What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-15 compared with 2021-11-09 · 153 added, 133 removed, 388 unchanged (42% of the section changed)

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Our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Annual Report, particularly in “Risk Factors” and “Forward-Looking Information.”

Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Annual Report, particularly in “Part I.

Risk Factors” and “Forward-Looking Information.”

Our Consolidated Financial Statements have been prepared in U.S.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 24, 2021.

The following discussion includes organic net sales growth (decline) which is a non-GAAP financial measure.

The following discussion includes organic net sales growth which is a non-GAAP financial measure.

See “Non-GAAP Financial Measure” for additional information regarding this measure.

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Summary of Fiscal 2022 Performance

● Our fiscal 2021 net sales increased 22.6% from fiscal 2020 levels due to sales increases in the Transportation Solutions and Communications Solutions segments, and, to a lesser degree, the Industrial Solutions segment.

● Our fiscal 2022 net sales increased 9.1% from fiscal 2021 levels due to sales increases in the Communications Solutions and Industrial Solutions segments and, to a lesser degree, the Transportation Solutions segment.

On an organic basis, our net sales increased 12.1% in fiscal 2022 as compared to fiscal 2021.

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

● Our net sales by segment were as follows:

● Transportation Solutions —Our net sales increased 31.1% with sales increases in all end markets.

● Industrial Solutions —Our net sales increased 3.5% primarily as a result of 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 30.4% due to sales increases in both the appliances and the data and devices end markets.

● Transportation Solutions —Our net sales increased 2.7% with sales increases in the automotive and commercial transportation end markets, partially offset by sales declines in the sensors end market.

● Industrial Solutions —Our net sales increased 17.6% primarily as a result of sales increases in the industrial equipment end market.

● Communications Solutions —Our net sales increased 20.8% due primarily to sales increases in the data and devices end market.

● Fiscal 2022 included an additional week which contributed $306 million in net sales.

● During fiscal 2022, our shareholders approved a dividend payment to shareholders of $2.24 per share, payable in four equal quarterly installments of $0.56 beginning in the third quarter of fiscal 2022 and ending in the second quarter of fiscal 2023.

● Net cash provided by continuing operating activities was $2,468 million in fiscal 2022.

Economic Conditions

Our business and operating results have been and will continue to be affected by worldwide economic conditions.

The global economy has been impacted by the COVID-19 pandemic and the military conflict between Russia and Ukraine as well as supply chain disruptions and inflationary cost pressures.

See “Russia-Ukraine Military Conflict” and “COVID-19 Pandemic” for additional information.

Our business operates globally and changes in foreign currency exchange rates may have a significant impact on our results.

Foreign currency translation negatively impacted our net sales by $723 million in fiscal 2022 as compared to fiscal 2021.

We expect translation to continue to have a negative impact on our operating results in fiscal 2023.

We expect translation to negatively impact our net sales by approximately $1 billion in fiscal 2023 as compared to fiscal 2022 as a result of continued strength of the U.S.

dollar against other currencies.

We are monitoring the current environment and its potential effects on our customers and the end markets we serve.

As a result of inflationary pressure, we have implemented price increases for a number of our products.

Also, we have taken and continue to focus on actions to manage costs, including restructuring and other cost reduction initiatives such as reducing discretionary spending and travel.

Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund our future capital needs.

See further discussion in “Liquidity and Capital Resources.”

Russia-Ukraine Military Conflict

We are monitoring the military conflict between Russia and Ukraine, escalating tensions in surrounding countries, and associated sanctions.

We suspended our business operations in Russia, and our operations in Ukraine have been reduced to focus on the safety of our employees.

We have experienced increased costs for transportation, energy, and raw materials due in part to the negative impact of the Russia-Ukraine military conflict on the global economy.

The increased costs and

supply chain disruptions resulting from the conflict have not been material to our business, and we have been able to partially mitigate them through price increases or productivity.

Neither Russia nor Ukraine represents a material portion of our business, and the military conflict has not had a significant impact on our business, financial condition, or result of operations during fiscal 2022.

The full impact of the military conflict on our business operations and financial performance remains uncertain.

The extent to which the conflict may impact our business in future periods will depend on future developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, and supply chain disruptions.

