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TE Connectivity Ltd. - Quarter Report: 2021 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 24, 2021

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 21, 2022 was 325,575,225.

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 24, 2021 and December 25, 2020 (unaudited)

1

Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended December 24, 2021 and December 25, 2020 (unaudited)

2

Condensed Consolidated Balance Sheets as of December 24, 2021 and September 24, 2021 (unaudited)

3

Condensed Consolidated Statements of Shareholders’ Equity for the Quarters Ended December 24, 2021 and December 25, 2020 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Quarters Ended December 24, 2021 and December 25, 2020 (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

34

Item 6.

Exhibits

35

Signatures

36

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 24,

December 25,

    

2021

    

2020

    

(in millions, except per share data)

Net sales

$

3,818

$

3,522

Cost of sales

 

2,588

 

2,376

Gross margin

 

1,230

 

1,146

Selling, general, and administrative expenses

 

363

361

Research, development, and engineering expenses

 

175

162

Acquisition and integration costs

 

8

8

Restructuring and other charges, net

 

12

167

Operating income

672

448

Interest income

2

3

Interest expense

 

(12)

(15)

Other income (expense), net

 

15

(1)

Income from continuing operations before income taxes

 

677

 

435

Income tax expense

 

(110)

(60)

Income from continuing operations

 

567

 

375

Income (loss) from discontinued operations, net of income taxes

 

(1)

6

Net income

$

566

$

381

Basic earnings per share:

Income from continuing operations

$

1.73

$

1.13

Income from discontinued operations

 

 

0.02

Net income

 

1.73

 

1.15

Diluted earnings per share:

Income from continuing operations

$

1.72

$

1.13

Income from discontinued operations

 

 

0.02

Net income

 

1.72

 

1.14

Weighted-average number of shares outstanding:

Basic

 

327

331

Diluted

 

330

333

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 24,

December 25,

    

2021

    

2020

    

(in millions)

Net income

$

566

$

381

Other comprehensive income:

Currency translation

 

18

111

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

 

4

6

Gains on cash flow hedges, net of income taxes

 

1

29

Other comprehensive income

 

23

 

146

Comprehensive income

589

527

Less: comprehensive (income) loss attributable to noncontrolling interests

6

(6)

Comprehensive income attributable to TE Connectivity Ltd.

$

595

$

521

See Notes to Condensed Consolidated Financial Statements.

2

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

December 24,

September 24,

    

2021

    

2021

    

(in millions, except share

data)

Assets

Current assets:

Cash and cash equivalents

$

982

$

1,203

Accounts receivable, net of allowance for doubtful accounts of $41

 

2,844

 

2,928

Inventories

 

2,845

 

2,511

Prepaid expenses and other current assets

 

573

 

621

Total current assets

 

7,244

 

7,263

Property, plant, and equipment, net

 

3,827

 

3,778

Goodwill

 

5,503

 

5,590

Intangible assets, net

 

1,509

 

1,549

Deferred income taxes

 

2,513

 

2,499

Other assets

 

813

 

783

Total assets

$

21,409

$

21,462

Liabilities, redeemable noncontrolling interests, and shareholders' equity

Current liabilities:

Short-term debt

$

484

$

503

Accounts payable

 

1,964

 

1,911

Accrued and other current liabilities

 

1,826

 

2,242

Total current liabilities

 

4,274

 

4,656

Long-term debt

 

3,519

 

3,589

Long-term pension and postretirement liabilities

 

1,119

 

1,139

Deferred income taxes

 

192

 

181

Income taxes

 

331

 

302

Other liabilities

 

846

 

847

Total liabilities

 

10,281

 

10,714

Commitments and contingencies (Note 9)

Redeemable noncontrolling interests

108

114

Shareholders' equity:

Common shares, CHF 0.57 par value, 336,099,881 shares authorized and issued

 

148

148

Accumulated earnings

 

12,285

 

11,709

Treasury shares, at cost, 9,911,977 and 9,060,919 shares, respectively

 

(1,274)

 

(1,055)

Accumulated other comprehensive loss

 

(139)

 

(168)

Total shareholders' equity

 

11,020

 

10,634

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

$

21,409

$

21,462

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 24, 2021

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at September 24, 2021

 

336

$

148

 

(9)

$

(1,055)

$

$

11,709

$

(168)

$

10,634

Net income

 

 

 

 

 

 

566

 

 

566

Other comprehensive income

 

 

 

 

 

 

 

29

 

29

Share-based compensation expense

 

 

 

 

 

32

 

 

 

32

Exercise of share options

 

 

 

 

22

 

 

 

 

22

Restricted share award vestings and other activity

 

 

 

1

 

5

 

(32)

 

10

 

 

(17)

Repurchase of common shares

 

 

 

(2)

 

(246)

 

 

 

 

(246)

Balance at December 24, 2021

336

$

148

 

(10)

$

(1,274)

$

$

12,285

$

(139)

$

11,020

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

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 24,

December 25,

    

2021

    

2020

    

(in millions)

Cash flows from operating activities:

Net income

$

566

$

381

(Income) loss from discontinued operations, net of income taxes

 

1

 

(6)

Income from continuing operations

 

567

 

375

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

Depreciation and amortization

 

198

 

187

Deferred income taxes

 

4

 

(42)

Non-cash lease cost

31

30

Provision for losses on accounts receivable and inventories

 

33

 

6

Share-based compensation expense

 

32

 

19

Other

 

(9)

 

21

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

Accounts receivable, net

 

148

 

(299)

Inventories

 

(264)

 

(145)

Prepaid expenses and other current assets

 

52

 

(87)

Accounts payable

 

15

 

349

Accrued and other current liabilities

 

(285)

 

88

Income taxes

 

34

 

17

Other

 

(24)

 

121

Net cash provided by operating activities

 

532

 

640

Cash flows from investing activities:

Capital expenditures

 

(172)

 

(142)

Proceeds from sale of property, plant, and equipment

 

54

 

1

Acquisition of businesses, net of cash acquired

 

(100)

 

(107)

Proceeds from divestiture of businesses, net of cash retained by businesses sold

16

Other

 

3

 

2

Net cash used in investing activities

 

(199)

 

(246)

Cash flows from financing activities:

Net increase in commercial paper

 

479

 

Repayment of debt

 

(555)

 

(30)

Proceeds from exercise of share options

 

22

 

75

Repurchase of common shares

 

(304)

 

(119)

Payment of common share dividends to shareholders

 

(163)

 

(159)

Other

 

(31)

 

(19)

Net cash used in financing activities

 

(552)

 

(252)

Effect of currency translation on cash

 

(2)

 

11

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

 

(221)

 

153

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

 

1,203

 

945

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

$

982

$

1,098

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 24, 2021.

Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2022 and fiscal 2021 are to our fiscal years ending September 30, 2022 and ended September 24, 2021, respectively.

2. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Restructuring charges, net

$

21

$

149

(Gain) loss on divestitures and impairment of held for sale businesses

(9)

17

Other charges, net

 

 

1

Restructuring and other charges, net

$

12

$

167

Net restructuring and related charges by segment were as follows:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Transportation Solutions

$

5

$

118

Industrial Solutions

 

8

 

20

Communications Solutions

 

8

 

11

Restructuring charges, net

21

149

Plus: charges included in cost of sales(1)

12

Restructuring and related charges, net

$

33

$

149

(1)Charges included in cost of sales were attributable to inventory-related charges within the Industrial Solutions segment.

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 24,

Changes in

Cash

Non-Cash

Currency

December 24,

    

2021

    

Charges

    

Estimate

    

Payments

    

Items

    

Translation

    

2021

    

(in millions)

Fiscal 2022 Actions:

Employee severance

$

$

15

$

$

(1)

$

$

$

14

Property, plant, and equipment and inventories

18

(18)

Total

33

(1)

(18)

14

Fiscal 2021 Actions:

Employee severance

152

1

(29)

(5)

119

Facility and other exit costs

2

1

(1)

2

Property, plant, and equipment

2

(2)

Total

154

4

(30)

(2)

(5)

121

Pre-Fiscal 2021 Actions:

Employee severance

135

(6)

(12)

(3)

114

Facility and other exit costs

15

2

(3)

14

Total

150

2

(6)

(15)

(3)

128

Total Activity

$

304

$

39

$

(6)

$

(46)

$

(20)

$

(8)

$

263

Fiscal 2022 Actions

During fiscal 2022, we initiated a restructuring program associated with footprint consolidation and cost structure improvements across all segments. During the quarter ended December 24, 2021, we recorded restructuring and related charges of $33 million in connection with this program. We expect to complete all restructuring actions commenced during the quarter ended December 24, 2021 by the end of fiscal 2024 and anticipate that any additional charges will be insignificant.

Fiscal 2021 Actions

During fiscal 2021, we initiated a restructuring program across all segments to optimize our manufacturing footprint and improve the cost structure of the organization. In connection with this program, during the quarters ended December 24, 2021 and December 25, 2020, we recorded restructuring charges of $4 million and $142 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2021 by the end of fiscal 2023 and to incur additional charges of approximately $12 million related to employee severance and facility exit costs.

The following table summarizes expected, incurred, and remaining charges for the fiscal 2021 program by segment:

Total

Cumulative

Remaining

Expected

Charges

Expected

    

Charges

    

Incurred

    

Charges

    

(in millions)

Transportation Solutions

$

131

$

125

$

6

Industrial Solutions

 

53

 

50

 

3

Communications Solutions

 

27

 

24

 

3

Total

$

211

$

199

$

12

7

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TE CONNECTIVITY LTD.

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

Pre-Fiscal 2021 Actions

During the quarters ended December 24, 2021 and December 25, 2020, we recorded net restructuring credits of $4 million and charges of $7 million, respectively, related to pre-fiscal 2021 actions. We expect additional charges related to pre-fiscal 2021 actions to be insignificant.

Total Restructuring Reserves

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

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Accrued and other current liabilities

$

208

$

236

Other liabilities

 

55

 

68

Restructuring reserves

$

263

$

304

3. Acquisitions

During the quarter ended December 24, 2021, we acquired one business for a cash purchase price of $125 million, net of cash acquired. The acquisition was reported as part of our Communications Solutions segment from the date of acquisition.

