What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-23 · 178 added, 171 removed, 279 unchanged (56% of the section changed)

10 unchanged sentences

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

The second quarter and first six months of fiscal 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.

The third quarter and first nine months of fiscal 2021 included the following:

● Our net sales increased 50.9% and 24.6% in the third quarter and first nine months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020 due to sales growth in the Transportation Solutions segment and, to a lesser degree, the Communications Solutions and Industrial Solutions segments.

On an organic basis, our net sales increased 45.0% and 19.0% during the third quarter and first nine 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 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

● Transportation Solutions —Our net sales increased 80.5% and 36.1% in the third quarter and first nine months of fiscal 2021, respectively, with sales increases in all end markets.

● Industrial Solutions —Our net sales increased 15.8% in the third quarter of fiscal 2021 primarily as a result of sales increases in the industrial equipment end market.

In the first nine months of fiscal 2021, our net sales increased 2.7% due primarily to sales increases in the industrial equipment end market, partially offset by declines in the aerospace, defense, oil, and gas end market.

● Communications Solutions —Our net sales increased 35.0% and 27.6% in the third quarter and first nine 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 $1,902 million in the first nine months of fiscal 2021.

COVID-19 Pandemic

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 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.

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 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 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 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.

The pandemic had a significant, negative impact on our sales and

operating results during fiscal 2020 and continued to negatively affect certain of our businesses in fiscal 2021.

We do not expect that it will continue to have a significant impact on our businesses in the near term .

The COVID-19 pandemic impacted our business operations globally, causing disruption in our suppliers’ and customers’ supply chains, some of our business locations to reduce or suspend operations, and a reduction in demand for certain products from direct customers or end markets.

In addition, the pandemic had 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.

We assessed the impact of the COVID-19 pandemic and adjusted our operations and businesses, a number of which are operating as essential businesses, and will continue to do so if necessary.

Throughout our operations, we 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 future developments which may include the further spread of the virus, variant strains of the virus, and the resumption of high levels of infections and hospitalizations as well as the success of public health advancements, including vaccine production and distribution.

Although we do not expect the COVID-19 pandemic to have a significant impact on our businesses in the near term, it may have a negative impact on our financial condition, liquidity, and results of operations in future periods.

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

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

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 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.

In the fourth quarter of fiscal 2021, we expect our net sales to be approximately $3.8 billion as compared to $3.26 billion in the fourth quarter of fiscal 2020.

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

We expect diluted earnings per share from continuing operations to be approximately $1.55 per share in the fourth quarter of fiscal 2021.

This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $82 million and $0.03 per share, respectively, in the fourth quarter of fiscal 2021 as compared to the fourth quarter of fiscal 2020.

For fiscal 2021, we expect our net sales to be approximately $14.9 billion as compared to $12.17 billion in fiscal 2020.

This increase reflects sales growth in the Transportation Solutions segment and, to a lesser degree, the Communications Solutions and Industrial Solutions segments relative to fiscal 2020.

We expect diluted earnings per share from continuing operations to be approximately $5.94 per share in fiscal 2021.

This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $473 million and $0.18 per share, respectively, in fiscal 2021 as compared to fiscal 2020.

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

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

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

We have taken actions to manage costs and will continue to closely manage our costs in line with economic conditions.

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See further discussion in “Liquidity and Capital Resources.”

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.

During the first nine months of fiscal 2021, we acquired two businesses for a combined cash purchase price of $125 million, net of cash acquired.

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

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

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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

Change in Net Sales for the Quarter Ended March 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

Change in Net Sales for the Quarter Ended June 25, 2021

Change in Net Sales for the Nine Months Ended June 25, 2021

versus Net Sales for the Quarter Ended June 26, 2020

versus Net Sales for the Nine Months Ended June 26, 2020

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestitures)

Growth (Decline)

(Divestiture)

(Divestitures)

($ in millions)

2 unchanged sentences

Communications Solutions

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.

Net sales increased $1,297 million, or 50.9%, in the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2020.

The increase in net sales resulted primarily from organic net sales growth of 45.0% and the positive impact of foreign currency translation of 5.4% due to the strengthening of certain foreign currencies.

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

In the first nine months of fiscal 2021, net sales increased $2,194 million, or 24.6%, as compared to the first nine months of fiscal 2020 due to organic net sales growth of 19.0%, the positive impact of foreign currency translation of 4.5% due to the strengthening of certain foreign currencies, and net sales contributions of 1.1% from acquisitions and divestitures.

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

Price erosion adversely affected organic net sales by $47 million in the first nine 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 six months of fiscal 2021.

dollar in the first nine 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

Nine Months Ended

($ in millions)

1 unchanged sentence

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

Change in Net Sales for the Quarter Ended March 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

Change in Net Sales for the Quarter Ended June 25, 2021

Change in Net Sales for the Nine Months Ended June 25, 2021

versus Net Sales for the Quarter Ended June 26, 2020

versus Net Sales for the Nine Months Ended June 26, 2020

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestiture)

(Divestitures)

($ in millions)

2 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

2 unchanged sentences

As a percentage of net sales

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.

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, silver, and palladium.

We expect to purchase approximately 200 million pounds of copper, 120,000 troy ounces

of gold, 2.6 million troy ounces of silver, and 15,000 troy ounces of palladium in fiscal 2021.

Gross margin increased $561 million and $858 million in the third quarter and first nine 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, improved manufacturing productivity and the positive impact of foreign currency translation.

We use a wide variety of raw materials in the manufacture of our products and cost of sales and gross margin are subject to variability in raw material prices.

As markets recover from the COVID-19 pandemic, increases in consumer demand have led to shortages and price increases in some of our input materials.

During the third quarter and first nine months of fiscal 2021, copper, gold, silver, and palladium prices as well as the prices of certain other raw materials have

increased from prior year levels.

The following table presents the average prices incurred related to copper, gold, silver, and palladium:

Quarters Ended

Six Months Ended

Nine Months Ended

We expect to purchase approximately 200 million pounds of copper, 125,000 troy ounces of gold, 2.7 million troy ounces of silver, and 15,000 troy ounces of palladium in fiscal 2021.

Operating Expenses

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

4 unchanged sentences

Selling, General, and Administrative Expenses.

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.

Selling, general, and administrative expenses increased $45 million in the third quarter of fiscal 2021 from the third quarter of fiscal 2020 due primarily to increased selling expenses to support higher sales levels, higher incentive compensation costs due to improved operational performance, and the negative impact of foreign currency translation, partially offset by savings attributable to restructuring actions and gains on the sale of real estate.

In the first nine months of fiscal 2021, selling, general, and administrative expenses increased $88 million from the same period of fiscal 2020 due primarily to higher incentive compensation costs, the negative impact of foreign currency translation, and increased selling expenses, partially offset by savings attributable to cost control measures and restructuring actions and gains on the sale of real estate.

Restructuring and Other Charges, Net.

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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.

We incurred net restructuring charges of $170 million during the first nine months of fiscal 2021, of which $162 million related to the fiscal 2021 restructuring program.

Annualized cost savings related to the fiscal 2021 actions commenced during the first nine months of fiscal 2021 are expected to be approximately $75 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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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:

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

Operating Income

The following table presents operating income and operating margin information:

Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

Operating income (loss)

Operating income

Operating margin

Operating income (loss) included the following:

Operating income included the following:

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

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Impairment of goodwill

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

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

Non-Operating Items

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

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 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.

See Note 12 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the third quarters and first nine months of fiscal 2021 and 2020, including the Switzerland Federal Act on Tax Reform and AHV Financing and an increase to the valuation allowance for certain non-U.S.

deferred tax assets in fiscal 2020.

Segment Results

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Quarters Ended

Six Months Ended

Nine 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 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

Change in Net Sales for the Quarter Ended June 25, 2021

Change in Net Sales for the Nine Months Ended June 25, 2021

versus Net Sales for the Quarter Ended June 26, 2020

versus Net Sales for the Nine Months Ended June 26, 2020

Organic Net Sales

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Commercial transportation

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%.

Net sales in the Transportation Solutions segment increased $1,010 million, or 80.5%, in the third quarter of fiscal 2021 from the third quarter of fiscal 2020 due primarily to organic net sales growth of 71.6%.

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

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

● Automotive— Our organic net sales 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%.

● Automotive— Our organic net sales increased 90.2% in the third quarter of fiscal 2021 with increases of 194.4% in the Americas region, 133.4% in the EMEA region, and 41.7% in the Asia–Pacific region.

Our growth across all regions resulted primarily from increases in global automotive production and content gains.

● Commercial transportation— Our organic net sales increased 56.3% in the third quarter of fiscal 2021 with growth across all regions as a result of market growth and content gains.

● Sensors— Our organic net sales increased 20.3% in the third quarter of fiscal 2021 due primarily to strength in transportation applications.

In the first nine months of fiscal 2021, net sales in the Transportation Solutions segment increased $1,796 million, or 36.1%, as compared to the first nine months of fiscal 2020 primarily as a result of organic net sales growth of 28.4%.

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

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

● Automotive— Our organic net sales 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.

● Automotive— Our organic net sales increased 29.9% in the first nine months of fiscal 2021 with increases of 35.8% in the Americas region, 32.0% in the EMEA region, and 25.4% in the Asia–Pacific region.

organic net sales growth was attributable primarily to increases in global automotive production and content gains.

● Commercial transportation— Our organic net sales increased 34.3% in the first nine months of fiscal 2021 due to growth across all regions resulting from market growth and content gains.

● Sensors— Our organic net sales increased 12.5% in the first nine months of fiscal 2021 as a result of strength across all markets.

Operating Income (Loss).

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Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

Operating margin

Operating income (loss) in the Transportation Solutions segment 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.

Operating income (loss) in the Transportation Solutions segment increased $434 million and $1,430 million in the third quarter and first nine 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 and, to a lesser degree, improved manufacturing productivity.

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

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Quarters Ended

Six Months Ended

Nine 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 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

Change in Net Sales for the Quarter Ended June 25, 2021

Change in Net Sales for the Nine Months Ended June 25, 2021

versus Net Sales for the Quarter Ended June 26, 2020

versus Net Sales for the Nine Months Ended June 26, 2020

Organic Net Sales

2 unchanged sentences

Growth (Decline)

(Divestiture)

(Divestitures)

Growth (Decline)

(Divestiture)

(Divestitures)

($ in millions)

1 unchanged sentence

Industrial equipment

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.

In the Industrial Solutions segment, net sales increased $137 million, or 15.8%, in the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2020 due primarily to organic net sales growth of 12.6% and the positive impact of foreign currency translation of 3.8%.

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

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

● Aerospace, defense, oil, and gas— Our organic net sales decreased 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.

● Aerospace, defense, oil, and gas— Our organic net sales decreased 6.9% in the third quarter of fiscal 2021 due primarily to declines in the commercial aerospace market, partially offset by strength in the defense market.

● Industrial equipment— Our organic net sales increased 35.5% in the third 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 increased 9.9% in the third quarter of fiscal 2021 primarily as a result of market growth attributable to increases in interventional medical procedures.

● Energy— Our organic net sales increased 8.7% in the third quarter of fiscal 2021 due primarily to growth in the Americas region driven by growth in solar applications.

In the first nine months of fiscal 2021, net sales in the Industrial Solutions segment increased $73 million, or 2.7%, as compared to the first nine months of fiscal 2020 primarily as a result of the positive impact of foreign currency translation of 3.1%.

In the first nine months of fiscal 2020, our net sales included significant, unfavorable impacts of the COVID-19 pandemic.

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

● Aerospace, defense, oil, and gas— Our organic net sales decreased 21.4% 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.

● Aerospace, defense, oil, and gas— Our organic net sales decreased 17.1% in the first nine months of fiscal 2021 primarily as a result of declines in the commercial aerospace market, partially offset by strength in the defense market.

● Industrial equipment— Our organic net sales increased 19.6% in the first nine 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 6.3% in the first nine months of fiscal 2021 due primarily to delays in elective procedures during the first six months of fiscal 2021.

● Energy— Our organic net sales increased 2.9% in the first nine months of fiscal 2021 primarily as a result of growth in the Americas region attributable to strength in solar applications.

Operating Income.

1 unchanged sentence

Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

Operating margin

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.

Operating income in the Industrial Solutions segment increased $78 million and $8 million in the third quarter and first nine months of fiscal 2021, respectively, as compared to the same periods of fiscal 2020.

Excluding the items below, operating income increased in the third quarter of fiscal 2021 primarily as a result of higher volume.

Excluding the items below, operating income increased slightly in the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020.

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

4 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

($ in millions)

2 unchanged sentences

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

Change in Net Sales for the Quarter Ended March 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

Change in Net Sales for the Quarter Ended June 25, 2021

Change in Net Sales for the Nine Months Ended June 25, 2021

versus Net Sales for the Quarter Ended June 26, 2020

versus Net Sales for the Nine Months Ended June 26, 2020

Organic Net Sales

2 unchanged sentences

Data and devices

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%.

Net sales in the Communications Solutions segment increased $150 million, or 35.0%, in the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2020 due primarily to organic net sales growth of 30.8%.

In the third quarter

of fiscal 2020, our net sales included the unfavorable impacts of the COVID-19 pandemic.

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

● Data and devices —Our organic net sales 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%.

● Data and devices —Our organic net sales increased 16.1% in the third quarter of fiscal 2021 primarily as a result of market strength in all regions as well as content growth and market share gains in high-speed cloud applications.

● Appliances— Our organic net sales increased 56.9% in the third quarter of fiscal 2021 due to sales growth in all regions attributable primarily to market improvements and market share gains.

In the first nine months of fiscal 2021, net sales in the Communications Solutions segment increased $325 million, or 27.6%, as compared to the first nine months of fiscal 2020 primarily as a result of organic net sales growth of 24.1%.

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

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

● Data and devices —Our organic net sales 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.

● Data and devices —Our organic net sales increased 15.0% in the first nine months of fiscal 2021 due primarily to market strength in all regions as well as content growth and market share gains in high-speed cloud applications.

● Appliances— Our organic net sales increased 37.7% in the first nine 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

Nine Months Ended

($ in millions)

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Operating margin

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.

Operating income in the Communications Solutions segment increased $68 million and $146 million in the third quarter and first nine 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, to a lesser degree, improved manufacturing productivity.

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

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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 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 and $500 million of 3.50% senior notes due in February 2022.

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 $500 million of 3.50% senior notes due in February 2022.

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

The cost or availability of future funding may be impacted by financial market conditions.

We will continue to monitor financial markets and respond as necessary to changing conditions, including future developments related to the COVID-19 pandemic.

There is 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 will continue to monitor financial markets and respond as necessary to changing

conditions, including any developments related to the COVID-19 pandemic.

We believe that we have sufficient financial resources and liquidity which will enable us to meet our ongoing working capital and other cash flow needs.

Cash Flows from Operating Activities

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.

In the first nine months of fiscal 2021, net cash provided by operating activities increased $630 million to $1,902 million from $1,272 million in the first nine months of fiscal 2020.

The increase resulted primarily from higher pre-tax income and increased accounts payable levels driven by higher production volumes, partially offset by the impact of increased sales on accounts receivable levels.

The amount of income taxes paid, net of refunds, during the first nine months of fiscal 2021 and 2020 was $291 million and $195 million, respectively.

Cash Flows from Investing Activities

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

Capital expenditures were $454 million and $439 million in the first nine 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 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.

During the first nine months of fiscal 2021, we acquired two businesses for a combined cash purchase price of $125 million, net of cash acquired.

We acquired four businesses, including First Sensor AG, for a combined cash purchase price of $325 million, net of cash acquired, during the first nine months of fiscal 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 March 26, 2021 and September 25, 2020 was $4,521 million and $4,146 million, respectively.

Total debt at June 25, 2021 and September 25, 2020 was $4,134 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.

During the first nine months of fiscal 2021, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, repaid, at maturity, $250 million of 4.875% senior notes due in January 2021 and €350 million of fixed-to-floating rate senior notes due in June 2021.

During the first nine months of fiscal 2021, TEGSA 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 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.

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 June 2021 primarily to extend the maturity date from November 2023 to June 2026.

The amended Credit Facility contains customary provisions for the replacement of London Interbank Offered Rate (“LIBOR”) with successor rates and amends certain representations, warranties, and covenants applicable to us and TEGSA as obligors under the credit agreement.

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

Borrowings under the Credit Facility bear interest at a rate per annum equal to, at the option of TEGSA, (1) LIBOR or, upon a phase-out of LIBOR, an alternative benchmark rate, (2) an alternate base rate equal to the highest of (i) Bank of America, N.A.’s base rate, (ii) the federal funds effective rate plus 1 / 2 of 1%, and (iii) one-month LIBOR, or an alternative benchmark rate, plus 1%, (3) an alternative currency daily rate, or (4) an alternative currency term rate, plus, in each case, an applicable margin based upon the senior, unsecured, long-term debt rating of TEGSA.

TEGSA is required to pay an annual facility fee.

Based on the applicable credit ratings of TEGSA, this fee ranges from 5.0 to 12.5 basis points of the lenders’ commitments under the Credit Facility.

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 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.

As of June 25, 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 $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.

In March 2021, our shareholders approved a dividend payment to shareholders of $2.00 per share, payable in four equal quarterly installments of $0.50 per share beginning in the third quarter of fiscal 2021 and ending in the second quarter of fiscal 2022.

Payments of common share dividends to shareholders were $483 million and $466 million in the first nine months of fiscal 2021 and 2020, respectively.

During the third quarter of fiscal 2021, our board of directors authorized an increase of $1.5 billion in the share repurchase program.

We repurchased approximately 5 million of our common shares for $591 million and approximately 6 million of our common shares for $505 million under the share repurchase program during the first nine months of fiscal 2021 and 2020, respectively.

At June 25, 2021, we had $1.9 billion of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

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Total noncurrent liabilities (2)

(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

(1) Includes $2,517 million and $3,275 million as of June 25, 2021 and September 25, 2020, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $20,348 million and $20,016 million as of June 25, 2021 and September 25, 2020, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Nine Months Ended

Fiscal Year Ended

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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 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.

At June 25, 2021, we had outstanding letters of credit, letters of guarantee, and surety bonds of $135 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.

These performance guarantees and letters of credit had a combined value of approximately $129 million as of June 25, 2021 and are expected to expire at various dates through fiscal 2025.

During the first nine months 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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The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses.

Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension are based on, among other things, judgments and assumptions made by management.

Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension plans are based on, among other things, judgments and assumptions made by management.

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

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

There were no significant changes to this information during the first nine 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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● risks associated with current and future acquisitions and divestitures;

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

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

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis