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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 March 25, 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 April 22, 2022 was 322,173,819.

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 Six Months Ended March 25, 2022 and March 26, 2021 (unaudited)

1

Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended March 25, 2022 and March 26, 2021 (unaudited)

2

Condensed Consolidated Balance Sheets as of March 25, 2022 and September 24, 2021 (unaudited)

3

Condensed Consolidated Statements of Shareholders’ Equity for the Quarters and Six Months Ended March 25, 2022 and March 26, 2021 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 25, 2022 and March 26, 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

36

Item 4.

Controls and Procedures

36

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

Six Months Ended

March 25,

March 26,

March 25,

March 26,

    

2022

    

2021

    

2022

    

2021

    

(in millions, except per share data)

Net sales

$

4,007

$

3,738

$

7,825

$

7,260

Cost of sales

 

2,670

 

2,528

 

5,258

 

4,904

Gross margin

 

1,337

 

1,210

 

2,567

 

2,356

Selling, general, and administrative expenses

 

416

401

 

779

762

Research, development, and engineering expenses

 

185

174

 

360

336

Acquisition and integration costs

 

10

6

 

18

14

Restructuring and other charges, net

 

21

17

 

33

184

Operating income

705

612

1,377

1,060

Interest income

4

8

6

11

Interest expense

 

(18)

(13)

 

(30)

(28)

Other income, net

 

5

4

 

20

3

Income from continuing operations before income taxes

 

696

 

611

 

1,373

 

1,046

Income tax expense

 

(136)

(106)

 

(246)

(166)

Income from continuing operations

 

560

 

505

 

1,127

 

880

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

 

1

 

(1)

7

Net income

$

560

$

506

$

1,126

$

887

Basic earnings per share:

Income from continuing operations

$

1.72

$

1.53

$

3.46

$

2.66

Income from discontinued operations

 

 

 

 

0.02

Net income

 

1.72

 

1.53

 

3.45

 

2.68

Diluted earnings per share:

Income from continuing operations

$

1.71

$

1.51

$

3.44

$

2.64

Income from discontinued operations

 

 

 

 

0.02

Net income

 

1.71

 

1.51

 

3.43

 

2.66

Weighted-average number of shares outstanding:

Basic

 

325

331

 

326

331

Diluted

 

327

334

 

328

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

Six Months Ended

March 25,

March 26,

March 25,

March 26,

    

2022

    

2021

    

2022

    

2021

    

(in millions)

Net income

$

560

$

506

$

1,126

$

887

Other comprehensive income:

Currency translation

 

(9)

21

9

132

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

 

4

6

8

12

Gains on cash flow hedges, net of income taxes

 

46

28

47

57

Other comprehensive income

 

41

 

55

 

64

 

201

Comprehensive income

601

561

1,190

1,088

Less: comprehensive (income) loss attributable to noncontrolling interests

1

4

7

(2)

Comprehensive income attributable to TE Connectivity Ltd.

$

602

$

565

$

1,197

$

1,086

See Notes to Condensed Consolidated Financial Statements.

2

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

March 25,

September 24,

    

2022

    

2021

    

(in millions, except share

data)

Assets

Current assets:

Cash and cash equivalents

$

749

$

1,203

Accounts receivable, net of allowance for doubtful accounts of $50 and $41, respectively

 

3,068

 

2,928

Inventories

 

2,999

 

2,511

Prepaid expenses and other current assets

 

601

 

621

Total current assets

 

7,417

 

7,263

Property, plant, and equipment, net

 

3,817

 

3,778

Goodwill

 

5,463

 

5,590

Intangible assets, net

 

1,441

 

1,549

Deferred income taxes

 

2,466

 

2,499

Other assets

 

847

 

783

Total assets

$

21,451

$

21,462

Liabilities, redeemable noncontrolling interests, and shareholders' equity

Current liabilities:

Short-term debt

$

610

$

503

Accounts payable

 

1,986

 

1,911

Accrued and other current liabilities

 

2,450

 

2,242

Total current liabilities

 

5,046

 

4,656

Long-term debt

 

3,441

 

3,589

Long-term pension and postretirement liabilities

 

1,103

 

1,139

Deferred income taxes

 

185

 

181

Income taxes

 

318

 

302

Other liabilities

 

809

 

847

Total liabilities

 

10,902

 

10,714

Commitments and contingencies (Note 9)

Redeemable noncontrolling interests

107

114

Shareholders' equity:

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

 

148

148

Accumulated earnings

 

12,160

 

11,709

Treasury shares, at cost, 13,281,156 and 9,060,919 shares, respectively

 

(1,769)

 

(1,055)

Accumulated other comprehensive loss

 

(97)

 

(168)

Total shareholders' equity

 

10,442

 

10,634

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

$

21,451

$

21,462

See Notes to Condensed Consolidated Financial Statements.

3

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the Quarter Ended March 25, 2022

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at December 24, 2021

 

336

$

148

 

(10)

$

(1,274)

$

$

12,285

$

(139)

$

11,020

Net income

 

 

 

 

 

 

560

 

 

560

Other comprehensive income

 

 

 

 

 

 

 

42

 

42

Share-based compensation expense

 

 

 

 

 

28

 

 

 

28

Dividends

 

 

 

 

 

 

(722)

 

 

(722)

Exercise of share options

 

 

 

 

8

 

 

 

 

8

Restricted share award vestings and other activity

 

 

 

 

3

 

(28)

 

37

 

 

12

Repurchase of common shares

 

 

 

(3)

 

(506)

 

 

 

 

(506)

Balance at March 25, 2022

336

$

148

 

(13)

$

(1,769)

$

$

12,160

$

(97)

$

10,442

For the Six Months Ended March 25, 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

 

 

 

 

 

 

1,126

 

 

1,126

Other comprehensive income

 

 

 

 

 

 

 

71

 

71

Share-based compensation expense

 

 

 

 

 

60

 

 

 

60

Dividends

 

 

 

 

(722)

 

 

(722)

Exercise of share options

 

 

 

 

30

 

 

 

 

30

Restricted share award vestings and other activity

 

 

 

1

 

8

 

(60)

 

47

 

 

(5)

Repurchase of common shares

 

 

 

(5)

 

(752)

 

 

 

 

(752)

Balance at March 25, 2022

336

$

148

 

(13)

$

(1,769)

$

$

12,160

$

(97)

$

10,442

4

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED) (Continued)

For the Quarter Ended March 26, 2021

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at December 25, 2020

 

339

$

149

 

(8)

$

(655)

$

$

10,672

$

(305)

$

9,861

Net income

506

506

Other comprehensive income

 

 

 

 

 

 

59

 

59

Share-based compensation expense

 

 

 

 

 

30

 

 

 

30

Dividends

 

 

 

 

 

 

(661)

 

 

(661)

Exercise of share options

 

 

 

1

 

44

 

 

 

 

44

Restricted share award vestings and other activity

 

 

 

 

18

 

(30)

 

24

 

 

12

Repurchase of common shares

 

 

 

(2)

 

(182)

 

 

 

 

(182)

Balance at March 26, 2021

339

$

149

 

(9)

$

(775)

$

$

10,541

$

(246)

$

9,669

For the Six Months Ended March 26, 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

887

887

Other comprehensive income

 

 

 

 

 

 

 

199

 

199

Share-based compensation expense

 

 

 

 

 

49

 

 

 

49

Dividends

 

 

 

 

 

 

(661)

 

 

(661)

Exercise of share options

 

 

 

2

 

119

 

 

 

 

119

Restricted share award vestings and other activity

 

 

 

 

84

 

(49)

 

(33)

 

 

2

Repurchase of common shares

 

 

 

(3)

 

(309)

 

 

 

 

(309)

Balance at March 26, 2021

339

$

149

 

(9)

$

(775)

$

$

10,541

$

(246)

$

9,669

See Notes to Condensed Consolidated Financial Statements.

5

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the

Six Months Ended

March 25,

March 26,

    

2022

    

2021

    

(in millions)

Cash flows from operating activities:

Net income

$

1,126

$

887

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

 

1

 

(7)

Income from continuing operations

 

1,127

 

880

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

Depreciation and amortization

 

392

 

380

Deferred income taxes

 

42

 

(48)

Non-cash lease cost

64

59

Provision for losses on accounts receivable and inventories

 

68

 

22

Share-based compensation expense

 

60

 

49

Other

 

4

 

(20)

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

Accounts receivable, net

 

(57)

 

(567)

Inventories

 

(411)

 

(212)

Prepaid expenses and other current assets

 

36

 

(30)

Accounts payable

 

15

 

510

Accrued and other current liabilities

 

(305)

 

125

Income taxes

 

27

 

34

Other

 

(117)

 

38

Net cash provided by operating activities

 

945

 

1,220

Cash flows from investing activities:

Capital expenditures

 

(351)

 

(284)

Proceeds from sale of property, plant, and equipment

 

63

 

58

Acquisition of businesses, net of cash acquired

 

(102)

 

(107)

Other

 

7

 

10

Net cash used in investing activities

 

(383)

 

(323)

Cash flows from financing activities:

Proceeds from issuance of debt

 

588

 

661

Repayment of debt

 

(558)

 

(280)

Proceeds from exercise of share options

 

30

 

119

Repurchase of common shares

 

(708)

 

(259)

Payment of common share dividends to shareholders

 

(326)

 

(318)

Other

 

(38)

 

(24)

Net cash used in financing activities

 

(1,012)

 

(101)

Effect of currency translation on cash

 

(4)

 

7

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

 

(454)

 

803

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

 

1,203

 

945

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

$

749

$

1,748

See Notes to Condensed Consolidated Financial Statements.

6

Table of Contents

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: