Xylem Inc

Previous wording

In evaluating our business and investment in our securities, investors should carefully consider the following discussion of material factors and events, along with all of the other information in this Report and in our other filings with the SEC. The events and consequences discussed below could, in circumstances that we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, financial condition, cash flows, results of operations and/or market price of our common stock.

Current wording

In evaluating our business and investment in our securities, investors should carefully consider the following discussion of material factors and events, along with all of the other information in this Report and in our other filings with the SEC. The events and consequences discussed below could, in circumstances that we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, financial condition, cash flows, results of operations and/or market price of our common stock. Some of the factors, events, and contingencies discussed below may have occurred in the past, and the disclosures below are not representations as to whether or not the factors, events or contingencies have occurred in the past, but are provided because future occurrences of such factors, events, or contingencies could have a material adverse effect.

Previous wording

Industry and economic conditions may adversely affect our markets and our customers’ operating conditions, which can in turn affect our business, results of operations and financial condition.

Current wording

Industry and economic conditions may adversely affect our markets and our customers’ operating conditions and demand.

Previous wording

With sales in approximately 150 countries, we compete across a wide range of geographies and end markets. Economic and industry factors that have had, or could in the future have, a material impacted on our businesses and demand for our products and services include: (i) the overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) inflation and related monetary policy actions by governments in response to inflation, (iii) overall strength of industrial, governmental, public and private sector spending; (iv) overall strength of the industrial, residential and commercial real estate markets; (v) federal, state, local and municipal governmental fiscal, trade and procurement laws, regulations and policies, including as respects domestic content; (vi) the availability of commercial financing for our customers and end-users; and (vii) the degree of funding for our public sector customers, including for water infrastructure investments. Macroeconomic impacts, including actual or potential recession, and supply chain dynamics, including supply shortages, logistics challenges, tight labor markets, inflation, and significant government debt and deficit levels, have had, and continue to have, a material adverse effect on our business and results of operations. Future economic slowdowns or recession, or other prolonged downturns in the global economy or our markets could have material adverse effects on our business, financial condition, cash flows, results of operations and stock price.

Current wording

With sales in approximately 150 countries, we compete across a wide range of geographies and end markets. Economic and industry factors that have had, or could in the future have, a material impact on our businesses and demand for our products and services include: (i) the overall strength of, and our customers’ confidence in, local and global macroeconomic conditions; (ii) inflation and related monetary policy actions by governments in response, (iii) overall strength of industrial, governmental, public and private sector spending; (iv) overall strength of the industrial, residential and commercial real estate markets; (v) federal, state, local and municipal governments’ environmental, energy efficiency, fiscal, trade and procurement laws, regulations and policies, including as respects domestic content; (vi) the availability of commercial financing for our customers and end-users; and (vii) the degree of funding for our public sector customers, including for water infrastructure investments. The aforementioned factors and other macroeconomic impacts, including actual or potential economic slowdowns, recession or other prolonged downturns in the global economy or our markets, supply chain dynamics and shortages, tight labor markets, inflation, and significant government debt and deficit levels, have had and may in the future have, a material adverse effect on demand for our products and solutions and therefore our business, financial condition, cash flows, results of operations and stock price.

Previous wording

Our business may be materially adversely affected by geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales, supply chain and operations.

Current wording

Geopolitical, regulatory, economic, foreign exchange and other risks associated with our global sales, supply chain and operations may adversely affect our business.

Previous wording

In 2023, 54% of our total revenue was from sales to U.S. customers and 46% was from sales to customers outside the U.S. We expect our sales from international operations and export sales to continue to be a significant portion of our revenue. Many of our manufacturing operations, employees, suppliers and distribution channels are located outside of the U.S. Our operations, supply chain and sales both within the U.S. and internationally are subject, in varying degrees, to risks and uncertainties inherent in doing business globally, including:

Current wording

In 2024, 57% of our total revenue was from sales to U.S. customers and 43% was from sales to customers outside the U.S. We expect our revenue profile to be similar moving forward. Many of our manufacturing operations, employees, suppliers and distribution channels are located outside of the U.S. Our operations, supply chain and sales both within the U.S. and internationally are subject, in varying degrees, to risks and uncertainties inherent in doing business globally, including:

Previous wording

•economic nationalism, populism, protectionism, anti-global sentiment and changes in trade protection measures, including embargoes, tariffs and other trade barriers, import and export regulations, licensing requirements, and new and existing domestic content requirements for projects receiving governmental funding;

Current wording

•nationalism, populism, protectionism, anti-global sentiment and changes in trade protection measures, including the imposition of increased or new embargoes, tariffs and other trade barriers, import and export regulations or restrictions, licensing requirements, domestic content requirements, and governments’ countermeasures in response;

Previous wording

•instability of and impacts from the evolving global geopolitical environment, including concerning the relationships among the U.S., European Union, Middle East, Russia, China, Taiwan, or other foreign countries, and the international community at large;

Current wording

•uncertainty, volatility and impacts from the evolving global geopolitical environment involving the U.S. federal government and other countries’ governments, including the relationships among the U.S., European Union, Middle East, Russia, China, Taiwan, or other foreign countries, and the international community at large;

Previous wording

•threat, outbreak, uncertainty or escalation of terrorism, political instability, insurrection, war or other armed conflict, including between Russia and Ukraine and the Middle East, and the potential for regional escalation;

Current wording

•threat, outbreak, uncertainty or escalation of terrorism, political instability, insurrection, war, other armed conflict, including between Russia and Ukraine, and in the Middle East, with the potential for regional escalation, and other global safety and security concerns;

Previous wording

•changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies, as well as changes in other laws and regulations or how such provisions are interpreted or administered;

Current wording

•changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental authorities of tax laws and policies, as well as changes in other laws, regulations and policies or how they are interpreted or administered;

