What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-23 compared with 2021-01-28 · 184 added, 106 removed, 266 unchanged (52% of the section changed)

10 unchanged sentences

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

The first quarter of fiscal 2021 included the following:

● Our net sales increased 11.2% in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 due primarily to sales growth in the Transportation Solutions segment.

On an organic basis, our net sales increased 6.2% during the first quarter of fiscal 2021 as compared to the same period of fiscal 2020.

The second quarter and first six months of fiscal 2021 included the following:

● Our net sales increased 17.0% and 14.1% in the second quarter and first six months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020 due to sales growth in the Transportation Solutions and the Communications Solutions segments, partially offset by sales declines in the Industrial Solutions segment.

On an organic basis, our net sales increased 11.0% and 8.6% during the second quarter and first six months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020.

● Our net sales by segment were as follows:

● Transportation Solutions —Our net sales increased 19.1% in the first quarter of fiscal 2021 due to sales increases in the automotive end market and, to a lesser degree, the commercial transportation and sensors end markets.

● Industrial Solutions —Our net sales decreased 5.8% in the first quarter of fiscal 2021 primarily as a result of sales declines in the aerospace, defense, oil, and gas and the medical end markets, partially offset by sales increases in the industrial equipment end market.

● Communications Solutions —Our net sales increased 13.9% in the first quarter of fiscal 2021 due to sales increases in both the appliances and the data and devices end markets.

● Net cash provided by continuing operating activities was $640 million in the first quarter of fiscal 2021.

● Transportation Solutions —Our net sales increased 23.2% and 21.1% in the second quarter and first six months of fiscal 2021, respectively, with sales increases in all end markets.

● Industrial Solutions —Our net sales decreased 1.0% and 3.4% in the second quarter and first six months of fiscal 2021, respectively, as a result of sales declines in the aerospace, defense, oil, and gas and the medical end markets, partially offset by sales increases in the industrial equipment and the energy end markets.

● Communications Solutions —Our net sales increased 32.7% and 23.4% in the second quarter and first six months of fiscal 2021, respectively, due to sales increases in both the appliances and the data and devices end markets.

● Net cash provided by operating activities was $1,220 million in the first six months of fiscal 2021.

COVID-19 Pandemic and Economic Conditions

The COVID-19 pandemic has affected nearly all regions around the world and resulted in business slowdowns or shutdowns and travel restrictions in affected areas.

The pandemic negatively affected our sales and operating results during fiscal 2020 and the first quarter of fiscal 2021, and we expect that it will continue to have an impact on some of our businesses in the near term and may have a material impact on our financial condition, liquidity, and results of operations in future periods .

The pandemic negatively affected our sales and operating results during fiscal 2020 and continued to negatively affect certain of our businesses in the first six months of fiscal 2021.

We expect that

it will continue to have an impact on some of our businesses in the near term and may have a material impact on our financial condition, liquidity, and results of operations in future periods .

The COVID-19 pandemic is currently impacting, and we expect that it will continue to impact, our business operations globally, causing further 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.

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, the pandemic has had and may continue to have far-reaching impacts on many additional aspects of our operations, both 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.

We will continue to assess the evolving impact of the COVID-19 pandemic and intend to adjust our operations accordingly.

We will continue to assess the evolving impact of the COVID-19 pandemic and intend to adjust our operations and businesses, a number of which are operating as essential businesses, accordingly.

Throughout our operations, we have implemented 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.

The extent to which the pandemic will continue to impact our business and the markets we serve will depend on the success of, among other things, future developments and public health advancements, including the recent commencement of vaccine production and distribution.

We expect that the COVID-19 pandemic will continue to impact several of the markets we serve , in particular the commercial aerospace and medical markets in our Industrial Solutions segment;

however, we expect these markets to improve later in fiscal 2021.

See “Outlook” below for additional information.

We expect that the COVID-19 pandemic will continue to impact several of the markets we serve , in particular the commercial aerospace market in our Industrial Solutions segment;

however, we expect this market to stabilize in the second half of fiscal 2021.

See “Outlook” below for additional information regarding our expectations.

In response to the economic environment, we have taken and continue to focus on actions to manage costs.

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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.

In the second quarter of fiscal 2021, we expect our net sales to be approximately $3.5 billion as compared to $3.2 billion in the second quarter of fiscal 2020.

This increase reflects sales growth in the Transportation Solutions segment and, to a lesser degree, the Communications Solutions segment, partially offset by sales declines in the Industrial Solutions segment relative to the second quarter of fiscal 2020.

We expect diluted earnings per share from continuing operations to be approximately $1.38 per share in the second quarter of fiscal 2021.

This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $167 million and $0.09 per share, respectively, in the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020.

In the third quarter of fiscal 2021, we expect our net sales to be approximately $3.7 billion as compared to $2.5 billion in the third quarter of fiscal 2020.

This increase reflects sales growth in the Transportation Solutions segment and, to a lesser degree, the Communications Solutions and Industrial Solutions segments.

We expect diluted earnings per share from continuing operations to be approximately $1.51 per share in the third quarter of fiscal 2021.

This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $108 million and $0.01 per share, respectively, in the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2020.

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

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See further discussion in “Liquidity and Capital Resources.”

During the first quarter of fiscal 2021, we acquired one business for a cash purchase price of $106 million, net of cash acquired.

During the first six months of fiscal 2021, we acquired one business for a cash purchase price of $106 million, net of cash acquired.

The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.

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Quarters Ended

Six Months Ended

($ in millions)

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

Change in Net Sales for the Quarter Ended December 25, 2020

versus Net Sales for the Quarter Ended December 27, 2019

Change in Net Sales for the Quarter Ended March 26, 2021

Change in Net Sales for the Six Months Ended March 26, 2021

versus Net Sales for the Quarter Ended March 27, 2020

versus Net Sales for the Six Months Ended March 27, 2020

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestiture)

($ in millions)

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Communications Solutions

Net sales increased $354 million, or 11.2%, in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020.

The increase in net sales resulted from organic net sales growth of 6.2%, the positive impact of foreign currency translation of 3.4% due to the strengthening of certain foreign currencies, and sales contributions from acquisitions of 1.6%.

In the first quarter of fiscal 2021, our net sales declines in the Industrial Solutions segment reflected significant unfavorable impacts from the COVID-19 pandemic.

Price erosion adversely affected organic net sales by $26 million in the first quarter of fiscal 2021.

Net sales increased $543 million, or 17.0%, in the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020.

The increase in net sales resulted from organic net sales growth of 11.0%, the positive impact of foreign currency translation of 4.7% due to the strengthening of certain foreign currencies, and net sales contributions of 1.3% from acquisitions and a divestiture.

In the second quarter of fiscal 2021, our net sales declines in the Industrial Solutions segment reflected significant unfavorable impacts from the COVID-19 pandemic.

Price erosion adversely affected organic net sales by $20 million in the second quarter of fiscal 2021.

In the first six months of fiscal 2021, net sales increased $897 million, or 14.1%, as compared to the first six months of fiscal 2020 due to organic net sales growth of 8.6%, the positive impact of foreign currency translation of 4.0% due to the strengthening of certain foreign currencies, and net sales contributions of 1.5% from acquisitions and a divestiture.

In the first six months of fiscal 2021, our net sales declines in the Industrial Solutions segment reflected significant unfavorable impacts from the COVID-19 pandemic.

Price erosion adversely affected organic net sales by $46 million in the first six months of fiscal 2021.

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

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

dollar in the first quarter of fiscal 2021.

dollar in the first six months of fiscal 2021.

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

Quarters Ended

Six Months Ended

($ in millions)

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

Change in Net Sales for the Quarter Ended December 25, 2020

versus Net Sales for the Quarter Ended December 27, 2019

Change in Net Sales for the Quarter Ended March 26, 2021

Change in Net Sales for the Six Months Ended March 26, 2021

versus Net Sales for the Quarter Ended March 27, 2020

versus Net Sales for the Six Months Ended March 27, 2020

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestiture)

($ in millions)

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Quarters Ended

Six Months Ended

($ in millions)

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As a percentage of net sales

Gross margin increased $116 million in the first quarter of fiscal 2021 as compared to the same period of fiscal 2020 primarily as a result of higher volume and, to a lesser degree, positive foreign currency translation and lower material costs.

Gross margin increased $181 million and $297 million in the second quarter and first six months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020.

The increases were primarily as a result of higher volume and, to a lesser degree, positive foreign currency translation, lower material costs, and improved manufacturing productivity, partially offset by price erosion.

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

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Quarters Ended

Six Months Ended

Operating Expenses

1 unchanged sentence

Quarters Ended

Six Months Ended

($ in millions)

2 unchanged sentences

Restructuring and other charges, net

Impairment of goodwill

Selling, General, and Administrative Expenses.

Selling, general, and administrative expenses decreased slightly in the first quarter of fiscal 2021 from the first quarter of fiscal 2020 due primarily to cost control measures and savings attributable to restructuring actions, partially offset by higher incentive compensation costs.

Selling, general, and administrative expenses increased $49 million and $43 million in the second quarter and first six months of fiscal 2021, respectively, from the same periods of fiscal 2020 primarily as a result of higher incentive compensation costs due to improved operational performance.

Restructuring and Other Charges, Net.

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

During fiscal 2021 and 2020, we initiated restructuring programs associated with footprint consolidation and structural improvements, due in part to the COVID-19 pandemic, across all segments.

We incurred net restructuring charges of $149 million during the first quarter of fiscal 2021, of which $142 million related to the fiscal 2021 restructuring program.

Annualized cost savings related to the fiscal 2021 actions commenced during the first quarter of fiscal 2021 are expected to be approximately $60 million and are expected to be realized by the end of fiscal 2023.

During fiscal 2021 and 2020, we initiated restructuring programs across all segments to optimize our manufacturing footprint and improve the cost structure of the organization.

We incurred net restructuring charges of $160 million during the first six months of fiscal 2021, of which $153 million related to the fiscal 2021 restructuring program.

Annualized cost savings related to the fiscal 2021 actions commenced during the first six months of fiscal 2021 are expected to be approximately $60 million and are expected to be realized by the end of fiscal 2023.

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

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

Operating Income

The following table presents operating income and operating margin information:

Impairment of Goodwill.

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

Operating Income (Loss)

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

Quarters Ended

Six Months Ended

($ in millions)

Operating income

Operating income (loss)

Operating margin

Operating income included the following:

Operating income (loss) included the following:

Quarters Ended

Six Months Ended

(in millions)

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Restructuring and other charges, net

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

Impairment of goodwill

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

Non-Operating Items

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Quarters Ended

Six Months Ended

($ in millions)

2 unchanged sentences

Income Taxes.

See Note 12 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the first quarters of fiscal 2021 and 2020, including the Switzerland Federal Act on Tax Reform and AHV Financing in fiscal 2020.

See Note 12 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the second quarters and first six months of fiscal 2021 and 2020, including the Switzerland Federal Act on Tax Reform and AHV Financing and the termination of the Tax Sharing Agreement in fiscal 2020.

Segment Results

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Quarters Ended

Six Months Ended

($ in millions)

2 unchanged sentences

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 December 25, 2020

versus Net Sales for the Quarter Ended December 27, 2019

Change in Net Sales for the Quarter Ended March 26, 2021

Change in Net Sales for the Six Months Ended March 26, 2021

versus Net Sales for the Quarter Ended March 27, 2020

versus Net Sales for the Six Months Ended March 27, 2020

Organic Net Sales

($ in millions)

Commercial transportation

Net sales in the Transportation Solutions segment increased $356 million, or 19.1%, in the first quarter of fiscal 2021 from the first quarter of fiscal 2020 due to organic net sales growth of 12.3%, the positive impact of foreign currency translation of 4.2%, and sales contributions from an acquisition of 2.6%.

Net sales in the Transportation Solutions segment increased $430 million, or 23.2%, in the second quarter of fiscal 2021 from the second quarter of fiscal 2020 due to organic net sales growth of 15.3%, the positive impact of foreign currency translation of 5.6%, and sales contributions from an acquisition of 2.3%.

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

● Automotive— Our organic net sales increased 11.3% in the first quarter of fiscal 2021 due primarily to content gains and the favorable impacts associated with the replenishment of inventory in the supply chain.

Our organic net sales increased 12.9% in the EMEA region, 11.0% in the Asia–Pacific region, and 8.7% in the Americas region.

● Commercial transportation— Our organic net sales increased 24.9% in the first quarter of fiscal 2021 as a result of growth across all regions due primarily to content gains.

● Sensors— Our organic net sales increased 3.2% in the first quarter of fiscal 2021 due to strength in transportation applications.

Operating Income.

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

● Automotive— Our organic net sales increased 13.5% in the second quarter of fiscal 2021 with increases of 28.3% in the Asia–Pacific region, 5.9% in the Americas region, and 4.9% in the EMEA region.

Our growth in the Asia–Pacific and EMEA regions resulted from increases in automotive production as well as content gains.

Our growth in the Americas region was due primarily to content gains.

● Commercial transportation— Our organic net sales increased 24.8% in the second quarter of fiscal 2021 with growth across all regions as a result of market growth and content gains.

● Sensors— Our organic net sales increased 13.4% in the second quarter of fiscal 2021 due to strength across all markets.

In the first six months of fiscal 2021, net sales in the Transportation Solutions segment increased $786 million, or 21.1%, as compared to the first six months of fiscal 2020 as a result of organic net sales growth of 13.8%, the positive impact of foreign currency translation of 4.9%, and sales contributions from an acquisition of 2.4%.

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

● Automotive— Our organic net sales increased 12.4% in the first six months of fiscal 2021 with increases of 18.8% in the Asia–Pacific region, 8.7% in the EMEA region, and 7.2% in the Americas region.

Our growth in

the Asia–Pacific and EMEA regions was attributable to increases in automotive production and content gains.

In the Americas region, our growth was primarily a result of content gains.

● Commercial transportation— Our organic net sales increased 24.9% in the first six months of fiscal 2021 due to growth across all regions resulting from market growth and content gains.

● Sensors— Our organic net sales increased 8.2% in the first six months of fiscal 2021 as a result of strength across all markets.

Operating Income (Loss).

The following table presents the Transportation Solutions segment’s operating income (loss) and operating margin information:

Quarters Ended

Six Months Ended

($ in millions)

Operating income

Operating income (loss)

Operating margin

Operating income in the Transportation Solutions segment decreased slightly in the first quarter of fiscal 2021 as compared to the same period of fiscal 2020.

Excluding the items below, operating income increased primarily as a result of higher volume.

Operating income (loss) in the Transportation Solutions segment increased $1,004 million and $996 million in the second quarter and first six months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020.

Excluding the items below, operating income (loss) increased primarily as a result of higher volume.

Quarters Ended

Six Months Ended

(in millions)

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Restructuring and other charges, net

Impairment of goodwill

Industrial Solutions

1 unchanged sentence

Quarters Ended

Six Months Ended

($ in millions)

3 unchanged sentences

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 December 25, 2020

versus Net Sales for the Quarter Ended December 27, 2019

Change in Net Sales for the Quarter Ended March 26, 2021

Change in Net Sales for the Six Months Ended March 26, 2021

versus Net Sales for the Quarter Ended March 27, 2020

versus Net Sales for the Six Months Ended March 27, 2020

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestiture)

($ in millions)

1 unchanged sentence

Industrial equipment

In the Industrial Solutions segment, net sales decreased $54 million, or 5.8%, in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 due primarily to organic net sales declines of 8.4%, partially offset by the positive impact of foreign currency translation of 2.3%.

Net sales in the first quarter of fiscal 2021 included significant unfavorable impacts from the COVID-19 pandemic.

In the Industrial Solutions segment, net sales decreased $10 million, or 1.0%, in the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020 due primarily to organic net sales declines of 4.2%, partially offset by the positive impact of foreign currency translation of 3.2%.

Net sales in the second quarter of fiscal 2021 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 22.0% in the first quarter of fiscal 2021 due primarily to reduced demand in the commercial aerospace market.

● Industrial equipment— Our organic net sales increased 7.7% in the first quarter of fiscal 2021 due to growth in all regions primarily as a result of strength in factory automation and controls applications.

● Medical— Our organic net sales decreased 13.4% in the first quarter of fiscal 2021 due primarily to continued delays in elective procedures.

● Energy— Our organic net sales decreased 3.7% in the first quarter of fiscal 2021 as a result of declines across all regions due primarily to weakness in the utility market.

● Aerospace, defense, oil, and gas— Our organic net sales decreased 20.8% in the second quarter of fiscal 2021 due primarily to reduced demand in the commercial aerospace market.

● Industrial equipment— Our organic net sales increased 15.7% in the second quarter of fiscal 2021 due to growth in all regions primarily as a result of strength in factory automation and controls applications.

● Medical— Our organic net sales decreased 13.4% in the second quarter of fiscal 2021 due primarily to continued delays in elective procedures.

● Energy— Our organic net sales increased 4.0% in the second quarter of fiscal 2021 primarily as a result of growth in solar applications.

In the first six months of fiscal 2021, net sales in the Industrial Solutions segment decreased $64 million, or 3.4%, as compared to the first six months of fiscal 2020 primarily as a result of organic net sales declines of 6.3%, partially offset by the positive impact of foreign currency translation of 2.8%.

Our net sales declines reflected significant unfavorable impacts of the COVID-19 pandemic in the first six months of fiscal 2021.

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

● Aerospace, defense, oil, and gas— Our organic net sales decreased 21.4% in the first six months of fiscal 2021 primarily as a result of reduced demand in the commercial aerospace market.

● Industrial equipment— Our organic net sales increased 11.8% in the first six months of fiscal 2021 with growth in all regions due primarily to strength in factory automation and controls applications.

● Medical— Our organic net sales decreased 13.5% in the first six months of fiscal 2021 primarily as a result of continued delays in elective procedures.

● Energy— Our organic net sales were flat in the first six months of fiscal 2021 with growth in the Americas region primarily attributable to strength in solar applications, offset by declines in the EMEA region.

Operating Income.

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Quarters Ended

Six Months Ended

($ in millions)

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Operating margin

Operating income in the Industrial Solutions segment decreased $39 million in the first quarter of fiscal 2021 as compared to the same period of fiscal 2020.

Excluding the items below, operating income decreased due primarily to lower volume, partially offset by improved manufacturing productivity.

Operating income in the Industrial Solutions segment decreased $31 million and $70 million in the second quarter and first six months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020.

Excluding the items below, operating income decreased due primarily to lower volume.

Quarters Ended

Six Months Ended

(in millions)

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Quarters Ended

Six Months Ended

($ in millions)

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

Change in Net Sales for the Quarter Ended December 25, 2020

versus Net Sales for the Quarter Ended December 27, 2019

Change in Net Sales for the Quarter Ended March 26, 2021

Change in Net Sales for the Six Months Ended March 26, 2021

versus Net Sales for the Quarter Ended March 27, 2020

versus Net Sales for the Six Months Ended March 27, 2020

Organic Net Sales

($ in millions)

Data and devices

Net sales in the Communications Solutions segment increased $52 million, or 13.9%, in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 due primarily to organic net sales growth of 11.5%.

Net sales in the Communications Solutions segment increased $123 million, or 32.7%, in the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020 due primarily to organic net sales growth of 28.7%.

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

● Data and devices —Our organic net sales increased 4.7% in the first quarter of fiscal 2021 primarily as a result of market strength and market share gains in high-speed cloud applications.

● Appliances— Our organic net sales increased 21.1% in the first quarter of fiscal 2021 due to sales growth in all regions primarily attributable to benefits from home investments.

● Data and devices —Our organic net sales increased 24.0% in the second quarter of fiscal 2021 primarily as a result of market strength as well as market share gains and content growth in high-speed cloud applications.

● Appliances— Our organic net sales increased 35.3% in the second quarter of fiscal 2021 due to sales growth in all regions primarily attributable to market improvements and market share gains.

In the first six months of fiscal 2021, net sales in the Communications Solutions segment increased $175 million, or 23.4%, as compared to the first six months of fiscal 2020 primarily as a result of organic net sales growth of 20.2%.

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

● Data and devices —Our organic net sales increased 14.4% in the first six months of fiscal 2021 due primarily to market strength as well as market share gains and content growth in high-speed cloud applications.

● Appliances— Our organic net sales increased 28.3% in the first six months of fiscal 2021 as a result of sales growth in all regions due primarily to market improvements and market share gains.

Operating Income.

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Quarters Ended

Six Months Ended

($ in millions)

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Operating margin

Operating income in the Communications Solutions segment increased $24 million in the first quarter of fiscal 2021 as compared to the same period of fiscal 2020.

Excluding the item below, operating income increased due primarily to higher volume, improved manufacturing productivity, and lower material costs.

Operating income in the Communications Solutions segment increased $54 million and $78 million in the second quarter and first six months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020.

Excluding the item below, operating income increased due primarily to higher volume and improved manufacturing productivity.

Quarters Ended

Six Months Ended

(in millions)

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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 fixed-to-floating rate senior notes due in June 2021.

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

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.

Payment of our $250 million of 4.875% senior notes due in January 2021 was made after the first quarter of fiscal 2021.

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 continued uncertainty surrounding the duration and scope of the 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.

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.

Cash Flows from Operating Activities

In the first quarter of fiscal 2021, net cash provided by continuing operating activities increased $229 million to $640 million from $411 million in the first quarter of fiscal 2020.

The increase resulted primarily from improved working capital.

The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2021 and 2020 was $85 million and $43 million, respectively.

In the first six months of fiscal 2021, net cash provided by operating activities increased $328 million to $1,220 million from $892 million in the first six months of fiscal 2020.

The increase resulted primarily from higher pre-tax income levels and improved working capital.

The amount of income taxes paid, net of refunds, during the first six months of fiscal 2021 and 2020 was $181 million and $144 million, respectively.

Cash Flows from Investing Activities

Capital expenditures were $142 million and $176 million in the first quarters of fiscal 2021 and 2020, respectively.

Capital expenditures were $284 million and $309 million in the first six months of fiscal 2021 and 2020, respectively.

We expect fiscal 2021 capital spending levels to be approximately 4-5% 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 the first quarter of fiscal 2021, we acquired one business for a cash purchase price of $106 million, net of cash acquired.

We acquired two businesses for a combined cash purchase price of $112 million, net of cash acquired, during the first quarter of 2020.

During the first six months of fiscal 2021, we acquired one business for a cash purchase price of $106 million, net of cash acquired.

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

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

Cash Flows from Financing Activities and Capitalization

Total debt at December 25, 2020 and September 25, 2020 was $4,201 million and $4,146 million, respectively.

Tyco Electronics Group S.A.

Total debt at March 26, 2021 and September 25, 2020 was $4,521 million and $4,146 million, respectively.

See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding debt.

In the second quarter of fiscal 2021, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, issued €550 million aggregate principal amount of 0.00% senior notes due in February 2029.

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 December 25, 2020 or September 25, 2020.

TEGSA had no borrowings under the Credit Facility at March 26, 2021 or September 25, 2020.

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

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

As of December 25, 2020, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.

As of March 26, 2021, 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 $159 million and $154 million in the first quarters of fiscal 2021 and 2020, respectively.

We repurchased approximately 1 million of our common shares for $127 million and approximately 2 million of our common shares for $143 million under the share repurchase program during the first quarters of fiscal 2021 and 2020, respectively.

At December 25, 2020, we had $868 million of availability remaining under our share repurchase authorization.

Payments of common share dividends to shareholders were $318 million and $307 million in the first six months of fiscal 2021 and 2020, respectively.

We repurchased approximately 3 million of our common shares for $309 million and approximately 5 million of our common shares for $423 million under the share repurchase program during the first six months of fiscal 2021 and 2020, respectively.

At March 26, 2021, we had $686 million of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

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

The following tables present

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

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

and TEGSA on a combined basis.

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Total noncurrent liabilities (2)

(1) Includes $3,277 million and $3,275 million as of December 25, 2020 and September 25, 2020, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $20,388 million and $20,016 million as of December 25, 2020 and September 25, 2020, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Quarter Ended

(1) Includes $3,118 million and $3,275 million as of March 26, 2021 and September 25, 2020, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $20,050 million and $20,016 million as of March 26, 2021 and September 25, 2020, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Six Months Ended

Fiscal Year Ended

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We are investigating our past compliance with relevant U.S.

trade controls and are making voluntary disclosures of apparent trade controls violations to the U.S.

Department of Commerce’s Bureau of Industry and Security (“BIS”).

We are cooperating with BIS, and both our internal assessment and the BIS investigation are ongoing.

We are unable to predict the final outcome of the BIS investigation or to reasonably estimate the time it may take to resolve these matters.

An unfavorable outcome may include fines or penalties imposed in response to our disclosures;

however, we are not yet able to estimate whether any such fines or penalties would be material to our financial condition and results of operations.

trade controls and have made voluntary disclosures of apparent trade controls violations to the U.S.

Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S.

State Department’s Directorate of Defense Trade Controls (“DDTC”).

We are cooperating with the BIS and DDTC on these matters, and both our internal assessment and the resulting investigations by the agencies remain ongoing.

We are unable to predict the timing and final outcome of the agencies’ investigations.

An unfavorable outcome may include fines or penalties imposed in response to our disclosures, but we are not yet able to reasonably estimate the extent of any such fines or penalties.

While we have reserved for potential fines and penalties relating to these matters based on our current understanding of the facts, the investigations into these matters have yet to be completed and the final outcome of such investigations and related fines and penalties may differ from amounts currently reserved.

In certain instances, we have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments.

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

At December 25, 2020, we had outstanding letters of credit, letters of guarantee, and surety bonds of $252 million, of which $93 million related to our Subsea Communications (“SubCom”) business which was sold during fiscal 2019.

In connection with the SubCom 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 performance guarantees and letters of credit had a combined value of approximately $280 million as of December 25, 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 December 25, 2020, there were no new performance guarantees outstanding.

At March 26, 2021, we had outstanding letters of credit, letters of guarantee, and surety bonds of $157 million, excluding those related to our Subsea Communications (“SubCom”) business which are discussed below.

During 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 performance guarantees and letters of credit had a combined value of approximately $130 million as of March 26, 2021 and are expected to expire at various dates through fiscal 2025.

During the second quarter of fiscal 2021, we amended our agreement with SubCom and removed the requirement to issue new performance guarantees.

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

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For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 25, 2020.

There were no significant changes to this information during the first quarter of fiscal 2021.

There were no significant changes to this information during the first six months of fiscal 2021.

Non-GAAP Financial Measure

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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.

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.

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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.

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

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● risks associated with current and future acquisitions and divestitures;

● global risks of business interruptions due to natural disasters or other disasters such as the COVID-19 pandemic, which have and could continue to 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;

behaviors, business, and manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business;

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis