Item 7. 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 Consolidated Financial Statements and the accompanying notes included elsewhere in this Annual Report. 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. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Annual Report, particularly in “Risk Factors” and “Forward-Looking Information.”

Our Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).

Discussion of our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 is presented below. Discussion of our financial condition and results of operations for fiscal 2018 compared to fiscal 2017 can be found in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 28, 2018.

The following discussion includes organic net sales growth which is a non-GAAP financial measure. See “Non-GAAP Financial Measure” for additional information regarding this measure.

Overview

We are 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.

Fiscal 2019 included the following:

	●	Our fiscal 2019 net sales decreased 3.9% from fiscal 2018 levels due to sales declines in the Communications Solutions and Transportation Solutions segments, partially offset by growth in the Industrial Solutions segment. On an organic basis, our net sales decreased 1.7% in fiscal 2019 as compared to fiscal 2018.

	●	Our net sales by segment were as follows:

	●	Transportation Solutions—Our net sales decreased 5.7% due primarily to sales declines in the automotive end market.

	●	Industrial Solutions—Our net sales increased 2.5% primarily as a result of increased sales in the aerospace, defense, oil, and gas end market.

	●	Communications Solutions—Our net sales decreased 9.2% due to sales declines in both the appliances and the data and devices end markets.

	●	During fiscal 2019, our shareholders approved a dividend payment to shareholders of $1.84 per share, payable in four equal quarterly installments of $0.46 beginning in the third quarter of fiscal 2019 and ending in the second quarter of fiscal 2020.

	●	Net cash provided by continuing operating activities was $2,454 million in fiscal 2019.

​

Outlook

In the first quarter of fiscal 2020, we expect our net sales to be between $3.0 billion and $3.2 billion as compared to $3.35 billion in the first quarter of fiscal 2019. We expect our net sales to be between $12.7 billion and $13.3 billion in fiscal 2020 as compared to $13.4 billion in fiscal 2019. These decreases are primarily due to sales declines in the Communications Solutions and Transportation Solutions segments. Additional information regarding expectations for our reportable segments for the first quarter of fiscal 2020 as compared to the same period of fiscal 2019 and for fiscal 2020 compared to fiscal 2019 is as follows:

	●	Transportation Solutions—We expect our net sales to decrease in the automotive end market as a result of declines in global automotive production. However, we expect our content gains to partially offset the impact of the overall market decline. We expect our net sales to decrease in the commercial transportation end market as a result of market weakness.

	●	Industrial Solutions—We expect our net sales declines in the industrial equipment end market to be largely offset by sales increases in the aerospace, defense, oil, and gas and the energy end markets. In the industrial equipment end market, market weakness in industrial applications is expected to be partially offset by continued growth in medical applications.

	●	Communications Solutions—We expect our net sales to decline in both the data and devices and the appliances end markets due to market weakness across all regions and reduced demand resulting from high inventory levels at distributors.

We expect diluted earnings per share from continuing operations to be in the range of $0.93 to $0.99 per share in the first quarter of fiscal 2020. In fiscal 2020, we expect diluted earnings per share from continuing operations to be in the range of $4.21 to $4.61 per share.

The outlook for the first quarter of fiscal 2020 as compared to the same period of fiscal 2019 reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $62 million and $0.03 per share, respectively. The outlook for fiscal 2020 as compared to fiscal 2019 reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $229 million and $0.11 per share, respectively.

The above outlook is based on foreign currency exchange rates and commodity prices 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. We 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.”

Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”) in September 2018, and it was approved by public vote in May 2019. Certain measures became effective in fiscal 2019 and accordingly are reflected on our Consolidated Financial Statements.

In October 2019, the canton of Schaffhausen enacted Swiss Tax Reform into law. We are currently assessing the impacts of the cantonal implementation, including reductions in tax rates. We expect to recognize approximately $350 million of income tax expense related to the write-down of certain deferred tax assets to the lower tax rates in the first quarter of fiscal 2020, the period of enactment. This income tax charge is not reflected in the above outlook; however, our outlook does reflect an expected increase of approximately 400 basis points in our effective tax rate in fiscal 2020 as a result of other provisions of Swiss Tax Reform. See Note 15 to the Consolidated Financial Statements for additional information regarding Swiss Tax Reform.

​

Acquisitions

During fiscal 2019, we acquired three businesses for a combined cash purchase price of $296 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions segment from the date of acquisition.

We acquired two businesses during fiscal 2018 for a combined cash purchase price of $153 million, net of cash acquired. In fiscal 2019, we received $13 million as a result of a customary net working capital settlement for one of the acquisitions. The acquisitions were reported as part of our Industrial Solutions segment from the date of acquisition.

See Note 5 to the Consolidated Financial Statements for additional information regarding acquisitions.

Pending Acquisition

During fiscal 2019, we entered into a business combination agreement and commenced a voluntary public tender offer for all outstanding shares of First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany. The offer was accepted for approximately 72% of First Sensor’s shares. The transaction, including the assumption of First Sensor’s outstanding net debt and minority interest, is valued at approximately €307 million. Completion of the offer will be subject to customary closing conditions, including regulatory approvals. We expect to complete the transaction in fiscal 2020.