Previous wording

•disruptions in global or regional supply chains, our operations, or those of third parties upon which we rely, including due to labor disruptions, supply shortages, and freight and logistics challenges;

Current wording

•disruptions in global or regional supply chains, our operations, or those of third parties upon which we rely, including due to labor disruptions, supply shortages, increased or new tariffs and freight and logistics challenges;

Previous wording

•unanticipated regulatory changes or unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy;

Current wording

•unanticipated regulatory changes or unfavorable circumstances arising from U.S. or host country laws, regulations or policies, including those related to water quality, the environment and energy efficiency, infrastructure and data transmission, security, privacy, and artificial intelligence;

Previous wording

•theft, compromise or misappropriation of our technology, intellectual property or data;

Current wording

•theft, compromise, misappropriation or challenges in protecting our technology, intellectual property or data; and

Previous wording

In the year ended December 31, 2023, 16% of our total revenues were generated in emerging markets and we have placed a particular emphasis in our strategy on increasing our growth and presence in emerging markets, including China, India, and key markets in Africa, Middle East and Southeast Asia. Beyond the general risks that we face outside the U.S., our operations in emerging markets are subject to additional risks and uncertainties, including: (i) governments may impose or increase withholding or other taxes on remittances and other payments to us; (ii) governments may seek to nationalize our assets; (iii) governments may impose or increase investment barriers or other restrictions affecting our business; (iv) difficulty in enforcing commercial agreements or collecting receivables; (v) challenges protecting our intellectual property and other assets; (vi) pricing pressure on our products and services; (viii) higher business conduct risks; and (ix) challenges in our ability to attract and retain qualified talent and labor. We cannot predict the impact that such factors might have on our business, financial condition, cash flows, results of operations and stock price.

Current wording

Beyond the risks indicated above, our operations in emerging markets are subject to additional risks and uncertainties, including: (i) governments may impose or increase withholding or other taxes on remittances and other payments to us; (ii) governments may seek to nationalize our assets; (iii) governments may impose or increase investment barriers or other restrictions affecting our business; (iv) difficulty in enforcing commercial agreements or collecting receivables; (v) pricing pressure on our products and services; (vi) elevated business conduct risks; and (vii) challenges in our ability to attract and retain qualified talent and labor. We cannot predict the impact that such factors might have on our business, financial condition, cash flows, results of operations and share price.

Previous wording

We have significant sales, operations and direct or indirect suppliers located in China, which have been in the past, or could in the future be, adversely affected by: i) China’s evolving laws, regulations and policies, including as respects public health crises, import and export tariffs and restrictions, and information security and privacy, and ii) changes in the political and geopolitical environment involving China, including U.S.-China or China-Taiwan relations. The U.S.’s imposition of tariffs on goods imported from China or deemed to be of Chinese origin, as well as the potential for new tariffs, other governmental actions, trade embargoes or sanctions by the U.S., or countermeasures imposed by China in response, has in the past and could in the future have an adverse direct or indirect impact our global supply chain, manufacturing costs, business and operating results. Geopolitical changes in China-Taiwan relations could disrupt the operations of several companies in Taiwan that are critical to our complex global supply chain for semiconductors (“chips”) and other electronic components. Such changes could have significant negative effects on the global semiconductor industry and could adversely affect our ability to manufacture our digitally-enabled products, such as pumps, controllers and smart meters.

Current wording

We have significant operations and direct and indirect suppliers located in China, which have been in the past, or could in the future be, adversely affected by: i) China’s evolving laws, regulations and policies, including as respects public health crises, import and export tariffs and restrictions, and information security and privacy, and ii) changes in the political and geopolitical environment, including China's relations with the U.S., European Union and Taiwan. The U.S.’s imposition of tariffs on goods imported from China or deemed to be of Chinese origin, as well as the potential for new or increased tariffs, other governmental actions, trade embargoes or sanctions by the U.S., or similar measures or countermeasures imposed by China in response, has in the past and could in the future have an adverse direct or indirect impact our global supply chain, manufacturing costs, business and operating results. Geopolitical changes in China-Taiwan relations could disrupt the operations of several companies in Taiwan that are critical to the global supply chain for semiconductors (“chips”) and other electronic components. Such changes could have significant negative effects on the global semiconductor industry and could adversely affect our ability to manufacture our digitally-enabled products, such as pumps, controllers and smart meters.

Previous wording

Inflation, tariffs, customs duties and other increases in manufacturing and operating costs have, and could continue to, adversely affect our cash flows and results of operations.

Current wording

Inflation, tariffs, customs duties and other increases or fluctuations in manufacturing and operating costs have, and could continue to, adversely affect our cash flows and results of operations.

Previous wording

Our operating costs are subject to fluctuations, particularly due to volatility or changes in prices for commodities, parts, raw materials, energy and related utilities, freight and logistics, and the cost of labor., Price volatility and changes have been and may continue to be driven by a variety of factors, such as inflation, tight labor markets, prevailing price levels, exchange rates, changes in trade agreements, tariffs and other trade protection measures, and other economic factors. Throughout 2023 our operating costs were adversely impacted by price inflation, including the cost of certain raw materials, components, energy, commodities, freight and logistics, which could continue in 2024 to varying degrees depending, in part, on broader macroeconomic or geopolitical conditions. For example, we have significant manufacturing operations in Europe, which could be adversely impacted by increased energy costs related to an actual or potential escalation in the ongoing Russia-Ukraine conflict. Our global supply chain includes shipping routes through the Red Sea, where vessels have been and may continue to be impacted by armed conflicts involving rebel groups; and continued conflicts or escalation of conflict in the Middle East could adversely impact our logistics costs and could also result in an increase in our costs for energy and supplies, and potentially delay shipments to customers. Additionally, the U.S. has enacted various trade actions, including imposing tariffs on certain goods we import from China and other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S., or further retaliatory trade measures taken by China or other countries, could increase the cost of our products. We may not be able to offset increases in our manufacturing costs through price increases or productivity. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method. Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected.

