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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 June 24, 2022

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 July 22, 2022 was 319,838,968.

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 and Nine Months Ended June 24, 2022 and June 25, 2021 (unaudited)

1

Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended June 24, 2022 and June 25, 2021 (unaudited)

2

Condensed Consolidated Balance Sheets as of June 24, 2022 and September 24, 2021 (unaudited)

3

Condensed Consolidated Statements of Shareholders’ Equity for the Quarters and Nine Months Ended June 24, 2022 and June 25, 2021 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 24, 2022 and June 25, 2021 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

Part II.

Other Information

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 6.

Exhibits

41

Signatures

42

i

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

For the

For the

Quarters Ended

Nine Months Ended

June 24,

June 25,

June 24,

June 25,

    

2022

    

2021

    

2022

    

2021

    

(in millions, except per share data)

Net sales

$

4,097

$

3,845

$

11,922

$

11,105

Cost of sales

 

2,769

 

2,577

 

8,027

 

7,481

Gross margin

 

1,328

 

1,268

 

3,895

 

3,624

Selling, general, and administrative expenses

 

393

366

 

1,172

1,128

Research, development, and engineering expenses

 

179

168

 

539

504

Acquisition and integration costs

 

11

9

 

29

23

Restructuring and other charges, net

 

26

11

 

59

195

Operating income

719

714

2,096

1,774

Interest income

3

3

9

14

Interest expense

 

(18)

(14)

 

(48)

(42)

Other income, net

 

4

2

 

24

5

Income from continuing operations before income taxes

 

708

 

705

 

2,081

 

1,751

Income tax expense

 

(116)

(124)

 

(362)

(290)

Income from continuing operations

 

592

 

581

 

1,719

 

1,461

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

 

2

(1)

 

1

6

Net income

$

594

$

580

$

1,720

$

1,467

Basic earnings per share:

Income from continuing operations

$

1.84

$

1.76

$

5.31

$

4.41

Income from discontinued operations

 

0.01

 

 

 

0.02

Net income

 

1.84

 

1.76

 

5.31

 

4.43

Diluted earnings per share:

Income from continuing operations

$

1.83

$

1.74

$

5.26

$

4.39

Income from discontinued operations

 

0.01

 

 

 

0.02

Net income

 

1.83

 

1.74

 

5.26

 

4.41

Weighted-average number of shares outstanding:

Basic

 

322

330

 

324

331

Diluted

 

324

333

 

327

333

See Notes to Condensed Consolidated Financial Statements.

1

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

For the

For the

Quarters Ended

Nine Months Ended

June 24,

June 25,

June 24,

June 25,

    

2022

    

2021

    

2022

    

2021

    

(in millions)

Net income

$

594

$

580

$

1,720

$

1,467

Other comprehensive income (loss):

Currency translation

 

(225)

40

(216)

172

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

 

4

7

12

19

Gains (losses) on cash flow hedges, net of income taxes

 

(112)

(15)

(65)

42

Other comprehensive income (loss)

 

(333)

 

32

 

(269)

 

233

Comprehensive income

261

612

1,451

1,700

Less: comprehensive (income) loss attributable to noncontrolling interests

4

(2)

11

(4)

Comprehensive income attributable to TE Connectivity Ltd.

$

265

$

610

$

1,462

$

1,696

See Notes to Condensed Consolidated Financial Statements.

2

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

June 24,

September 24,

    

2022

    

2021

    

(in millions, except share

data)

Assets

Current assets:

Cash and cash equivalents

$

820

$

1,203

Accounts receivable, net of allowance for doubtful accounts of $54 and $41, respectively

 

3,132

 

2,928

Inventories

 

3,028

 

2,511

Prepaid expenses and other current assets

 

603

 

621

Total current assets

 

7,583

 

7,263

Property, plant, and equipment, net

 

3,712

 

3,778

Goodwill

 

5,352

 

5,590

Intangible assets, net

 

1,355

 

1,549

Deferred income taxes

 

2,478

 

2,499

Other assets

 

868

 

783

Total assets

$

21,348

$

21,462

Liabilities, redeemable noncontrolling interests, and shareholders' equity

Current liabilities:

Short-term debt

$

822

$

503

Accounts payable

 

1,917

 

1,911

Accrued and other current liabilities

 

2,319

 

2,242

Total current liabilities

 

5,058

 

4,656

Long-term debt

 

3,380

 

3,589

Long-term pension and postretirement liabilities

 

1,094

 

1,139

Deferred income taxes

 

186

 

181

Income taxes

 

322

 

302

Other liabilities

 

771

 

847

Total liabilities

 

10,811

 

10,714

Commitments and contingencies (Note 9)

Redeemable noncontrolling interests

103

114

Shareholders' equity:

Common shares, CHF 0.57 par value, 330,830,781 shares authorized and issued, and 336,099,881 shares authorized and issued, respectively

 

146

148

Accumulated earnings

 

12,084

 

11,709

Treasury shares, at cost, 10,425,219 and 9,060,919 shares, respectively

 

(1,370)

 

(1,055)

Accumulated other comprehensive loss

 

(426)

 

(168)

Total shareholders' equity

 

10,434

 

10,634

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

$

21,348

$

21,462

See Notes to Condensed Consolidated Financial Statements.

3

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the Quarter Ended June 24, 2022

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at March 25, 2022

 

336

$

148

 

(13)

$

(1,769)

$

$

12,160

$

(97)

$

10,442

Net income

 

 

 

 

 

 

594

 

 

594

Other comprehensive loss

 

 

 

 

 

 

 

(329)

 

(329)

Share-based compensation expense

 

 

 

 

 

28

 

 

 

28

Dividends

 

 

 

 

 

 

5

 

 

5

Exercise of share options

 

 

 

 

4

 

 

 

 

4

Restricted share award vestings and other activity

 

 

 

1

 

6

 

(28)

 

32

 

 

10

Repurchase of common shares

 

 

 

(3)

 

(320)

 

 

 

 

(320)

Cancellation of treasury shares

(5)

 

(2)

 

5

 

709

 

 

(707)

 

 

Balance at June 24, 2022

331

$

146

 

(10)

$

(1,370)

$

$

12,084

$

(426)

$

10,434

For the Nine Months Ended June 24, 2022

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

 

 

 

 

 

 

1,720

 

 

1,720

Other comprehensive loss

 

 

 

 

 

 

 

(258)

 

(258)

Share-based compensation expense

 

 

 

 

 

88

 

 

 

88

Dividends

 

 

 

 

(717)

 

 

(717)

Exercise of share options

 

 

 

 

34

 

 

 

 

34

Restricted share award vestings and other activity

 

 

 

2

 

14

 

(88)

 

79

 

 

5

Repurchase of common shares

 

 

 

(8)

 

(1,072)

 

 

 

 

(1,072)

Cancellation of treasury shares

(5)

 

(2)

 

5

 

709

 

 

(707)

 

 

Balance at June 24, 2022

331

$

146

 

(10)

$

(1,370)

$

$

12,084

$

(426)

$

10,434

4

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED) (Continued)

For the Quarter Ended June 25, 2021

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at March 26, 2021

 

339

$

149

 

(9)

$

(775)

$

$

10,541

$

(246)

$

9,669

Net income

580

580

Other comprehensive income

 

 

 

 

 

 

30

 

30

Share-based compensation expense

 

 

 

 

 

24

 

 

 

24

Dividends

 

 

 

 

 

 

3

 

 

3

Exercise of share options

 

 

 

 

11

 

 

 

 

11

Restricted share award vestings and other activity

 

 

 

 

6

 

(24)

 

29

 

 

11

Repurchase of common shares

 

 

 

(2)

 

(282)

 

 

 

 

(282)

Cancellation of treasury shares

(3)

 

(1)

 

3

 

262

 

 

(261)

 

 

Balance at June 25, 2021

336

$

148

 

(8)

$

(778)

$

$

10,892

$

(216)

$

10,046

For the Nine Months Ended June 25, 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 25, 2020

 

339

$

149

 

(8)

$

(669)

$

$

10,348

$

(445)

$

9,383

Net income

1,467

1,467

Other comprehensive income

 

 

 

 

 

 

 

229

 

229

Share-based compensation expense

 

 

 

 

 

73

 

 

 

73

Dividends

 

 

 

 

 

 

(658)

 

 

(658)

Exercise of share options

 

 

 

2

 

130

 

 

 

 

130

Restricted share award vestings and other activity

 

 

 

 

90

 

(73)

 

(4)

 

 

13

Repurchase of common shares

 

 

 

(5)

 

(591)

 

 

 

 

(591)

Cancellation of treasury shares

(3)

 

(1)

 

3

 

262

 

 

(261)

 

 

Balance at June 25, 2021

336

$

148

 

(8)

$

(778)

$

$

10,892

$

(216)

$

10,046

See Notes to Condensed Consolidated Financial Statements.

5

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the

Nine Months Ended

June 24,

June 25,

    

2022

    

2021

    

(in millions)

Cash flows from operating activities:

Net income

$

1,720

$

1,467

Income from discontinued operations, net of income taxes

 

(1)

 

(6)

Income from continuing operations

 

1,719

 

1,461

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

Depreciation and amortization

 

597

 

590

Deferred income taxes

 

(18)

 

(62)

Non-cash lease cost

98

90

Provision for losses on accounts receivable and inventories

 

79

 

32

Share-based compensation expense

 

88

 

73

Other

 

(19)

 

(45)

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

Accounts receivable, net

 

(108)

 

(638)

Inventories

 

(439)

 

(482)

Prepaid expenses and other current assets

 

57

 

(14)

Accounts payable

 

(48)

 

646

Accrued and other current liabilities

 

(316)

 

110

Income taxes

 

53

 

61

Other

 

(219)

 

80

Net cash provided by operating activities

 

1,524

 

1,902

Cash flows from investing activities:

Capital expenditures

 

(556)

 

(454)

Proceeds from sale of property, plant, and equipment

 

98

 

85

Acquisition of businesses, net of cash acquired

 

(116)

 

(126)

Other

 

6

 

(2)

Net cash used in investing activities

 

(568)

 

(497)

Cash flows from financing activities:

Net increase in commercial paper

 

237

 

Proceeds from issuance of debt