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TE Connectivity Ltd. - Quarter Report: 2020 December (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 25, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-33260

(Commission File Number)

Graphic

TE CONNECTIVITY LTD.

(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)

98-0518048
(I.R.S. Employer Identification No.)

Mühlenstrasse 26, CH-8200 Schaffhausen, Switzerland

(Address of principal executive offices)

+41 (0)52 633 66 61

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Shares, Par Value CHF 0.57

TEL

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of common shares outstanding as of January 22, 2021 was 330,888,764.

Table of Contents

TE CONNECTIVITY LTD.

INDEX TO FORM 10-Q

   

   

   

Page

Part I.

Financial Information

Item 1.

Financial Statements

1

Condensed Consolidated Statements of Operations for the Quarters Ended December 25, 2020 and December 27, 2019 (unaudited)

1

Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended December 25, 2020 and December 27, 2019 (unaudited)

2

Condensed Consolidated Balance Sheets as of December 25, 2020 and September 25, 2020 (unaudited)

3

Condensed Consolidated Statements of Shareholders' Equity for the Quarters Ended December 25, 2020 and December 27, 2019 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Quarters Ended December 25, 2020 and December 27, 2019 (unaudited)

5

Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

Part II.

Other Information

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 6.

Exhibits

36

Signatures

37

i

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions, except per share data)

Net sales

$

3,522

$

3,168

Cost of sales

 

2,376

 

2,138

Gross margin

 

1,146

 

1,030

Selling, general, and administrative expenses

 

361

367

Research, development, and engineering expenses

 

162

161

Acquisition and integration costs

 

8

7

Restructuring and other charges, net

 

167

24

Operating income

448

471

Interest income

3

6

Interest expense

 

(15)

(12)

Other income (expense), net

 

(1)

5

Income from continuing operations before income taxes

 

435

 

470

Income tax expense

 

(60)

(447)

Income from continuing operations

 

375

 

23

Income from discontinued operations, net of income taxes

 

6

3

Net income

$

381

$

26

Basic earnings per share:

Income from continuing operations

$

1.13

$

0.07

Income from discontinued operations

 

0.02

 

0.01

Net income

 

1.15

 

0.08

Diluted earnings per share:

Income from continuing operations

$

1.13

$

0.07

Income from discontinued operations

 

0.02

 

0.01

Net income

 

1.14

 

0.08

Weighted-average number of shares outstanding:

Basic

 

331

335

Diluted

 

333

337

See Notes to Condensed Consolidated Financial Statements.

1

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Net income

$

381

$

26

Other comprehensive income:

Currency translation

 

111

50

Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes

 

6

8

Gains on cash flow hedges, net of income taxes

 

29

31

Other comprehensive income

 

146

 

89

Comprehensive income

527

115

Less: comprehensive income attributable to noncontrolling interests

(6)

Comprehensive income attributable to TE Connectivity Ltd.

$

521

$

115

See Notes to Condensed Consolidated Financial Statements.

2

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

December 25,

September 25,

    

2020

    

2020

    

(in millions, except share

data)

Assets

Current assets:

Cash and cash equivalents

$

1,098

$

945

Accounts receivable, net of allowance for doubtful accounts of $33 and $29, respectively

 

2,640

 

2,377

Inventories

 

2,066

 

1,950

Prepaid expenses and other current assets

 

677

 

512

Total current assets

 

6,481

 

5,784

Property, plant, and equipment, net

 

3,768

 

3,650

Goodwill

 

5,387

 

5,224

Intangible assets, net

 

1,613

 

1,593

Deferred income taxes

 

2,198

 

2,178

Other assets

 

819

 

813

Total assets

$

20,266

$

19,242

Liabilities, redeemable noncontrolling interests, and shareholders' equity

Current liabilities:

Short-term debt

$

685

$

694

Accounts payable

 

1,629

 

1,276

Accrued and other current liabilities

 

1,769

 

1,720

Total current liabilities

 

4,083

 

3,690

Long-term debt

 

3,516

 

3,452

Long-term pension and postretirement liabilities

 

1,329

 

1,336

Deferred income taxes

 

144

 

143

Income taxes

 

266

 

252

Other liabilities

 

949

 

874

Total liabilities

 

10,287

 

9,747

Commitments and contingencies (Note 9)

Redeemable noncontrolling interests

118

112

Shareholders' equity:

Common shares, CHF 0.57 par value, 338,953,381 shares authorized and issued

 

149

149

Accumulated earnings

 

10,672

 

10,348

Treasury shares, at cost, 7,836,597 and 8,295,878 shares, respectively

 

(655)

 

(669)

Accumulated other comprehensive loss

 

(305)

 

(445)

Total shareholders' equity

 

9,861

 

9,383

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

$

20,266

$

19,242

See Notes to Condensed Consolidated Financial Statements.

3

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the Quarter Ended December 25, 2020

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at September 25, 2020

 

339

$

149

 

(8)

$

(669)

$

$

10,348

$

(445)

$

9,383

Net income

 

 

 

 

 

 

381

 

 

381

Other comprehensive income

 

 

 

 

 

 

 

140

 

140

Share-based compensation expense

 

 

 

 

 

19

 

 

 

19

Exercise of share options

 

 

 

1

 

75

 

 

 

 

75

Restricted share award vestings and other activity

 

 

 

 

66

 

(19)

 

(57)

 

 

(10)

Repurchase of common shares

 

 

 

(1)

 

(127)

 

 

 

 

(127)

Balance at December 25, 2020

339

$

149

 

(8)

$

(655)

$

$

10,672

$

(305)

$

9,861

For the Quarter Ended December 27, 2019

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at September 27, 2019

 

351

$

154

 

(16)

$

(1,337)

$

$

12,256

$

(503)

$

10,570

Net income

26

26

Other comprehensive income

 

 

 

 

 

 

 

89

 

89

Share-based compensation expense

 

 

 

 

 

22

 

 

 

22

Exercise of share options

 

 

 

 

14

 

 

 

 

14

Restricted share award vestings and other activity

 

 

 

1

 

77

 

(22)

 

(76)

 

 

(21)

Repurchase of common shares

 

 

 

(2)

 

(143)

 

 

 

 

(143)

Balance at December 27, 2019

351

$

154

 

(17)

$

(1,389)

$

$

12,206

$

(414)

$

10,557

See Notes to Condensed Consolidated Financial Statements.