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

4. Inventories

Inventories consisted of the following:

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Raw materials

$

423

$

320

Work in progress

 

1,134

 

991

Finished goods

 

1,288

 

1,200

Inventories

$

2,845

$

2,511

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 24, 2021(1)

$

1,549

$

3,446

$

595

$

5,590

Acquisition

78

78

Purchase price adjustments

(103)

(103)

Currency translation and other

 

(20)

 

(36)

 

(6)

 

(62)

December 24, 2021(1)

$

1,529

$

3,307

$

667

$

5,503

(1)At December 24, 2021 and September 24, 2021, 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 24, 2021, we recognized goodwill in the Communications Solutions segment in connection with a recent acquisition. Also during the quarter ended December 24, 2021, we recognized purchase price adjustments in the Industrial Solutions segment in connection with prior year acquisitions, including two acquisitions that closed late in the fourth quarter of fiscal 2021. See Note 3 for additional information regarding acquisitions.

6. Intangible Assets, Net

Intangible assets consisted of the following:

December 24, 2021

September 24, 2021

    

Gross

    

    

Net

    

Gross

    

    

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

    

(in millions)

Customer relationships

$

1,766

$

(680)

$

1,086

$

1,766

$

(660)

$

1,106

Intellectual property

1,262

(852)

410

1,262

(832)

430

Other

 

19

 

(6)

 

13

 

19

 

(6)

 

13

Total

$

3,047

$

(1,538)

$

1,509

$

3,047

$

(1,498)

$

1,549

Intangible asset amortization expense was $48 million for the quarters ended December 24, 2021 and December 25, 2020.

At December 24, 2021, the aggregate amortization expense on intangible assets is expected to be as follows:

    

(in millions)

  

Remainder of fiscal 2022

$

150

Fiscal 2023

199

Fiscal 2024

 

167

Fiscal 2025

 

151

Fiscal 2026

 

145

Fiscal 2027

 

124

Thereafter

 

573

Total

$

1,509

9

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TE CONNECTIVITY LTD.

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

7. Debt

During the quarter ended December 24, 2021, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, called for the early redemption of all of its outstanding 3.50% senior notes due in February 2022, representing $500 million aggregate principal amount. The notes were redeemed in November 2021.

As of December 24, 2021, TEGSA had $479 million of commercial paper outstanding at a weighted-average interest rate of 0.25%. TEGSA had no commercial paper outstanding at September 24, 2021.

The fair value of our debt, based on indicative valuations, was approximately $4,343 million and $4,465 million at December 24, 2021 and September 24, 2021, respectively.

8. Leases

The components of lease cost were as follows:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

    

(in millions)

    

Operating lease cost

$

31

$

30

Variable lease cost

12

11

Total lease cost

$

43

$

41

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

    

(in millions)

    

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

Payments for operating leases(1)

$

34

$

30

Right-of-use assets, including modifications and extensions, obtained in exchange for operating lease liabilities

36

22

(1)These payments are included in cash flows from operating activities, primarily in changes in accrued and other current liabilities.

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.

10

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TE CONNECTIVITY LTD.

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

Trade Compliance Matters

We are investigating our past compliance with relevant U.S. trade controls and have made voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”). We are cooperating with the BIS and DDTC on these matters, and both our internal assessment and the resulting investigations by the agencies remain ongoing. We are unable to predict the timing and final outcome of the agencies’ investigations. An unfavorable outcome may include fines or penalties imposed in response to our disclosures, but we are not yet able to reasonably estimate the extent of any such fines or penalties. While we have reserved for potential fines and penalties relating to these matters based on our current understanding of the facts, the investigations into these matters have yet to be completed and the final outcome of such investigations and related fines and penalties may differ from amounts currently reserved.

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 24, 2021, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $18 million to $46 million, and we accrued $21 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 24, 2021, we had outstanding letters of credit, letters of guarantee, and surety bonds of $132 million, excluding those related to our Subsea Communications (“SubCom”) business which are discussed below.

During fiscal 2019, we sold our SubCom business. In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These performance guarantees and letters of credit had a combined value of approximately $118 million as of December 24, 2021 and are expected to expire at various dates through fiscal 2025. We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees; however, based on historical experience, we do not anticipate having to perform.

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 €500 million and €700 million at December 24, 2021 and September 24, 2021, respectively. Certain contracts were terminated in the quarter ended December 24, 2021; the remaining contracts mature in the fourth quarter of fiscal 2022. 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 5.32% per annum. Upon maturity, we will pay the notional value of the contracts in

11

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TE CONNECTIVITY LTD.

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

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 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

4

$

Other liabilities

 

 

20

At December 24, 2021 and September 24, 2021, 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 24,

December 25,

    

2021

    

2020

    

(in millions)

Losses recorded in other comprehensive income (loss)

$

(3)

$

(4)

Gains (losses) excluded from the hedging relationship(1)

 

29

 

(40)

(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 $3,055 million and $3,798 million at December 24, 2021 and September 24, 2021, 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 $1,576 million and $1,430 million at December 24, 2021 and September 24, 2021, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 1.67% 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 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

6

$

3

Other assets

 

29

 

18

Accrued and other current liabilities

13

Other liabilities

9

18

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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 24,

December 25,

    

2021

    

2020

    

(in millions)

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

$

108

$

(168)

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

 

37

 

(85)

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

Interest Rate Risk Management

We 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 24, 2021 and September 24, 2021 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 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

8

$

7

Accrued and other current liabilities

37

38

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Gains recorded in other comprehensive income (loss)

$

2

$

13

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 $545 million and $512 million at December 24, 2021 and September 24, 2021, respectively, and were designated as cash flow hedges. These commodity swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

18

$

23

Other assets

 

1

 

Accrued and other current liabilities

13

18

Other liabilities

1

4

13

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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 24,

December 25,

    

2021

    

2020

    

(in millions)

Gains recorded in other comprehensive income (loss)

$

15

$

37

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

15

15

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 24,

December 25,

December 24,

December 25,

    

2021

    

2020

    

2021

    

2020

    

(in millions)

Operating expense:

Service cost

$

10

$

12

$

2

$

3

Other (income) expense:

Interest cost

 

9

 

7

 

7

 

8

Expected return on plan assets

 

(15)

 

(14)

 

(12)

 

(13)

Amortization of net actuarial loss

 

6

 

8

 

1

 

2

Amortization of prior service credit

 

(1)

 

(1)

 

 

Net periodic pension benefit cost (credit)

$

9

$

12

$

(2)

$

During the quarter ended December 24, 2021, we contributed $9 million to our non-U.S. pension plans.

12. Income Taxes

We recorded income tax expense of $110 million and $60 million for the quarters ended December 24, 2021 and December 25, 2020, respectively. The income tax expense for the quarter ended December 24, 2021 included a $17 million income tax benefit related to the tax impacts of an intercompany transaction. Our estimated annual effective tax rate for fiscal 2022 includes a total income tax benefit of approximately $75 million related to this transaction, with a portion recognized in the quarter ended December 24, 2021 and the remainder to be recognized in the remaining quarters of fiscal 2022. In addition, the income tax expense for the quarter ended December 24, 2021 included $12 million of income tax expense related to an income tax audit of an acquired entity. As we are entitled to indemnification of pre-acquisition period tax obligations under the terms of the purchase agreement, we recorded an associated indemnification receivable and other income of $11 million during the quarter ended December 24, 2021. 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.

Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $100 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.

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TE CONNECTIVITY LTD.

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

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 24, 2021.

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 24,

December 25,

    

2021

    

2020

    

(in millions)

Basic

 

327

331

Dilutive impact of share-based compensation arrangements

 

3

2

Diluted

 

330

 

333

For the quarter ended December 24, 2021, one million 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.

14. Shareholders’ Equity

Dividends

We paid cash dividends to shareholders as follows:

For the

 

Quarters Ended

 

    

December 24,

    

December 25,

 

    

2021

    

2020

    

Dividends paid per common share

$

0.50

$

0.48

Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity. At December 24, 2021 and September 24, 2021, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $163 million and $327 million, respectively.

Share Repurchase Program

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Number of common shares repurchased

 

2

 

1

Repurchase value

 

$

246

 

$

127

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

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TE CONNECTIVITY LTD.

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

15. Share Plans

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Share-based compensation expense

 

$

32

 

$

19

As of December 24, 2021, there was $214 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 24, 2021, we granted the following share-based awards as part of our annual incentive plan grant:

Grant-Date

    

Shares

    

Fair Value

    

(in millions)

Share options

0.8

$

37.67

Restricted share awards

0.3

 

158.00

Performance share awards

0.1

158.00

As of December 24, 2021, we had 11 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

    

 

29

%

    

Risk-free interest rate

 

1.1

%

Expected annual dividend per share

$

2.00

Expected life of options (in years)

 

5.1

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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 24,

December 25,

    

2021

    

2020

    

(in millions)

Transportation Solutions:

Automotive

$

1,520

$

1,629

Commercial transportation

 

365

 

331

Sensors

 

273

 

264

Total Transportation Solutions

2,158

2,224

Industrial Solutions:

Industrial equipment

462

295

Aerospace, defense, oil, and gas

 

242

 

250

Energy

 

188

 

172

Medical

167

156

Total Industrial Solutions

1,059

873

Communications Solutions:

Data and devices

349

234

Appliances

 

252

 

191

Total Communications Solutions

601

425

Total

$

3,818

$

3,522

(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 24,

December 25,

    

2021

    

2020

    

(in millions)

Europe/Middle East/Africa (“EMEA”):

Transportation Solutions

$

771

$

894

Industrial Solutions

 

452

 

358

Communications Solutions

 

91

 

64

Total EMEA

 

1,314

 

1,316

Asia–Pacific:

Transportation Solutions

 

928

 

876

Industrial Solutions

 

209

 

163

Communications Solutions

333

254

Total Asia–Pacific

 

1,470

 

1,293

Americas:

Transportation Solutions

459

454

Industrial Solutions

 

398

 

352

Communications Solutions

177

107

Total Americas

 

1,034

 

913

Total

$

3,818

$

3,522

(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 24,

December 25,

    

2021

    

2020

    

(in millions)

Transportation Solutions

$

395

$

308

Industrial Solutions

123

76

Communications Solutions

154

64

Total

$

672

$

448

17. Subsequent Event

On December 27, 2021, the canton of Schaffhausen in Switzerland enacted a reduction to its corporate income tax rate. We expect to recognize approximately $25 million of income tax expense related to the write-down of certain deferred tax assets to the lower tax rate in the quarter ending March 25, 2022, the period of enactment.

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 2022 included the following:

Our net sales increased 8.4% in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021 due to sales growth in the Industrial Solutions and Communications Solutions segments, partially offset by sales declines in the Transportation Solutions segment. On an organic basis, our net sales increased 8.0% during the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.
Our net sales by segment were as follows:
Transportation Solutions—Our net sales decreased 3.0% in the first quarter of fiscal 2022 due primarily to sales declines in the automotive end market.
Industrial Solutions—Our net sales increased 21.3% in the first quarter of fiscal 2022 primarily as a result of sales increases in the industrial equipment end market.
Communications Solutions—Our net sales increased 41.4% in the first quarter of fiscal 2022 due to sales increases in both the data and devices and the appliances end markets.
Net cash provided by operating activities was $532 million in the first quarter of fiscal 2022.

COVID-19 Pandemic

The COVID-19 pandemic has affected nearly all regions around the world and resulted in business slowdowns or shutdowns and travel restrictions in affected areas. The pandemic had a negative impact on certain of our businesses in fiscal 2021. The pandemic has not had a significant impact on our ability to staff our operations, and we do not expect that it will continue to have a significant impact on our businesses in the near term. Throughout our operations, we implemented additional health and safety measures for the protection of our employees, including providing personal protective equipment, enhanced cleaning and sanitizing of our facilities, and remote working arrangements.

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Table of Contents

The COVID-19 pandemic has impacted and continues to impact our business operations globally, causing disruption in our suppliers’ and customers’ supply chains, some of our business locations to reduce or suspend operations, and a reduction in demand for certain products from direct customers or end markets. In addition, the pandemic had far-reaching impacts on many additional aspects of our operations, both directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, inventory, our employees, and the market generally. We assessed the impact of the COVID-19 pandemic and adjusted our operations and businesses, a number of which are operating as essential businesses, and will continue to do so if necessary.

The extent to which the pandemic will continue to impact our business and the markets we serve will depend on future developments which may include the further spread of the virus, variant strains of the virus, and the resumption of high levels of infections and hospitalizations as well as the success of public health advancements, including vaccine production and distribution. Although we do not expect the COVID-19 pandemic to have a significant impact on our businesses in the near term, it may have a negative impact on our financial condition, liquidity, and results of operations in future periods.

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

Outlook

In the second quarter of fiscal 2022, we expect our net sales to be approximately $3.8 billion as compared to $3.7 billion in the second quarter of fiscal 2021. This increase reflects sales growth in the Industrial Solutions and Communications Solutions segments, partially offset by sales declines in the Transportation Solutions segment driven primarily by an approximate 5% decline in global automotive production. We expect diluted earnings per share from continuing operations to be approximately $1.52 per share in the second quarter of fiscal 2022. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $111 million and $0.03 per share, respectively, in the second quarter of fiscal 2022 as compared to the second quarter of fiscal 2021. This outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.

On December 27, 2021, the canton of Schaffhausen in Switzerland enacted a reduction to its corporate income tax rate. We expect to recognize approximately $25 million of income tax expense related to the write-down of certain deferred tax assets to the lower tax rate in the second quarter of fiscal 2022, the period of enactment. This income tax charge is reflected in the above outlook.

We are monitoring the current macroeconomic environment, including any continued impacts from the COVID-19 pandemic, and its potential effects on our customers and the end markets we serve. We have taken actions to manage costs and will continue to closely manage our costs in line with economic conditions. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs. See further discussion in “Liquidity and Capital Resources.”

Acquisition

During the first quarter of fiscal 2022, we acquired one business for a cash purchase price of $125 million, net of cash acquired. The acquisition was reported as part of our Communications Solutions segment from the date of acquisition. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.

20

Table of Contents

Results of Operations

Net Sales

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

    

2020

    

    

 

($ in millions)

 

Transportation Solutions

$

2,158

56

%  

$

2,224

63

%  

Industrial Solutions

 

1,059

 

28

 

873

 

25

Communications Solutions

 

601

 

16

 

425

 

12

Total

$

3,818

 

100

%  

$

3,522

 

100

%  

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

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

versus Net Sales for the Quarter Ended December 25, 2020

Net Sales

Organic Net Sales

Acquisitions

    

Growth (Decline)

Growth (Decline)

Translation

(Divestitures)

    

($ in millions)

 

Transportation Solutions

$

(66)

 

(3.0)

%  

$

(42)

 

(1.8)

%  

$

(24)

$

Industrial Solutions

 

186

 

21.3

 

154

 

17.6

 

(20)

 

52

Communications Solutions

 

176

 

41.4

 

172

 

40.2

 

(1)

 

5

Total

$

296

 

8.4

%  

$

284

 

8.0

%  

$

(45)

$

57

Net sales increased $296 million, or 8.4%, in the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021. The increase in net sales resulted from organic net sales growth of 8.0% and net sales contributions of 1.7% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 1.3% due to the weakening of certain foreign currencies. Pricing actions positively affected organic net sales by $52 million in the first quarter of fiscal 2022.

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

Net Sales by Geographic Region. Our business operates in three geographic regions—Europe/Middle East/Africa (“EMEA”), Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.

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

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

    

2020

    

    

($ in millions)

EMEA

$

1,314

34

%  

$

1,316

37

%  

Asia–Pacific

1,470

 

39

1,293

 

37

Americas

 

1,034

 

27

 

913

 

26

Total

$

3,818

 

100

%  

$

3,522

 

100

%  

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

21

Table of Contents

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

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

versus Net Sales for the Quarter Ended December 25, 2020

Net Sales

Organic Net Sales

Acquisitions

    

Growth (Decline)

    

Growth

    

Translation

    

(Divestitures)

    

($ in millions)

 

EMEA

$

(2)

 

(0.2)

%  

$

6

 

0.3

%  

$

(44)

$

36

Asia–Pacific

 

177

13.7

164

12.6

13

Americas

 

121

 

13.3

 

114

 

12.5

 

(1)

 

8

Total

$

296

 

8.4

%  

$

284

 

8.0

%  

$

(45)

$

57

Cost of Sales and Gross Margin

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

Change

    

($ in millions)

Cost of sales

$

2,588

$

2,376

$

212

As a percentage of net sales

 

67.8

%

 

67.5

%

 

  

Gross margin

$

1,230

$

1,146

$

84

As a percentage of net sales

 

32.2

%

 

32.5

%

 

  

Gross margin increased $84 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021. The increase was primarily a result of higher volume and, to a lesser degree, the positive impacts of pricing actions, partially offset by higher material costs.

We use a wide variety of raw materials in the manufacture of our products and cost of sales and gross margin are subject to variability in raw material prices. As markets recover from the COVID-19 pandemic, increases in consumer demand have led to shortages and price increases in some of our input materials. During the past several quarters, copper, gold, silver, and palladium prices as well as the prices of certain other raw materials have increased from prior year levels. The following table presents the average prices incurred related to copper, gold, silver, and palladium:

For the

Quarters Ended

December 24,

December 25,

    

Measure

    

2021

    

2020

    

Copper

 

Lb.

$

3.80

$

2.88

 

Gold

 

Troy oz.

 

1,797

 

1,599

 

Silver

Troy oz.

23.56

19.70

Palladium

 

Troy oz.

 

2,356

 

2,137

 

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

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Operating Expenses

The following table presents operating expense information:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

Change

    

($ in millions)

Selling, general, and administrative expenses

$

363

$

361

$

2

As a percentage of net sales

 

9.5

%

 

10.2

%

 

  

Restructuring and other charges, net

$

12

$

167

$

(155)

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

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

During fiscal 2022 and 2021, we initiated restructuring programs associated with footprint consolidation and cost structure improvements across all segments. We incurred net restructuring and related charges of $33 million during the first quarter of fiscal 2022, of which $12 million was recorded in cost of sales. Annualized cost savings related to the fiscal 2022 actions commenced during the first quarter of fiscal 2022 are expected to be approximately $28 million and are expected to be realized by the end of fiscal 2024. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses. For fiscal 2022, we expect total restructuring charges to be approximately $150 million and total spending, which will be funded with cash from operations, to be approximately $190 million.

See Note 2 to the Condensed Consolidated Financial Statements for 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 24,

December 25,

    

2021

    

2020

    

Change

    

($ in millions)

Operating income

$

672

$

448

$

224

Operating margin

 

17.6

%

 

12.7

%

 

  

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Operating income included the following:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Acquisition-related charges:

 

  

 

  

Acquisition and integration costs

$

8

$

8

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

 

8

 

1

 

16

 

9

Restructuring and other charges, net

 

12

 

167

Restructuring-related charges recorded in cost of sales

12

Total

$

40

$

176

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

Non-Operating Items

The following table presents select non-operating information:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

Change

    

($ in millions)

Income tax expense

$

110

$

60

$

50

Effective tax rate

 

16.2

%

 

13.8

%

 

  

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

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 24,

December 25,

    

2021

    

    

2020

    

    

($ in millions)

Automotive

$

1,520

    

70

%  

$

1,629

    

73

%  

Commercial transportation

 

365

 

17

 

331

 

15

Sensors

 

273

 

13

 

264

 

12

Total

$

2,158

 

100

%  

$

2,224

 

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 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

    

Net Sales

    

Organic Net Sales

    

    

Growth (Decline)

Growth (Decline)

Translation

 

($ in millions)

 

Automotive

$

(109)

(6.7)

%  

$

(91)

(5.6)

%  

$

(18)

Commercial transportation

 

34

 

10.3

 

36

 

10.8

 

(2)

Sensors

 

9

 

3.4

 

13

 

4.8

 

(4)

Total

$

(66)

 

(3.0)

%  

$

(42)

 

(1.8)

%  

$

(24)

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

Automotive—Our organic net sales decreased 5.6% in the first quarter of fiscal 2022 with declines of 17.4% in the EMEA region and 5.4% in the Americas region, partially offset by growth of 5.6% in the Asia–Pacific region. Our overall net sales decreased due to declines in global automotive production; however, our sales decreased at a lesser rate than automotive production as a result of increased content per vehicle.
Commercial transportation—Our organic net sales increased 10.8% in the first quarter of fiscal 2022 primarily as a result of market growth in the EMEA and Americas regions and content gains.
Sensors—Our organic net sales increased 4.8% in the first quarter of fiscal 2022 due primarily to growth in industrial applications.

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

Change

    

($ in millions)

Operating income

$

395

$

308

$

87

Operating margin

 

18.3

%

 

13.8

%

 

Operating income in the Transportation Solutions segment increased $87 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021. Excluding the items below, operating income decreased primarily as a result of higher material costs and lower volume, partially offset by the positive impacts of pricing actions.

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Acquisition-related charges:

 

  

 

  

Acquisition and integration costs

$

3

$

4

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

 

 

1

 

3

 

5

Restructuring and other charges, net

(6)

118

Total

$

(3)

$

123

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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 24,

December 25,

    

2021

    

    

2020

    

    

($ in millions)

Industrial equipment

$

462

 

44

%  

$

295

 

34

%  

Aerospace, defense, oil, and gas

242

22

250

28

Energy

 

188

 

18

 

172

 

20

Medical

167

 

16

156

18

Total

$

1,059

 

100

%  

$

873

 

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 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

Net Sales

Organic Net Sales

Acquisitions

    

Growth (Decline)

    

Growth (Decline)

    

Translation

    

(Divestitures)

    

($ in millions)

 

Industrial equipment

$

167

 

56.6

%  

$

119

 

39.7

%  

$

(12)

$

60

Aerospace, defense, oil, and gas

 

(8)

(3.2)

(6)

(2.5)

(3)

1

Energy

16

 

9.3

 

29

 

16.7

 

(4)

 

(9)

Medical

 

11

 

7.1

 

12

 

7.7

 

(1)

 

Total

$

186

 

21.3

%  

$

154

 

17.6

%  

$

(20)

$

52

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

Industrial equipment—Our organic net sales increased 39.7% in the first quarter of fiscal 2022 due to growth in all regions primarily as a result of strength in factory automation and controls applications.
Aerospace, defense, oil, and gas—Our organic net sales decreased 2.5% in the first quarter of fiscal 2022 due to declines in the oil and gas and the defense markets, partially offset by growth in the commercial aerospace market.
Energy—Our organic net sales increased 16.7% in the first quarter of fiscal 2022 with growth across all regions and continued strength in renewable energy applications.
Medical—Our organic net sales increased 7.7% in the first quarter of fiscal 2022 primarily as a result of market growth attributable to increases in interventional medical applications.

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Table of Contents

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

Change

    

($ in millions)

Operating income

$

123

$

76

$

47

Operating margin

 

11.6

%

 

8.7

%

 

  

Operating income in the Industrial Solutions segment increased $47 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021. Excluding the items below, operating income increased primarily as a result of higher volume.

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Acquisition-related charges:

 

  

 

  

 

Acquisition and integration costs

$

4

$

4

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

 

8

 

 

12

 

4

Restructuring and other charges, net

 

10

 

38

Restructuring-related charges recorded in cost of sales

12

Total

$

34

$

42

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 24,

December 25,

    

2021

    

    

2020

    

    

($ in millions)

Data and devices

$

349

58

%  

$

234

55

%  

Appliances

 

252

 

42

 

191

 

45

Total

$

601

 

100

%  

$

425

 

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 24, 2021

versus Net Sales for the Quarter Ended December 25, 2020

    

Net Sales

    

Organic Net Sales

    

    

Growth

Growth

Translation

Acquisition

($ in millions)

Data and devices

$

115

49.1

%  

$

111

47.5

%  

$

(1)

$

5

Appliances

 

61

 

31.9

 

61

 

31.9

 

 

Total

$

176

 

41.4

%  

$

172

 

40.2

%  

$

(1)

$

5

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Net sales in the Communications Solutions segment increased $176 million, or 41.4%, in the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021 due primarily to organic net sales growth of 40.2%. Our organic net sales by industry end market were as follows:

Data and devices—Our organic net sales increased 47.5% in the first quarter of fiscal 2022 primarily as a result of market strength and growth in high-speed cloud applications.
Appliances—Our organic net sales increased 31.9% in the first quarter of fiscal 2022 due to sales growth in all regions attributable primarily to market improvements and share gains.

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

Change

    

($ in millions)

Operating income

$

154

$

64

$

90

Operating margin

 

25.6

%

 

15.1

%

 

Operating income in the Communications Solutions segment increased $90 million in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021. Excluding the items below, operating income increased due primarily to higher volume.

For the

Quarters Ended

December 24,

December 25,

    

    

2021

    

2020

(in millions)

Acquisition and integration costs

$

1

$

Restructuring and other charges, net

8

11

Total

$

9

$

11

Liquidity and Capital Resources

Our ability to fund our future capital needs will be affected by our ongoing ability to generate cash from operations and may be affected by our access to capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements. We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions, including any further developments related to the COVID-19 pandemic. We believe that we have sufficient financial resources and liquidity which will enable us to meet our ongoing working capital and other cash flow needs.

Cash Flows from Operating Activities

In the first quarter of fiscal 2022, net cash provided by operating activities decreased $108 million to $532 million from $640 million in the first quarter of fiscal 2021. The decrease resulted primarily from the impact of higher incentive compensation payments and increased inventory levels to meet anticipated customer demand, partially offset by higher pre-tax income. The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2022 and 2021 was $71 million and $85 million, respectively.

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Table of Contents

Cash Flows from Investing Activities

Capital expenditures were $172 million and $142 million in the first quarters of fiscal 2022 and 2021, respectively. We expect fiscal 2022 capital spending levels to be approximately 5% of net sales. We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.