We will continue to actively monitor the conflict and assess the related sanctions and other effects and may take further actions if necessary.

COVID-19 Pandemic

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COVID-19 has surfaced in 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 sales and operating results in the near term.

The pandemic had a negative impact on certain of our businesses in fiscal 2021 and continued to impact certain of our operations in China for a period of time in fiscal 2022.

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 globally 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.

Although we do not expect the COVID-19 pandemic to have a significant impact on our sales and operating results in the near term, it may have a negative impact on our financial condition 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.

While certain of our operations were shut down in China for a period of time in fiscal 2022, we do not expect the COVID-19 pandemic to have a significant impact on our businesses globally in the near term.

However, it may have a negative impact on our financial condition and results of operations in future periods.

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.

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In the first quarter of fiscal 2023, we expect our net sales to be approximately $3.75 billion as compared to $3.8 billion in the first quarter of fiscal 2022.

This increase is the result of sales growth in the Industrial Solutions and Communications Solutions segments, partially offset by sales declines in the Transportation Solution segment.

Additional information regarding expectations for our reportable segments is as follows:

● Transportation Solutions —We expect our net sales to decrease in the automotive end market as a result of declines in global automotive production.

We expect content growth to partially offset the impact of the production decline.

We expect our net sales to increase in the commercial transportation and sensors end markets.

● Industrial Solutions —We expect our net sales increase to be driven by growth in the industrial equipment end market and, to a lesser degree, the medical and energy end markets.

● Communications Solutions —We expect our net sales to increase in both the data and devices and the appliances end markets.

We expect diluted earnings per share from continuing operations to be approximately $1.31 per share in the first quarter of fiscal 2023.

This outlook reflects the negative impact of foreign currency exchange rates on net sales of approximately $19 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.

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

We are monitoring the current macroeconomic environment, 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.

Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs.

See further discussion in “Liquidity and Capital Resources.”

During fiscal 2021, we acquired four businesses for a combined cash purchase price of $422 million, net of cash acquired.

This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $400 million and $0.19 per share, respectively, in the first quarter of fiscal 2023 as compared to the same period of fiscal 2022.

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

During fiscal 2022, we acquired three businesses for a combined cash purchase price of $245 million, net of cash acquired.

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

We acquired four businesses for a combined cash purchase price of $422 million, net of cash acquired, during fiscal 2021.

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

We acquired five businesses, including First Sensor AG (“First Sensor”), for a combined cash purchase price of $336 million, net of cash acquired, during fiscal 2020.

The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

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

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Net sales increased $1,358 million, or 9.1%, in fiscal 2022 as compared to fiscal 2021.

The increase in net sales resulted primarily from organic net sales growth of 18.2% and the positive impact of foreign currency translation of 3.6% due to the strengthening of certain foreign currencies.

The significant, unfavorable impacts from the COVID-19 pandemic were included in our net sales in fiscal 2020.

The increase in net sales resulted from organic net sales growth of 12.1% and net sales contributions of 1.9% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 4.9% due to the weakening of certain foreign currencies.

In fiscal 2022, pricing actions positively affected organic net sales by $509 million.

Fiscal 2022 included an additional week which contributed $306 million in net sales.

The impact of the additional week was estimated using an average sales figure for the fourth quarter of the fiscal year.

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

Net Sales by Geographic Region.

Our business operates in three geographic regions—EMEA, Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates.

Our business operates in three geographic regions—Asia–Pacific, EMEA, 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.

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As a percentage of net sales

In fiscal 2021, gross margin increased $1,152 million as compared to fiscal 2020 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.

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.

In fiscal 2021, we purchased approximately 200 million pounds of copper, 122,000 troy ounces of gold, 2.7 million troy ounces of silver, and 15,000 troy ounces of palladium.

(1) Fiscal 2022 included an additional week.

In fiscal 2022, gross margin increased $357 million as compared to fiscal 2021 primarily as a result of higher volume and the positive impact of pricing actions, partially offset by inflationary pressure on material and operating costs and the negative 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.

In recent years, raw material prices and availability have been affected by worldwide economic conditions, including the impacts of the COVID-19 pandemic, supply chain disruptions, and inflationary cost pressures.

As a result, we have experienced shortages and price increases in some of our input materials—including copper, gold, silver, and palladium—however, we have been able to initiate pricing actions which have partially offset these impacts.

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

In fiscal 2022, we expect to purchase approximately 215 million pounds of copper, 135,000 troy ounces of gold, 2.9 million troy ounces of silver, and 15,000 troy ounces of palladium.

In fiscal 2022, we purchased approximately 215 million pounds of copper, 129,000 troy ounces of gold, 2.7 million troy ounces of silver, and 13,000 troy ounces of palladium.

We expect to purchase approximately 215 million pounds of copper, 125,000 troy ounces of gold, 2.7 million troy ounces of silver, and 10,000 troy ounces of palladium in fiscal 2023.

Operating Expenses

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Restructuring and other charges, net

Impairment of goodwill

(1) Fiscal 2022 included an additional week.

Selling, General, and Administrative Expenses.

In fiscal 2021, selling, general, and administrative expenses increased $120 million as compared to fiscal 2020 due primarily to higher incentive compensation costs due to improved operational performance, increased selling expenses to support higher sales levels, and the negative impact of foreign currency translation, partially offset by savings attributable to cost control measures and restructuring actions and gains on the sale of real estate.

In fiscal 2022, selling, general, and administrative expenses increased $72 million as compared to fiscal 2021 due primarily to increased selling expenses to support higher sales levels, the impact of inflation, and incremental expenses attributable to recent acquisitions, partially offset by the positive impact of foreign currency translation.

Restructuring and Other Charges, Net.

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

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

These actions were due in part to the COVID-19 pandemic.

We incurred net restructuring charges of $208 million and $257 million in fiscal 2021 and 2020, respectively.

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 $153 million, of which $16 million was recorded in cost of sales, in fiscal 2022 and $208 million in fiscal 2021.

Annualized cost savings related to actions initiated in fiscal 2022 are expected to be approximately $120 million and are expected to be realized by the end of fiscal 2025.

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

Impairment of Goodwill.

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

See Note 8 to the Consolidated Financial Statements for additional information regarding the impairment of goodwill and our annual goodwill impairment test.

Operating Income

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Operating margin

(1) Fiscal 2022 included an additional week.

Operating income included the following:

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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.”

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Other Income (Expense).

See Note 15 to the Consolidated Financial Statements for information regarding net other income (expense) associated with our retirement plans, including a $28 million charge related to the transfer of certain U.S.

pension plan liabilities to an insurance company through the purchase of a group annuity contract in fiscal 2021.

We recorded net periodic pension benefit credit of $25 million and cost of $12 million in net other income (expense) in fiscal 2022 and 2021, respectively.

See Note 14 to the Consolidated Financial Statements for additional information regarding our retirement plans.

Also, in fiscal 2022, we recorded other income of $11 million related to an indemnification receivable associated with an income tax audit.

See Note 15 to the Consolidated Financial Statements for further information regarding income taxes.

Income Taxes.

See Note 16 to the Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate, including valuation allowance adjustments in fiscal 2021 and 2020 and the Switzerland Federal Act on Tax Reform and AHV Financing in fiscal 2020.

See Note 15 to the Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate.

The valuation allowance for deferred tax assets was $7,112 million and $2,729 million at fiscal year end 2022 and 2021, respectively.

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Organic Net Sales

Growth (Decline)

($ in millions)

Commercial transportation

Net sales in the Transportation Solutions segment increased $2,129 million, or 31.1%, in fiscal 2021 from fiscal 2020 primarily as a result of organic net sales growth of 25.1% and the positive impact of foreign currency translation of 4.4%.

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

Net sales in the Transportation Solutions segment increased $245 million, or 2.7%, in fiscal 2022 from fiscal 2021 as a result of organic net sales growth of 8.1%, partially offset by the negative impact of foreign currency translation of 5.4%.

Fiscal 2022 included an additional week which contributed $180 million in net sales.

In fiscal 2022, pricing actions positively affected organic net sales by $330 million.

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

● Automotive —Our organic net sales increased 25.0% in fiscal 2021 with increases of 28.2% in the Americas region, 24.3% in the EMEA region, and 24.2% in the Asia–Pacific region.

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

● Commercial transportation —Our organic net sales increased 35.2% in fiscal 2021 with growth across all regions resulting from market growth and content gains.

● Sensors —Our organic net sales increased 13.4% in 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 increased 8.1% in fiscal 2022 with increases of 9.8% in the Americas region, 9.7% in the Asia–Pacific region, and 5.7% in the EMEA region.

Our organic net sales growth across all regions was attributable primarily to increased content per vehicle.

Global automotive production was consistent with fiscal 2021 levels.

● Commercial transportation —Our organic net sales increased 12.1% in fiscal 2022 due primarily to growth in the Americas and EMEA regions driven by content and share gains.

● Sensors —Our organic net sales increased 3.0% in fiscal 2022 as a result of growth in industrial applications, partially offset by declines in transportation applications.

Operating Income.

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

($ in millions)

Operating income (loss)

Operating income

Operating margin

Operating income (loss) in the Transportation Solutions segment increased $1,619 million in fiscal 2021 as compared to fiscal 2020.

Excluding the items below, operating income increased in fiscal 2021 primarily as a result of higher volume and, to a lesser degree, improved manufacturing productivity.

(1) Fiscal 2022 included an additional week.

Operating income in the Transportation Solutions segment increased $8 million in fiscal 2022 as compared to fiscal 2021.

Excluding the items below, operating income decreased in fiscal 2022 primarily as a result of inflationary pressure on

material and operating costs and the negative impact of foreign currency translation, partially offset by the positive impact of pricing actions and higher volume.

(in millions)

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Restructuring and other charges, net

Impairment of goodwill

Industrial Solutions

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Industrial equipment

Aerospace, defense, oil, and gas

Aerospace, defense, and marine

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

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Organic Net Sales

Growth (Decline)

(Divestitures)

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Industrial equipment

Aerospace, defense, oil, and gas

In the Industrial Solutions segment, net sales increased $131 million, or 3.5%, in fiscal 2021 from fiscal 2020 due primarily to the positive impact of foreign currency translation of 2.5% and organic net sales growth of 1.3%.

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

Aerospace, defense, and marine

In the Industrial Solutions segment, net sales increased $676 million, or 17.6%, in fiscal 2022 from fiscal 2021 due to organic net sales growth of 16.6% and net sales contributions of 5.9% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 4.9%.

Fiscal 2022 included an additional week which contributed $84 million in net sales.

In fiscal 2022, pricing actions positively affected organic net sales by $147 million.

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

● Industrial equipment —Our organic net sales increased 22.7% in fiscal 2021 with growth in all regions due primarily to strength in factory automation and controls applications.

● Aerospace, defense, oil, and gas —Our organic net sales decreased 17.4% in fiscal 2021 primarily as a result of declines in the commercial aerospace market.

● Energy —Our organic net sales increased 4.1% in fiscal 2021 primarily as a result of strength in renewable energy applications.

● Medical —Our organic net sales decreased 3.6% in fiscal 2021 due to delays in elective procedures during the first half of fiscal 2021, partially offset by sales increases resulting from market strength in interventional medical applications in the second half of fiscal 2021.

● Industrial equipment —Our organic net sales increased 28.5% in fiscal 2022 as a result of growth in all regions and continued strength in factory automation and controls applications .

● Aerospace, defense, and marine —Our organic net sales increased 8.7% in fiscal 2022 due primarily to growth in the commercial aerospace market and, to a lesser degree, the defense market .

● Energy —Our organic net sales increased 16.0% in fiscal 2022 due to growth across all regions and continued strength in renewable energy applications .

● Medical —Our organic net sales increased 4.2% in fiscal 2022 as a result of market growth in surgical and imaging as well as interventional medical applications .

Operating Income.

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Operating margin

(1) Fiscal 2022 included an additional week.

Operating income in the Industrial Solutions segment increased $151 million in fiscal 2022 from fiscal 2021.

Excluding the items below, operating income increased in fiscal 2021 primarily as a result of improved manufacturing productivity.

Excluding the items below, operating income increased in fiscal 2022 primarily as a result of higher volume and the positive impact of pricing actions, partially offset by inflationary pressure on material and operating costs.

(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

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Net sales in the Communications Solutions segment increased $437 million, or 20.8%, in fiscal 2022 as compared to fiscal 2021 due primarily to organic net sales growth of 20.8%.

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

Fiscal 2022 included an additional week which contributed $42 million in net sales.

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

● Data and devices —Our organic net sales increased 20.5% in fiscal 2021 as a result of market strength across all regions as well as content growth and market share gains in high-speed cloud applications.

● Appliances —Our organic net sales increased 37.2% in fiscal 2021 with growth in all regions attributable primarily to increased demand and market share gains.

● Data and devices —Our organic net sales increased 29.6% in fiscal 2022 as a result of market strength in all regions and content and share gains .

● Appliances —Our organic net sales increased 9.2% in fiscal 2022 due to sales growth in the Americas and EMEA regions resulting primarily from share gains, partially offset by declines in the Asia–Pacific region .

Operating Income.

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Operating margin

(1) Fiscal 2022 included an additional week.

In the Communications Solutions segment, operating income increased $163 million in fiscal 2022 as compared to fiscal 2021.

Excluding the items below, operating income increased due to higher volume and, to a lesser degree, improved manufacturing productivity.

Excluding the items below, operating income increased due primarily to higher volume, partially offset by inflationary pressure on material and operating costs.

(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.

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.

For further information on the risks and uncertainties associated with the COVID-19 pandemic, see “Part I.

Risk Factors.” 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.

Subsequent to fiscal year end 2021, Tyco Electronics Group S.A.

(“TEGSA”) 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 redemption, which was funded with cash from operations, was completed in November 2021.

We will continue to monitor financial markets and respond as necessary to changing conditions.

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.

As of fiscal year end 2022, our cash and cash equivalents were held in subsidiaries which are located in various countries throughout the world.

Under current applicable laws, substantially all of these amounts can be repatriated to TEGSA, our Luxembourg subsidiary, which is the obligor of substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company;

Under current applicable laws, substantially all of these amounts can be repatriated to Tyco Electronics Group S.A.

(“TEGSA”), our Luxembourg subsidiary, which is the obligor of substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company;

however, the repatriation of these amounts could subject us to additional tax expense.

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but we consider to be permanently reinvested.

We estimate that up to $0.7 billion of tax expense would be recognized on the Consolidated Financial Statements if our intention to permanently reinvest these amounts were to change.

We estimate that an immaterial amount of tax expense would be recognized on the Consolidated Financial Statements if our intention to permanently reinvest these amounts were to change.

Our current plans do not demonstrate a need to repatriate cash, cash equivalents, and intercompany deposits that are designated as permanently reinvested in order to fund our operations, including investing and financing activities.

Cash Flows from Operating Activities

Net cash provided by continuing operating activities increased $685 million to $2,676 million in fiscal 2021 as compared to $1,991 million in fiscal 2020.

The increase resulted primarily from higher pre-tax income, partially offset by higher working capital levels to support increased sales and higher tax payments.

Net cash provided by continuing operating activities decreased $208 million to $2,468 million in fiscal 2022 as compared to $2,676 million in fiscal 2021.

The decrease resulted primarily from the impact of increased working capital

levels, partially offset by higher pre-tax income.

The amount of income taxes paid, net of refunds, during fiscal 2022 and 2021 was $421 million and $371 million, respectively.

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We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.

During fiscal 2021, we acquired four businesses for a combined cash purchase price of $422 million, net of cash acquired.

We acquired five businesses, including First Sensor, for a combined cash purchase price of $336 million, net of cash acquired, during fiscal 2020.

During fiscal 2022, we acquired three businesses for a combined cash purchase price of $245 million, net of cash acquired.

We acquired four businesses for a combined cash purchase price of $422 million, net of cash acquired, during fiscal 2021.

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

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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.

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.

The Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies.

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 fiscal year end 2022 or 2021.

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.

Borrowings under the Credit Facility bear interest at a rate per annum equal to, at the option of TEGSA, (1) the term secured overnight financing rate (“Term SOFR”) (as defined in the Credit Facility), (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) the Term SOFR for a one-month interest period 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.

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Borrowings under the commercial paper program are backed by the Credit Facility.

TEGSA had no borrowings under the commercial paper program at fiscal year end 2021 or 2020.

At fiscal year end 2022, TEGSA had $370 million of commercial paper outstanding at a weighted-average interest rate of 3.45%.

TEGSA had no commercial paper outstanding at fiscal year end 2021.

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.

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In fiscal 2022, our board of directors authorized an increase of $1.5 billion in our share repurchase program.

We repurchased approximately 7 million of our common shares for $904 million and approximately 6 million of our common shares for $505 million under the share repurchase program during fiscal 2021 and 2020, respectively.

We repurchased approximately ten million of our common shares for $1,409 million and approximately seven million of our common shares for $904 million under the share repurchase program during fiscal 2022 and 2021, respectively.

At fiscal year end 2022, we had $1.7 billion of availability remaining under our share repurchase authorization.

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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 fiscal year end 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.

At fiscal year end 2022, we had outstanding letters of credit, letters of guarantee, and surety bonds of $127 million, excluding those related to our former Subsea Communications (“SubCom”) business which are discussed below.

During fiscal 2019, we sold our SubCom business.

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These performance guarantees and letters of credit had a combined value of approximately $115 million as of fiscal year end 2022 and are expected to expire at various dates through fiscal 2027.

During fiscal 2021, we amended our agreement with SubCom and removed a requirement to issue new performance guarantees for certain projects entered into by the SubCom business following the sale.

As of fiscal year end 2021, there were no such new performance guarantees outstanding.

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

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

See Note 4 to the Consolidated Financial Statements for additional information regarding the divestiture of the SubCom business.

Commitments and Contingencies

The following table provides a summary of our contractual obligations and commitments for debt, minimum lease payment obligations under non-cancelable leases, and other material obligations at fiscal year end 2022:

Payments Due by Fiscal Year

In Fiscal 2023

(in millions)

Long-term debt:

Principal payments (1)

Interest payments on debt (2)

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Total contractual cash obligations (5)(6)

(1) Debt represents principal payments.

(1) See Note 10 to the Consolidated Financial Statements for additional information regarding debt.

(2) Interest payments exclude the impact of our interest rate swap and cross-currency swap contracts.

(2) Interest payments exclude the impact of interest rate swap and cross-currency swap contracts.

Interest payments on debt are projected for future periods using rates in effect as of fiscal year end 2022 and are subject to change in future periods.

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In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax.

Although it is not feasible to predict the outcome of these proceedings, based upon

our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.

Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.

Trade Compliance Matters

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

We have been investigating our past compliance with relevant U.S.

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

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

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

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

We have also been contacted by the U.S.

Department of Justice concerning aspects of these matters.

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

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

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

Although 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.

Critical Accounting Policies and Estimates

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Intangible assets include both indeterminable-lived residual goodwill and determinable-lived identifiable intangible assets.

Intangible assets with determinable lives primarily include intellectual property, consisting of patents, trademarks, and unpatented technology, and customer relationships.

Intangible assets with determinable lives primarily include intellectual property, consisting of patents, trademarks, and

unpatented technology, and customer relationships.

Recoverability estimates range from 1 to 50 years and costs are generally amortized on a straight-line basis.

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Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.

See Note 8 to the Consolidated Financial Statements for information regarding our interim goodwill impairment test and partial impairment charge of $900 million recorded in the second quarter of fiscal 2020.

We completed our annual goodwill impairment test in the fourth quarter of fiscal 2022 and determined that no impairment existed.

In determining income for financial statement purposes, we must make certain estimates and judgments.

In determining pre-tax income for financial statement purposes, we must make certain estimates and judgments.

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

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The projected benefit obligation represents the actuarial present value of benefits projected to be paid upon retirement factoring in estimated future compensation levels.

The fair value of plan assets represents the current market value of cumulative company and participant contributions made to irrevocable trust funds, held for the sole benefit of participants, which are invested by the trustee of the funds.

The benefits under our defined benefit pension plans are based on various factors, such as years of service and compensation.

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

Two critical assumptions in determining pension expense and obligations are the discount rate and expected long-term return on plan assets.

Two critical assumptions in determining pension expense and obligations are discount rates and expected long-term returns on plan assets.

We evaluate these assumptions at least annually.

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Actual results may differ from actuarial assumptions.

The discount rate represents the market rate for high-quality fixed income investments and is used to calculate the present value of the expected future cash flows for benefit obligations to be paid under our pension plans.

A decrease in the discount rate increases the present value of pension benefit obligations.

At fiscal year end 2021, a 25-basis-point decrease in the discount rate would have increased the present value of our pension obligations by $127 million;

Discount rates represent the market rate for high-quality fixed income investments and are used to calculate the present value of the expected future cash flows for benefit obligations to be paid under our pension plans.

A decrease in discount rates increases the present value of pension benefit obligations.

At fiscal year end 2022, a 25-basis-point decrease in discount rates would have increased the present value of our pension obligations by $64 million;

a 25-basis-point increase would have decreased the present value of our pension obligations by $61 million.

We consider the current and expected asset allocations of our pension plans, as well as historical and expected long-term rates of return on those types of plan assets, in determining the expected long-term rate of return on plan assets.

A 50-basis-point decrease or increase in the expected long-term return on plan assets would have increased or decreased, respectively, our fiscal 2021 pension expense by $13 million.

A 50-basis-point decrease or increase in the expected long-term returns on plan assets would have increased or decreased, respectively, our fiscal 2022 pension expense by $11 million.

At fiscal year end 2022, the long-term target asset allocation in our U.S.

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Based on the funded status of the plans as of fiscal year end 2022, our target asset allocation is 67% return-seeking and 33% liability-hedging.

Accounting Pronouncements

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

Non-GAAP Financial Measure

Organic Net Sales Growth (Decline)

We present organic net sales growth (decline) as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP.

Organic net sales growth (decline) represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any.

Organic net sales growth (decline) is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the

impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.

Organic net sales growth (decline) provides useful information about our results and the trends of our business.

Organic Net Sales Growth

We present organic net sales growth as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP.

Organic net sales growth represents net sales growth (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any.

Organic net sales growth is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the impact of changes in

foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.

Organic net sales growth provides useful information about our results and the trends of our business.

Management uses this measure to monitor and evaluate performance.

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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.

Organic net sales growth (decline) is a non-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP.

The tables presented in “Results of Operations” and “Segment Results” provide reconciliations of organic net sales growth to net sales growth calculated in accordance with GAAP.

Organic net sales growth is a non-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP.

This non-GAAP financial measure may not be comparable to similarly-titled measures reported by other companies.

The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results.

This limitation is best addressed by using organic net sales growth (decline) in combination with net sales growth (decline) to better understand the amounts, character, and impact of any increase or decrease in reported amounts.

This limitation is best addressed by using organic net sales growth in combination with net sales growth to better understand the amounts, character, and impact of any increase or decrease in reported amounts.

Forward-Looking Information

Certain statements in this Annual Report are “forward-looking statements” within the meaning of the U.S.

Private Securities Litigation Reform Act of 1995.

Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.

These statements are based on our management’s beliefs and assumptions and on information currently available to our management.

Forward-looking statements include, among others, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, acquisitions, divestitures, the effects of competition, and the effects of future legislation or regulations.

Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” and “should,” or the negative of these terms or similar expressions.

Forward-looking statements also include statements addressing our environmental, social, governance, and sustainability plans and goals.

Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “aspire,” “estimate,” “predict,” “potential,” “goal,” “target,” “continue,” “may,” and “should,” or the negative of these terms or similar expressions.

Forward-looking statements involve risks, uncertainties, and assumptions.

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Risk Factors,” as well as other risks described in this Annual Report, could cause our results to differ materially from those expressed in forward- looking statements:

● conditions in the global or regional economies and global capital markets, and cyclical industry conditions;

● conditions in the global or regional economies and global capital markets, and cyclical industry conditions, including recession, inflation, and higher interest rates;

● conditions affecting demand for products in the industries we serve, particularly the automotive industry;

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● 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;

● global risks of political, economic, and military instability, including the continuing military conflict between Russia and Ukraine resulting from Russia’s invasion of Ukraine or escalating tensions in surrounding countries, and volatile and uncertain economic conditions in China;

● risks associated with security breaches and other disruptions to our information technology infrastructure;

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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-K

Item 7. Management’s Discussion and Analysis