Current wording

Our manufacturing and operating costs are subject to fluctuations, particularly due to volatility or changes in prices for commodities, parts, raw materials, energy and related utilities, freight and logistics, and the cost of labor. Cost fluctuations have been and may continue to be driven by a variety of factors, such as inflation, tight labor markets, prevailing price levels, exchange rates, changes in trade agreements, tariffs and other trade protection measures, and other economic and geopolitical factors. Throughout 2024, our operating costs were adversely impacted by price inflation, which could continue in 2025 to varying degrees depending, in part, on broader macroeconomic, political or geopolitical conditions. For example, our global supply chain includes shipping routes through the Red Sea, where vessels have been and may continue to be impacted by armed conflicts involving rebel groups; and continued conflicts or escalation of ongoing conflicts in Ukraine or the Middle East could adversely impact our logistics costs and result in an increase in our costs for energy and supplies, and potentially delay shipments to customers. We have a large and complex network of suppliers (and their suppliers) and contract manufacturers globally, including in China and Mexico. The U.S. has enacted or threatened various trade actions, including new or additional tariffs on certain goods we import from China, Mexico, Canada and other countries, which has or may result in retaliatory tariffs and other trade actions. As a result, these U.S. trade measures or countermeasures by China, Mexico or other countries could increase the cost of our products, which we may not be able to offset through price increases or productivity, and could also impede our ability to remain competitive. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method. Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected.

Previous wording

Failure to compete successfully in our markets, including our ability to develop and commercialize innovative and disruptive technologies, could adversely affect our business.

Current wording

We may be unable to compete successfully in our markets or develop and commercialize innovative and disruptive solutions and technologies.

Previous wording

We offer our technologies, products and services in highly competitive markets. We believe the principal points of competition are product and service performance, quality and reliability, innovation, speed to market with new or disruptive technologies and business models, application expertise, brand reputation, energy efficiency, product security, product life cycle cost, timeliness of delivery, proximity of our service centers to customers, effectiveness of our distribution channels, price and customers’ experience in doing business with us. Maintaining and improving our competitive position will require successful management of these factors in a business environment with increasingly rapid rates of change and disruption.

Current wording

We offer our technologies, products and services in highly competitive markets. We believe the principal points of competition are performance, quality and reliability, price, life cycle cost, security, speed of development and commercialization of new technologies, processes and business models, brand reputation, application expertise, energy efficiency, timeliness of delivery, proximity of our service centers to customers, effectiveness of our distribution channels, and customers’ experience in doing business with us directly or through our channel partners. Maintaining and improving our competitive position will require successful management of these factors in a volatile business environment with increasingly rapid rates of change and disruption.

Previous wording

Our competitive position and future growth depend upon a number of factors, including our ability to successfully: (i) innovate, develop, bring to market and maintain competitive, compelling, secure and efficient technologies, products and services, business models and customer experience, to address emerging regulations and trends and meet customers’ needs (including those related to digitization of water, social, environmental and sustainability matters), (ii) defend our market share against an ever-expanding number of competitors, many of which are new and non-traditional from outside our industry, such as large technology firms, or those in the emerging markets, (iii) enhance our product and service offerings by adding innovative features, increased efficiency or disruptive or emerging technologies, such as artificial intelligence, that differentiate them from those of our competitors and prevent commoditization, (iv) continue to invest in, cultivate, develop and maintain our distribution network of channel partners, (v) attract, develop and retain individuals with the requisite innovation, digital and technical capabilities, expertise and understanding of customers’ needs to develop and commercialize new technologies, products and services, (vi) continue to leverage and expand our external ecosystem of innovation partners with joint venture partners, universities, venture capital, the start-up of community and other technology firms, (vii) continue to invest in our manufacturing, research and development, engineering, sales and marketing, and digitization of customer service and support tools, (viii) win large contracts and execute them on schedule and on budget, (ix) optimize our supply chain and manufacturing to enable predictable and efficient delivery to customers, and (x) compete for business subject to applicable governmental procurement laws, regulations and policies, including new and existing sustainability and domestic content requirements in the U.S. and globally, as they may evolve over time.

Current wording

Our competitive position and future growth depend upon a number of factors, including our ability to successfully: (i) enhance and differentiate our product and service offerings, business models and customer experience by increasing efficiency or security, or adding innovative features or disruptive or emerging technologies, such as artificial intelligence, that address emerging regulations and trends, meet customers’ needs, and prevent commoditization, (ii) defend our market share against an ever-expanding number of competitors, including new or non-traditional competitors from outside our industry, such as large technology firms,(iii) continue to invest in and maintain our distribution network of channel partners, (iv) attract, develop, retain and train individuals with the requisite innovation, digital and technical capabilities, expertise and understanding of customers’ needs to develop, commercialize and sell new technologies, products, services and solutions, (v) continue to leverage and expand our external ecosystem of innovation partners with joint venture partners, universities, venture capital, the start-up community and other technology innovators, (vi) continue to invest in our manufacturing, research and development, engineering, sales and marketing, modernization of our systems, and digitization of customer solutions, service and support tools, (vii) win and execute large contracts on schedule and on budget, and (viii) optimize our supply chain and manufacturing to enable predictable and efficient delivery to customers, and compete for business subject to governmental procurement laws, regulations and policies, including sustainability and domestic content requirements in the U.S. and globally, as they may evolve over time. Additional challenges we face include that customers may be slow to adopt our new and innovative solutions and technologies. Pricing pressures, including as a result of new or additional tariffs on our products or goods used in the manufacture of our products, and/or the impact of disruptive or emerging technologies, such as artificial intelligence, and our efforts to optimize our productivity may require that we adjust the prices of certain products, services, solutions or projects or rationalize certain of our offerings to stay competitive or win large contracts.

Previous wording

We may not be successful in maintaining our competitive position, which could adversely affect our business, financial condition, cash flows or results of operations. The failure of our technologies, products or services to maintain and gain market acceptance due to more attractive offerings, the failure of our products to comply with governmental regulations or policies, or customers’ slower-than-expected adoption of and investment in our new and innovative technologies could significantly reduce our revenues or market share and adversely affect our competitive position. Pricing pressures could cause us to adjust the prices of certain products, services or projects to stay competitive, or we may not be able to continue to win large contracts, which could adversely affect our market share and competitive position.

Current wording

As a result of the foregoing, we may not be successful in maintaining our competitive position and market share, which could adversely affect our business, financial condition, cash flows or results of operations.

Previous wording

Cybersecurity incidents and related data breaches or other disruptions to our enterprise information technology and operations, or to our connected products and services, including those of third parties on which we or our customers rely, could materially and adversely affect our business.

Current wording

Cybersecurity incidents and related data breaches or other disruptions involving our enterprise information technology and operations, our connected products and services, or information technology on which we or our customers rely, could materially and adversely affect our business.

Previous wording

Our enterprise consists of our businesses, functions, operations, manufacturing and employees. We rely on information technology, including operational technology, and communications networks to run our manufacturing processes and equipment, to enable business processes, and to process, transmit, store and manage our electronic information, including confidential business information and data relating to employees, customers or other business partners. We also rely on key third parties, including: i) direct and indirect suppliers, ii) strategic joint venture partners that provide certain aspects of our digital services and offerings, iii) contract manufacturers, iv) cloud-based service providers, and v) outsourced business process providers, including in the areas of Information Technology, Finance, Human Resources, Procurement and Travel. Together, we depend on information technology infrastructure and communication networks for access to reliable and secure networks in order to run our and their businesses. Regardless of protection measures, all information technology and communications networks are inherently susceptible to damage or disruption due to causes such as: equipment, system or application failure, including as a result of maintenance, obsolescence, unsupportability or age; human error or malfeasance; vandalism; natural disaster; fire; power, communication or other utility outage or failure; and cybersecurity incidents, including ransomware, denial-of-service, malware, phishing, and computer viruses. In addition to damage or disruption, these cybersecurity incidents may lead to security and data breaches.

Current wording

We rely on information technology, including operational technology, and communications networks to run our manufacturing processes and equipment, to enable business processes and employee productivity, and to process, transmit, store and manage our electronic information, including confidential business information and data relating to employees, customers or other business partners. We also rely on key third parties, such as direct and indirect suppliers, contract manufacturers, cloud-based service providers, and outsourced business process providers, including in the areas of Information Technology, Finance, Human Resources, Procurement and Travel. Together, we depend on information technology infrastructure and communication networks for access to reliable and secure networks in order to run our and their businesses. Regardless of the protection measures we, or the third parties we rely on, have implemented, information technology and communications networks may be susceptible to damage or disruption due to causes such as: equipment, system or application failure, including as a result of maintenance, obsolescence, unsupportability or age; human error or malfeasance; vandalism; natural disaster; fire; power, communication or other utility outage or failure; and cybersecurity incidents, including ransomware, denial-of-service, vendor e-mail compromise, deepfake attacks, malware, phishing, and computer viruses resulting from a wide ranging threat landscape, including attacks by nation states and others. In addition to damage or disruption, these cybersecurity incidents may lead to security and data breaches.

Previous wording

We provide certain digitally-enabled or internet-connected products, such as pumps, controllers, meters and other equipment, and services, such as Water One® and other remote monitoring capabilities, condition assessment, and an interoperability platform via a strategic joint venture partner. These products and services are used by us and our customers for operational purposes or to collect data. Our connected products and services are inherently susceptible to damage or disruption from a myriad of causes as described above, including cybersecurity incidents. Cybersecurity incidents may impact hardware, software and information installed, stored or transmitted by our products and services after they have been purchased and incorporated into customers’ and other third parties’ products, facilities, systems or infrastructure, including critical infrastructure applications. While we attempt to provide our customers with measures to safeguard our products and services from cybersecurity threats, the potential for a cybersecurity incident remains. In addition, certain of our customers continue to use digitally enabled products that we designed, manufactured and sold at a time when current security features were not available.

Current wording

We provide certain digitally enabled or internet-connected products, such as pumps, controllers, meters and other equipment, digital (or intelligent) solutions, and other remote monitoring and condition assessment capabilities, and an interoperability platform via Idrica, our strategic joint venture partner. These products and services are used by us and our customers for operational purposes or to collect data. Our connected products and services may be susceptible to damage or disruption from a myriad of causes as described above. Cybersecurity incidents may impact hardware, software and information installed, stored or transmitted by our products and services after they have been purchased and incorporated into customers’ and other third parties’ products, facilities, systems or infrastructure, including critical infrastructure applications. While we attempt to provide our customers with reasonable measures to safeguard our products and services from cybersecurity threats, the potential for a cybersecurity incident remains. In addition, certain of our customers continue to use digitally enabled products that we designed, manufactured and sold at a time when current security features were not available.

Previous wording

A cybersecurity Incident or other damage or disruption to information technology and communications networks or involving our connected products and services may have adverse effects on us, our customers or third parties on which we rely, including: interference with operations and services, potentially with public health and safety risks involving certain of our customers; disruption of production, supply chain, shipments, billing, collections and customer service; disruption to data analytics; disruption to remote monitoring and control of operational systems; unauthorized access, disclosure, misappropriation, misuse, destruction, compromise or theft of our financial, operational or other proprietary information, including intellectual property and trade secrets, or data pertaining to our employees, customers or suppliers; damage to employee, customer and business partner relationships; recall of our products; legal claims, proceedings or regulatory enforcement actions, and fines or penalties; increased costs to prevent, respond to or mitigate cybersecurity incidents; and damage our brands and reputation. Moreover, a delay in or failure to detect a cybersecurity incident or the full extent of an incident could exacerbate the effects of the incident. As such, any of the foregoing could have a material adverse effect on our reputation, competitive position, results of operations, cash flows or financial condition.

Current wording

A cybersecurity incident or other damage or disruption to information technology and communications networks, or involving our connected products and services, may have adverse effects on us, our customers or third parties on which we rely, including: interference with operations and services, potentially with public health and safety risks involving certain of our customers; disruption of production, supply chain, shipments, billing, collections and customer service; disruption to data analytics; disruption to remote monitoring and control of operational systems; unauthorized access, disclosure, misappropriation, misuse, destruction, compromise or theft of our financial, operational or other proprietary information, including intellectual property and trade secrets, or data pertaining to our employees, customers or suppliers; damage to employee, customer and business partner relationships; recall of our products; legal claims, proceedings or regulatory enforcement actions, and fines or penalties; increased costs to prevent, respond to or mitigate cybersecurity incidents; and damage to our brands and reputation. Moreover, a delay in or failure to detect a cybersecurity incident or the full extent of an incident could exacerbate the effects of the incident.

Previous wording

To mitigate reliability and cybersecurity risks related to our enterprise and connected products and services, we maintain relevant policies, standards, procedures and technologies that are applicable to all Xylem employees and contractors, including: patching; passwords; network and data access, including requirements and rights; business continuity and disaster recovery; monitoring for external and insider risks; obsolescence or end-of-life of operating technologies or applications’ operating systems; IT general computing controls; secure software development. We are also operationalizing our strategy to establish segmentation between our information technology and operational technology. As implementation and compliance is the responsibility of employees across the enterprise, we cannot guarantee adherence in all instances with our policies, standards and procedures, or that our technologies will be sufficient to fully mitigate the aforementioned or evolving risks.

Current wording

To mitigate reliability and cybersecurity risks related to our enterprise and connected products and services, we maintain relevant policies, standards, procedures and technologies that are applicable to all Xylem employees and contractors, including: patching; passwords; network and data access, including requirements and rights; business continuity and disaster recovery plans; monitoring for external and insider risks; obsolescence or end-of-life of operating technologies or applications’ operating systems; IT general computing controls; and secure software development. We are also operationalizing our strategy to establish segmentation between our information technology and operational technology. As implementation and compliance is the responsibility of employees across the enterprise, we cannot guarantee adherence in all instances with our policies, standards and procedures, or that our technologies will be sufficient to fully mitigate the aforementioned or evolving risks.

Previous wording

We, and some third parties upon which we rely, have in the past experienced cybersecurity incidents or other attempts to gain unauthorized access to our information technology and connected products and services. As technology evolves, we may continue to experience such events, likely with more frequency and involving a broader range of devices and more sophisticated modes of attack. To date, none have resulted in any material adverse impact to or theft, misuse or loss of information of our business, operations, products and services, or customers.

Current wording

We, and some third parties upon which we rely, have in the past experienced cybersecurity incidents or other attempts to gain unauthorized access to our information technology and connected products and services. As technology, including the use of artificial intelligence, and the threat landscape evolve, we may continue to experience such events, likely with more frequency and involving a broader range of devices and more sophisticated modes of attack. To date, none have resulted in any material adverse impact to or theft, misuse or loss of information of our business, operations, products and services, or customers.

Previous wording

We have implemented processes, procedures and technologies designed to detect and respond to cybersecurity incidents and mitigate potential risks associated with cybersecurity threats and incidents involving our information technology, products and services. However, because the timing, nature and modes of cybersecurity attacks and incidents change frequently, evolve and are unpredictable, and because unauthorized accesses may be difficult to detect for long periods of time, we may be unable to anticipate these intrusions or implement adequate protective or remedial measures.

Current wording

Although we maintain a cybersecurity program that we believe is reasonably designed to protect our information technology, products and services, because the timing, nature and modes of cybersecurity attacks and incidents change frequently, evolve and are unpredictable, and because unauthorized accesses may be difficult to detect for long periods of time, we may be unable to anticipate or prevent these intrusions or implement adequate protective or remedial measures.

Previous wording

While we maintain insurance coverage designed to address certain aspects of business interruption and cybersecurity risks, it may not be sufficient to cover all losses or all types of claims. Although we continue to assess the aforementioned risks, implement policies, processes, standards, measures, technologies and redundancies to mitigate these risks and perform business continuity and disaster recovery planning, we cannot be sure that cybersecurity incidents or other disruptions with material adverse effects will not occur, or that our business continuity and disaster recovery efforts will be effective and adequate.

Current wording

While we maintain insurance coverage designed to address certain aspects of business interruption and cybersecurity risks, it may not be sufficient to cover all losses or all types of claims. Although we continue to assess the aforementioned risks, implement policies, processes, standards, measures, technologies and redundancies to mitigate these risks and perform business continuity and disaster recovery planning, we cannot be sure that cybersecurity incidents or other disruptions with material adverse effects will not occur, or that our business continuity and disaster recovery efforts will be effective and adequate. As such, any of the foregoing could have a material adverse effect on our reputation, competitive position, results of operations, cash flows or financial condition.

Previous wording

Our business relies on a large and complex network of suppliers (and their suppliers), including contract manufacturers and subcontractors to perform manufacturing and customer-related services for us, as well as commodity markets and freight and logistics providers to secure and ship finished goods and raw materials, parts, electronic components and other components used in our products. We expect that our reliance on, and the complexity of, the supply chain and contract manufacturers and subcontractors will continue to be significant and, in some cases, increase.

Current wording

Our business relies on a large and complex network of suppliers (and their suppliers), contract manufacturers and subcontractors that perform manufacturing and customer-related services for us, commodity markets, and freight and logistics providers to secure and ship finished goods and raw materials, parts, and electronic and other components used in our products. Some of our key components are available only from a sole- or single-source supplier or a limited group of suppliers. We expect that our reliance on, and the complexity of, the aforementioned supply chain will continue to be significant and, in some cases, increase.

Previous wording

Parts and raw materials commonly used in our products include motors, fabricated parts, castings, magnets, bearings, seals, batteries, PCBs and electronic components, including semiconductors, as well as commodities, including steel, brass, nickel, copper, aluminum and plastics. We are exposed to the availability of these items, which throughout 2023 have been and may in the future be subject to delay, curtailment or change due to, among other things, macroeconomic factors including: supply and demand dynamics; labor shortages or disputes; changes in the strategy or production planning of suppliers including decisions to exit production of key components upon which we rely; interruptions in suppliers' production, including as a result of fire or natural disaster; the impaired financial condition of a particular supplier; suppliers’ capacity allocations to other purchasers; changes in trade agreements and trade protection measures including tariffs, exchange rates and prevailing price levels; ability to meet regulatory requirements; weather emergencies and the effects of climate change; public health crises; and threatened or actual terrorism, armed conflict or war, including the ongoing conflicts between Russia and Ukraine, in the Middle East, and rebel attacks on commercial vessels in the Red Sea. Any threatened or actual escalation of the aforementioned conflicts and related impacts, such as disruption to or increased cost of energy supply or logistics, could delay or interrupt our supplies from suppliers. We have also experienced, and continue to experience, fluctuating freight and logistics costs, delivery delays related to port congestion and other logistics-related challenges. Although we have insurance related to business continuity and supply chain, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any or all aspects of supply chain disruptions.

Current wording

Parts, components and raw materials commonly used in our products include motors, fabricated parts, castings, magnets, bearings, seals, batteries, PCBs and electronic components, including semiconductors, as well as commodities, including steel, brass, nickel, copper, aluminum, rare earth minerals and plastics. We are exposed to the availability of these items, which has in the past and may in the future be subject to delay, shortage, curtailment or change due to macroeconomic, geopolitical and other factors, including: supply and demand dynamics; labor shortages or disputes; changes in suppliers’ strategy or production planning including decisions to exit production of key components upon which we rely; interruptions in suppliers' production, including as a result of humanmade or natural disasters; a supplier’s impaired financial condition; suppliers’ capacity allocations to other purchasers; changes in trade agreements and trade protection measures including tariffs or export restrictions; ability to meet regulatory requirements; weather emergencies and the effects of climate change; public health crises; and threatened or actual terrorism, armed conflict or war, including the ongoing conflicts between Russia and Ukraine, in the Middle East, and rebel attacks on commercial vessels in the Red Sea. Any threatened or actual escalation of the aforementioned conditions and related impacts may disrupt supply, increase the cost of energy or logistics, or delay or interrupt our supplies from suppliers. We have also experienced, and continue to experience, fluctuating freight and logistics costs, and delivery delays related to port congestion, labor actions and other challenges. If disruptions in our supplies occur (including in the rare earths or global semiconductor industries or other key inputs), or if our efforts to mitigate these shortages and disruptions are insufficient or unsuccessful, we may be delayed or unable to execute on our backlog, fill new customer orders or timely deliver products to our customers, which could have a material adverse effect on our business, financial condition or results of operations. Although we have insurance related to business continuity and supply chain, we cannot be certain that this coverage will continue to be available at a reasonable cost or will be adequate to cover any or all aspects of our supply chain disruptions.

Previous wording

Our facilities, operations and business rely on a complex and highly reactive global supply chain, including suppliers (and their suppliers), some of which are a single- or sole-source, distributors, contract manufacturers, subcontractors, joint venture partners, utilities providers, and freight and logistics providers. In addition, we outsource to vendors certain critical business processes and activities, including in the areas of Finance, Human Resources, Procurement, Travel and Information Technology. Certain of our businesses require that we or our subcontractors have access to customer sites to provide our products and services. Our facilities and operations and certain customers, contract manufacturers, subcontractors or other third parties on which we rely, have experienced, and may in the future experience, disruptions or delays resulting from an actual or threatened event or circumstance, including due to: a significant equipment, technological or system failure; natural disaster; weather event or effects of climate change; power or energy curtailment or outage; water or communications outage; fire; explosion; critical supply chain failure; terrorism; cybersecurity attack; political disruption; outbreak of a pandemic or other public health crisis; insurrection; armed conflict or war, including the ongoing conflicts involving Russia and Ukraine, the Middle East, and rebel attacks on vessels in the Red Sea; labor dispute, stoppage or slowdown; technology failure; lack of financial viability or other reason. In addition, our facilities or those of third parties upon which we rely operate in certain circumstances with equipment and manufacturing technology that may be unique and difficult to replace or involve long lead times for replacement. A significant disruption to any of our facilities or operations, or that of customers or third parties on which we rely, could cause material adverse impacts on our operations and business, including an inability to meet customer demand or contractual commitments, increased costs and reduced sales, and could also impact our business processes and activities, including our ability to timely report financial results. Any interruption may be lengthy, have lasting effects, require a significant amount of management and other employees' time and focus, and require us to make substantial expenditures to mitigate the situation, which could negatively affect our operations, business processes and activities, profitability, financial condition and reputation. Any recovery under our insurance policies may not offset the lost sales, increased costs, or longer term loss of suppliers, sales or customers that we may experience as a result of a disruption. Although we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot guarantee that interruptions with material adverse effects on our operational and financial performance will not occur.