During the first quarter of fiscal 2022, we acquired one business for a cash purchase price of $125 million, net of cash acquired. We acquired one business for a cash purchase price of $106 million, net of cash acquired, during the first quarter of fiscal 2021. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.

Cash Flows from Financing Activities and Capitalization

Total debt at December 24, 2021 and September 24, 2021 was $4,003 million and $4,092 million, respectively. See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding debt.

During the first quarter of fiscal 2022, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, called for the early redemption of all of its outstanding 3.50% senior notes due in February 2022, representing $500 million aggregate principal amount. The notes were redeemed in November 2021.

As of December 24, 2021, TEGSA had $479 million of commercial paper outstanding at a weighted-average interest rate of 0.25%. TEGSA had no commercial paper outstanding at September 24, 2021.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of June 2026 and total commitments of $1.5 billion. TEGSA had no borrowings under the Credit Facility at December 24, 2021 or September 24, 2021.

The Credit Facility 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 24, 2021, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.

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

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

We repurchased approximately two million of our common shares for $246 million and approximately one million of our common shares for $127 million under the share repurchase program during the first quarters of fiscal 2022 and 2021, respectively. At December 24, 2021, we had $1.3 billion of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

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 24,

September 24,

    

2021

    

2021

    

(in millions)

Balance Sheet Data:

Total current assets

$

135

$

452

Total noncurrent assets(1)

 

3,865

 

1,829

Total current liabilities

 

815

 

1,144

Total noncurrent liabilities(2)

14,811

12,443

(1)Includes $3,835 million and $1,810 million as of December 24, 2021 and September 24, 2021, respectively, of intercompany loans receivable from non-guarantor subsidiaries.
(2)Includes $11,298 million and $8,832 million as of December 24, 2021 and September 24, 2021, respectively, of intercompany loans payable to non-guarantor subsidiaries.

For the

For the

Quarter Ended

Fiscal Year Ended

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Statement of Operations Data:

Loss from continuing operations

$

(20)

$

(485)

Net loss

 

(20)

 

(479)

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 2022 through the completion of such transactions. The guarantees would be triggered in the event of nonperformance, and the potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows.

In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.

At December 24, 2021, we had outstanding letters of credit, letters of guarantee, and surety bonds of $132 million, excluding those related to our Subsea Communications (“SubCom”) business which are discussed below.

During fiscal 2019, we sold our SubCom business. In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These performance guarantees and letters of credit had a combined value of approximately $118 million as of December 24, 2021 and are expected to expire at various dates through fiscal 2025. We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees; however, based on historical experience, we do not anticipate having to perform.

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Table of Contents

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 have made voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”). We are cooperating with the BIS and DDTC on these matters, and both our internal assessment and the resulting investigations by the agencies remain ongoing. We are unable to predict the timing and final outcome of the agencies’ investigations. An unfavorable outcome may include fines or penalties imposed in response to our disclosures, but we are not yet able to reasonably estimate the extent of any such fines or penalties. While we have reserved for potential fines and penalties relating to these matters based on our current understanding of the facts, the investigations into these matters have yet to be completed and the final outcome of such investigations and related fines and penalties may differ from amounts currently reserved.

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 plans are based on, among other things, judgments and assumptions made by management. For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 24, 2021. There were no significant changes to this information during the first quarter of fiscal 2022.

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.

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Table of Contents

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 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 24, 2021, 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 impacted and could continue to negatively impact our results of operations as well as customer behaviors, business, and manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business;

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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;
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, increase global cash taxes, 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 2022. 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 24, 2021.

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 24, 2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 24, 2021.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 24, 2021, 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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Table of Contents

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 24, 2021, except as set forth below. Refer to “Part I. Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended September 24, 2021 for additional information regarding legal proceedings.

During fiscal 2021, we determined that the Silicon Microstructures, Inc. (“SMI”) manufacturing site in Milpitas, California historically miscalculated and inaccurately reported its sulfur hexafluoride (SF6) emissions prior to our acquisition of SMI. This was the result of using insufficient air emissions control equipment. The site voluntarily disclosed the matter to the applicable state and local authorities in March 2021. We continue to fully cooperate with the authorities to ensure a satisfactory resolution of the matter. We may face monetary sanctions, although we do not anticipate such claims will have a material adverse effect on our results of operations, financial position, or cash flows.

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 24, 2021. The risk factors described in our Annual Report on Form 10-K, in addition to other information set forth 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.

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 24, 2021:

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 25–October 22, 2021

606,466

$

143.95

605,800

$

1,503,530,133

October 23–November 26, 2021

 

696,004

 

157.99

 

576,000

 

1,413,296,836

November 27–December 24, 2021

 

508,700

 

157.08

 

437,400

 

1,344,652,772

Total

 

1,811,170

$

153.03

 

1,619,200

 

  

(1)These columns include the following transactions which occurred during the quarter ended December 24, 2021:
(i)the acquisition of 191,970 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 1,619,200 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

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

Inline XBRL Instance Document(1)(2)

101.SCH

Inline XBRL Taxonomy Extension Schema Document(2)

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document(2)

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document(2)

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document(2)

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document(2)

104

Cover Page Interactive Data File(3)

*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, 2022

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