TE CONNECTIVITY LTD. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our Condensed Consolidated
Financial Statements and the accompanying notes included elsewhere in this
Quarterly Report on Form 10-Q. The following discussion may contain
forward-looking statements that reflect our plans, estimates, and beliefs. Our
actual results could differ materially from those discussed in these
forward-looking statements as a result of many factors, including but not
limited to those under the heading "Forward-Looking Information" and "Part II.
Item 1A. Risk Factors."

Our condensed consolidated financial statements have been prepared in United States (“US”) dollars, in accordance with generally accepted accounting principles in the we (“GAAP”).

The following discussion includes organic net sales growth (decline), which is a non-GAAP financial measure. See “Non-GAAP Financial Measure” for more information on this measure.

                                    Overview

TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred
to as "we," "us," or "our") is a global industrial technology leader creating a
safer, sustainable, productive, and connected future. Our broad range of
connectivity and sensor solutions, proven in the harshest environments, enable
advancements in transportation, industrial applications, medical technology,
energy, data communications, and the home.

The first quarter of fiscal 2022 included the following:

Our net sales increased by 8.4% in the first quarter of fiscal 2022 compared to

the same period of fiscal 2021 due to sales growth in industrial solutions

? and Communications Solutions, partially offset by lower sales in

the Transportation Solutions segment. On an organic basis, our net sales

increased by 8.0% in the first quarter of fiscal 2022 compared to the same

period of the 2021 financial year.

? Our net sales by segment were as follows:

? Transportation Solutions – Our net sales decreased 3.0% in the first quarter of

fiscal 2022 primarily due to lower automotive end-market sales.

Industrial Solutions-Our net sales increased 21.3% in the first quarter of

? fiscal year 2022 primarily due to increased sales in the

equipment end market.

Communications Solutions-Our net sales increased 41.4% in the first quarter of

? fiscal 2022 due to increased data and device sales and the

appliance end markets.

? Net cash provided by operating activities was $532 million in the first trimester

   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 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.

                                       19

Contents

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
businesses in the near term, it may have a negative impact on our financial
condition, liquidity, and results of operations in future periods.

In response to the pandemic and resulting economic environment, we have taken
and continue to focus on actions to manage costs. These include restructuring
and other cost reduction initiatives, such as reducing discretionary spending
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.

Outlook

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.
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."

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.

                                       20

  Table of Contents

                             Results of Operations

Net Sales

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


                                           For the
                                       Quarters Ended
                             December 24,          December 25,
                                 2021                  2020

                                        ($ in millions)
Transportation Solutions    $   2,158    56 %     $   2,224    63 %
Industrial Solutions            1,059    28             873    25
Communications Solutions          601    16             425    12
Total                       $   3,818   100 %     $   3,522   100 %

The following table presents an analysis of the evolution of our turnover by segment:


                                                               Change in 

Net sales for the quarter ended December 24, 2021

                                                                 versus Net 

Sales for the quarter ended December 25, 2020

                                                       Net Sales                Organic Net Sales                           Acquisitions
                                                   Growth (Decline)             Growth (Decline)           Translation     (Divestitures)

                                                                                     ($ in millions)
Transportation Solutions                        $     (66)        (3.0) %    $     (42)        (1.8) %    $        (24)   $              -
Industrial Solutions                                   186         21.3             154         17.6               (20)                 52
Communications Solutions                               176         41.4             172         40.2                (1)                  5
Total                                           $      296          8.4 %    $      284          8.0 %    $        (45)   $             57


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 more details on net sales below under “Segment results”.

Net Sales by Geographic Region. 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. dollar, compared to other
currencies, will directly affect our reported results as we translate those
currencies into U.S. dollars at the end of each fiscal period.

Approximately 60% of our net sales were invoiced in currencies other than the
we dollar in the first quarter of fiscal year 2022.

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

                               For the
                           Quarters Ended
                 December 24,          December 25,
                     2021                  2020

                            ($ in millions)
EMEA            $   1,314    34 %     $   1,316    37 %
Asia-Pacific        1,470    39           1,293    37
Americas            1,034    27             913    26
Total           $   3,818   100 %     $   3,522   100 %

(1) Net sales to external customers are allocated to the countries

    on the legal entity that records the sale.


                                       21

  Table of Contents

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


                              Change in Net Sales for the Quarter Ended December 24, 2021
                               versus Net Sales for the Quarter Ended December 25, 2020
                      Net Sales               Organic Net Sales                          Acquisitions
                   Growth (Decline)                Growth              Translation      (Divestitures)

                                                    ($ in millions)
EMEA            $     (2)        (0.2) %    $       6         0.3 %    $       (44)    $             36
Asia-Pacific          177         13.7            164        12.6                 -                  13
Americas              121         13.3            114        12.5               (1)                   8
Total           $     296          8.4 %    $     284         8.0 %    $       (45)    $             57

Cost of sales and gross margin

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

                                           For the
                                        Quarters Ended
                                December 24,     December 25,
                                    2021             2020          Change

                                             ($ in millions)
Cost of sales                   $       2,588    $       2,376    $    212
As a percentage of net sales             67.8 %           67.5 %

Gross margin                    $       1,230    $       1,146    $     84
As a percentage of net sales             32.2 %           32.5 %

Gross margin increased $84 million in the first quarter of fiscal 2022 compared to the same period of fiscal 2021. The increase is primarily the result of higher volume and, to a lesser extent, the positive effects 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 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:


                                    For the
                                 Quarters Ended
                         December 24,     December 25,
             Measure         2021             2020
Copper            Lb.    $        3.80    $        2.88
Gold         Troy oz.            1,797            1,599
Silver       Troy oz.            23.56            19.70
Palladium    Troy oz.            2,356            2,137


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.

                                       22

  Table of Contents

Operating Expenses

The following table presents information on operating expenses:

                                                                       For the
                                                                    Quarters Ended
                                                           December 24,       December 25,
                                                               2021               2020         Change

                                                                         ($ in millions)
Selling, general, and administrative expenses              $         363     $          361    $     2
As a percentage of net sales                                         9.5 %             10.2 %

Restructuring and other charges, net                       $          12   

$167 $(155)


Selling, General, and Administrative Expenses. 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. We are committed to continuous
productivity improvements, and we evaluate opportunities to simplify our global
manufacturing footprint, migrate facilities to lower-cost regions, reduce fixed
costs, and eliminate excess capacity. These initiatives are designed to help us
maintain our competitiveness in the industry, improve our operating leverage,
and position us for future growth.

During fiscal 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. For fiscal 2022, we expect total restructuring charges to be
approximately $150 million and total spending, which will be funded with cash
from operations, to be approximately $190 million.

See Note 2 to the condensed consolidated financial statements for more information on net restructuring charges and other charges.

Operating result

The following table presents operating income and operating margin information:


                                For the
                             Quarters Ended
                     December 24,      December 25,
                         2021              2020          Change

                                  ($ in millions)
Operating income    $          672    $          448    $    224
Operating margin              17.6 %            12.7 %


                                       23

  Table of Contents

Operating income includes the following items:

                                                                           For the
                                                                        Quarters Ended
                                                               December 24,       December 25,
                                                                   2021               2020

                                                                        (in millions)
Acquisition-related charges:
Acquisition and integration costs                              $           8      $           8
Charges associated with the amortization of
acquisition-related fair value adjustments                                 8                  1
                                                                          16                  9
Restructuring and other charges, net                                      12                167
Restructuring-related charges recorded in cost of sales                   12                  -
Total                                                          $          40      $         176

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

Non-operating items

The following table presents certain non-operational information:

                                  For the
                               Quarters Ended
                       December 24,      December 25,
                           2021              2020         Change

                                    ($ in millions)
Income tax expense    $          110    $           60    $    50
Effective tax rate              16.2 %            13.8 %


Income Taxes. See Note 12 to the Condensed Consolidated Financial Statements for
discussion of items impacting income tax expense and the effective tax rate for
the first quarters of fiscal 2022 and 2021.

© Edgar Online, source Previews