What changed in this filing

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Item 1. Financial Statements

2020-07-30 compared with 2020-05-04 · 146 added, 363 removed, 539 unchanged (49% of the section changed)

3 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions, except per share data)

5 unchanged sentences

Impairment of goodwill

Operating income (loss)

Operating income

Interest income

1 unchanged sentence

Other income, net

Income (loss) from continuing operations before income taxes

Income tax expense

Income from continuing operations before income taxes

Income tax (expense) benefit

Income (loss) from continuing operations

14 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

3 unchanged sentences

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

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

Gains on cash flow hedges, net of income taxes

Other comprehensive income (loss)

Comprehensive income (loss)

comprehensive loss attributable to noncontrolling interests

comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to TE Connectivity Ltd.

26 unchanged sentences

shareholders' equity:

Common shares, CHF 0.57 par value, 350,951,381 shares authorized and issued

Common shares, CHF 0.57 par value, 338,953,381 shares authorized and issued , and 350,951,381 shares authorized and issued , respectively

Accumulated earnings

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Quarter Ended March 27, 2020

For the Quarter Ended June 26, 2020

TE Connectivity

4 unchanged sentences

(in millions)

Balance at December 27, 2019

Other comprehensive loss

Balance at March 27, 2020

Other comprehensive income

Share-based compensation expense

2 unchanged sentences

Repurchase of common shares

Balance at March 27, 2020

For the Six Months Ended March 27, 2020

Cancellation of treasury shares

Balance at June 26, 2020

For the Nine Months Ended June 26, 2020

TE Connectivity

5 unchanged sentences

Balance at September 27, 2019

Other comprehensive loss

Other comprehensive income (loss)

Share-based compensation expense

2 unchanged sentences

Repurchase of common shares

Balance at March 27, 2020

Cancellation of treasury shares

Balance at June 26, 2020

TE CONNECTIVITY LTD.

1 unchanged sentence

(UNAUDITED) (Continued)

For the Quarter Ended March 29, 2019

For the Quarter Ended June 28, 2019

TE Connectivity

4 unchanged sentences

(in millions)

Balance at December 28, 2018

Other comprehensive income

Balance at March 29, 2019

Other comprehensive loss

Share-based compensation expense

2 unchanged sentences

Repurchase of common shares

Balance at March 29, 2019

For the Six Months Ended March 29, 2019

Cancellation of treasury shares

Balance at June 28, 2019

For the Nine Months Ended June 28, 2019

TE Connectivity

11 unchanged sentences

Repurchase of common shares

Balance at March 29, 2019

Cancellation of treasury shares

Balance at June 28, 2019

See Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

(in millions)

1 unchanged sentence

Net income (loss)

Loss from discontinued operations, net of income taxes

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

Income (loss) from continuing operations

23 unchanged sentences

Cash flows from financing activities:

Net increase (decrease) in commercial paper

Net decrease in commercial paper

Proceeds from issuance of debt

31 unchanged sentences

Evaluations of the remaining useful lives of determinable-lived intangible assets are performed on a periodic basis and when events and circumstances warrant.

At March 27, 2020, we had five reporting units, all of which contained goodwill.

At June 26, 2020, we had five reporting units, all of which contained goodwill.

There were two reporting units in both the Transportation Solutions and Industrial Solutions segments and one reporting unit in the Communications Solutions segment.

1 unchanged sentence

Goodwill impairment is evaluated by comparing the carrying value of each reporting unit to its fair value on the first day of the fourth fiscal quarter of each year or whenever we believe a triggering event requiring a more frequent assessment has occurred.

In assessing the existence of a triggering event, management relies on several reporting unit-specific factors including operating results, business plans, economic projections, anticipated future cash flows, transactions, and market place data.

There are inherent uncertainties related to these factors and management’s judgment in applying these factors to the impairment analysis.

9 unchanged sentences

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2017-04, an update to ASC 350, Intangibles–Goodwill and Other .

2017-04, an update to ASC 350.

The update simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test.

18 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

10 unchanged sentences

Employee severance

Property, plant, and equipment

Fiscal 2019 Actions:

8 unchanged sentences

Fiscal 2020 Actions

During fiscal 2020, we initiated a restructuring program associated with footprint consolidation and structural improvements across all segments.

In connection with this program, during the six months ended March 27, 2020, we recorded restructuring charges of $ 43 million.

We expect to complete all restructuring actions commenced during the six months ended March 27, 2020 by the end of fiscal 2021 and to incur additional charges of approximately $ 10 million related primarily to employee severance and facility exit costs in the Transportation Solutions and Industrial Solutions segments.

During fiscal 2020, we initiated a restructuring program associated with footprint consolidation and structural improvements, due in part to the coronavirus disease COVID-19, across all segments.

In connection with this program, during the nine months ended June 26, 2020, we recorded restructuring charges of $ 138 million.

We expect to complete all restructuring actions commenced during the nine months ended June 26, 2020 by the end of fiscal 2022 and to incur additional charges of approximately $ 30 million related primarily to employee severance and facility exit costs in the Transportation Solutions and Industrial Solutions segments.

Fiscal 2019 Actions

During fiscal 2019, we initiated a restructuring program associated with footprint consolidation and structural improvements impacting all segments.

In connection with this program, during the six months ended March 27, 2020 and March 29, 2019, we recorded net restructuring charges of $ 2 million and $ 107 million, respectively.

In connection with this program, during the nine months ended June 26, 2020 and June 28, 2019, we recorded net restructuring charges of $ 3 million and $ 179 million, respectively.

We expect to complete all restructuring actions commenced during fiscal 2019 by the end of fiscal 2021 and to incur additional charges of approximately $ 10 million related primarily to employee severance and facility exit costs in the Transportation Solutions and Industrial Solutions segments.

2 unchanged sentences

Also prior to fiscal 2019, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments.

During the six months ended March 27, 2020 and March 29, 2019, we recorded net restructuring charges of $ 1 million and $ 10 million, respectively, related to pre-fiscal 2019 actions.

During the nine months ended June 26, 2020 and June 28, 2019, we recorded net restructuring charges of $ 3 million and $ 5 million, respectively, related to pre-fiscal 2019 actions.

We expect additional charges related to pre-fiscal 2019 actions to be insignificant.

9 unchanged sentences

Discontinued Operations

During the six months ended March 29, 2019, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $ 297 million and incurred a pre-tax loss on sale of $ 86 million, related primarily to the recognition of cumulative translation adjustment losses of $ 67 million and certain guarantee liabilities.

During the nine months ended June 28, 2019, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $ 297 million and incurred a pre-tax loss on sale of $ 86 million, related primarily to the recognition of cumulative translation adjustment losses of $ 67 million and certain guarantee liabilities.

The SubCom business met the held for sale and discontinued operations criteria and was reported as such in all periods presented on the Condensed Consolidated Financial Statements.

1 unchanged sentence

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 guarantees had a combined value of approximately $ 1.2 billion as of March 27, 2020 and are expected to expire at various dates through fiscal 2025.

These guarantees had a combined value of approximately $ 1.2 billion as of June 26, 2020 and are expected to expire at various dates through fiscal 2025.

Also, under the terms of the definitive agreement, we are required to issue up to $ 300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years .

As of March 27, 2020, there were no such new performance guarantees outstanding.

As of June 26, 2020, there were no such new performance guarantees outstanding.

We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees;

however, based on historical experience, we do not anticipate having to perform.

The following table presents the summarized components of loss from discontinued operations, net of income taxes for the six months ended March 29, 2019:

The following table presents the summarized components of loss from discontinued operations, net of income taxes for the nine months ended June 28, 2019:

(in millions)

6 unchanged sentences

First Sensor AG

In March 2020, we acquired approximately 72 % of the outstanding shares of First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany, for € 209 million in cash (equivalent to $ 232 million).

During the nine months ended June 26, 2020, we acquired approximately 72 % of the outstanding shares of First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany, for € 181 million in cash (equivalent to $ 201 million), net of cash acquired.

As a result of the transaction, we recognized a noncontrolling interest with a fair value of € 96 million (equivalent to $ 107 million) as of the acquisition date.

The fair value of the noncontrolling interest for First Sensor common shares that were not acquired was determined using the stated price in the Domination and Profit and Loss Transfer Agreement (“DPLTA”) which is considered

The fair value of the noncontrolling interest for First Sensor common shares that were not acquired was determined using the stated price in the Domination and Profit and Loss Transfer

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

to be a level 2 observable input under the fair value hierarchy.

Agreement (“DPLTA”) which is considered to be a level 2 observable input under the fair value hierarchy.

The First Sensor business has been reported as part of our Transportation Solutions segment from the date of acquisition.

In April 2020, we and First Sensor entered into a DPLTA which will become effective following consenting resolution of the shareholders’ meeting of First Sensor and subsequent registration in the commercial register of First Sensor.

We expect the DPLTA registration to occur in our fourth fiscal quarter.

