UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 30, 2022
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-33260

(Commission File Number)

TE CONNECTIVITY LTD.

(Exact name of registrant as specified in its charter)

Switzerland (Jurisdiction of Incorporation)	98-0518048 (I.R.S. Employer Identification No.)
Mühlenstrasse 26, CH-8200 Schaffhausen, Switzerland (Address of principal executive offices)	+41 (0)52 633 66 61 (Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common Shares, Par Value CHF 0.57	TEL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of common shares outstanding as of January 20, 2023 was 316,456,616.

TE CONNECTIVITY LTD.

INDEX TO FORM 10-Q

		Page
Part I.	Financial Information
Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Operations for the Quarters Ended December 30, 2022 and December 24, 2021 (unaudited)	1
	Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended December 30, 2022 and December 24, 2021 (unaudited)	2
	Condensed Consolidated Balance Sheets as of December 30, 2022 and September 30, 2022 (unaudited)	3
	Condensed Consolidated Statements of Shareholders’ Equity for the Quarters Ended December 30, 2022 and December 24, 2021 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Quarters Ended December 30, 2022 and December 24, 2021 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
Part II.	Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36
Signatures		37

i

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the
	Quarters Ended
	December 30,		December 24,
	2022		2021
	(in millions, except per share data)
Net sales	$	3,841	$	3,818
Cost of sales		2,654		2,588
Gross margin		1,187		1,230
Selling, general, and administrative expenses		392		363
Research, development, and engineering expenses		173		175
Acquisition and integration costs		9		8
Restructuring and other charges, net		111		12
Operating income		502		672
Interest income		9		2
Interest expense		(21)		(12)
Other income (expense), net		(5)		15
Income from continuing operations before income taxes		485		677
Income tax expense		(87)		(110)
Income from continuing operations		398		567
Loss from discontinued operations, net of income taxes		(1)		(1)
Net income	$	397	$	566
Basic earnings per share:
Income from continuing operations	$	1.26	$	1.73
Income from discontinued operations		—		—
Net income		1.25		1.73
Diluted earnings per share:
Income from continuing operations	$	1.25	$	1.72
Income from discontinued operations		—		—
Net income		1.24		1.72
Weighted-average number of shares outstanding:
Basic		317		327
Diluted		319		330

See Notes to Condensed Consolidated Financial Statements.

1

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	For the
	Quarters Ended
	December 30,		December 24,
	2022		2021
	(in millions)
Net income	$	397	$	566
Other comprehensive income:
Currency translation		305		18
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes		2		4
Gains on cash flow hedges, net of income taxes		69		1
Other comprehensive income		376		23
Comprehensive income		773		589
Less: comprehensive (income) loss attributable to noncontrolling interests		(9)		6
Comprehensive income attributable to TE Connectivity Ltd.	$	764	$	595

See Notes to Condensed Consolidated Financial Statements.

2

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	December 30,		September 30,
	2022		2022
	(in millions, except share
	data)
Assets
Current assets:
Cash and cash equivalents	$	793	$	1,088
Accounts receivable, net of allowance for doubtful accounts of $45		2,910		2,865
Inventories		2,927		2,676
Prepaid expenses and other current assets		688		639
Total current assets		7,318		7,268
Property, plant, and equipment, net		3,781		3,567
Goodwill		5,511		5,258
Intangible assets, net		1,357		1,288
Deferred income taxes		2,591		2,498
Other assets		795		903
Total assets	$	21,353	$	20,782
Liabilities, redeemable noncontrolling interests, and shareholders' equity
Current liabilities:
Short-term debt	$	820	$	914
Accounts payable		1,751		1,593
Accrued and other current liabilities		1,849		2,125
Total current liabilities		4,420		4,632
Long-term debt		3,398		3,292
Long-term pension and postretirement liabilities		728		695
Deferred income taxes		228		244
Income taxes		319		304
Other liabilities		792		718
Total liabilities		9,885		9,885
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests		104		95
Shareholders' equity:
Common shares, CHF 0.57 par value, 330,830,781 shares authorized and issued		146		146
Accumulated earnings		13,200		12,832
Treasury shares, at cost, 14,065,031 and 12,749,540 shares, respectively		(1,854)		(1,681)
Accumulated other comprehensive loss		(128)		(495)
Total shareholders' equity		11,364		10,802
Total liabilities, redeemable noncontrolling interests, and shareholders' equity	$	21,353	$	20,782

See Notes to Condensed Consolidated Financial Statements.

3

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

	For the Quarter Ended December 30, 2022
											Accumulated
											Other		Total
	Common Shares			Treasury Shares			Contributed		Accumulated		Comprehensive		Shareholders'
	Shares	Amount		Shares	Amount		Surplus		Earnings		Loss		Equity
	(in millions)
Balance at September 30, 2022	331	$	146	(13)	$	(1,681)	$	—	$	12,832	$	(495)	$	10,802
Net income	—		—	—		—		—		397		—		397
Other comprehensive income	—		—	—		—		—		—		367		367
Share-based compensation expense	—		—	—		—		32		—		—		32
Exercise of share options	—		—	—		11		—		—		—		11
Restricted share award vestings and other activity	—		—	1		49		(32)		(29)		—		(12)
Repurchase of common shares	—		—	(2)		(233)		—		—		—		(233)
Balance at December 30, 2022	331	$	146	(14)	$	(1,854)	$	—	$	13,200	$	(128)	$	11,364

	For the Quarter Ended December 24, 2021
											Accumulated
											Other		Total
	Common Shares			Treasury Shares			Contributed		Accumulated		Comprehensive		Shareholders'
	Shares	Amount		Shares	Amount		Surplus		Earnings		Loss		Equity
	(in millions)
Balance at September 24, 2021	336	$	148	(9)	$	(1,055)	$	—	$	11,709	$	(168)	$	10,634
Net income	—		—	—		—		—		566		—		566
Other comprehensive income	—		—	—		—		—		—		29		29
Share-based compensation expense	—		—	—		—		32		—		—		32
Exercise of share options	—		—	—		22		—		—		—		22
Restricted share award vestings and other activity	—		—	1		5		(32)		10		—		(17)
Repurchase of common shares	—		—	(2)		(246)		—		—		—		(246)
Balance at December 24, 2021	336	$	148	(10)	$	(1,274)	$	—	$	12,285	$	(139)	$	11,020

See Notes to Condensed Consolidated Financial Statements.

4

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the
	Quarters Ended
	December 30,		December 24,
	2022		2021
	(in millions)
Cash flows from operating activities:
Net income	$	397	$	566
Loss from discontinued operations, net of income taxes		1		1
Income from continuing operations		398		567
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		187		198
Deferred income taxes		(35)		4
Non-cash lease cost		34		31
Provision for losses on accounts receivable and inventories		51		33
Share-based compensation expense		32		32
Other		49		(9)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net		(54)		148
Inventories		(324)		(264)
Prepaid expenses and other current assets		(86)		52
Accounts payable		149		15
Accrued and other current liabilities		(39)		(285)
Income taxes		25		34
Other		194		(24)
Net cash provided by operating activities		581		532
Cash flows from investing activities:
Capital expenditures		(183)		(172)
Proceeds from sale of property, plant, and equipment		1		54
Acquisition of businesses, net of cash acquired		(109)		(100)
Proceeds from divestiture of businesses, net of cash retained by businesses sold		—		16
Other		26		3
Net cash used in investing activities		(265)		(199)
Cash flows from financing activities:
Net increase (decrease) in commercial paper		(139)		479
Repayment of debt		(4)		(555)
Proceeds from exercise of share options		11		22
Repurchase of common shares		(287)		(304)
Payment of common share dividends to shareholders		(178)		(163)
Other		(24)		(31)
Net cash used in financing activities		(621)		(552)
Effect of currency translation on cash		10		(2)
Net decrease in cash, cash equivalents, and restricted cash		(295)		(221)
Cash, cash equivalents, and restricted cash at beginning of period		1,088		1,203
Cash, cash equivalents, and restricted cash at end of period	$	793	$	982

See Notes to Condensed Consolidated Financial Statements.

5

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and the instructions to Form 10-Q under the Securities Exchange Act of 1934. In management’s opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.

The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2023 and fiscal 2022 are to our fiscal years ending September 29, 2023 and ended September 30, 2022, respectively.

2. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

	For the
	Quarters Ended
	December 30,		December 24,
	2022		2021
	(in millions)
Restructuring charges, net	$	104	$	21
Impairment of held for sale businesses and (gain) loss on divestitures, net		6		(9)
Other charges, net		1		—
Restructuring and other charges, net	$	111	$	12

Net restructuring and related charges by segment were as follows:

	For the
	Quarters Ended
	December 30,		December 24,
	2022		2021
	(in millions)
Transportation Solutions	$	74	$	5
Industrial Solutions		6		8
Communications Solutions		24		8
Restructuring charges, net		104		21
Plus: charges included in cost of sales(1)		—		12
Restructuring and related charges, net	$	104	$	33

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

6

TE CONNECTIVITY LTD.

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

Activity in our restructuring reserves was as follows:

	Balance at												Balance at
	September 30,				Changes in		Cash		Non-Cash		Currency		December 30,
	2022		Charges		Estimate		Payments		Items		Translation		2022
	(in millions)
Fiscal 2023 Actions:
Employee severance	$	—	$	101	$	—	$	(6)	$	—	$	1	$	96
Property, plant, and equipment		—		4		—		—		(4)		—		—
Total		—		105		—		(6)		(4)		1		96
Fiscal 2022 Actions:
Employee severance		108		4		(7)		(13)		—		5		97
Facility and other exit costs		1		3		—		(2)		—		—		2
Total		109		7		(7)		(15)		—		5		99
Pre-Fiscal 2022 Actions:
Employee severance		112		—		1		(11)		—		7		109
Facility and other exit costs		7		—		(2)		(2)		—		1		4
Total		119		—		(1)		(13)		—		8		113
Total Activity	$	228	$	112	$	(8)	$	(34)	$	(4)	$	14	$	308

Fiscal 2023 Actions

During fiscal 2023, we initiated a restructuring program associated with cost structure improvements primarily in the Transportation Solutions and Communications Solutions segments. During the quarter ended December 30, 2022, we recorded restructuring charges of $105 million in connection with this program. We expect to complete all restructuring actions commenced during the quarter ended December 30, 2022 by the end of fiscal 2024, and we expect additional charges related to the actions commenced during the quarter ended December 30, 2022 to be insignificant.

Fiscal 2022 Actions

During fiscal 2022, we initiated a restructuring program associated with footprint consolidation and cost structure improvements across all segments. In connection with this program, during the quarter ended December 24, 2021, we recorded restructuring and related charges of $33 million. We expect to complete all restructuring actions commenced during fiscal 2022 by the end of fiscal 2024 and to incur additional charges of approximately $21 million related primarily to employee severance and facility exit costs.

The following table summarizes charges incurred for the fiscal 2022 program by segment as of December 30, 2022:

	Total		Cumulative		Remaining
	Expected		Charges		Expected
	Charges		Incurred		Charges
			(in millions)
Transportation Solutions	$	97	$	86	$	11
Industrial Solutions		55		52		3
Communications Solutions		30		23		7
Total	$	182	$	161	$	21

Pre-Fiscal 2022 Actions

During the quarter ended December 30, 2022, we recorded restructuring credits of $1 million related to pre-fiscal 2022 actions. We expect that any additional charges related to restructuring actions commenced prior to 2022 will be insignificant.

7

TE CONNECTIVITY LTD.

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

Total Restructuring Reserves

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

	December 30,		September 30,
	2022		2022
	(in millions)
Accrued and other current liabilities	$	268	$	182
Other liabilities		40		46
Restructuring reserves	$	308	$	228

3. Acquisitions

On December 30, 2022, we acquired one business for a cash purchase price of $109 million, net of cash acquired. Due to the timing of the transaction, which was reported as part of our Industrial Solutions segment, we preliminarily allocated the purchase price to goodwill and identifiable intangible assets. Our valuation of identifiable intangible assets, assets acquired, and liabilities assumed is currently in process; therefore, the current allocation is subject to adjustment upon finalization of the valuations. The amount of these potential adjustments could be significant.

We acquired one business for a cash purchase price of $125 million, net of cash acquired, during the quarter ended December 24, 2021. The acquisition was reported as part of our Communications Solutions segment from the date of acquisition. Also during the quarter ended December 24, 2021, we finalized the purchase price allocation of certain fiscal 2021 acquisitions, which included the recognition of $25 million of cash acquired.

4. Inventories

Inventories consisted of the following:

	December 30,		September 30,
	2022		2022
	(in millions)
Raw materials	$	486	$	390
Work in progress		1,283		1,066
Finished goods		1,158		1,220
Inventories	$	2,927	$	2,676

8

TE CONNECTIVITY LTD.

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

5. Goodwill

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

	Transportation		Industrial		Communications
	Solutions		Solutions		Solutions		Total
	(in millions)
September 30, 2022(1)	$	1,439	$	3,118	$	701	$	5,258
Acquisition		—		79		—		79
Currency translation and other		48		104		22		174
December 30, 2022(1)	$	1,487	$	3,301	$	723	$	5,511

(1) At December 30, 2022 and September 30, 2022, 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 30, 2022, we recognized goodwill in the Industrial Solutions segment in connection with a recent acquisition. See Note 3 for additional information regarding acquisitions.

6. Intangible Assets, Net

Intangible assets consisted of the following:

	December 30, 2022						September 30, 2022
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(in millions)
Customer relationships	$	1,781	$	(751)	$	1,030	$	1,642	$	(687)	$	955
Intellectual property		1,218		(902)		316		1,174		(852)		322
Other		17		(6)		11		16		(5)		11
Total	$	3,016	$	(1,659)	$	1,357	$	2,832	$	(1,544)	$	1,288

Intangible asset amortization expense was $46 million and $48 million for the quarters ended December 30, 2022 and December 24, 2021, respectively.

At December 30, 2022, the aggregate amortization expense on intangible assets is expected to be as follows:

	(in millions)
Remainder of fiscal 2023	$	148
Fiscal 2024		167
Fiscal 2025		152
Fiscal 2026		146
Fiscal 2027		127
Fiscal 2028		95
Thereafter		522
Total	$	1,357

9

TE CONNECTIVITY LTD.

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

7. Debt

As of December 30, 2022, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, had $231 million of commercial paper outstanding at a weighted-average interest rate of 4.70%. TEGSA had $370 million of commercial paper outstanding at a weighted-average interest rate of 3.45% at September 30, 2022.

The fair value of our debt, based on indicative valuations, was approximately $4,046 million and $3,990 million at December 30, 2022 and September 30, 2022, respectively.

8. Leases

The components of lease cost were as follows:

	For the
	Quarters Ended
	December 30,		December 24,
	2022		2021
	(in millions)
Operating lease cost	$	34	$	31
Variable lease cost		12		12
Total lease cost	$	46	$	43

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

For the

Quarters Ended

December 30,