​

Discontinued Operations

In 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 has been reported as such in all periods presented on our Consolidated Financial Statements. Prior to reclassification to discontinued operations, the SubCom business was included in the Communications Solutions segment.

See Note 4 to the Consolidated Financial Statements for additional information regarding discontinued operations.

Results of Operations

Net Sales

The following table presents our net sales and the percentage of total net sales by segment:

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal									​	​
​		2019					2018
​		($ in millions)									​	​
Transportation Solutions	​	$	7,821		58	%	$	8,290		59	%	​
Industrial Solutions	​		3,954		30	​		3,856		28	​	​
Communications Solutions	​		1,673		12	​		1,842		13	​	​
Total	​	$	13,448		100	%	$	13,988		100	%	​

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

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Change in Net Sales for Fiscal 2019 versus Fiscal 2018															​
​	​	Net Sales				​	Organic Net				​	​	​	​	​	​	​
​		Growth				​	Sales Growth				​	Translation		​	Acquisitions
​	​	($ in millions)															​
Transportation Solutions	​	$	(469)		(5.7)	%	$	(232)		(2.8)	%	$	(274)	​	$	37	​
Industrial Solutions	​		98		2.5	​		120		3.1	​		(95)	​		73	​
Communications Solutions	​		(169)		(9.2)	​		(129)		(7.0)	​		(40)	​		—	​
Total	​	$	(540)		(3.9)	%	$	(241)		(1.7)	%	$	(409)	​	$	110	​

Net sales decreased $540 million, or 3.9%, in fiscal 2019 as compared to fiscal 2018. The decrease in net sales resulted from the negative impact of foreign currency translation of 3.0% due to the weakening of certain foreign currencies and organic net sales declines 1.7%, partially offset by sales contributions from acquisitions of 0.8%. Price erosion adversely affected organic net sales by $108 million in fiscal 2019.

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. 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. We sell our products into approximately 150 countries, and approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in fiscal 2019. The percentage of net sales in fiscal 2019 by major currencies invoiced was as follows:

​	​	​	​	​
Currencies		Percentage
U.S. dollar		42	%	​
Euro		30	​	​
Chinese renminbi		13	​	​
Japanese yen		6	​	​
All others		9	​	​
Total		100	%	​

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

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal									​	​
​		2019					2018				​
​	​	($ in millions)									​	​
EMEA	​	$	4,823		36	%	$	5,255		38	%	​
Asia–Pacific	​		4,401		33	​		4,762		34	​	​
Americas	​		4,224		31	​		3,971		28	​	​
Total	​	$	13,448		100	%	$	13,988		100	%	​

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

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Change in Net Sales for Fiscal 2019 versus Fiscal 2018
​	​	Net Sales				​	Organic Net				​	​	​	​	​	​	​
​		Growth				​	Sales Growth				​	Translation		​	Acquisitions
​	​	($ in millions)
EMEA	​	$	(432)		(8.2)	%	$	(231)	​	(4.4)	%	$	(269)	​	$	68	​
Asia–Pacific	​		(361)		(7.6)	​		(248)		(5.2)	​		(120)	​		7	​
Americas	​		253		6.4	​		238		6.0	​		(20)	​		35	​
Total	​	$	(540)		(3.9)	%	$	(241)		(1.7)	%	$	(409)	​	$	110	​

Cost of Sales and Gross Margin

The following table presents cost of sales and gross margin information:

​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal					​	​
​		2019			2018			Change
​	​	($ in millions)
Cost of sales	​	$	9,054	​	$	9,243	​	$	(189)	​
As a percentage of net sales	​		67.3	%		66.1	%			​
​	​	​	​	​	​	​	​	​	​	​
Gross margin	​	$	4,394	​	$	4,745	​	$	(351)	​
As a percentage of net sales	​		32.7	%		33.9	%			​

In fiscal 2019, gross margin decreased $351 million as compared to fiscal 2018, primarily as a result of lower volume, unfavorable product mix, negative foreign currency translation, and price erosion, partially offset by lower material costs. Gross margin as a percentage of net sales decreased to 32.7% in fiscal 2019 from 33.9% in fiscal 2018.

​

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. In fiscal 2019, we purchased approximately 172 million pounds of copper, 122,000 troy ounces of gold, and 2.6 million troy ounces of silver. The following table presents the average prices incurred related to copper, gold, and silver:

​	​	​	​	​	​	​	​	​	​
​	​	​	​	Fiscal					​
​		Measure		2019			2018
Copper		Lb.	​	$	2.93	​	$	2.86	​
Gold		Troy oz.	​		1,309	​		1,281	​
Silver		Troy oz.	​		16.42	​		17.15	​

​

In fiscal 2020, we expect to purchase approximately 170 million pounds of copper, 120,000 troy ounces of gold, and 2.4 million troy ounces of silver.

Operating Expenses

The following table presents operating expense information:

​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal					​	​
​		2019			2018			Change
​	​	($ in millions)
Selling, general, and administrative expenses	​	$	1,490	​	$	1,594	​	$	(104)	​
As a percentage of net sales	​		11.1	%		11.4	%			​
​	​	​	​	​	​	​	​	​	​	​
Restructuring and other charges, net	​		255	​		126	​		129	​

Selling, General, and Administrative Expenses. In fiscal 2019, selling, general, and administrative expenses decreased $104 million as compared to fiscal 2018 due primarily to lower incentive compensation costs as well as cost control measures and savings attributable to restructuring actions. Selling, general, and administrative expenses as a percentage of net sales decreased to 11.1% in fiscal 2019 from 11.4% in fiscal 2018.

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 2019, we initiated a restructuring program associated with footprint consolidation and structural improvements impacting all segments. During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments. In connection with these initiatives, we incurred net restructuring charges of $255 million and $140 million in fiscal 2019 and 2018, respectively. Annualized cost savings related to actions initiated in fiscal 2019 are expected to be approximately $220 million and are expected to be realized by the end of fiscal 2021. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses.

In response to market weakness in fiscal 2019, we initiated incremental restructuring actions, primarily consisting of employee severance, to broaden the scope of our cost reduction initiatives and accelerate cost reduction and factory footprint consolidation activities. We previously disclosed that we expected total restructuring charges to be approximately $375 million in fiscal 2019. We now expect certain of these actions to occur in fiscal 2020 or 2021. For fiscal 2020, we currently 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 $300 million.

See Note 3 to the Consolidated Financial Statements for additional information regarding net restructuring and other charges.

​

Operating Income

The following table presents operating income and operating margin information:

​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal					​	​		​
​		2019			2018			Change
​	​	($ in millions)								​
Operating income	​	$	1,978	​	$	2,331	​	$	(353)	​
Operating margin	​		14.7	%		16.7	%			​

Operating income included the following:

​	​	​	​	​	​	​	​
​	​	Fiscal					​
​		2019			2018
​	​	(in millions)					​
Acquisition-related charges:	​	​			​
Acquisition and integration costs	​	$	27	​	$	14	​
Charges associated with the amortization of acquisition-related fair value adjustments	​		3	​		8	​
​	​		30	​		22	​
Restructuring and other charges, net	​		255	​		126	​
Other items(1)	​	​	17	​	​	—	​
Total	​	$	302	​	$	148	​

	(1)	Represents the write-off of certain spare parts.

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

Non-Operating Items

The following table presents select non-operating information:

​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal					​	​		​
​		2019			2018			Change
​	​	($ in millions)								​
Interest expense	​	$	68	​	$	107	​	$	(39)	​
​	​	​	​	​	​	​	​	​	​	​
Income tax benefit	​		15	​		344	​		(329)	​
Effective tax rate	​		(0.8)	%		(15.4)	%			​
​	​	​	​	​	​	​	​	​	​	​
Loss from discontinued operations, net of income taxes	​	$	(102)	​	$	(19)	​	$	(83)	​

Interest Expense. Interest expense decreased $39 million during the fiscal 2019 due primarily to the expansion of our cross-currency swap program. Under the terms of the fiscal 2019 contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.9% per annum and pay no interest. See Note 13 to the Consolidated Financial Statements for additional information regarding our cross-currency swap program.

Income Taxes. See Note 15 to the Consolidated Financial Statements for discussion of items impacting income tax benefit and the effective tax rate for fiscal 2019 and 2018, including Swiss Tax Reform and the U.S. Tax Cuts and Jobs Act.

The valuation allowance for deferred tax assets was $4,970 million and $2,191 million at fiscal year end 2019 and 2018, respectively. See Note 15 to the Consolidated Financial Statements for further information regarding the valuation allowance for deferred tax assets.

As of fiscal year end 2019, certain subsidiaries had approximately $26 billion of cumulative undistributed earnings that have been retained indefinitely and reinvested in our global manufacturing operations, including working capital; property, plant, and equipment; intangible assets; and research and development activities. See Note 15 to the Consolidated Financial Statements for additional information regarding undistributed earnings.

Loss from Discontinued Operations, Net of Income Taxes. During fiscal 2019, we sold our SubCom business for net cash proceeds of $297 million and incurred a pre-tax loss on sale of $86 million. The net sales of the business were $41 million and $702 million in fiscal 2019 and 2018, respectively. The results for fiscal 2019 represent one month of activity. In fiscal 2018, net sales and operating income were negatively impacted by production delays on a program. See Note 4 to the 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):

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal									​	​
​		2019					2018
​	​	($ in millions)									​	​
Automotive	​	$	5,686		73	%	$	6,092		74	%	​
Commercial transportation	​		1,221		15	​		1,280		15	​	​
Sensors	​		914		12	​		918		11	​	​
Total	​	$	7,821		100	%	$	8,290		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 Fiscal 2019 versus Fiscal 2018
​	​	Net Sales				​	Organic Net				​	​	​	​	​	​
​		Growth				​	Sales Growth				​	Translation		​	Acquisitions
​	​	($ in millions)
Automotive	​	$	(406)	​	(6.7)	%	$	(198)	​	(3.3)	%	$	(208)		$	—	​
Commercial transportation	​		(59)		(4.6)	​		(48)		(3.9)	​		(40)	​		29	​
Sensors	​		(4)		(0.4)	​		14		1.4	​		(26)	​		8	​
Total	​	$	(469)		(5.7)	%	$	(232)		(2.8)	%	$	(274)	​	$	37	​

Net sales in the Transportation Solutions segment decreased $469 million, or 5.7%, in fiscal 2019 from fiscal 2018 primarily as a result of the negative impact of foreign currency translation of 3.3% and organic net sales declines of 2.8%. Our organic net sales by industry end market were as follows:

	●	Automotive—Our organic net sales decreased 3.3% in fiscal 2019. The decrease resulted from declines of 6.4% and 3.4% in the Asia–Pacific and EMEA regions, respectively, partially offset by growth of 3.7% in the Americas region. Our declines in the Asia–Pacific and EMEA regions resulted primarily from declines in automotive production. In the Americas region, our growth was attributable to electronification and market share gains.

	●	Commercial transportation—Our organic net sales decreased 3.9% in fiscal 2019 as a result of market weakness in all regions.

	●	Sensors—Our organic net sales increased 1.4% in fiscal 2019 due primarily to growth in the industrial equipment end market.

Operating Income. The following table presents the Transportation Solutions segment’s operating income and operating margin information:

​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal					​	​
​		2019			2018			Change
​	​	($ in millions)
Operating income	​	$	1,226	​	$	1,578	​	$	(352)	​
Operating margin	​		15.7	%		19.0	%			​

Operating income in the Transportation Solutions segment decreased $352 million in fiscal 2019 as compared to fiscal 2018. The Transportation Solutions segment’s operating income included the following:

​	​	​	​	​	​	​	​
​	​	Fiscal					​
​		2019			2018
​	​	(in millions)
Acquisition-related charges:	​	​			​		​
Acquisition and integration costs	​	$	17	​	$	8	​
Charges associated with the amortization of acquisition-related fair value adjustments	​		—	​		4	​
​	​		17	​		12	​
Restructuring and other charges, net	​		144	​		33	​
Other items	​	​	14	​	​	—	​
Total	​	$	175	​	$	45	​

Excluding these items, operating income decreased in fiscal 2019 primarily as a result of lower volume, unfavorable product mix, and price erosion, partially offset by lower material costs.

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):

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal									​	​
​		2019					2018
​	​	($ in millions)										​
Industrial equipment	​	$	1,949		49	%	$	1,987		52	%	​
Aerospace, defense, oil, and gas	​		1,306		33	​		1,157		30	​	​
Energy	​		699		18	​		712		18	​	​
Total	​	$	3,954		100	%	$	3,856		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 Fiscal 2019 versus Fiscal 2018
​	​	Net Sales				​	Organic Net				​	​	​	​	​	​	​
​		Growth				​	Sales Growth				​	Translation		​	Acquisition
​	​	($ in millions)
Industrial equipment	​	$	(38)	​	(1.9)	%	$	(66)	​	(3.4)	%	$	(45)	​	$	73	​
Aerospace, defense, oil, and gas	​		149		12.9	​		165		14.1	​		(16)	​		—	​
Energy	​		(13)		(1.8)	​		21		2.7	​		(34)	​		—	​
Total	​	$	98		2.5	%	$	120		3.1	%	$	(95)	​	$	73	​

​

​

In the Industrial Solutions segment, net sales increased $98 million, or 2.5%, in fiscal 2019 from fiscal 2018 due to organic net sales growth of 3.1% and sales contributions from an acquisition of 1.9%, partially offset by the negative impact of foreign currency translation of 2.5%. Our organic net sales by industry end market were as follows:

	●	Industrial equipment—Our organic net sales decreased 3.4% in fiscal 2019 primarily as a result of market weakness in industrial applications, particularly in the Asia-Pacific and EMEA regions, partially offset by strength in medical applications.

	●	Aerospace, defense, oil, and gas—Our organic net sales increased 14.1% in fiscal 2019 due to growth in the oil and gas, commercial aerospace, and defense markets.

	●	Energy—Our organic net sales increased 2.7% in fiscal 2019 primarily as a result of growth in the Americas region, partially offset by declines in the EMEA region.

Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information:

​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal					​	​		​
​		2019			2018			Change
​	​	($ in millions)								​
Operating income	​	$	543	​	$	465	​	$	78	​
Operating margin	​		13.7	%		12.1	%		​	​

Operating income in the Industrial Solutions segment increased $78 million in fiscal 2019 from fiscal 2018. The Industrial Solutions segment’s operating income included the following:

​	​	​	​	​	​	​	​
​	​	Fiscal					​
​		2019			2018
​	​	(in millions)
Acquisition-related charges:		​			​		​
Acquisition and integration costs	​	$	10	​	$	6	​
Charges associated with the amortization of acquisition-related fair value adjustments	​		3	​		4	​
​	​		13	​		10	​
Restructuring and other charges, net	​		63	​		80	​
Other items	​	​	2	​	​	—	​
Total	​	$	78	​	$	90	​

Excluding these items, operating income increased in fiscal 2019 primarily as a result of higher volume and improved manufacturing productivity.

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):

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal									​	​
​		2019					2018
​	​	($ in millions)										​
Data and devices	​	$	993		59	%	$	1,068		58	%	​
Appliances	​		680		41	​		774		42	​	​
Total	​	$	1,673		100	%	$	1,842		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 Communications Solutions segment’s net sales by industry end market:

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Change in Net Sales for Fiscal 2019 versus Fiscal 2018
​	​	Net Sales				​	Organic Net				​	​	​
​		Growth				​	Sales Growth				​	Translation
​	​	($ in millions)
Data and devices	​	$	(75)	​	(7.0)	%	$	(58)	​	(5.4)	%	$	(17)	​
Appliances	​		(94)		(12.1)	​		(71)		(9.3)	​		(23)	​
Total	​	$	(169)		(9.2)	%	$	(129)		(7.0)	%	$	(40)	​

Net sales in the Communications Solutions segment decreased $169 million, or 9.2%, in fiscal 2019 as compared to fiscal 2018 due to organic net sales declines of 7.0% and the negative impact of foreign currency translation of 2.2%. Our organic net sales by industry end market were as follows:

	●	Data and devices—Our organic net sales decreased 5.4% in fiscal 2019 as a result of market weakness across all regions.

	●	Appliances—Our organic net sales decreased 9.3% in fiscal 2019 due to market weakness across all regions and reduced demand resulting from high inventory levels at distributors.

Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information:

​	​	​	​	​	​	​	​	​	​	​
​	​	Fiscal					​	​	​	​
​		2019			2018			Change
​	​	($ in millions)								​
Operating income	​	$	209	​	$	288	​	$	(79)	​
Operating margin	​		12.5	%		15.6	%		​	​

In the Communications Solutions segment, operating income decreased $79 million in fiscal 2019 as compared to fiscal 2018. The Communications Solutions segment’s operating income included the following:

​	​	​	​	​	​	​	​
​	​	Fiscal
​		2019			2018
​	​	(in millions)					​
Restructuring and other charges, net	​	$	48	​	$	13	​
Other items	​	​	1	​	​	—	​
Total	​	$	49	​	$	13	​

Excluding these items, operating income decreased in fiscal 2019 due primarily to lower volume.

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 payment of $350 million of floating rate senior notes due in fiscal 2020, the pending acquisition of First Sensor, and cash spending related to restructuring initiatives. 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.

As of fiscal year end 2019, our cash and cash equivalents were held in subsidiaries which are located in various countries throughout the world. Under current applicable laws, substantially all of these amounts can be repatriated to Tyco Electronics Group S.A. (“TEGSA”), our Luxembourg subsidiary, which is the obligor of substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company; however, the repatriation of these amounts could subject us to additional

tax expense. We provide for tax liabilities on the Consolidated Financial Statements with respect to amounts that we expect to repatriate; however, no tax liabilities are recorded for amounts that we consider to be retained indefinitely and reinvested in our global manufacturing operations. As of fiscal year end 2019, we had approximately $9.1 billion of cash, cash equivalents, and intercompany deposits, principally in our subsidiaries, that we have the ability to distribute to TEGSA and TE Connectivity Ltd. but we consider to be permanently reinvested. We estimate that up to $1.0 billion of tax expense would be recognized on the Consolidated Financial Statements if our intention to permanently reinvest these amounts were to change. Our current plans do not demonstrate a need to repatriate cash, cash equivalents, and intercompany deposits that are designated as permanently reinvested in order to fund our operations, including investing and financing activities.

Cash Flows from Operating Activities

Net cash provided by continuing operating activities increased $153 million to $2,454 million in fiscal 2019 as compared to $2,301 million in fiscal 2018. The increase resulted primarily from higher collections of accounts receivable and fluctuations in cash collateral requirements under our cross-currency swap contracts, partially offset by a decrease in pre-tax income levels.

The amount of income taxes paid, net of refunds, during fiscal 2019 and 2018 was $338 million and $393 million, respectively. We do not expect a significant change in our income tax payments as a result of Swiss Tax Reform. See Note 15 to the Consolidated Financial Statements for additional information regarding Swiss Tax Reform.

Pension contributions in fiscal 2019 and 2018, were $45 million and $54 million, respectively. We expect pension contributions to be $68 million in fiscal 2020, before consideration of any voluntary contributions.