4

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Cash flows from operating activities:

Net income

$

381

$

26

Income from discontinued operations, net of income taxes

 

(6)

 

(3)

Income from continuing operations

 

375

 

23

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

Depreciation and amortization

 

187

 

174

Deferred income taxes

 

(42)

 

394

Non-cash lease cost

30

27

Provision for losses on accounts receivable and inventories

 

6

 

20

Share-based compensation expense

 

19

 

22

Other

 

21

 

10

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

Accounts receivable, net

 

(299)

 

(24)

Inventories

 

(145)

 

(176)

Prepaid expenses and other current assets

 

(87)

 

(23)

Accounts payable

 

349

 

94

Accrued and other current liabilities

 

88

 

(185)

Income taxes

 

17

 

10

Other

 

121

 

45

Net cash provided by operating activities

 

640

 

411

Cash flows from investing activities:

Capital expenditures

 

(142)

 

(176)

Acquisition of businesses, net of cash acquired

 

(107)

 

(115)

Other

 

3

 

2

Net cash used in investing activities

 

(246)

 

(289)

Cash flows from financing activities:

Net decrease in commercial paper

 

 

(9)

Repayment of debt

 

(30)

 

Proceeds from exercise of share options

 

75

 

14

Repurchase of common shares

 

(119)

 

(139)

Payment of common share dividends to shareholders

 

(159)

 

(154)

Other

 

(19)

 

(26)

Net cash used in financing activities

 

(252)

 

(314)

Effect of currency translation on cash

 

11

 

7

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

153

 

(185)

Cash, cash equivalents, and restricted cash at beginning of period

 

945

 

927

Cash, cash equivalents, and restricted cash at end of period

$

1,098

$

742

See Notes to Condensed Consolidated Financial Statements.

5

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and the instructions to Form 10-Q under the Securities Exchange Act of 1934. In management’s opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.

The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 25, 2020.

Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2021 and fiscal 2020 are to our fiscal years ending September 24, 2021 and ended September 25, 2020, respectively.

2. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Restructuring charges, net

$

149

$

24

Other charges, net

 

18

 

Restructuring and other charges, net

$

167

$

24

Net restructuring charges by segment were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Transportation Solutions

$

118

$

4

Industrial Solutions

 

20

 

15

Communications Solutions

 

11

 

5

Restructuring charges, net

$

149

$

24

6

Table of Contents

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

Activity in our restructuring reserves was as follows:

Balance at

Balance at

  

September 25,

Changes in

Cash

Non-Cash

Currency

December 25,

    

2020

    

Charges

    

Estimate

    

Payments

    

Items

    

Translation

    

2020

    

(in millions)

Fiscal 2021 Actions:

Employee severance

$

$

136

$

$

(1)

$

$

$

135

Facility and other exit costs

2

2

Property, plant, and equipment

4

(4)

Total

142

(1)

(4)

137

Fiscal 2020 Actions:

Employee severance

180

1

(34)

8

155

Facility and other exit costs

8

7

1

16

Property, plant, and equipment

3

(3)

Total

188

11

(34)

(3)

9

171

Pre-Fiscal 2020 Actions:

Employee severance

93

(5)

(19)

2

71

Facility and other exit costs

4

1

(5)

Total

97

1

(5)

(24)

2

71

Total Activity

$

285

$

154

$

(5)

$

(59)

$

(7)

$

11

$

379

Fiscal 2021 Actions

During fiscal 2021, we initiated a restructuring program associated with footprint consolidation and structural improvements, due in part to the COVID-19 pandemic, across all segments. In connection with this program, during the quarter ended December 25, 2020, we recorded restructuring charges of $142 million. We expect to complete all restructuring actions commenced during the quarter ended December 25, 2020 by the end of fiscal 2022 and to incur additional charges of approximately $12 million related primarily to employee severance and facility exit costs across all segments.

Fiscal 2020 Actions

During fiscal 2020, we initiated a restructuring program associated with footprint consolidation and structural improvements, due in part to the COVID-19 pandemic, across all segments. In connection with this program, during the quarters ended December 25, 2020 and December 27, 2019, we recorded restructuring charges of $11 million and $15 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2020 by the end of fiscal 2023 and to incur additional charges of approximately $34 million related primarily to employee severance and facility exit costs.

The following table summarizes expected, incurred, and remaining charges for the fiscal 2020 program by segment:

Total

Cumulative

Remaining

Expected

Charges

Expected

    

Charges

    

Incurred

    

Charges

  

(in millions)

Transportation Solutions

$

140

$

126

$

14

Industrial Solutions

 

114

 

99

 

15

Communications Solutions

 

41

 

36

 

5

Total

$

295

$

261

$

34

7

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

Pre-Fiscal 2020 Actions

Prior to fiscal 2020, we initiated restructuring programs associated with footprint consolidation and structural improvements impacting all segments. During the quarters ended December 25, 2020 and December 27, 2019, we recorded net restructuring credits of $4 million and charges of $9 million, respectively, related to pre-fiscal 2020 actions. We expect additional charges related to pre-fiscal 2020 actions to be insignificant.

Total Restructuring Reserves

Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Accrued and other current liabilities

$

340

$

229

Other liabilities

 

39

 

56

Restructuring reserves

$

379

$

285

3. Acquisitions

During the quarter ended December 25, 2020, we acquired one business for a cash purchase price of $106 million, net of cash acquired. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.

We acquired two businesses for a combined cash purchase price of $112 million, net of cash acquired, during the quarter ended December 27, 2019. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

4. Inventories

Inventories consisted of the following:

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Raw materials

$

284

$

251

Work in progress

 

905

 

851

Finished goods

 

877

 

848

Inventories

$

2,066

$

1,950

8

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

5. Goodwill

The changes in the carrying amount of goodwill by segment were as follows:

    

Transportation

    

Industrial

    

Communications

    

    

Solutions

Solutions

Solutions

Total

(in millions)

September 25, 2020(1)

$

1,527

$

3,110

$

587

$

5,224

Acquisitions

53

53

Purchase price adjustments

(1)

(1)

(2)

Currency translation

 

33

 

66

 

13

 

112

December 25, 2020(1)

$

1,559

$

3,228

$

600

$

5,387

(1)At December 25, 2020 and September 25, 2020, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $3,091 million, $669 million, and $489 million, respectively.

During the quarter ended December 25, 2020, we recognized goodwill in the Industrial Solutions segment in connection with a recent acquisition. See Note 3 for additional information regarding the acquisition.

