What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-07-30 compared with 2020-05-04 · 205 added, 171 removed, 305 unchanged (55% of the section changed)

10 unchanged sentences

Our broad range of connectivity and sensor solutions, proven in the harshest environments, enable advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.

The second quarter and first six months of fiscal 2020 included the following:

● Our net sales decreased 6.4% and 5.9% in the second quarter and first six months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019 as a result of sales declines across all segments.

On an organic basis, our net sales decreased 5.4% and 5.1% during the second quarter and first six months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

The early impacts of the COVID-19 pandemic negatively affected a number of the markets that we serve, particularly in the Asia–Pacific and Europe/Middle East/Africa (“EMEA”) regions.

The third quarter and first nine months of fiscal 2020 included the following:

● Our net sales decreased 24.8% in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019 due primarily to sales declines in the Transportation Solutions and Industrial Solutions segments.

In the first nine months of fiscal 2020, our net sales decreased 12.2% as compared to the same period of fiscal 2019 with sales declines across all segments.

On an organic basis, our net sales decreased 25.0% and 11.7% during the third quarter and first nine months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

Our net sales declines included significant unfavorable impacts from the COVID-19 pandemic.

● Our net sales by segment were as follows:

● Transportation Solutions —Our net sales decreased 5.8% and 5.9% in the second quarter and first six months of fiscal 2020, respectively, due to sales declines in all end markets.

● Industrial Solutions —Our net sales decreased 4.5% and 2.4% in the second quarter and first six months of fiscal 2020, respectively, primarily as a result of sales declines in the industrial equipment end market.

● Communications Solutions —Our net sales decreased 13.4% and 13.6% in the second quarter and first six months of fiscal 2020, respectively, due to sales declines in both the data and devices and the appliances end markets.

● Net cash provided by continuing operating activities was $892 million in the first six months of fiscal 2020.

● We acquired approximately 72% of the outstanding shares of First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany, during the second quarter of fiscal 2020 .

● During the second quarter of fiscal 2020, we recorded a goodwill impairment charge of $900 million related to the Sensors reporting unit in our Transportation Solutions segment.

● Transportation Solutions —Our net sales decreased 36.2% and 15.9% in the third quarter and first nine months of fiscal 2020, respectively, due to sales declines in all end markets.

● Industrial Solutions —Our net sales decreased 13.9% and 6.3% in the third quarter and first nine months of fiscal 2020, respectively, primarily as a result of sales declines in the aerospace, defense, oil, and gas and the industrial equipment end markets.

● Communications Solutions —Our net sales increased 2.9% and decreased 8.3% in the third quarter and first nine months of fiscal 2020, respectively.

The sales increase in the third quarter of fiscal 2020 resulted primarily from sales increases in the data and devices end market.

The sales decrease in the first nine months of fiscal 2020 was due to sales declines in both the appliances and the data and devices end markets.

● Net cash provided by continuing operating activities was $1,272 million in the first nine months of fiscal 2020.

● We acquired approximately 72% of the outstanding shares of First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany, during the first nine months of fiscal 2020 .

● During the first nine months of fiscal 2020, we recorded a goodwill impairment charge of $900 million related to the Sensors reporting unit in our Transportation Solutions segment.

COVID-19 Pandemic and Economic Conditions

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To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas.

The COVID-19 pandemic negatively affected our sales and operating results during the second quarter of fiscal 2020, and we expect that COVID-19 will have a material impact on our financial condition and results of operations in the near term and may have a material impact on our financial condition, liquidity, and results of operations in future periods.

The COVID-19 pandemic negatively affected our sales and operating results during the second and third quarters of fiscal 2020, and we expect that COVID-19 will have a material impact on our financial condition and results of operations in the near term and may have a material impact on our financial condition, liquidity, and results of operations in future periods.

COVID-19 is currently impacting, and we expect that COVID-19 will continue to impact, our business operations globally, causing disruption in our suppliers’ and customers’ supply chains, some of our business locations to reduce or suspend operations, and a reduction in demand for certain products from direct customers or end markets.

Accordingly, while a number of our businesses are operating as essential businesses, some of our business locations have adjusted, reduced, or suspended operating activities at certain of their locations.

Accordingly, while a number of our businesses are operating as essential businesses, some have had and continue to have adjusted, reduced, or suspended operating activities at certain locations.

In addition, COVID-19 may have far-reaching impacts on many additional aspects of our operations, directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, inventory, our employees, and the market generally, and the scope and nature of these impacts continue to evolve each day.

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We expect that COVID-19 will negatively impact several of the markets we serve, in particular the automotive and commercial aerospace markets .

We are expecting reduced sales in these markets in the near term and may experience reduced sales in these markets in future periods.

As a result, we have taken actions to manage costs.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, and shareholders.

As a result of current and projected declines in sales and profitability, due in part to the impact of COVID-19 and projected reductions in global automotive production, of the Sensors reporting unit of the Transportation Solutions segment during the second quarter of fiscal 2020, we determined that an indicator of impairment had occurred and goodwill impairment testing of this reporting unit was required.

As discussed in Note 1 to the Condensed Consolidated Financial Statements, during the second quarter of fiscal 2020, we adopted Accounting Standards Update (“ASU”) No.

2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test.

Under the new standard, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

We determined the fair value of the Sensors reporting unit to be $1.0 billion.

This valuation was based on a discounted cash flows analysis incorporating our estimate of future operating performance, which we consider to be a level 3 unobservable input in the fair value hierarchy, and was corroborated using a market approach valuation.

