What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-01-28 compared with 2021-07-29 · 119 added, 192 removed, 265 unchanged (54% 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 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.

The first quarter of fiscal 2022 included the following:

● Our net sales increased 8.4% in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021 due to sales growth in the Industrial Solutions and Communications Solutions segments, partially offset by sales declines in the Transportation Solutions segment.

On an organic basis, our net sales increased 8.0% during the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.

● Our net sales by segment were as follows:

● 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.

● Transportation Solutions —Our net sales decreased 3.0% in the first quarter of fiscal 2022 due primarily to sales declines in the automotive end market.

● Industrial Solutions —Our net sales increased 21.3% in the first quarter of fiscal 2022 primarily as a result of sales increases in the industrial equipment end market.

● Communications Solutions —Our net sales increased 41.4% in the first quarter of fiscal 2022 due to sales increases in both the data and devices and the appliances end markets.

● Net cash provided by operating activities was $532 million in the first quarter of fiscal 2022.

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 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.

The pandemic had a negative impact on certain of our businesses in fiscal 2021.

The pandemic has not had a significant impact on our ability to staff our operations, and we do not expect that it will continue to have a significant impact on our businesses in the near term .

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

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 .

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.

1 unchanged sentence

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.

These include restructuring and other cost reduction initiatives, such as reducing discretionary spending 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 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, including any developments related to the COVID-19 pandemic, and its potential effects on our customers and the end markets we serve.

In the second quarter of fiscal 2022, we expect our net sales to be approximately $3.8 billion as compared to $3.7 billion in the second quarter of fiscal 2021.

This increase reflects sales growth in the Industrial Solutions and Communications Solutions segments, partially offset by sales declines in the Transportation Solutions segment driven primarily by an approximate 5% decline in global automotive production .

We expect diluted earnings per share from continuing operations to be approximately $1.52 per share in the second quarter of fiscal 2022.

This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $111 million and $0.03 per share, respectively, in the second quarter of fiscal 2022 as compared to the second quarter of fiscal 2021.

This outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.

On December 27, 2021, the canton of Schaffhausen in Switzerland enacted a reduction to its corporate income tax rate.

We expect to recognize approximately $25 million of income tax expense related to the write-down of certain deferred tax assets to the lower tax rate in the second quarter of fiscal 2022, the period of enactment.

This income tax charge is reflected in the above outlook.

We are monitoring the current macroeconomic environment, including any continued impacts from 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.

1 unchanged sentence

See further discussion in “Liquidity and Capital Resources.”

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.

During the first quarter of fiscal 2022, we acquired one business for a cash purchase price of $125 million, net of cash acquired.

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

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

2 unchanged sentences

Quarters Ended

Nine Months Ended

($ in millions)

3 unchanged sentences

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

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

Change in Net Sales for the Quarter Ended December 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

Organic Net Sales

(Divestitures)

Growth (Decline)

(Divestitures)

3 unchanged sentences

Communications Solutions

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.

Net sales increased $296 million, or 8.4%, in the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021.

The increase in net sales resulted from organic net sales growth of 8.0% and net sales contributions of 1.7% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 1.3% due to the weakening of certain foreign currencies.

Pricing actions positively affected organic net sales by $52 million in the first quarter of fiscal 2022.

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

Net Sales by Geographic Region.

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

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

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

2 unchanged sentences

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

dollar in the first nine months of fiscal 2021.

dollar in the first quarter of fiscal 2022.

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

Quarters 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 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

Change in Net Sales for the Quarter Ended December 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

Organic Net Sales

(Divestitures)

Growth (Decline)

(Divestitures)

3 unchanged sentences

Quarters Ended

Nine Months Ended

($ in millions)

2 unchanged sentences

As a percentage of net sales

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.

Gross margin increased $84 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.

The increase was primarily a result of higher volume and, to a lesser degree, the positive impacts of pricing actions, partially offset by higher material costs.

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.

During the past several quarters, 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

Nine Months Ended

We expect to purchase approximately 220 million pounds of copper, 125,000 troy ounces of gold, 2.9 million troy ounces of silver, and 15,000 troy ounces of palladium in fiscal 2022.

2 unchanged sentences

Quarters Ended

Nine 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 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.

Selling, general, and administrative expenses increased slightly in the first quarter of fiscal 2022 from the first quarter of fiscal 2021 due primarily to increased selling expenses to support higher sales levels, largely offset by a gain on the sale of real estate.

Restructuring and Other Charges, Net.

1 unchanged sentence

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 across all segments to optimize our manufacturing footprint and improve the cost structure of the organization.

