine Months Ended
(in millions)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	54
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	26

Information relating to the lease term and discount rate are as follows:

	Nine Months Ended
	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	6
Weighted-average discount rate
Operating leases	2.8%

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As of September 30, 2019, the maturities of operating lease liabilities were as follows:

(in millions)
2019	$	18
2020	61
2021	46
2022	34
2023	26
2024	20
Thereafter	59
Total lease payments	264
Less: Imputed interest	(21		)
Total	$	243

Disclosures related to periods prior to adoption of the New Lease Standard as reported and provided in our 2018 Annual Report.

As of December 31, 2018, we were obligated to make minimum future rental payments under operating leases as follows:

(in millions)
2019	$	76
2020	61
2021	43
2022	33
2023	22
Thereafter	64
Total lease payments	299

Lessor arrangements

In addition to manufacturing and selling equipment, we also lease out equipment to customers in exchange for consideration. These arrangements are generally short term in nature and predominantly involve the rental of pumps and accessories within the Water Infrastructure segment. Rental arrangements generally do not provide the customer the right to purchase the equipment as Xylem’s strategy is to rent these items over their useful lives. Customers may be billed based on daily, weekly or monthly rates depending on the expected rental period. We assessed that these arrangements constitute a lease under ASC 842, and have recognized them as operating leases. In situations where arrangements contain both the sale of products and a leasing component, contract consideration is allocated based on relative standalone selling price.

Total revenue from lease arrangements were $65 million and $188 million for the three and nine month periods ended September 30, 2019, respectively. Our gross assets available for rent and related accumulated amortization were $262 million and $171 million, respectively, as of September 30, 2019. Depreciation expense for these assets were $7 million and $21 million for the three and nine month periods ended September 30, 2019, respectively.

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Note 10. Goodwill and Other Intangible Assets

Goodwill    

Changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2019 are as follows:

(in millions)	Water Infrastructure			Applied Water			Measurement & Control Solutions			Total
Balance as of January 1, 2019	$	653		$	516		$	1,807		$	2,976
Activity in 2019
Divested/Acquired	—			—			19			19
Impairment	—			—			(148		)	(148		)
Foreign currency and other	(9		)	(7		)	(20		)	(36		)
Balance as of September 30, 2019	$	644		$	509		$	1,658		$	2,811

During the third quarter of 2019, the Company recorded a goodwill impairment charge of $148 million related to the Advanced Infrastructure Analytics (“AIA”) goodwill reporting unit. The impairment resulted from a downward revision of forecasted future cash flows. Factors that contributed to the revised forecast in the third quarter include lower than expected results as compared to prior forecasts, largely as a result of slower-than-expected conversion of pipeline opportunities to revenue. Additionally, we have continued to invest in the AIA platform ahead of the adoption curve, which has also impacted the near term profitability of the business. These factors drove the decrease in forecasted cash flows, and as such, the calculated fair value of the AIA reporting unit below its carrying value as of the third quarter.

To determine the fair value of the AIA reporting unit, the Company used the income approach. Under the income approach, the fair value of the AIA reporting unit was based on the present value of the estimated cash flows that the reporting unit is expected to generate over its remaining life. Cash flow projections were based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate was based on the weighted average cost of capital appropriate for the AIA reporting unit.

Other Intangible Assets

Information regarding our other intangible assets is as follows:

	September 30, 2019							December 31, 2018
(in millions)	Carrying Amount		Accumulated Amortization			Net Intangibles		Carrying Amount		Accumulated Amortization			Net Intangibles
Customer and distributor relationships	$	939	$	(334	)	$	605	$	951	$	(286	)	$	665
Proprietary technology and patents	203		(105		)	98		198		(93		)	105
Trademarks	147		(49		)	98		148		(41		)	107
Software	405		(195		)	210		355		(164		)	191
Other	20		(16		)	4		24		(19		)	5
Indefinite-lived intangibles	165		—			165		159		—			159
Other Intangibles	$	1,879	$	(699	)	$	1,180	$	1,835	$	(603	)	$	1,232

Amortization expense related to finite-lived intangible assets was $35 million and $104 million for the three and nine months ended September 30, 2019, respectively, and $34 million and $108 million for the three and nine months ended September 30, 2018, respectively.

During the third quarter of 2019, the Company also assessed whether the carrying amounts of the AIA reporting unit’s long-lived assets may not be recoverable based on the revised forecasted cash flows, and therefore impaired. Our assessment resulted in an impairment charge of $7 million, primarily related to customer relationships, proprietary technology, software and property, plant and equipment. The charge was calculated

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using an 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.

During the first quarter of 2019, we determined that the intended use of a finite lived customer relationship within the test application of our Measurement & Control Solutions segment had changed. Accordingly we recorded a $3 million impairment charge. The charge was also calculated using the income approach and is reflected in “Restructuring and asset impairment charges” in our Condensed Consolidated Income Statements.

Note 11. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Foreign Exchange Risk

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

Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty and Australian Dollar. We had foreign exchange contracts with purchased notional amounts totaling $117 million and $506 million as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell British Pound and purchase Euro, purchase Polish Zloty and sell Euro, purchase U.S. Dollar and sell Canadian Dollar, and to sell Canadian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are $45 million, $39 million, $11 million, $9 million, $7 million and $5 million, respectively. As of December 31, 2018, the purchased notional amounts associated with these currency derivatives were $191 million, $168 million, $52 million, $37 million, $29 million and $22 million, respectively.

Hedges of Net Investments in Foreign Operations

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

Cross Currency Swaps

Beginning in 2015, we entered into cross currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019 we entered into additional cross currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $702 million and $426 million as of September 30, 2019 and December 31, 2018, respectively.

Foreign Currency Denominated Debt

On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. We designated the entirety of the outstanding balance, or $544 million and $566 million as of September 30, 2019 and December 31, 2018, respectively, net of unamortized discount, as a hedge of a net investment in certain foreign subsidiaries.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Cash Flow Hedges
Foreign Exchange Contracts
Amount of (loss) recognized in OCI (a)	$	(5	)	$	—		$	(14	)	$	(9	)
Amount of (gain) loss reclassified from OCI into revenue (a)	2			1			4			(1		)
Amount of loss reclassified from OCI into cost of revenue (a)	1			2			3			2
Net Investment Hedges
Cross Currency Swaps
Amount of gain (loss) recognized in OCI (a)	$	31		$	(5	)	$	30		$	8
Amount of income recognized in Interest Expense	4			—			$	11		$	—
Foreign Currency Denominated Debt
Amount of gain (loss) recognized in OCI (a)	$	22		$	(8	)	$	23		$	11

(a) Effective portion

As of September 30, 2019, $8 million of net 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, 2019 and 2018.

As of September 30, 2019, 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, 2019.

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

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

(in millions)	September 30, 2019			December 31, 2018
Derivatives designated as hedging instruments
Assets
Cash Flow Hedges
Other current assets	$	—		$	3
Net Investment Hedges
Other non-current assets	$	7		$	—
Liabilities
Cash Flow Hedges
Other current liabilities	$	(5	)	$	(1	)
Net Investment Hedges
Other non-current accrued liabilities	$	(19	)	$	(46	)

The fair value of our long-term debt, due in 2023, designated as a net investment hedge was $583 million and $599 million as of September 30, 2019 and December 31, 2018, respectively.

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Note 12. Accrued and Other Current Liabilities

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

(in millions)	September 30, 2019		December 31, 2018
Compensation and other employee benefits	$	189	$	194
Customer-related liabilities	144		129
Accrued taxes	69		85
Lease liabilities	60		—
Accrued warranty costs	39		44
Other accrued liabilities	133		94
Total accrued and other current liabilities	$	634	$	546

Note 13. Credit Facilities and Debt

Total debt outstanding is summarized as follows:

(in millions)	September 30, 2019			December 31, 2018
4.875% Senior Notes due 2021 (a)	$	600		$	600
2.250% Senior Notes due 2023 (a)	547			570
3.250% Senior Notes due 2026 (a)	500			500
4.375% Senior Notes due 2046 (a)	400			400
Commercial paper	306			—
Term loan	—			257
Debt issuance costs and unamortized discount (b)	(17		)	(19		)
Total debt	2,336			2,308
Less: short-term borrowings and current maturities of long-term debt	306			257
Total long-term debt	$	2,030		$	2,051

(a) The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2021 was $631 million and $620 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2023 was $583 million and $599 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2026 was $515 million and $476 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2046 was $455 million and $397 million as of September 30, 2019 and December 31, 2018, respectively.

(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.

Senior Notes

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

The Senior Notes include covenants that restrict our ability, subject to exceptions, to incur debt secured by liens and engage in sale and leaseback transactions, as well as provide for customary events of default (subject, in certain cases, to receipt of notice of default and/or customary grace and cure periods). We may redeem the Senior Notes, as applicable, in whole or in part, at any time at a redemption price equal to the principal amount of the Senior Notes to be redeemed, plus a make-whole premium. We may also redeem the Senior Notes in certain

23

other circumstances, as set forth in the applicable Senior Notes indenture.

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

Interest on the Senior Notes due 2021 is payable on April 1 and October 1 of each year. Interest on the Senior Notes due 2023 is payable on March 11 of each year. Interest on the Senior Notes due 2026 and the Senior Notes due 2046 is payable on May 1 and November 1 of each year beginning on May 1, 2017. As of September 30, 2019, we are in compliance with all covenants for the Senior Notes.

Credit Facilities

2015 Five-Year Revolving Credit Facility

Effective March 27, 2015, Xylem entered into a Five-Year Revolving Credit Facility (the "2015 Credit Facility") with Citibank, N.A., as Administrative Agent, and a syndicate of lenders. The 2015 Credit Facility provided for an aggregate principal amount of up to $600 million of: (i) revolving extensions of credit (the "revolving loans") outstanding at any time and (ii) the issuance of letters of credit in a face amount not in excess of $100 million outstanding at any time. The 2015 Credit Facility provided for increases of up to $200 million for a maximum aggregate principle amount of $800 million in aggregate principal amount at our request and with the consent of the institutions providing such increased commitments. On March 5, 2019 Xylem terminated the 2015 Credit Facility among the Company, certain lenders and Citibank, N.A. as Administrative Agent.

2019 Five-Year Revolving Credit Facility

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

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

The 2019 Credit facility requires that Xylem maintain a consolidated total debt to consolidated EBITDA ratio, which will be based on the last four fiscal quarters, and in addition a number of customary covenants, including limitations on the incurrence of secured debt and debt of subsidiaries, liens, sale and lease-back transactions, mergers, consolidations, liquidations, dissolutions and sales of assets. The 2019 Credit Agreement also contains customary events of default.  Finally, Xylem has the ability to designate subsidiaries that can borrow under the 2019 Credit Facility, subject to certain requirements and conditions set forth in the 2019 Credit Agreement.  As of September 30, 2019, the 2019 Credit Facility was undrawn and we are in compliance with all covenants. 

Commercial Paper

U.S. Dollar Commercial Paper Program

Our U.S. Dollar commercial paper program generally serves as a means of short-term funding with a $600 million maximum issuing balance and a combined limit of $800 million inclusive of the 2019 Five-Year Revolving Credit Facility. As of September 30, 2019 and December 31, 2018, none of the Company's $600 million U.S. Dollar commercial paper program was outstanding. We have the ability to continue borrowing under this program going forward in in future periods.

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Euro Commercial Paper Program

On June 3, 2019 Xylem entered into a Euro commercial paper program with ING Bank N.V., as administrative agent, and a syndicate of dealers. The Euro commercial paper program provides for a maximum issuing balance of up to €500 million (approximately $547 million) which may be denominated in a variety of currencies. The maximum issuing balance may be increased in accordance with the Dealer Agreement. As of September 30, 2019, $306 million of the Company's Euro commercial paper program was outstanding at a weighted average interest rate of (0.20)%. We have the ability to continue borrowing under this program going forward in future periods.

Term Loan Facility

On January 26, 2018, the Company’s subsidiary, Xylem Europe GmbH (the “borrower”) entered into a 12-month €225 million (approximately $246 million) term loan facility (the “Term Facility”) at an interest rate of 0.45% in which the terms are set forth in a Term Loan Agreement, among the borrower, the Company, as parent guarantor and ING Bank. The Company entered into a parental guarantee in favor of ING Bank also dated January 26, 2018 to secure all present and future obligations of the borrower under the Term Loan Agreement. The Term Facility was used to partially fund  the acquisition of Pure Technologies Ltd in 2018 and the maturity date has since been extended through February 2020. As of September 30, 2019 and December 31, 2018, $0 million and $257 million were outstanding under the Term Facility, respectively.

Note 14. Postretirement Benefit Plans

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Domestic defined benefit pension plans:
Service cost	$	1		$	—		$	2		$	2
Interest cost	1			1			3			3
Expected return on plan assets	(2		)	(2		)	(6		)	(5		)
Amortization of net actuarial loss	—			1			1			2
Net periodic benefit cost	$	—		$	—		$	—		$	2
International defined benefit pension plans:
Service cost	$	2		$	3		$	7		$	8
Interest cost	4			5			14			15
Expected return on plan assets	(4		)	(9		)	(22		)	(28		)
Amortization of net actuarial loss	2			2			6			7
Settlement/Curtailment	8			—			8			1
Net periodic benefit cost	$	12		$	1		$	13		$	3
Total net periodic benefit cost	$	12		$	1		$	13		$	5

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

The total net periodic benefit cost for other postretirement employee benefit plans was less than $1 million for both the three and nine months ended September 30, 2019, including net credits recognized into other comprehensive income ("OCI") of $1 million and $2 million, respectively, for the three and nine months ended September 30, 2019. The total net periodic benefit cost for other postretirement employee benefit plans was less than $1 million for both the three and nine months ended September 30, 2018, including net credits recognized in OCI of $1 million and $2 million, respectively, for the three and nine months ended September 30, 2018.

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We contributed $14 million and $37 million to our defined benefit plans during the nine months ended September 30, 2019 and 2018, respectively. Discretionary contributions of $19 million were made to the U.S. Plan in the third quarter of 2018, to increase the funding ratio and reduce regulatory fees. Additional contributions ranging between approximately $4 million and $8 million are expected during the remainder of 2019.

The Company has initiated the process for a full buy-out of its largest defined benefit plan in the UK. In order to prepare for a buy-out, the plan’s assets were converted to cash, cash equivalents or other highly liquid assets as of the third quarter. In addition, the Company completed an enhanced transfer value (“ETV”) exercise for the deferred vested participants of the plan. The ETV offered the participants an enhanced lump sum to transfer their full pension rights out of the plan. Lump sum payments of $21 million were paid out of the plan assets, and the Company recorded a settlement charge of $8 million during the quarter. Prior to the settlement accounting, the plan was re-measured as of July 31, 2019, resulting in an increase in the plan’s projected benefit obligation of $37 million, an increase in plan assets of $26 million and an increase to losses in accumulated other comprehensive income of $11 million. The assumptions used to re-measure the plan were developed in the same manner as at December 31, 2018. However, due to the recent change in the investment assets, the expected rate of return on assets was changed from 7.25% to 0.70%. The discount rate used in the re-measurement was 2.00%, down from 3.00% at December 31, 2018. The Company recorded incremental net periodic benefit cost of $3 million in the third quarter as a result of the re-measurement.

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Note 15. Equity

The following table shows the changes in stockholders' equity for the nine months ended September 30, 2019:

	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, 2019	$	2	$	1,950	$	1,639		$	(336	)	$	(487	)	$	14		$	2,782
Sale of business														(2		)	(2		)
Net income					79												79
Other comprehensive income, net								20									20
Dividends declared ($0.24 per share)					(44		)										(44		)
Stock incentive plan activity			12								(14		)				(2		)
Repurchase of common stock											(25		)				(25		)
Balance at March 31, 2019	$	2	$	1,962	$	1,674		$	(316	)	$	(526	)	$	12		$	2,808
Net income					139												139
Other comprehensive loss, net								(11		)							(11		)
Dividends declared ($0.24 per share)					(43		)										(43		)
Stock incentive plan activity			13								—						13
Balance at June 30, 2019	$	2	$	1,975	$	1,770		$	(327	)	$	(526	)	$	12		$	2,906
Net income					65												65
Other comprehensive loss, net								(37		)							(37		)
Distribution to minority shareholders														(3		)	(3		)
Dividends declared ($0.24 per share)					(44		)										(44		)
Stock incentive plan activity			8								—						8
Balance at September 30, 2019	$	2	$	1,983	$	1,791		$	(364	)	$	(526	)	$	9		$	2,895

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The following table shows the changes in stockholders' equity for the nine months ended September 30, 2018:

	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, 2018	$	2	$	1,912	$	1,227		$	(210	)	$	(428	)	$	16		$	2,519
Cumulative effect of change in accounting principle					14			(17		)							(3		)
Net income					79												79
Other comprehensive income, net								20									20
Dividends declared ($0.21 per share)					(38		)										(38		)
Stock incentive plan activity			13								(8		)				5
Repurchase of common stock											(25		)				(25		)
Balance at March 31, 2018	$	2	$	1,925	$	1,282		$	(207	)	$	(461	)	$	16		$	2,557
Net income					115												115
Other comprehensive loss, net								(87		)							(87		)
Dividends declared ($0.21 per share)					(38		)										(38		)
Stock incentive plan activity			7														7
Repurchase of common stock											(25		)				(25		)
Balance at June 30, 2018	$	2	$	1,932	$	1,359		$	(294	)	$	(486	)	$	16		$	2,529
Net income					130												130
Other comprehensive income, net								1						(2		)	(1		)
Dividends declared ($0.21 per share)					(37		)										(37		)
Stock incentive plan activity			10								—						10
Balance at September 30, 2018	$	2	$	1,942	$	1,452		$	(293	)	$	(486	)	$	14		$	2,631

Note 16. Share-Based Compensation Plans

Share-based compensation expense was $7 million and $23 million during the three and nine months ended September 30, 2019, respectively, and $7 million and $23 million during the three and nine months ended September 30, 2018, respectively. The unrecognized compensation expense related to our stock options, restricted stock units and performance share units was $7 million, $26 million and $18 million, respectively, at September 30, 2019 and is expected to be recognized over a weighted average period of 1.9, 2 and 1.9 years, respectively. The amount of cash received from the exercise of stock options was $10 million and $7 million for the nine months ended September 30, 2019 and 2018, respectively.

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Stock Option Grants

The following is a summary of the changes in outstanding stock options for the nine months ended September 30, 2019:

	Share units            (in thousands)		Weighted Average Exercise Price / Share		Weighted  Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2019	2,125		$	43.08	6.5
Granted	334		74.08
Exercised	(286	)	35.71
Forfeited and expired	(46	)	67.04
Outstanding at September 30, 2019	2,127		$	48.42	6.5	$	67
Options exercisable at September 30, 2019	1,492		$	39.60	5.5	$	60
Vested and expected to vest as of September 30, 2019	2,067		$	47.71	6.4	$	66

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the nine months ended September 30, 2019 was $11.9 million.

Stock Option Fair Value

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for 2019 grants:

Volatility	24.10		%
Risk-free interest rate	2.55		%
Dividend yield	1.30		%
Expected term (in years)	5.4
Weighted-average fair value / share	$	17.04

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

Restricted Stock Unit Grants

The following is a summary of restricted stock unit activity for the nine months ended September 30, 2019. The fair value of the restricted share unit awards is determined using the closing price of our common stock on date of grant.

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	537		$	59.41
Granted	284		74.32
Vested	(247	)	55.42
Forfeited	(44	)	67.59
Outstanding at September 30, 2019	530		$	68.50

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ROIC Performance Share Unit Grants

The following is a summary of Return on Invested Capital ("ROIC") performance share unit grants for the nine months ended September 30, 2019. The fair value of the ROIC performance share units is equal to the closing share price on the date of the grant. 

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	274		$	52.11
Granted	77		74.07
Adjustment for Performance Condition Achieved (a)	74		37.86
Vested	(174	)	37.86
Forfeited	(17	)	63.18
Outstanding at September 30, 2019	234		$	64.54

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

TSR Performance Share Unit Grants

The following is a summary of our Total Shareholder Return ("TSR") performance share unit grants for the nine months ended September 30, 2019:

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	274		$	61.04
Granted	77		89.62
Adjustment for Market Condition Achieved (a)	74		37.86
Vested	(174	)	37.86
Forfeited	(17	)	63.18
Outstanding at September 30, 2019	234		$	75.82

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

The fair value of TSR performance share units was calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The following are weighted-average assumptions for 2019 grants:

Volatility	20.9	%
Risk-free interest rate	2.52	%

Note 17. Capital Stock

For the three and nine months ended September 30, 2019 the Company repurchased common stock of less than 0.1 million shares for less than $1 million and approximately 0.5 million shares for $39 million, respectively. Repurchases include both share repurchase programs approved by the Board of Directors and repurchases in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units. The details of repurchases by each program are as follows:

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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 for the three months ended September 30, 2019. For the nine months ended September 30, 2019, we repurchased approximately 0.3 million shares for $25 million. There were no shares repurchased under this program for the three months ended September 30, 2018. For the nine months ended September 30, 2018, we repurchased approximately 0.7 million shares for $50 million. There are up to $338 million in shares that may still be purchased under this plan as of September 30, 2019.

Aside from the aforementioned repurchase program, we repurchased less than 0.1 million shares and approximately 0.2 million shares for less than $1 million and approximately $14 million for the three and nine months ended September 30, 2019, respectively, in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units. Likewise, we repurchased less than 0.1 million shares and approximately 0.1 million shares for less than $1 million and approximately $8 million for the three and nine months ended September 30, 2018, respectively.

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Note 18. Accumulated Other Comprehensive Loss

The following table provides the components of accumulated other comprehensive loss for the nine months ended September 30, 2019:

(in millions)	Foreign Currency Translation			Postretirement Benefit Plans			Derivative Instruments			Total
Balance at January 1, 2019	$	(121	)	$	(214	)	$	(1	)	$	(336	)
Foreign currency translation adjustment	29			—			—			29
Tax on foreign currency translation adjustment	(4		)	—			—			(4		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Unrealized loss on derivative hedge agreements	—			—			(9		)	(9		)
Income tax benefit on unrealized loss on derivative hedge agreements	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at March 31, 2019	$	(96	)	$	(213	)	$	(7	)	$	(316	)
Foreign currency translation adjustment	(18		)	—			—			(18		)
Tax on foreign currency translation adjustment	3			—			—			3
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Unrealized loss on derivative hedge agreements	—			—			—			—
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at June 30, 2019	$	(111	)	$	(211	)	$	(5	)	$	(327	)
Foreign currency translation adjustment	(20		)	—			—			(20		)
Tax on foreign currency translation adjustment	(13		)	—			—			(13		)
Changes in postretirement benefit plans	—			(11		)	—			(11		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			1			—			1
Settlement charge released into other non-operating income (expense), net	—			8			—			8
Unrealized loss on derivative hedge agreements	—			—			(5		)	(5		)
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			2			2
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at September 30, 2019	$	(144	)	$	(213	)	$	(7	)	$	(364	)

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The following table provides the components of accumulated other comprehensive loss for the nine months ended September 30, 2018:

(in millions)	Foreign Currency Translation			Postretirement Benefit Plans			Derivative Instruments			Total
Balance at January 1, 2018	$	(15	)	$	(198	)	$	3		$	(210	)
Cumulative effect of change in accounting principle	(11		)	(6		)	—			(17		)
Foreign currency translation adjustment	8			—			—			8
Tax on foreign currency translation adjustment	11			—			—			11
Changes in postretirement benefit plans	—			1			—			1
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Reclassification of unrealized gain on derivative hedge agreements into revenue	—			—			(1		)	(1		)
Balance at March 31, 2018	$	(7	)	$	(202	)	$	2		$	(207	)
Foreign currency translation adjustment	(60		)	—			—			(60		)
Tax on foreign currency translation adjustment	(19		)	—			—			(19		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			—			—			—
Other non-operating income	—			3			—			3
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Unrealized loss on derivative hedge agreements	—			—			(9		)	(9		)
Reclassification of unrealized gain on derivative hedge agreements into revenue	—			—			(1		)	(1		)
Balance at June 30, 2018	$	(86	)	$	(200	)	$	(8	)	$	(294	)
Foreign currency translation adjustment	(7		)	—			—			(7		)
Tax on foreign currency translation adjustment	3			—			—			3
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Reclassification of unrealized gain on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized gain on foreign exchange agreements into cost of revenue	—			—			2			2
Balance at September 30, 2018	(90		)	(198		)	(5		)	(293		)

Note 19. Commitments and Contingencies

Legal Proceedings

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

From time to time claims may be asserted against Xylem alleging injury caused by any of our products resulting from asbestos exposure. We believe there are numerous legal defenses available for such claims and would defend ourselves vigorously. Pursuant to the Distribution Agreement among ITT Corporation (now ITT LLC),

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Exelis and Xylem, ITT Corporation (now ITT LLC) has an obligation to indemnify, defend and hold Xylem harmless for asbestos product liability matters, including settlements, judgments, and legal defense costs associated with all pending and future claims that may arise from past sales of ITT’s legacy products. We believe ITT Corporation (now ITT LLC) remains a substantial entity with sufficient financial resources to honor its obligations to us.

See Note 6 "Income Taxes", of our condensed consolidated financial statements for a description of a pending tax litigation matter.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claims, we do not believe it is reasonably possible that any asserted or unasserted legal claims or proceedings, individually or in aggregate, will have a material adverse effect on our results of operations, or financial condition. We have estimated and accrued $6 million and $7 million as of September 30, 2019 and December 31, 2018, respectively, for these general litigation matters.

Indemnifications

As part of our 2011 spin-off from our former parent, ITT Corporation (now ITT LLC), Exelis Inc. and Xylem will indemnify, defend and hold harmless each of the other parties with respect to such parties’ assumed or retained liabilities under the Distribution Agreement and breaches of the Distribution Agreement or related spin agreements. The former parent’s indemnification obligations include asserted and unasserted asbestos and silica liability claims that relate to the presence or alleged presence of asbestos or silica in products manufactured, repaired or sold prior to October 31, 2011, the Distribution Date, subject to limited exceptions with respect to certain employee claims, or in the structure or material of any building or facility, subject to exceptions with respect to employee claims relating to Xylem buildings or facilities. The indemnification associated with pending and future asbestos claims does not expire. Xylem has not recorded a liability for material matters for which we expect to be indemnified by the former parent or Exelis Inc. through the Distribution Agreement and we are not aware of any claims or other circumstances that would give rise to material payments from us under such indemnifications. On May 29, 2015, Harris Inc. acquired Exelis.  As the parent of Exelis, Harris Inc. is responsible for Exelis’ indemnification obligations under the Distribution Agreement.

Guarantees

We obtain certain stand-by letters of credit, bank guarantees, surety bonds and insurance letters of credit from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance related requirements. As of September 30, 2019 and December 31, 2018, the amount of stand-by letters of credit, bank guarantees and surety bonds was $302 million and $275 million, respectively.

Environmental

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

Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. Our accrued liabilities for these environmental matters represent our best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees. These estimates, and related accruals, are reviewed quarterly and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. Liabilities for these environmental expenditures are recorded on an undiscounted basis. We have estimated and accrued $3 million and $4 million as of September 30, 2019 and December 31, 2018, respectively, for environmental matters.

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

Warranties

We warrant numerous products, the terms of which vary widely. In general, we warrant products against defect and specific non-performance. The table below provides the changes in our product warranty accrual:

(in millions)	2019			2018
Warranty accrual – January 1	$	60		$	82
Net charges for product warranties in the period	20			16
Settlement of warranty claims	(32		)	(33		)
Foreign currency and other	(2		)	1
Warranty accrual - September 30	$	46		$	66

Note 20. Segment Information

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

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

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The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 1 in the 2018 Annual Report). The following tables contain financial information for each reportable segment:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Revenue:
Water Infrastructure	$	531		$	541		$	1,574		$	1,567
Applied Water	376			378			1,149			1,132
Measurement & Control Solutions	389			368			1,155			1,122
Total	$	1,296		$	1,287		$	3,878		$	3,821
Operating Income:
Water Infrastructure	$	97		$	99		$	246		$	240
Applied Water	61			59			179			170
Measurement & Control Solutions	(136		)	31			(94		)	95
Corporate and other	(11		)	(13		)	(40		)	(45		)
Total operating income	$	11		$	176		$	291		$	460
Interest expense	$	16		21			$	52		$	63
Other non-operating (expense) income, net	(7		)	4			(2		)	9
Gain from sale of business	—			2			1			—
Income before taxes	$	(12	)	$	161		$	238		$	406
Depreciation and Amortization:
Water Infrastructure	$	15		$	17		$	46		$	50
Applied Water	5			5			17			16
Measurement & Control Solutions	36			34			107			107
Regional selling locations (a)	6			5			14			15
Corporate and other	3			2			8			7
Total	$	65		$	63		$	192		$	195
Capital Expenditures:
Water Infrastructure	$	14		$	20		$	65		$	60
Applied Water	5			5			15			19
Measurement & Control Solutions	21			26			74			72
Regional selling locations (b)	4			3			13			11
Corporate and other	2			6			8			9
Total	$	46		$	60		$	175		$	171

(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.

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

The following discussion should be read in conjunction with the condensed consolidated financial statements, including the notes, included elsewhere in this report on Form 10-Q (this "Report"). Except as otherwise indicated or unless the context otherwise requires, "Xylem," "we," "us," "our" and the "Company" refer to Xylem Inc. and its subsidiaries.

This Report contains information that may constitute “forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” “believe,” “target,” “will,” “could,” “would,” “should” and similar expressions identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These forward-looking statements include any statements that are not historical in nature, including any statements about the capitalization of the Company, the Company’s restructuring and realignment, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals. All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future - including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results - are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.

Factors that could cause results to differ materially from those anticipated include: overall economic and business conditions, political and other risks associated with our international operations, including military actions, economic sanctions or trade barriers including tariffs and embargoes that could affect customer markets and our business, and non-compliance with laws, including foreign corrupt practice laws, data privacy, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; weather conditions; ability to retain and attract talent and key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions; our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; claims or investigations by governmental or regulatory bodies; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report") and with subsequent filings we make with the Securities and Exchange Commission ("SEC").

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

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the reporting periods included herein are described as ending on the last day of the calendar quarter.

Overview

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

• Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in

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the treatment process. We also provide sales and rental of specialty dewatering pumps and related equipment and services. Additionally, our offerings use monitoring and control, smart and connected technologies to allow for remote monitoring of performance and enable products to self-optimize pump operations maximizing energy efficiency and minimizing unplanned downtime and maintenance for our customers. In the Water Infrastructure segment, we provide the majority of our sales directly to customers along with strong applications expertise, while the remaining amount is through distribution partners.

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

• Measurement & Control Solutions primarily serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure water quality, flow and level in clean water, wastewater, surface water and coastal environments. Additionally, we offer software and services including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management and pressure monitoring solutions. We also offer smart lighting solutions that improve efficiency and public safety efforts across communities. 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.

Executive Summary

Xylem reported revenue for the third quarter of 2019 of $1,296 million, an increase of 0.7% compared to $1,287 million reported in the third quarter of 2018. On a constant currency basis, revenue increased by $33 million, or 2.6%, primarily consisting of organic revenue growth of $37 million, or 2.9%, driven by growth across all segments and in the utility, residential and commercial end markets, which was marginally offset by a slight decline in the industrial end market. A decrease from revenue related to divestitures of $4 million partially offset the revenue growth during the quarter.

We generated operating income of $11 million (margin of 0.8%) during the third quarter of 2019, as compared to $176 million (margin of 13.7%) in 2018. Operating income in the third quarter of 2019 included unfavorable impacts from increased special charges of $154 million, consisting entirely of non-cash impairment charges, and increased restructuring and realignment costs of $19 million during the period. Excluding the impact of these items, adjusted operating income was $196 million (adjusted margin of 15.1%) during the third quarter of 2019 as compared to $188 million (adjusted margin of 14.6%) in 2018. The increase in adjusted operating margin was primarily due to cost reductions from our global procurement and productivity initiatives, including restructuring savings, and price realization, which were partially offset by cost inflation, increased cost of quality, unfavorable mix and increased spending on strategic investments.

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Additional financial highlights for the quarter ended September 30, 2019 include the following:

• Orders of $1,346 million, down 0.7% from $1,356 million in the prior year, up 1.3% on an organic basis

• Earnings per share of $0.36, down 50% when compared to the prior year ($0.82, up 6.5% on an adjusted basis)

• Cash flow from operating activities of $451 million for the nine months ended September 30, 2019, up 16.2% from the prior year. Free cash flow, excluding Sensus acquisition related costs, of $276 million increased $58 million over the prior year, as higher operating cash flows were slightly offset by increased spending on capital investments.

Key Performance Indicators and Non-GAAP Measures

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

• "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 of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.

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

• "adjusted net income" and "adjusted earnings per share" defined as net income and earnings per share, respectively, adjusted to exclude, as applicable, restructuring and realignment costs, special charges, gains and losses from the sale of a business and tax-related special items. A reconciliation of adjusted net income is provided below.

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
(In millions, except for per share data)	2019						2018						2019						2018
Net income & Earnings per share	$	65		$	0.36		$	130		$	0.72		$	283		$	1.56		$	324	$	1.79
Restructuring and realignment, net of tax of $9 and $17 for 2019 and $3 and $10 for 2018	21			0.11			8			0.04			54			0.3			27		0.15
Special charges, net of tax of $2 and $2 for 2019 and net of tax of $0 and $1 for 2018	164			0.91			1			0.01			168			0.93			7		0.04
Tax-related special items	(101		)	(0.56		)	2			0.01			(118		)	(0.65		)	5		0.02
(Gain) loss from sale of business, net of tax of $0 for 2019 and $0 for 2018	—			—			(2		)	(0.01		)	(1		)	(0.01		)	—		—
Adjusted net income & Adjusted earnings per share	$	149		$	0.82		$	139		$	0.77		$	386		$	2.13		$	363	$	2.00

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• "adjusted operating expenses" defined as operating expenses adjusted to exclude restructuring and realignment costs and special charges.

• "adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs and special charges, and "adjusted operating margin" defined as adjusted operating income divided by total revenue.

• “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 integration costs, acquisition costs, costs related to the recognition of the backlog intangible asset amortization recorded in purchase accounting.

• “special charges" defined as costs incurred by the Company, such as acquisition and integration related costs not included in "Sensus acquisition related costs", non-cash impairment charges and other special non-operating items, such as pension adjustments.

• "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 of 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. Our definition of "free cash flow" does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.

	Nine Months Ended
	September 30,
(In millions)	2019			2018
Net cash provided by operating activities	$	451		$	388
Capital expenditures	(175		)	(171		)
Free cash flow	$	276		$	217
Cash paid for Sensus acquisition related costs	$	—		$	(1	)
Free cash flow, excluding Sensus acquisition related costs	$	276		$	218

• “EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense and "Adjusted EBITDA" reflects the adjustment to EBITDA to exclude share-based compensation, restructuring and realignment costs, special charges and gain or loss from sale of businesses.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Net Income	$	65		$	130		$	283		$	324
Income tax (benefit) expense	(77		)	31			(45		)	82
Interest expense (income), net	14			20			49			60
Depreciation	30			29			88			87
Amortization	35			34			104			108
EBITDA	$	67		$	244		$	479		$	661
Share-based compensation	$	7		$	7		23			23
Restructuring and realignment	30			11			71			36
Special charges	166			1			170			8
(Gain) loss from sale of business	—			(2		)	(1		)	—
Adjusted EBITDA	$	270		$	261		$	742		$	728

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2019 Outlook

We anticipate total revenue growth of approximately 1% in 2019, with organic revenue growth anticipated to be in the range of 3% to 4%. The following is a summary of our organic revenue outlook by end market.

• Utilities increased by approximately 6% organically through the third quarter driven by strength in the United States and the emerging markets, with the exception of Latin America, partially offset by weakness in Canada. For 2019, we expect organic growth in the mid-single-digit range (versus mid to high-single-digits) driven by healthy water and wastewater spending in the United States and smart meter and infrastructure analytics growth opportunities. We also anticipate that a healthy infrastructure investment focus in the emerging markets will continue in China and India, offset by softer than anticipated conditions in Europe.

• Industrial increased by approximately 2% organically through the third quarter driven by strength in the United States and Asia Pacific. For 2019, we expect flat to low-single-digit growth (versus low-single-digits) driven by softer than anticipated industrial conditions in North America as the oil and gas markets begin to decline after a strong 2018. We anticipate mixed market conditions outside of the United States with strength in Australia and India, offset by slowing growth in China and softer than anticipated conditions in Europe and Latin America.

• In the commercial markets, organic growth was approximately 6% through the third quarter driven by strength in the emerging markets and North America, partially offset by weakness in western Europe. For 2019, we expect organic growth in the low to mid-single-digit range (versus mid-single-digits) as the overall market will begin to moderate after two years of strong performance. Organic growth will be driven by continued strength in the United States, moderating in the second half of the year, and the emerging markets led by initiatives in the China and India building markets, offset by softness in Europe.

• In the residential markets, organic growth was approximately 3% through the third quarter driven by strength in the United States and Asia Pacific, partially offset by weakness in western Europe and the Middle East and Africa. For 2019, we expect flat to low-single-digit growth primarily driven by continued competition in the United States replacement market as the housing market begins to stabilize. We also anticipate modest growth opportunities in China and other Asia Pacific countries for second water supply, offset by soft performance in Europe from weaker than anticipated economic conditions.

We will continue to strategically execute restructuring and realignment actions primarily to reposition our European and North American businesses in an effort to optimize our cost structure and improve our operational efficiency and effectiveness. During 2019, we expect to incur between $75 million and $85 million in restructuring and realignment costs. We expect to realize approximately $7 million of incremental net savings in 2019 from actions initiated in 2018, and an additional $16 million of net savings from our 2019 actions.

We plan to continue to take actions and focus spending in 2019 on actions that allow us to make progress on our top strategic priorities.  The priority of accelerating profitable growth encompasses our initiatives to drive commercial excellence, grow in emerging markets and strengthen innovation and technology through creation of new centers of excellence, a streamlined approach to product development and strategic acquisitions.  The priority of driving continuous improvement is an area where we will continue to work to create new opportunities to unlock savings by eliminating waste and increasing efficiencies, which is supported by efforts to expand and further deepen our talent pool.  We plan to continue to deploy capital in smart, disciplined ways to develop and acquire solutions to address our customers’ challenges.  Finally, we continue to work to improve cash performance and generate capital to return to our shareholders.

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Results of Operations

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(In millions)	2019			2018			Change			2019			2018			Change
Revenue	$	1,296		$	1,287		0.7		%	$	3,878		$	3,821		1.5		%
Gross profit	509			505			0.8		%	1,509			1,484			1.7		%
Gross margin	39.3		%	39.2		%	10		bp	38.9		%	38.8		%	10		bp
Total operating expenses	498			329			51.4		%	1,218			1,024			18.9		%
Expense to revenue ratio	38.4		%	25.6		%	1,280		bp	31.4		%	26.8		%	460		bp
Restructuring and realignment costs	30			11			172.7		%	71			37			91.9		%
Special charges	155			1			NM			159			8			NM
Adjusted operating expenses	313			317			(1.3	)	%	988			979			0.9		%
Adjusted operating expenses to revenue ratio	24.2		%	24.6		%	(40	)	bp	25.5		%	25.6		%	(10	)	bp
Operating income	11			176			(93.8	)	%	291			460			(36.7	)	%
Operating margin	0.8		%	13.7		%	(1,290	)	bp	7.5		%	12.0		%	(450	)	bp
Interest and other non-operating expense, net	23			17			35.3		%	54			54			—		%
Gain (loss) from sale of business	—			2			NM			1			—			NM
Income tax (benefit) expense	(77		)	31			(348.4	)	%	(45		)	82			(154.9	)	%
Tax rate	623.6		%	19.0		%	NM			(18.9		)%	20.1		%	(3,900	)	bp
Net income	$	65		$	130		(50.0	)	%	$	283		$	324		(12.7	)	%

NM - Not meaningful change

Revenue

Revenue generated during the three and nine months ended September 30, 2019 was $1,296 million and $3,878 million, reflecting increases of $9 million, or 0.7%, and $57 million, or 1.5%, respectively, compared to the same prior year periods. On a constant currency basis, revenue grew 2.6% and 4.3% for the three and nine months ended September 30, 2019. The increases at constant currency consisted primarily of increases in organic revenue of $37 million, or 2.9%, and $182 million, or 4.8%, respectively, reflecting strong organic growth in the United States and all of our emerging market regions, except for Latin America, where organic revenue declined. There was a decrease in revenue related to divestitures of $4 million during the third quarter of 2019 and a net decrease in revenue related to acquisition and divestiture impacts of $18 million for the nine months ended September 30, 2019.

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The following tables illustrate the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during the three and nine months ended September 30, 2019:

	Water Infrastructure					Applied Water					Measurement & Control Solutions					Total Xylem
(In millions)	$ Change			% Change		$ Change			% Change		$ Change			% Change		$ Change			% Change
2018 Revenue	$	541				$	378				$	368				$	1,287
Organic growth	3			0.6	%	4			1.1	%	30			8.2	%	37			2.9	%
Acquisitions/Divestitures	—			—	%	—			—	%	(4		)	(1.1	)%	(4		)	(0.3	)%
Constant currency	3			0.6	%	4			1.1	%	26			7.1	%	33			2.6	%
Foreign currency translation (a)	(13		)	(2.4	)%	(6		)	(1.6	)%	(5		)	(1.4	)%	(24		)	(1.9	)%
Total change in revenue	(10		)	(1.8	)%	(2		)	(0.5	)%	21			5.7	%	9			0.7	%
2019 Revenue	$	531				$	376				$	389				$	1,296

(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 Euro, the British Pound, the Chinese Yuan, the Australian Dollar and the Swedish Krona.

	Water Infrastructure					Applied Water					Measurement & Control Solutions					Total Xylem
	$ Change			% Change		$ Change			% Change		$ Change			% Change		$ Change			% Change
2018 Revenue	$	1,567				$	1,132				$	1,122				$	3,821
Organic growth	66			4.2	%	43			3.8	%	73			6.5	%	182			4.8	%
Acquisitions/Divestitures	—			—	%	—			—	%	(18		)	(1.6	)%	(18		)	(0.5	)%
Constant currency	66			4.2	%	43			3.8	%	55			4.9	%	164			4.3	%
Foreign currency translation (a)	(59		)	(3.8	)%	(26		)	(2.3	)%	(22		)	(2.0	)%	(107		)	(2.8	)%
Total change in revenue	7			0.4	%	17			1.5	%	33			2.9	%	57			1.5	%
2019 Revenue	$	1,574				$	1,149				$	1,155				$	3,878

(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 Euro, the British Pound, the Chinese Yuan, the Swedish Krona and the Australian Dollar.

Water Infrastructure

Water Infrastructure revenue decreased $10 million, or 1.8%, for the third quarter of 2019 (0.6% increase at constant currency) compared to the same period in 2018. Revenue growth was negatively impacted by $13 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $3 million. Organic growth for the quarter was driven by strength in the utility end market, particularly in the United States, where we benefited from healthy order intake and strong market conditions and in western Europe from strong customer wins and project execution. Organic growth in the utility end market was partially offset by weakness in the industrial end market, particularly in North America where declines in the dewatering transport applications were only partially offset by growth in Asia Pacific during the quarter. Price realization also contributed to the organic growth in both end markets during the quarter.

From an application perspective, organic revenue growth for the third quarter was driven primarily by growth in our treatment application in the United States and western Europe, where we benefited from strong project execution and healthy order intake during those regions. This growth was partially offset by declines in the emerging markets, primarily due to the lapping of a large Middle East project delivery in the prior year. Organic revenue from our transport application remained relatively flat compared to the prior year period as project revenues increased from deployments across Europe and the emerging markets, but were offset by soft market conditions in North America in the dewatering applications.

For the nine months ended September 30, 2019, revenue increased $7 million, or 0.4% (4.2% increase at constant currency) as compared to 2018. Revenue growth was negatively impacted by $59 million of foreign currency translation, with the change at constant currency coming entirely from organic growth of $66 million.

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Organic growth for the nine month period was primarily driven by strength in the utility end market, particularly in the United States, where we benefited from healthy order intake and strong market conditions across all applications. The utility end market also saw growth in western Europe and Asia Pacific driven by strong project deployments during the period. Organic growth during the nine month period was also driven by strength in the industrial end market, particularly in Asia Pacific and the United States over the first half of the year, where we benefited from healthy order intake and a strong mining market. Organic growth in the industrial end market was partially offset by declines in western Europe due to the timing of project deployments in the prior year. Organic growth in both end markets also benefited from price realization year over year.

From an application perspective, organic revenue growth for the nine months ended September 30, 2019 was driven primarily by our transport application. The transport application had strong organic revenue growth driven by project deliveries and price realization in the United States and the emerging markets. Transport also had strong organic growth from the global dewatering rental business over the first half of the year, coming from strength in construction and mining in the United States and Australia. Organic revenue from our treatment application also contributed to the segment's growth driven by project deliveries in the United States and Asia Pacific where we benefited from healthy order intake coming into the year. This organic growth was partially offset by declines in the Middle East, Europe and Latin America, primarily due to the lapping of large treatment project deliveries in these regions in the prior year.

Applied Water

Applied Water revenue decreased $2 million, or 0.5%, for the third quarter of 2019 (1.1% increase at constant currency) as compared to the prior year. Revenue was negatively impacted by $6 million of foreign currency translation for the quarter. Revenue growth at constant currency consisted of organic growth of $4 million, or 1.1%, which was driven by modest strength across all end markets. From an application perspective, organic revenue growth in the third quarter was led by strength in the building services application in the residential market in the United States and strong second water supply business in China, which was offset by declines in western Europe during the quarter. The industrial water application revenue grew modestly on an organic basis, primarily driven by market growth in Europe, while the building services application in the commercial market contributed modest organic growth during the quarter. Price realization also contributed to the organic growth within the segment during the quarter.

For the nine months ended September 30, 2019, revenue increased $17 million, or 1.5% (3.8% increase at constant currency) as compared to the prior year period. Revenue was negatively impacted by $26 million of foreign currency translation for the period. Revenue growth at constant currency consisted of organic growth of $43 million, or 3.8%, which was primarily driven by strength in the commercial end market, as well as growth in the industrial and residential end markets. From an application perspective, organic revenue growth during the nine month period was led by growth in the commercial building services application which was driven by market expansion in the emerging markets, primarily in the Middle East & Africa, strong price realization and healthy industry demand in the United States and product localization in China. The industrial water application revenue also grew organically, primarily driven by market growth in western Europe, coupled with customers stocking orders due to geopolitical concerns, and strength in the United States. Organic growth in residential building services came primarily from market growth in the Unites States and strong second water supply business in China, which was partially offset by declines in western Europe and the Middle East during the period. Organic growth within the segment also benefited from price realization year over year.

Measurement & Control Solutions

Measurement & Control Solutions revenue increased $21 million, or 5.7%, for the third quarter of 2019 (7.1% at constant currency) as compared to the prior year. Revenue was negatively impacted by $5 million of foreign currency translation for the quarter. Revenue growth at constant currency was made up of organic revenue growth of $30 million, or 8.2%, which was partially offset by $4 million of divestiture activity. Organic revenue growth for the quarter was driven by strength in the utility end market, primarily in the United States, the Middle East and western Europe. From an application perspective, organic revenue from the water application contributed very strong organic growth for the segment, with large project deployments in the Middle East, the United States and western Europe during the quarter. The energy application in the United States also contributed to the organic growth during the quarter, driven by gas project deployments which more than offset the lapping of large electric project deployments in the prior year. The test application had modest organic revenue growth during the quarter, while the software as a service ("SaaS") and other application remained relatively flat as compared to the prior year.

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For the nine months ended September 30, 2019, revenue increased $33 million, or 2.9%, (4.9% at constant currency) as compared to the prior year. Revenue was negatively impacted by $22 million of foreign currency translation during the nine month period. Revenue growth at constant currency was made up of organic revenue growth of $73 million, or 6.5%, partially offset by $18 million of reduced revenue related to the net acquisition and divestiture activity. Organic revenue growth for the period was driven by strength in the utility end market, primarily in the United States, the Middle East and India, partially offset by declines in the United Kingdom and Canada. From an application perspective, organic revenue from the water application contributed the majority of the organic growth for the segment, with project deployments in the United States, the Middle East, western Europe and India during the period. The strong organic growth in the water application was partially offset by a slight decline in the SaaS and other application primarily due to the timing of a large software sale in the prior year in the United Kingdom. The energy application remained relatively flat as gas project deployments in the United States during the period were offset by the timing of a large electric project deployment in the prior year. The test application had modest organic growth as compared to the prior year.

Orders / Backlog

Orders received during the third quarter of 2019 were $1,346 million, a decrease of $10 million, or 0.7%, over the prior year (1.0% increase at constant currency). Orders received during the nine months ended September 30, 2019 were $4,053 million, a slight decease of $1 million over the prior year (2.8% increase at constant currency). The order growth was negatively impacted by $24 million and $113 million of foreign currency translation for the three and nine months ended September 30, 2019, respectively. The order growth at constant currency primarily consisted of organic order growth of 1.3% and 3.1% for the three and nine months ended September 30, 2019, respectively. Orders related to divestitures of $4 million reduced order growth during the third quarter of 2019 and net acquisition and divestiture activity of $13 million reduced order growth during the nine months ended September 30, 2019.

The following tables illustrate the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during the three and nine months ended September 30, 2019:

	Water Infrastructure					Applied Water					Measurement & Control Solutions					Total Xylem
(in millions)	$ Change			% Change		$ Change			% Change		$ Change			% Change		$ Change			% Change
2018 Orders	$	537				$	377				$	442				$	1,356
Organic Growth	62			11.5	%	5			1.3	%	(49		)	(11.1	)%	18			1.3	%
Acquisitions/(Divestitures)	—			—	%	—			—	%	(4		)	(0.9	)%	(4		)	(0.3	)%
Constant Currency	62			11.5	%	5			1.3	%	(53		)	(12.0	)%	14			1.0	%
Foreign currency translation (a)	(13		)	(2.4	)%	(6		)	(1.6	)%	(5		)	(1.1	)%	(24		)	(1.8	)%
Total change in orders	49			9.1	%	(1		)	(0.3	)%	(58		)	(13.1	)%	(10		)	(0.7	)%
2019 Orders	$	586				$	376				$	384				$	1,346

(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 Euro, the British Pound, the Chinese Yuan, the Australian Dollar and the Swedish Krona.

	Water Infrastructure					Applied Water					Measurement & Control Solutions					Total Xylem
(in millions)	$ Change			% Change		$ Change			% Change		$ Change			% Change		$ Change			% Change
2018 Orders	$	1,671				$	1,162				$	1,221				$	4,054
Organic Growth	97			5.8	%	33			2.8	%	(5		)	(0.4	)%	125			3.1	%
Acquisitions/(Divestitures)	—			—	%	—			—	%	(13		)	(1.1	)%	(13		)	(0.3	)%
Constant Currency	97			5.8	%	33			2.8	%	(18		)	(1.5	)%	112			2.8	%
Foreign currency translation (a)	(64		)	(3.8	)%	(26		)	(2.2	)%	(23		)	(1.9	)%	(113		)	(2.8	)%
Total change in orders	33			2.0	%	7			0.6	%	(41		)	(3.4	)%	(1		)	—	%
2019 Orders	$	1,704				$	1,169				$	1,180				$	4,053

(b) 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 Euro, the British Pound, the Chinese Yuan, the Swedish Krona and the Australian Dollar.

45

Water Infrastructure

Water Infrastructure segment orders increased $49 million, or 9.1%, to $586 million (11.5% increase at constant currency) for the third quarter as compared to the prior year. Order growth for the segment was negatively impacted by $13 million of foreign currency translation. The order increase on a constant currency basis was driven by organic order growth in the transport application. Transport organic order growth was primarily driven by a large smart city project order secured in India during the quarter, as well as strong pump order intake in North America and across Europe, partially offset by dewatering transport applications in Europe. Organic orders for the treatment application increased slightly during the quarter, primarily driven by order intake in China and North America, which were partially offset by a reduction of orders in Oceania and Europe during the quarter.

For the nine months ended September 30, 2019, orders increased $33 million, or 2.0%, to $1,704 million (5.8% increase at constant currency) as compared to the same prior year period. Order growth for the segment was negatively impacted by $64 million of foreign currency translation. The order increase on a constant currency basis was driven by organic order growth in the transport application. Transport organic order growth was primarily driven by a large smart city project order secured in India during the quarter and strong market conditions, coupled with some price realization, in Europe, North America and China. Organic orders for the treatment application declined during the period, primarily driven by project timing in North America and the emerging markets due to the timing of large project orders in the prior year.

Applied Water

Applied Water segment orders decreased $1 million, or 0.3%, to $376 million (1.3% increase at constant currency) for the third quarter of 2019 as compared to the prior year. Order growth for the quarter was negatively impacted by $6 million of foreign currency translation. The order increase on a constant currency basis was primarily driven by strong commercial order intake in North America during the quarter.

For the nine months ended September 30, 2019, orders increased $7 million, or 0.6%, to $1,169 million (2.8% increase at constant currency) as compared to the same prior year period. Order growth for the period was negatively impacted by $26 million of foreign currency translation. The order increase on a constant currency basis was driven by strong order intake in the United States and China across all applications, which were partially offset by a reduction of orders in the Middle East.

Measurement & Control Solutions

Measurement & Control Solutions segment orders decreased $58 million, or 13.1%, to $384 million (12.0% decrease at constant currency) for the third quarter of 2019 as compared to the third quarter of 2018, which had order growth in excess of 30%. Order intake during the quarter was negatively impacted by $5 million of foreign currency translation. The order decrease on a constant currency basis was driven by an organic decline of $49 million, or 11.1%, and $4 million of divestiture activity. Over half the decrease in organic orders during the quarter was driven by the energy application, which had a few significant gas and electric deployment orders in the prior year that did not repeat. The water application saw a more modest decline in organic orders during the quarter as the lapping of large prior year projects, coupled with some softening market conditions in North America, were largely offset by significant order growth within the AIA platform. SaaS and other experienced modest organic growth during the quarter, driven by order strength in North America. Organic orders for the test application declined during the quarter driven by project timing and soft market conditions in Europe.

For the nine months ended September 30, 2019, orders decreased $41 million, or 3.4%, to $1,180 million (1.5% decrease at constant currency) as compared to the same prior year period. Order intake during the period was negatively impacted by $23 million of foreign currency translation. The order decrease on a constant currency basis was driven by an organic decline of $5 million, or 0.4%, and $13 million of the net acquisition and divestiture activity during the period. The decrease in organic orders for the nine-month period was driven by the similar factors affecting the third quarter.

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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 $1,868 million at September 30, 2019, an increase of $126 million or 7.2%, as compared to September 30, 2018 backlog of $1,742 million, and an increase of $179 million or 10.6%, as compared to December 31, 2018 backlog of $1,689 million. We anticipate that approximately 40% of the backlog at September 30, 2019 will be recognized as revenue in the remainder of 2019.

Gross Margin

Gross margin as a percentage of revenue increased 10 basis points to 39.3% and 38.9%, respectively, for both the three and nine months ended September 30, 2019 as compared to 39.2% and 38.8%, respectively, for comparative 2018 periods. The slight gross margin increase for both the three and nine month periods were primarily driven by cost reductions from global procurement and productivity improvement initiatives and price realization, which were partially offset by cost inflation, unfavorable mix and lower overhead cost absorption.

Operating Expenses

The following table presents operating expenses for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(In millions)	2019			2018			Change			2019			2018			Change
Selling, general and administrative expenses ("SG&A")	$	273		$	279		(2.2	)	%	$	870		$	868		0.2		%
SG&A as a % of revenue	21.1		%	21.7		%	(60	)	bp	22.4		%	22.7		%	(30	)	bp
Research and development expenses ("R&D")	44			46			(4.3	)	%	142			137			3.6		%
R&D as a % of revenue	3.4		%	3.6		%	(20	)	bp	3.7		%	3.6		%	10		bp
Restructuring and asset impairment charges	33			4			725.0		%	58			19			205.3		%
Goodwill impairment charge	148			—			NM			148			—			NM
Operating expenses	$	498		$	329		51.4		%	$	1,218		$	1,024		18.9		%
Expense to revenue ratio	38.4		%	25.6		%	1,280		bp	31.4		%	26.8		%	460		bp

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

SG&A expenses decreased by $6 million to $273 million, or 21.1% of revenue, in the third quarter of 2019, as compared to $279 million, or 21.7% of revenue, in the comparable 2018 period; and increased $2 million to $870 million, or 22.4% of revenue, in the nine months ended September 30, 2019, as compared to $868 million or 22.7% of revenue for the nine months ended in 2018. The improvement in SG&A as a percent of revenue for both periods was primarily driven by cost reductions from global procurement and productivity improvement initiatives, including restructuring savings, which were partially offset by cost inflation and additional investment in strategic growth initiatives.

Research and Development ("R&D") Expenses

R&D expense was $44 million, or 3.4% of revenue, in the third quarter of 2019, as compared to $46 million or 3.6% of revenue in, the comparable period of 2018; and was $142 million, or 3.7% of revenue, in the nine months ended September 30, 2019, as compared to $137 million or 3.6% of revenue in the comparable period of 2018. Additionally, we capitalized R&D on external sale software of $13 million and $46 million for the three and nine months ended September 30, 2019, as compared to $15 million and $48 million in the prior year periods. Our overall increased spending on R&D over the first nine months of the year is driven by development needs to drive new product growth.

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Restructuring and Asset Impairment Charges

Restructuring

During the three and nine months ended September 30, 2019, we recognized restructuring charges of $26 million and $48 million, respectively. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions in our Applied Water segment. Included in the charges recorded during the three and nine months ended September 30, 2019 were $0 million and $2 million, respectively, related to actions commenced in prior years.

During the three and nine months ended September 30, 2018, we recognized restructuring charges of $4 million and $19 million, respectively. We incurred these charges related to actions taken in 2018 primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions within our Applied Water segment. Included in the charges recorded during the three and nine months ended September 30, 2018 were $2 million and $5 million, respectively, related to actions commenced in prior years.

The following table presents expected restructuring spend for actions commenced as of September 30, 2019:

(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Corporate		Total
Actions Commenced in 2019:
Total expected costs	$	18	$	5	$	27	$	—	$	50
Costs incurred during Q1 2019	3		—		3		—		6
Costs incurred during Q2 2019	7		2		5		—		14
Costs incurred during Q3 2019	6		2		18		—		26
Total expected costs remaining	$	2	$	1	$	1	$	—	$	4
Actions Commenced in 2018:
Total expected costs	$	8	$	1	$	7	$	—	$	16
Costs incurred during 2018	7		1		7		—		15
Costs incurred during Q1 2019	1		—		—		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	—	$	—	$	—	$	—	$	—
Actions Commenced in 2017:
Total expected costs	$	12	$	7	$	4	$	—	$	23
Costs incurred during 2017	5		4		2		—		11
Costs incurred during 2018	2		1		1		—		4
Costs incurred during Q1 2019	—		—		1		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	5	$	2	$	—	$	—	$	7

The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2019 consist primarily of severance charges and are expected to continue through the end of 2019. The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2018 consist primarily of severance charges and are complete. The Water Infrastructure, Applied Water and Measurement & Control

48

Solutions actions commenced in 2017 consist primarily of severance charges and are expected to continue through the fourth quarter of 2020.

We currently expect to incur between $50 million and $60 million in restructuring costs for the full year. Included in these costs are costs to implement our Global Business Services platform, which will enable us to simplify, standardize and centralize many of our transactional processes. As a result of all of the actions taken and expected to be taken in 2019, we anticipate approximately $15 million of total net savings to be realized during 2019.

Asset Impairment

During the three and nine months ended September 30, 2019, we determined that certain assets within our Measurement & Control Solutions segment, including customer relationships, internally developed software, proprietary technology, and plant property & equipment, were impaired. Accordingly we recognized impairment charges of $7 million and $10 million during these periods, respectively. Refer to Note 10, "Goodwill and Other Intangible Assets," for additional information.

Goodwill Impairment Charge

During the third quarter of 2019, the Company recorded a goodwill impairment charge of $148 million related to the Advanced Infrastructure Analytics (“AIA”) goodwill reporting unit. The impairment resulted from a downward revision of forecasted future cash flows. Factors that contributed to the revised forecast in the third quarter include lower than expected results as compared to prior forecasts, largely as a result of slower-than-expected conversion of pipeline opportunities to revenue. Additionally, we have continued to invest in the AIA platform ahead of the adoption curve, which has also impacted the near term profitability of the business. These factors drove a decrease in the fair value, based on a discounted cash flow valuation, of the AIA reporting unit that is below its carrying value as of the third quarter, requiring an impairment charge. Refer to Note 10, "Goodwill and Other Intangible Assets," for additional information.

Operating Income

Operating income during the third quarter of 2019 was $11 million, reflecting a decrease of 93.8% compared to $176 million in the third quarter of 2018. Operating margin was 0.8% for 2019 versus 13.7% for 2018, a decrease of 1,290 basis points. Operating margin was negatively impacted by increased special charges of $154 million, consisting entirely of non-cash impairment charges, and increased restructuring and realignment costs of $19 million as compared to the prior year. Excluding these special charges and restructuring and realignment costs, adjusted operating income was $196 million with an adjusted operating margin of 15.1% in 2019 as compared to adjusted operating income of $188 million with an adjusted operating margin of 14.6% in the third quarter of 2018. The increase in adjusted operating margin was primarily due to cost reductions from our global procurement and productivity initiatives, including restructuring savings, and improved price realization, which were partially offset by cost inflation, increased cost of quality, unfavorable mix and increased spending on strategic investments.

Operating income for the nine months ended September 30, 2019 was $291 million, reflecting a decrease of 36.7% compared to $460 million in 2018. Operating margin was 7.5% for 2019 versus 12.0% for 2018, a decrease of 450 basis points. Operating margin for the nine months was negatively impacted by increased special charges of $151 million, consisting entirely of non-cash impairment charges, and increased restructuring and realignment costs of $34 million as compared to the prior year. Excluding these special charges and restructuring and realignment costs, adjusted operating income was $521 million with an adjusted operating margin of 13.4% for the nine months ended September 30, 2019 as compared to adjusted operating income of $505 million with an adjusted operating margin of 13.2% in 2018. The slight increase in adjusted operating margin was primarily due to cost reductions from our global procurement and productivity initiatives, including restructuring savings, improved price realization and favorable volume impacts. These impacts were partially offset by cost inflation, increased spending on strategic investments, unfavorable mix, increased cost of quality and lower overhead cost absorption.

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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)	2019			2018			Change			2019			2018			Change
Water Infrastructure
Operating income	$	97		$	99		(2.0	)	%	$	246		$	240		2.5		%
Operating margin	18.3		%	18.3		%	—		bp	15.6		%	15.3		%	30		bp
Restructuring and realignment costs	7			5			40.0		%	25			15			66.7		%
Adjusted operating income	$	104		$	104		—		%	$	271		$	255		6.3		%
Adjusted operating margin	19.6		%	19.2		%	40		bp	17.2		%	16.3		%	90		bp
Applied Water
Operating income	$	61		$	59		3.4		%	$	179		$	170		5.3		%
Operating margin	16.2		%	15.6		%	60		bp	15.6		%	15.0		%	60		bp
Restructuring and realignment costs	3			2			50.0		%	10			7			42.9		%
Adjusted operating income	$	64		$	61		4.9		%	$	189		$	177		6.8		%
Adjusted operating margin	17.0		%	16.1		%	90		bp	16.4		%	15.6		%	80		bp
Measurement & Control Solutions
Operating income	$	(136	)	$	31		(538.7	)	%	$	(94	)	$	95		(198.9	)	%
Operating margin	(35.0		)%	8.4		%	(4,340	)	bp	(8.1		)%	8.5		%	(1,660	)	bp
Restructuring and realignment costs	20			4			400.0		%	36			15			140.0		%
Special charges	155			—			NM			159			3			NM
Adjusted operating income	$	39		$	35		11.4		%	$	101		$	113		(10.6	)	%
Adjusted operating margin	10.0		%	9.5		%	50		bp	8.7		%	10.1		%	(140	)	bp
Corporate and other
Operating loss	$	(11	)	$	(13	)	(15.4	)	%	$	(40	)	$	(45	)	(11.1	)	%
Special charges	—			1			NM			—			5			NM
Adjusted operating loss	$	(11	)	$	(12	)	(8.3	)	%	$	(40	)	$	(40	)	—		%
Total Xylem
Operating income	$	11		$	176		(93.8	)	%	$	291		$	460		(36.7	)	%
Operating margin	0.8		%	13.7		%	(1,290	)	bp	7.5		%	12.0		%	(450	)	bp
Restructuring and realignment costs	30			11			172.7		%	71			37			91.9		%
Special charges	155			1			NM			159			8			NM
Adjusted operating income	$	196		$	188		4.3		%	$	521		$	505		3.2		%
Adjusted operating margin	15.1		%	14.6		%	50		bp	13.4		%	13.2		%	20		bp

NM - Not meaningful percentage change

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Water Infrastructure

Operating income for our Water Infrastructure segment decreased $2 million, or 2.0%, for the third quarter of 2019 compared to the prior year, with operating margin remaining flat at 18.3%. Operating margin was negatively impacted by increased restructuring and realignment costs of $2 million in 2019. Excluding these restructuring and realignment costs, adjusted operating income remained flat at $104 million for both periods with adjusted operating margin increasing from 19.2% to 19.6%. The increase in adjusted operating margin for the quarter was primarily due to cost reductions from our global procurement and productivity initiatives and improved price realization, which were partially offset by cost inflation, and unfavorable impacts from cost of quality, volume and mix.

For the nine months ended September 30, 2019, operating income increased $6 million, or 2.5%, as compared to the prior year, with operating margin also increasing from 15.3% to 15.6%. Operating margin was negatively impacted by increased restructuring and realignment costs of $10 million in 2019. Excluding these restructuring and realignment costs, adjusted operating income increased $16 million, or 6.3%, with adjusted operating margin increasing from 16.3% to 17.2%. The increase in adjusted operating margin during the period was primarily due to cost reductions from our global procurement and productivity initiatives, price realization and favorable volume, which were partially offset by cost inflation, lower overhead cost absorption, increased cost of quality, increased spending on strategic investments and unfavorable mix.

Applied Water

Operating income for our Applied Water segment increased $2 million, or 3.4%, for the third quarter of 2019 compared to the prior year, with operating margin also increasing from 15.6% to 16.2%. Operating margin was negatively impacted by increased restructuring and realignment costs of $1 million in 2019. Excluding these restructuring and realignment costs, adjusted operating income increased $3 million, or 4.9%, with adjusted operating margin increasing from 16.1% to 17.0%. The increase in adjusted operating margin was primarily due to cost reductions from our global procurement and productivity initiatives and improved price realization, which were partially offset by cost inflation, lower overhead cost absorption and unfavorable mix.

For the nine months ended September 30, 2019, operating income increased $9 million, or 5.3%, as compared to the prior year, with operating margin also increasing from 15.0% to 15.6%. Operating margin was negatively impacted by increased restructuring and realignment costs of $3 million in 2019. Excluding these restructuring and realignment costs, adjusted operating income increased $12 million, or 6.8%, with adjusted operating margin increasing from 15.6% to 16.4%. The increase in adjusted operating margin was primarily due to cost reductions from our global procurement and productivity initiatives and price realization, which were partially offset by cost inflation, lower overhead cost absorption, increased spending on strategic investments and unfavorable mix.

Measurement & Control Solutions

Operating income for our Measurement & Control Solutions segment decreased $167 million, or 538.7%, for the third quarter of 2019 compared to the prior year, with operating margin also decreasing from 8.4% to (35.0)%. Operating margin was negatively impacted by $155 million of special charges, consisting entirely of non-cash impairment charges, incurred during the quarter and increased restructuring and realignment costs of $16 million in 2019. Excluding these items, adjusted operating income increased $4 million, or 11.4%, with adjusted operating margin increasing from 9.5% to 10.0%. The increase in adjusted operating margin was primarily due to cost reductions from our global procurement and productivity initiatives, favorable volume impacts and price realization, which were partially offset by moderating cost inflation, increased cost of quality and increased spending on strategic investments.

For the nine months ended September 30, 2019, operating income decreased $189 million, or 198.9%, as compared to the prior year, with operating margin also decreasing from 8.5% to (8.1)%. Operating margin was negatively impacted by increased special charges of $156 million, consisting entirely of non-cash impairment charges, and increased restructuring and realignment costs of $21 million during the period. Excluding these items, adjusted operating income decreased $12 million, or 10.6%, with adjusted operating margin decreasing from 10.1% to 8.7%. The decrease in adjusted operating margin was primarily due to increases in cost inflation, increased spending on strategic investments and unfavorable mix impacts. Purchase accounting impacts from prior year acquisitions also negatively affected operating margin. These impacts were partially offset by cost reductions from our global procurement and productivity initiatives, favorable volume impacts and price realization.

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Corporate and other

Operating loss for corporate and other decreased $2 million, or 15.4%, for the third quarter of 2019 compared to the prior year, primarily due to $1 million of special charges incurred during the quarter in 2018 that did not recur. Excluding these costs, adjusted operating loss decreased $1 million, or 8.3%, compared to the prior year. For the nine months ended September 30, 2019, operating loss for corporate and other decreased $5 million, or 11.1%, compared to the same prior year period, primarily due to $5 million of special charges incurred during the period in 2018 that did not recur.

Interest Expense

Interest expense was $16 million and $52 million for the three and nine months ended September 30, 2019, and $21 million and $63 million for the three and nine months ended September 30, 2018. The decrease in interest expense for the both the three and nine month periods ended September 30, 2019 is primarily driven by additional interest expense that was incurred during 2018 related to debt that was entered into to fund our acquisition of Pure Technologies Ltd., which has been repaid as of September 30, 2019. See Note 13, "Credit Facilities and Debt", of our consolidated financial statements for a description of our credit facilities and long-term debt and related interest.

Income Tax Expense

The income tax provision for the three months ended September 30, 2019 was a benefit of $77 million resulting in an effective tax rate of 623.6% (on a pre-tax loss for the period), compared to a $31 million charge resulting in an effective tax rate of 19.0% for the same period in 2018. The income tax provision for the nine months ended September 30, 2019 was a benefit of $45 million resulting in an effective tax rate of (18.9)%, compared to an $82 million charge resulting in an effective tax rate of 20.1% for the same period in 2018. The effective tax rates for the three and nine month periods ended September 30, 2019 differ from the same periods in 2018 primarily due to the income tax benefit that resulted from changes in tax law in Switzerland and the impact of the goodwill impairment charge on income before taxes in 2019. On an adjusted basis, the effective tax rates were 19.0% and 19.2% for the three and nine months ended September 30, 2019, respectively, and 18.7% and 19.5% for the three and nine months ended September 30, 2018, respectively.  See the “adjusted net income” and “adjusted earnings per share” reconciliation of GAAP to non-GAAP measures in the "Key Performance Indicators and Non-GAAP Measures" section for further detail.    

Other Comprehensive Income

Other comprehensive loss was $37 million for the three months ended September 30, 2019 compared to a loss of $1 million for the same period in 2018. Foreign currency translation contributed unfavorable impacts during the quarter of $11 million, driven primarily by the weakening of the Euro, the Great British Pound, the Canadian Dollar, the Polish Zloty, the Hungarian Forint and the Swedish Krona as compared to the U.S. Dollar in 2019 versus the strengthening of these currencies in the same prior year period. These unfavorable currency translation impacts were partially offset by the movement in our Euro net investment hedges during the quarter. In addition to net unfavorable foreign currency translation impacts, there was an unfavorable impact from the movement of tax on the net investment hedges as compared to the prior year of $16 million during the quarter that contributed to the increased loss.

For the nine months ended September 30, 2019, other comprehensive loss was $28 million compared to a loss of $68 million for the same period in 2018. Foreign currency translation contributed favorable impacts during the period of $52 million, driven by the positive movement in our Euro net investment hedges and the strengthening of the Canadian Dollar as compared to the U.S. Dollar in 2019 versus the weakening of this currency in the same prior year period. Additionally, the weakening of the South African Rand, the Indian Rupee and the Chinese Yuan as compared to the U.S. Dollar was less negative in 2019 than the weakening of these currencies in the same prior year period. These increases were partially offset by further weakening of the Euro as compared to the U.S. Dollar in the current period versus the comparable prior year period. Net favorable foreign currency translation impacts were partially offset by an unfavorable impact from the movement of tax on the net investment hedges as compared to the prior year of $8 million during the period.

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Liquidity and Capital Resources

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

	Nine Months Ended
	September 30,
(In millions)	2019			2018			Change
Operating activities	$	451		$	388		$	63
Investing activities	(185		)	(579		)	394
Financing activities	(99		)	195			(294		)
Foreign exchange (a)	(10		)	(14		)	4
Total	$	157		$	(10	)	$	167

(a) The impact is primarily due to the strengthening of the Chinese Yuan, the Indian Rupee, the Canadian Dollar and various other currencies against the U.S. Dollar. These impacts were partially offset by the weakness of the Euro against the U.S. Dollar.

Sources and Uses of Liquidity

Operating Activities

During the nine months ended September 30, 2019, net cash provided by operating activities was $451 million, an increase of $63 million as compared to the same prior year period. This increase was primarily driven by an increase in cash from earnings during the period, improvement in working capital levels due to improved inventory management, and decreased payments for post retirement obligations, which were partially offset by an increase in cash tax payments.

Investing Activities

Cash used in investing activities was $185 million for the nine months ended September 30, 2019 as compared to $579 million in the comparable prior year period. This decrease in cash used was mainly driven by the $433 million spent on 2018 acquisitions, primarily for the acquisition of Pure Technologies Ltd., versus the $18 million spent for acquisition activity during the current year period. This decrease is partially offset by $22 million of proceeds received for a divested business in 2018.

Financing Activities

Cash used by financing activities was $99 million for the nine months ended September 30, 2019 as compared to cash generated of $195 million in the comparable prior year period. The net decrease in cash generated by financing activities during the period was primarily due to higher levels of short-term debt related to acquisition financing during the first quarter of 2018 and an increase in dividends paid of $17 million during the period as compared to the prior year. These drivers were partially offset by a decrease in share repurchase activity of $19 million.

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 our primary cash needs centered on operating activities, working capital, capital expenditures, strategic investments and dividend payments. 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.

We monitor our global funding requirements and seek to meet our liquidity needs on a 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 newly expanded committed credit facilities and access to the public debt markets would provide further liquidity if required.

53

We anticipate that our present sources of funds, including funds from operations and additional borrowings, will provide us with sufficient liquidity and capital resources to meet our liquidity and capital needs both inside and outside of the United States over the next twelve months.

Credit Facilities & Long-Term Contractual Commitments

See Note 13, "Credit Facilities and Debt", of our consolidated financial statements for a description of our credit facilities and long-term debt.

Non-United States Operations

We generated approximately 51% of our revenue from non-United States operations for the three and nine months ended September 30, 2019 and 52% and 54% for the three and nine months ended September 30, 2018, respectively. As we continue to grow our operations in the emerging markets and elsewhere outside of the United States, we expect to continue to generate significant revenue from non-United States operations and we expect 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 United States and other international subsidiaries when we believe it is cost effective to do so. We continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities, and reassess whether there is a demonstrated need to repatriate funds held internationally to support our United States operations. As of September 30, 2019, we have provided a deferred tax liability of $9 million for foreign withholding taxes and state income taxes on $505 million expected to be repatriated to the United States parent as deemed necessary. Repatriation is not expected to have a material impact on liquidity. As of September 30, 2019, our foreign subsidiaries were holding $298 million in cash or marketable securities.

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 2018 Annual Report describes the critical accounting estimates used in preparation of the condensed consolidated financial statements. Actual results in these areas could differ from management’s estimates. Other than as discussed below, there have been no significant changes in the information concerning our critical accounting estimates as stated in our 2018 Annual Report.