Cash Flows from Investing Activities

Capital expenditures were $749 million and $935 million in fiscal 2019 and 2018, respectively. We expect fiscal 2020 capital spending levels to be approximately 5-6% of net sales. 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 fiscal 2019, we acquired three businesses for a combined cash purchase price of $296 million, net of cash acquired. We acquired two businesses during fiscal 2018 for a combined cash purchase price of $153 million, net of cash acquired. In fiscal 2019, we received $13 million as a result of a customary net working capital settlement for one of the acquisitions. See Note 5 to the Consolidated Financial Statements for additional information regarding acquisitions.

During fiscal 2019, we received net cash proceeds of $297 million related to the sale of our SubCom business. See additional information in Note 4 to the Consolidated Financial Statements.

Cash Flows from Financing Activities and Capitalization

Total debt at fiscal year end 2019 and 2018 was $3,965 million and $4,000 million, respectively. See Note 11 to the Consolidated Financial Statements for additional information regarding debt.

During fiscal 2019, TEGSA, our 100%-owned subsidiary, issued €350 million aggregate principal amount of fixed-to-floating rate senior notes due June 2021. The fixed-to-floating rate senior notes bear interest at a rate of 0% until June 2020 and then at a rate of three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.30% per year until maturity. In June 2020, we may, at our option, redeem the fixed-to-floating rate senior notes, as a whole, at 100% of the principal amount. Also, during fiscal 2019, TEGSA issued $350 million aggregate principal amount of floating rate senior notes due June 2020. The floating rate senior notes bear interest at a rate of three-month London Interbank Offered Rate (“LIBOR”) plus 0.45% per year. The fixed-to-floating rate senior notes and floating rate senior 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 total commitments of $1.5 billion. The Credit Facility was amended in November 2018 primarily to extend the maturity date from December 2020 to November 2023. The amended Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies. TEGSA had no borrowings under the Credit Facility at fiscal year end 2019 or 2018.

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 fiscal year end 2019, 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.

Periodically, TEGSA issues commercial paper to U.S. institutional accredited investors and qualified institutional buyers in accordance with available exemptions from the registration requirements of the Securities Act of 1933 as part of our ongoing effort to maintain financial flexibility and to potentially decrease the cost of borrowings. Borrowings under the commercial paper program are backed by the Credit Facility.

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

Payments of common share dividends to shareholders were $608 million and $588 million in fiscal 2019 and 2018, respectively. See Note 17 to the Consolidated Financial Statements for additional information regarding dividends on our common shares.

Future dividends on our common shares, if any, must be approved by our shareholders. In exercising their discretion to recommend to the shareholders that such dividends be approved, our board of directors will consider our results of operations, cash requirements and surplus, financial condition, statutory requirements of applicable law, contractual restrictions, and other factors that they may deem relevant.

In both fiscal 2019 and 2018, our board of directors authorized increases of $1.5 billion in our share repurchase program. We repurchased approximately 12 million of our common shares for $1,014 million and approximately 10 million of our common shares for $966 million under the share repurchase program during fiscal 2019 and 2018, respectively. At fiscal year end 2019, we had $1.5 billion of availability remaining under our share repurchase authorization.

Commitments and Contingencies

The following table provides a summary of our contractual obligations and commitments for debt, minimum lease payment obligations under non-cancelable leases, and other obligations at fiscal year end 2019:

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	Payments Due by Fiscal Year
​		Total			2020			2021			2022			2023			2024			Thereafter
​	​	(in millions)
Debt(1)	​	$	3,975	​	$	571	​	$	633	​	$	500	​	$	602	​	$	350	​	$	1,319	​
Interest payments on debt(2)	​		979	​		115	​		103	​		88	​		79	​		72	​		522	​
Operating leases(3)	​		540	​		117	​		102	​		81	​		67	​		55	​		118	​
Purchase obligations(4)	​		632	​		623	​		6	​		—	​		—	​		—	​		3	​
Total contractual cash obligations(5)(6)(7)	​	$	6,126	​	$	1,426	​	$	844	​	$	669	​	$	748	​	$	477	​	$	1,962	​

(1)	Debt represents principal payments. See Note 11 to the Consolidated Financial Statements for additional information regarding debt.

(2)	Interest payments exclude the impact of our interest rate swap and cross-currency swap contracts. Interest payments on debt are projected for future periods using rates in effect as of fiscal year end 2019 and are subject to change in future periods.

(3)	See “Recently Issued Accounting Pronouncements” in Note 2 to the Consolidated Financial Statements for information regarding our adoption of Accounting Standards Codifications (“ASC”) 842, Leases, in fiscal 2020.

(4)	Purchase obligations consist primarily of commitments for purchases of goods and services.

(5)	The above table does not reflect unrecognized income tax benefits of $542 million and related accrued interest and penalties of $42 million, the timing of which is uncertain. See Note 15 to the Consolidated Financial Statements for additional information regarding unrecognized income tax benefits, interest, and penalties.

(6)

The above table does not reflect pension obligations to certain employees and former employees. We are obligated to make contributions to our pension plans; however, we are unable to determine the amount of plan contributions due to the inherent uncertainties of obligations of this type, including timing, interest rate charges, investment performance, and amounts of benefit payments. We expect to contribute $68 million to pension plans in fiscal 2020, before consideration of any voluntary contributions. See Note 14 to the Consolidated Financial Statements for additional information regarding these plans and our estimates of future contributions and benefit payments.

(7)	Other long-term liabilities of $427 million are excluded from the above table as we are unable to estimate the timing of payment for these items.

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.

Off-Balance Sheet Arrangements

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 fiscal year end 2019, we had outstanding letters of credit, letters of guarantee, and surety bonds of $309 million.

As discussed above, in 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 $1.55 billion as of fiscal year end 2019 and are expected to expire at various dates through fiscal 2025; however, the majority are expected to expire by fiscal year end 2020. 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. At fiscal year end 2019, 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 4 to the Consolidated Financial Statements for additional information regarding the divestiture of the SubCom business.

Critical Accounting Policies and Estimates

The preparation of the 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 significant accounting policies are summarized in Note 2 to the Consolidated Financial Statements. We believe the following accounting policies are the most critical as they require significant judgments and assumptions that involve inherent risks and uncertainties. Management’s estimates are based on the relevant information available at the end of each period.

​

Revenue Recognition

We account for revenue in accordance with ASC 606, Revenue from Contracts with Customers. Our revenues are generated principally from the sale of our products. Revenue is recognized as performance obligations under the terms of a contract, such as a purchase order with a customer, are satisfied; generally this occurs with the transfer of control. We transfer control and recognize revenue when we ship product to our customers, the customers accept and have legal title for the product, and we have a right to payment for such product. Revenue is measured as the amount of consideration that we expect to receive in exchange for those products and excludes taxes assessed by governmental authorities and collected from customers concurrent with the sale of products. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales. Since we typically invoice our customers when we satisfy our performance obligations, we do not have material contract assets or contract liabilities. Our credit terms are customary and do not contain significant financing components that extend beyond one year of fulfillment of performance obligations. We apply the practical expedient of ASC 606 with respect to financing components and do not evaluate contracts in which payment is due within one year of satisfaction of the related performance obligation. Since our performance obligations to deliver products are part of contracts that generally have original durations of one year or less, we have elected to use the optional exemption to not disclose the aggregate amount of transaction prices associated with unsatisfied or partially satisfied performance obligations as of fiscal year end 2019.

We generally warrant that our products will conform to our, or mutually agreed to, specifications and that our products will be free from material defects in materials and workmanship for a limited time. We limit our warranty to the replacement or repair of defective parts, or a refund or credit of the price of the defective product. We do not account for these warranties as separate performance obligations.

Although products are generally sold at fixed prices, certain distributors and customers receive incentives or awards, such as sales rebates, return allowances, scrap allowances, and other rights, which are accounted for as variable consideration. We estimate these amounts in the same period revenue is recognized based on the expected value to be provided to customers and reduce revenue accordingly. Our estimates of variable consideration and ultimate determination of the estimated amounts to include in the transaction price are based primarily on our assessment of anticipated performance and historical and forecasted information that is reasonably available to us.

See Note 2 to the Consolidated Financial Statements for information regarding our adoption of ASC 606 in fiscal 2019.

Goodwill and Other Intangible Assets

Intangible assets include both indeterminable-lived residual goodwill and determinable-lived identifiable intangible assets. Intangible assets with determinable lives primarily include intellectual property, consisting of patents, trademarks, and unpatented technology, and customer relationships. Recoverability estimates range from 1 to 50 years and costs are generally amortized on a straight-line basis. Evaluations of the remaining useful lives of determinable-lived intangible assets are performed on a periodic basis and when events and circumstances warrant.

We test for goodwill impairment at the reporting unit level. A reporting unit is generally an operating segment or one level below an operating segment (a “component”) if the component constitutes a business for which discrete financial information is available and regularly reviewed by segment management. At fiscal year end 2019, we had five reporting units, all of which contained goodwill. There were two reporting units in both the Transportation Solutions and Industrial Solutions segments and one reporting unit in the Communications Solutions segment. When changes occur in the composition of one or more reporting units, goodwill is reassigned to the reporting units affected based on their relative fair values. We review our reporting unit structure each year as part of our annual goodwill impairment test, or more frequently based on changes in our structure.

Goodwill impairment is evaluated by comparing the carrying value of each reporting unit to its fair value on the first day of the fourth fiscal quarter of each year or whenever we believe a triggering event requiring a more frequent assessment has occurred. In assessing the existence of a triggering event, management relies on several reporting unit-specific factors including operating results, business plans, economic projections, anticipated future cash flows, transactions, and market place data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors to the impairment analysis.

When testing for goodwill impairment, we perform a step I goodwill impairment test to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, goodwill may be impaired and a step II goodwill impairment test is performed to measure the amount of impairment, if any. In the step II goodwill impairment test, we compare the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The implied fair value of goodwill is determined in a manner consistent with how goodwill is recognized in a business combination. We allocate the fair value of a reporting unit to the assets and liabilities of that unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.

Fair value estimates used in the step I goodwill impairment tests are calculated using an income approach based on the present value of future cash flows of each reporting unit. The income approach has been supported by guideline analyses (a market approach). These approaches incorporate several assumptions including future growth rates, discount rates, income tax rates, and market activity in assessing fair value and are reporting unit specific. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.

We completed our annual goodwill impairment test in the fourth quarter of fiscal 2019 and determined that no impairment existed.

Income Taxes

In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the income tax return and financial statement recognition of revenue and expense.

In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years, and our forecast of taxable income. In estimating future taxable income, we develop assumptions including the amount of pre-tax operating income in various tax jurisdictions, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.

We currently have recorded significant valuation allowances that we intend to maintain until it is more likely than not the deferred tax assets will be realized. Our income tax expense recorded in the future will be reduced to the extent of decreases in our valuation allowances. The realization of our remaining deferred tax assets is dependent primarily on future taxable income in the appropriate jurisdictions. Any reduction in future taxable income including any future restructuring activities may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in such period and could have a significant impact on our future earnings.

Changes in tax laws and rates, including Swiss Tax Reform, also could affect recorded deferred tax assets and liabilities in the future. See Note 15 to the Consolidated Financial Statements for additional information regarding Swiss Tax Reform. Management is not aware of any other such changes that would have a material effect on our results of operations, financial position, or cash flows.

The calculation of our tax liabilities includes estimates for uncertainties in the application of complex tax regulations across multiple global jurisdictions where we conduct our operations. Under the uncertain tax position provisions of ASC 740, Income Taxes, we recognize liabilities for tax and related interest for issues in tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and related interest will be due. These tax liabilities and related interest are reflected net of the impact of related tax loss carryforwards, as such tax loss carryforwards will be applied against these tax liabilities and will reduce the amount of cash tax payments due upon the eventual settlement with the tax authorities. These estimates may change due to changing facts and circumstances. Due to the complexity of these uncertainties, the ultimate resolution may result in a settlement that differs from our current estimate of the tax liabilities and related interest. These tax liabilities and related interest are recorded in income taxes and accrued and other current liabilities on the Consolidated Balance Sheets.

Pension

Our defined benefit pension plan expense and obligations are developed from actuarial assumptions. The funded status of our plans is recognized on the Consolidated Balance Sheets and is measured as the difference between the fair value of plan assets and the projected benefit obligation at the measurement date. The projected benefit obligation represents the actuarial present value of benefits projected to be paid upon retirement factoring in estimated future compensation levels. The fair value of plan assets represents the current market value of cumulative company and participant contributions made to irrevocable trust funds, held for the sole benefit of participants, which are invested by the trustee of the funds. The benefits under our defined benefit pension plans are based on various factors, such as years of service and compensation.

Net periodic pension benefit cost is based on the utilization of the projected unit credit method of calculation and is charged to earnings on a systematic basis over the expected average remaining service lives of current participants, or, for inactive plans, over the remaining life expectancy of participants.

Two critical assumptions in determining pension expense and obligations are the discount rate and expected long-term return on plan assets. We evaluate these assumptions at least annually. Other assumptions reflect demographic factors such as retirement, mortality, and employee turnover. These assumptions are evaluated periodically and updated to reflect our actual experience. Actual results may differ from actuarial assumptions. The discount rate represents the market rate for high-quality fixed income investments and is used to calculate the present value of the expected future cash flows for benefit obligations to be paid under our pension plans. A decrease in the discount rate increases the present value of pension benefit obligations. At fiscal year end 2019, a 25-basis-point decrease in the discount rate would have increased the present value of our pension obligations by $150 million; a 25-basis-point increase would have decreased the present value of our pension obligations by $131 million. We consider the current and expected asset allocations of our pension plans, as well as historical and expected long-term rates of return on those types of plan assets, in determining the expected long-term rate of return on plan assets. A 50-basis-point decrease or increase in the expected long-term return on plan assets would have increased or decreased, respectively, our fiscal 2019 pension expense by $11 million.

At fiscal year end 2019, the long-term target asset allocation in our U.S. plans’ master trust is 5% return-seeking assets and 95% liability-hedging assets. Asset re-allocation to meet that target is occurring over a multi-year period based on the funded status. We expect to reach our target allocation when the funded status of the plans exceeds 115%. Based on the funded status of the plans as of fiscal year end 2019, our target asset allocation is 67% return-seeking and 33% liability-hedging.

Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for information regarding recently issued and recently adopted accounting pronouncements.

Non-GAAP Financial Measure

Organic Net Sales Growth

We present organic net sales growth 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 represents net sales growth (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 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 provides useful information about our results and the trends of our business. Management uses organic net sales growth to monitor and evaluate performance. Also, management uses organic net sales growth 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 to net sales growth calculated in accordance with GAAP.

Organic net sales growth 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. 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 in combination with net sales growth to better understand the amounts, character, and impact of any increase or decrease in reported amounts.

Forward-Looking Information

Certain statements in this Annual Report 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,” “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,” as well as other risks described in this Annual 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;

	●	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 such as natural disasters;

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

	●	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.