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.

During fiscal 2022 and 2021, we initiated restructuring programs associated with footprint consolidation and cost structure improvements across all segments.

We incurred net restructuring and related charges of $33 million during the first quarter of fiscal 2022, of which $12 million was recorded in cost of sales.

Annualized cost savings related to the fiscal 2022 actions commenced during the first quarter of fiscal 2022 are expected to be approximately $28 million and are expected to be realized by the end of fiscal 2024.

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

1 unchanged sentence

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

Impairment of Goodwill.

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

1 unchanged sentence

Quarters Ended

Nine Months Ended

($ in millions)

3 unchanged sentences

Quarters Ended

Nine Months Ended

(in millions)

3 unchanged sentences

Restructuring and other charges, net

Impairment of goodwill

Restructuring-related charges recorded in cost of sales

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

2 unchanged sentences

Quarters 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 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.

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 2022 and 2021.

Segment Results

2 unchanged sentences

Quarters 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 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

Change in Net Sales for the Quarter Ended December 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

Organic Net Sales

Growth (Decline)

($ in millions)

Commercial transportation

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 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.

Net sales in the Transportation Solutions segment decreased $66 million, or 3.0%, in the first quarter of fiscal 2022 from the first quarter of fiscal 2021 due to organic net sales declines of 1.8% and the negative impact of foreign currency translation of 1.2%.

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

● 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).

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

● Automotive— Our organic net sales decreased 5.6% in the first quarter of fiscal 2022 with declines of 17.4% in the EMEA region and 5.4% in the Americas region, partially offset by growth of 5.6% in the Asia–Pacific region.

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

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

● Commercial transportation— Our organic net sales increased 10.8% in the first quarter of fiscal 2022 primarily as a result of market growth in the EMEA and Americas regions and content gains.

● Sensors— Our organic net sales increased 4.8% in the first quarter of fiscal 2022 due primarily to growth in industrial applications.

Operating Income.

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

Quarters Ended

Nine Months Ended

($ in millions)

Operating income (loss)

Operating income

Operating margin

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.

Operating income in the Transportation Solutions segment increased $87 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.

Excluding the items below, operating income decreased primarily as a result of higher material costs and lower volume, partially offset by the positive impacts of pricing actions.

Quarters Ended

Nine Months Ended

(in millions)

3 unchanged sentences

Restructuring and other charges, net

Impairment of goodwill

Industrial Solutions

1 unchanged sentence

Quarters Ended

Nine Months Ended

($ in millions)

Aerospace, defense, oil, and gas

Industrial equipment

Aerospace, defense, oil, and gas

(1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.

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

Change in Net Sales for the Quarter Ended June 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

Change in Net Sales for the Quarter Ended December 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

Organic Net Sales

2 unchanged sentences

(Divestitures)

Growth (Decline)

(Divestitures)

($ in millions)

Aerospace, defense, oil, and gas

Industrial equipment

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 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.

Aerospace, defense, oil, and gas

In the Industrial Solutions segment, net sales increased $186 million, or 21.3%, in the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021 due to organic net sales growth of 17.6% and net sales contributions of 6.0% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 2.3%.

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

● 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.

● Industrial equipment— Our organic net sales increased 39.7% in the first quarter of fiscal 2022 due to growth in all regions primarily as a result of strength in factory automation and controls applications.

● Aerospace, defense, oil, and gas— Our organic net sales decreased 2.5% in the first quarter of fiscal 2022 due to declines in the oil and gas and the defense markets, partially offset by growth in the commercial aerospace market.

● Energy— Our organic net sales increased 16.7% in the first quarter of fiscal 2022 with growth across all regions and continued strength in renewable energy applications.

● Medical— Our organic net sales increased 7.7% in the first quarter of fiscal 2022 primarily as a result of market growth attributable to increases in interventional medical applications.

Operating Income.

1 unchanged sentence

Quarters Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

Operating margin

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.

Operating income in the Industrial Solutions segment increased $47 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.

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

Quarters Ended

Nine Months Ended

(in millions)

Acquisition-related charges:

Acquisition and integration costs

Charges associated with the amortization of acquisition-related fair value adjustments

Restructuring and other charges, net

Restructuring-related charges recorded in cost of sales

Communications Solutions

1 unchanged sentence

Quarters 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 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

Change in Net Sales for the Quarter Ended December 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

Organic Net Sales

1 unchanged sentence

Data and devices

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 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.

Net sales in the Communications Solutions segment increased $176 million, or 41.4%, in the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021 due primarily to organic net sales growth of 40.2%.

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

● 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.

● Data and devices —Our organic net sales increased 47.5% in the first quarter of fiscal 2022 primarily as a result of market strength and growth in high-speed cloud applications.

● Appliances— Our organic net sales increased 31.9% in the first quarter of fiscal 2022 due to sales growth in all regions attributable primarily to market improvements and share gains.

Operating Income.

1 unchanged sentence

Quarters Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

Operating margin

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.

Operating income in the Communications Solutions segment increased $90 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.

Excluding the items below, operating income increased due primarily to higher volume.

Quarters Ended

Nine Months Ended

(in millions)

Acquisition and integration costs

Restructuring and other charges, net

1 unchanged sentence

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 $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 any developments related to the COVID-19 pandemic.

We will continue to monitor financial markets and respond as necessary to changing conditions, including any further 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 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.

In the first quarter of fiscal 2022, net cash provided by operating activities decreased $108 million to $532 million from $640 million in the first quarter of fiscal 2021.

The decrease resulted primarily from the impact of higher incentive compensation payments and increased inventory levels to meet anticipated customer demand, partially offset by higher pre-tax income.

The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2022 and 2021 was $71 million and $85 million, respectively.

Cash Flows from Investing Activities

Capital expenditures were $454 million and $439 million in the first nine months of fiscal 2021 and 2020, respectively.

Capital expenditures were $172 million and $142 million in the first quarters of fiscal 2022 and 2021, respectively.

We expect fiscal 2022 capital spending levels to be approximately 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 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.

During the first quarter of fiscal 2022, we acquired one business for a cash purchase price of $125 million, net of cash acquired.

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

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

Cash Flows from Financing Activities and Capitalization

Total debt at June 25, 2021 and September 25, 2020 was $4,134 million and $4,146 million, respectively.

Total debt at December 24, 2021 and September 24, 2021 was $4,003 million and $4,092 million, respectively.

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

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 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.

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.

During the first quarter of fiscal 2022, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, called for the early redemption of all of its outstanding 3.50% senior notes due in February 2022, representing $500 million aggregate principal amount.

The notes were redeemed in November 2021.

As of December 24, 2021, TEGSA had $479 million of commercial paper outstanding at a weighted-average interest rate of 0.25%.

TEGSA had no commercial paper outstanding at September 24, 2021.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of June 2026 and total commitments of $1.5 billion.

TEGSA had no borrowings under the Credit Facility at December 24, 2021 or September 24, 2021.

The Credit Facility and our other debt agreements contain other customary covenants.

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

As of June 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.

As of December 24, 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.

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.

Payments of common share dividends to shareholders were $163 million and $159 million in the first quarters of fiscal 2022 and 2021, respectively.

We repurchased approximately two million of our common shares for $246 million and approximately one million of our common shares for $127 million under the share repurchase program during the first quarters of fiscal 2022 and 2021, respectively.

At December 24, 2021, we had $1.3 billion of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

1 unchanged sentence

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.

6 unchanged sentences

Total noncurrent liabilities (2)

(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

(1) Includes $3,835 million and $1,810 million as of December 24, 2021 and September 24, 2021, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $11,298 million and $8,832 million as of December 24, 2021 and September 24, 2021, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Quarter Ended

Fiscal Year Ended

3 unchanged sentences

Loss from continuing operations

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

The terms of these guarantees vary with end dates ranging from fiscal 2022 through the completion of such transactions.

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

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

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

At December 24, 2021, we had outstanding letters of credit, letters of guarantee, and surety bonds of $132 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 $118 million as of December 24, 2021 and are expected to expire at various dates through fiscal 2025.

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

however, based on historical experience, we do not anticipate having to perform.

Commitments and Contingencies

11 unchanged sentences

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.

The terms of these guarantees vary with end dates ranging from fiscal 2021 through the completion of such transactions.

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

At June 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 $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;

however, based on historical experience, we do not anticipate having to perform.

Critical Accounting Policies and Estimates

2 unchanged sentences

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 24, 2021.

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

There were no significant changes to this information during the first quarter of fiscal 2022.

Non-GAAP Financial Measure

44 unchanged sentences

● the possible effects on us of various non-U.S.

legislative proposals and other initiatives that, if adopted, could materially increase our worldwide corporate effective tax rate and negatively impact our U.S.

legislative proposals and other initiatives that, if adopted, could materially increase our worldwide corporate effective tax rate, increase global cash taxes, and negatively impact our U.S.

government contracts business;

4 unchanged sentences

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