During the fourth quarter of 2018, we performed our annual impairment assessment and determined that the estimated fair values of our goodwill reporting units were in excess of their carrying values. Our Advanced Infrastructure Analytics (“AIA”) business within our Measurement & Control Solutions segment was the only goodwill reporting unit whose fair value was not substantially in excess of its carrying value. At the time, our assessment indicated that the fair value of the AIA business exceeded its carrying amount by less than 10%.

In the third quarter of 2019, the Company revised its forecasted future cash flows for the AIA business. Factors that contributed to the revised forecast in the third quarter include lower than expected results as compared to prior forecasts, largely as a result of slower-than-expected conversion of pipeline opportunities to revenue. Additionally, we have continued to invest in the AIA platform ahead of the adoption curve, which has also impacted the near term profitability of the business. Based on these factors we determined that there were indicators that the AIA reporting unit’s goodwill may be impaired, and accordingly, we performed an interim goodwill impairment test as of July 1, 2019. The results of the impairment test showed that the fair value of the AIA reporting unit was lower than the carrying value, resulting in a $148 million goodwill impairment charge. As of September 30, 2019 the remaining goodwill balance in our AIA reporting unit after recording the goodwill impairment charge was $170 million.

Also, during the third quarter of 2019, due to the factors discussed above, we assessed whether the carrying amounts of the AIA reporting unit’s long-lived assets may not be recoverable and therefore impaired. Our

54

assessment resulted in an impairment charge of $7 million, primarily related to customer relationships, proprietary technology, software and property, plant and equipment. The charge was calculated using an income approach.

The fair value of our reporting units and intangible assets is judgmental in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, as well as, future economic and market conditions. In addition, the identification of reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of each reporting unit also require judgment. If we do not achieve our forecasts, given that the fair value and the carrying value of the AIA reporting unit were the same at July 1, 2019, it is possible that the goodwill of the AIA reporting unit could be deemed to be impaired again in a future period.

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.

55

ITEM 3.             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Effective July 1, 2018, Argentina was determined to be a highly inflationary economy, and as such we evaluated the impact of revaluing our monetary assets and liabilities under the applicable guidance and do not expect it to have a material impact.

There has been no other material change in the information concerning market risk as stated in our 2018 Annual Report.

ITEM 4.             CONTROLS AND PROCEDURES

Our management, with 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.

In 2017, the Company undertook steps to advance a multi-year effort to transform many of our support functions and related technologies, including Finance, Human Resources and Procurement. In connection with these restructuring and transformation plans, we continue to centralize certain accounting functions within shared service centers operated by an outsourced provider. This initiative is not in response to any identified deficiency or weakness in the Company’s internal control over financial reporting. In response to this initiative, the Company has and will continue to align and streamline the design and operation of its financial control environment.

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

56

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 (or the business operations of previously owned entities). These proceedings may seek remedies relating to environmental matters, tax, intellectual property matters, acquisitions or divestitures, product liability and personal injury claims, privacy, employment, labor and pension matters, government contract issues and commercial or contractual disputes. See Note 19 "Commitments and Contingencies", to the condensed consolidated financial statements for further information and any updates.

ITEM 1A.           RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our 2018 Annual Report on Form 10-K under Item 1A. Risk Factors.

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 30, 2019:

(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)
7/1/19 - 7/31/19	—	—	—	$338
8/1/19 - 8/31/19	—	—	—	$338
9/1/19 - 9/30/19	—	—	—	$338

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

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

(b) On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program during the three months ended September 30, 2019. There are up to $338 million in shares that may still be purchased under this plan as of September 30, 2019.

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.             MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.             OTHER INFORMATION

None.

ITEM 6.             EXHIBITS

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

57

XYLEM INC.

EXHIBIT INDEX

Exhibit Number	Description	Location
3.1	Fourth Amended and Restated Articles of Incorporation of Xylem Inc.	Incorporated by reference to Exhibit 3.1 of Xylem Inc.’s Form 8-K filed on May 15, 2017 (CIK No. 1524472, File No. 1-35229).
3.2	Fourth Amended and Restated By-laws of Xylem Inc.	Incorporated by reference to Exhibit 3.2 of Xylem Inc.’s Form 8-K filed on May 15, 2017 (CIK No. 1524472, File No. 1-35229).
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 30, 2019, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements	The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
104.0	The cover page from Xylem Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2019 formatted in Inline XBRL and contained in Exhibit 101.0.

58

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

October 31, 2019

59

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick K. Decker, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended September 30, 2019;

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

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

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

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

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

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

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

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

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

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

Date: October 31, 2019

/s/ Patrick K. Decker

Patrick K. Decker

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, E. Mark Rajkowski, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Xylem Inc. for the period ended September 30, 2019;

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

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

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

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

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

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

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

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

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

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

Date: October 31, 2019

/s/ E. Mark Rajkowski

E. Mark Rajkowski

Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Xylem Inc. (the “Company”) for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick K. Decker, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

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

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

/s/ Patrick K. Decker

Patrick K. Decker

President and Chief Executive Officer

October 31, 2019

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

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Xylem Inc. (the “Company”) for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, E. Mark Rajkowski, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

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

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

/s/ E. Mark Rajkowski

E. Mark Rajkowski

Senior Vice President and Chief Financial Officer

October 31, 2019

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

XML

Goodwill and Other Intangible Assets (Summary of Intangible Assets) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Goodwill and Other Intangible Assets
Accumulated Amortization	$ (699)		$ (699)		$ (603)
Intangible Assets Gross, Carrying Amount	1,879		1,879		1,835
Intangible Assets, Net Intangibles	1,180		1,180		1,232
Amortization	35	$ 34	104	$ 108
Customer and distributor relationships
Goodwill and Other Intangible Assets
Carrying Amount	939		939		951
Accumulated Amortization	(334)		(334)		(286)
Net Intangibles	605		605		665
Proprietary technology and patents
Goodwill and Other Intangible Assets
Carrying Amount	203		203		198
Accumulated Amortization	(105)		(105)		(93)
Net Intangibles	98		98		105
Trademarks
Goodwill and Other Intangible Assets
Carrying Amount	147		147		148
Accumulated Amortization	(49)		(49)		(41)
Net Intangibles	98		98		107
Software
Goodwill and Other Intangible Assets
Carrying Amount	405		405		355
Accumulated Amortization	(195)		(195)		(164)
Net Intangibles	210		210		191
Other
Goodwill and Other Intangible Assets
Carrying Amount	20		20		24
Accumulated Amortization	(16)		(16)		(19)
Net Intangibles	4		4		5
Indefinite-lived intangibles
Goodwill and Other Intangible Assets
Accumulated Amortization	0		0		0
Indefinite-lived intangibles	$ 165		$ 165		$ 159

XML

Leases (Lease Costs) (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Leases [Abstract]
Operating lease cost	$ 20	$ 58
Short-term lease cost	2	7
Variable lease cost	3	13
Total lease cost	$ 25	$ 78

XML

Earnings Per Share (Calculations for EPS) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Basic and diluted net earnings per share:
Net income attributable to Xylem (in usd)		$ 65	$ 130	$ 283	$ 324
Shares
Weighted average common shares outstanding		180,044	179,650	179,909	179,760
Add: Participating securities	[1]	28	26	29	28
Weighted average common shares outstanding — Basic		180,072	179,676	179,938	179,788
Plus incremental shares from assumed conversions:
Weighted average common shares outstanding — Diluted		181,212	181,090	181,159	181,166
Basic earnings per share (usd per share)		$ 0.36	$ 0.73	$ 1.57	$ 1.80
Diluted earnings per share (usd per share)		$ 0.36	$ 0.72	$ 1.56	$ 1.79
Stock Options
Plus incremental shares from assumed conversions:
Dilutive effect of common shares	[2]	790	895	819	903
Restricted Stock
Plus incremental shares from assumed conversions:
Dilutive effect of common shares	[2]	350	519	402	475

[1] 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.

[2] 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 16, "Share-Based Compensation Plans" to the condensed consolidated financial statements for further detail on the performance share units.

XML

Segment Information (Summary of Operations by Segment) (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Financial information for each reportable segment
Revenues		$ 1,296	$ 1,287	$ 3,878	$ 3,821
Operating income		11	176	291	460
Interest Expense		16	21	52	63
Other Nonoperating Income (Expense)		(7)	4	(2)	9
Gain from sale of business		0	2	1	0
Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Noncontrolling Interest		(12)	161	238	406
Depreciation and amortization		65	63	192	195
Capital expenditures		46	60	175	171
Water Infrastructure
Financial information for each reportable segment
Revenues		531	541	1,574	1,567
Operating income		97	99	246	240
Depreciation and amortization		15	17	46	50
Capital expenditures		14	20	65	60
Applied Water
Financial information for each reportable segment
Revenues		376	378	1,149	1,132
Operating income		61	59	179	170
Depreciation and amortization		5	5	17	16
Capital expenditures		5	5	15	19
Measurement & Control Solutions
Financial information for each reportable segment
Revenues		389	368	1,155	1,122
Operating income		(136)	31	(94)	95
Depreciation and amortization		36	34	107	107
Capital expenditures		21	26	74	72
Regional Selling Locations
Financial information for each reportable segment
Depreciation and amortization	[1]	6	5	14	15
Capital expenditures	[2]	4	3	13	11
Corporate and other
Financial information for each reportable segment
Operating income		(11)	(13)	(40)	(45)
Depreciation and amortization		3	2	8	7
Capital expenditures		$ 2	$ 6	$ 8	$ 9

[1] 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.

[2] Represents capital expenditures incurred by the Regional selling locations not allocated to the segments.

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Changes in product warranty accrual

We warrant numerous products, the terms of which vary widely. In general, we warrant products against defect and specific non-performance. The table below provides the changes in our product warranty accrual:

(in millions)	2019			2018
Warranty accrual – January 1	$	60		$	82
Net charges for product warranties in the period	20			16
Settlement of warranty claims	(32		)	(33		)
Foreign currency and other	(2		)	1
Warranty accrual - September 30	$	46		$	66

XML

Acquisitions and Divestitures (Textuals) (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended		12 Months Ended
	Jan. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Acquisition of business, net of cash acquired		$ 0		$ 18	$ 433
Revenues		1,296	$ 1,287	$ 3,878	3,821
Pure Technologies Ltd
Business Acquisition [Line Items]
Acquisition of business, net of cash acquired	$ 420
Acquisition costs	$ 4
Revenue			25		67
Operating income (loss)			(2)		(5)
Other acquisitions
Business Acquisition [Line Items]
Acquisition of business, net of cash acquired			$ 3		$ 13
Disposed of by Sale | Precision Die Casting
Business Acquisition [Line Items]
Proceeds from sale of business		$ 22
Revenues						$ 32

XML

Segment Information

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Information

Segment Information

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

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

The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 1 in the 2018 Annual Report). The following tables contain financial information for each reportable segment:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Revenue:
Water Infrastructure	$	531		$	541		$	1,574		$	1,567
Applied Water	376			378			1,149			1,132
Measurement & Control Solutions	389			368			1,155			1,122
Total	$	1,296		$	1,287		$	3,878		$	3,821
Operating Income:
Water Infrastructure	$	97		$	99		$	246		$	240
Applied Water	61			59			179			170
Measurement & Control Solutions	(136		)	31			(94		)	95
Corporate and other	(11		)	(13		)	(40		)	(45		)
Total operating income	$	11		$	176		$	291		$	460
Interest expense	$	16		21			$	52		$	63
Other non-operating (expense) income, net	(7		)	4			(2		)	9
Gain from sale of business	—			2			1			—
Income before taxes	$	(12	)	$	161		$	238		$	406
Depreciation and Amortization:
Water Infrastructure	$	15		$	17		$	46		$	50
Applied Water	5			5			17			16
Measurement & Control Solutions	36			34			107			107
Regional selling locations (a)	6			5			14			15
Corporate and other	3			2			8			7
Total	$	65		$	63		$	192		$	195
Capital Expenditures:
Water Infrastructure	$	14		$	20		$	65		$	60
Applied Water	5			5			15			19
Measurement & Control Solutions	21			26			74			72
Regional selling locations (b)	4			3			13			11
Corporate and other	2			6			8			9
Total	$	46		$	60		$	175		$	171

(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.

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Share-Based Compensation Plans

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Compensation Plans

Share-Based Compensation Plans

Share-based compensation expense was $7 million and $23 million during the three and nine months ended September 30, 2019, respectively, and $7 million and $23 million during the three and nine months ended September 30, 2018, respectively. The unrecognized compensation expense related to our stock options, restricted stock units and performance share units was $7 million, $26 million and $18 million, respectively, at September 30, 2019 and is expected to be recognized over a weighted average period of 1.9, 2 and 1.9 years, respectively. The amount of cash received from the exercise of stock options was $10 million and $7 million for the nine months ended September 30, 2019 and 2018, respectively.

Stock Option Grants

The following is a summary of the changes in outstanding stock options for the nine months ended September 30, 2019:

	Share units            (in thousands)		Weighted Average Exercise Price / Share		Weighted  Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2019	2,125		$	43.08	6.5
Granted	334		74.08
Exercised	(286	)	35.71
Forfeited and expired	(46	)	67.04
Outstanding at September 30, 2019	2,127		$	48.42	6.5	$	67
Options exercisable at September 30, 2019	1,492		$	39.60	5.5	$	60
Vested and expected to vest as of September 30, 2019	2,067		$	47.71	6.4	$	66

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the nine months ended September 30, 2019 was $11.9 million.

Stock Option Fair Value

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for 2019 grants:

Volatility	24.10		%
Risk-free interest rate	2.55		%
Dividend yield	1.30		%
Expected term (in years)	5.4
Weighted-average fair value / share	$	17.04

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

Restricted Stock Unit Grants

The following is a summary of restricted stock unit activity for the nine months ended September 30, 2019. The fair value of the restricted share unit awards is determined using the closing price of our common stock on date of grant.

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	537		$	59.41
Granted	284		74.32
Vested	(247	)	55.42
Forfeited	(44	)	67.59
Outstanding at September 30, 2019	530		$	68.50

ROIC Performance Share Unit Grants

The following is a summary of Return on Invested Capital ("ROIC") performance share unit grants for the nine months ended September 30, 2019. The fair value of the ROIC performance share units is equal to the closing share price on the date of the grant. 

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	274		$	52.11
Granted	77		74.07
Adjustment for Performance Condition Achieved (a)	74		37.86
Vested	(174	)	37.86
Forfeited	(17	)	63.18
Outstanding at September 30, 2019	234		$	64.54

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

TSR Performance Share Unit Grants

The following is a summary of our Total Shareholder Return ("TSR") performance share unit grants for the nine months ended September 30, 2019:

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	274		$	61.04
Granted	77		89.62
Adjustment for Market Condition Achieved (a)	74		37.86
Vested	(174	)	37.86
Forfeited	(17	)	63.18
Outstanding at September 30, 2019	234		$	75.82

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

The fair value of TSR performance share units was calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The following are weighted-average assumptions for 2019 grants:

Volatility	20.9	%
Risk-free interest rate	2.52	%

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Inventories (Tables)

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventories

The components of total inventories are summarized as follows: 

(in millions)	September 30, 2019		December 31, 2018
Finished goods	$	231	$	248
Work in process	54		45
Raw materials	295		302
Total inventories	$	580	$	595

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Accrued and Other Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2019

Payables and Accruals [Abstract]

Accrued and Other Current Liabilities

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

(in millions)	September 30, 2019		December 31, 2018
Compensation and other employee benefits	$	189	$	194
Customer-related liabilities	144		129
Accrued taxes	69		85
Lease liabilities	60		—
Accrued warranty costs	39		44
Other accrued liabilities	133		94
Total accrued and other current liabilities	$	634	$	546

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Accrued and Other Current Liabilities

9 Months Ended

Sep. 30, 2019

Payables and Accruals [Abstract]

Accrued and Other Current Liabilities

Accrued and Other Current Liabilities

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

(in millions)	September 30, 2019		December 31, 2018
Compensation and other employee benefits	$	189	$	194
Customer-related liabilities	144		129
Accrued taxes	69		85
Lease liabilities	60		—
Accrued warranty costs	39		44
Other accrued liabilities	133		94
Total accrued and other current liabilities	$	634	$	546

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Recently Issued Accounting Pronouncements

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Pronouncements Not Yet Adopted

In June 2016, the FASB issued guidance amending the accounting for the impairment of financial instruments, including trade receivables. Under current guidance, credit losses are recognized when the applicable losses have a probable likelihood of occurring and this assessment is based on past events and current conditions. The amended guidance eliminates the “probable” threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach

except for debt securities, which require a prospective transition approach. We are evaluating the impact of the guidance on our financial condition and results of operations.

Recently Adopted Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance regarding the accounting for implementation costs of a hosting arrangement that is a service contract. The guidance establishes the requirement to capitalize certain implementation costs incurred in a hosting arrangement that is a service contract, effectively aligning with the requirement to capitalize certain implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. The requirements of the amended guidance may be applied using either a retrospective or prospective approach. We adopted this guidance prospectively as of April 1, 2019. This guidance did not have a material impact on our financial condition and results of operations.

In February 2016, the FASB issued guidance amending the accounting for leases. Specifically, the amended guidance requires all lessees to record a lease liability at lease inception, with a corresponding right of use ("ROU") asset, except for short-term leases. Lessor accounting is not fundamentally changed. This amended guidance is effective for interim and annual periods beginning after December 15, 2018 using a modified retrospective approach. Early adoption was permitted. We adopted this guidance as of January 1, 2019 using the modified retrospective approach whereby prior comparative periods were not retrospectively restated in the condensed consolidated financial statements. The adoption of the standard resulted in the recognition of ROU assets and lease liabilities of $267 million and $265 million, respectively, as well as deferred tax assets and deferred tax liabilities of $68 million, as of January 1, 2019, the date of initial application. The guidance did not have a material impact on our Condensed Consolidated Income Statements and Statements of Cash Flow. See Note 9, "Leases" for further details.

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Inventories

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventories

Inventories

The components of total inventories are summarized as follows: 

(in millions)	September 30, 2019		December 31, 2018
Finished goods	$	231	$	248
Work in process	54		45
Raw materials	295		302
Total inventories	$	580	$	595

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Restructuring Charges

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

Restructuring Charges

Restructuring and Asset Impairment Charges

Restructuring

From time to time, the Company will incur costs related to restructuring actions in order to optimize our cost base and more strategically position ourselves based on the economic environment and customer demand. During the three and nine months ended September 30, 2019, we recognized restructuring charges of $26 million and $48 million, respectively. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions within our Applied Water segment.

During the three and nine months ended September 30, 2018, we recognized restructuring charges of $4 million and $19 million, respectively. We incurred these charges primarily as a continuation of our efforts to reposition our European and North American businesses to optimize our cost structure and improve our operational efficiency and effectiveness. The charges included the reduction of headcount and consolidation of facilities within our Measurement & Control Solutions and Water Infrastructure segments, as well as headcount reductions within our Applied Water segment.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
By component:
Severance and other charges	$	26	$	4	$	46	$	18
Lease related charges	—		—		1		1
Other restructuring charges	—		—		1		—
Total restructuring charges	$	26	$	4	$	48	$	19
Asset impairment	7		—		10		—
Total restructuring and asset impairment charges	$	33	$	4	$	58	$	19
By segment:
Water Infrastructure	$	6	$	2	$	17	$	8
Applied Water	2		1		4		2
Measurement & Control Solutions	25		1		37		9

The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within accrued and other current liabilities, for the nine months ended September 30, 2019 and 2018:

(in millions)	2019			2018
Restructuring accruals - January 1	$	5		$	7
Restructuring charges	48			19
Cash payments	(21		)	(18		)
Foreign currency and other	(2		)	(1		)
Restructuring accruals - September 30	$	30		$	7
By segment:
Water Infrastructure	$	1		$	1
Applied Water	1			1
Measurement & Control Solutions	21			3
Regional selling locations (a)	7			2
Corporate and other	—			—

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

The following is a roll-forward for the nine months ended September 30, 2019 and 2018 of employee position eliminations associated with restructuring activities:

	2019		2018
Planned reductions - January 1	69		47
Additional planned reductions	621		176
Actual reductions and reversals	(465	)	(135	)
Planned reductions - September 30	225		88

The following table presents expected restructuring spend for actions commenced as of September 30, 2019:

(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Corporate		Total
Actions Commenced in 2019:
Total expected costs	$	18	$	5	$	27	$	—	$	50
Costs incurred during Q1 2019	3		—		3		—		6
Costs incurred during Q2 2019	7		2		5		—		14
Costs incurred during Q3 2019	6		2		18		—		26
Total expected costs remaining	$	2	$	1	$	1	$	—	$	4
Actions Commenced in 2018:
Total expected costs	$	8	$	1	$	7	$	—	$	16
Costs incurred during 2018	7		1		7		—		15
Costs incurred during Q1 2019	1		—		—		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	—	$	—	$	—	$	—	$	—
Actions Commenced in 2017:
Total expected costs	$	12	$	7	$	4	$	—	$	23
Costs incurred during 2017	5		4		2		—		11
Costs incurred during 2018	2		1		1		—		4
Costs incurred during Q1 2019	—		—		1		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	5	$	2	$	—	$	—	$	7

The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2019 consist primarily of severance charges and are expected to continue through the end of 2019. The Water Infrastructure, Applied Water, and Measurement & Control Solutions actions commenced in 2018 consist primarily of severance charges and are complete. 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 fourth quarter of 2020.

Asset Impairment

During the third quarter of 2019 we determined that certain assets within our Measurement & Control Solutions segment, including customer relationships, internally developed software, proprietary technology, and plant property & equipment, were impaired. Accordingly we recognized an impairment charge of $7 million. Refer to Note 10, "Goodwill and Other Intangible Assets," for additional information.

During the first quarter of 2019 we determined that certain assets within our Measurement & Control Solutions segment, including a customer relationship, were impaired. Accordingly we recognized an impairment charge of $3 million. Refer to Note 10, "Goodwill and Other Intangible Assets," for additional information.

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 453	$ 296
Receivables, less allowances for discounts and doubtful accounts of $33 and $35 in 2019 and 2018, respectively	1,078	1,031
Inventories	580	595
Prepaid and other current assets	152	172
Total current assets	2,263	2,094
Property, plant and equipment, net	641	656
Goodwill	2,811	2,976
Other intangible assets, net	1,180	1,232
Other non-current assets	620	264
Total assets	7,515	7,222
Current liabilities:
Accounts payable	521	586
Accrued and other current liabilities	634	546
Short-term borrowings and current maturities of long-term debt	306	257
Total current liabilities	1,461	1,389
Long-term debt	2,030	2,051
Accrued postretirement benefits	385	400
Deferred income tax liabilities	310	303
Other non-current accrued liabilities	434	297
Total liabilities	4,620	4,440
Commitments and contingencies (Note 19)
Stockholders’ equity:
Common Stock	2	2
Capital in excess of par value	1,983	1,950
Retained earnings	1,791	1,639
Treasury stock – at cost 13.7 shares and 13.2 shares in 2019 and 2018, respectively	(526)	(487)
Accumulated other comprehensive loss	(364)	(336)
Total stockholders’ equity	2,886	2,768
Non-controlling interests	9	14
Total equity	2,895	2,782
Total liabilities and stockholders’ equity	$ 7,515	$ 7,222

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Share-Based Compensation Plans (Stock Option Fair Value Assumptions) (Details) - Stock Options	9 Months Ended
	Sep. 30, 2019 $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Volatility	24.10%
Risk-free interest rate	2.55%
Dividend yield	1.30%
Expected term (in years)	5 years 4 months 24 days
Weighted-average fair value / share (in usd per share)	$ 17.04

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Derivative Financial Instruments (Balance Sheet Location of Derivative Instruments) (Details) - Derivatives designated as hedging instruments - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Other current assets
Derivatives, Fair Value
Assets	$ 0	$ 3
Other non-current assets
Derivatives, Fair Value
Assets	7	0
Other current liabilities
Derivatives, Fair Value
Liabilities	(5)	(1)
Other non-current accrued liabilities
Derivatives, Fair Value
Liabilities	$ (19)	$ (46)

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Credit Facilities and Debt (Textuals) (Details)			9 Months Ended
		Sep. 20, 2011 USD ($)	Sep. 30, 2019 USD ($)	Jun. 03, 2019 USD ($)	Jun. 03, 2019 EUR (€)	Mar. 05, 2019 USD ($)	Dec. 31, 2018 USD ($)	Jan. 26, 2018 USD ($)	Jan. 26, 2018 EUR (€)	Oct. 11, 2016 USD ($)	Mar. 11, 2016 USD ($)	Mar. 11, 2016 EUR (€)	Mar. 27, 2015 USD ($)
Senior Notes
Debt Instrument
Redemption price percentage		101.00%
Line of Credit
Debt Instrument
Interest rate								0.45%	0.45%
Face amount								$ 246,000,000	€ 225,000,000
Long-term Line of Credit			$ 0				$ 257,000,000
Senior Notes Due 2021, 4.875%
Debt Instrument
Fair value of senior notes due			631,000,000				620,000,000
Interest rate		4.875%
Senior Notes Due	[1]		600,000,000				600,000,000
Face amount		$ 600,000,000
Senior Notes Due 2023, 2.250%
Debt Instrument
Fair value of senior notes due			583,000,000				599,000,000
Senior Notes Due	[1]		547,000,000				570,000,000
Senior Notes Due 2023, 2.250% | Senior Notes
Debt Instrument
Interest rate											2.25%	2.25%
Face amount											$ 500,000,000	€ 500,000,000
Senior Notes due 2026
Debt Instrument
Fair value of senior notes due			515,000,000				476,000,000
Interest rate										3.25%
Senior Notes Due	[1]		500,000,000				500,000,000
Face amount										$ 500,000,000
Senior Notes due 2046
Debt Instrument
Fair value of senior notes due			455,000,000				397,000,000
Interest rate										4.375%
Senior Notes Due	[1]		400,000,000				400,000,000
Face amount										$ 400,000,000
Term loan
Debt Instrument
Senior Notes Due			$ 0				257,000,000
2015 Five-Year Revolving Credit Facility | Letter of Credit
Debt Instrument
Debt instrument aggregate principal amount													$ 100,000,000
2015 Five-Year Revolving Credit Facility | Revolving Credit Facility
Debt Instrument
Term of debt			5 years
Debt instrument aggregate principal amount													600,000,000
Permitted increases in Credit Facility borrowing base													200,000,000
Maximum permitted increases in Credit Facility borrowing base													$ 800,000,000
2019 Five-Year Revolving Credit Facility | Revolving Credit Facility
Debt Instrument
Term of debt			5 years
Debt instrument aggregate principal amount						$ 800,000,000
Permitted increases in Credit Facility borrowing base						200,000,000
Maximum permitted increases in Credit Facility borrowing base						$ 1,000,000,000
US Dollar Commercial Paper Program
Debt Instrument
Face amount			$ 600,000,000
Commercial paper
Debt Instrument
Senior Notes Due			$ 306,000,000				$ 0
Euro Commercial Paper Program
Debt Instrument
Face amount				$ 547,000,000	€ 500,000,000
Commercial Paper				$ 306,000,000
Weighted-average interest rate			(0.20%)

[1] The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2021 was $631 million and $620 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2023 was $583 million and $599 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2026 was $515 million and $476 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2046 was $455 million and $397 million as of September 30, 2019 and December 31, 2018, respectively.

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Share-Based Compensation Plans (TSR Performance-Based Shares Fair Value Assumptions) (Details) - Total Shareholder Return Performance-Based Shares - Performance Based Shares shares in Thousands	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period | shares	(17)
Volatility	20.90%
Risk-free interest rate	2.52%
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value | $ / shares	$ 63.18

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Commitments and Contingencies (Details Textual) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Loss Contingency Accrual	$ 6	$ 7
Guarantee amounts	302	275
Estimated environmental matters	$ 3	$ 4

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Share-Based Compensation Plans (Textuals) (Details) - USD ($) shares in Thousands, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award
Share-based compensation	$ 7.0	$ 7.0	$ 23.0	$ 23.0
Shares Awarded (in shares)			334
Stock-Based Compensation Plans (Textual) [Abstract]
Proceeds from exercise of employee stock options			$ 10.0	$ 7.0
Total intrinsic value of options exercised			11.9
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award
Unamortized compensation expense	7.0		$ 7.0
Weighted average period			1 year 10 months 24 days
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Unamortized compensation expense	26.0		$ 26.0
Weighted average period			2 years
Shares Awarded (in shares)			284
Performance Based Shares
Share-based Compensation Arrangement by Share-based Payment Award
Unamortized compensation expense	$ 18.0		$ 18.0
Weighted average period			1 year 10 months 24 days

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Revenue (Narrative) (Details) $ in Millions	Sep. 30, 2019 USD ($)
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 388
Expected timing of recognition	60 months

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Revenue - Disaggregation of Revenue (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	$ 1,231	$ 1,222	$ 3,690	$ 3,642
Lease Revenue	65	65	188	179
Total	1,296	1,287	3,878	3,821
Water Infrastructure
Disaggregation of Revenue [Line Items]
Total	531	541	1,574	1,567
Water Infrastructure | United States
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	141	139	434	387
Water Infrastructure | Europe
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	170	174	509	542
Water Infrastructure | Asia Pacific
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	92	91	260	252
Water Infrastructure | Other
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	62	72	182	207
Water Infrastructure | Transport
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	369	380	1,111	1,114
Water Infrastructure | Treatment
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	96	96	274	274
Applied Water
Disaggregation of Revenue [Line Items]
Total	376	378	1,149	1,132
Applied Water | United States
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	196	197	609	583
Applied Water | Europe
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	89	93	275	291
Applied Water | Asia Pacific
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	41	40	121	115
Applied Water | Other
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	50	48	144	143
Applied Water | Building Services
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	207	208	636	608
Applied Water | Industrial Water
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	169	170	513	524
Measurement & Control Solutions
Disaggregation of Revenue [Line Items]
Total	389	368	1,155	1,122
Measurement & Control Solutions | United States
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	251	238	739	674
Measurement & Control Solutions | Europe
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	63	59	199	214
Measurement & Control Solutions | Asia Pacific
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	27	31	85	106
Measurement & Control Solutions | Other
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	49	40	133	128
Measurement & Control Solutions | Water
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	193	168	587	514
Measurement & Control Solutions | Energy
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	90	90	248	254
Measurement & Control Solutions | Software as a Service/Other
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	26	26	75	96
Measurement & Control Solutions | Test
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	$ 81	$ 84	$ 246	$ 258

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Basic and diluted net 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,
	2019		2018		2019		2018
Net income (in millions)	$	65	$	130	$	283	$	324
Shares (in thousands):
Weighted average common shares outstanding	180,044		179,650		179,909		179,760
Add: Participating securities (a)	28		26		29		28
Weighted average common shares outstanding — Basic	180,072		179,676		179,938		179,788
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options	790		895		819		903
Dilutive effect of restricted stock units and performance share units	350		519		402		475
Weighted average common shares outstanding — Diluted	181,212		181,090		181,159		181,166
Basic earnings per share	$	0.36	$	0.73	$	1.57	$	1.80
Diluted earnings per share	$	0.36	$	0.72	$	1.56	$	1.79

(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 16, "Share-Based Compensation Plans" to the condensed consolidated financial statements for further detail on the performance share units.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(in thousands)	2019	2018	2019	2018
Stock options	1,390	1,292	1,401	1,290
Restricted stock units	351	334	360	338
Performance share units	391	415	439	490

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Effect of derivative financial instruments

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Cash Flow Hedges
Foreign Exchange Contracts
Amount of (loss) recognized in OCI (a)	$	(5	)	$	—		$	(14	)	$	(9	)
Amount of (gain) loss reclassified from OCI into revenue (a)	2			1			4			(1		)
Amount of loss reclassified from OCI into cost of revenue (a)	1			2			3			2
Net Investment Hedges
Cross Currency Swaps
Amount of gain (loss) recognized in OCI (a)	$	31		$	(5	)	$	30		$	8
Amount of income recognized in Interest Expense	4			—			$	11		$	—
Foreign Currency Denominated Debt
Amount of gain (loss) recognized in OCI (a)	$	22		$	(8	)	$	23		$	11

(a)

Effective portion

Fair values of foreign exchange contracts

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

(in millions)	September 30, 2019			December 31, 2018
Derivatives designated as hedging instruments
Assets
Cash Flow Hedges
Other current assets	$	—		$	3
Net Investment Hedges
Other non-current assets	$	7		$	—
Liabilities
Cash Flow Hedges
Other current liabilities	$	(5	)	$	(1	)
Net Investment Hedges
Other non-current accrued liabilities	$	(19	)	$	(46	)

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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

Leases

As discussed in Note 2, “Recently Issued Accounting Pronouncements,” Xylem adopted the new guidance on accounting for leases.

Leasing Arrangements

We lease certain offices, manufacturing buildings, transportation equipment, machinery, computers and other equipment. Our most significant lease liabilities relate to real estate leases. These leases include renewal, termination or purchase options, and we have assessed these to determine whether it is reasonably certain for us to exercise any of the previously mentioned options. All periods relating to options that are reasonably certain to be exercised have been included in the lease term of the respective leases.

We have recorded ROU assets for lease arrangements that are reasonably certain to extend beyond 12 months. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease. ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit rate within our leases is generally not determinable, and we use our incremental borrowing rate at the lease commencement date to determine the net present value of lease payments. The determination of the appropriate incremental borrowing rate requires judgment. We determine the appropriate incremental borrowing rate for each lease using our current borrowing rate, adjusted for various factors including geographic region, level of collateralization and term, to align with the term of the underlying lease.

Many of our leases are subject to payment adjustments to reflect annual changes in price indexes, such as the Consumer Price Index. While associated lease liabilities are not re-measured as a result of changes in the applicable price indexes, changes to required lease payments are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

Leases with a lease term of 12 months or less, including renewal options that are reasonably certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise, are not recorded on the balance sheet. Instead, lease payments for these leases are recognized as a lease cost on a straight-line basis over the lease term.

We elected the package of practical expedients, which among other things, does not require reassessment of lease classification. Additionally, we have made an accounting policy election whereby we chose not to separate non-lease components from lease components in agreements in all leases which we are the lessee.

We did not identify any events or conditions during the three and nine month periods ended September 30, 2019 to indicate that a reassessment or re-measurement of our existing leases was required. There were also no impairment indicators identified during the three and nine month periods ended September 30, 2019 that required an impairment test for the Company’s ROU assets or other long-lived assets in accordance with ASC 360-10.

Our current lease liabilities of $60 million are included in "Accrued and other current liabilities" and our non-current lease liabilities of $184 million are included in "Other non-current accrued liabilities" as of September 30, 2019. Our ROU asset balances are included in "Other non-current assets". The net balance of our ROU assets as of September 30, 2019 was $247 million. These balances include an immaterial amount related to finance leases.

The components of our lease cost were as follows:

	Three Months Ended		Nine Months Ended
(in millions)	September 30, 2019		September 30, 2019
Lease cost
Operating lease cost	$	20	$	58
Short-term lease cost	2		7
Variable lease cost	3		13
Total lease cost	$	25	$	78

The supplemental cash flow information related to leases are as follows:

	Nine Months Ended
(in millions)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	54
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	26

Information relating to the lease term and discount rate are as follows:

	Nine Months Ended
	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	6
Weighted-average discount rate
Operating leases	2.8%

As of September 30, 2019, the maturities of operating lease liabilities were as follows:

(in millions)
2019	$	18
2020	61
2021	46
2022	34
2023	26
2024	20
Thereafter	59
Total lease payments	264
Less: Imputed interest	(21		)
Total	$	243

Disclosures related to periods prior to adoption of the New Lease Standard as reported and provided in our 2018 Annual Report.

As of December 31, 2018, we were obligated to make minimum future rental payments under operating leases as follows:

(in millions)
2019	$	76
2020	61
2021	43
2022	33
2023	22
Thereafter	64
Total lease payments	299

Lessor arrangements

In addition to manufacturing and selling equipment, we also lease out equipment to customers in exchange for consideration. These arrangements are generally short term in nature and predominantly involve the rental of pumps and accessories within the Water Infrastructure segment. Rental arrangements generally do not provide the customer the right to purchase the equipment as Xylem’s strategy is to rent these items over their useful lives. Customers may be billed based on daily, weekly or monthly rates depending on the expected rental period. We assessed that these arrangements constitute a lease under ASC 842, and have recognized them as operating leases. In situations where arrangements contain both the sale of products and a leasing component, contract consideration is allocated based on relative standalone selling price.

Total revenue from lease arrangements were $65 million and $188 million for the three and nine month periods ended September 30, 2019, respectively. Our gross assets available for rent and related accumulated amortization were $262 million and $171 million, respectively, as of September 30, 2019. Depreciation expense for these assets were $7 million and $21 million for the three and nine month periods ended September 30, 2019, respectively.

Leases

As discussed in Note 2, “Recently Issued Accounting Pronouncements,” Xylem adopted the new guidance on accounting for leases.

Leasing Arrangements

We lease certain offices, manufacturing buildings, transportation equipment, machinery, computers and other equipment. Our most significant lease liabilities relate to real estate leases. These leases include renewal, termination or purchase options, and we have assessed these to determine whether it is reasonably certain for us to exercise any of the previously mentioned options. All periods relating to options that are reasonably certain to be exercised have been included in the lease term of the respective leases.

We have recorded ROU assets for lease arrangements that are reasonably certain to extend beyond 12 months. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease. ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit rate within our leases is generally not determinable, and we use our incremental borrowing rate at the lease commencement date to determine the net present value of lease payments. The determination of the appropriate incremental borrowing rate requires judgment. We determine the appropriate incremental borrowing rate for each lease using our current borrowing rate, adjusted for various factors including geographic region, level of collateralization and term, to align with the term of the underlying lease.

Many of our leases are subject to payment adjustments to reflect annual changes in price indexes, such as the Consumer Price Index. While associated lease liabilities are not re-measured as a result of changes in the applicable price indexes, changes to required lease payments are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

Leases with a lease term of 12 months or less, including renewal options that are reasonably certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise, are not recorded on the balance sheet. Instead, lease payments for these leases are recognized as a lease cost on a straight-line basis over the lease term.

We elected the package of practical expedients, which among other things, does not require reassessment of lease classification. Additionally, we have made an accounting policy election whereby we chose not to separate non-lease components from lease components in agreements in all leases which we are the lessee.

We did not identify any events or conditions during the three and nine month periods ended September 30, 2019 to indicate that a reassessment or re-measurement of our existing leases was required. There were also no impairment indicators identified during the three and nine month periods ended September 30, 2019 that required an impairment test for the Company’s ROU assets or other long-lived assets in accordance with ASC 360-10.

Our current lease liabilities of $60 million are included in "Accrued and other current liabilities" and our non-current lease liabilities of $184 million are included in "Other non-current accrued liabilities" as of September 30, 2019. Our ROU asset balances are included in "Other non-current assets". The net balance of our ROU assets as of September 30, 2019 was $247 million. These balances include an immaterial amount related to finance leases.

The components of our lease cost were as follows:

	Three Months Ended		Nine Months Ended
(in millions)	September 30, 2019		September 30, 2019
Lease cost
Operating lease cost	$	20	$	58
Short-term lease cost	2		7
Variable lease cost	3		13
Total lease cost	$	25	$	78

The supplemental cash flow information related to leases are as follows:

	Nine Months Ended
(in millions)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	54
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	26

Information relating to the lease term and discount rate are as follows:

	Nine Months Ended
	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	6
Weighted-average discount rate
Operating leases	2.8%

As of September 30, 2019, the maturities of operating lease liabilities were as follows:

(in millions)
2019	$	18
2020	61
2021	46
2022	34
2023	26
2024	20
Thereafter	59
Total lease payments	264
Less: Imputed interest	(21		)
Total	$	243

Disclosures related to periods prior to adoption of the New Lease Standard as reported and provided in our 2018 Annual Report.

As of December 31, 2018, we were obligated to make minimum future rental payments under operating leases as follows:

(in millions)
2019	$	76
2020	61
2021	43
2022	33
2023	22
Thereafter	64
Total lease payments	299

Lessor arrangements

In addition to manufacturing and selling equipment, we also lease out equipment to customers in exchange for consideration. These arrangements are generally short term in nature and predominantly involve the rental of pumps and accessories within the Water Infrastructure segment. Rental arrangements generally do not provide the customer the right to purchase the equipment as Xylem’s strategy is to rent these items over their useful lives. Customers may be billed based on daily, weekly or monthly rates depending on the expected rental period. We assessed that these arrangements constitute a lease under ASC 842, and have recognized them as operating leases. In situations where arrangements contain both the sale of products and a leasing component, contract consideration is allocated based on relative standalone selling price.

Total revenue from lease arrangements were $65 million and $188 million for the three and nine month periods ended September 30, 2019, respectively. Our gross assets available for rent and related accumulated amortization were $262 million and $171 million, respectively, as of September 30, 2019. Depreciation expense for these assets were $7 million and $21 million for the three and nine month periods ended September 30, 2019, respectively.

XML

Cover Page - shares	9 Months Ended
	Sep. 30, 2019	Oct. 25, 2019
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	1-35229
Entity Registrant Name	Xylem Inc.
Entity Incorporation, State or Country Code	IN
Entity Tax Identification Number	45-2080495
Entity Address, Address Line One	1 International Drive
Entity Address, City or Town	Rye Brook
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10573
City Area Code	914
Local Phone Number	323-5700
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		180,078,871
Entity Shell Company	false
Entity Central Index Key	0001524472
Amendment Flag	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Common Stock
Document Information [Line Items]
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	XYL
Security Exchange Name	NYSE
Senior Notes Due 2023, 2.250%
Document Information [Line Items]
Title of 12(b) Security	2.250% Senior Notes due 2023
Trading Symbol	XYL23
Security Exchange Name	NYSE

XML

Revenue

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenue

Revenue

Disaggregation of Revenue

The following table illustrates the sources of revenue:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Revenue from contracts with customers	$	1,231	$	1,222	$	3,690	$	3,642
Lease Revenue	65		65		188		179
Total	$	1,296	$	1,287	$	3,878	$	3,821

The following table reflects revenue from contracts with customers by application:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Water Infrastructure
Transport	$	369	$	380	$	1,111	$	1,114
Treatment	96		96		274		274
Applied Water
Building Services	207		208		636		608
Industrial Water	169		170		513		524
Measurement & Control Solutions
Water	193		168		587		514
Energy	90		90		248		254
Software as a Service/Other	26		26		75		96
Test	81		84		246		258
Total	$	1,231	$	1,222	$	3,690	$	3,642

The following table reflects revenue from contracts with customers by geographical region:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Water Infrastructure
United States	$	141	$	139	$	434	$	387
Europe	170		174		509		542
Asia Pacific	92		91		260		252
Other	62		72		182		207
Applied Water
United States	196		197		609		583
Europe	89		93		275		291
Asia Pacific	41		40		121		115
Other	50		48		144		143
Measurement & Control Solutions
United States	251		238		739		674
Europe	63		59		199		214
Asia Pacific	27		31		85		106
Other	49		40		133		128
Total	$	1,231	$	1,222	$	3,690	$	3,642

Contract Balances

We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Changes in contract assets and liabilities are due to our performance under the contract.

The table below provides contract assets, contract liabilities, and significant changes in contract assets and liabilities:

(in millions)	Contract Assets (a)			Contract Liabilities
Balance at January 1, 2018	$	89		$	107
Additions, net	68			92
Revenue recognized from opening balance	—			(83		)
Billings	(62		)	—
Other	(4		)	(6		)
Balance at September 30, 2018	$	91		$	110
Balance at January 1, 2019	$	96		$	113
Additions, net	71			97
Revenue recognized from opening balance	—			(82		)
Billings	(58		)	—
Other	9			(3		)
Balance at September 30, 2019	$	118		$	125

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

Performance obligations

Delivery schedules vary from customer to customer based upon their requirements. Typically, large projects require longer lead production cycles and delays can occur from time to time. As of September 30, 2019, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to $388 million. We expect to recognize the majority of revenue upon the completion of satisfying these performance obligations in the following 60 months. The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations that are part of a contract whose original expected duration is less than one year.

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowances for discounts and doubtful accounts on receivables	$ 33	$ 35
Common Stock, par value	$ 0.01	$ 0.01
Common Stock, shares authorized	750,000,000.0	750,000,000.0
Common Stock, shares issued	193,800,000.0	192,900,000.0
Treasury Stock, shares	13,700,000.0	13,200,000.0

XML

Credit Facilities and Debt

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Credit Facilities and Debt

Credit Facilities and Debt

Total debt outstanding is summarized as follows:

(in millions)	September 30, 2019			December 31, 2018
4.875% Senior Notes due 2021 (a)	$	600		$	600
2.250% Senior Notes due 2023 (a)	547			570
3.250% Senior Notes due 2026 (a)	500			500
4.375% Senior Notes due 2046 (a)	400			400
Commercial paper	306			—
Term loan	—			257
Debt issuance costs and unamortized discount (b)	(17		)	(19		)
Total debt	2,336			2,308
Less: short-term borrowings and current maturities of long-term debt	306			257
Total long-term debt	$	2,030		$	2,051

(a) The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2021 was $631 million and $620 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2023 was $583 million and $599 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2026 was $515 million and $476 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2046 was $455 million and $397 million as of September 30, 2019 and December 31, 2018, respectively.

(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.

Senior Notes

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

The Senior Notes include covenants that restrict our ability, subject to exceptions, to incur debt secured by liens and engage in sale and leaseback transactions, as well as provide for customary events of default (subject, in certain cases, to receipt of notice of default and/or customary grace and cure periods). We may redeem the Senior Notes, as applicable, in whole or in part, at any time at a redemption price equal to the principal amount of the Senior Notes to be redeemed, plus a make-whole premium. We may also redeem the Senior Notes in certain

other circumstances, as set forth in the applicable Senior Notes indenture.

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

Interest on the Senior Notes due 2021 is payable on April 1 and October 1 of each year. Interest on the Senior Notes due 2023 is payable on March 11 of each year. Interest on the Senior Notes due 2026 and the Senior Notes due 2046 is payable on May 1 and November 1 of each year beginning on May 1, 2017. As of September 30, 2019, we are in compliance with all covenants for the Senior Notes.

Credit Facilities

2015 Five-Year Revolving Credit Facility

Effective March 27, 2015, Xylem entered into a Five-Year Revolving Credit Facility (the "2015 Credit Facility") with Citibank, N.A., as Administrative Agent, and a syndicate of lenders. The 2015 Credit Facility provided for an aggregate principal amount of up to $600 million of: (i) revolving extensions of credit (the "revolving loans") outstanding at any time and (ii) the issuance of letters of credit in a face amount not in excess of $100 million outstanding at any time. The 2015 Credit Facility provided for increases of up to $200 million for a maximum aggregate principle amount of $800 million in aggregate principal amount at our request and with the consent of the institutions providing such increased commitments. On March 5, 2019 Xylem terminated the 2015 Credit Facility among the Company, certain lenders and Citibank, N.A. as Administrative Agent.

2019 Five-Year Revolving Credit Facility

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

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

The 2019 Credit facility requires that Xylem maintain a consolidated total debt to consolidated EBITDA ratio, which will be based on the last four fiscal quarters, and in addition a number of customary covenants, including limitations on the incurrence of secured debt and debt of subsidiaries, liens, sale and lease-back transactions, mergers, consolidations, liquidations, dissolutions and sales of assets. The 2019 Credit Agreement also contains customary events of default.  Finally, Xylem has the ability to designate subsidiaries that can borrow under the 2019 Credit Facility, subject to certain requirements and conditions set forth in the 2019 Credit Agreement.  As of September 30, 2019, the 2019 Credit Facility was undrawn and we are in compliance with all covenants. 

Commercial Paper

U.S. Dollar Commercial Paper Program

Our U.S. Dollar commercial paper program generally serves as a means of short-term funding with a $600 million maximum issuing balance and a combined limit of $800 million inclusive of the 2019 Five-Year Revolving Credit Facility. As of September 30, 2019 and December 31, 2018, none of the Company's $600 million U.S. Dollar commercial paper program was outstanding. We have the ability to continue borrowing under this program going forward in in future periods.

Euro Commercial Paper Program

On June 3, 2019 Xylem entered into a Euro commercial paper program with ING Bank N.V., as administrative agent, and a syndicate of dealers. The Euro commercial paper program provides for a maximum issuing balance of up to €500 million (approximately $547 million) which may be denominated in a variety of currencies. The maximum issuing balance may be increased in accordance with the Dealer Agreement. As of September 30, 2019, $306 million of the Company's Euro commercial paper program was outstanding at a weighted average interest rate of (0.20)%. We have the ability to continue borrowing under this program going forward in future periods.

Term Loan Facility

On January 26, 2018, the Company’s subsidiary, Xylem Europe GmbH (the “borrower”) entered into a 12-month €225 million (approximately $246 million) term loan facility (the “Term Facility”) at an interest rate of 0.45% in which the terms are set forth in a Term Loan Agreement, among the borrower, the Company, as parent guarantor and ING Bank. The Company entered into a parental guarantee in favor of ING Bank also dated January 26, 2018 to secure all present and future obligations of the borrower under the Term Loan Agreement. The Term Facility was used to partially fund  the acquisition of Pure Technologies Ltd in 2018 and the maturity date has since been extended through February 2020. As of September 30, 2019 and December 31, 2018, $0 million and $257 million were outstanding under the Term Facility, respectively.

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Acquisitions and Divestitures

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Acquisitions and Divestitures

Acquisitions and Divestitures

2019 Acquisitions

During the three and nine months ended September 30, 2019 we spent approximately $0 million and $18 million, net of cash received on acquisition activity, respectively.

2018 Acquisitions and Divestitures

Pure Technologies Ltd.

On January 31, 2018, we acquired all the issued and outstanding shares of Pure Technologies Ltd. (“Pure”), a leader in intelligent leak detection and condition assessment solutions for water distribution networks for approximately $420 million, net of cash received. Acquisition costs of $4 million were reflected as a component of selling, general and administrative expenses in our Condensed Consolidated Income Statement for the year ended December 31, 2018.

Pure’s results of operations were consolidated with the Company effective February 1, 2018 and are reflected in the Measurement & Control Solutions segment.

The Pure purchase price allocation as of January 31, 2018 is shown in the following table:

(in millions)	Amount
Cash	$	14
Receivables	23
Inventories	4
Prepaid and other current assets	2
Property, plant and equipment	22
Intangible assets	149
Other long-term assets	1
Accounts payable	(3		)
Accrued and other current liabilities	(12		)
Deferred income tax liabilities	(25		)
Other non-current accrued liabilities	(2		)
Total identifiable net assets	173
Goodwill	261
Total consideration	$	434

The fair values of Pure's assets and liabilities were determined based on estimates and assumptions which management believes are reasonable.

Goodwill arising from the acquisition consists largely of synergies and economies of scale expected from combining the operations of Pure and Xylem. All of the goodwill was assigned to the Measurement & Control Solutions segment and is not deductible for tax purposes.

The estimate of the fair value of Pure identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method. Some of the more significant assumptions inherent in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, the assessment of the intangible asset’s life cycle, as well as other factors. The following table summarizes key information underlying identifiable intangible assets related to the Pure acquisition:

Category	Life	Amount (in millions)
Customer Relationships	17 - 18 years	$	84
Technology	3 - 10 years	38
Tradenames	20 years	21
Internally Developed Software	3 years	6
Total		$	149

The following table summarizes, on an unaudited pro forma basis, the condensed combined results of operations of the Company for the three and nine month periods ended September 30, 2018 assuming the acquisition of Pure was made on January 1, 2017:

(in millions)	Three Months Ended September 30, 2018	Nine Months Ended September 30, 2018
Revenue	N/A	$	3,826
Net income	N/A	$	321

The foregoing unaudited pro forma results are for informational purposes only and are not necessarily indicative of the actual results of operations that might have occurred had the acquisition occurred on January 1, 2017, nor are they necessarily indicative of future results. The pro forma financial information includes the impact of purchase accounting and other nonrecurring items directly attributable to the acquisition, which include:

•Amortization expense of acquired intangibles

• Adjustments to the depreciation of property, plant and equipment reflecting the impact of the calculated fair value of those assets in accordance with purchase accounting

• Adjustments to interest expense to remove historical Pure interest costs and reflect Xylem's current debt profile

•The related tax impact of the above referenced adjustments

The pro forma results do not include any cost savings or operational synergies that may be generated or realized due to the acquisition of Pure.

During the three months ended September 30, 2018 Pure had revenue and an operating loss of $25 million and $2 million, respectively. During the eight months ended September 30, 2018 Pure had revenue and an operating loss of $67 million and $5 million, respectively.

Other Acquisition Activity

During the three and nine months ended September 30, 2018 we spent approximately $3 million and $13 million net of cash received on other acquisition activity.

During the third quarter we divested our Precision Die Casting business for approximately $22 million, net of cash assumed. The sale resulted in an immaterial gain for the three and nine months ended September 30, 2018, which is reflected in gain from sale of business in our Condensed Consolidated Income Statement. The business, which was part of our Measurement & Controls Solutions segment, provided aluminum die casting products primarily to customers in the automotive sector. The business reported 2017 annual revenue of approximately $32 million.

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Commitments and Contingencies (Summary of Warranties) (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Warranties
Warranty accrual – January 1	$ 60	$ 82
Net charges for product warranties in the period	20	16
Settlement of warranty claims	(32)	(33)
Foreign currency and other	(2)	1
Warranty accrual - September 30	$ 46	$ 66

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Equity - Summary of Shareholders' Equity (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended						6 Months Ended		9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2017
Dividends declared per share (usd per share)	$ 0.24		$ 0.24	$ 0.21		$ 0.21	$ 0.24	$ 0.21
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	$ 2,906	$ 2,808	$ 2,782	$ 2,529	$ 2,557	$ 2,519	$ 2,782	$ 2,519	$ 2,782	$ 2,519
Cumulative effect of change in accounting principle											$ (3)
Sale of business			(2)
Net income	65	139	79	130	115	79			283	324
Other comprehensive income (loss), net	(37)	(11)	20	(1)	(87)	20
Distribution to minority shareholders	(3)
Dividends declared	(44)	(43)	(44)	(37)	(38)	(38)
Stock incentive plan activity	8	13	(2)	10	7	5
Repurchase of common stock			(25)		(25)	(25)
Ending balance	2,895	2,906	2,808	2,631	2,529	2,557	2,906	2,529	2,895	2,631
Common Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	2	2	2	2	2	2	2	2	2	2
Ending balance	2	2	2	2	2	2	2	2	2	2
Capital in Excess of Par Value
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	1,975	1,962	1,950	1,932	1,925	1,912	1,950	1,912	1,950	1,912
Stock incentive plan activity	8	13	12	10	7	13
Ending balance	1,983	1,975	1,962	1,942	1,932	1,925	1,975	1,932	1,983	1,942
Retained Earnings
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	1,770	1,674	1,639	1,359	1,282	1,227	1,639	1,227	1,639	1,227
Cumulative effect of change in accounting principle											14
Net income	65	139	79	130	115	79
Dividends declared	(44)	(43)	(44)	(37)	(38)	(38)
Ending balance	1,791	1,770	1,674	1,452	1,359	1,282	1,770	1,359	1,791	1,452
Accumulated Other Comprehensive Income (Loss)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	(327)	(316)	(336)	(294)	(207)	(210)	(336)	(210)	(336)	(210)
Cumulative effect of change in accounting principle											$ (17)
Other comprehensive income (loss), net	(37)	(11)	20	1	(87)	20
Ending balance	(364)	(327)	(316)	(293)	(294)	(207)	(327)	(294)	(364)	(293)
Treasury Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	(526)	(526)	(487)	(486)	(461)	(428)	(487)	(428)	(487)	(428)
Stock incentive plan activity			(14)			(8)
Repurchase of common stock			(25)		(25)	(25)
Ending balance	(526)	(526)	(526)	(486)	(486)	(461)	(526)	(486)	(526)	(486)
Non-Controlling Interest
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	12	12	14	16	16	16	14	16	14	16
Sale of business			(2)
Net income
Other comprehensive income (loss), net				(2)
Distribution to minority shareholders	(3)
Ending balance	$ 9	$ 12	$ 12	$ 14	$ 16	$ 16	$ 12	$ 16	$ 9	$ 14

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Share-Based Compensation Plans (Summary of Stock Options Grant) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Summary of the changes in outstanding stock options
Outstanding, beginning of period (in shares)	2,125
Granted (in shares)	334
Exercised (in shares)	(286)
Forfeited (in shares)	(46)
Outstanding, end of period (in shares)	2,127	2,125
Options exercisable, ending of period (in shares)	1,492
Vested and expected, end of period (in shares)	2,067
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning of period (in usd per share)	$ 43.08
Granted (in usd per share)	74.08
Exercised (in usd per share)	35.71
Forfeited (in usd per share)	67.04
Outstanding, end of period (in usd per share)	48.42	$ 43.08
Options exercisable, end of period (in usd per share)	39.60
Vested and expected, end of period (in usd per share)	$ 47.71
Share-based Compensation Arrangement by Share-based Payment Award, Options, Weighted Average Remaining Contractual Term [Roll Forward]
Outstanding, weighted average remaining contractual term	6 years 6 months	6 years 6 months
Aggregate intrinsic value, outstanding	$ 67
Options exercisable, end of period	5 years 6 months
Aggregate intrinsic value, exercisable	$ 60
Vested and expected to vest, end of period	6 years 4 months 24 days
Aggregate intrinsic value, vested and expected to vest	$ 66

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Derivative Financial Instruments (Effect of Deriative Instruments on Income Statement and Statement of Comprehensive Income) (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative Financial Instruments
Amount of gain (loss) recognized in OCI		$ 5	$ 0	$ 14	$ 9
Amount of gain reclassified from OCI into revenue		(1,296)	(1,287)	(3,878)	(3,821)
Reclassification out of Accumulated Other Comprehensive Income | Foreign Exchange Contract
Derivative Financial Instruments
Amount of gain reclassified from OCI into revenue	[1]	2	1	4	(1)
Amount of (gain) loss reclassified from OCI into cost of revenue	[1]	1	2	3	2
Cash Flow Hedging [Member] | Foreign Exchange Contract
Derivative Financial Instruments
Amount of gain (loss) recognized in OCI	[1]	(5)	0	(14)	(9)
Cash Flow Hedging [Member] | Cross Currency Swaps
Derivative Financial Instruments
Amount of gain (loss) recognized in OCI	[1]	31	(5)	(30)	8
Cash Flow Hedging [Member] | Foreign Currency Denominated Debt
Derivative Financial Instruments
Amount of gain (loss) recognized in OCI	[1]	22	(8)	23	11
Interest Expense | Cross Currency Swaps
Derivative Financial Instruments
Amount of gain (loss) recognized in OCI		$ 4	$ 0	$ 11	$ 0

[1] Effective portion

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Credit Facilities and Debt (Summary of Debt Outstanding) (Details) - USD ($) $ in Millions		Sep. 30, 2019	Dec. 31, 2018
Credit Facilities and Long-Term Debt :
Debt issuance costs and unamortized discount	[1]	$ (17)	$ (19)
Long-term debt		2,030	2,051
Total debt		2,336	2,308
Short-term borrowings and current maturities of long-term debt		306	257
Senior Notes Due 2021, 4.875%
Credit Facilities and Long-Term Debt :
Senior Notes Due	[2]	600	600
Senior Notes Due 2023, 2.250%
Credit Facilities and Long-Term Debt :
Senior Notes Due	[2]	547	570
Senior Notes due 2026
Credit Facilities and Long-Term Debt :
Senior Notes Due	[2]	500	500
Senior Notes due 2046
Credit Facilities and Long-Term Debt :
Senior Notes Due	[2]	400	400
Commercial paper
Credit Facilities and Long-Term Debt :
Senior Notes Due		306	0
Term loan
Credit Facilities and Long-Term Debt :
Senior Notes Due		$ 0	$ 257

[1] 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.

[2] The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2021 was $631 million and $620 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2023 was $583 million and $599 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2026 was $515 million and $476 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2046 was $455 million and $397 million as of September 30, 2019 and December 31, 2018, respectively.

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Share-Based Compensation Plans (Summary of Performance-Based Share Grants) (Details) - Total Shareholder Return Performance-Based Shares - Performance Based Shares shares in Thousands	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Summary of performance share activity
Outstanding, beginning of period (in shares) | shares	274
Granted (in shares) | shares	77
Adjustment for Condition Achieved (in shares) | shares	74
Vested (in shares) | shares	(174)
Forfeited (in shares) | shares	(17)
Outstanding, end of period (in shares) | shares	234
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Outstanding, beginning of period (in usd per share) | $ / shares	$ 61.04
Granted (in usd per share) | $ / shares	89.62
Adjustment for Condition Achieved (in usd per share) | $ / shares	37.86
Vested (in usd per share) | $ / shares	37.86
Forfeited (in usd per share) | $ / shares	63.18
Outstanding, end of period (in usd per share) | $ / shares	$ 75.82

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Restructuring Charges (Number of Positions Eliminated Rollfoward) (Details) - employee	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Restructuring and Related Cost, Number of Positions Eliminated [Roll Forward]
Planned reductions - January 1	69	47
Additional planned reductions	621	176
Actual reductions and reversals	(465)	(135)
Planned reductions - September 30	225	88

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Restructuring Charges (Restructuring Charges) (Details) - USD ($) $ in Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Restructuring Cost and Impairment Charge
Severance and other charges	$ 26		$ 4	$ 46	$ 18
Lease related charges	0		0	1	1
Restructuring charges	26		4	48	19
Asset impairment	7		0	10	0
Total restructuring and asset impairment charges	33		4	58	19
Other Restructuring Costs	0		0	1	0
Water Infrastructure
Restructuring Cost and Impairment Charge
Restructuring charges	6		2	17	8
Applied Water
Restructuring Cost and Impairment Charge
Restructuring charges	2		1	4	2
Measurement & Control Solutions
Restructuring Cost and Impairment Charge
Restructuring charges	25		$ 1	$ 37	$ 9
Asset impairment	$ 7	$ 3

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Leases (Supplemental Lease Information) (Details) $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)
Leases [Abstract]
Operating cash flows from operating leases	$ 54
Operating leases	$ 26
Operating leases	6 years
Operating leases	2.80%

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Earnings Per Share (Summary of Antidilutive Securities) (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stock Options
Incremental shares from stock options and restricted stock:
Antidilutive securities (in shares)	1,390	1,292	1,401	1,290
Restricted Stock
Incremental shares from stock options and restricted stock:
Antidilutive securities (in shares)	351	334	360	338
Performance Based Shares
Incremental shares from stock options and restricted stock:
Antidilutive securities (in shares)	391	415	439	490

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Segment Information (Textuals) (Details)	9 Months Ended
	Sep. 30, 2019 Segment
Segment Information (Textual) [Abstract]
Number of reportable segments	3

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Goodwill and Other Intangible Assets (Details Textual) - USD ($) $ in Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense related to finite-lived intangible assets	$ 35		$ 34	$ 104	$ 108
Impairment charge	$ 7	$ 3

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

The following table provides the components of accumulated other comprehensive loss for the nine months ended September 30, 2019:

(in millions)	Foreign Currency Translation			Postretirement Benefit Plans			Derivative Instruments			Total
Balance at January 1, 2019	$	(121	)	$	(214	)	$	(1	)	$	(336	)
Foreign currency translation adjustment	29			—			—			29
Tax on foreign currency translation adjustment	(4		)	—			—			(4		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Unrealized loss on derivative hedge agreements	—			—			(9		)	(9		)
Income tax benefit on unrealized loss on derivative hedge agreements	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at March 31, 2019	$	(96	)	$	(213	)	$	(7	)	$	(316	)
Foreign currency translation adjustment	(18		)	—			—			(18		)
Tax on foreign currency translation adjustment	3			—			—			3
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Unrealized loss on derivative hedge agreements	—			—			—			—
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at June 30, 2019	$	(111	)	$	(211	)	$	(5	)	$	(327	)
Foreign currency translation adjustment	(20		)	—			—			(20		)
Tax on foreign currency translation adjustment	(13		)	—			—			(13		)
Changes in postretirement benefit plans	—			(11		)	—			(11		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			1			—			1
Settlement charge released into other non-operating income (expense), net	—			8			—			8
Unrealized loss on derivative hedge agreements	—			—			(5		)	(5		)
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			2			2
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at September 30, 2019	$	(144	)	$	(213	)	$	(7	)	$	(364	)

The following table provides the components of accumulated other comprehensive loss for the nine months ended September 30, 2018:

(in millions)	Foreign Currency Translation			Postretirement Benefit Plans			Derivative Instruments			Total
Balance at January 1, 2018	$	(15	)	$	(198	)	$	3		$	(210	)
Cumulative effect of change in accounting principle	(11		)	(6		)	—			(17		)
Foreign currency translation adjustment	8			—			—			8
Tax on foreign currency translation adjustment	11			—			—			11
Changes in postretirement benefit plans	—			1			—			1
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Reclassification of unrealized gain on derivative hedge agreements into revenue	—			—			(1		)	(1		)
Balance at March 31, 2018	$	(7	)	$	(202	)	$	2		$	(207	)
Foreign currency translation adjustment	(60		)	—			—			(60		)
Tax on foreign currency translation adjustment	(19		)	—			—			(19		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			—			—			—
Other non-operating income	—			3			—			3
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Unrealized loss on derivative hedge agreements	—			—			(9		)	(9		)
Reclassification of unrealized gain on derivative hedge agreements into revenue	—			—			(1		)	(1		)
Balance at June 30, 2018	$	(86	)	$	(200	)	$	(8	)	$	(294	)
Foreign currency translation adjustment	(7		)	—			—			(7		)
Tax on foreign currency translation adjustment	3			—			—			3
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Reclassification of unrealized gain on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized gain on foreign exchange agreements into cost of revenue	—			—			2			2
Balance at September 30, 2018	(90		)	(198		)	(5		)	(293		)

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Recently Issued Accounting Pronouncements (Textuals) (Details) - USD ($) $ in Millions	Sep. 30, 2019	Jan. 01, 2019
Accounting Policies [Abstract]
Operating lease liability	$ 243	$ 265
Right-of-use assets	$ 247	267
Deferred tax liabilities		68
Deferred tax assets		$ 68

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Background and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The interim condensed consolidated financial statements reflect our financial position and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions between our businesses have been eliminated.

The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report") in preparing these unaudited condensed consolidated financial statements, with the exception of accounting standard updates described in Note 2. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our 2018 Annual Report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, postretirement obligations and assets, revenue recognition, income tax contingency accruals and valuation allowances, goodwill and indefinite lived intangible impairment testing, contingent liabilities and lease accounting. Actual results could differ from these estimates.

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the condensed consolidated financial statements included herein are described as ending on the last day of the calendar quarter.

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Capital Stock

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Capital Stock

Capital Stock

For the three and nine months ended September 30, 2019 the Company repurchased common stock of less than 0.1 million shares for less than $1 million and approximately 0.5 million shares for $39 million, respectively. Repurchases include both share repurchase programs approved by the Board of Directors and repurchases in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units. The details of repurchases by each program are as follows:

On August 24, 2015, our Board of Directors authorized the repurchase of up to $500 million in shares with no expiration date. The program's objective is to deploy our capital in a manner that benefits our shareholders and maintains our focus on growth. There were no shares repurchased under this program for the three months ended September 30, 2019. For the nine months ended September 30, 2019, we repurchased approximately 0.3 million shares for $25 million. There were no shares repurchased under this program for the three months ended September 30, 2018. For the nine months ended September 30, 2018, we repurchased approximately 0.7 million shares for $50 million. There are up to $338 million in shares that may still be purchased under this plan as of September 30, 2019.

Aside from the aforementioned repurchase program, we repurchased less than 0.1 million shares and approximately 0.2 million shares for less than $1 million and approximately $14 million for the three and nine months ended September 30, 2019, respectively, in relation to settlement of employee tax withholding obligations due as a result of the vesting of restricted stock units. Likewise, we repurchased less than 0.1 million shares and approximately 0.1 million shares for less than $1 million and approximately $8 million for the three and nine months ended September 30, 2018, respectively.

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income	$ 65	$ 130	$ 283	$ 324
Other comprehensive loss, before tax:
Foreign currency translation adjustment	(20)	(9)	(9)	(61)
Net change in derivative hedge agreements:
Unrealized loss	(5)	0	(14)	(9)
Amount of loss reclassified into net income	3	3	7	1
Net change in postretirement benefit plans:
Net loss	(11)	0	(11)	0
Amortization of prior service credit	(1)	(2)	(3)	(4)
Amortization of net actuarial loss into net income	2	4	8	11
Settlement/Curtailment	8	0	8	1
Other comprehensive loss, before tax	(24)	(4)	(14)	(61)
Income tax expense (benefit) related to items of other comprehensive income	13	(3)	14	7
Other comprehensive loss, net of tax	(37)	(1)	(28)	(68)
Comprehensive income	28	129	255	256
Less: comprehensive loss attributable to noncontrolling interests	0	(2)	0	(2)
Comprehensive income attributable to Xylem	$ 28	$ 131	$ 255	$ 258

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Foreign Exchange Risk

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

Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty and Australian Dollar. We had foreign exchange contracts with purchased notional amounts totaling $117 million and $506 million as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell British Pound and purchase Euro, purchase Polish Zloty and sell Euro, purchase U.S. Dollar and sell Canadian Dollar, and to sell Canadian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are $45 million, $39 million, $11 million, $9 million, $7 million and $5 million, respectively. As of December 31, 2018, the purchased notional amounts associated with these currency derivatives were $191 million, $168 million, $52 million, $37 million, $29 million and $22 million, respectively.

Hedges of Net Investments in Foreign Operations

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

Cross Currency Swaps

Beginning in 2015, we entered into cross currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019 we entered into additional cross currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $702 million and $426 million as of September 30, 2019 and December 31, 2018, respectively.

Foreign Currency Denominated Debt

On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. We designated the entirety of the outstanding balance, or $544 million and $566 million as of September 30, 2019 and December 31, 2018, respectively, net of unamortized discount, as a hedge of a net investment in certain foreign subsidiaries.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Cash Flow Hedges
Foreign Exchange Contracts
Amount of (loss) recognized in OCI (a)	$	(5	)	$	—		$	(14	)	$	(9	)
Amount of (gain) loss reclassified from OCI into revenue (a)	2			1			4			(1		)
Amount of loss reclassified from OCI into cost of revenue (a)	1			2			3			2
Net Investment Hedges
Cross Currency Swaps
Amount of gain (loss) recognized in OCI (a)	$	31		$	(5	)	$	30		$	8
Amount of income recognized in Interest Expense	4			—			$	11		$	—
Foreign Currency Denominated Debt
Amount of gain (loss) recognized in OCI (a)	$	22		$	(8	)	$	23		$	11

(a) Effective portion

As of September 30, 2019, $8 million of net 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, 2019 and 2018.

As of September 30, 2019, 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, 2019.

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

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

(in millions)	September 30, 2019			December 31, 2018
Derivatives designated as hedging instruments
Assets
Cash Flow Hedges
Other current assets	$	—		$	3
Net Investment Hedges
Other non-current assets	$	7		$	—
Liabilities
Cash Flow Hedges
Other current liabilities	$	(5	)	$	(1	)
Net Investment Hedges
Other non-current accrued liabilities	$	(19	)	$	(46	)

The fair value of our long-term debt, due in 2023, designated as a net investment hedge was $583 million and $599 million as of September 30, 2019 and December 31, 2018, respectively.

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Background and Basis of Presentation

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Background and Basis of Presentation

Background and Basis of Presentation

Background

Xylem Inc. (“Xylem” or the “Company”) is a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment.

Xylem operates in three segments, Water Infrastructure, Applied Water and Measurement & Control Solutions. See Note 20, "Segment Information" to the condensed consolidated financial statements for further segment background information.

Except as otherwise indicated or unless the context otherwise requires, "Xylem," "we," "us," "our" and the "Company" refer to Xylem Inc. and its subsidiaries.

Basis of Presentation

The interim condensed consolidated financial statements reflect our financial position and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany transactions between our businesses have been eliminated.

The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report") in preparing these unaudited condensed consolidated financial statements, with the exception of accounting standard updates described in Note 2. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our 2018 Annual Report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, postretirement obligations and assets, revenue recognition, income tax contingency accruals and valuation allowances, goodwill and indefinite lived intangible impairment testing, contingent liabilities and lease accounting. Actual results could differ from these estimates.

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the fourth quarter which ends on December 31. For ease of presentation, the condensed consolidated financial statements included herein are described as ending on the last day of the calendar quarter.

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Earnings Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share

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,
	2019		2018		2019		2018
Net income (in millions)	$	65	$	130	$	283	$	324
Shares (in thousands):
Weighted average common shares outstanding	180,044		179,650		179,909		179,760
Add: Participating securities (a)	28		26		29		28
Weighted average common shares outstanding — Basic	180,072		179,676		179,938		179,788
Plus incremental shares from assumed conversions: (b)
Dilutive effect of stock options	790		895		819		903
Dilutive effect of restricted stock units and performance share units	350		519		402		475
Weighted average common shares outstanding — Diluted	181,212		181,090		181,159		181,166
Basic earnings per share	$	0.36	$	0.73	$	1.57	$	1.80
Diluted earnings per share	$	0.36	$	0.72	$	1.56	$	1.79

(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 16, "Share-Based Compensation Plans" to the condensed consolidated financial statements for further detail on the performance share units.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(in thousands)	2019	2018	2019	2018
Stock options	1,390	1,292	1,401	1,290
Restricted stock units	351	334	360	338
Performance share units	391	415	439	490

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Restructuring Charges (Tables)

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

Components of restructuring and asset impairment charges

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
By component:
Severance and other charges	$	26	$	4	$	46	$	18
Lease related charges	—		—		1		1
Other restructuring charges	—		—		1		—
Total restructuring charges	$	26	$	4	$	48	$	19
Asset impairment	7		—		10		—
Total restructuring and asset impairment charges	$	33	$	4	$	58	$	19
By segment:
Water Infrastructure	$	6	$	2	$	17	$	8
Applied Water	2		1		4		2
Measurement & Control Solutions	25		1		37		9

Restructuring Accruals

The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within accrued and other current liabilities, for the nine months ended September 30, 2019 and 2018:

(in millions)	2019			2018
Restructuring accruals - January 1	$	5		$	7
Restructuring charges	48			19
Cash payments	(21		)	(18		)
Foreign currency and other	(2		)	(1		)
Restructuring accruals - September 30	$	30		$	7
By segment:
Water Infrastructure	$	1		$	1
Applied Water	1			1
Measurement & Control Solutions	21			3
Regional selling locations (a)	7			2
Corporate and other	—			—

(a)

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

Planned Employee Reductions Associated with Restructuring

The following is a roll-forward for the nine months ended September 30, 2019 and 2018 of employee position eliminations associated with restructuring activities:

	2019		2018
Planned reductions - January 1	69		47
Additional planned reductions	621		176
Actual reductions and reversals	(465	)	(135	)
Planned reductions - September 30	225		88

Expected Restructuring Costs

The following table presents expected restructuring spend for actions commenced as of September 30, 2019:

(in millions)	Water Infrastructure		Applied Water		Measurement & Control Solutions		Corporate		Total
Actions Commenced in 2019:
Total expected costs	$	18	$	5	$	27	$	—	$	50
Costs incurred during Q1 2019	3		—		3		—		6
Costs incurred during Q2 2019	7		2		5		—		14
Costs incurred during Q3 2019	6		2		18		—		26
Total expected costs remaining	$	2	$	1	$	1	$	—	$	4
Actions Commenced in 2018:
Total expected costs	$	8	$	1	$	7	$	—	$	16
Costs incurred during 2018	7		1		7		—		15
Costs incurred during Q1 2019	1		—		—		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	—	$	—	$	—	$	—	$	—
Actions Commenced in 2017:
Total expected costs	$	12	$	7	$	4	$	—	$	23
Costs incurred during 2017	5		4		2		—		11
Costs incurred during 2018	2		1		1		—		4
Costs incurred during Q1 2019	—		—		1		—		1
Costs incurred during Q2 2019	—		—		—		—		—
Costs incurred during Q3 2019	—		—		—		—		—
Total expected costs remaining	$	5	$	2	$	—	$	—	$	7

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lease, Cost

The components of our lease cost were as follows:

	Three Months Ended		Nine Months Ended
(in millions)	September 30, 2019		September 30, 2019
Lease cost
Operating lease cost	$	20	$	58
Short-term lease cost	2		7
Variable lease cost	3		13
Total lease cost	$	25	$	78

Information relating to the lease term and discount rate are as follows:

	Nine Months Ended
	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	6
Weighted-average discount rate
Operating leases	2.8%

Assets and Liabilities, Leases

The supplemental cash flow information related to leases are as follows:

	Nine Months Ended
(in millions)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	54
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	26

Lessee, Operating Lease, Liability, Maturity

	Nine Months Ended
	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	6
Weighted-average discount rate
Operating leases	2.8%

As of September 30, 2019, the maturities of operating lease liabilities were as follows:

(in millions)
2019	$	18
2020	61
2021	46
2022	34
2023	26
2024	20
Thereafter	59
Total lease payments	264
Less: Imputed interest	(21		)
Total	$	243

Schedule of Future Minimum Rental Payments for Operating Leases

As of December 31, 2018, we were obligated to make minimum future rental payments under operating leases as follows:

(in millions)
2019	$	76
2020	61
2021	43
2022	33
2023	22
Thereafter	64
Total lease payments	299

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Credit Facilities and Debt (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Schedule of Credit Facilities and Long-Term Debt

Total debt outstanding is summarized as follows:

(in millions)	September 30, 2019			December 31, 2018
4.875% Senior Notes due 2021 (a)	$	600		$	600
2.250% Senior Notes due 2023 (a)	547			570
3.250% Senior Notes due 2026 (a)	500			500
4.375% Senior Notes due 2046 (a)	400			400
Commercial paper	306			—
Term loan	—			257
Debt issuance costs and unamortized discount (b)	(17		)	(19		)
Total debt	2,336			2,308
Less: short-term borrowings and current maturities of long-term debt	306			257
Total long-term debt	$	2,030		$	2,051

(a) The fair value of our Senior Notes was determined using quoted prices in active markets for identical securities, which are considered Level 1 inputs. The fair value of our Senior Notes due 2021 was $631 million and $620 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2023 was $583 million and $599 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2026 was $515 million and $476 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of our Senior Notes due 2046 was $455 million and $397 million as of September 30, 2019 and December 31, 2018, respectively.

(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.

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Income Taxes (Textuals) (Details) - USD ($) $ in Millions	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 30, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Income tax provision		$ (77)	$ 31	$ (45)	$ 82
Effective tax rate		623.60%	19.00%	(18.90%)	20.10%
Unrecognized tax benefits		$ 126		$ 126			$ 136
Interest accrued for unrecognized tax benefits		$ 8		$ 8
Assessment for tax, penalties and interest	$ 80
Scenario, Forecast
Income Tax Contingency [Line Items]
Reduction from statute of limitations						$ 4

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Restructuring Charges (Accrual Rollfoward) (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Restructuring Reserve [Roll Forward]
Restructuring accruals - January 1				$ 5	$ 7
Restructuring charges		$ 26	$ 4	48	19
Cash payments				(21)	(18)
Foreign currency and other				(2)	(1)
Restructuring accruals - September 30		30	7	30	7
Water Infrastructure
Restructuring Reserve [Roll Forward]
Restructuring charges		6	2	17	8
Restructuring accruals - September 30		1	1	1	1
Applied Water
Restructuring Reserve [Roll Forward]
Restructuring charges		2	1	4	2
Restructuring accruals - September 30		1	1	1	1
Measurement & Control Solutions
Restructuring Reserve [Roll Forward]
Restructuring charges		25	1	37	9
Restructuring accruals - September 30		21	3	21	3
Regional Selling Locations
Restructuring Reserve [Roll Forward]
Restructuring accruals - September 30	[1]	7	2	7	2
Corporate and other
Restructuring Reserve [Roll Forward]
Restructuring accruals - September 30		$ 0	$ 0	$ 0	$ 0

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

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Restructuring Charges (Textuals) (Details) - USD ($) $ in Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 26		$ 4	$ 48	$ 19
Asset impairment	7		0	10	0
Measurement & Control Solutions
Restructuring Cost and Reserve [Line Items]
Restructuring charges	25		$ 1	$ 37	$ 9
Asset impairment	$ 7	$ 3

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Share-Based Compensation Plans (Summary of Restricted Stock Unit Grants) (Details) - Restricted Stock [Member] shares in Thousands	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Summary of restricted stock activity
Outstanding, beginning of period (in shares) | shares	537
Granted (in shares) | shares	284
Vested (in shares) | shares	(247)
Forfeited (in shares) | shares	(44)
Outstanding, end of period (in shares) | shares	530
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Outstanding, beginning of period (in usd per share) | $ / shares	$ 59.41
Granted (in usd per share) | $ / shares	74.32
Vested (in usd per share) | $ / shares	55.42
Forfeited (in usd per share) | $ / shares	67.59
Outstanding, end of period (in usd per share) | $ / shares	$ 68.50

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Derivative Financial Instruments (Details Textual) $ in Millions	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Mar. 11, 2016 USD ($)	Mar. 11, 2016 EUR (€)
Derivative [Line Items]
Net losses expected to be reclassified in next 12 months	$ 8
Foreign Exchange Contract
Derivative [Line Items]
Notional amount	117	$ 506
Derivatives designated as hedging instruments | Sell USD Buy EUR
Derivative [Line Items]
Notional amount	45	191
Derivatives designated as hedging instruments | Sell EUR Buy PLN
Derivative [Line Items]
Notional amount	9	37
Derivatives designated as hedging instruments | Buy USD Sell CDN
Derivative [Line Items]
Notional amount	7	29
Derivatives designated as hedging instruments | Sell CDN Buy EUR
Derivative [Line Items]
Notional amount	5	22
Derivatives designated as hedging instruments | Sell GBP Buy EUR
Derivative [Line Items]
Notional amount	11	52
Derivatives designated as hedging instruments | Buy KR Sell EUR
Derivative [Line Items]
Notional amount	39	168
Derivatives designated as hedging instruments | Cross Currency Swaps
Derivative [Line Items]
Notional amount	702	426
Long-term debt | Derivatives designated as hedging instruments
Derivative [Line Items]
Net Investment Hedges	544	566
Senior Notes Due 2023, 2.250%
Derivative [Line Items]
Long-term Debt, Fair Value	$ 583	$ 599
Senior Notes Due 2023, 2.250% | Senior Notes
Derivative [Line Items]
Interest on notes due			2.25%	2.25%
Face amount			$ 500	€ 500,000,000

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Postretirement Benefit Plans (Summary of Net Periodic Benefit Cost) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net periodic benefit cost:
Amortization of net actuarial loss	$ 1	$ 1	$ 2	$ 2
Net periodic benefit cost	12	1	13	5
Domestic defined benefit pension plans
Net periodic benefit cost:
Service cost	1		2	2
Interest cost	1	1	3	3
Expected return on plan assets	(2)	(2)	(6)	(5)
Amortization of net actuarial loss	0	1	1	2
Net periodic benefit cost	0		0	2
International defined benefit pension plans
Net periodic benefit cost:
Service cost	2	3	7	8
Interest cost	4	5	14	15
Expected return on plan assets	(4)	(9)	(22)	(28)
Amortization of net actuarial loss	2	2	6	7
Settlement/Curtailment	8	0	8	1
Net periodic benefit cost	$ 12	$ 1	$ 13	$ 3

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Capital Stock (Textuals) (Details) - USD ($) shares in Millions, $ in Millions	3 Months Ended					9 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Aug. 24, 2015
Equity, Class of Treasury Stock [Line Items]
Shares repurchased (less than $1 million)		$ 25		$ 25	$ 25
Share Repurchase Programs
Equity, Class of Treasury Stock [Line Items]
Shares repurchased (in shares - less than 0.1 million)	0.1					0.5
Shares repurchased (less than $1 million)	$ 1					$ 39
2015 Stock Repurchase Program
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, authorized amount								$ 500
Shares repurchased (in shares - less than 0.1 million)	0.0		0.0			0.3	0.7
Shares repurchased (less than $1 million)	$ 0		$ 0			$ 25	$ 50
Remaining authorized amount of repurchase	$ 338					$ 338
Settlement of Employee Tax Withholding Obligations
Equity, Class of Treasury Stock [Line Items]
Shares repurchased (in shares - less than 0.1 million)	0.1		0.1			0.2	0.1
Shares repurchased (less than $1 million)	$ 1		$ 1			$ 14	$ 8

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Equity (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Schedule of Stockholders Equity

The following table shows the changes in stockholders' equity for the nine months ended September 30, 2019:

	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, 2019	$	2	$	1,950	$	1,639		$	(336	)	$	(487	)	$	14		$	2,782
Sale of business														(2		)	(2		)
Net income					79												79
Other comprehensive income, net								20									20
Dividends declared ($0.24 per share)					(44		)										(44		)
Stock incentive plan activity			12								(14		)				(2		)
Repurchase of common stock											(25		)				(25		)
Balance at March 31, 2019	$	2	$	1,962	$	1,674		$	(316	)	$	(526	)	$	12		$	2,808
Net income					139												139
Other comprehensive loss, net								(11		)							(11		)
Dividends declared ($0.24 per share)					(43		)										(43		)
Stock incentive plan activity			13								—						13
Balance at June 30, 2019	$	2	$	1,975	$	1,770		$	(327	)	$	(526	)	$	12		$	2,906
Net income					65												65
Other comprehensive loss, net								(37		)							(37		)
Distribution to minority shareholders														(3		)	(3		)
Dividends declared ($0.24 per share)					(44		)										(44		)
Stock incentive plan activity			8								—						8
Balance at September 30, 2019	$	2	$	1,983	$	1,791		$	(364	)	$	(526	)	$	9		$	2,895

The following table shows the changes in stockholders' equity for the nine months ended September 30, 2018:

	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, 2018	$	2	$	1,912	$	1,227		$	(210	)	$	(428	)	$	16		$	2,519
Cumulative effect of change in accounting principle					14			(17		)							(3		)
Net income					79												79
Other comprehensive income, net								20									20
Dividends declared ($0.21 per share)					(38		)										(38		)
Stock incentive plan activity			13								(8		)				5
Repurchase of common stock											(25		)				(25		)
Balance at March 31, 2018	$	2	$	1,925	$	1,282		$	(207	)	$	(461	)	$	16		$	2,557
Net income					115												115
Other comprehensive loss, net								(87		)							(87		)
Dividends declared ($0.21 per share)					(38		)										(38		)
Stock incentive plan activity			7														7
Repurchase of common stock											(25		)				(25		)
Balance at June 30, 2018	$	2	$	1,932	$	1,359		$	(294	)	$	(486	)	$	16		$	2,529
Net income					130												130
Other comprehensive income, net								1						(2		)	(1		)
Dividends declared ($0.21 per share)					(37		)										(37		)
Stock incentive plan activity			10								—						10
Balance at September 30, 2018	$	2	$	1,942	$	1,452		$	(293	)	$	(486	)	$	14		$	2,631

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Financial information for each reportable segment

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

The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 1 in the 2018 Annual Report). The following tables contain financial information for each reportable segment:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Revenue:
Water Infrastructure	$	531		$	541		$	1,574		$	1,567
Applied Water	376			378			1,149			1,132
Measurement & Control Solutions	389			368			1,155			1,122
Total	$	1,296		$	1,287		$	3,878		$	3,821
Operating Income:
Water Infrastructure	$	97		$	99		$	246		$	240
Applied Water	61			59			179			170
Measurement & Control Solutions	(136		)	31			(94		)	95
Corporate and other	(11		)	(13		)	(40		)	(45		)
Total operating income	$	11		$	176		$	291		$	460
Interest expense	$	16		21			$	52		$	63
Other non-operating (expense) income, net	(7		)	4			(2		)	9
Gain from sale of business	—			2			1			—
Income before taxes	$	(12	)	$	161		$	238		$	406
Depreciation and Amortization:
Water Infrastructure	$	15		$	17		$	46		$	50
Applied Water	5			5			17			16
Measurement & Control Solutions	36			34			107			107
Regional selling locations (a)	6			5			14			15
Corporate and other	3			2			8			7
Total	$	65		$	63		$	192		$	195
Capital Expenditures:
Water Infrastructure	$	14		$	20		$	65		$	60
Applied Water	5			5			15			19
Measurement & Control Solutions	21			26			74			72
Regional selling locations (b)	4			3			13			11
Corporate and other	2			6			8			9
Total	$	46		$	60		$	175		$	171

(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.

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Acquisitions and Divestitures (Purchase Price Allocation) (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018	Jan. 31, 2018
Business Acquisition [Line Items]
Goodwill	$ 2,811	$ 2,976
Pure Technologies Ltd
Business Acquisition [Line Items]
Cash			$ 14
Receivables			23
Inventories			4
Prepaid and other current assets			2
Property, plant and equipment			22
Intangible assets			149
Other long-term assets			1
Accounts payable			(3)
Accrued and other current liabilities			(12)
Deferred income tax liabilities			(25)
Other non-current accrued liabilities			(2)
Total identifiable net assets			173
Goodwill			261
Total consideration			$ 434

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Goodwill and Other Intangible Assets (Goodwill Rollforward) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Changes in the carrying value of goodwill by operating segment
Balance as of January 1, 2019			$ 2,976
Divested/Acquired			19
Impairment	$ (148)	$ 0	(148)	$ 0
Foreign currency and other			(36)
Balance as of September 30, 2019	2,811		2,811
Water Infrastructure
Changes in the carrying value of goodwill by operating segment
Balance as of January 1, 2019			653
Divested/Acquired			0
Impairment			0
Foreign currency and other			(9)
Balance as of September 30, 2019	644		644
Applied Water
Changes in the carrying value of goodwill by operating segment
Balance as of January 1, 2019			516
Divested/Acquired			0
Impairment			0
Foreign currency and other			(7)
Balance as of September 30, 2019	509		509
Measurement & Control Solutions
Changes in the carrying value of goodwill by operating segment
Balance as of January 1, 2019			1,807
Divested/Acquired			19
Impairment			(148)
Foreign currency and other			(20)
Balance as of September 30, 2019	$ 1,658		$ 1,658

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Leases (Textuals) (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Sep. 30, 2018	Jan. 01, 2019	Dec. 31, 2018
Leases [Abstract]
Operating liability, current	$ 60	$ 60			$ 0
Operating liability, noncurrent	184	184
Right-of-use assets	247	247		$ 267
Revenue from lease arrangements	65	188
Assets subject to rental	262	262
Assets subject to rental, accumulated amortization	171	171
Lessor, Lease, Description [Line Items]
Depreciation		88	$ 87
Leased Assets
Lessor, Lease, Description [Line Items]
Depreciation	$ 7	$ 21

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Acquisitions and Divestitures (Tables)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Purchase Price Allocation

(in millions)	Amount
Cash	$	14
Receivables	23
Inventories	4
Prepaid and other current assets	2
Property, plant and equipment	22
Intangible assets	149
Other long-term assets	1
Accounts payable	(3		)
Accrued and other current liabilities	(12		)
Deferred income tax liabilities	(25		)
Other non-current accrued liabilities	(2		)
Total identifiable net assets	173
Goodwill	261
Total consideration	$	434

Summary of Intangible Assets Acquired

Category	Life	Amount (in millions)
Customer Relationships	17 - 18 years	$	84
Technology	3 - 10 years	38
Tradenames	20 years	21
Internally Developed Software	3 years	6
Total		$	149

Pro Forma Information

(in millions)	Three Months Ended September 30, 2018	Nine Months Ended September 30, 2018
Revenue	N/A	$	3,826
Net income	N/A	$	321

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Legal Proceedings

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

From time to time claims may be asserted against Xylem alleging injury caused by any of our products resulting from asbestos exposure. We believe there are numerous legal defenses available for such claims and would defend ourselves vigorously. Pursuant to the Distribution Agreement among ITT Corporation (now ITT LLC),

Exelis and Xylem, ITT Corporation (now ITT LLC) has an obligation to indemnify, defend and hold Xylem harmless for asbestos product liability matters, including settlements, judgments, and legal defense costs associated with all pending and future claims that may arise from past sales of ITT’s legacy products. We believe ITT Corporation (now ITT LLC) remains a substantial entity with sufficient financial resources to honor its obligations to us.

See Note 6 "Income Taxes", of our condensed consolidated financial statements for a description of a pending tax litigation matter.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claims, we do not believe it is reasonably possible that any asserted or unasserted legal claims or proceedings, individually or in aggregate, will have a material adverse effect on our results of operations, or financial condition. We have estimated and accrued $6 million and $7 million as of September 30, 2019 and December 31, 2018, respectively, for these general litigation matters.

Indemnifications

As part of our 2011 spin-off from our former parent, ITT Corporation (now ITT LLC), Exelis Inc. and Xylem will indemnify, defend and hold harmless each of the other parties with respect to such parties’ assumed or retained liabilities under the Distribution Agreement and breaches of the Distribution Agreement or related spin agreements. The former parent’s indemnification obligations include asserted and unasserted asbestos and silica liability claims that relate to the presence or alleged presence of asbestos or silica in products manufactured, repaired or sold prior to October 31, 2011, the Distribution Date, subject to limited exceptions with respect to certain employee claims, or in the structure or material of any building or facility, subject to exceptions with respect to employee claims relating to Xylem buildings or facilities. The indemnification associated with pending and future asbestos claims does not expire. Xylem has not recorded a liability for material matters for which we expect to be indemnified by the former parent or Exelis Inc. through the Distribution Agreement and we are not aware of any claims or other circumstances that would give rise to material payments from us under such indemnifications. On May 29, 2015, Harris Inc. acquired Exelis.  As the parent of Exelis, Harris Inc. is responsible for Exelis’ indemnification obligations under the Distribution Agreement.

Guarantees

We obtain certain stand-by letters of credit, bank guarantees, surety bonds and insurance letters of credit from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance related requirements. As of September 30, 2019 and December 31, 2018, the amount of stand-by letters of credit, bank guarantees and surety bonds was $302 million and $275 million, respectively.

Environmental

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

Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. Our accrued liabilities for these environmental matters represent our best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees. These estimates, and related accruals, are reviewed quarterly and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. Liabilities for these environmental expenditures are recorded on an undiscounted basis. We have estimated and accrued $3 million and $4 million as of September 30, 2019 and December 31, 2018, respectively, for environmental matters.

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

Warranties

We warrant numerous products, the terms of which vary widely. In general, we warrant products against defect and specific non-performance. The table below provides the changes in our product warranty accrual:

(in millions)	2019			2018
Warranty accrual – January 1	$	60		$	82
Net charges for product warranties in the period	20			16
Settlement of warranty claims	(32		)	(33		)
Foreign currency and other	(2		)	1
Warranty accrual - September 30	$	46		$	66

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Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Equity

Equity

The following table shows the changes in stockholders' equity for the nine months ended September 30, 2019:

	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, 2019	$	2	$	1,950	$	1,639		$	(336	)	$	(487	)	$	14		$	2,782
Sale of business														(2		)	(2		)
Net income					79												79
Other comprehensive income, net								20									20
Dividends declared ($0.24 per share)					(44		)										(44		)
Stock incentive plan activity			12								(14		)				(2		)
Repurchase of common stock											(25		)				(25		)
Balance at March 31, 2019	$	2	$	1,962	$	1,674		$	(316	)	$	(526	)	$	12		$	2,808
Net income					139												139
Other comprehensive loss, net								(11		)							(11		)
Dividends declared ($0.24 per share)					(43		)										(43		)
Stock incentive plan activity			13								—						13
Balance at June 30, 2019	$	2	$	1,975	$	1,770		$	(327	)	$	(526	)	$	12		$	2,906
Net income					65												65
Other comprehensive loss, net								(37		)							(37		)
Distribution to minority shareholders														(3		)	(3		)
Dividends declared ($0.24 per share)					(44		)										(44		)
Stock incentive plan activity			8								—						8
Balance at September 30, 2019	$	2	$	1,983	$	1,791		$	(364	)	$	(526	)	$	9		$	2,895

The following table shows the changes in stockholders' equity for the nine months ended September 30, 2018:

	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, 2018	$	2	$	1,912	$	1,227		$	(210	)	$	(428	)	$	16		$	2,519
Cumulative effect of change in accounting principle					14			(17		)							(3		)
Net income					79												79
Other comprehensive income, net								20									20
Dividends declared ($0.21 per share)					(38		)										(38		)
Stock incentive plan activity			13								(8		)				5
Repurchase of common stock											(25		)				(25		)
Balance at March 31, 2018	$	2	$	1,925	$	1,282		$	(207	)	$	(461	)	$	16		$	2,557
Net income					115												115
Other comprehensive loss, net								(87		)							(87		)
Dividends declared ($0.21 per share)					(38		)										(38		)
Stock incentive plan activity			7														7
Repurchase of common stock											(25		)				(25		)
Balance at June 30, 2018	$	2	$	1,932	$	1,359		$	(294	)	$	(486	)	$	16		$	2,529
Net income					130												130
Other comprehensive income, net								1						(2		)	(1		)
Dividends declared ($0.21 per share)					(37		)										(37		)
Stock incentive plan activity			10								—						10
Balance at September 30, 2018	$	2	$	1,942	$	1,452		$	(293	)	$	(486	)	$	14		$	2,631

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Acquisitions and Divestitures (Summary of Intangible Assts Acquired) (Details) - Pure Technologies Ltd - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2019	Jan. 31, 2018
Business Acquisition [Line Items]
Intangible assets		$ 149
Customer Relationships
Business Acquisition [Line Items]
Intangible assets		84
Customer Relationships | Minimum
Business Acquisition [Line Items]
Weighted-average useful life	17 years
Customer Relationships | Maximum
Business Acquisition [Line Items]
Weighted-average useful life	18 years
Technology
Business Acquisition [Line Items]
Intangible assets		38
Technology | Minimum
Business Acquisition [Line Items]
Weighted-average useful life	3 years
Technology | Maximum
Business Acquisition [Line Items]
Weighted-average useful life	10 years
Tradenames
Business Acquisition [Line Items]
Weighted-average useful life	20 years
Intangible assets		21
Internally Developed Software
Business Acquisition [Line Items]
Intangible assets		$ 6
Internally Developed Software | Minimum
Business Acquisition [Line Items]
Weighted-average useful life	3 years

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Share-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Summary of restricted stock activity

The following is a summary of restricted stock unit activity for the nine months ended September 30, 2019. The fair value of the restricted share unit awards is determined using the closing price of our common stock on date of grant.

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	537		$	59.41
Granted	284		74.32
Vested	(247	)	55.42
Forfeited	(44	)	67.59
Outstanding at September 30, 2019	530		$	68.50

Summary of performance based share grants

The following is a summary of Return on Invested Capital ("ROIC") performance share unit grants for the nine months ended September 30, 2019. The fair value of the ROIC performance share units is equal to the closing share price on the date of the grant. 

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	274		$	52.11
Granted	77		74.07
Adjustment for Performance Condition Achieved (a)	74		37.86
Vested	(174	)	37.86
Forfeited	(17	)	63.18
Outstanding at September 30, 2019	234		$	64.54

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

TSR Performance Share Unit Grants

The following is a summary of our Total Shareholder Return ("TSR") performance share unit grants for the nine months ended September 30, 2019:

	Share units (in thousands)		Weighted Average Grant Date Fair Value /Share
Outstanding at January 1, 2019	274		$	61.04
Granted	77		89.62
Adjustment for Market Condition Achieved (a)	74		37.86
Vested	(174	)	37.86
Forfeited	(17	)	63.18
Outstanding at September 30, 2019	234		$	75.82

Summary of the changes in outstanding stock options

The following is a summary of the changes in outstanding stock options for the nine months ended September 30, 2019:

	Share units            (in thousands)		Weighted Average Exercise Price / Share		Weighted  Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2019	2,125		$	43.08	6.5
Granted	334		74.08
Exercised	(286	)	35.71
Forfeited and expired	(46	)	67.04
Outstanding at September 30, 2019	2,127		$	48.42	6.5	$	67
Options exercisable at September 30, 2019	1,492		$	39.60	5.5	$	60
Vested and expected to vest as of September 30, 2019	2,067		$	47.71	6.4	$	66

Stock option valuation assumptions

The following are weighted-average assumptions for 2019 grants:

Volatility	24.10		%
Risk-free interest rate	2.55		%
Dividend yield	1.30		%
Expected term (in years)	5.4
Weighted-average fair value / share	$	17.04

Performance-based shares valuation assumptions

The fair value of TSR performance share units was calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The following are weighted-average assumptions for 2019 grants:

Volatility	20.9	%
Risk-free interest rate	2.52	%

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Background and Basis of Presentation (Details)	9 Months Ended
	Sep. 30, 2019
Background and Basis of Presentation (Textual) [Abstract]
Number of operating segment	3

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Leases (Lease Maturities) (Details) - USD ($) $ in Millions	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Operating Leases
2019	$ 18
2020	61
2021	46
2022	34
2023	26
2024	20
Thereafter	59
Total lease payments	264
Less: Imputed interest	(21)
Total	$ 243	$ 265
Operating Leases
2019			$ 76
2020			61
2021			43
2022			33
2023			22
Thereafter			64
Total lease payments			$ 299

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Inventories (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Inventories
Finished goods	$ 231	$ 248
Work in process	54	45
Raw materials	295	302
Total inventories	$ 580	$ 595

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Loss

The following table provides the components of accumulated other comprehensive loss for the nine months ended September 30, 2019:

(in millions)	Foreign Currency Translation			Postretirement Benefit Plans			Derivative Instruments			Total
Balance at January 1, 2019	$	(121	)	$	(214	)	$	(1	)	$	(336	)
Foreign currency translation adjustment	29			—			—			29
Tax on foreign currency translation adjustment	(4		)	—			—			(4		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Unrealized loss on derivative hedge agreements	—			—			(9		)	(9		)
Income tax benefit on unrealized loss on derivative hedge agreements	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at March 31, 2019	$	(96	)	$	(213	)	$	(7	)	$	(316	)
Foreign currency translation adjustment	(18		)	—			—			(18		)
Tax on foreign currency translation adjustment	3			—			—			3
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Unrealized loss on derivative hedge agreements	—			—			—			—
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at June 30, 2019	$	(111	)	$	(211	)	$	(5	)	$	(327	)
Foreign currency translation adjustment	(20		)	—			—			(20		)
Tax on foreign currency translation adjustment	(13		)	—			—			(13		)
Changes in postretirement benefit plans	—			(11		)	—			(11		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			1			—			1
Settlement charge released into other non-operating income (expense), net	—			8			—			8
Unrealized loss on derivative hedge agreements	—			—			(5		)	(5		)
Reclassification of unrealized loss on foreign exchange agreements into revenue	—			—			2			2
Reclassification of unrealized loss on foreign exchange agreements into cost of revenue	—			—			1			1
Balance at September 30, 2019	$	(144	)	$	(213	)	$	(7	)	$	(364	)

The following table provides the components of accumulated other comprehensive loss for the nine months ended September 30, 2018:

(in millions)	Foreign Currency Translation			Postretirement Benefit Plans			Derivative Instruments			Total
Balance at January 1, 2018	$	(15	)	$	(198	)	$	3		$	(210	)
Cumulative effect of change in accounting principle	(11		)	(6		)	—			(17		)
Foreign currency translation adjustment	8			—			—			8
Tax on foreign currency translation adjustment	11			—			—			11
Changes in postretirement benefit plans	—			1			—			1
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Reclassification of unrealized gain on derivative hedge agreements into revenue	—			—			(1		)	(1		)
Balance at March 31, 2018	$	(7	)	$	(202	)	$	2		$	(207	)
Foreign currency translation adjustment	(60		)	—			—			(60		)
Tax on foreign currency translation adjustment	(19		)	—			—			(19		)
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			—			—			—
Other non-operating income	—			3			—			3
Income tax impact on amortization of postretirement benefit plan items	—			(1		)	—			(1		)
Unrealized loss on derivative hedge agreements	—			—			(9		)	(9		)
Reclassification of unrealized gain on derivative hedge agreements into revenue	—			—			(1		)	(1		)
Balance at June 30, 2018	$	(86	)	$	(200	)	$	(8	)	$	(294	)
Foreign currency translation adjustment	(7		)	—			—			(7		)
Tax on foreign currency translation adjustment	3			—			—			3
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	—			2			—			2
Reclassification of unrealized gain on foreign exchange agreements into revenue	—			—			1			1
Reclassification of unrealized gain on foreign exchange agreements into cost of revenue	—			—			2			2
Balance at September 30, 2018	(90		)	(198		)	(5		)	(293		)

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Postretirement Benefit Plans

9 Months Ended

Sep. 30, 2019

Retirement Benefits [Abstract]

Postretirement Benefit Plans

Postretirement Benefit Plans

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Domestic defined benefit pension plans:
Service cost	$	1		$	—		$	2		$	2
Interest cost	1			1			3			3
Expected return on plan assets	(2		)	(2		)	(6		)	(5		)
Amortization of net actuarial loss	—			1			1			2
Net periodic benefit cost	$	—		$	—		$	—		$	2
International defined benefit pension plans:
Service cost	$	2		$	3		$	7		$	8
Interest cost	4			5			14			15
Expected return on plan assets	(4		)	(9		)	(22		)	(28		)
Amortization of net actuarial loss	2			2			6			7
Settlement/Curtailment	8			—			8			1
Net periodic benefit cost	$	12		$	1		$	13		$	3
Total net periodic benefit cost	$	12		$	1		$	13		$	5

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

The total net periodic benefit cost for other postretirement employee benefit plans was less than $1 million for both the three and nine months ended September 30, 2019, including net credits recognized into other comprehensive income ("OCI") of $1 million and $2 million, respectively, for the three and nine months ended September 30, 2019. The total net periodic benefit cost for other postretirement employee benefit plans was less than $1 million for both the three and nine months ended September 30, 2018, including net credits recognized in OCI of $1 million and $2 million, respectively, for the three and nine months ended September 30, 2018.

We contributed $14 million and $37 million to our defined benefit plans during the nine months ended September 30, 2019 and 2018, respectively. Discretionary contributions of $19 million were made to the U.S. Plan in the third quarter of 2018, to increase the funding ratio and reduce regulatory fees. Additional contributions ranging between approximately $4 million and $8 million are expected during the remainder of 2019.

The Company has initiated the process for a full buy-out of its largest defined benefit plan in the UK. In order to prepare for a buy-out, the plan’s assets were converted to cash, cash equivalents or other highly liquid assets as of the third quarter. In addition, the Company completed an enhanced transfer value (“ETV”) exercise for the deferred vested participants of the plan. The ETV offered the participants an enhanced lump sum to transfer their full pension rights out of the plan. Lump sum payments of $21 million were paid out of the plan assets, and the Company recorded a settlement charge of $8 million during the quarter. Prior to the settlement accounting, the plan was re-measured as of July 31, 2019, resulting in an increase in the plan’s projected benefit obligation of $37 million, an increase in plan assets of $26 million and an increase to losses in accumulated other comprehensive income of $11 million. The assumptions used to re-measure the plan were developed in the same manner as at December 31, 2018. However, due to the recent change in the investment assets, the expected rate of return on assets was changed from 7.25% to 0.70%. The discount rate used in the re-measurement was 2.00%, down from 3.00% at December 31, 2018. The Company recorded incremental net periodic benefit cost of $3 million in the third quarter as a result of the re-measurement.

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Recently Issued Accounting Pronouncements (Policies)	9 Months Ended
	Sep. 30, 2019
Accounting Policies [Abstract]
Pronouncements Not Yet Adopted and Recently Adopted Pronouncements	and $265 million, respectively, as well as deferred tax assets and deferred tax liabilities of $68 million, as of January 1, 2019, the date of initial application. The guidance did not have a material impact on our Condensed Consolidated Income Statements and Statements of Cash Flow. See Note 9, "Leases" for further details.

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Condensed Consolidated Income Statements (Unaudited) - USD ($) shares in Thousands, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Revenues	$ 1,296	$ 1,287	$ 3,878	$ 3,821
Cost of revenue	787	782	2,369	2,337
Gross profit	509	505	1,509	1,484
Selling, general and administrative expenses	273	279	870	868
Research and development expenses	44	46	142	137
Restructuring and asset impairment charges	33	4	58	19
Goodwill impairment charge	148	0	148	0
Operating income	11	176	291	460
Interest expense	16	21	52	63
Other non-operating (expense) income, net	(7)	4	(2)	9
Gain from sale of business	0	2	1	0
(Loss) income before taxes	(12)	161	238	406
Income tax (benefit) expense	(77)	31	(45)	82
Net income	$ 65	$ 130	$ 283	$ 324
Earnings per share:
Basic (usd per share)	$ 0.36	$ 0.73	$ 1.57	$ 1.80
Diluted (usd per share)	$ 0.36	$ 0.72	$ 1.56	$ 1.79
Weighted average number of shares:
Basic (in shares)	180,072	179,676	179,938	179,788
Diluted (in shares)	181,212	181,090	181,159	181,166

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill    

Changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2019 are as follows:

(in millions)	Water Infrastructure			Applied Water			Measurement & Control Solutions			Total
Balance as of January 1, 2019	$	653		$	516		$	1,807		$	2,976
Activity in 2019
Divested/Acquired	—			—			19			19
Impairment	—			—			(148		)	(148		)
Foreign currency and other	(9		)	(7		)	(20		)	(36		)
Balance as of September 30, 2019	$	644		$	509		$	1,658		$	2,811

During the third quarter of 2019, the Company recorded a goodwill impairment charge of $148 million related to the Advanced Infrastructure Analytics (“AIA”) goodwill reporting unit. The impairment resulted from a downward revision of forecasted future cash flows. Factors that contributed to the revised forecast in the third quarter include lower than expected results as compared to prior forecasts, largely as a result of slower-than-expected conversion of pipeline opportunities to revenue. Additionally, we have continued to invest in the AIA platform ahead of the adoption curve, which has also impacted the near term profitability of the business. These factors drove the decrease in forecasted cash flows, and as such, the calculated fair value of the AIA reporting unit below its carrying value as of the third quarter.

To determine the fair value of the AIA reporting unit, the Company used the income approach. Under the income approach, the fair value of the AIA reporting unit was based on the present value of the estimated cash flows that the reporting unit is expected to generate over its remaining life. Cash flow projections were based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate was based on the weighted average cost of capital appropriate for the AIA reporting unit.

Other Intangible Assets

Information regarding our other intangible assets is as follows:

	September 30, 2019							December 31, 2018
(in millions)	Carrying Amount		Accumulated Amortization			Net Intangibles		Carrying Amount		Accumulated Amortization			Net Intangibles
Customer and distributor relationships	$	939	$	(334	)	$	605	$	951	$	(286	)	$	665
Proprietary technology and patents	203		(105		)	98		198		(93		)	105
Trademarks	147		(49		)	98		148		(41		)	107
Software	405		(195		)	210		355		(164		)	191
Other	20		(16		)	4		24		(19		)	5
Indefinite-lived intangibles	165		—			165		159		—			159
Other Intangibles	$	1,879	$	(699	)	$	1,180	$	1,835	$	(603	)	$	1,232

Amortization expense related to finite-lived intangible assets was $35 million and $104 million for the three and nine months ended September 30, 2019, respectively, and $34 million and $108 million for the three and nine months ended September 30, 2018, respectively.

During the third quarter of 2019, the Company also assessed whether the carrying amounts of the AIA reporting unit’s long-lived assets may not be recoverable based on the revised forecasted cash flows, and therefore impaired. Our assessment resulted in an impairment charge of $7 million, primarily related to customer relationships, proprietary technology, software and property, plant and equipment. The charge was calculated

using an 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.

During the first quarter of 2019, we determined that the intended use of a finite lived customer relationship within the test application of our Measurement & Control Solutions segment had changed. Accordingly we recorded a $3 million impairment charge. The charge was also calculated using the income approach and is reflected in “Restructuring and asset impairment charges” in our Condensed Consolidated Income Statements.

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Operating Activities
Net income	$ 283	$ 324
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	88	87
Amortization	104	108
Share-based compensation	23	23
Restructuring and asset impairment charges	58	19
Goodwill impairment charge	148	0
Gain from sale of business	(1)	0
Other, net	7	2
Payments for restructuring	(21)	(18)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables	(73)	(76)
Changes in inventories	(2)	(115)
Changes in accounts payable	(30)	51
Changes in accrued taxes	(140)	20
Other, net	7	(37)
Net Cash – Operating activities	451	388
Investing Activities
Capital expenditures	(175)	(171)
Acquisitions of businesses, net of cash acquired	(18)	(433)
Proceeds from sale of business	(2)	22
Cash received from investments	3	0
Other, net	7	3
Net Cash – Investing activities	(185)	(579)
Financing Activities
Short-term debt issued, net	317	410
Short-term debt repaid	(254)	(50)
Repurchase of common stock	(39)	(58)
Proceeds from exercise of employee stock options	10	7
Dividends paid	(131)	(114)
Other, net	(2)	0
Net Cash – Financing activities	(99)	195
Effect of exchange rate changes on cash	(10)	(14)
Net change in cash and cash equivalents	157	(10)
Cash and cash equivalents at beginning of year	296	414
Cash and cash equivalents at end of period	453	404
Cash paid during the period for:
Interest	46	47
Income taxes (net of refunds received)	$ 94	$ 60

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

The income tax provision for the three months ended September 30, 2019 was a benefit of $77 million resulting in an effective tax rate of 623.6% (on a pre-tax loss for the period), compared to a $31 million charge resulting in an effective tax rate of 19.0% for the same period in 2018. The income tax provision for the nine months ended September 30, 2019 was a benefit of $45 million resulting in an effective tax rate of (18.9)%, compared to an $82 million charge resulting in an effective tax rate of 20.1% for the same period in 2018. The effective tax rates for the three and nine month periods ended September 30, 2019 differ from the United States federal statutory rate primarily due to the income tax benefit that resulted from changes in tax law in Switzerland and the impact of the goodwill impairment charge on income before taxes in 2019.

Unrecognized Tax Benefits

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities or litigation, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits at September 30, 2019 was $126 million, as compared to $136 million at December 31, 2018, which if ultimately recognized will reduce our effective tax rate. We believe that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $4 million within the next 12 months as a result of the expiration of certain statutes of limitations. 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, 2019, we had $8 million of interest accrued for unrecognized tax benefits.

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

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Postretirement Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2019

Retirement Benefits [Abstract]

Components of net periodic benefit cost and other amounts recognized in other comprehensive income

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2019			2018			2019			2018
Domestic defined benefit pension plans:
Service cost	$	1		$	—		$	2		$	2
Interest cost	1			1			3			3
Expected return on plan assets	(2		)	(2		)	(6		)	(5		)
Amortization of net actuarial loss	—			1			1			2
Net periodic benefit cost	$	—		$	—		$	—		$	2
International defined benefit pension plans:
Service cost	$	2		$	3		$	7		$	8
Interest cost	4			5			14			15
Expected return on plan assets	(4		)	(9		)	(22		)	(28		)
Amortization of net actuarial loss	2			2			6			7
Settlement/Curtailment	8			—			8			1
Net periodic benefit cost	$	12		$	1		$	13		$	3
Total net periodic benefit cost	$	12		$	1		$	13		$	5

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Revenue (Tables)

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following table illustrates the sources of revenue:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Revenue from contracts with customers	$	1,231	$	1,222	$	3,690	$	3,642
Lease Revenue	65		65		188		179
Total	$	1,296	$	1,287	$	3,878	$	3,821

The following table reflects revenue from contracts with customers by application:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Water Infrastructure
Transport	$	369	$	380	$	1,111	$	1,114
Treatment	96		96		274		274
Applied Water
Building Services	207		208		636		608
Industrial Water	169		170		513		524
Measurement & Control Solutions
Water	193		168		587		514
Energy	90		90		248		254
Software as a Service/Other	26		26		75		96
Test	81		84		246		258
Total	$	1,231	$	1,222	$	3,690	$	3,642

The following table reflects revenue from contracts with customers by geographical region:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Water Infrastructure
United States	$	141	$	139	$	434	$	387
Europe	170		174		509		542
Asia Pacific	92		91		260		252
Other	62		72		182		207
Applied Water
United States	196		197		609		583
Europe	89		93		275		291
Asia Pacific	41		40		121		115
Other	50		48		144		143
Measurement & Control Solutions
United States	251		238		739		674
Europe	63		59		199		214
Asia Pacific	27		31		85		106
Other	49		40		133		128
Total	$	1,231	$	1,222	$	3,690	$	3,642

Contract with Customer, Asset and Liability

The table below provides contract assets, contract liabilities, and significant changes in contract assets and liabilities:

(in millions)	Contract Assets (a)			Contract Liabilities
Balance at January 1, 2018	$	89		$	107
Additions, net	68			92
Revenue recognized from opening balance	—			(83		)
Billings	(62		)	—
Other	(4		)	(6		)
Balance at September 30, 2018	$	91		$	110
Balance at January 1, 2019	$	96		$	113
Additions, net	71			97
Revenue recognized from opening balance	—			(82		)
Billings	(58		)	—
Other	9			(3		)
Balance at September 30, 2019	$	118		$	125

(a)

Excludes receivable balances which are disclosed on the balance sheet

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in the carrying value of goodwill by operating segment

Changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2019 are as follows:

(in millions)	Water Infrastructure			Applied Water			Measurement & Control Solutions			Total
Balance as of January 1, 2019	$	653		$	516		$	1,807		$	2,976
Activity in 2019
Divested/Acquired	—			—			19			19
Impairment	—			—			(148		)	(148		)
Foreign currency and other	(9		)	(7		)	(20		)	(36		)
Balance as of September 30, 2019	$	644		$	509		$	1,658		$	2,811

Other Intangible Assets

Information regarding our other intangible assets is as follows:

	September 30, 2019							December 31, 2018
(in millions)	Carrying Amount		Accumulated Amortization			Net Intangibles		Carrying Amount		Accumulated Amortization			Net Intangibles
Customer and distributor relationships	$	939	$	(334	)	$	605	$	951	$	(286	)	$	665
Proprietary technology and patents	203		(105		)	98		198		(93		)	105
Trademarks	147		(49		)	98		148		(41		)	107
Software	405		(195		)	210		355		(164		)	191
Other	20		(16		)	4		24		(19		)	5
Indefinite-lived intangibles	165		—			165		159		—			159
Other Intangibles	$	1,879	$	(699	)	$	1,180	$	1,835	$	(603	)	$	1,232

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Revenue (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Change in Contract with Customer, Asset [Abstract]
Beginning balance	$ 96	$ 89
Additions, net	71	68
Billings	(58)	(62)
Other	9	(4)
Ending balance	118	91
Change in Contract with Customer, Liability [Abstract]
Beginning balance	113	107
Additions, net	97	92
Revenue recognized from opening balance	(82)	(83)
Other	(3)	(6)
Ending balance	$ 125	$ 110

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Acquisitions and Divestitures (Summary of Pro Forma Information) (Details) - Pure Technologies Ltd $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)
Business Acquisition [Line Items]
Revenue	$ 3,826
Net income	$ 321

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Restructuring Charges (Estimated Restructuring Costs) (Details) - USD ($) $ in Millions	3 Months Ended			12 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
2019 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	$ 50
Restructuring costs incurred during period	26	$ 14	$ 6
Total expected costs remaining	4
2018 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	16
Restructuring costs incurred during period	0	0	1	$ 15
Total expected costs remaining	0
2017 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	23
Restructuring costs incurred during period	0	0	1	4	$ 11
Total expected costs remaining	7
Operating Segments | Water Infrastructure | 2019 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	18
Restructuring costs incurred during period	6	7	3
Total expected costs remaining	2
Operating Segments | Water Infrastructure | 2018 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	8
Restructuring costs incurred during period	0	0	1	7
Total expected costs remaining	0
Operating Segments | Water Infrastructure | 2017 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	12
Restructuring costs incurred during period	0	0	0	2	5
Total expected costs remaining	5
Operating Segments | Applied Water | 2019 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	5
Restructuring costs incurred during period	2	2	0
Total expected costs remaining	1
Operating Segments | Applied Water | 2018 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	1
Restructuring costs incurred during period	0	0	0	1
Total expected costs remaining	0
Operating Segments | Applied Water | 2017 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	7
Restructuring costs incurred during period	0	0	0	1	4
Total expected costs remaining	2
Operating Segments | Measurement & Control Solutions | 2019 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	27
Restructuring costs incurred during period	18	5	3
Total expected costs remaining	1
Operating Segments | Measurement & Control Solutions | 2018 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	7
Restructuring costs incurred during period	0	0	0	7
Total expected costs remaining	0
Operating Segments | Measurement & Control Solutions | 2017 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	4
Restructuring costs incurred during period	0	0	1	1	2
Total expected costs remaining	0
Corporate | 2019 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	0
Restructuring costs incurred during period	0	0	0
Total expected costs remaining	0
Corporate | 2018 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	0
Restructuring costs incurred during period	0	0	0	0
Total expected costs remaining	0
Corporate | 2017 Plan
Restructuring Cost and Reserve [Line Items]
Total expected costs	0
Restructuring costs incurred during period	0	$ 0	$ 0	$ 0	$ 0
Total expected costs remaining	$ 0

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Share-Based Compensation Plans Share-Based Compensation Plans (Summary of ROIC Performance Share Unit Grants) (Details) - Return on Invested Capital Performance-Based Shares [Member] - Performance Based Shares shares in Thousands	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Summary of performance share activity
Outstanding, beginning of period (in shares) | shares	274
Granted (in shares) | shares	77
Adjustment for Condition Achieved (in shares) | shares	74
Vested (in shares) | shares	(174)
Forfeited (in shares) | shares	(17)
Outstanding, end of period (in shares) | shares	234
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Outstanding, beginning of period (in usd per share) | $ / shares	$ 52.11
Granted (in usd per share) | $ / shares	74.07
Adjustment for Condition Achieved (in usd per share) | $ / shares	37.86
Vested (in usd per share) | $ / shares	37.86
Forfeited (in usd per share) | $ / shares	63.18
Outstanding, end of period (in usd per share) | $ / shares	$ 64.54

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Accrued and Other Current Liabilities (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Accrued and Other Current Liabilities
Compensation and other employee benefits	$ 189	$ 194
Customer-related liabilities	144	129
Accrued taxes	69	85
Lease liabilities	60	0
Accrued warranty costs	39	44
Other accrued liabilities	133	94
Total accrued and other current liabilities	$ 634	$ 546

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Postretirement Benefit Plans (Textuals) (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 31, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Defined Benefit Plans And Other Postretirement Benefit Plans Table Text Block
Other postretirement benefit expense			$ 1	$ 1
Amortization of net actuarial loss		$ 1	1	2	$ 2
Employer contribution to defined benefit plan			19	14	37
Increase to losses in AOCI		11	0	11	0
Minimum
Defined Benefit Plans And Other Postretirement Benefit Plans Table Text Block
Additional contributions		4		4
Maximum
Defined Benefit Plans And Other Postretirement Benefit Plans Table Text Block
Additional contributions		8		8
Foreign Plan [Member]
Defined Benefit Plans And Other Postretirement Benefit Plans Table Text Block
Amortization of net actuarial loss		2	2	6	7
Lump sum payment		21
Settlement		8	$ 0	$ 8	$ 1
Remeasurement of plan's projected benefit obligation	$ 37
Plan assets remeasurement	26
Increase to losses in AOCI	$ 11
Expected rate of return	7.25%					0.70%
Discount rate	2.00%					3.00%
Incremental net periodic benefit cost		$ 3

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Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Millions	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2017
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance			$ (336)				$ (336)
Cumulative effect of adoption									$ (3)
Foreign currency translation adjustment	$ (20)			$ (9)			(9)	$ (61)
Changes in postretirement benefit plans	(11)			0			(11)	0
Other non-operating (expense) income, net	(7)			4			(2)	9
Ending balance	(364)						(364)
Total
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(327)	$ (316)	(336)	(294)	$ (207)	$ (210)	(336)	(210)
Cumulative effect of adoption									(17)
Foreign currency translation adjustment	(20)	(18)	29	(7)	(60)	8
Foreign currency gain reclassified into gain on sale of businesses	(13)	3	(4)	3	(19)	11
Changes in postretirement benefit plans	(11)					1
Other non-operating (expense) income, net					3
Income tax expense on amortization of postretirement benefit plan items			(1)		(1)	(1)
Unrealized loss on derivative hedge agreements	(5)		(9)		(9)
Income tax benefit on unrealized loss on derivative hedge agreements			1
Ending balance	(364)	(327)	(316)	(293)	(294)	(207)	(364)	(293)
Foreign Currency Translation
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(111)	(96)	(121)	(86)	(7)	(15)	(121)	(15)
Cumulative effect of adoption									(11)
Foreign currency translation adjustment	(20)	(18)	29	(7)	(60)	8
Foreign currency gain reclassified into gain on sale of businesses	(13)	3	(4)	3	(19)	11
Ending balance	(144)	(111)	(96)	(90)	(86)	(7)	(144)	(90)
Postretirement Benefit Plans
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(211)	(213)	(214)	(200)	(202)	(198)	(214)	(198)
Cumulative effect of adoption									$ (6)
Changes in postretirement benefit plans	(11)					1
Other non-operating (expense) income, net					3
Income tax expense on amortization of postretirement benefit plan items			(1)		(1)	(1)
Ending balance	(213)	(211)	(213)	(198)	(200)	(202)	(213)	(198)
Derivative Instruments
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(5)	(7)	(1)	(8)	2	3	(1)	3
Unrealized loss on derivative hedge agreements	(5)		(9)		(9)
Income tax benefit on unrealized loss on derivative hedge agreements			1
Ending balance	(7)	(5)	(7)	(5)	(8)	2	$ (7)	$ (5)
Other non-operating income | Total
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	1	2	2	2	0	2
Settlement charge released into other non-operating income (expense), net	8
Other non-operating income | Postretirement Benefit Plans
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Amortization of prior service cost and net actuarial loss on postretirement benefit plans into other non-operating income (expense), net	1	2	2	2	0	2
Settlement charge released into other non-operating income (expense), net	8
Revenue | Total
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Reclassification of unrealized gain (loss) on foreign exchange agreements	2	1	1	1	(1)	(1)
Revenue | Derivative Instruments
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Reclassification of unrealized gain (loss) on foreign exchange agreements	2	1	1	1	$ (1)	$ (1)
Cost of Revenue | Total
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Reclassification of unrealized gain (loss) on foreign exchange agreements	1	1	1	2
Cost of Revenue | Derivative Instruments
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Reclassification of unrealized gain (loss) on foreign exchange agreements	$ 1	$ 1	$ 1	$ 2