What changed in this filing

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Item 1. Financial Statements

2021-01-28 compared with 2020-07-30 · 151 added, 363 removed, 322 unchanged (61% of the section changed)

3 unchanged sentences

Quarters Ended

Nine Months Ended

(in millions, except per share data)

4 unchanged sentences

Restructuring and other charges, net

Impairment of goodwill

Operating income

1 unchanged sentence

Interest expense

Other income, net

Other income (expense), net

Income from continuing operations before income taxes

Income tax (expense) benefit

Income (loss) from continuing operations

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

Net income (loss)

Basic earnings (loss) per share:

Income (loss) from continuing operations

Income (loss) from discontinued operations

Net income (loss)

Diluted earnings (loss) per share:

Income (loss) from continuing operations

Income (loss) from discontinued operations

Net income (loss)

Income tax expense

Income from continuing operations

Income from discontinued operations, net of income taxes

Basic earnings per share:

Income from continuing operations

Income from discontinued operations

Diluted earnings per share:

Income from continuing operations

Income from discontinued operations

Weighted-average number of shares outstanding:

1 unchanged sentence

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Quarters Ended

Nine Months Ended

(in millions)

Net income (loss)

Other comprehensive income (loss):

Other comprehensive income:

Currency translation

1 unchanged sentence

Gains on cash flow hedges, net of income taxes

Other comprehensive income (loss)

Comprehensive income (loss)

Other comprehensive income

Comprehensive income

comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to TE Connectivity Ltd.

Comprehensive income attributable to TE Connectivity Ltd.

See Notes to Condensed Consolidated Financial Statements.

11 unchanged sentences

Deferred income taxes

Liabilities and equity

Liabilities, redeemable noncontrolling interests, and shareholders' equity

Current liabilities:

9 unchanged sentences

Commitments and contingencies (Note 9)

TE Connectivity Ltd.

Redeemable noncontrolling interests

Shareholders' equity:

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

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

Accumulated earnings

1 unchanged sentence

Accumulated other comprehensive loss

Total TE Connectivity Ltd.

shareholders' equity

Noncontrolling interests

Total liabilities and equity

Total shareholders' equity

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

See Notes to Condensed Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Quarter Ended June 26, 2020

TE Connectivity

Common Shares

Treasury Shares

Comprehensive

Shareholders'

(in millions)

Balance at March 27, 2020

Other comprehensive income

Share-based compensation expense

Exercise of share options

Restricted share award vestings and other activity

Repurchase of common shares

Cancellation of treasury shares

Balance at June 26, 2020

For the Nine Months Ended June 26, 2020

TE Connectivity

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Quarter Ended December 25, 2020

Common Shares

4 unchanged sentences

Balance at September 25, 2020

Other comprehensive income (loss)

Share-based compensation expense

Exercise of share options

Restricted share award vestings and other activity

Repurchase of common shares

Cancellation of treasury shares

Balance at June 26, 2020

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED) (Continued)

For the Quarter Ended June 28, 2019

TE Connectivity

Common Shares

Treasury Shares

Comprehensive

Shareholders'

(in millions)

Balance at March 29, 2019

Other comprehensive loss

Other comprehensive income

Share-based compensation expense

2 unchanged sentences

Repurchase of common shares

Cancellation of treasury shares

Balance at June 28, 2019

For the Nine Months Ended June 28, 2019

TE Connectivity

Balance at December 25, 2020

For the Quarter Ended December 27, 2019

Common Shares

4 unchanged sentences

Balance at September 27, 2019

Adoption of ASU No.

Other comprehensive income

3 unchanged sentences

Repurchase of common shares

Cancellation of treasury shares

Balance at June 28, 2019

Balance at December 27, 2019

See Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Quarters Ended

(in millions)

Cash flows from operating activities:

Net income (loss)

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

Income (loss) from continuing operations

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

Impairment of goodwill

Income from discontinued operations, net of income taxes

Income from continuing operations

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

Depreciation and amortization

8 unchanged sentences

Accrued and other current liabilities

Net cash provided by continuing operating activities

Net cash used in discontinued operating activities

Net cash provided by operating activities

1 unchanged sentence

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

Net cash used in continuing investing activities

Net cash used in discontinued investing activities

Net cash used in investing activities

1 unchanged sentence

Net decrease in commercial paper

Proceeds from issuance of debt

Repayment of debt

2 unchanged sentences

Payment of common share dividends to shareholders

Transfers to discontinued operations

Net cash used in continuing financing activities

Net cash provided by discontinued financing activities

Net cash used in financing activities

Effect of currency translation on cash

Net decrease in cash, cash equivalents, and restricted cash

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

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

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Basis of Presentation and Accounting Policies

Basis of Presentation

7 unchanged sentences

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

Goodwill and Other Intangible Assets

We account for goodwill and other intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles–Goodwill and Other , as updated by Accounting Standards Update (“ASU”) No.

2017-04, Simplifying the Test for Goodwill Impairment .

Intangible assets include both indeterminable-lived residual goodwill and determinable-lived identifiable intangible assets.

Intangible assets with determinable lives primarily include intellectual property, consisting of patents, trademarks, and unpatented technology, and customer relationships.

Recoverability estimates range from 1 to 50 years and costs are generally amortized on a straight-line basis.

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

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.

When changes occur in the composition of one or more reporting units, goodwill is reassigned to the reporting units affected based on their relative fair values.

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 marketplace data.

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

When testing for goodwill impairment, we identify potential impairment by comparing the fair value of a reporting unit with its carrying amount.

If the carrying amount of a reporting unit exceeds its fair value, a goodwill impairment charge will be recorded for the amount of the excess, limited to the total amount of goodwill allocated to the reporting unit.

Fair value estimates used in the goodwill impairment tests are calculated using an income approach based on the present value of future cash flows of each reporting unit.

The income approach has been supported by guideline analyses (a market approach).

These approaches incorporate several assumptions including future growth rates, discount rates, income tax rates, and market activity in assessing fair value and are reporting unit specific.

Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Recently Adopted Accounting Pronouncements

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

2017-04, an update to ASC 350.

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

Under the amendments in the update, goodwill impairment should be tested by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The amendments are to be applied on a prospective basis.

We elected to early adopt this update and applied it during the quarter ended March 27, 2020.

See Note 6 for additional information regarding the interim goodwill impairment test.

In February 2016, the FASB issued ASU No.

2016-02 which codified ASC 842, Leases .

This guidance, as subsequently amended, requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset for most leases.

We adopted ASC 842, as amended, in the quarter ended December 27, 2019 using the optional transition method permitted by ASU No.

2018-11 which allows for application of the standard at the adoption date and no restatement of comparative periods.

We elected to use the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the carry forward of historical lease classification of existing and expired leases.

In addition, we elected to use the hindsight practical expedient in determining the lease term for existing leases.

As a result of adoption, we recorded ROU assets and related lease liabilities of approximately $ 520 million on the Condensed Consolidated Balance Sheet.

Adoption did not have a material impact on our results of operations or cash flows.

See Note 9 for additional information regarding leases.

Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

Quarters Ended

(in millions)

Restructuring charges, net

Other charges, net

Restructuring and other charges, net

Net restructuring charges by segment were as follows:

Quarters Ended

Nine Months Ended

(in millions)

10 unchanged sentences

Employee severance

Facility and other exit costs

Property, plant, and equipment

6 unchanged sentences

Facility and other exit costs

Property, plant, and equipment

Total Activity

Fiscal 2021 Actions

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.

During fiscal 2021, we initiated a restructuring program associated with footprint consolidation and structural improvements, due in part to the COVID-19 pandemic, across all segments.

In connection with this program, during the quarter ended December 25, 2020, we recorded restructuring charges of $ 142 million.

We expect to complete all restructuring actions commenced during the quarter ended December 25, 2020 by the end of fiscal 2022 and to incur additional charges of approximately $ 12 million related primarily to employee severance and facility exit costs across all segments.

Fiscal 2020 Actions

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

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.

Pre-Fiscal 2019 Actions

Prior to fiscal 2019, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments.

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 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.

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

In connection with this program, during the quarters ended December 25, 2020 and December 27, 2019, we recorded restructuring charges of $ 11 million and $ 15 million, respectively.

We expect to complete all restructuring actions commenced during fiscal 2020 by the end of fiscal 2023 and to incur additional charges of approximately $ 34 million related primarily to employee severance and facility exit costs.

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

(in millions)

Transportation Solutions

Industrial Solutions

Communications Solutions

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Pre-Fiscal 2020 Actions

Prior to fiscal 2020, we initiated restructuring programs associated with footprint consolidation and structural improvements impacting all segments.

During the quarters ended December 25, 2020 and December 27, 2019, we recorded net restructuring credits of $ 4 million and charges of $ 9 million, respectively, related to pre-fiscal 2020 actions.

We expect additional charges related to pre-fiscal 2020 actions to be insignificant.

Total Restructuring Reserves

5 unchanged sentences

Restructuring reserves

Discontinued Operations

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.

Prior to reclassification to discontinued operations, the SubCom business was included in the Communications Solutions segment.

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 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 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 nine months ended June 28, 2019:

(in millions)

Cost of sales

Operating expenses

Pre-tax loss from discontinued operations

Pre-tax loss on sale of discontinued operations

Income tax benefit

Loss from discontinued operations, net of income taxes

First Sensor AG

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

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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.

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

During the quarter ended December 25, 2020, we acquired one business for a cash purchase price of $ 106 million, net of cash acquired.

The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.

We acquired two businesses for a combined cash purchase price of $ 112 million, net of cash acquired, during the quarter ended December 27, 2019.

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

5 unchanged sentences

Finished goods

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

3 unchanged sentences

September 25, 2020 (1)

Impairment of goodwill

Purchase price adjustments

Currency translation

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 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)

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 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.

2017-04 which simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test.

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 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 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.

Further impairment charges, if any, may be material to our results of operations and financial position.

December 25, 2020 (1)

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

During the quarter ended December 25, 2020, we recognized goodwill in the Industrial Solutions segment in connection with a recent acquisition.

See Note 3 for additional information regarding the acquisition.

Intangible Assets, Net

Intangible assets consisted of the following:

June 26, 2020

December 25, 2020

September 25, 2020

2 unchanged sentences

Intellectual property

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

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

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

(in millions)

Remainder of fiscal 2021

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 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 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.

We determine if a contract qualifies as a lease at inception.

A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the identified asset and the right to direct the use of the identified asset.

Lease ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of remaining lease payments over the lease term.

Lease ROU assets represent our right to use the underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

We do not recognize ROU assets or lease liabilities that arise from short-term leases.

Since our lease contracts do not contain a readily determinable implicit rate, we determine a fully-collateralized incremental borrowing rate that reflects a similar term to the lease and the economic environment of the applicable country or region in which the asset is leased.

We have elected to account for lease and non-lease components in our real estate leases as a single lease component;

other leases generally do not contain non-lease components.

The non-lease components in our real estate leases include logistics services, warehousing, and other operational costs.

Many of these costs are variable, fluctuating based on services provided, such as pallets shipped in and out of a location or square footage of space occupied.

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

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

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

Nine Months Ended

Quarters Ended

(in millions)

2 unchanged sentences

Total lease cost

Amounts recognized on the Condensed Consolidated Balance Sheet were as follows:

($ in millions)

Operating lease ROU assets:

Operating lease liabilities:

Accrued and other current liabilities

Other liabilities

Total operating lease liabilities

Weighted-average remaining lease term (in years)

Weighted-average discount rate

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

Nine Months Ended

Quarters Ended

(in millions)

3 unchanged sentences

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

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

(in millions)

Remainder of fiscal 2020

Total lease payments

Present value of lease liabilities

The following table, which was included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2019 and presented in accordance with the previous lease accounting standard, presents the future minimum lease payments under non-cancelable operating lease obligations as of September 27, 2019:

(in millions)

(2) Excludes right-of-use assets recognized in connection with the adoption of ASC 842.

Commitments and Contingencies

2 unchanged sentences

Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.

Trade Compliance Matters

We are investigating our past compliance with relevant U.S.

trade controls and are making voluntary disclosures of apparent trade controls violations to the U.S.

Department of Commerce’s Bureau of Industry and Security (“BIS”).

We are cooperating with BIS, and both our internal assessment and the BIS investigation are ongoing.

We are unable to predict the final outcome of the BIS investigation or to reasonably estimate the time it may take to resolve these matters.

An unfavorable outcome may include fines or penalties imposed in response to our disclosures;

however, we are not yet able to estimate whether any such fines or penalties would be material to our financial condition and results of operations.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Environmental Matters

1 unchanged sentence

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 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.

As of December 25, 2020, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $ 16 million to $ 46 million, and we accrued $ 19 million as the probable loss, which was the best estimate within this range.

We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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 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.

In connection with the sale, we contractually agreed to honor certain performance guarantees and letters of credit related to the SubCom business.

See Note 3 for additional information regarding these guarantees and the divestiture of the SubCom business.

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

In connection with the SubCom sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale.

These performance guarantees and letters of credit had a combined value of approximately $ 280 million as of December 25, 2020 and are expected to expire at various dates through fiscal 2025.

As of December 25, 2020, there were no new performance guarantees outstanding.

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

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

Financial Instruments

Foreign Currency Exchange Rate Risk

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 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.

We utilize cross-currency swap contracts to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans.

The aggregate notional value of these contracts was € 700 million at December 25, 2020 and September 25, 2020.

Under the terms of these contracts, which have been designated as cash flow hedges, we make interest payments in euros at 3.50 % per annum and receive interest in U.S.

dollars at a weighted-average rate of 5.34 % per annum.

Upon maturity, we will pay the notional value of the contracts in euros and receive U.S.

Upon maturity in fiscal 2022, we will pay the notional value of the contracts in euros and receive U.S.

dollars from our counterparties.

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(in millions)

At June 26, 2020 and September 27, 2019, collateral received from or paid to our counterparties approximated the net derivative position.

Other liabilities

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

At December 25, 2020 and September 25, 2020, collateral received from or paid to our counterparties approximated the net derivative position.

Collateral is recorded in accrued and other current liabilities when the contracts are in a net asset position, or prepaid expenses and other current assets when the contracts are in a net liability position on the Condensed Consolidated Balance Sheets.

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Quarters Ended

Nine Months Ended

(in millions)

Gains recorded in other comprehensive income (loss)

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

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

Losses excluded from the hedging relationship (1)

(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.

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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 $ 3,320 million and $ 3,374 million at June 26, 2020 and September 27, 2019, respectively.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The aggregate notional value of these hedges was $ 3,820 million and $ 3,511 million at December 25, 2020 and September 25, 2020, respectively.

We also use a cross-currency swap program to hedge our net investment in certain foreign operations.

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

The aggregate notional value of the contracts under this program was $ 1,957 million and $ 1,664 million at December 25, 2020 and September 25, 2020, respectively.

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

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Other liabilities

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Quarters Ended

Nine Months Ended

(in millions)

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

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

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

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.

We may utilize forward starting interest rate swap contracts to manage interest rate exposure in periods prior to the anticipated issuance of fixed rate debt.

These contracts had an aggregate notional value of $ 450 million at December 25, 2020 and September 25, 2020, and were designated as cash flow hedges.

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

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Quarters Ended

Nine Months Ended

(in millions)

Losses recorded in other comprehensive income (loss)

Gains recorded in other comprehensive income (loss)

Commodity Hedges

As part of managing the exposure to certain commodity price fluctuations, we utilize commodity swap contracts.

The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in prices of commodities used in production.

These contracts had an aggregate notional value of $ 321 million and $ 312 million at December 25, 2020 and September 25, 2020, respectively, and were designated as cash flow hedges.

These commodity swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

September 25,

(in millions)

Prepaid expenses and other current assets

Accrued and other current liabilities

Other liabilities

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The impacts of these commodity swap contracts were as follows:

Quarters Ended

(in millions)

Gains recorded in other comprehensive income (loss)

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

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.

Retirement Plans

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Net periodic pension benefit cost (credit)

Nine Months Ended

(in millions)

Operating expense:

Other (income) expense:

Interest cost

Expected return on plan assets

Amortization of net actuarial loss

Amortization of prior service credit

Net periodic pension benefit cost (credit)

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 $ 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.

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

pension plans, respectively.

We recorded income tax expense of $ 60 million and $ 447 million for the quarters ended December 25, 2020 and December 27, 2019, respectively.

The income tax expense for the quarter ended December 25, 2020 included a $ 29 million income tax benefit related to an Internal Revenue Service approved change in the tax method of depreciating or amortizing certain assets.

The income tax expense for the quarter ended December 27, 2019 included $ 355 million of income tax expense related to the tax impacts of certain measures of the Switzerland Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”).

See “Swiss Tax Reform” below for additional information.

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.

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

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

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 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.

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 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.

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

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

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

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

During the 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

Upon our separation from Tyco International plc in fiscal 2007, we entered into a Tax Sharing Agreement with Tyco International plc (now part of Johnson Controls International plc) and Covidien plc (now part of Medtronic plc) under which we shared certain income tax liabilities for periods prior to and including June 29, 2007.

Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications.

In March 2020, we, Johnson Controls International plc, and Medtronic plc entered into an agreement to terminate the Tax Sharing Agreement.

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 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

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

During the quarter ended December 27, 2019, we recognized $ 355 million of income tax expense related primarily to cantonal implementation and the resulting write-down of certain deferred tax assets to the lower tax rates.

Earnings Per Share

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

Quarters Ended

Nine Months Ended

(in millions)

Dilutive impact of share-based compensation arrangements

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.

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:

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

Quarters Ended

Nine Months Ended

(in millions)

Antidilutive share options

Common Shares

In March 2020, our shareholders reapproved and extended through March 11, 2022, our board of directors’ authorization to issue additional new shares, subject to certain conditions specified in our articles of association, in aggregate not exceeding 50 % of the amount of our authorized shares.

Common Shares Held in Treasury

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 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)

Shareholders’ Equity

We paid cash dividends to shareholders as follows:

Quarters Ended

Nine Months Ended

Dividends paid per common share

In March 2020, our shareholders approved a dividend payment to shareholders of $ 1.92 per share, payable in four equal quarterly installments of $ 0.48 per share beginning in the third quarter of fiscal 2020 and ending in the second quarter of fiscal 2021.

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

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.

At December 25, 2020 and September 25, 2020, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $ 159 million and $ 317 million, respectively.

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Share Repurchase Program

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

Nine Months Ended

Quarters Ended

(in millions)

1 unchanged sentence

Repurchase value

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

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Quarters Ended

Nine Months Ended

(in millions)

Share-based compensation expense

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.

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

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

3 unchanged sentences

Performance share awards

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.

As of December 25, 2020, we had 13 million shares available for issuance under the TE Connectivity Ltd.

2007 Stock and Incentive Plan, amended and restated as of September 17, 2020.

Share-Based Compensation Assumptions

9 unchanged sentences

Quarters Ended

Nine Months Ended

(in millions)

9 unchanged sentences

Total Communications Solutions

(1) Intersegment sales were not material and were recorded at selling prices that approximated market prices.

(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.

(3) Effective for fiscal 2020, we are separately presenting net sales in the medical end market.

Such amounts were previously included in net sales in the industrial equipment end market.

TE CONNECTIVITY LTD.

2 unchanged sentences

Quarters Ended

Nine Months Ended

(in millions)

Europe/Middle East/Africa (“EMEA”):

Asia–Pacific:

Transportation Solutions

1 unchanged sentence

Communications Solutions

Asia–Pacific:

Total Asia–Pacific

Europe/Middle East/Africa (“EMEA”):

Transportation Solutions

1 unchanged sentence

Communications Solutions

Total Asia–Pacific

Transportation Solutions

3 unchanged sentences

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

Operating income (loss) by segment was as follows:

Operating income by segment was as follows:

Quarters Ended

Nine Months Ended

(in millions)

2 unchanged sentences

Communications Solutions

(1) Includes goodwill impairment charge of $ 900 million.

See Note 6 for additional information .

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