6. Intangible Assets, Net

Intangible assets consisted of the following:

December 25, 2020

September 25, 2020

    

Gross

    

    

Net

    

Gross

    

    

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

    

(in millions)

Customer relationships

$

1,715

$

(588)

$

1,127

$

1,648

$

(554)

$

1,094

Intellectual property

1,240

(768)

472

1,225

(739)

486

Other

 

20

 

(6)

 

14

 

19

 

(6)

 

13

Total

$

2,975

$

(1,362)

$

1,613

$

2,892

$

(1,299)

$

1,593

Intangible asset amortization expense was $48 million and $45 million for the quarters ended December 25, 2020 and December 27, 2019, respectively.

At December 25, 2020, the aggregate amortization expense on intangible assets is expected to be as follows:

    

(in millions)

  

Remainder of fiscal 2021

$

146

Fiscal 2022

194

Fiscal 2023

 

192

Fiscal 2024

 

160

Fiscal 2025

 

145

Fiscal 2026

 

138

Thereafter

 

638

Total

$

1,613

7. Debt

The fair value of our debt, based on indicative valuations, was approximately $4,621 million and $4,550 million at December 25, 2020 and September 25, 2020, respectively.

9

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

8. Leases

The components of lease cost were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

    

(in millions)

    

Operating lease cost

$

30

$

27

Variable lease cost

11

11

Total lease cost

$

41

$

38

Cash flow information, including significant non-cash transactions, related to leases was as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

    

(in millions)

    

Cash paid for amounts included in the measurement of lease liabilities:

Payments for operating leases(1)

$

30

$

26

ROU assets obtained in exchange for new operating lease liabilities

22

5

(2)

(1)These payments are included in cash flows from continuing operating activities, primarily in changes in other liabilities.
(2)Excludes right-of-use assets recognized in connection with the adoption of ASC 842.

9. Commitments and Contingencies

Legal Proceedings

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.

Trade Compliance Matters

We are investigating our past compliance with relevant U.S. trade controls and are making voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). We are cooperating with BIS, and both our internal assessment and the BIS investigation are ongoing. We are unable to predict the final outcome of the BIS investigation or to reasonably estimate the time it may take to resolve these matters. An unfavorable outcome may include fines or penalties imposed in response to our disclosures; however, we are not yet able to estimate whether any such fines or penalties would be material to our financial condition and results of operations.

10

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

Environmental Matters

We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of December 25, 2020, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $16 million to $46 million, and we accrued $19 million as the probable loss, which was the best estimate within this range. We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.

Guarantees

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

In connection with the SubCom sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These performance guarantees and letters of credit had a combined value of approximately $280 million as of December 25, 2020 and are expected to expire at various dates through fiscal 2025. Also, under the terms of the definitive agreement, we are required to issue up to $300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years. As of December 25, 2020, there were no new performance guarantees outstanding. 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.

10. Financial Instruments

Foreign Currency Exchange Rate Risk

We utilize cross-currency swap contracts to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans. The aggregate notional value of these contracts was €700 million at December 25, 2020 and September 25, 2020. Under the terms of these contracts, which have been designated as cash flow hedges, we make interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.34% per annum. Upon maturity in fiscal 2022, we will pay the notional value of the contracts in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, both counterparties to each contract are required to provide cash collateral.

These cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Other assets

$

$

1

Other liabilities

 

52

 

9

11

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

At December 25, 2020 and September 25, 2020, collateral received from or paid to our counterparties approximated the net derivative position. Collateral is recorded in accrued and other current liabilities when the contracts are in a net asset position, or prepaid expenses and other current assets when the contracts are in a net liability position on the Condensed Consolidated Balance Sheets. The impacts of these cross-currency swap contracts were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Gains (losses) recorded in other comprehensive income (loss)

$

(4)

$

4

Losses excluded from the hedging relationship(1)

 

(40)

 

(22)

(1)Gains and losses excluded from the hedging relationship are recognized prospectively in selling, general, and administrative expenses and are offset by losses and gains generated as a result of re-measuring certain intercompany loans to the U.S. dollar.

Hedge of Net Investment

We hedge our net investment in certain foreign operations using intercompany loans and external borrowings denominated in the same currencies. The aggregate notional value of these hedges was $3,820 million and $3,511 million at December 25, 2020 and September 25, 2020, respectively.

We also use a cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the contracts under this program was $1,957 million and $1,664 million at December 25, 2020 and September 25, 2020, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.03% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2025, we will pay the notional value of the contracts in the designated foreign currency and receive U.S. dollars from our counterparties. We are not required to provide collateral for these contracts.

These cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Prepaid expenses and other current assets

$

$

1

Other assets

 

 

3

Accrued and other current liabilities

42

6

Other liabilities

56

16

12

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

The impacts of our hedge of net investment programs were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Foreign currency exchange losses on intercompany loans and external borrowings(1)

$

(168)

$

(65)

Losses on cross-currency swap contracts designated as hedges of net investment(1)

 

(85)

 

(33)

(1)Recorded as currency translation, a component of accumulated other comprehensive income (loss).

Interest Rate Risk Management

We may utilize forward starting interest rate swap contracts to manage interest rate exposure in periods prior to the anticipated issuance of fixed rate debt. These contracts had an aggregate notional value of $450 million at December 25, 2020 and September 25, 2020, and were designated as cash flow hedges. These forward starting interest rate swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Other assets

$

3

$

Other liabilities

54

64

The impacts of these forward starting interest rate swap contracts were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Gains recorded in other comprehensive income (loss)

$

13

$

10

Commodity Hedges

As part of managing the exposure to certain commodity price fluctuations, we utilize commodity swap contracts. The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in prices of commodities used in production. These contracts had an aggregate notional value of $321 million and $312 million at December 25, 2020 and September 25, 2020, respectively, and were designated as cash flow hedges. These commodity swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Prepaid expenses and other current assets

$

56

$

41

Other assets

 

3

 

3

Accrued and other current liabilities

1

2

Other liabilities

1

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

The impacts of these commodity swap contracts were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Gains recorded in other comprehensive income (loss)

$

37

$

19

Gains (losses) reclassified from accumulated other comprehensive income (loss) into cost of sales

15

(1)

We expect that significantly all of the balance in accumulated other comprehensive income (loss) associated with commodity hedges will be reclassified into the Condensed Consolidated Statement of Operations within the next twelve months.

11. Retirement Plans

The net periodic pension benefit cost (credit) for all non-U.S. and U.S. defined benefit pension plans was as follows:

Non-U.S. Plans

U.S. Plans

For the

For the

Quarters Ended

Quarters Ended

December 25,

December 27,

December 25,

December 27,

    

2020

    

2019

    

2020

    

2019

    

(in millions)

Operating expense:

Service cost

$

12

$

13

$

3

$

3

Other (income) expense:

Interest cost

 

7

 

6

 

8

 

9

Expected return on plan assets

 

(14)

 

(15)

 

(13)

 

(15)

Amortization of net actuarial loss

 

8

 

10

 

2

 

2

Amortization of prior service credit

 

(1)

 

(2)

 

 

Net periodic pension benefit cost (credit)

$

12

$

12

$

$

(1)

During the quarter ended December 25, 2020, we contributed $10 million and $17 million to our non-U.S. and U.S. pension plans, respectively.

12. Income Taxes

We recorded income tax expense of $60 million and $447 million for the quarters ended December 25, 2020 and December 27, 2019, respectively. The income tax expense for the quarter ended December 25, 2020 included a $29 million income tax benefit related to an Internal Revenue Service approved change in the tax method of depreciating or amortizing certain assets. The income tax expense for the quarter ended December 27, 2019 included $355 million of income tax expense related to the tax impacts of certain measures of the Switzerland Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”). See “Swiss Tax Reform” below for additional information.

Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $50 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.

We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Condensed Consolidated Balance Sheet as of December 25, 2020.

14

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

Swiss Tax Reform

The Federal Act on Tax Reform and AHV Financing eliminated certain preferential tax items and implemented new tax rates at both the federal and cantonal levels. During fiscal 2019, Switzerland enacted the federal provisions of Swiss Tax Reform and the federal tax authority issued guidance abolishing certain interest deductions. The impacts of these measures were reflected in our fiscal 2019 Consolidated Financial Statements.

In October 2019, the canton of Schaffhausen enacted Swiss Tax Reform into law, including reductions in tax rates. During the quarter ended December 27, 2019, we recognized $355 million of income tax expense related primarily to cantonal implementation and the resulting write-down of certain deferred tax assets to the lower tax rates.

13. Earnings Per Share

The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Basic

 

331

335

Dilutive impact of share-based compensation arrangements

 

2

2

Diluted

 

333

 

337

The following share options were not included in the computation of diluted earnings per share because the instruments’ underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Antidilutive share options

 

3

14. Shareholders’ Equity

Dividends

We paid cash dividends to shareholders as follows:

For the

 

Quarters Ended

 

    

December 25,

    

December 27,

 

    

2020

    

2019

    

Dividends paid per common share

$

0.48

$

0.46

Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity. At December 25, 2020 and September 25, 2020, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $159 million and $317 million, respectively.

15

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

Share Repurchase Program

Common shares repurchased under the share repurchase program were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Number of common shares repurchased

 

1

 

2

Repurchase value

 

$

127

 

$

143

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

15. Share Plans

Share-based compensation expense, which was included primarily in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Share-based compensation expense

 

$

19

 

$

22

As of December 25, 2020, there was $170 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 2.2 years.

During the quarter ended December 25, 2020, we granted the following share-based awards as part of our annual incentive plan grant:

Grant-Date

    

Shares

    

Fair Value

    

(in millions)

Share options

1.3

$

22.03

Restricted share awards

0.4

 

105.86

Performance share awards

0.2

105.86

As of December 25, 2020, we had 13 million shares available for issuance under the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of September 17, 2020.

Share-Based Compensation Assumptions

The assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:

Expected share price volatility

    

 

28

%

    

Risk-free interest rate

 

0.5

%

Expected annual dividend per share

$

1.92

Expected life of options (in years)

 

5.4

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

16. Segment and Geographic Data

Net sales by segment(1) and industry end market(2) were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Transportation Solutions:

Automotive

$

1,629

$

1,405

Commercial transportation

 

331

 

258

Sensors

 

264

 

205

Total Transportation Solutions

2,224

1,868

Industrial Solutions:

Aerospace, defense, oil, and gas

 

250

 

309

Industrial equipment

295

263

Medical

156

179

Energy

 

172

 

176

Total Industrial Solutions

873

927

Communications Solutions:

Data and devices

234

219

Appliances

 

191

 

154

Total Communications Solutions

425

373

Total

$

3,522

$

3,168

(1)Intersegment sales were not material.
(2)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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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

Net sales by geographic region(1) and segment were as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Asia–Pacific:

Transportation Solutions

$

876

$

742

Industrial Solutions

 

163

 

145

Communications Solutions

254

226

Total Asia–Pacific

 

1,293

 

1,113

Europe/Middle East/Africa (“EMEA”):

Transportation Solutions

894

702

Industrial Solutions

 

358

 

340

Communications Solutions

 

64

 

55

Total EMEA

 

1,316

 

1,097

Americas:

Transportation Solutions

454

424

Industrial Solutions

 

352

 

442

Communications Solutions

107

92

Total Americas

 

913

 

958

Total

$

3,522

$

3,168

(1)Net sales to external customers are attributed to individual countries based on the legal entity that records the sale.

Operating income by segment was as follows:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Transportation Solutions

$

308

$

316

Industrial Solutions

76

115

Communications Solutions

64

40

Total

$

448

$

471

18

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).

The following discussion includes organic net sales growth (decline) which is a non-GAAP financial measure. See “Non-GAAP Financial Measure” for additional information regarding 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 2021 included the following:

Our net sales increased 11.2% in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 due primarily to sales growth in the Transportation Solutions segment. On an organic basis, our net sales increased 6.2% during the first quarter of fiscal 2021 as compared to the same period of fiscal 2020.
Our net sales by segment were as follows:
Transportation Solutions—Our net sales increased 19.1% in the first quarter of fiscal 2021 due to sales increases in the automotive end market and, to a lesser degree, the commercial transportation and sensors end markets.
Industrial Solutions—Our net sales decreased 5.8% in the first quarter of fiscal 2021 primarily as a result of sales declines in the aerospace, defense, oil, and gas and the medical end markets, partially offset by sales increases in the industrial equipment end market.
Communications Solutions—Our net sales increased 13.9% in the first quarter of fiscal 2021 due to sales increases in both the appliances and the data and devices end markets.
Net cash provided by continuing operating activities was $640 million in the first quarter of fiscal 2021.

