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(Mark One)

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

 

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

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

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 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 April 25, 2025, there were 243,351,011 outstanding shares of the registrant’s common stock, par value $0.01 per share.

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions)

 

For the three months ended March 31,			2025						2024
Net income			$	167					$	153
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment			56						(65)
Amount of currency translation adjustment relating to divestiture of foreign subsidiaries reclassified into net income			8						—
Net change in derivative hedge agreements:
Unrealized gain (loss)			15						(3)
Amount of loss reclassified into net income			2						1
Net change in post-retirement benefit plans:
Amortization of actuarial (gain) loss into net income			—						—
Foreign currency translation adjustment			(1)						2
Other comprehensive income (loss), before tax			80						(65)
Income tax (benefit) expense related to items of other comprehensive income (loss)			(18)						11
Other comprehensive income (loss), net of tax			98						(76)
Comprehensive income			$	265					$	77
Comprehensive loss attributable to non-controlling interest			2						—
Comprehensive income attributable to Xylem			$	267					$	77

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)

			March 31, 2025						December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents			$	1,059					$	1,121
Receivables, less allowances for discounts, returns and credit losses of $53 and $59 in 2025 and 2024, respectively			1,743						1,668
Inventories			1,022						996
Prepaid and other current assets			260						236
Assets held for sale			—						77
Total current assets			4,084						4,098
Property, plant and equipment, net			1,157						1,152
Goodwill			8,061						7,980
Other intangible assets, net			2,332						2,379
Other non-current assets			925						884
Total assets			$	16,559					$	16,493
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	958					$	1,006
Accrued and other current liabilities			1,167						1,271
Short-term borrowings and current maturities of long-term debt			41						38
Liabilities held for sale			—						21
Total current liabilities			2,166						2,336
Long-term debt			1,974						1,978
Accrued post-retirement benefit obligations			317						304
Deferred income tax liabilities			486						497
Other non-current accrued liabilities			562						496
Total liabilities			5,505						5,611
Commitments and contingencies (Note 18)
Redeemable non-controlling interest			232						235
Stockholders’ equity:
Common stock – par value $0.01 per share:
Authorized 750.0 shares, issued 259.7 shares and 259.2 shares in 2025 and 2024, respectively			3						3
Capital in excess of par value			8,705						8,687
Retained earnings			3,211						3,140
Treasury stock – at cost 16.3 shares and 16.2 shares in 2025 and 2024, respectively			(766)						(753)
Accumulated other comprehensive loss			(337)						(435)
Total stockholders’ equity			10,816						10,642
Non-controlling interests			6						5
Total equity			10,822						10,647
Total liabilities, redeemable non-controlling interest, and stockholders’ equity			$	16,559					$	16,493

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)

For the three months ended March 31,			2025						2024
Operating Activities
Net income			$	169					$	153
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			68						61
Amortization			77						73
Share-based compensation			12						18
Restructuring and asset impairment charges			21						10
Loss from sale of business			10						5
Other, net			11						(2)
Payments for restructuring			(21)						(11)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables			(48)						(47)
Changes in inventories			(9)						(52)
Changes in accounts payable			(64)						6
Other, net			(193)						(125)
Net Cash – Operating activities			33						89
Investing Activities
Capital expenditures			(71)						(74)
Acquisitions of businesses, net of cash acquired			(7)						—
Proceeds from sale of businesses, net of cash disposed			48						11
Proceeds from the sale of property, plant and equipment			5						1
Cash received from investments			—						2
Cash paid for investments			—						(2)
Cash paid for equity investments			(1)						—
Cash received from cross-currency swaps			12						11
Other, net			(1)						—
Net Cash – Investing activities			(15)						(51)
Financing Activities
Short-term debt issued, net			1						—
Long-term debt repaid			(4)						(5)
Repurchase of common stock			(13)						(15)
Proceeds from exercise of employee stock options			6						33
Dividends paid			(98)						(88)
Other, net			(8)						(7)
Net Cash – Financing activities			(116)						(82)
Effect of exchange rate changes on cash			25						(28)
Changes in cash classified within assets held for sale			11						—
Net change in cash and cash equivalents			(62)						(72)
Cash and cash equivalents at beginning of year			1,121						1,019
Cash and cash equivalents at end of period			$	1,059					$	947
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest			$	12					$	13
Income taxes (net of refunds received)			$	37					$	39

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 four segments, Water Infrastructure, Applied Water, Measurement and Control Solutions and Water Solutions and Services. See Note 19, "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.

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 statement 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, 2024 ("2024 Annual Report") in preparing these unaudited condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our 2024 Annual Report. Certain prior year amounts have been reclassified to conform to the current year presentation.

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 condensed consolidated 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, valuation results associated with purchase accounting, post-retirement obligations and assets, revenue recognition, income taxes, valuation of intangible assets, goodwill and indefinite-lived intangible impairment testing and contingent liabilities. 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.

In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2024-03, "Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses". This ASU requires a footnote disclosure to disaggregate each relevant expense caption on the face of the income statement that includes specific natural expense categories. In addition, the standard requires disclosure of selling expenses on an annual and interim basis. The standard is effective in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The standard is required to be adopted prospectively, but retrospective adoption is permitted. The Company is currently evaluating the method of adoption and the impacts of the guidance on our disclosures in future periods.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The ASU is intended to improve income tax disclosure requirements, primarily through additional disclosures about a reporting entity’s effective tax rate reconciliations as well as information on income taxes paid. The standard is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. The amendments are required to be applied on a prospective basis, with the option to apply retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the method of adoption and the impacts of the guidance on our disclosures in future periods.

On January 31, 2025, we acquired Simply Clean Air and Water, Inc. ("Simply Clean"), a water service company that specializes in high-purity water systems for life sciences and pharmaceutical markets, for the net cash acquisition price of $7 million. The company is headquartered in Connecticut, U.S. with 20 employees. Our consolidated financial statements include Simply Clean's results of operations within the Water Solutions and Services segment.

On February 7, 2025, we completed the divestiture of our previously held for sale Evoqua Magneto business, which was part of the Water Infrastructure segment, for a cash selling price of $61 million ($48 million, net of cash transferred). As a result of the sale, we recorded an additional loss of $10 million, presented on the Condensed Consolidated Income Statement within "Loss on sale of businesses" in the current period.

On April 26, 2023, we acquired a 25.1% equity interest in Global Omnium Idrica S.L. (“Idrica”), a global company specializing in digital transformation for the water industry, offering innovative services and technological solutions for comprehensive water cycle management for $51 million. In connection with the transaction, the Company was granted the right to purchase a majority interest in Idrica from the joint venture partner at a fixed price. The investment was accounted for as an equity method investment as the Company had significant influence but did not have control over Idrica.

On December 10, 2024, we acquired an additional 35.9% equity interest in Idrica for $154 million ($150 million, net of cash received) by exercising our call right and now hold an aggregate ownership interest in Idrica of 61.0%. This was accounted for as a step acquisition where the Company has applied the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The fair value of our call right was included within the fair value of previously held equity interest and recognized as part of the consideration transferred and the gain on remeasurement of our call right was also included in the gain on remeasurement of previously held equity interest (as discussed below). The Company recognized assets acquired and liabilities assumed at their fair value as of the date of acquisition, with the excess purchase consideration recorded to goodwill. As the Company finalizes the estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months from the acquisition date).

The total fair value of consideration transferred was $637 million, which includes cash paid to Idrica, the remeasurement to fair value of our previously held equity interest, the fair value of the redeemable non-controlling interest, and the settlement of a preexisting contractual relationship between the Company and Idrica. This relationship related to a distribution agreement that the Company had previously recognized in other non-current assets.

The acquisition-date fair value of the consideration consisted of the following:

The Company remeasured its previously held 25.1% equity interest in Idrica immediately prior to the completion of the acquisition to its estimated fair value of approximately $193 million. This fair value was derived by using the discounted cash flow method of the income approach, which considers future cash flows that are discounted to present value at a rate of return commensurate with the business and financial risks associated with the expected achievement of the projected cash flows. As a result of the remeasurement of its previously held equity interest, the Company recognized a gain of approximately $152 million in the fourth quarter of 2024. The gain reflects the excess of the estimated fair value of $193 million for the Company’s previously held 25.1% equity interest over its carrying value of approximately $41 million.

The following table summarizes the preliminary acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Idrica:

The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. The above fair values of assets acquired and liabilities assumed are preliminary. The fair values of the intangible assets acquired were preliminarily determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount rates, future expected cash flows, and other future events that are judgmental and subject to change. The final determination of the fair value of certain assets and liabilities will be completed as soon as the necessary information becomes available but no later than one year from the acquisition date.

Our revenue and net loss attributable to the Idrica acquisition for the year ended December 31, 2024 and three months ended March 31, 2025 were not material. The $521 million of goodwill recognized, which is not deductible for U.S. income tax purposes, is primarily attributable to costs and revenue synergies and economies of scale expected from combining the operations of Idrica with Xylem.

The following table summarizes key information underlying identifiable intangible assets related to the Idrica acquisition:

(a)Useful life approximates weighted average useful life.

•The preliminary estimates of fair value of Idrica’s identifiable intangible assets were determined using a combination of the income and cost approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus, represent a Level 3 measurement of the fair value hierarchy as defined in ASC 820, Fair Value Measurements (“ASC 820”). Intangible assets consisting of the customer relationships, backlog, and trade name were valued using the multi-period excess earnings method (“MEEM”) or the relief from royalty (“RFR”) method, both of which are forms of the income approach. The intangible asset related to Idrica’s developed technology was valued using the replacement cost approach.

•The customer and backlog intangible assets were valued using the MEEM. The MEEM is an approach where the net earnings attributable to the asset being measured are isolated from other “contributory assets” over the intangible asset’s remaining economic life.

•The trade name intangible asset was valued using the RFR method. The RFR method suggests that in lieu of ownership, the acquirer can obtain comparable rights to use the subject asset via a license from a hypothetical third-party owner. The asset’s fair value is the present value of license fees avoided by owning it (i.e., the royalty savings).

•The developed technology intangible asset was valued using the replacement cost approach. The replacement cost approach is a valuation method that relies on estimating the replacement costs of assets based on the principle that an asset would not be purchased for a price higher than the cost to replace it with an asset of comparable utility.

Pro forma results of operations have not been included, as the acquisition of Idrica was not material to our results of operations for any periods presented.

On December 5, 2024, we acquired all issued and outstanding shares of Heusser Water Solutions AG ("Heusser"), a leading distributor and provider of advanced pumping systems and treatment solutions in Switzerland, for $40 million ($35 million, net of cash received). Heusser, a privately-owned company headquartered in Cham, Switzerland, has approximately 90 employees. Our consolidated financial statements include Heusser's results of operations prospectively from December 5, 2024 primarily within the Water Infrastructure segment.

The following table illustrates the sources of revenue:

			Three Months Ended
			March 31,
(in millions)			2025						2024
Revenue from contracts with customers			$	2,002					$	1,910
Lease Revenue			67						123
Total			$	2,069					$	2,033

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

			Three Months Ended
			March 31,
(in millions)			2025						2024
Water Infrastructure
Transport			$	345					$	337
Treatment			236						237
Applied Water
Building Solutions			247						240
Industrial Water			188						196
Measurement and Control Solutions
Smart Metering and Other			404						377
Analytics			86						85
Water Solutions and Services
Capital and Other			254						203
Services			242						235
Total			$	2,002					$	1,910

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

			Three Months Ended
			March 31,
(in millions)			2025						2024
Water Infrastructure
United States			$	210					$	204
Western Europe			211						211
Emerging Markets (a)			115						114
Other			45						45
Applied Water
United States			239						232
Western Europe			98						99
Emerging Markets (a)			65						73
Other			33						32
Measurement and Control Solutions
United States			322						305
Western Europe			77						82
Emerging Markets (a)			45						44
Other			46						31
Water Solutions and Services
United States			376						335
Western Europe			24						23
Emerging Markets (a)			49						42
Other			47						38
Total			$	2,002					$	1,910

(a)Emerging Markets includes results from the following regions: Eastern Europe, the Middle East and Africa, Latin America and Asia Pacific (excluding Japan, Australia and New Zealand, which are presented in "Other")

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:

(a)Excludes receivable balances, which are disclosed on the Condensed Consolidated Balance Sheets

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 March 31, 2025, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied for contracts with performance obligations, amount to $1.8 billion. 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.

During the three months ended March 31, 2025, we incurred restructuring charges of $17 million. The incurred charges primarily related to actions taken to further streamline our organization through simplification efforts in order to strengthen our competitive positioning and ability to better serve our customers.

During the three months ended March 31, 2024, we incurred restructuring costs of $9 million. We incurred these charges primarily as a result of our acquisition of Evoqua and our efforts to reposition our businesses to optimize our cost structure, improve our operational efficiency and effectiveness, strengthen our competitive positioning and better serve our customers.

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

			Three Months Ended
			March 31,
(in millions)			2025						2024
By component:
Severance and other charges			$	18					$	9
Asset impairment			—						1
Reversal of restructuring accruals			(1)						(1)
Total restructuring costs			$	17					$	9
Asset impairment charges			4						1
Total restructuring and asset impairment charges			$	21					$	10
By segment:
Water Infrastructure			$	13					$	5
Applied Water			3						1
Measurement and Control Solutions			1						—
Water Solutions and Services			4						2
Corporate and other			—						2

The following table displays a roll-forward of the restructuring accruals, presented on our Condensed Consolidated Balance Sheets within "Accrued and other current liabilities" and "Other non-current accrued liabilities", for the three months ended March 31, 2025 and 2024:

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

The following table presents expected restructuring spend in 2025 and thereafter:

The actions commenced in 2025 consist primarily of severance charges. The actions are expected to continue through the end of 2026.

The actions commenced in 2024 consist primarily of severance and asset impairment charges. The actions are expected to continue through the end of 2025.

During the first quarter of 2025, we recognized a $4 million impairment charge for internally developed software within our Water Solutions and Services and Water Infrastructure segments.

During the first quarter of 2024, we recognized a $1 million impairment charge for internally developed software within Corporate. Refer to Note 9, "Goodwill and Other Intangible Assets," for additional information.

Our quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items within the 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 March 31, 2025 was $50 million resulting in an effective tax rate of 23.1%, compared to a $43 million expense resulting in an effective tax rate of 21.8% for the same period in 2024. The effective tax rate for the three month period ended March 31, 2025 was higher than the U.S. federal statutory rate primarily due to mix of earnings across different jurisdictions.

During 2019, Xylem’s Swedish subsidiary received a tax assessment from the Swedish Tax Agency (the "STA") 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. Xylem filed an appeal with the Administrative Court of Växjö, which rendered a decision adverse to Xylem in June 2022 for SEK837 million (approximately $84 million), consisting of the full tax assessment amount plus penalties and interest. Xylem appealed this decision with the intermediate appellate court, the Administrative Court of Appeal, and on May 15, 2024, that court rendered a decision in favor of Xylem and also remanded an issue to the trial court for resolution. In June 2024, the STA filed a notice of appeal of this decision to the Supreme Administrative Court (the “Court”), which declined to hear the case and remanded one issue back to the Administrative Court for further consideration. Management, in consultation with external legal advisors, continues to believe it is more likely than not that Xylem will prevail on the proposed assessment and will continue to vigorously defend our position through this litigation. There can be no assurance that the final determination by the authorities will not be materially different than our position. As of March 31, 2025, we do not have any unrecognized tax benefits related to this tax position.

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

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

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

The components of total inventories are summarized as follows:

(in millions)			March 31, 2025						December 31, 2024
Finished goods			$	356					$	341
Work in process			111						100
Raw materials			555						555
Total inventories			$	1,022					$	996

Changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2025 are as follows:

Information regarding our other intangible assets is as follows:

			March 31, 2025																		December 31, 2024
(in millions)			Carrying Amount						Accumulated Amortization						Net Intangibles						Carrying Amount						Accumulated Amortization						Net Intangibles
Customer and distributor relationships			$	2,160					$	(613)					$	1,547					$	2,151					$	(576)					$	1,575
Proprietary technology and patents			366						(149)						217						360						(138)						222
Trademarks			184						(113)						71						182						(107)						75
Software			613						(388)						225						595						(367)						228
Other			195						(88)						107						194						(79)						115
Indefinite-lived intangibles			165						—						165						164						—						164
Other Intangibles			$	3,683					$	(1,351)					$	2,332					$	3,646					$	(1,267)					$	2,379

Amortization expense related to finite-lived intangible assets was $77 million and $73 million for the three-month periods ended March 31, 2025 and 2024, respectively.

During the first quarter of 2025, we recognized a $1 million and $3 million impairment charge for internally developed software within Water Infrastructure and Water Solutions and Services segments, respectively.

During the first quarter of 2024, we recognized a $1 million impairment charge for internally developed software within Corporate.

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

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

Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures for which we enter into cash flow hedges relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty, and Australian Dollar. We had foreign exchange contracts with purchased notional amounts totaling $518 million and $657 million as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, 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, sell Canadian Dollar and purchase Euro, sell Canadian Dollar and purchase U.S. Dollar, purchase Polish Zloty and sell Euro, and sell Australian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are $202 million, $141 million, $70 million, $32 million, $30 million, $24 million, and $19 million, respectively. As of December 31, 2024, 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, sell Canadian Dollar and purchase Euro, sell Canadian Dollar and purchase U.S. Dollar, purchase Polish Zloty and sell Euro, and sell Australian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are $258 million, $169 million, $90 million, $42 million, $40 million, $34 million, and $24 million, respectively.

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

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, third quarter of 2020, and second quarter of 2022 we entered into additional cross-currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $2,906 million and $2,181 million as of March 31, 2025 and December 31, 2024, respectively.

In February 2025, the Company completed a transaction to effectively amend and extend the cross-currency swaps maturing in January 2028. The liability position of the existing cross-currency swaps was blended into new cross-currency swap agreement with notional amount of $509 million maturing in July 2028.

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

			Three Months Ended
			March 31,
(in millions)			2025						2024
Derivatives in Cash Flow Hedges
Foreign Exchange Contracts
Amount of gain (loss) recognized in OCL			$	15					$	(3)
Amount of loss reclassified from OCL into Revenue			3						—
Amount of (gain) loss reclassified from OCL into Cost of revenue			(1)						1
Derivatives Net Investment Hedges
Cross-Currency Swaps
Amount of (loss) gain recognized in OCL			$	(84)					$	40
Amount of income recognized in Interest expense			11						8

As of March 31, 2025, $1 million of net gains on cash flow hedges are expected to be reclassified into earnings in the next 12 months.

As of March 31, 2025, no gains or losses on the net investment hedges are expected to be reclassified into earnings over their duration.

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 derivative contracts currently included in our hedging program were as follows:

(in millions)			March 31, 2025						December 31, 2024
Derivatives designated as hedging instruments
Assets
Cash Flow Hedges
Prepaid and other current assets			$	10					$	3
Net Investment Hedges
Other non-current assets			$	27					$	50
Liabilities
Cash Flow Hedges
Accrued and other current liabilities			$	(5)					$	(15)
Net Investment Hedges
Other non-current accrued liabilities			$	(90)					$	(30)

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

(in millions)			March 31, 2025						December 31, 2024
Compensation and other employee-benefits			$	284					$	409
Customer-related liabilities			390						384
Accrued taxes			219						201
Lease liabilities			121						109
Accrued warranty costs			44						43
Other accrued liabilities			109						125
Total accrued and other current liabilities			$	1,167					$	1,271