Current wording

Our operations and businesses rely on our facilities and a complex and highly reactive global supply chain, including suppliers (and their suppliers), some of which are a single- or sole-source, distributors, contract manufacturers, subcontractors, joint venture partners, utilities providers, and freight and logistics providers. In addition, we outsource certain critical business processes and activities, including in the areas of Finance, Human Resources, Procurement, Travel and Information Technology. Certain of our businesses require that we or our subcontractors have access to customer sites to provide our products and services. Our facilities, operations, customers, contract manufacturers, subcontractors or other third parties on which we rely, have experienced, or may in the future experience, disruptions or delays resulting from an actual or threatened event or circumstance, including due to: equipment, technological or system failure; natural disaster; weather event or effects of climate change; water, communications, power or energy curtailment or outage; fire; explosion; critical supply chain failure; terrorism; cybersecurity incident; political disruption; outbreak of a pandemic or other public health crisis; insurrection; armed conflict or war, including the ongoing conflicts involving Russia and Ukraine, the Middle East, and rebel attacks on vessels in the Red Sea; labor dispute, stoppage or slowdown; lack of financial viability or other reason. In addition, our facilities or those of third parties upon which we rely operate certain equipment and manufacturing technology that may be unique and difficult to replace or involve long lead times for replacement. A significant disruption to any of our facilities or operations, or that of customers or third parties on which we rely, could cause material adverse impacts on our operations and business, including an inability to meet customer demand or contractual commitments, increased costs, and reduced market share or sales, and could also impact our business processes and activities, including our ability to timely report financial results. Any interruption may be lengthy, have lasting effects, require a significant amount of management and other employees' time and focus, and require substantial expenditures to mitigate the situation, which could negatively affect our operations, business processes and activities, profitability, financial condition and reputation. Any recovery under our insurance policies may not fully offset the lost sales, increased costs, or longer-term loss of suppliers or customers that we may experience as a result of a disruption. Although we continue to assess these risks, implement mitigation plans and perform business continuity and disaster recovery planning, we cannot guarantee that interruptions with material adverse effects on our operational and financial performance will not occur.

Previous wording

On May 24, 2023, we completed the acquisition of Evoqua. The success of this acquisition will depend, in part, on our ability to realize the anticipated benefits from combining our and Evoqua’s businesses. We have and continue to devote substantial management attention and resources to the integration of the combined company’s business practices and operations so that we can fully realize the anticipated benefits of the acquisition, including cost and revenue synergies. Nonetheless, difficulties may arise during the integration process that could result in the failure to achieve the anticipated cost or revenue synergies, including: loss of key talent that may be difficult to replace; disruption of the combined company’s ongoing business; inconsistencies in each company’s standards, controls, procedures and policies; and our ability to maintain and expand relationships with customers, partners, suppliers or creditors. As a result, the anticipated benefits of the acquisition may not be realized fully within the expected timeframe or at all, may take longer to realize, or may cost more than expected, which could materially and adversely affect our business, results of operations or financial condition, as well as adversely impact the stock price of the combined company.

Current wording

On May 24, 2023, we completed the acquisition of Evoqua. The success of this acquisition will depend, in part, on our ability to realize the anticipated benefits from combining our and Evoqua’s businesses. We have and continue to devote substantial management attention and resources to the integration of the combined company’s business practices and operations so that we can fully realize the anticipated benefits of the acquisition, including cost and revenue synergies. Nonetheless, difficulties may arise that could impede our ability to achieve the anticipated synergies, including the loss of key talent that may be difficult to replace or our ability to maintain and expand relationships with customers, partners or suppliers. As a result, the anticipated benefits of the acquisition may take longer to realize, may not be fully realized, or may cost more than expected, which could materially and adversely affect our business, results of operations or financial condition, as well as adversely impact our share price.

Previous wording

Water and wastewater treatment involve various unique risks and require compliance with a variety of laws or regulations, including the Clean Water Act and the Safe Drinking Water Act. If our treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby bodies of water and groundwater, causing various liabilities, damages and injuries, including environmental. In addition, a number of emerging contaminants might be found in water that we treat, including PFAS, PFOA, selenium, micro-plastics, chemicals or pathogens, that may cause illness or death if not eliminated during the treatment process,. Liabilities resulting from such events, damages and injuries could materially adversely affect our business, financial condition, results of operations or prospects. Changes in environmental requirements, laws and regulations, or increased public awareness around the presence and health impacts of human-made chemicals and naturally occurring contaminants in drinking water, could increase or decrease demand for our products and services, increase our cost of operations, result in the obsolescence of our products, or lead to an interruption of suspension of our operations.

Current wording

Our water and wastewater treatment offerings involve unique risks and require compliance with a variety of laws or regulations, including the Clean Water Act and the Safe Drinking Water Act. If our treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby bodies of water and groundwater, causing various liabilities, damages and injuries, including environmental. In addition, a number of emerging contaminants might be found in water that we treat, including PFAS, PFOA, selenium, micro-plastics, chemicals or pathogens, that may cause illness or death if not eliminated during the treatment process, and result in liabilities and damages against us. Changes in environmental requirements, laws and regulations, or increased public awareness around the presence and health impacts of human-made chemicals and naturally occurring contaminants in drinking water, could increase or decrease demand for our products and services, increase our costs, result in the obsolescence of our products, or lead to an interruption of suspension of our operations.

Previous wording

Furthermore, certain of our business activities, such as those of our historical Integrated Solutions and Services segment and new Water Solutions and Services segment , include manufacturing and waste recycling and treatment processes that currently involve the use, treatment, storage, transfer, handling and/or disposal of non-hazardous and hazardous materials, chemicals and wastes, which are subject to applicable federal, state, and local laws and regulations. The cost of compliance with these laws and regulations may become significant, result in increased operating costs or require additional investment in facilities, and therefore could have a material adverse effect on our business, financial condition, results of operations or prospects. These business activities also create a risk of accidental contamination or injury to our employees, customers and other third parties, the general public (as end-users of our industrial and municipal customers’ products and services), and the environment. As such, these activities create a risk of significant legal and environmental liabilities and reputational damage. For example, under applicable environmental laws and regulations, including RCRA and CERCLA, we could be strictly, jointly and severally liable for releases of regulated substances by us at our current or former properties or the properties of others, or by other businesses that previously owned or used our current or former properties. We could also be liable or incur reputational damage if we transport such materials, generate hazardous materials or wastes, or merely arrange for their transportation, disposal, or treatment, and they are subsequently released or cause harm. If our business activities and water and wastewater treatment operations result in legal or environmental claims, damage or liabilities, including those described above, we could incur significant costs, liabilities or reputational damage in connection with legal defense, investigation, remediation of environmental contamination, damage to property or natural resources or personal injuries. Such costs and liabilities could exceed any applicable insurance coverage we may have.

Current wording

Furthermore, our Water Solutions and Services segment engages in business activities including manufacturing, waste recycling and treatment processes that involve the use, treatment, storage, transfer, handling and/or disposal of non-hazardous and hazardous materials, chemicals and wastes, subject to applicable federal, state and local laws and regulations. The cost of compliance with these laws and regulations may increase resulting in increased operating costs or required additional investment in facilities. These business activities also create a risk of accidental contamination or injury to the environment and our employees, customers, other third parties and the general public (as end-users of our industrial and municipal customers’ products and services). In addition, under certain applicable environmental laws and regulations, including the Resource Conservation and Recovery Act ("RCRA") and the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), we could be strictly, jointly and severally liable for releases of regulated substances at our current or former properties or the properties of others, or by other businesses that previously owned or used our current or former properties. We could also be liable or incur reputational damage if we transport such materials, generate hazardous materials or wastes, or merely arrange for their transportation, disposal, or treatment if they are subsequently released or cause harm.

Previous wording

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

Current wording

We may be unable to successfully execute large projects or meet customers’ timelines, budget, performance and safety requirements.

Previous wording

A portion of our revenue is derived from large projects that are technically complex and may occur over multiple years. These projects are subject to a number of significant risks, including project delays, cost overruns, changes in scope, unanticipated site conditions, design and engineering issues, incorrect cost assumptions, increases in the cost of materials and labor, health and safety hazards, subcontractor performance issues, weather issues and changes in laws or permitting requirements. If we are unable to manage these risks, we may incur higher costs, liquidated damages, and other liabilities to our customers, which may decrease our profitability and harm our reputation.

Current wording

A portion of our revenue is derived from large projects that are complex and may occur over multiple years. These projects are subject to a number of risks, including delays; cost overruns; changes in scope; unanticipated site conditions; design and engineering issues; incorrect cost assumptions; increases in the cost of materials and labor; health and safety hazards; subcontractor performance issues; weather issues; and changes in laws, regulations or permitting requirements. If we are unable to manage these risks, we may incur higher costs, liquidated damages, and other liabilities to our customers, which may decrease our profitability and harm our reputation.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Failure to retain our existing leadership, engineering, technology, sales, services and other key talents or the inability to attract new qualified and diverse talent could negatively impact our business.

Current wording

We may be unable to retain our existing leadership, engineering, technology, sales, services and other key talent or attract new qualified talent with diverse backgrounds, experiences and perspectives.

Previous wording

Our success depends to a significant extent on our ability to attract and retain highly qualified and diverse employees in leadership positions, and in strategic or core competencies, including engineering, innovation, digital technologies, commercial excellence, service, and project management, as well as general production-related talent. The market for highly skilled talent, leaders and labor in our industry remains highly competitive. As a result, our success in attracting and retaining employees, particularly in the areas of services, digital technologies, innovation and data science, has depended, and will continue to depend, on our ability to offer attractive career growth opportunities, work arrangements, compensation, and benefits, and also policies and ways of working that support employee well-being. In addition, we continue to evolve our culture, where colleagues are inspired to innovate, empowered to lead and accountable to deliver, and includes advancing diversity, equity and inclusion. These aspects of our culture have been and will remain critical to attracting and retaining talent needed to execute our strategy, while also driving innovation, remaining competitive and creating long-term value. We also need to continue to develop qualified talent to support business growth and robust succession plans, both of which are critical to our long-term success. A failure to attract or retain highly engaged and skilled talent and labor could adversely affect our ability to meet and exceed the needs of our customers, operate and grow our business and execute our strategy.

Current wording

Our success depends to a significant extent on our ability to attract, retain and develop highly qualified employees in leadership positions, and in strategic or core competencies, including engineering, innovation, systems modernization, digital technologies, commercial excellence, service, and project management, as well as general production-related talent. The market for highly skilled talent, leaders and labor with diverse backgrounds, experiences and perspectives remains highly competitive in our industry. As a result, our success in attracting and retaining employees, particularly in the areas of services, digital technologies, innovation and data science, has depended, and will continue to depend, on our ability to offer attractive career growth opportunities, work arrangements, compensation and benefits, and also policies and ways of working that support employee well-being. In addition, we continue to evolve our culture, where colleagues are inspired to innovate, empowered to lead and accountable to deliver, and includes advancing inclusion and belonging. Our high-impact culture has been and will remain critical to attracting and retaining talent needed to execute our strategy, drive innovation, remain competitive and create long-term value. We also need to continue to develop qualified talent to support business growth and robust succession plans, both of which are critical to our long-term success. A failure to attract or retain highly engaged and skilled talent and labor could adversely affect our ability to meet and exceed the needs of our customers, operate and grow our business and execute our strategy.