Under the terms of the DPLTA, upon its effectiveness, First Sensor minority shareholders will be offered to elect either (1) to remain First Sensor minority shareholders and receive recurring annual compensation of € 0.56 per First Sensor share or (2) to put their First Sensor shares in exchange for compensation of € 33.27 per First Sensor share.

We and First Sensor entered into a DPLTA which was approved by First Sensor shareholders in May 2020 and became effective in the fourth quarter of fiscal 2020 following registration in the commercial register in Germany.

Under the terms of the DPLTA, upon its effectiveness, First Sensor minority shareholders can elect either (1) to remain First Sensor minority shareholders and receive recurring annual compensation of € 0.56 per First Sensor share or (2) to put their First Sensor shares in exchange for compensation of € 33.27 per First Sensor share.

The ultimate amount and timing of any future cash payments related to the DPLTA is uncertain.

The exercise of the put right by First Sensor minority shareholders is not within our control and will result in the First Sensor noncontrolling interest being presented as redeemable noncontrolling interest outside of equity on the Condensed Consolidated Balance Sheet following registration of the DPLTA.

Following the registration of the DPLTA in July 2020, the First Sensor noncontrolling interest balance of $ 108 million was reclassified and will be presented as redeemable noncontrolling interest outside of equity on the Condensed Consolidated Balance Sheet in future periods as the exercise of the put right by First Sensor minority shareholders is not within our control.

Other Acquisitions

During the six months ended March 27, 2020, we acquired three additional businesses for a combined cash purchase price of $ 124 million, net of cash acquired.

During the nine months ended June 26, 2020, we acquired three additional businesses for a combined cash purchase price of $ 124 million, net of cash acquired.

The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

12 unchanged sentences

Currency translation

March 27, 2020 (2)

June 26, 2020 (2)

(1) At September 27, 2019, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $ 2,191 million, $ 669 million, and $ 489 million, respectively.

(2) At March 27, 2020, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $ 3,091 million, $ 669 million, and $ 489 million, respectively.

In March 2020, we completed the acquisition of First Sensor and recognized goodwill in the Transportation Solutions segment.

Due to the timing of the transaction, we have preliminarily allocated the purchase price of First Sensor to

(2) At June 26, 2020, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $ 3,091 million, $ 669 million, and $ 489 million, respectively.

During the nine months ended June 26, 2020, we completed the acquisition of First Sensor and recognized goodwill of $ 213 million in the Transportation Solutions segment.

During the quarter ended March 27, 2020, we preliminarily

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We are in the process of completing the valuation of identifiable intangible assets, assets acquired, and liabilities assumed;

therefore, the current allocation is subject to adjustment upon finalization of those valuations.

The amount of these potential adjustments could be significant.

In addition, during the six months ended March 27, 2020, we recognized goodwill in the Transportation Solutions and Industrial Solutions segments in connection with other recent acquisitions.

allocated the purchase price of First Sensor to goodwill due to the timing of the transaction.

Adjustments to the allocation were made during the quarter ended June 26, 2020 to recognize the identifiable intangible assets, assets acquired, and liabilities assumed.

Further adjustments to the purchase price allocation may be needed in future periods.

In addition, during the nine months ended June 26, 2020, we recognized goodwill in the Transportation Solutions and Industrial Solutions segments in connection with other recent acquisitions.

See Note 4 for additional information regarding acquisitions.

We test goodwill allocated to reporting units for impairment annually during the fiscal fourth quarter, or more frequently if events occur or circumstances exist that indicate that a reporting unit’s carrying value may exceed its fair value.

As a result of current and projected declines in sales and profitability, due in part to the impact of the coronavirus disease COVID-19 and projected reductions in global automotive production, of the Sensors reporting unit of the Transportation Solutions segment during the quarter ended March 27, 2020, we determined that an indicator of impairment had occurred and goodwill impairment testing of this reporting unit was required.

As a result of current and projected declines in sales and profitability, due in part to the impact of COVID-19 and projected reductions in global automotive production, of the Sensors reporting unit of the Transportation Solutions segment during the quarter ended March 27, 2020, we determined that an indicator of impairment had occurred and goodwill impairment testing of this reporting unit was required.

As discussed in Note 1, during the quarter ended March 27, 2020, we adopted ASU No.

1 unchanged sentence

Under the new standard, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

We determined the fair value of the Sensors reporting unit to be $ 1.0 billion.

We determined the fair value of the Sensors reporting unit to be $ 1.0 billion as of March 27, 2020.

This valuation was based on a discounted cash flows analysis incorporating our estimate of future operating performance, which we consider to be a level 3 unobservable input in the fair value hierarchy, and was corroborated using a market approach valuation.

The goodwill impairment test indicated that the carrying value of the reporting unit exceeded its fair value by $ 900 million.

As a result, we recorded a partial impairment charge of $ 900 million.

As a result, we recorded a partial impairment charge of $ 900 million in the quarter ended March 27, 2020.

The Sensors reporting unit had a remaining goodwill allocation of $ 626 million as of March 27, 2020.

There were no triggering events identified in the quarter ended June 26, 2020 and therefore no goodwill impairment testing was required.

Should economic conditions deteriorate further or remain depressed for a prolonged period of time, estimates of future cash flows for each of our reporting units may be insufficient to support the carrying value and the goodwill assigned to it, requiring impairment charges, including additional impairment charges for the Sensors reporting unit.

2 unchanged sentences

Intangible assets consisted of the following:

March 27, 2020

June 26, 2020

September 27, 2019

2 unchanged sentences

Intellectual property

Intangible asset amortization expense was $ 46 million and $ 45 million for the quarters ended March 27, 2020 and March 29, 2019, respectively, and $ 91 million and $ 90 million for the six months ended March 27, 2020 and March 29, 2019, respectively.

Intangible asset amortization expense was $ 46 million and $ 45 million for the quarters ended June 26, 2020 and June 28, 2019, respectively, and $ 137 million and $ 135 million for the nine months ended June 26, 2020 and June 28, 2019, respectively.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

At March 27, 2020, the aggregate amortization expense on intangible assets is expected to be as follows:

At June 26, 2020, the aggregate amortization expense on intangible assets is expected to be as follows:

(in millions)

Remainder of fiscal 2020

During the quarter ended March 27, 2020, Tyco Electronics Group S.A.

(“TEGSA”), our 100 %-owned subsidiary, issued € 550 million aggregate principal amount of 0.0 % senior notes due February 2025.

During the quarter ended June 26, 2020, Tyco Electronics Group S.A.

(“TEGSA”), our wholly -owned subsidiary, repaid, at maturity, $ 350 million of floating rate senior notes due in June 2020.

During the nine months ended June 26, 2020, TEGSA issued € 550 million aggregate principal amount of 0.0 % senior notes due in February 2025.

The notes are TEGSA’s unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.

The notes are fully and unconditionally guaranteed as to payment on an unsecured basis by TE Connectivity Ltd.

During the quarter ended March 27, 2020, we reclassified $ 250 million of 4.875 % senior notes due January 2021 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet.

During the nine months ended June 26, 2020, we reclassified $ 250 million of 4.875 % senior notes due in January 2021 and € 350 million of fixed-to-floating rate senior notes due in June 2021 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet.

As of September 27, 2019, TEGSA had $ 219 million of commercial paper outstanding at a weighted-average interest rate of 2.20 %.

TEGSA had no commercial paper outstanding at March 27, 2020.

The fair value of our debt, based on indicative valuations, was approximately $ 4,697 million and $ 4,278 million at March 27, 2020 and September 27, 2019, respectively.

TEGSA had no commercial paper outstanding at June 26, 2020.

The fair value of our debt, based on indicative valuations, was approximately $ 4,484 million and $ 4,278 million at June 26, 2020 and September 27, 2019, respectively.

We have facility, land, vehicle, and equipment leases that expire at various dates.

11 unchanged sentences

These costs, and any other variable rental costs, are excluded from our ROU assets and lease liabilities, and instead are expensed as incurred.

Some of our leases may include options to either renew or early terminate the lease.

The exercise of these options is generally at our sole discretion and would only occur if there is an economic, financial, or business reason to do so.

Such options are included in the lease term if we determine it is reasonably certain they will be exercised.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

our leases may include options to either renew or early terminate the lease.

The exercise of these options is generally at our sole discretion and would only occur if there is an economic, financial, or business reason to do so.

Such options are included in the lease term if we determine it is reasonably certain they will be exercised.

The components of lease cost were as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

(in millions)

12 unchanged sentences

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

Six Months Ended

Nine Months Ended

(in millions)

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

At March 27, 2020, the maturities of operating lease liabilities were as follows:

At June 26, 2020, the maturities of operating lease liabilities were as follows:

(in millions)

11 unchanged sentences

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 March 27, 2020, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $ 14 million to $ 45 million, and we accrued $ 17 million as the probable loss, which was the best estimate within this range.

As of June 26, 2020, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $ 14 million to $ 45 million, and we accrued $ 18 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.

4 unchanged sentences

We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.

At March 27, 2020, we had outstanding letters of credit, letters of guarantee, and surety bonds of $ 271 million.

At June 26, 2020, we had outstanding letters of credit, letters of guarantee, and surety bonds of $ 273 million.

We sold our SubCom business during fiscal 2019.

4 unchanged sentences

During fiscal 2015, we entered into cross-currency swap contracts to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans.

The aggregate notional value of these contracts was € 700 million and € 1,000 million at March 27, 2020 and September 27, 2019, respectively.

Certain contracts were terminated during the quarter ended March 27, 2020;

The aggregate notional value of these contracts was € 700 million and € 1,000 million at June 26, 2020 and September 27, 2019, respectively.

Certain contracts were terminated during the nine months ended June 26, 2020;

the remaining contracts mature in fiscal 2022.

7 unchanged sentences

(in millions)

At March 27, 2020 and September 27, 2019, collateral received from or paid to our counterparties approximated the net derivative position.

At June 26, 2020 and September 27, 2019, 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.

1 unchanged sentence

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

4 unchanged sentences

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 $ 3,429 million and $ 3,374 million at March 27, 2020 and September 27, 2019, respectively.

The aggregate notional value of these hedges was $ 3,320 million and $ 3,374 million at June 26, 2020 and September 27, 2019, respectively.

TE CONNECTIVITY LTD.

1 unchanged sentence

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 $ 1,889 million and $ 1,844 million at March 27, 2020 and September 27, 2019, respectively.

The aggregate notional value of the contracts under this program was $ 1,776 million and $ 1,844 million at June 26, 2020 and September 27, 2019, respectively.

Under the terms of these contracts, we receive interest in U.S.

11 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

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

Gains on cross-currency swap contracts designated as hedges of net investment (2)

(1) Foreign currency exchange gains and losses on intercompany loans and external borrowings are recorded as currency translation, a component of accumulated other comprehensive income (loss), and are offset by changes attributable to the translation of the net investment.

(2) Gains and losses on cross-currency swap contracts designated as hedges of net investment are recorded as currency translation .

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

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

Interest Rate Risk Management

During the nine months ended June 26, 2020 and June 28, 2019, we entered into forward starting interest rate swap contracts to manage interest rate exposure prior to the anticipated issuance of fixed rate debt.

These contracts had an aggregate notional value of $ 450 million and $ 350 million at June 26, 2020 and September 27, 2019, respectively, and were designated as cash flow hedges.

These forward starting interest rate swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

September 27,

(in millions)

Other liabilities

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

Quarters Ended

Nine Months Ended

(in millions)

Losses recorded in other comprehensive income (loss)

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Retirement Plans

11 unchanged sentences

Net periodic pension benefit cost (credit)

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six Months Ended

Nine Months Ended

(in millions)

6 unchanged sentences

Net periodic pension benefit cost (credit)

During the six months ended March 27, 2020, we contributed $ 19 million to our non-U.S.

During the nine months ended June 26, 2020, we contributed $ 29 million to our non-U.S.

pension plans.

We recorded income tax expense of $ 42 million and $ 91 million for the quarters ended March 27, 2020 and March 29, 2019, respectively.

The income tax expense for the quarter ended March 27, 2020 included an income tax benefit of $ 31 million related to pre-separation tax matters and the termination of the Tax Sharing Agreement.

See the “Tax Sharing Agreement” section below for additional information.

The pre-tax goodwill impairment charge of $ 900 million recorded during the quarter ended March 27, 2020 resulted in a tax benefit of $ 4 million as the associated goodwill was primarily not deductible for income tax purposes.

We recorded income tax expense of $ 185 million and an income tax benefit of $ 245 million for the quarters ended June 26, 2020 and June 28, 2019, respectively.

The income tax expense for the quarter ended June 26, 2020 included $ 170 million of income tax expense related to an increase to the valuation allowance for certain non-U.S.

deferred tax assets.

Due to the COVID-19 pandemic and its negative impact on our current and expected future operating profit and taxable income, we believe it is more likely than not that a portion of our deferred tax assets will not be realized.

Depending on the duration and severity of COVID-19 disruptions to our business, additional adjustments to our valuation allowance may be required in future periods.

The income tax benefit for the quarter ended June 28, 2019 included a $ 214 million income tax benefit related to the tax impacts of certain measures of the Switzerland Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”) and a $ 93 million income tax benefit related to the effective settlement of a tax audit in a non-U.S.

jurisdiction.

See “Swiss Tax Reform” below for additional information.

We recorded income tax expense of $ 674 million and an income tax benefit of $ 76 million for the nine months ended June 26, 2020 and June 28, 2019, respectively.

The income tax expense for the nine months ended June 26, 2020 included $ 355 million of income tax expense related to the tax impacts of certain measures of Swiss Tax Reform.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

the income tax expense included $ 170 million of income tax expense related to an increase to the valuation allowance for certain non-U.S.

deferred tax assets, partially offset by an income tax benefit of $ 31 million related to pre-separation tax matters and the termination of the Tax Sharing Agreement.

See the “Swiss Tax Reform” and “Tax Sharing Agreement” below for additional information.

The pre-tax goodwill impairment charge of $ 900 million recorded during the nine months ended June 26, 2020 resulted in a tax benefit of $ 4 million as the associated goodwill was primarily not deductible for income tax purposes.

See Note 6 for additional information regarding the impairment of goodwill.

The income tax expense for the quarter ended March 29, 2019 included $ 15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions, partially offset by a $ 12 million income tax benefit resulting from lapses of statutes of limitations in certain non-U.S.

jurisdictions.

We recorded income tax expense of $ 489 million and $ 169 million for the six months ended March 27, 2020 and March 29, 2019, respectively.

The income tax expense for the six months ended March 27, 2020 included $ 355 million of income tax expense related to the tax impacts of certain measures of the Switzerland Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”), and an income tax benefit of $ 31 million related to pre-separation tax matters and the termination of the Tax Sharing Agreement.

See the “Swiss Tax Reform” and “Tax Sharing Agreement” sections below for additional information.

The income tax expense for the six months ended March 29, 2019 included $ 15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions.

The income tax benefit for the nine months ended June 28, 2019 included a $ 214 million income tax benefit related to the tax impacts of certain measures of Swiss Tax Reform, a $ 93 million income tax benefit related to the effective settlement of a tax audit in a non-U.S.

jurisdiction, and $ 15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions.

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

We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Condensed Consolidated Balance Sheet as of March 27, 2020.

Swiss Tax Reform

The Federal Act on Tax Reform and AHV Financing eliminates certain preferential tax items and implements new tax rates at both the federal and cantonal levels.

During fiscal 2019, Switzerland enacted the federal provisions of Swiss Tax Reform, and the federal tax authority issued guidance abolishing certain interest deductions.

The impacts of these measures were reflected in our fiscal 2019 Consolidated Financial Statements.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

During the quarter ended June 28, 2019, the federal tax authority issued guidance abolishing certain interest deductions, and as a result of this measure, we recorded a $ 214 million income tax benefit related primarily to the reduction of the valuation allowance for deferred tax assets.

Based on our forecast of taxable income, reflecting this measure, we believed it was more likely than not that additional deferred tax assets for tax loss carryforwards in Switzerland would be realized in the future.

The federal provisions of Swiss Tax Reform were enacted into law in the quarter ended September 27, 2019.

In October 2019, the canton of Schaffhausen enacted Swiss Tax Reform into law, including reductions in tax rates.

During the six months ended March 27, 2020, we recognized $ 355 million of income tax expense related primarily to cantonal implementation and the resulting write-down of certain deferred tax assets to the lower tax rates.

During the nine months ended June 26, 2020, we recognized $ 355 million of income tax expense related primarily to cantonal implementation and the resulting write-down of certain deferred tax assets to the lower tax rates.

Tax Sharing Agreement

3 unchanged sentences

We believe that substantially all income tax matters that may be subject to the Tax Sharing Agreement have been settled with tax authorities and we do not expect any remaining tax matters to have a material effect on our results of operations, financial position, or cash flows.

Accordingly, during the quarter ended March 27, 2020, we recognized an income tax benefit of $ 31 million and net other income of $ 8 million representing settlement of the remaining shared pre-separation income tax matters and indemnification balances .

Accordingly, during the nine months ended June 26, 2020, we recognized an income tax benefit of $ 31 million and net other income of $ 8 million representing settlement of the remaining shared pre-separation income tax matters and indemnification balances .

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Earnings (Loss) Per Share

1 unchanged sentence

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

Dilutive impact of share-based compensation arrangements

For the quarter and six months ended March 27, 2020, there were nonvested share awards and options outstanding with underlying exercise prices less than the average market prices of our common shares;

For both the quarter and nine months ended June 26, 2020, there were one million nonvested share awards and options outstanding with underlying exercise prices less than the average market prices of our common shares;

however, these were excluded from the calculation of diluted loss per share as inclusion would be antidilutive as a result of our loss during the period.

Such shares not included in the computation of diluted loss per share were one million and two million in the quarter and six months ended March 27, 2020, respectively.

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

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

Antidilutive share options

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Common Shares

2 unchanged sentences

In March 2020, our shareholders approved the cancellation of approximately 12 million shares purchased under our share repurchase program during the period beginning September 29, 2018 and ending September 27, 2019.

The capital reduction by cancellation of these shares is subject to a notice period and filing with the commercial register in Switzerland and is not yet reflected on the Condensed Consolidated Balance Sheet.

The capital reduction by cancellation of these shares was subject to a notice period and filing with the commercial register in Switzerland and became effective in May 2020.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We paid cash dividends to shareholders as follows:

Quarters Ended

Six Months Ended

Nine Months Ended

Dividends paid per common share

1 unchanged sentence

Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity.

At March 27, 2020 and September 27, 2019, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $ 636 million and $ 308 million, respectively.

At June 26, 2020 and September 27, 2019, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $ 475 million and $ 308 million, respectively.

Share Repurchase Program

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

Six Months Ended

Nine Months Ended

(in millions)

1 unchanged sentence

Repurchase value

At March 27, 2020, we had $ 1.1 billion of availability remaining under our share repurchase authorization.

At June 26, 2020, we had $ 1.0 billion of availability remaining under our share repurchase authorization.

TE CONNECTIVITY LTD.

2 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

Share-based compensation expense

As of March 27, 2020, there was $ 150 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 2.1 years.

As of June 26, 2020, there was $ 135 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 1.9 years.

During the quarter ended December 27, 2019, we granted the following share-based awards as part of our annual incentive plan grant:

3 unchanged sentences

Performance share awards

As of March 27, 2020, we had 15 million shares available for issuance under our stock and incentive plans, of which the TE Connectivity Ltd.

As of June 26, 2020, we had 15 million shares available for issuance under our stock and incentive plans, of which the TE Connectivity Ltd.

2007 Stock and Incentive Plan, amended and restated as of March 8, 2017, was the primary plan.

10 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

17 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

15 unchanged sentences

Quarters Ended

Six Months Ended

Nine Months Ended

(in millions)

4 unchanged sentences

See Note 6 for additional information .

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Tyco Electronics Group S.A.

(“TEGSA”), a Luxembourg company and our 100 %-owned subsidiary, is a holding company that owns, directly or indirectly, all of our operating subsidiaries.

TEGSA is the obligor under our senior notes, commercial paper, and five-year unsecured senior revolving credit facility, which are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd.

The following tables present condensed consolidating financial information for TE Connectivity Ltd., TEGSA, and all other subsidiaries that are not providing a guarantee of debt but which represent assets of TEGSA, using the equity method of accounting.

Condensed Consolidating Statement of Operations (unaudited)

For the Quarter Ended March 27, 2020

Consolidating

(in millions)

Cost of sales

Selling, general, and administrative expenses, net (1)

Research, development, and engineering expenses

Acquisition and integration costs

Restructuring and other charges, net

Impairment of goodwill

Operating income (loss)

Interest income

Interest expense

Other income, net

Equity in net loss of subsidiaries

Equity in net loss of subsidiaries of discontinued operations

Intercompany interest income (expense), net

Loss from continuing operations before income taxes

Income tax expense

Loss from continuing operations

Loss from discontinued operations, net of income taxes

Other comprehensive loss

other comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to TE Connectivity Ltd., TEGSA, or Other Subsidiaries

TEGSA selling, general, and administrative expenses include gains of $ 115 million related to intercompany transactions.

These gains are offset by corresponding losses recorded by other subsidiaries.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidating Statement of Operations (unaudited)

For the Quarter Ended March 29, 2019

Consolidating

(in millions)

Cost of sales

Selling, general, and administrative expenses, net

Research, development, and engineering expenses

Acquisition and integration costs

Restructuring and other charges, net

Operating income (loss)

Interest income

Interest expense

Other income, net

Equity in net income of subsidiaries

Equity in net income of subsidiaries of discontinued operations

Intercompany interest income (expense), net

Income from continuing operations before income taxes

Income tax expense

Income from continuing operations

Income from discontinued operations, net of income taxes

Other comprehensive income

Comprehensive income

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidating Statement of Operations (unaudited)

For the Six Months Ended March 27, 2020

Consolidating

(in millions)

Cost of sales

Selling, general, and administrative expenses, net (1)

Research, development, and engineering expenses

Acquisition and integration costs

Restructuring and other charges, net

Impairment of goodwill

Operating income (loss)

Interest income

Interest expense

Other income, net

Equity in net loss of subsidiaries

Equity in net loss of subsidiaries of discontinued operations

Intercompany interest income (expense), net

Income (loss) from continuing operations before income taxes

Income tax expense

Loss from continuing operations

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

Other comprehensive loss

other comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to TE Connectivity Ltd., TEGSA, or Other Subsidiaries

TE Connectivity Ltd.

and TEGSA selling, general, and administrative expenses include gains of $ 14 million and $ 101 million, respectively, related to intercompany transactions.

These gains are offset by corresponding losses recorded by other subsidiaries.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidating Statement of Operations (unaudited)

For the Six Months Ended March 29, 2019

Consolidating

(in millions)

Cost of sales

Selling, general, and administrative expenses, net (1)

Research, development, and engineering expenses

Acquisition and integration costs

Restructuring and other charges, net

Operating income (loss)

Interest income

Interest expense

Other income (expense), net

Equity in net income of subsidiaries

Equity in net loss of subsidiaries of discontinued operations

Intercompany interest income (expense), net

Income from continuing operations before income taxes

Income tax expense

Income from continuing operations

Loss from discontinued operations, net of income taxes

Other comprehensive income

Comprehensive income

TEGSA selling, general, and administrative expenses include gains of $ 110 million related to intercompany transactions.

These gains are offset by corresponding losses recorded by other subsidiaries.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidating Balance Sheet (unaudited)

As of March 27, 2020

Consolidating

(in millions)

Current assets:

Cash and cash equivalents

Accounts receivable, net

Intercompany receivables

Prepaid expenses and other current assets

Total current assets

Property, plant, and equipment, net

Intangible assets, net

Deferred income taxes

Investment in subsidiaries

Intercompany loans receivable

Liabilities and equity

Current liabilities:

Short-term debt

Accounts payable

Accrued and other current liabilities

Intercompany payables

Total current liabilities

Long-term debt

Intercompany loans payable

Long-term pension and postretirement liabilities

Deferred income taxes

Other liabilities

Total liabilities

Total liabilities and equity

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidating Balance Sheet (unaudited)

As of September 27, 2019

Consolidating

(in millions)

Current assets:

Cash and cash equivalents

Accounts receivable, net

Intercompany receivables

Prepaid expenses and other current assets

Total current assets

Property, plant, and equipment, net

Intangible assets, net

Deferred income taxes

Investment in subsidiaries

Intercompany loans receivable

Liabilities and equity

Current liabilities:

Short-term debt

Accounts payable

Accrued and other current liabilities

Intercompany payables

Total current liabilities

Long-term debt

Intercompany loans payable

Long-term pension and postretirement liabilities

Deferred income taxes

Other liabilities

Total liabilities

Total liabilities and equity

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidating Statement of Cash Flows (unaudited)

For the Six Months Ended March 27, 2020

Consolidating

(in millions)

Cash flows from operating activities:

Net cash provided by (used in) operating activities (1)

Cash flows from investing activities:

Capital expenditures

Proceeds from sale of property, plant, and equipment

Acquisition of businesses, net of cash acquired

Change in intercompany loans

Net cash used in investing activities

Cash flows from financing activities:

Changes in parent company equity (2)

Net decrease in commercial paper

Proceeds from issuance of debt

Proceeds from exercise of share options

Repurchase of common shares

Payment of common share dividends to shareholders

Intercompany distributions (1)

Loan activity with parent

Net cash provided by (used in) financing activities

Effect of currency translation on cash

Net decrease in cash, cash equivalents, and restricted cash

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

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

(1) Other subsidiaries made distributions to TEGSA in the amount of $ 458 million.

Cash flows are presented based upon the nature of the distributions.

(2) Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and other intercompany activity.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidating Statement of Cash Flows (unaudited)

For the Six Months Ended March 29, 2019

Consolidating

(in millions)

Cash flows from operating activities:

Net cash provided by (used in) continuing operating activities

Net cash used in discontinued operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Capital expenditures

Proceeds from sale of property, plant, and equipment

Acquisition of businesses, net of cash acquired

Proceeds from divestiture of discontinued operation, net of cash retained by sold operation

Change in intercompany loans

Net cash provided by (used in) continuing investing activities

Net cash used in discontinued investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Changes in parent company equity (1)

Net increase in commercial paper

Proceeds from issuance of debt

Repayment of debt

Proceeds from exercise of share options

Repurchase of common shares

Payment of common share dividends to shareholders

Loan activity with parent

Transfers to discontinued operations

Net cash provided by (used in) continuing financing activities

Net cash provided by discontinued financing activities

Net cash provided by (used in) financing activities

Effect of currency translation on cash

Net decrease in cash, cash equivalents, and restricted cash

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

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

(1) Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and other intercompany activity .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements