Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including but not limited to those under the heading “Forward-Looking Information” and “Part II. Item 1A. Risk Factors.”
Our Condensed Consolidated Financial Statements have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).
The following discussion includes organic net sales growth (decline) which is a non-GAAP financial measure. See “Non-GAAP Financial Measure” for additional information regarding this measure.
Ov erview
TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) is a global industrial technology leader creating a safer, sustainable, productive, and connected future. 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 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 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 .
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● 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
A novel strain of coronavirus (“COVID-19”) was first identified in China in December 2019 and subsequently declared a pandemic by the World Health Organization. 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 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 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. We expect to continue to assess the evolving impact of the COVID-19 pandemic and intend to adjust our operations accordingly. For example, throughout our operations, we have enacted additional health and safety measures for the protection of our employees, including providing personal protective equipment, enhanced cleaning and sanitizing of our facilities, and remote working arrangements.
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 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. 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, shareholders, and the communities in which we operate.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides certain relief to companies, including provisions relating to payroll tax credits, deferral of employer side social security taxes, net operating loss carryback periods, acceleration of alternative minimum tax credit refunds, modifications to the net interest deduction rules, and delayed minimum contributions with respect to defined benefit plans. We do not expect the CARES Act to have a material effect on our results of operations, financial position, or liquidity.
For a further discussion of the risks and uncertainties relating to the COVID-19 pandemic for our results of operations and business condition, see “Part II. Item 1A. Risk Factors” below.
Outlook
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
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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. We have taken actions to manage costs and will continue to closely manage our costs in line with economic conditions. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs. See further discussion in “Liquidity and Capital Resources.”
Acquisitions
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 nine months of fiscal 2020, we acquired three additional businesses for a combined cash purchase price of $124 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.
See Note 4 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.
Results of Operations
Net Sales
The following table presents our net sales and the percentage of total net sales by segment:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
($ in millions)
Transportation Solutions
$
1,255
49
%
$
1,968
58
%
$
4,980
56
%
$
5,925
58
%
Industrial Solutions
865
34
1,005
30
2,754
31
2,940
29
Communications Solutions
428
17
416
12
1,177
13
1,283
13
Total
$
2,548
100
%
$
3,389
100
%
$
8,911
100
%
$
10,148
100
%
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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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Growth (Decline)
Growth (Decline)
Translation
Acquisitions
Growth (Decline)
Growth (Decline)
Translation
Acquisitions
($ in millions)
Transportation Solutions
$
(713)
(36.2)
%
$
(738)
(37.3)
%
$
(19)
$
44
$
(945)
(15.9)
%
$
(949)
(16.0)
%
$
(91)
$
95
Industrial Solutions
(140)
(13.9)
(128)
(12.7)
(12)
—
(186)
(6.3)
(147)
(5.0)
(39)
—
Communications Solutions
12
2.9
16
3.8
(4)
—
(106)
(8.3)
(98)
(7.6)
(8)
—
Total
$
(841)
(24.8)
%
$
(850)
(25.0)
%
$
(35)
$
44
$
(1,237)
(12.2)
%
$
(1,194)
(11.7)
%
$
(138)
$
95
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 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 $136 million in the first nine months of fiscal 2020.
See further discussion of net sales below under “Segment Results.”
Net Sales by Geographic Region. Our business operates in three geographic regions—Europe/Middle East/Africa (“EMEA”), Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.
Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first nine months of fiscal 2020.
The following table presents our net sales and the percentage of total net sales by geographic region (1) :
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
($ in millions)
EMEA
$
777
30
%
$
1,217
36
%
$
3,062
34
%
$
3,664
36
%
Asia–Pacific
1,032
41
1,101
32
3,136
35
3,344
33
Americas
739
29
1,071
32
2,713
31
3,140
31
Total
$
2,548
100
%
$
3,389
100
%
$
8,911
100
%
$
10,148
100
%
(1) Net sales to external customers are attributed to individual countries based on the legal entity that records the sale.
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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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Growth (Decline)
Growth (Decline)
Translation
Acquisitions
Growth (Decline)
Growth (Decline)
Translation
Acquisitions
($ in millions)
EMEA
$
(440)
(36.2)
%
$
(462)
(37.7)
%
$
(12)
$
34
$
(602)
(16.4)
%
$
(584)
(15.9)
%
$
(75)
$
57
Asia–Pacific
(69)
(6.3)
(53)
(4.7)
(16)
—
(208)
(6.2)
(167)
(5.0)
(41)
—
Americas
(332)
(31.0)
(335)
(31.3)
(7)
10
(427)
(13.6)
(443)
(14.1)
(22)
38
Total
$
(841)
(24.8)
%
$
(850)
(25.0)
%
$
(35)
$
44
$
(1,237)
(12.2)
%
$
(1,194)
(11.7)
%
$
(138)
$
95
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
Change
2020
2019
Change
($ in millions)
Cost of sales
$
1,841
$
2,279
$
(438)
$
6,145
$
6,806
$
(661)
As a percentage of net sales
72.3
%
67.2
%
69.0
%
67.1
%
Gross margin
$
707
$
1,110
$
(403)
$
2,766
$
3,342
$
(576)
As a percentage of net sales
27.7
%
32.8
%
31.0
%
32.9
%
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. Cost of sales and gross margin are subject to variability in raw material prices which continue to fluctuate for many of the raw materials we use, including copper, gold, and silver. We expect to purchase approximately 160 million pounds of copper, 110,000 troy ounces of gold, and 2.3 million troy ounces of silver in fiscal 2020. The following table presents the average prices incurred related to copper, gold, and silver:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
Measure
2020
2019
2020
2019
Copper
Lb.
$
2.78
$
3.02
$
2.80
$
2.96
Gold
Troy oz.
1,411
1,305
1,380
1,304
Silver
Troy oz.
15.97
16.14
16.13
16.45
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Operating Expenses
The following table presents operating expense information:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
Change
2020
2019
Change
($ in millions)
Selling, general, and administrative expenses
$
321
$
356
$
(35)
$
1,040
$
1,118
$
(78)
As a percentage of net sales
12.6
%
10.5
%
11.7
%
11.0
%
Restructuring and other charges, net
$
98
$
67
$
31
$
144
$
184
$
(40)
Impairment of goodwill
—
—
—
900
—
900
Selling, General, and Administrative Expenses. 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. We are committed to continuous productivity improvements, and we evaluate opportunities to simplify our global manufacturing footprint, migrate facilities to lower-cost regions, reduce fixed costs, and eliminate excess capacity. 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, 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 $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. 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 as of March 27, 2020. 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 in the second quarter of fiscal 2020. The Sensors reporting unit had a remaining goodwill allocation of $626 million as of March 27, 2020. There were no triggering events identified in the third quarter of fiscal 2020 and therefore no goodwill
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impairment testing was required. See Note 6 to the Condensed Consolidated Financial Statements for additional information regarding the impairment of goodwill.
Operating Income
The following table presents operating income and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
Change
2020
2019
Change
($ in millions)
Operating income
$
134
$
520
$
(386)
$
190
$
1,534
$
(1,344)
Operating margin
5.3
%
15.3
%
2.1
%
15.1
%
Operating income included the following:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
(in millions)
Acquisition-related charges:
Acquisition and integration costs
$
8
$
9
$
27
$
21
Charges associated with the amortization of acquisition-related fair value adjustments
—
—
—
3
8
9
27
24
Restructuring and other charges, net
98
67
144
184
Impairment of goodwill
—
—
900
—
Total
$
106
$
76
$
1,071
$
208
See discussion of operating income below under “Segment Results.”
Non-Operating Items
The following table presents select non-operating information:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
Change
2020
2019
Change
($ in millions)
Interest expense
$
13
$
13
$
—
$
36
$
55
$
(19)
Income tax expense (benefit)
185
(245)
430
674
(76)
750
Effective tax rate
145.7
%
(47.8)
%
360.4
%
(5.1)
%
Income (loss) from discontinued operations, net of income taxes
$
17
$
(1)
$
18
$
16
$
(98)
$
114
Interest Expense. 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. dollars at a weighted-average rate of 2.56% per annum and pay no interest. See Note 11 to the Condensed Consolidated Financial Statements for additional information regarding our cross-currency swap program.
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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 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 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 $41 million in the first nine months of fiscal 2019 which represented one month of activity. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.
Segment Results
Transportation Solutions
Net Sales. The following table presents the Transportation Solutions segment’s net sales and the percentage of total net sales by industry end market (1) :
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
($ in millions)
Automotive
$
797
63
%
$
1,418
72
%
$
3,567
71
%
$
4,312
73
%
Commercial transportation
233
19
317
16
785
16
938
16
Sensors
225
18
233
12
628
13
675
11
Total
$
1,255
100
%
$
1,968
100
%
$
4,980
100
%
$
5,925
100
%
(1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.
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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Growth (Decline)
Growth (Decline)
Translation
Acquisitions
Growth (Decline)
Growth (Decline)
Translation
Acquisitions
($ in millions)
Automotive
$
(621)
(43.8)
%
$
(609)
(42.8)
%
$
(12)
$
—
$
(745)
(17.3)
%
$
(681)
(15.8)
%
$
(64)
$
—
Commercial transportation
(84)
(26.5)
(78)
(24.1)
(6)
—
(153)
(16.3)
(159)
(16.9)
(21)
27
Sensors
(8)
(3.4)
(51)
(22.1)
(1)
44
(47)
(7.0)
(109)
(16.2)
(6)
68
Total
$
(713)
(36.2)
%
$
(738)
(37.3)
%
$
(19)
$
44
$
(945)
(15.9)
%
$
(949)
(16.0)
%
$
(91)
$
95
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 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 .
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● 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 $945 million, or 15.9%, as compared to the first nine months of fiscal 2019 as a result of organic net sales declines of 16.0% and the negative impact of foreign currency translation of 1.5%, partially offset by sales from acquisitions of 1.6%. Net sales declines in the first nine months of fiscal 2020 included the significant unfavorable impacts of the COVID-19 pandemic. Our organic net sales by industry end market were as follows:
● Automotive— Our organic net sales decreased 15.8% in the first nine months of fiscal 2020 with declines of 21.7% in the Americas region, 20.1% in the EMEA region, and 8.3% in the Asia–Pacific region. Our overall organic net sales decreased as a result of declines in global automotive production; however, our sales decreased at a lesser rate than global automotive production due to content gains and customer inventory builds.
● Commercial transportation— Our organic net sales decreased 16.9% in the first nine months of fiscal 2020 due to market weakness in the Americas and EMEA regions, partially offset by growth in the Asia–Pacific region.
● Sensors— Our organic net sales decreased 16.2% in the first nine months of fiscal 2020 as a result of weakness across all markets.
Operating Income (Loss). The following table presents the Transportation Solutions segment’s operating income (loss) and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
Change
2020
2019
Change
($ in millions)
Operating income (loss)
$
(1)
$
308
$
(309)
$
(291)
$
956
$
(1,247)
Operating margin
(0.1)
%
15.7
%
(5.8)
%
16.1
%
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:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
(in millions)
Acquisition and integration costs
$
6
$
6
$
21
$
13
Restructuring and other charges, net
55
53
77
98
Impairment of goodwill
—
—
900
—
Total
$
61
$
59
$
998
$
111
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.
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Industrial Solutions
Net Sales. The following table presents the Industrial Solutions segment’s net sales and the percentage of total net sales by industry end market (1) :
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
($ in millions)
Aerospace, defense, oil, and gas
$
265
31
%
$
342
34
%
$
892
32
%
$
958
33
%
Industrial equipment
265
31
309
31
808
30
950
32
Medical
161
19
176
17
526
19
520
18
Energy
174
19
178
18
528
19
512
17
Total
$
865
100
%
$
1,005
100
%
$
2,754
100
%
$
2,940
100
%
(1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.
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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Growth (Decline)
Growth (Decline)
Translation
Growth (Decline)
Growth (Decline)
Translation
($ in millions)
Aerospace, defense, oil, and gas
$
(77)
(22.5)
%
$
(74)
(21.9)
%
$
(3)
$
(66)
(6.9)
%
$
(57)
(6.0)
%
$
(9)
Industrial equipment
(44)
(14.2)
(40)
(12.7)
(4)
(142)
(14.9)
(127)
(13.4)
(15)
Medical
(15)
(8.5)
(15)
(8.5)
—
6
1.2
7
1.3
(1)
Energy
(4)
(2.2)
1
0.5
(5)
16
3.1
30
5.8
(14)
Total
$
(140)
(13.9)
%
$
(128)
(12.7)
%
$
(12)
$
(186)
(6.3)
%
$
(147)
(5.0)
%
$
(39)
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 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 $186 million, or 6.3%, as compared to the same period of fiscal 2019 as a result of organic net sales declines of 5.0% and the negative impact of foreign currency translation of 1.3%. The significant unfavorable impacts of the COVID-19 pandemic were included in our net sales declines in the first nine months of fiscal 2020. Our organic net sales by industry end market were as follows:
● Aerospace, defense, oil, and gas— Our organic net sales decreased 6.0% in the first nine months of fiscal 2020 due primarily to weakness in the commercial aerospace and the defense markets.
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● Industrial equipment— Our organic net sales decreased 13.4% in the first nine months of fiscal 2020 due to market weakness in industrial applications across all regions.
● Medical— Our organic net sales increased 1.3% in the first nine months of fiscal 2020 primarily as a result of strength in interventional medical applications, partially offset by delays in elective procedures.
● Energy— Our organic net sales increased 5.8% in the first nine months of fiscal 2020 due to growth across all regions.
Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
Change
2020
2019
Change
($ in millions)
Operating income
$
70
$
156
$
(86)
$
327
$
393
$
(66)
Operating margin
8.1
%
15.5
%
11.9
%
13.4
%
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:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
(in millions)
Acquisition-related charges:
Acquisition and integration costs
$
2
$
3
$
6
$
8
Charges associated with the amortization of acquisition-related fair value adjustments
—
—
—
3
2
3
6
11
Restructuring and other charges, net
40
8
56
60
Total
$
42
$
11
$
62
$
71
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
Net Sales. The following table presents the Communications Solutions segment’s net sales and the percentage of total net sales by industry end market (1) :
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
($ in millions)
Data and devices
$
276
64
%
$
245
59
%
$
713
61
%
$
753
59
%
Appliances
152
36
171
41
464
39
530
41
Total
$
428
100
%
$
416
100
%
$
1,177
100
%
$
1,283
100
%
(1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.
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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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Growth (Decline)
Growth (Decline)
Translation
Growth (Decline)
Growth (Decline)
Translation
($ in millions)
Data and devices
$
31
12.7
%
$
31
12.7
%
$
—
$
(40)
(5.3)
%
$
(40)
(5.3)
%
$
—
Appliances
(19)
(11.1)
(15)
(8.9)
(4)
(66)
(12.5)
(58)
(10.8)
(8)
Total
$
12
2.9
%
$
16
3.8
%
$
(4)
$
(106)
(8.3)
%
$
(98)
(7.6)
%
$
(8)
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 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 $106 million, or 8.3%, as compared to the first nine months of fiscal 2019 primarily as a result of organic net sales declines of 7.6%. Net sales declines in the first nine months of fiscal 2020 included the unfavorable impacts of the COVID-19 pandemic. Our organic net sales by industry end market were as follows:
● Data and devices —Our organic net sales decreased 5.3% in the first nine months of fiscal 2020 due primarily to market weakness in the Americas and EMEA regions, partially offset by increased sales to cloud infrastructure customers.
● Appliances— Our organic net sales decreased 10.8% in the first nine months of fiscal 2020 primarily as a result of market weakness in all regions.
Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
Change
2020
2019
Change
($ in millions)
Operating income
$
65
$
56
$
9
$
154
$
185
$
(31)
Operating margin
15.2
%
13.5
%
13.1
%
14.4
%
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:
For the
For the
Quarters Ended
Nine Months Ended
June 26,
June 28,
June 26,
June 28,
2020
2019
2020
2019
(in millions)
Restructuring and other charges, net
$
3
$
6
$
11
$
26
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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 $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. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions, including future developments related to the COVID-19 pandemic. 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 relative to fiscal 2019. For further information regarding the impact of COVID-19 on our liquidity and capital resources, see “Part II. Item 1A. Risk Factors” in this report.
Cash Flows from Operating Activities
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 $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 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 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.
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.
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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 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. The Credit Facility and our other debt agreements contain other customary covenants. None of our covenants are presently considered restrictive to our operations. 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 $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
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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.
June 26,
September 27,
2020
2019
(in millions)
Balance Sheet Data:
Total current assets
$
91
$
89
Total noncurrent assets (1)
2,683
2,634
Total current liabilities
1,256
1,014
Total noncurrent liabilities (2)
19,863
19,475
(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.
For the
For the
Nine Months Ended
Fiscal Year Ended
June 26,
September 27,
2020
2019
(in millions)
Statement of Operations Data:
Loss from continuing operations
$
(92)
$
(341)
Net loss
(89)
(391)
Commitments and Contingencies
Legal Proceedings
In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.
Guarantees
In certain instances, we have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments. 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.
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 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
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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 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; however, based on historical experience, we do not anticipate having to perform. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding the divestiture of the SubCom business.
Critical Accounting Policies and Estimates
The preparation of the Condensed Consolidated 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, and the reported amounts of revenue and expenses.
Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension are based on, among other things, judgments and assumptions made by management. 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 nine months of fiscal 2020.
Goodwill and Other Intangible Assets
We adopted ASU No. 2017-04, an update to Accounting Standards Codification 350, Intangibles–Goodwill and Other , in the second quarter of fiscal 2020. See Note 1 to the Condensed Consolidated Financial Statements for information regarding our goodwill and other intangible assets policy and the adoption of ASU No. 2017-04.
Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements for information regarding recently adopted accounting pronouncements.
Non-GAAP Financial Measure
Organic Net Sales Growth (Decline)
We present organic net sales growth (decline) as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP. 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) provides useful information about our results and the trends of our business. Management uses this measure to monitor and evaluate performance. Also, management uses this measure together with GAAP financial measures in its decision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The tables presented in “Results of Operations” and “Segment Results” provide reconciliations of organic net sales growth (decline) to net sales growth (decline) calculated in accordance with GAAP.
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
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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. This limitation is best addressed by using organic net sales growth (decline) in combination with net sales growth (decline) to better understand the amounts, character, and impact of any increase or decrease in reported amounts.
Forward-Looking Information
Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among others, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, acquisitions, divestitures, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” and “should,” or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements after we file this report except as required by law.
The following and other risks, which are described in greater detail in “Part I. Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2019, and in this report, could cause our results to differ materially from those expressed in forward-looking statements:
● conditions in the global or regional economies and global capital markets, and cyclical industry conditions;
● conditions affecting demand for products in the industries we serve, particularly the automotive industry;
● risk of future goodwill impairment;
● competition and pricing pressure;
● market acceptance of our new product introductions and product innovations and product life cycles;
● raw material availability, quality, and cost;
● fluctuations in foreign currency exchange rates and impacts of offsetting hedges;
● financial condition and consolidation of customers and vendors;
● reliance on third-party suppliers;
● 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 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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● risks associated with security breaches and other disruptions to our information technology infrastructure;
● risks related to compliance with current and future environmental and other laws and regulations;
● our ability to protect our intellectual property rights;
● risks of litigation;
● our ability to operate within the limitations imposed by our debt instruments;
● the possible effects on us of various non-U.S. and U.S. legislative proposals and other initiatives that, if adopted, could materially increase our worldwide corporate effective tax rate and negatively impact our U.S. government contracts business;
● various risks associated with being a Swiss corporation;
● the impact of fluctuations in the market price of our shares; and
● the impact of certain provisions of our articles of association on unsolicited takeover proposals.
There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.