The goodwill impairment test indicated that the carrying value of the reporting unit exceeded its fair value by $900 million.

As a result, we recorded a partial impairment charge of $900 million.

The Sensors reporting unit had a remaining goodwill allocation of $626 million as of March 27, 2020.

We are expecting reduced sales volumes in these markets in the near term relative to prior year and may experience reduced sales volumes in these markets in future periods.

However, we expect an overall increase in our net sales in the fourth quarter of fiscal 2020 as compared to the third quarter of fiscal 2020.

See “Outlook” below for additional information.

In response to the current economic environment and our sales declines relative to prior year, we have taken and continue to focus on actions to manage costs.

These include restructuring and other cost reduction initiatives, such as reducing discretionary spending, cutting capital expenditures, reducing travel, and furloughing certain employees.

On March 27, 2020, the U.S.

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Risk Factors” below.

We expect our net sales to decline approximately 25% in the third quarter of fiscal 2020 as compared to $3.2 billion in the second quarter of fiscal 2020.

This decline is driven primarily by weakness in the automotive and commercial aerospace markets as well as supply chain adjustments.

Partially offsetting the decline, we expect our net sales to benefit from strength in the defense and the data and devices markets.

We expect our net sales to decrease in the automotive end market in the third quarter of fiscal 2020 due primarily to an approximate 33% decline in global automotive production as compared to the second quarter of fiscal 2020.

Additionally, in the third quarter of fiscal 2020, we expect our net sales in the automotive end market to reflect a negative impact of approximately $200 million from reduced demand due to customer inventory builds in the second quarter of fiscal 2020 in response to an uncertain manufacturing environment.

We expect our net sales in the commercial aerospace market to be negatively impacted by reduced production in the second half of fiscal 2020 as compared to the first half of fiscal 2020.

We expect an approximate 33% decline in production in the commercial aerospace market in the third quarter of fiscal 2020 as compared to the second quarter of fiscal 2020 due primarily to the impacts of COVID-19.

We expect our net sales to be negatively impacted by approximately $100 million in the third quarter of fiscal 2020 due to supply chain disruptions resulting from the COVID-19 pandemic.

For fiscal 2020, we are withdrawing our full year guidance due to limited visibility of the impact of the COVID-19 pandemic on future demand.

We expect our net sales to increase approximately 10% in the fourth quarter of fiscal 2020 as compared to $2.5 billion in the third quarter of fiscal 2020.

This increase is driven primarily by expected growth of approximately 20% in the Transportation Solutions segment.

We expect a slight increase in our net sales in the Industrial Solutions segment in the

fourth quarter of fiscal 2020;

however, we expect this growth will be offset by modest declines in the Communications Solutions segment.

Within the Transportation Solutions segment, we expect our net sales growth in the automotive end market in the fourth quarter of fiscal 2020 to be driven by an approximate 40% increase in global automotive production as compared to the third quarter of fiscal 2020.

In the fourth quarter of fiscal 2020, we expect our net sales to be negatively impacted by residual supply chain disruptions resulting from the COVID-19 pandemic.

The above outlook is based on foreign currency exchange rates that are consistent with current levels.

We are monitoring the current macroeconomic environment and its potential effects on our customers and the end markets we serve, including developments related to the COVID-19 pandemic.

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See further discussion in “Liquidity and Capital Resources.”

In March 2020, we acquired approximately 72% of the outstanding shares of First Sensor for €209 million in cash (equivalent to $232 million).

We acquired approximately 72% of the outstanding shares of First Sensor for €181 million in cash (equivalent to $201 million), net of cash acquired, during the first nine months of fiscal 2020.

This business has been reported as part of our Transportation Solutions segment from the date of acquisition.

During the first six months of fiscal 2020, we acquired three additional businesses for a combined cash purchase price of $124 million, net of cash acquired.

During the first nine months of fiscal 2020, we acquired three additional businesses for a combined cash purchase price of $124 million, net of cash acquired.

The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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The following table provides an analysis of the change in our net sales by segment:

Change in Net Sales for the Quarter Ended March 27, 2020

Change in Net Sales for the Six Months Ended March 27, 2020

versus Net Sales for the Quarter Ended March 29, 2019

versus Net Sales for the Six Months Ended March 29, 2019

Change in Net Sales for the Quarter Ended June 26, 2020

Change in Net Sales for the Nine Months Ended June 26, 2020

versus Net Sales for the Quarter Ended June 28, 2019

versus Net Sales for the Nine Months Ended June 28, 2019

Organic Net Sales

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Communications Solutions

Net sales decreased $217 million, or 6.4%, in the second quarter of fiscal 2020 as compared to the second quarter of fiscal 2019.

Net sales decreased $841 million, or 24.8%, in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019.

The decrease in net sales resulted from organic net sales declines of 25.0% and the negative impact of foreign currency translation of 1.1% due to the weakening of certain foreign currencies, partially offset by sales contributions from acquisitions of 1.3%.

In the second quarter of fiscal 2020, our net sales declines included significant unfavorable impacts from the COVID-19 pandemic.

Price erosion adversely affected organic net sales by $53 million in the second quarter of fiscal 2020.

In the first six months of fiscal 2020, net sales decreased $396 million, or 5.9%, as compared to the first six months of fiscal 2019 due to organic net sales declines of 5.1% and the negative impact of foreign currency translation of 1.5% due to the weakening of certain foreign currencies, partially offset by sales contributions from acquisitions of 0.7%.

The unfavorable impacts of the COVID-19 pandemic were included in our net sales declines in the first six months of fiscal 2020.

Price erosion adversely affected organic net sales by $94 million in the first six months of fiscal 2020.

In the third quarter of fiscal 2020, our net sales declines included significant unfavorable impacts from the COVID-19 pandemic.

Price erosion adversely affected organic net sales by $42 million in the third quarter of fiscal 2020.

In the first nine months of fiscal 2020, net sales decreased $1,237 million, or 12.2%, as compared to the first nine months of fiscal 2019 due to organic net sales declines of 11.7% and the negative impact of foreign currency translation of 1.4% due to the weakening of certain foreign currencies, partially offset by sales contributions from acquisitions of 0.9%.

The significant unfavorable impacts of the COVID-19 pandemic were included in our net sales declines in the first nine months of fiscal 2020.

Price erosion adversely affected organic net sales by $136 million in the first nine months of fiscal 2020.

See further discussion of net sales below under “Segment Results.”

Net Sales by Geographic Region.

Our business operates in three geographic regions—EMEA, Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates.

Our business operates in three geographic regions—Europe/Middle East/Africa (“EMEA”), Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates.

Increases or decreases in the value of the U.S.

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Approximately 60% of our net sales were invoiced in currencies other than the U.S.

dollar in the first six months of fiscal 2020.

dollar in the first nine months of fiscal 2020.

The following table presents our net sales and the percentage of total net sales by geographic region (1) :

Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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The following table provides an analysis of the change in our net sales by geographic region:

Change in Net Sales for the Quarter Ended March 27, 2020

Change in Net Sales for the Six Months Ended March 27, 2020

versus Net Sales for the Quarter Ended March 29, 2019

versus Net Sales for the Six Months Ended March 29, 2019

Change in Net Sales for the Quarter Ended June 26, 2020

Change in Net Sales for the Nine Months Ended June 26, 2020

versus Net Sales for the Quarter Ended June 28, 2019

versus Net Sales for the Nine Months Ended June 28, 2019

Organic Net Sales

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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As a percentage of net sales

Gross margin decreased $89 million and $173 million in the second quarter and first six months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

The decreases were primarily as a result of lower volume and price erosion, partially offset by lower material costs.

Gross margin as a percentage of net sales decreased to 32.2% in the second quarter of fiscal 2020 from 32.8% in the second quarter of fiscal 2019 and decreased to 32.4% in the first six months of fiscal 2020 from 33.0% in the same period of fiscal 2019.

Gross margin decreased $403 million and $576 million in the third quarter and first nine months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

The decreases were primarily a result of lower volume, price erosion, and lower manufacturing productivity, partially offset by lower material costs.

Gross margin as a percentage of net sales decreased to 27.7% in the third quarter of fiscal 2020 from 32.8% in the third quarter of fiscal 2019 and decreased to 31.0% in the first nine months of fiscal 2020 from 32.9% in the same period of fiscal 2019.

We use a wide variety of raw materials in the manufacture of our products.

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Quarters Ended

Six Months Ended

Nine Months Ended

Operating Expenses

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Selling, General, and Administrative Expenses.

Selling, general, and administrative expenses decreased $21 million in the second quarter of fiscal 2020 from the second quarter of fiscal 2019 due primarily to receipt of a lease termination incentive.

In the first six months of fiscal 2020, selling, general, and administrative expenses decreased $43 million from the same period of fiscal 2019 due primarily to receipt of a lease termination incentive, reduced selling expenses, and cost control measures and savings attributable to restructuring actions.

Selling, general, and administrative expenses as a percentage of net sales were 11.0% and 10.9% in the second quarters of fiscal 2020 and 2019, respectively, and 11.3% in both the first six months of fiscal 2020 and 2019.

Selling, general, and administrative expenses decreased $35 million in the third quarter of fiscal 2020 from the third quarter of fiscal 2019 due primarily to reduced selling expenses.

In the first nine months of fiscal 2020, selling, general, and administrative expenses decreased $78 million from the same period of fiscal 2019 due primarily to reduced selling expenses, cost control measures and savings attributable to restructuring actions, and receipt of a lease termination incentive.

Selling, general, and administrative expenses as a percentage of net sales increased to 12.6% in the third quarter of fiscal 2020 from 10.5% in the third quarter of fiscal 2019 and increased to 11.7% in the first nine months of fiscal 2020 from 11.0% in the same period of fiscal 2019.

Restructuring and Other Charges, Net.

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These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for future growth.

During fiscal 2020 and 2019, we initiated restructuring programs associated with footprint consolidation and structural improvements across all segments.

In connection with these initiatives, we incurred net restructuring charges of $46 million during the first six months of fiscal 2020, of which $43 million related to the fiscal 2020 restructuring program.

Annualized cost savings related to the fiscal 2020 actions commenced during the first six months of fiscal 2020 are expected to be approximately $45 million and are expected to be realized by the end of fiscal 2022.

During fiscal 2020, we initiated a restructuring program associated with footprint consolidation and structural improvements, due in part to COVID-19, across all segments.

We incurred net restructuring charges of $144 million during the first nine months of fiscal 2020, of which $138 million related to the fiscal 2020 restructuring program.

Annualized cost savings related to the fiscal 2020 actions commenced during the first nine months of fiscal 2020 are expected to be approximately $140 million and are expected to be realized by the end of fiscal 2022.

Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses.

For fiscal 2020, we expect total restructuring charges to be approximately $200 million to $250 million and total spending, which will be funded with cash from operations, to be approximately $220 million.

For fiscal 2020, we expect total restructuring charges to be approximately $250 million and total spending, which will be funded with cash from operations, to be approximately $265 million.

See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.

Impairment of Goodwill.

During the second quarter of fiscal 2020, we recorded a goodwill impairment charge of $900 million related to the Sensors reporting unit in our Transportation Solutions segment.

As discussed in Note 1 to the Condensed Consolidated Financial Statements, during the second quarter of fiscal 2020, we adopted Accounting Standards Update (“ASU”) No.

2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test.

Under the new standard, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

We determined the fair value of the Sensors reporting unit to be $1.0 billion as of March 27, 2020.

The goodwill impairment test indicated that the carrying value of the reporting unit exceeded its fair value by $900 million.

As a result, we recorded a partial impairment charge of $900 million in the second quarter of fiscal 2020.

The Sensors reporting unit had a remaining goodwill allocation of $626 million as of March 27, 2020.

There were no triggering events identified in the third quarter of fiscal 2020 and therefore no goodwill

impairment testing was required.

See Note 6 to the Condensed Consolidated Financial Statements for additional information regarding the impairment of goodwill.

Operating Income (Loss)

The following table presents operating income (loss) and operating margin information:

Operating Income

The following table presents operating income and operating margin information:

Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

Operating income (loss)

Operating income

Operating margin

Operating income (loss) included the following:

Operating income included the following:

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

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Impairment of goodwill

See discussion of operating income (loss) below under “Segment Results.”

See discussion of operating income below under “Segment Results.”

Non-Operating Items

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

Interest expense

Income tax expense

Income tax expense (benefit)

Effective tax rate

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Interest Expense.

Interest expense decreased $19 million in the first six months of fiscal 2020 as compared to the same period of fiscal 2019 due primarily to the cross-currency swap program that hedges our net investment in certain foreign operations.

Interest expense decreased $19 million in the first nine months of fiscal 2020 as compared to the same period of fiscal 2019 due primarily to the cross-currency swap program that hedges our net investment in certain foreign operations.

The aggregate notional value of the contracts under this program was $1,776 million at June 26, 2020.

Under the terms of these contracts, we receive interest in U.S.

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Income Taxes.

See Note 13 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the second quarters and first six months of fiscal 2020 and 2019, including termination of the Tax Sharing Agreement and the Switzerland Federal Act on Tax Reform and AHV Financing.

See Note 13 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the third quarters and first nine months of fiscal 2020 and 2019, including an increase to the valuation allowance for certain non-U.S.

deferred tax assets, the Switzerland Federal Act on Tax Reform and AHV Financing, and the termination of the Tax Sharing Agreement.

Income (Loss) from Discontinued Operations, Net of Income Taxes.

During the first six months of fiscal 2019, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $297 million and incurred a pre-tax loss on sale of $86 million.

During the first nine months of fiscal 2019, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $297 million and incurred a pre-tax loss on sale of $86 million.

The SubCom business met the held for sale and discontinued operations criteria and was reported as such in all periods presented on the Condensed Consolidated Financial Statements.

Prior to reclassification to discontinued operations, the SubCom business was included in the Communications Solutions segment.

The net sales of the business were $41 million in the first six months of fiscal 2019 which represented one month of activity.

The net sales of the business were $41 million in the first nine months of fiscal 2019 which represented one month of activity.

See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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The following table provides an analysis of the change in the Transportation Solutions segment’s net sales by industry end market:

Change in Net Sales for the Quarter Ended March 27, 2020

Change in Net Sales for the Six Months Ended March 27, 2020

versus Net Sales for the Quarter Ended March 29, 2019

versus Net Sales for the Six Months Ended March 29, 2019

Change in Net Sales for the Quarter Ended June 26, 2020

Change in Net Sales for the Nine Months Ended June 26, 2020

versus Net Sales for the Quarter Ended June 28, 2019

versus Net Sales for the Nine Months Ended June 28, 2019

Organic Net Sales

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Commercial transportation

Net sales in the Transportation Solutions segment decreased $114 million, or 5.8%, in the second quarter of fiscal 2020 from the second quarter of fiscal 2019 due to organic net sales declines of 5.0% and the negative impact of foreign currency translation of 2.1%, partially offset by sales contributions from acquisitions of 1.3%.

In the second quarter of fiscal 2020, our net sales declines included significant unfavorable impacts from the COVID-19 pandemic.

Net sales in the Transportation Solutions segment decreased $713 million, or 36.2%, in the third quarter of fiscal 2020 from the third quarter of fiscal 2019 due to organic net sales declines of 37.3% and the negative impact of foreign currency translation of 1.1%, partially offset by sales contributions from acquisitions of 2.2%.

In the third quarter of fiscal 2020, our net sales declines included significant unfavorable impacts from the COVID-19 pandemic.

Our organic net sales by industry end market were as follows:

● Automotive— Our organic net sales decreased 2.1% in the second quarter of fiscal 2020 with declines of 3.8% and 3.1% in the Asia–Pacific and EMEA regions, respectively, partially offset by growth of 3.8% in the Americas region.

● Automotive— Our organic net sales decreased 42.8% in the third quarter of fiscal 2020 with declines of 64.2% in the Americas region, 55.4% in the EMEA region, and 18.3% in the Asia–Pacific region.

Our overall organic net sales decreased due to declines in global automotive production .

however, our sales decreased at a lesser rate than global automotive production as a result of customer inventory builds and our increased content per vehicle .

● Commercial transportation— Our organic net sales decreased 11.1% in the second quarter of fiscal 2020 due to market weakness in all regions.

● Sensors— Our organic net sales decreased 14.9% in the second quarter of fiscal 2020 due primarily to weakness in the commercial transportation and industrial markets.

In the first six months of fiscal 2020, net sales in the Transportation Solutions segment decreased $232 million, or 5.9%, as compared to the first six months of fiscal 2019 as a result of organic net sales declines of 5.3% and the negative impact of foreign currency translation of 1.9%, partially offset by sales from acquisitions of 1.3%.

Net sales declines in the

first six months of fiscal 2020 included the unfavorable impacts of the COVID-19 pandemic.

● Commercial transportation— Our organic net sales decreased 24.1% in the third quarter of fiscal 2020 as a result of market weakness in the Americas and EMEA regions, partially offset by growth in the Asia–Pacific region.

● Sensors— Our organic net sales decreased 22.1% in the third quarter of fiscal 2020 due to weakness across all markets.

In the first nine months of fiscal 2020, net sales in the Transportation Solutions segment decreased $945 million, or 15.9%, as compared to the first nine months of fiscal 2019 as a result of organic net sales declines of 16.0% and the negative impact of foreign currency translation of 1.5%, partially offset by sales from acquisitions of 1.6%.

Net sales declines in the first nine months of fiscal 2020 included the significant unfavorable impacts of the COVID-19 pandemic.

Our organic net sales by industry end market were as follows:

● Automotive— Our organic net sales decreased 2.5% in the first six months of fiscal 2020 with declines of 3.5% and 2.5% in the Asia–Pacific and EMEA regions, respectively.

Organic net sales in the Americas region were flat relative to the first six months of fiscal 2019.

Our overall organic net sales decrease resulted from continued declines in global automotive production;

however, our sales decreased at a lesser rate than global automotive production due to customer inventory builds and content gains .

● Commercial transportation— Our organic net sales decreased 13.2% in the first six months of fiscal 2020 primarily as a result of market weakness in the Americas and EMEA regions.

● Sensors— Our organic net sales decreased 13.1% in the first six months of fiscal 2020 attributable primarily to weakness in the commercial transportation and industrial markets.

● Automotive— Our organic net sales decreased 15.8% in the first nine months of fiscal 2020 with declines of 21.7% in the Americas region, 20.1% in the EMEA region, and 8.3% in the Asia–Pacific region.

Our overall organic net sales decreased as a result of declines in global automotive production;

however, our sales decreased at a lesser rate than global automotive production due to content gains and customer inventory builds.

● Commercial transportation— Our organic net sales decreased 16.9% in the first nine months of fiscal 2020 due to market weakness in the Americas and EMEA regions, partially offset by growth in the Asia–Pacific region.

● Sensors— Our organic net sales decreased 16.2% in the first nine months of fiscal 2020 as a result of weakness across all markets.

Operating Income (Loss).

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

Operating margin

Operating income (loss) in the Transportation Solutions segment decreased $922 million and $938 million in the second quarter and first six months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

Operating income (loss) in the Transportation Solutions segment decreased $309 million and $1,247 million in the third quarter and first nine months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

The Transportation Solutions segment’s operating income (loss) included the following:

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

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Impairment of goodwill

Excluding these items, operating income decreased in the second quarter and first six months of fiscal 2020 as compared to the same periods of fiscal 2019 primarily as a result of lower volume and price erosion, partially offset by lower material costs and improved manufacturing productivity.

Excluding these items, operating income decreased in the third quarter and first nine months of fiscal 2020 as compared to the same periods of fiscal 2019 primarily as a result of lower volume and, to a lesser degree, price erosion and lower manufacturing productivity, partially offset by lower material costs.

Industrial Solutions

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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The following table provides an analysis of the change in the Industrial Solutions segment’s net sales by industry end market:

Change in Net Sales for the Quarter Ended March 27, 2020

Change in Net Sales for the Six Months Ended March 27, 2020

versus Net Sales for the Quarter Ended March 29, 2019

versus Net Sales for the Six Months Ended March 29, 2019

Change in Net Sales for the Quarter Ended June 26, 2020

Change in Net Sales for the Nine Months Ended June 26, 2020

versus Net Sales for the Quarter Ended June 28, 2019

versus Net Sales for the Nine Months Ended June 28, 2019

Organic Net Sales

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Industrial equipment

In the Industrial Solutions segment, net sales decreased $45 million, or 4.5%, in the second quarter of fiscal 2020 as compared to the second quarter of fiscal 2019 due to organic net sales declines of 3.0% and the negative impact of foreign currency translation of 1.5%.

Net sales declines in the second quarter of fiscal 2020 included significant unfavorable impacts from the COVID-19 pandemic.

In the Industrial Solutions segment, net sales decreased $140 million, or 13.9%, in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019 due to organic net sales declines of 12.7% and the negative impact of foreign currency translation of 1.2%.

Net sales declines in the third quarter of fiscal 2020 included significant unfavorable impacts from the COVID-19 pandemic.

Our organic net sales by industry end market were as follows:

● Aerospace, defense, oil, and gas— Our organic net sales decreased 2.9% in the second quarter of fiscal 2020 primarily as a result of declines in the commercial aerospace market, partially offset by continued strength in the defense market.

● Industrial equipment— Our organic net sales decreased 12.5% in the second quarter of fiscal 2020 due to market weakness in industrial applications across all regions and reduced demand resulting from high inventory levels at distributors.

● Medical— Our organic net sales increased 5.7% in the second quarter of fiscal 2020 due primarily to strength in interventional medical applications.

● Energy— Our organic net sales increased 5.6% in the second quarter of fiscal 2020 as a result of growth in the EMEA and Americas regions, partially offset by declines in the Asia–Pacific region.

In the first six months of fiscal 2020, net sales in the Industrial Solutions segment decreased $46 million, or 2.4%, as compared to the same period of fiscal 2019 as a result of the negative impact of foreign currency translation of 1.4% and organic net sales declines of 1.0%.

The unfavorable impacts of the COVID-19 pandemic were included in net sales declines in the first six months of fiscal 2020.

● Aerospace, defense, oil, and gas— Our organic net sales decreased 21.9% in the third quarter of fiscal 2020 due primarily to weakness in the commercial aerospace and the defense markets.

● Industrial equipment— Our organic net sales decreased 12.7% in the third quarter of fiscal 2020 as a result of market weakness in the Americas and EMEA regions, partially offset by growth in the Asia–Pacific region.

● Medical— Our organic net sales decreased 8.5% in the third quarter of fiscal 2020 due primarily to delays in elective procedures.

● Energy— Our organic net sales increased 0.5% in the third quarter of fiscal 2020 primarily as a result of growth in the EMEA region, partially offset by declines in the Americas region.

In the first nine months of fiscal 2020, net sales in the Industrial Solutions segment decreased $186 million, or 6.3%, as compared to the same period of fiscal 2019 as a result of organic net sales declines of 5.0% and the negative impact of foreign currency translation of 1.3%.

The significant unfavorable impacts of the COVID-19 pandemic were included in our net sales declines in the first nine months of fiscal 2020.

Our organic net sales by industry end market were as follows:

● Aerospace, defense, oil, and gas— Our organic net sales increased 2.8% in the first six months of fiscal 2020 primarily as a result of continued strength in the defense market, partially offset by declines in the commercial aerospace market.

● Industrial equipment— Our organic net sales decreased 13.7% in the first six months of fiscal 2020 due to market weakness in industrial applications across all regions and reduced demand resulting from high inventory levels at distributors.

● Medical— Our organic net sales increased 6.3% in the first six months of fiscal 2020 primarily as a result of strength in interventional medical applications.

● Energy— Our organic net sales increased 8.7% in the first six months of fiscal 2020 due primarily to growth in the EMEA and Americas regions.

● Aerospace, defense, oil, and gas— Our organic net sales decreased 6.0% in the first nine months of fiscal 2020 due primarily to weakness in the commercial aerospace and the defense markets.

● Industrial equipment— Our organic net sales decreased 13.4% in the first nine months of fiscal 2020 due to market weakness in industrial applications across all regions.

● Medical— Our organic net sales increased 1.3% in the first nine months of fiscal 2020 primarily as a result of strength in interventional medical applications, partially offset by delays in elective procedures.

● Energy— Our organic net sales increased 5.8% in the first nine months of fiscal 2020 due to growth across all regions.

Operating Income.

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Operating margin

Operating income in the Industrial Solutions segment increased $5 million and $20 million in the second quarter and first six months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

Operating income in the Industrial Solutions segment decreased $86 million and $66 million in the third quarter and first nine months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

The Industrial Solutions segment’s operating income included the following:

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

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Restructuring and other charges, net

Excluding these items, operating income decreased in the third quarter and first nine months of fiscal 2020 as compared to the same periods of fiscal 2019 primarily as a result of lower volume and price erosion, partially offset by lower material costs.

Communications Solutions

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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The following table provides an analysis of the change in the Communications Solutions segment’s net sales by industry end market:

Change in Net Sales for the Quarter Ended March 27, 2020

Change in Net Sales for the Six Months Ended March 27, 2020

versus Net Sales for the Quarter Ended March 29, 2019

versus Net Sales for the Six Months Ended March 29, 2019

Change in Net Sales for the Quarter Ended June 26, 2020

Change in Net Sales for the Nine Months Ended June 26, 2020

versus Net Sales for the Quarter Ended June 28, 2019

versus Net Sales for the Nine Months Ended June 28, 2019

Organic Net Sales

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Data and devices

Net sales in the Communications Solutions segment decreased $58 million, or 13.4%, in the second quarter of fiscal 2020 as compared to the second quarter of fiscal 2019 due primarily to organic net sales declines of 12.6%.

In the second quarter of fiscal 2020, the unfavorable impacts of the COVID-19 pandemic were included in our net sales declines.

Net sales in the Communications Solutions segment increased $12 million, or 2.9%, in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019 due primarily to organic net sales growth of 3.8%.

In the third quarter of fiscal 2020, the unfavorable impacts of the COVID-19 pandemic partially offset our net sales growth.

Our organic net sales by industry end market were as follows:

● Data and devices —Our organic net sales decreased 13.1% in the second quarter of fiscal 2020 as a result of market weakness across all regions and reduced demand resulting from high inventory levels at distributors.

● Appliances— Our organic net sales decreased 11.9% in the second quarter of fiscal 2020 due to market weakness across all regions and reduced demand resulting from high inventory levels at distributors.

In the first six months of fiscal 2020, net sales in the Communications Solutions segment decreased $118 million, or 13.6%, as compared to the first six months of fiscal 2019 primarily as a result of organic net sales declines of 13.1%.

Net sales declines in the first six months of fiscal 2020 included the unfavorable impacts of the COVID-19 pandemic.

● Data and devices —Our organic net sales increased 12.7% in the third quarter of fiscal 2020 primarily a result of increased sales to cloud infrastructure customers.

● Appliances— Our organic net sales decreased 8.9% in the third quarter of fiscal 2020 due to market weakness across all regions.

In the first nine months of fiscal 2020, net sales in the Communications Solutions segment decreased $106 million, or 8.3%, as compared to the first nine months of fiscal 2019 primarily as a result of organic net sales declines of 7.6%.

Net sales declines in the first nine months of fiscal 2020 included the unfavorable impacts of the COVID-19 pandemic.

Our organic net sales by industry end market were as follows:

● Data and devices —Our organic net sales decreased 14.0% in the first six months of fiscal 2020 due to market weakness across all regions and reduced demand resulting from high inventory levels at distributors.

● Appliances— Our organic net sales decreased 11.7% in the first six months of fiscal 2020 as a result of reduced demand resulting from high inventory levels at distributors and market declines in all regions.

● Data and devices —Our organic net sales decreased 5.3% in the first nine months of fiscal 2020 due primarily to market weakness in the Americas and EMEA regions, partially offset by increased sales to cloud infrastructure customers.

● Appliances— Our organic net sales decreased 10.8% in the first nine months of fiscal 2020 primarily as a result of market weakness in all regions.

Operating Income.

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Operating margin

Operating income in the Communications Solutions segment decreased $28 million and $40 million in the second quarter and first six months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

Operating income in the Communications Solutions segment increased $9 million and decreased $31 million in the third quarter and first nine months of fiscal 2020, respectively, as compared to the same periods of fiscal 2019.

The Communications Solutions segment’s operating income included the following:

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

Restructuring and other charges, net

Excluding these items, operating income decreased in the second quarter and first six months of fiscal 2020 due primarily to lower volume and price erosion.

Excluding these items, operating income increased slightly in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019.

Excluding these items, operating income decreased in the first nine months of fiscal 2020 primarily as a result of price erosion and lower volume, partially offset by lower material costs.

Liquidity and Capital Resources

Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements.

We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payments of $350 million of floating rate senior notes due in fiscal 2020 and $250 million of 4.875% senior notes due in fiscal 2021, and anticipated compensation payments to First Sensor minority shareholders.

We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payments of $250 million of 4.875% senior notes due in January 2021 and €350 million of fixed-to-floating rate senior notes due in June 2021, and compensation payments to First Sensor minority shareholders.

We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt.

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There is uncertainty surrounding the duration and scope of the COVID-19 pandemic and it may have a material impact on our liquidity and financial conditions.

We believe that we have sufficient financial resources and liquidity which, along with managing expenses and capital structure flexibility, will enable us to meet our ongoing working capital and other cash flow needs during the COVID-19 pandemic and resulting period of economic uncertainty which will include reduced sales and net income levels for us.

For further information regarding the impact of COVID-19 on our liquidity and capital resources, please see “Part II.

For further information regarding the impact of COVID-19 on our liquidity and capital resources, see “Part II.

Risk Factors” in this report.

Cash Flows from Operating Activities

In the first six months of fiscal 2020, net cash provided by continuing operating activities increased slightly to $892 million from $883 million in the first six months of fiscal 2019.

The amount of income taxes paid, net of refunds, during the first six months of fiscal 2020 and 2019 was $144 million and $177 million, respectively.

In the first nine months of fiscal 2020, net cash provided by continuing operating activities decreased $303 million to $1,272 million from $1,575 million in the first nine months of fiscal 2019.

The decrease resulted primarily from lower pre-tax income and increased inventory levels, partially offset by the favorable effects of changes in accounts receivable levels and a reduction in income tax payments.

The amount of income taxes paid, net of refunds, during the first nine months of fiscal 2020 and 2019 was $195 million and $277 million, respectively.

Cash Flows from Investing Activities

Capital expenditures were $309 million and $401 million in the first six months of fiscal 2020 and 2019, respectively.

Capital expenditures were $439 million and $570 million in the first nine months of fiscal 2020 and 2019, respectively.

We expect fiscal 2020 capital spending to be approximately $575 million.

We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.

During the first six months of fiscal 2020, we acquired four businesses, including First Sensor, for a combined cash purchase price of $356 million, net of cash acquired.

See Note 4 to the Condensed Consolidated Financial Statements for additional information.

During the first six months of fiscal 2019, we received net cash proceeds of $297 million related to the sale of our SubCom business.

During the first nine months of fiscal 2020, we acquired four businesses, including First Sensor, for a combined cash purchase price of $325 million, net of cash acquired.

During the first nine months of fiscal 2019, we acquired three businesses for a combined cash purchase price of $296 million, net of cash acquired.

See Note 4 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.

During the first nine months of fiscal 2019, we received net cash proceeds of $297 million related to the sale of our SubCom business.

See additional information in Note 3 to the Condensed Consolidated Financial Statements.

Cash Flows from Financing Activities and Capitalization

Total debt at March 27, 2020 and September 27, 2019 was $4,355 million and $3,965 million, respectively.

Total debt at June 26, 2020 and September 27, 2019 was $4,086 million and $3,965 million, respectively.

See Note 8 to the Condensed Consolidated Financial Statements for additional information regarding debt.

In the second quarter of fiscal 2020, Tyco Electronics Group S.A.

(“TEGSA”), our 100%-owned subsidiary, issued €550 million aggregate principal amount of 0.0% senior notes due February 2025.

During the third quarter of fiscal 2020, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, repaid, at maturity, $350 million of floating rate senior notes due in June 2020.