COVID-19 Pandemic and Economic Conditions

The COVID-19 pandemic has affected nearly all regions around the world and resulted in business slowdowns or shutdowns and travel restrictions in affected areas. The pandemic negatively affected our sales and operating results during fiscal 2020 and the first quarter of fiscal 2021, and we expect that it will continue to have an impact on some of our businesses in the near term and may have a material impact on our financial condition, liquidity, and results of operations in future periods.

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Table of Contents

The COVID-19 pandemic is currently impacting, and we expect that it will continue to impact, our business operations globally, causing further disruption in our suppliers’ and customers’ supply chains, some of our business locations to reduce or suspend operations, and a reduction in demand for certain products from direct customers or end markets. While a number of our businesses are operating as essential businesses, some have had and continue to have adjusted, reduced, or suspended operating activities at certain locations. In addition, the pandemic has had and may continue to have far-reaching impacts on many additional aspects of our operations, both directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, inventory, our employees, and the market generally, and the scope and nature of these impacts continue to evolve. We will continue to assess the evolving impact of the COVID-19 pandemic and intend to adjust our operations accordingly. Throughout our operations, we have implemented additional health and safety measures for the protection of our employees, including providing personal protective equipment, enhanced cleaning and sanitizing of our facilities, and remote working arrangements. The extent to which the pandemic will continue to impact our business and the markets we serve will depend on the success of, among other things, future developments and public health advancements, including the recent commencement of vaccine production and distribution.

We expect that the COVID-19 pandemic will continue to impact several of the markets we serve, in particular the commercial aerospace and medical markets in our Industrial Solutions segment; however, we expect these markets to improve later in fiscal 2021. See “Outlook” below for additional information.

In response to the economic environment, we have taken and continue to focus on actions to manage costs. These include restructuring and other cost reduction initiatives, such as reducing discretionary spending, capital expenditures, and travel. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, shareholders, and the communities in which we operate.

Outlook

In the second quarter of fiscal 2021, we expect our net sales to be approximately $3.5 billion as compared to $3.2 billion in the second quarter of fiscal 2020. This increase reflects sales growth in the Transportation Solutions segment and, to a lesser degree, the Communications Solutions segment, partially offset by sales declines in the Industrial Solutions segment relative to the second quarter of fiscal 2020.

We expect diluted earnings per share from continuing operations to be approximately $1.38 per share in the second quarter of fiscal 2021. This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $167 million and $0.09 per share, respectively, in the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020.

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

We are monitoring the current macroeconomic environment and its potential effects on our customers and the end markets we serve, including developments related to the COVID-19 pandemic. We 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 2021, we acquired one business for a cash purchase price of $106 million, net of cash acquired. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition. 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 25,

December 27,

    

2020

    

    

2019

    

    

 

($ in millions)

 

Transportation Solutions

$

2,224

63

%  

$

1,868

59

%  

Industrial Solutions

 

873

 

25

 

927

 

29

Communications Solutions

 

425

 

12

 

373

 

12

Total

$

3,522

 

100

%  

$

3,168

 

100

%  

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

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

versus Net Sales for the Quarter Ended December 27, 2019

Net Sales

Organic Net Sales

    

Growth (Decline)

Growth (Decline)

Translation

Acquisitions

    

($ in millions)

 

Transportation Solutions

$

356

 

19.1

%  

$

233

 

12.3

%  

$

76

$

47

Industrial Solutions

 

(54)

 

(5.8)

 

(78)

 

(8.4)

 

21

 

3

Communications Solutions

 

52

 

13.9

 

43

 

11.5

 

9

 

Total

$

354

 

11.2

%  

$

198

 

6.2

%  

$

106

$

50

Net sales increased $354 million, or 11.2%, in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020. The increase in net sales resulted from organic net sales growth of 6.2%, the positive impact of foreign currency translation of 3.4% due to the strengthening of certain foreign currencies, and sales contributions from acquisitions of 1.6%. In the first quarter of fiscal 2021, our net sales declines in the Industrial Solutions segment reflected significant unfavorable impacts from the COVID-19 pandemic. Price erosion adversely affected organic net sales by $26 million in the first quarter of fiscal 2021.

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. 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 U.S. dollar in the first quarter of fiscal 2021.

21

Table of Contents

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

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

($ in millions)

Asia–Pacific

$

1,293

 

37

%  

$

1,113

 

35

%  

EMEA

1,316

37

1,097

35

Americas

 

913

 

26

 

958

 

30

Total

$

3,522

 

100

%  

$

3,168

 

100

%  

(1)Net sales to external customers are attributed to individual countries based on the legal entity that records the sale.

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

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

versus Net Sales for the Quarter Ended December 27, 2019

Net Sales

Organic Net Sales

    

Growth (Decline)

    

Growth (Decline)

    

Translation

    

Acquisitions

    

($ in millions)

 

Asia–Pacific

$

180

16.2

%  

$

128

11.5

%  

$

52

$

EMEA

 

219

 

20.0

 

101

 

9.0

 

73

 

45

Americas

 

(45)

 

(4.7)

 

(31)

 

(3.2)

 

(19)

 

5

Total

$

354

 

11.2

%  

$

198

 

6.2

%  

$

106

$

50

Cost of Sales and Gross Margin

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

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

Change

    

($ in millions)

Cost of sales

$

2,376

$

2,138

$

238

As a percentage of net sales

 

67.5

%  

 

67.5

%  

 

  

Gross margin

$

1,146

$

1,030

$

116

As a percentage of net sales

 

32.5

%  

 

32.5

%  

 

  

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

We use a wide variety of raw materials in the manufacture of our products. Cost of sales and gross margin are subject to variability in raw material prices which continue to fluctuate for many of the raw materials we use, including copper, gold, silver, and palladium. We expect to purchase approximately 180 million pounds of copper, 115,000 troy ounces

22

Table of Contents

of gold, 2.5 million troy ounces of silver, and 15,000 troy ounces of palladium in fiscal 2021. The following table presents the average prices incurred related to copper, gold, silver, and palladium:

For the

Quarters Ended

December 25,

December 27,

    

Measure

    

2020

    

2019

    

Copper

 

Lb.

$

2.88

$

2.84

 

Gold

 

Troy oz.

 

1,599

 

1,354

 

Silver

Troy oz.

19.70

16.26

Palladium

 

Troy oz.

 

2,137

 

1,793

 

Operating Expenses

The following table presents operating expense information:

For the

 

Quarters Ended

 

December 25,

December 27,

 

    

2020

    

    

2019

    

    

Change

    

($ in millions)

 

Selling, general, and administrative expenses

$

361

$

367

$

(6)

As a percentage of net sales

 

10.2

%  

 

11.6

%  

 

  

Restructuring and other charges, net

$

167

$

24

$

143

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

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 2021 and 2020, we initiated restructuring programs associated with footprint consolidation and structural improvements, due in part to the COVID-19 pandemic, across all segments. We incurred net restructuring charges of $149 million during the first quarter of fiscal 2021, of which $142 million related to the fiscal 2021 restructuring program. Annualized cost savings related to the fiscal 2021 actions commenced during the first quarter of fiscal 2021 are expected to be approximately $60 million and are expected to be realized by the end of fiscal 2023. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses. For fiscal 2021, we expect total restructuring charges to be approximately $200 million and total spending, which will be funded with cash from operations, to be approximately $250 million.

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

Operating Income

The following table presents operating income and operating margin information:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

Change

    

($ in millions)

Operating income

$

448

$

471

$

(23)

Operating margin

 

12.7

%  

 

14.9

%  

 

  

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Operating income included the following:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Acquisition-related charges:

 

  

 

  

Acquisition and integration costs

$

8

$

7

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

 

1

 

 

9

 

7

Restructuring and other charges, net

 

167

 

24

Total

$

176

$

31

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

Non-Operating Items

The following table presents select non-operating information:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

Change

    

($ in millions)

Income tax expense

$

60

$

447

$

(387)

Effective tax rate

 

13.8

%  

 

95.1

%  

 

  

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

Segment Results

Transportation Solutions

Net Sales. The following table presents the Transportation Solutions segment’s net sales and the percentage of total net sales by industry end market(1):

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

($ in millions)

Automotive

$

1,629

    

73

%  

$

1,405

    

75

%  

Commercial transportation

 

331

 

15

 

258

 

14

Sensors

 

264

 

12

 

205

 

11

Total

$

2,224

 

100

%  

$

1,868

 

100

%  

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

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

versus Net Sales for the Quarter Ended December 27, 2019

    

Net Sales

    

Organic Net Sales

    

    

    

Growth

Growth

Translation

Acquisition

 

($ in millions)

 

Automotive

$

224

15.9

%  

$

161

11.3

%  

$

63

    

$

Commercial transportation

 

73

 

28.3

 

65

 

24.9

 

8

 

Sensors

 

59

 

28.8

 

7

 

3.2

 

5

 

47

Total

$

356

 

19.1

%  

$

233

 

12.3

%  

$

76

$

47

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

Automotive—Our organic net sales increased 11.3% in the first quarter of fiscal 2021 due primarily to content gains and the favorable impacts associated with the replenishment of inventory in the supply chain. Our organic net sales increased 12.9% in the EMEA region, 11.0% in the Asia–Pacific region, and 8.7% in the Americas region.
Commercial transportation—Our organic net sales increased 24.9% in the first quarter of fiscal 2021 as a result of growth across all regions due primarily to content gains.
Sensors—Our organic net sales increased 3.2% in the first quarter of fiscal 2021 due to strength in transportation applications.

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

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

Change

    

($ in millions)

Operating income

$

308

$

316

$

(8)

Operating margin

 

13.8

%  

 

16.9

%  

 

Operating income in the Transportation Solutions segment decreased slightly in the first quarter of fiscal 2021 as compared to the same period of fiscal 2020. Excluding the items below, operating income increased primarily as a result of higher volume.

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Acquisition-related charges:

 

  

 

  

Acquisition and integration costs

$

4

$

5

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

 

1

 

 

5

 

5

Restructuring and other charges, net

118

4

Total

$

123

$

9

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Industrial Solutions

Net Sales. The following table presents the Industrial Solutions segment’s net sales and the percentage of total net sales by industry end market(1):

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

($ in millions)

Aerospace, defense, oil, and gas

$

250

28

%  

$

309

33

%  

Industrial equipment

 

295

 

34

 

263

 

28

Medical

156

 

18

179

20

Energy

 

172

 

20

 

176

 

19

Total

$

873

 

100

%  

$

927

 

100

%  

(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 December 25, 2020

versus Net Sales for the Quarter Ended December 27, 2019

Net Sales

Organic Net Sales

    

Growth (Decline)

    

Growth (Decline)

    

Translation

    

Acquisition

    

($ in millions)

 

Aerospace, defense, oil, and gas

$

(59)

(19.1)

%  

$

(68)

(22.0)

%  

$

6

$

3

Industrial equipment

 

32

 

12.2

 

21

 

7.7

 

11

 

Medical

(23)

 

(12.8)

 

(24)

 

(13.4)

 

1

 

Energy

 

(4)

 

(2.3)

 

(7)

 

(3.7)

 

3

 

Total

$

(54)

 

(5.8)

%  

$

(78)

 

(8.4)

%  

$

21

$

3

In the Industrial Solutions segment, net sales decreased $54 million, or 5.8%, in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 due primarily to organic net sales declines of 8.4%, partially offset by the positive impact of foreign currency translation of 2.3%. Net sales in the first quarter of fiscal 2021 included significant unfavorable impacts from the COVID-19 pandemic. Our organic net sales by industry end market were as follows:

Aerospace, defense, oil, and gas—Our organic net sales decreased 22.0% in the first quarter of fiscal 2021 due primarily to reduced demand in the commercial aerospace market.
Industrial equipment—Our organic net sales increased 7.7% in the first quarter of fiscal 2021 due to growth in all regions primarily as a result of strength in factory automation and controls applications.
Medical—Our organic net sales decreased 13.4% in the first quarter of fiscal 2021 due primarily to continued delays in elective procedures.
Energy—Our organic net sales decreased 3.7% in the first quarter of fiscal 2021 as a result of declines across all regions due primarily to weakness in the utility market.

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Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

Change

    

($ in millions)

Operating income

$

76

$

115

$

(39)

Operating margin

 

8.7

%  

 

12.4

%  

 

  

Operating income in the Industrial Solutions segment decreased $39 million in the first quarter of fiscal 2021 as compared to the same period of fiscal 2020. Excluding the items below, operating income decreased due primarily to lower volume, partially offset by improved manufacturing productivity.

For the

Quarters Ended

December 25,

December 27,

    

2020

    

2019

    

(in millions)

Acquisition and integration costs

$

4

$

2

Restructuring and other charges, net

 

38

 

15

Total

$

42

$

17

Communications Solutions

Net Sales. The following table presents the Communications Solutions segment’s net sales and the percentage of total net sales by industry end market(1):

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

($ in millions)

Data and devices

$

234

55

%  

$

219

59

%  

Appliances

 

191

 

45

 

154

 

41

Total

$

425

 

100

%  

$

373

 

100

%  

(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 Communications Solutions segment’s net sales by industry end market:

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

versus Net Sales for the Quarter Ended December 27, 2019

    

Net Sales

    

Organic Net Sales

    

    

Growth

Growth

Translation

($ in millions)

Data and devices

$

15

6.8

%  

$

10

4.7

%  

$

5

Appliances

 

37

 

24.0

 

33

 

21.1

 

4

Total

$

52

 

13.9

%  

$

43

 

11.5

%  

$

9

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Net sales in the Communications Solutions segment increased $52 million, or 13.9%, in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 due primarily to organic net sales growth of 11.5%. Our organic net sales by industry end market were as follows:

Data and devices—Our organic net sales increased 4.7% in the first quarter of fiscal 2021 primarily as a result of market strength and market share gains in high-speed cloud applications.
Appliances—Our organic net sales increased 21.1% in the first quarter of fiscal 2021 due to sales growth in all regions primarily attributable to benefits from home investments.

Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information:

For the

Quarters Ended

December 25,

December 27,

    

2020

    

    

2019

    

    

Change

    

($ in millions)

Operating income

$

64

$

40

$

24

Operating margin

 

15.1

%  

 

10.7

%  

 

Operating income in the Communications Solutions segment increased $24 million in the first quarter of fiscal 2021 as compared to the same period of fiscal 2020. Excluding the item below, operating income increased due primarily to higher volume, improved manufacturing productivity, and lower material costs.

For the

Quarters Ended

December 25,

December 27,

    

    

2020

    

2019

(in millions)

Restructuring and other charges, net

$

11

$

5

Liquidity and Capital Resources

Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements. We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payment of €350 million of fixed-to-floating rate senior notes due in June 2021. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt. The cost or availability of future funding may be impacted by financial market conditions. Payment of our $250 million of 4.875% senior notes due in January 2021 was made after the first quarter of fiscal 2021. We will continue to monitor financial markets and respond as necessary to changing conditions, including future developments related to the COVID-19 pandemic. There is continued uncertainty surrounding the duration and scope of the pandemic and it may have a material impact on our liquidity and financial conditions. We believe that we have sufficient financial resources and liquidity which, along with managing expenses and capital structure flexibility, will enable us to meet our ongoing working capital and other cash flow needs during the COVID-19 pandemic and resulting period of economic uncertainty.

Cash Flows from Operating Activities

In the first quarter of fiscal 2021, net cash provided by continuing operating activities increased $229 million to $640 million from $411 million in the first quarter of fiscal 2020. The increase resulted primarily from improved working capital. The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2021 and 2020 was $85 million and $43 million, respectively.

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Cash Flows from Investing Activities

Capital expenditures were $142 million and $176 million in the first quarters of fiscal 2021 and 2020, respectively. We expect fiscal 2021 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 quarter of fiscal 2021, we acquired one business for a cash purchase price of $106 million, net of cash acquired. We acquired two businesses for a combined cash purchase price of $112 million, net of cash acquired, during the first quarter of 2020. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.

Cash Flows from Financing Activities and Capitalization

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

Tyco Electronics Group S.A. (“TEGSA”) has a five-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of November 2023 and total commitments of $1.5 billion. TEGSA had no borrowings under the Credit Facility at December 25, 2020 or September 25, 2020.

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

In addition to the Credit Facility, TEGSA is the borrower under our senior notes and commercial paper. TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed on an unsecured basis by its parent, TE Connectivity Ltd.

Payments of common share dividends to shareholders were $159 million and $154 million in the first quarters of fiscal 2021 and 2020, respectively.

We repurchased approximately 1 million of our common shares for $127 million and approximately 2 million of our common shares for $143 million under the share repurchase program during the first quarters of fiscal 2021 and 2020, respectively. At December 25, 2020, we had $868 million of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

As discussed above, our senior notes, commercial paper, and Credit Facility are issued by TEGSA and are fully and unconditionally guaranteed on an unsecured basis by TEGSA’s parent, TE Connectivity Ltd. In addition to being the issuer of our debt securities, TEGSA owns, directly or indirectly, all of our operating subsidiaries. The following tables present

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Table of Contents

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.

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Balance Sheet Data:

Total current assets

$

219

$

134

Total noncurrent assets(1)

 

3,281

 

3,282

Total current liabilities

 

997

 

1,237

Total noncurrent liabilities(2)

24,052

23,549

(1)Includes $3,277 million and $3,275 million as of December 25, 2020 and September 25, 2020, respectively, of intercompany loans receivable from non-guarantor subsidiaries.
(2)Includes $20,388 million and $20,016 million as of December 25, 2020 and September 25, 2020, respectively, of intercompany loans payable to non-guarantor subsidiaries.

For the

For the

Quarter Ended

Fiscal Year Ended

December 25,

September 25,

    

2020

    

2020

    

(in millions)

Statement of Operations Data:

Loss from continuing operations

$

(64)

$

(206)

Net loss

 

(58)

 

(202)

Commitments and Contingencies

Legal Proceedings

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.

Trade Compliance Matters

We are investigating our past compliance with relevant U.S. trade controls and are making voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). We are cooperating with BIS, and both our internal assessment and the BIS investigation are ongoing. We are unable to predict the final outcome of the BIS investigation or to reasonably estimate the time it may take to resolve these matters. An unfavorable outcome may include fines or penalties imposed in response to our disclosures; however, we are not yet able to estimate whether any such fines or penalties would be material to our financial condition and results of operations.

Guarantees

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. 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.

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

In connection with the SubCom sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These performance guarantees and letters of credit had a combined value of approximately $280 million as of December 25, 2020 and are expected to expire at various dates through fiscal 2025. Also, under the terms of the definitive agreement, we are required to issue up to $300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years. As of December 25, 2020, there were no new performance guarantees outstanding. 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

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

Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension are based on, among other things, judgments and assumptions made by management. For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 25, 2020. There were no significant changes to this information during the first quarter of fiscal 2021.

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. Management uses this measure to monitor and evaluate performance. Also, management uses this measure together with GAAP financial measures in its decision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. 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. 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

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growth (decline) in combination with net sales growth (decline) to better understand the amounts, character, and impact of any increase or decrease in reported amounts.

Forward-Looking Information

Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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 involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements after we file this report except as required by law.

The following and other risks, which are described in greater detail in “Part I. Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended September 25, 2020, and in this 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 affecting demand for products in the industries we serve, particularly the automotive industry;
risk of future goodwill impairment;
competition and pricing pressure;
market acceptance of our new product introductions and product innovations and product life cycles;
raw material availability, quality, and cost;
fluctuations in foreign currency exchange rates and impacts of offsetting hedges;
financial condition and consolidation of customers and vendors;
reliance on third-party suppliers;
risks associated with current and future acquisitions and divestitures;
global risks of business interruptions due to natural disasters or other disasters such as the COVID-19 pandemic, which have and could continue to negatively impact our results of operations as well as customer behaviors, business, and manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business;
global risks of political, economic, and military instability, including volatile and uncertain economic conditions in China;
risks associated with security breaches and other disruptions to our information technology infrastructure;

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risks related to compliance with current and future environmental and other laws and regulations;
risks associated with compliance with applicable antitrust or competition laws or applicable trade regulations;
our ability to protect our intellectual property rights;
risks of litigation;
our ability to operate within the limitations imposed by our debt instruments;
the possible effects on us of various non-U.S. and 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. government contracts business;
various risks associated with being a Swiss corporation;
the impact of fluctuations in the market price of our shares; and
the impact of certain provisions of our articles of association on unsolicited takeover proposals.

There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our exposures to market risk during the first quarter of fiscal 2021. For further discussion of our exposures to market risk, refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended September 25, 2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of December 25, 2020. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 25, 2020.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 25, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material developments in our legal proceedings since we filed our Annual Report on Form 10-K for the fiscal year ended September 25, 2020. Refer to “Part I. Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended September 25, 2020 for additional information regarding legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 25, 2020 except as described below. The risk factors described in our Annual Report on Form 10-K, in addition to other information set forth below and in this report, could materially affect our business operations, financial condition, or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impair our business operations, financial condition, and liquidity.

If any of our operations are found not to comply with applicable antitrust or competition laws or applicable trade regulations, our business may suffer.

Our operations are subject to applicable antitrust and competition laws in the jurisdictions in which we conduct our business, in particular the U.S. and the European Union. These laws prohibit, among other things, anticompetitive agreements and practices. If any of our commercial agreements and practices with respect to the electronic components or other markets are found to violate or infringe such laws, we may be subject to civil and other penalties. We may also be subject to third-party claims for damages. Further, agreements that infringe these antitrust and competition laws may be void and unenforceable, in whole or in part, or require modification to be lawful and enforceable. If we are unable to enforce our commercial agreements, whether at all or in material part, our results of operations, financial position, and cash flows could be adversely affected.

We also must comply with applicable trade regulations in the jurisdictions where we operate. A small portion of our products, including defense-related products, may require governmental import and export licenses, whose issuance may be influenced by geopolitical and other events. Any failure to maintain compliance with trade regulations could limit our ability to import and export raw materials and finished goods into or from the relevant jurisdiction, which could negatively impact our results of operations, financial position, and cash flows. In this regard, we are investigating our past compliance with relevant U.S. trade controls and are making voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). We are cooperating with BIS, and both our internal assessment and the BIS investigation are ongoing. We are unable to predict the final outcome of the BIS investigation or to reasonably estimate the time it may take to resolve these matters. An unfavorable outcome may include fines or penalties imposed in response to our disclosures; however, we are not yet able to estimate whether any such fines or penalties would be material to our financial condition and results of operations.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table presents information about our purchases of our common shares during the quarter ended December 25, 2020:

Maximum

Total Number of

Approximate

Shares Purchased

Dollar Value

as Part of

of Shares that May

Total Number

Average Price

Publicly Announced

Yet Be Purchased

of Shares

Paid Per

Plans or

Under the Plans

Period

    

Purchased(1)

    

Share(1)

    

Programs(2)

    

or Programs(2)

    

September 26–October 23, 2020

436

$

97.27

$

995,115,788

October 24–November 27, 2020

 

627,241

 

108.50

 

507,500

 

940,030,817

November 28–December 25, 2020

 

662,698

 

117.44

 

614,200

 

867,937,104

Total

 

1,290,375

$

113.09

 

1,121,700

 

  

(1)These columns include the following transactions which occurred during the quarter ended December 25, 2020:
(i)the acquisition of 168,675 common shares from individuals in order to satisfy tax withholding requirements in connection with the vesting of restricted share awards issued under equity compensation plans; and
(ii)open market purchases totaling 1,121,700 common shares, summarized on a trade-date basis, in conjunction with the share repurchase program announced in September 2007.
(2)Our share repurchase program authorizes us to purchase a portion of our outstanding common shares from time to time through open market or private transactions, depending on business and market conditions. The share repurchase program does not have an expiration date.

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ITEM 6. EXHIBITS

Exhibit Number

Exhibit

10.1

‡*

Form of Option Award Terms and Conditions for Option Grants beginning in November 2020

10.2

‡*

Form of Restricted Stock Unit Award Terms and Conditions for RSU Grants Beginning in November 2020

10.3

‡*

Form of Performance Stock Unit Award Terms and Conditions for Performance Cycles Starting in and After Fiscal Year 2021

10.4

‡*

Employment Agreement between Shad Kroeger and TE Connectivity Corporation dated February 23, 2018

22.1

*

Guaranteed Securities

31.1

*

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

*

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

**

Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document(1)(2)

101.SCH

XBRL Taxonomy Extension Schema Document(2)

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document(2)

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document(2)

101.LAB

XBRL Taxonomy Extension Label Linkbase Document(2)

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document(2)

104

Cover Page Interactive Data File(3)

Management contract or compensatory plan or arrangement

*Filed herewith

**

Furnished herewith

(1)Submitted electronically with this report in accordance with the provisions of Regulation S-T
(2)The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
(3)Formatted in Inline XBRL and contained in exhibit 101

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TE CONNECTIVITY LTD.

By:

/s/ Heath A. Mitts

Heath A. Mitts
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)

Date: January 28, 2021

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