During the first nine months of fiscal 2020, TEGSA issued €550 million aggregate principal amount of 0.0% senior notes due in February 2025.

The notes are TEGSA’s unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of November 2023 and total commitments of $1.5 billion.

TEGSA had no borrowings under the Credit Facility at March 27, 2020 or September 27, 2019.

TEGSA had no borrowings under the Credit Facility at June 26, 2020 or September 27, 2019.

The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered.

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None of our covenants are presently considered restrictive to our operations.

As of March 27, 2020, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.

As of June 26, 2020, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.

In addition to the Credit Facility, TEGSA is the borrower under our senior notes and commercial paper.

TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed on an unsecured basis by its parent, TE Connectivity Ltd.

Payments of common share dividends to shareholders were $307 million and $299 million in the first six months of fiscal 2020 and 2019, respectively.

We repurchased approximately 5 million of our common shares for $423 million and approximately 9 million of our common shares for $684 million under the share repurchase program during the first six months of fiscal 2020 and 2019, respectively.

At March 27, 2020, we had $1.1 billion of availability remaining under our share repurchase authorization.

Payments of common share dividends to shareholders were $466 million and $454 million in the first nine months of fiscal 2020 and 2019, respectively.

In March 2020, our shareholders approved a dividend payment to shareholders of $1.92 per share, payable in four equal quarterly installments of $0.48 per share beginning in the third quarter of fiscal 2020 and ending in the second quarter of fiscal 2021.

We repurchased approximately 6 million of our common shares for $505 million and approximately 10 million of our common shares for $836 million under the share repurchase program during the first nine months of fiscal 2020 and 2019, respectively.

At June 26, 2020, we had $1.0 billion of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

In March 2020, the Securities and Exchange Commission adopted amendments to the financial disclosure requirements of Regulation S-X for subsidiary issuers and guarantors of registered debt securities and for affiliates whose securities are pledged as collateral for registered securities.

The amended disclosure requirements permit alternative disclosures of summarized financial information for subsidiary issuers and guarantors and allow for these disclosures to be made outside the Condensed Consolidated Financial Statements and accompanying notes.

We elected to early adopt these amendments in the third quarter of fiscal 2020.

As discussed above, our senior notes, commercial paper, and Credit Facility are issued by TEGSA and are fully and unconditionally guaranteed on an unsecured basis by TEGSA’s parent, TE Connectivity Ltd.

In addition to being the issuer of our debt securities, TEGSA owns, directly or indirectly, all of our operating subsidiaries.

The following tables present

summarized financial information, excluding investments in and equity in earnings of our non-guarantor subsidiaries, for TE Connectivity Ltd.

and TEGSA on a combined basis.

September 27,

(in millions)

Balance Sheet Data:

Total current assets

Total noncurrent assets (1)

Total current liabilities

Total noncurrent liabilities (2)

(1) Includes $2,626 million and $2,562 million as of June 26, 2020 and September 27, 2019, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $16,396 million and $16,033 million as of June 26, 2020 and September 27, 2019, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Nine Months Ended

Fiscal Year Ended

September 27,

(in millions)

Statement of Operations Data:

Loss from continuing operations

Commitments and Contingencies

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The terms of these guarantees vary with end dates ranging from fiscal 2020 through the completion of such transactions.

The guarantees would be triggered in the event of nonperformance, and the

potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows.

The guarantees would be triggered in the event of nonperformance, and the potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows.

In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition.

We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.

At March 27, 2020, we had outstanding letters of credit, letters of guarantee, and surety bonds of $271 million.

As discussed above, in the first six months of fiscal 2019, we sold our SubCom business.

In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale.

These guarantees had a combined value of approximately $1.2 billion as of March 27, 2020 and are expected to expire at various dates through fiscal 2025.

At June 26, 2020, we had outstanding letters of credit, letters of guarantee, and surety bonds of $273 million.

As discussed above, in the first nine months of fiscal 2019, we sold our SubCom business.

In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom

business’ projects that existed as of the date of sale.

These guarantees had a combined value of approximately $1.2 billion as of June 26, 2020 and are expected to expire at various dates through fiscal 2025.

Also, under the terms of the definitive agreement, we are required to issue up to $300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years.

As of March 27, 2020, there were no such new performance guarantees outstanding.

As of June 26, 2020, there were no such new performance guarantees outstanding.

We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees;

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For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 27, 2019.

Except as set forth below, there were no significant changes to this information during the first six months of fiscal 2020.

Except as set forth below, there were no significant changes to this information during the first nine months of fiscal 2020.

Goodwill and Other Intangible Assets

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Organic net sales growth (decline) represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any.

Organic net sales growth (decline) is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the

impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.

Organic net sales growth (decline) is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.

Organic net sales growth (decline) provides useful information about our results and the trends of our business.

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Organic net sales growth (decline) is a non-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP.

This non-GAAP financial measure may not be comparable to similarly-titled measures reported by other companies.

This non-GAAP financial measure may not be comparable to similarly-titled measures

reported by other companies.

The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results.

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● risks associated with current and future acquisitions and divestitures;

● global risks of business interruptions due to natural disasters or other disasters such as the COVID-19 pandemic, which have and could continue to impact customer behaviors, business, and manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business;

● global risks of business interruptions due to natural disasters or other disasters such as the COVID-19 pandemic, which have and could continue to negatively impact our results of operations as well as customer behaviors, business, and manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business;

● global risks of political, economic, and military instability, including volatile and uncertain economic conditions in China;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis