Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q10-Q

(Mark One)

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 29,December 27, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001‑33260001-33260

(Commission File Number)


Picture 2Graphic

TE CONNECTIVITY LTD.

(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)

98‑051804898-0518048
(I.R.S. Employer Identification No.)

Rheinstrasse 20

CH‑8200 Schaffhausen, Switzerland

(Address of principal executive offices)

+41 (0)52 

Mühlenstrasse 26, CH-8200Schaffhausen, Switzerland

(Address of principal executive offices)

+41(0)52633 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‑TS-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‑acceleratedNon-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of common shares outstanding as of April 22, 2019January 24, 2020 was 336,866,119.334,142,101.


Table of Contents

TE CONNECTIVITY LTD.

INDEX TO FORM 10-Q

Page

Part I.

Financial Information

Item 1.

Financial Statements

1

Condensed Consolidated Statements of Operations for the Quarters and Six Months Ended March 29,December 27, 2019 and March 30,December 28, 2018 (unaudited)

1

Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended March 29,December 27, 2019 and March 30,December 28, 2018 (unaudited)

2

Condensed Consolidated Balance Sheets as of March 29,December 27, 2019 and September 28, 201827, 2019 (unaudited)

3

Condensed Consolidated Statements of Shareholders’ Equity for the Quarters and Six Months Ended March 29,December 27, 2019 and March 30,December 28, 2018 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Six MonthsQuarters Ended March 29,December 27, 2019 and March 30,December 28, 2018 (unaudited)

6

5

Notes to Condensed Consolidated Financial Statements (unaudited)

7

6

Item 2.

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

29

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

40

Part II.Item 4.

Other InformationControls and Procedures

40

Item 1.Part II.

Legal ProceedingsOther Information

45

Item 1A.1.

Risk FactorsLegal Proceedings

45

41

Item 2.1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

41

Item 6.

Exhibits

46

42

Signatures

47

43

i


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions, except per share data)

 

Net sales

 

$

3,412

 

$

3,562

 

$

6,759

 

$

6,898

 

Cost of sales

 

 

2,294

 

 

2,350

 

 

4,527

 

 

4,522

 

Gross margin

 

 

1,118

 

 

1,212

 

 

2,232

 

 

2,376

 

Selling, general, and administrative expenses

 

 

373

 

 

409

 

 

762

 

 

786

 

Research, development, and engineering expenses

 

 

166

 

 

173

 

 

327

 

 

338

 

Acquisition and integration costs

 

 

 7

 

 

 3

 

 

12

 

 

 5

 

Restructuring and other charges, net

 

 

42

 

 

 6

 

 

117

 

 

40

 

Operating income

 

 

530

 

 

621

 

 

1,014

 

 

1,207

 

Interest income

 

 

 4

 

 

 4

 

 

 9

 

 

 8

 

Interest expense

 

 

(15)

 

 

(28)

 

 

(42)

 

 

(54)

 

Other income, net

 

 

 1

 

 

 1

 

 

 —

 

 

 3

 

Income from continuing operations before income taxes

 

 

520

 

 

598

 

 

 981

 

 

1,164

 

Income tax expense

 

 

(91)

 

 

(108)

 

 

(169)

 

 

(707)

 

Income from continuing operations

 

 

429

 

 

490

 

 

812

 

 

457

 

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

 

 

10

 

 

 —

 

 

(97)

 

 

(7)

 

Net income

 

439

 

490

 

715

 

450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.27

 

$

1.40

 

$

2.39

 

$

1.30

 

Income (loss) from discontinued operations

 

 

0.03

 

 

 —

 

 

(0.29)

 

 

(0.02)

 

Net income

 

 

1.30

 

 

1.40

 

 

2.10

 

 

1.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.26

 

$

1.38

 

$

2.37

 

$

1.29

 

Income (loss) from discontinued operations

 

 

0.03

 

 

 —

 

 

(0.28)

 

 

(0.02)

 

Net income

 

 

1.29

 

 

1.38

 

 

2.09

 

 

1.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

338

 

 

351

 

 

340

 

 

351

 

Diluted

 

 

340

 

 

354

 

 

342

 

 

355

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions, except per share data)

Net sales

$

3,168

$

3,347

Cost of sales

 

2,138

 

2,233

Gross margin

 

1,030

 

1,114

Selling, general, and administrative expenses

 

367

389

Research, development, and engineering expenses

 

161

161

Acquisition and integration costs

 

7

5

Restructuring and other charges, net

 

24

75

Operating income

471

484

Interest income

6

5

Interest expense

 

(12)

(27)

Other income (expense), net

 

5

(1)

Income from continuing operations before income taxes

 

470

 

461

Income tax expense

 

(447)

(78)

Income from continuing operations

 

23

 

383

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

 

3

(107)

Net income

26

276

Basic earnings per share:

Income from continuing operations

$

0.07

$

1.12

Income (loss) from discontinued operations

 

0.01

 

(0.31)

Net income

 

0.08

 

0.81

Diluted earnings per share:

Income from continuing operations

$

0.07

$

1.11

Income (loss) from discontinued operations

 

0.01

 

(0.31)

Net income

 

0.08

 

0.80

Weighted-average number of shares outstanding:

Basic

 

335

342

Diluted

 

337

344

See Notes to Condensed Consolidated Financial Statements.

1


Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Net income

 

$

439

 

$

490

 

$

715

 

$

450

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation

 

 

64

 

 

114

 

 

83

 

 

181

 

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

 

 

 6

 

 

 8

 

 

12

 

 

15

 

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

 

 

27

 

 

(49)

 

 

51

 

 

(47)

 

Other comprehensive income

 

 

97

 

 

73

 

 

146

 

 

149

 

Comprehensive income

 

$

536

 

$

563

 

$

861

 

$

599

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Net income

$

26

$

276

Other comprehensive income:

Currency translation

 

50

19

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

 

8

6

Gains on cash flow hedges, net of income taxes

 

31

24

Other comprehensive income

 

89

 

49

Comprehensive income

$

115

$

325

See Notes to Condensed Consolidated Financial Statements.

2


Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

March 29,

 

September 28,

 

 

    

2019

    

2018

    

 

 

(in millions, except share

 

 

 

data)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

565

 

$

848

 

Accounts receivable, net of allowance for doubtful accounts of $24 and $22, respectively

 

 

2,463

 

 

2,361

 

Inventories

 

 

1,970

 

 

1,857

 

Prepaid expenses and other current assets

 

 

448

 

 

661

 

Assets held for sale

 

 

 —

 

 

472

 

Total current assets

 

 

5,446

 

 

6,199

 

Property, plant, and equipment, net

 

 

3,596

 

 

3,497

 

Goodwill

 

 

5,626

 

 

5,684

 

Intangible assets, net

 

 

1,596

 

 

1,704

 

Deferred income taxes

 

 

2,607

 

 

2,144

 

Other assets

 

 

391

 

 

1,158

 

Total assets

 

$

19,262

 

$

20,386

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Short-term debt

 

$

612

 

$

963

 

Accounts payable

 

 

1,485

 

 

1,548

 

Accrued and other current liabilities

 

 

1,770

 

 

1,711

 

Liabilities held for sale

 

 

 —

 

 

188

 

Total current liabilities

 

 

3,867

 

 

4,410

 

Long-term debt

 

 

3,370

 

 

3,037

 

Long-term pension and postretirement liabilities

 

 

1,081

 

 

1,102

 

Deferred income taxes

 

 

196

 

 

207

 

Income taxes

 

 

333

 

 

312

 

Other liabilities

 

 

421

 

 

487

 

Total liabilities

 

 

9,268

 

 

9,555

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued

 

 

157

 

 

157

 

Accumulated earnings

 

 

11,710

 

 

12,114

 

Treasury shares, at cost, 19,761,517 and 12,279,603 shares, respectively

 

 

(1,713)

 

 

(1,134)

 

Accumulated other comprehensive loss

 

 

(160)

 

 

(306)

 

Total shareholders’ equity

 

 

9,994

 

 

10,831

 

Total liabilities and shareholders’ equity

 

$

19,262

 

$

20,386

 

December 27,

September 27,

    

2019

    

2019

    

(in millions, except share

data)

Assets

Current assets:

Cash and cash equivalents

$

742

$

927

Accounts receivable, net of allowance for doubtful accounts of $29 and $25, respectively

 

2,338

 

2,320

Inventories

 

2,003

 

1,836

Prepaid expenses and other current assets

 

483

 

471

Total current assets

 

5,566

 

5,554

Property, plant, and equipment, net

 

3,659

 

3,574

Goodwill

 

5,846

 

5,740

Intangible assets, net

 

1,602

 

1,596

Deferred income taxes

 

2,360

 

2,776

Other assets

 

943

 

454

Total assets

$

19,976

$

19,694

Liabilities and shareholders’ equity

Current liabilities:

Short-term debt

$

561

$

570

Accounts payable

 

1,433

 

1,357

Accrued and other current liabilities

 

1,410

 

1,613

Total current liabilities

 

3,404

 

3,540

Long-term debt

 

3,412

 

3,395

Long-term pension and postretirement liabilities

 

1,365

 

1,367

Deferred income taxes

 

142

 

156

Income taxes

 

247

 

239

Other liabilities

 

849

 

427

Total liabilities

 

9,419

 

9,124

Commitments and contingencies (Note 10)

Shareholders’ equity:

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

 

154

154

Accumulated earnings

 

12,206

 

12,256

Treasury shares, at cost, 16,520,951 and 15,862,337 shares, respectively

 

(1,389)

 

(1,337)

Accumulated other comprehensive loss

 

(414)

 

(503)

Total shareholders’ equity

 

10,557

 

10,570

Total liabilities and shareholders’ equity

$

19,976

$

19,694

See Notes to Condensed Consolidated Financial Statements.

3


Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

For the Quarter Ended December 27, 2019

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Equity

    

(in millions)

Balance at September 27, 2019

 

351

$

154

 

(16)

$

(1,337)

$

$

12,256

$

(503)

$

10,570

Net income

 

 

 

 

 

 

26

 

 

26

Other comprehensive income

 

 

 

 

 

 

 

89

 

89

Share-based compensation expense

 

 

 

 

 

22

 

 

 

22

Exercise of share options

 

 

 

 

14

 

 

 

 

14

Restricted share award vestings and other activity

 

 

 

1

 

77

 

(22)

 

(76)

 

 

(21)

Repurchase of common shares

 

 

 

(2)

 

(143)

 

 

 

 

(143)

Balance at December 27, 2019

351

$

154

 

(17)

$

(1,389)

$

$

12,206

$

(414)

$

10,557

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended March 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

Common Shares

 

Treasury Shares

 

Contributed

 

Accumulated

 

Comprehensive

 

Shareholders'

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Equity

    

 

 

(in millions)

 

Balance at December 28, 2018

 

357

 

$

157

 

(18)

 

$

(1,550)

 

$

 —

 

$

11,886

 

$

(257)

 

$

10,236

 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

439

 

 

 —

 

 

439

 

Other comprehensive income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

97

 

 

97

 

Share-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

16

 

 

 —

 

 

 —

 

 

16

 

Dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(620)

 

 

 —

 

 

(620)

 

Exercise of share options

 

 —

 

 

 —

 

 —

 

 

10

 

 

 —

 

 

 —

 

 

 —

 

 

10

 

Restricted share award vestings and other activity

 

 —

 

 

 —

 

 1

 

 

16

 

 

(16)

 

 

 5

 

 

 —

 

 

 5

 

Repurchase of common shares

 

 —

 

 

 —

 

(3)

 

 

(189)

 

 

 —

 

 

 —

 

 

 —

 

 

(189)

 

Balance at March 29, 2019

 

357

 

$

157

 

(20)

 

$

(1,713)

 

$

 —

 

$

11,710

 

$

(160)

 

$

9,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended March 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

Common Shares

 

Treasury Shares

 

Contributed

 

Accumulated

 

Comprehensive

 

Shareholders'

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Equity

    

 

 

(in millions)

 

Balance at September 28, 2018

 

357

 

$

157

 

(12)

 

$

(1,134)

 

$

 —

 

$

12,114

 

$

(306)

 

$

10,831

 

Adoption of ASU No. 2016‑16

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(443)

 

 

 —

 

 

(443)

 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

715

 

 

 —

 

 

715

 

Other comprehensive income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

146

 

 

146

 

Share-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

39

 

 

 —

 

 

 —

 

 

39

 

Dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(616)

 

 

 —

 

 

(616)

 

Exercise of share options

 

 —

 

 

 —

 

 —

 

 

17

 

 

 —

 

 

 —

 

 

 —

 

 

17

 

Restricted share award vestings and other activity

 

 —

 

 

 —

 

 1

 

 

88

 

 

(39)

 

 

(60)

 

 

 —

 

 

(11)

 

Repurchase of common shares

 

 —

 

 

 —

 

(9)

 

 

(684)

 

 

 —

 

 

 —

 

 

 —

 

 

(684)

 

Balance at March 29, 2019

 

357

 

$

157

 

(20)

 

$

(1,713)

 

$

 —

 

$

11,710

 

$

(160)

 

$

9,994

 

4


Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED) (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended March 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

Common Shares

 

Treasury Shares

 

Contributed

 

Accumulated

 

Comprehensive

 

Shareholders'

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Equity

    

 

 

(in millions)

 

Balance at December 29, 2017

 

357

 

$

157

 

(6)

 

$

(489)

 

$

 —

 

$

10,047

 

$

(84)

 

$

9,631

 

Adoption of ASU No. 2018‑02

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

38

 

 

(38)

 

 

 —

 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

490

 

 

 —

 

 

490

 

Other comprehensive income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

73

 

 

73

 

Share-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

23

 

 

 —

 

 

 —

 

 

23

 

Dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(617)

 

 

 —

 

 

(617)

 

Exercise of share options

 

 —

 

 

 —

 

 1

 

 

40

 

 

 —

 

 

 —

 

 

 —

 

 

40

 

Restricted share award vestings and other activity

 

 —

 

 

 —

 

 1

 

 

33

 

 

(23)

 

 

(1)

 

 

 —

 

 

 9

 

Repurchase of common shares

 

 —

 

 

 —

 

(2)

 

 

(169)

 

 

 —

 

 

 —

 

 

 —

 

 

(169)

 

Balance at March 30, 2018

 

357

 

$

157

 

(6)

 

$

(585)

 

$

 —

 

$

9,957

 

$

(49)

 

$

9,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended March 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

Common Shares

 

Treasury Shares

 

Contributed

 

Accumulated

 

Comprehensive

 

Shareholders'

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Equity

    

 

 

(in millions)

 

Balance at September 29, 2017

 

357

 

$

157

 

(5)

 

$

(421)

 

$

 —

 

$

10,175

 

$

(160)

 

$

9,751

 

Adoption of ASU No. 2018‑02

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

38

 

 

(38)

 

 

 —

 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

450

 

 

 —

 

 

450

 

Other comprehensive income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

149

 

 

149

 

Share-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

52

 

 

 —

 

 

 —

 

 

52

 

Dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(617)

 

 

 —

 

 

(617)

 

Exercise of share options

 

 —

 

 

 —

 

 2

 

 

94

 

 

 —

 

 

 —

 

 

 —

 

 

94

 

Restricted share award vestings and other activity

 

 —

 

 

 —

 

 1

 

 

125

 

 

(52)

 

 

(89)

 

 

 —

 

 

(16)

 

Repurchase of common shares

 

 —

 

 

 —

 

(4)

 

 

(383)

 

 

 —

 

 

 —

 

 

 —

 

 

(383)

 

Balance at March 30, 2018

 

357

 

$

157

 

(6)

 

$

(585)

 

$

 —

 

$

9,957

 

$

(49)

 

$

9,480

 

For the Quarter Ended December 28, 2018

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Equity

    

(in millions)

Balance at September 28, 2018

 

357

$

157

 

(12)

$

(1,134)

$

$

12,114

$

(306)

$

10,831

Adoption of ASU No. 2016-16

 

 

 

 

 

 

(443)

 

 

(443)

Net income

276

276

Other comprehensive income

 

 

 

 

 

 

 

49

 

49

Share-based compensation expense

 

 

 

 

 

23

 

 

 

23

Exercise of share options

 

 

 

 

7

 

 

 

 

7

Restricted share award vestings and other activity

 

 

 

 

72

 

(23)

 

(61)

 

 

(12)

Repurchase of common shares

 

 

 

(6)

 

(495)

 

 

 

 

(495)

Balance at December 28, 2018

357

$

157

 

(18)

$

(1,550)

$

$

11,886

$

(257)

$

10,236

See Notes to Condensed Consolidated Financial Statements.

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

For the

 

 

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

 

 

(in millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

715

 

$

450

 

Loss from discontinued operations, net of income taxes

 

 

97

 

 

 7

 

Income from continuing operations

 

 

812

 

 

457

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

341

 

 

329

 

Deferred income taxes

 

 

(28)

 

 

497

 

Provision for losses on accounts receivable and inventories

 

 

28

 

 

25

 

Share-based compensation expense

 

 

38

 

 

51

 

Other

 

 

32

 

 

(17)

 

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

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(107)

 

 

(376)

 

Inventories

 

 

(70)

 

 

(227)

 

Prepaid expenses and other current assets

 

 

91

 

 

(105)

 

Accounts payable

 

 

(44)

 

 

184

 

Accrued and other current liabilities

 

 

(206)

 

 

(210)

 

Income taxes

 

 

21

 

 

 2

 

Other

 

 

(25)

 

 

35

 

Net cash provided by continuing operating activities

 

 

883

 

 

645

 

Net cash provided by (used in) discontinued operating activities

 

 

(30)

 

 

82

 

Net cash provided by operating activities

 

 

853

 

 

727

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(401)

 

 

(439)

 

Proceeds from sale of property, plant, and equipment

 

 

13

 

 

 7

 

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

 

 

297

 

 

 —

 

Other

 

 

 8

 

 

(2)

 

Net cash used in continuing investing activities

 

 

(83)

 

 

(434)

 

Net cash used in discontinued investing activities

 

 

(2)

 

 

(8)

 

Net cash used in investing activities

 

 

(85)

 

 

(442)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net increase in commercial paper

 

 

90

 

 

225

 

Proceeds from issuance of debt

 

 

350

 

 

119

 

Repayment of debt

 

 

(441)

 

 

(708)

 

Proceeds from exercise of share options

 

 

17

 

 

94

 

Repurchase of common shares

 

 

(739)

 

 

(381)

 

Payment of common share dividends to shareholders

 

 

(299)

 

 

(281)

 

Transfers (to) from discontinued operations

 

 

(32)

 

 

74

 

Other

 

 

(30)

 

 

(32)

 

Net cash used in continuing financing activities

 

 

(1,084)

 

 

(890)

 

Net cash provided by (used in) discontinued financing activities

 

 

32

 

 

(74)

 

Net cash used in financing activities

 

 

(1,052)

 

 

(964)

 

Effect of currency translation on cash

 

 

 1

 

 

20

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(283)

 

 

(659)

 

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

 

 

848

 

 

1,218

 

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

 

$

565

 

$

559

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Cash flows from operating activities:

Net income

$

26

$

276

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

 

(3)

 

107

Income from continuing operations

 

23

 

383

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

Depreciation and amortization

 

174

 

168

Deferred income taxes

 

394

 

(11)

Non-cash lease cost

27

Provision for losses on accounts receivable and inventories

 

20

 

23

Share-based compensation expense

 

22

 

23

Other

 

10

 

18

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

Accounts receivable, net

 

(24)

 

(26)

Inventories

 

(176)

 

(119)

Prepaid expenses and other current assets

 

(23)

 

67

Accounts payable

 

94

 

(9)

Accrued and other current liabilities

 

(185)

 

(190)

Income taxes

 

10

 

15

Other

 

45

 

(14)

Net cash provided by continuing operating activities

 

411

 

328

Net cash used in discontinued operating activities

 

 

(31)

Net cash provided by operating activities

 

411

 

297

Cash flows from investing activities:

Capital expenditures

 

(176)

 

(210)

Acquisition of businesses, net of cash acquired

 

(115)

 

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

288

Other

 

2

 

4

Net cash provided by (used in) continuing investing activities

(289)

82

Net cash used in discontinued investing activities

(2)

Net cash provided by (used in) investing activities

 

(289)

 

80

Cash flows from financing activities:

Net increase (decrease) in commercial paper

 

(9)

 

63

Proceeds from issuance of debt

 

 

350

Repayment of debt

 

 

(441)

Proceeds from exercise of share options

 

14

 

7

Repurchase of common shares

 

(139)

 

(519)

Payment of common share dividends to shareholders

 

(154)

 

(150)

Transfers to discontinued operations

(33)

Other

 

(26)

 

(29)

Net cash used in continuing financing activities

 

(314)

 

(752)

Net cash provided by discontinued financing activities

 

 

33

Net cash used in financing activities

 

(314)

 

(719)

Effect of currency translation on cash

 

7

 

(1)

Net decrease in cash, cash equivalents, and restricted cash

 

(185)

 

(343)

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

 

927

 

848

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

$

742

$

505

See Notes to Condensed Consolidated Financial Statements.

65


Table of Contents

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Accounting Policies

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 28, 2018.27, 2019.

Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 20192020 and fiscal 20182019 are to our fiscal years ending September 27, 201925, 2020 and ended September 28, 2018,27, 2019, respectively.

Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which introduced a single, comprehensive, five-step revenue recognition model. Our revenues are generated principally from the sale of our products. Revenue is recognized as performance obligations under the terms of a contract, such as a purchase order with a customer, are satisfied; generally this occurs with the transfer of control. We transfer control and recognize revenue when we ship product to our customers, the customers accept and have legal title for the product, and we have a right to payment for such product. Revenue is measured as the amount of consideration that we expect to receive in exchange for those products and excludes taxes assessed by governmental authorities and collected from customers concurrent with the sale of products. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales. Since we typically invoice our customers when we satisfy our performance obligations, we do not have material contract assets or contract liabilities. Our credit terms are customary and do not contain significant financing components that extend beyond one year of fulfillment of performance obligations. We apply the practical expedient of ASC 606 with respect to financing components and do not evaluate contracts in which payment is due within one year of satisfaction of the related performance obligation. Since our performance obligations to deliver products are part of contracts that generally have original durations of one year or less, we have elected to use the optional exemption to not disclose the aggregate amount of transaction prices associated with unsatisfied or partially satisfied performance obligations as of March 29, 2019. See Note 15 for net sales disaggregated by industry end market and geographic region which is summarized by segment and that we consider meaningful to depict the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.

We generally warrant that our products will conform to our, or mutually agreed to, specifications and that our products will be free from material defects in materials and workmanship for a limited time. We limit our warranty to the replacement or repair of defective parts, or a refund or credit of the price of the defective product. We do not account for these warranties as separate performance obligations.

Although products are generally sold at fixed prices, certain distributors and customers receive incentives or awards, such as sales rebates, return allowances, scrap allowances, and other rights, which are accounted for as variable consideration. We estimate these amounts in the same period revenue is recognized based on the expected value to be provided to customers and reduce revenue accordingly. Our estimates of variable consideration and ultimate determination of

7


Table of Contents

TE CONNECTIVITY LTD.

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

the estimated amounts to include in the transaction price are based primarily on our assessment of anticipated performance and historical and forecasted information that is reasonably available to us.

Recently IssuedAdopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 which codified ASCAccounting Standards Codification (“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 and is effective for usleases. We adopted ASC 842, as amended, in the first quarter of fiscal 2020. We are currently in the process of updating policies, internal controls, financial statement disclosures, and systems to incorporate the impact of the new standard in our financial reporting processes. We intend to adopt the standardended 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 expect thatelected 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, will likely have a material impactwe recorded ROU assets and related lease liabilities of approximately $520 million on ourthe Condensed Consolidated Balance Sheet; however, we currently doSheet. Adoption did not expect adoption to have a material impact on our results of operations or cash flows. We believe that we are following an appropriate timeline to allowSee Note 9 for the proper recognition, reporting, and disclosure of leases upon adoption of ASC 842 at the beginning of fiscal 2020.additional information regarding leases.

Recently Adopted Accounting Pronouncements

In August 2017, the FASB issued ASU No. 2017-12, an update to ASC 815, Derivatives and Hedging. The update improves and simplifies hedge accounting and related disclosures. We elected to early adopt this update, which did not have a material impact on our Condensed Consolidated Financial Statements, in the quarter ended December 28, 2018.

In October 2016, the FASB issued ASU No. 2016-16, an update to ASC 740, Income Taxes. This guidance requires the recognition of the income tax consequences of intra-entity transfers of assets other than inventory in the period in which the transfer occurs. The update was adopted on a modified retrospective basis in the quarter ended December 28, 2018 and resulted in a $443 million cumulative-effect adjustment to beginning accumulated earnings, which represented the net reversal of all balances associated with deferred tax impacts of intra-entity transfers of assets other than inventory. This included a decrease in other assets of $798 million, an increase in deferred tax assets of $418 million, and a decrease in prepaid expenses and other current assets of $63 million on the Condensed Consolidated Balance Sheet.

In May 2014, the FASB issued ASU No. 2014-09 which codified ASC 606, Revenue from Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. We adopted ASC 606, as amended, in the quarter ended December 28, 2018 using a modified retrospective approach. Prior period amounts have not been adjusted and continue to be reported under the accounting standards in effect for those periods. Transition impacts, which relate primarily to incentive compensation arrangements, were not material to our results of operations or financial position. Because the impact of adoption was immaterial, we have not recorded a cumulative-effect adjustment to beginning accumulated earnings.

2. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Restructuring charges, net

 

$

42

 

$

10

 

$

117

 

$

44

 

Other charges (credits), net

 

 

 —

 

 

(4)

 

 

 —

 

 

(4)

 

Restructuring and other charges, net

 

$

42

 

$

 6

 

$

117

 

$

40

 

8


Table of Contents

TE CONNECTIVITY LTD.

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

Net restructuring charges by segment were as follows:

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Transportation Solutions

$

4

$

21

Industrial Solutions

 

15

 

35

Communications Solutions

 

5

 

19

Restructuring charges, net

$

24

$

75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Transportation Solutions

 

$

24

 

$

 1

 

$

45

 

$

 5

 

Industrial Solutions

 

 

17

 

 

 8

 

 

52

 

 

30

 

Communications Solutions

 

 

 1

 

 

 1

 

 

20

 

 

 9

 

Restructuring charges, net

 

$

42

 

$

10

 

$

117

 

$

44

 

6

Table of Contents

TE CONNECTIVITY LTD.

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

Activity in our restructuring reserves was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance at

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Balance at

    

 

 

September 28,

 

 

 

 

Changes in

 

Cash

 

Non-Cash

 

Currency

 

March 29,

 

 

 

2018

 

Charges

 

Estimate

 

Payments

 

Items

 

Translation

 

2019

 

 

 

(in millions)

 

Fiscal 2019 Actions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

$

 —

 

$

107

 

$

 —

 

$

(14)

 

$

 —

 

$

 —

 

$

93

 

Fiscal 2018 Actions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

 

114

 

 

 1

 

 

 —

 

 

(32)

 

 

 —

 

 

(3)

 

 

80

 

Facility and other exit costs

 

 

 4

 

 

 2

 

 

 —

 

 

(2)

 

 

 —

 

 

 —

 

 

 4

 

Property, plant, and equipment

 

 

 —

 

 

 2

 

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

 —

 

Total

 

 

118

 

 

 5

 

 

 —

 

 

(34)

 

 

(2)

 

 

(3)

 

 

84

 

Pre-Fiscal 2018 Actions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

 

49

 

 

 7

 

 

(4)

 

 

(14)

 

 

 —

 

 

(2)

 

 

36

 

Facility and other exit costs

 

 

 —

 

 

 1

 

 

 —

 

 

(2)

 

 

 —

 

 

 1

 

 

 —

 

Property, plant, and equipment

 

 

 —

 

 

 1

 

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

 

 —

 

Total

 

 

49

 

 

 9

 

 

(4)

 

 

(16)

 

 

(1)

 

 

(1)

 

 

36

 

Total Activity

 

$

167

 

$

121

 

$

(4)

 

$

(64)

 

$

(3)

 

$

(4)

 

$

213

 

Balance at

Currency

Balance at

  

September 27,

Changes in

Cash

Non-Cash

Translation

December 27,

    

2019

    

Charges

    

Estimate

    

Payments

    

Items

    

and Other

    

2019

    

(in millions)

Fiscal 2020 Actions:

Employee severance

$

$

15

$

$

(1)

$

$

$

14

Fiscal 2019 Actions:

Employee severance

188

5

(3)

(23)

(1)

3

169

Facility and other exit costs

1

1

(2)

2

2

Property, plant, and equipment

4

(4)

Total

189

10

(3)

(25)

(5)

5

171

Pre-Fiscal 2019 Actions:

Employee severance

73

1

(3)

(18)

1

54

Facility and other exit costs

2

4

(5)

1

Total

75

5

(3)

(23)

1

55

Total Activity

$

264

$

30

$

(6)

$

(49)

$

(5)

$

6

$

240

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 quarter ended December 27, 2019, we recorded restructuring charges of $15 million. We expect to complete all restructuring actions commenced during the quarter ended December 27, 2019 by the end of fiscal 2021 and to incur additional charges of approximately $5 million.

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 monthsquarters ended March 29,December 27, 2019 and December 28, 2018, we recorded net restructuring charges of $107 million.$7 million and $67 million, respectively. We expect to complete all restructuring actions commenced during the six months ended March 29,fiscal 2019 by the end of fiscal 2021 and to incur additional charges of approximately $20$25 million related primarily to employee severance and facility exit costs in the Transportation Solutions and Industrial Solutions segments.

Fiscal 2018Pre-Fiscal 2019 Actions

DuringPrior to fiscal 2018,2019, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments. In connection with this program, during the six months ended March 29, 2019 and March 30, 2018, we recorded restructuring charges of $5 million and $35 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2018 by the end of fiscal 2020 and to incur additional charges of approximately $10 million primarily in the Industrial Solutions segment.

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(Continued)

Pre-Fiscal 2018 Actions

PriorAlso prior to fiscal 2018,2019, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. Also prior to fiscal 2018, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. During the six monthsquarters ended March 29,December 27, 2019 and March 30,December 28, 2018, we recorded net restructuring charges of $5$2 million and $9$8 million, respectively, related to pre-fiscal 20182019 actions. We expect additional charges related to pre-fiscal 20182019 actions to be insignificant.

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(Continued)

Total Restructuring Reserves

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

 

 

 

 

 

 

 

 

 

 

March 29,

 

September 28,

 

 

    

2019

    

2018

    

 

 

(in millions)

 

Accrued and other current liabilities

 

$

193

 

$

141

 

Other liabilities

 

 

20

 

 

26

 

Restructuring reserves

 

$

213

 

$

167

 

December 27,

September 27,

    

2019

    

2019

(in millions)

Accrued and other current liabilities

$

215

$

245

Other liabilities

 

25

 

19

Restructuring reserves

$

240

$

264

3. Discontinued Operations

During the six monthsquarter ended March 29, 2019,December 28, 2018, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $297$288 million and incurred a pre-tax loss on sale of $86$96 million, related primarily to the recognition of cumulative translation adjustment losses of $67 million and thecertain guarantee liabilities discussed below.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 $1.7$1.2 billion as of March 29,December 27, 2019 and are expected to expire at various dates through fiscal 2025; however, the majority are expected to expire within two years. At the time of sale, we determined that the fair value of these guarantees was $12 million, which we recognized by a charge to pre-tax loss on sale.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. During the six months ended March 29,As of December 27, 2019, we issued a guarantee of $70 million for athere were 0 such new project.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.

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(Continued)

The following table presents the summarized components of income (loss)loss from discontinued operations, net of income taxes for the SubComquarter ended December 28, 2018:

(in millions)

Net sales

$

41

Cost of sales

 

(50)

Operating expenses

(10)

Pre-tax loss from discontinued operations

 

(19)

Pre-tax loss on sale of discontinued operations

 

(96)

Income tax benefit

 

8

Loss from discontinued operations, net of income taxes

$

(107)

4. Acquisitions

During the quarter ended December 27, 2019, we acquired 2 businesses for a combined cash purchase price of $112 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

Pending Acquisition

During fiscal 2019, we entered into a business combination agreement and prior divestitures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Net sales

 

$

 —

 

$

183

 

$

41

 

$

326

 

Cost of sales

 

 

 —

 

 

(151)

 

 

(50)

 

 

(283)

 

Selling, general, and administrative expenses

 

 

(1)

 

 

(16)

 

 

(5)

 

 

(23)

 

Research, development, and engineering expenses

 

 

 —

 

 

(10)

 

 

(3)

 

 

(20)

 

Restructuring and other charges, net

 

 

 —

 

 

(4)

 

 

(3)

 

 

(4)

 

Pre-tax income (loss) from discontinued operations

 

 

(1)

 

 

 2

 

 

(20)

 

 

(4)

 

Pre-tax gain (loss) on sale of discontinued operations

 

 

10

 

 

(1)

 

 

(86)

 

 

(1)

 

Income tax (expense) benefit

 

 

 1

 

 

(1)

 

 

 9

 

 

(2)

 

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

 

$

10

 

$

 —

 

$

(97)

 

$

(7)

 

The following table presents balance sheet informationcommenced a voluntary public tender offer for assets and liabilities held for sale at September 28, 2018; there were no such balances at March 29, 2019:

 

 

 

 

 

 

 

September 28,

 

 

    

2018

    

 

 

(in millions)

 

Accounts receivable, net

 

$

72

 

Inventories

 

 

130

 

Other current assets

 

 

32

 

Property, plant, and equipment, net

 

 

221

 

Other assets

 

 

17

 

Total assets held for sale

 

$

472

 

 

 

 

 

 

Accounts payable

 

$

63

 

Accrued and other current liabilities

 

 

26

 

Deferred revenue

 

 

60

 

Other liabilities

 

 

39

 

Total liabilities held for sale

 

$

188

 

4. Inventories

Inventories consistedall outstanding shares of the following:

 

 

 

 

 

 

 

 

 

 

March 29,

 

September 28,

 

 

    

2019

    

2018

    

 

 

(in millions)

 

Raw materials

 

$

282

 

$

276

 

Work in progress

 

 

777

 

 

656

 

Finished goods

 

 

911

 

 

925

 

Inventories

 

$

1,970

 

$

1,857

 

First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany. The

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(Continued)

offer was accepted for approximately 72% of First Sensor’s shares. The transaction, including the assumption of First Sensor’s outstanding net debt, is valued at approximately €330 million, based on the tendered shares and an estimated premium for untendered shares. Completion of the offer will be subject to customary closing conditions, including receipt of any outstanding regulatory approvals. We expect to complete the transaction in fiscal 2020.

5. Inventories

Inventories consisted of the following:

December 27,

September 27,

    

2019

    

2019

    

(in millions)

Raw materials

$

282

$

260

Work in progress

 

817

 

739

Finished goods

 

904

 

837

Inventories

$

2,003

$

1,836

6. Goodwill

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

    

Transportation

    

Industrial

    

Communications

    

    

Solutions

Solutions

Solutions

Total

(in millions)

September 27, 2019(1)

$

2,124

$

3,039

$

577

$

5,740

Acquisitions

50

9

59

Currency translation

 

19

 

24

 

4

 

47

December 27, 2019(1)

$

2,193

$

3,072

$

581

$

5,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Transportation

    

Industrial

    

Communications

    

 

 

    

 

 

Solutions

 

Solutions

 

Solutions

 

Total

 

 

 

(in millions)

 

September 28, 2018(1)

 

$

1,993

 

$

3,104

 

$

587

 

$

5,684

 

Currency translation and other

 

 

(14)

 

 

(39)

 

 

(5)

 

 

(58)

 

March 29, 2019(1)

 

$

1,979

 

$

3,065

 

$

582

 

$

5,626

 


(1)  At March 29,
(1)At December 27, 2019 and September 27, 2019, and September 28, 2018, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and $489 million, respectively.

During the quarter ended December 27, 2019, we recognized goodwill in the Transportation Solutions and Industrial Solutions and Communications Solutions segments were $2,191 million, $669 million, and $489 million, respectively.  in connection with recent acquisitions. See Note 4 for additional information regarding acquisitions.

6.7. Intangible Assets, Net

Intangible assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 29, 2019

 

September 28, 2018

 

 

    

Gross

    

 

 

    

Net

    

Gross

    

 

 

    

Net

    

 

 

Carrying

 

Accumulated

 

Carrying

 

Carrying

 

Accumulated

 

Carrying

 

 

 

Amount

 

Amortization

 

Amount

 

Amount

 

Amortization

 

Amount

 

 

 

(in millions)

 

Customer relationships

 

$

1,451

 

$

(433)

 

$

1,018

 

$

1,468

 

$

(389)

 

$

1,079

 

Intellectual property

 

 

1,255

 

 

(694)

 

 

561

 

 

1,261

 

 

(653)

 

 

608

 

Other

 

 

34

 

 

(17)

 

 

17

 

 

33

 

 

(16)

 

 

17

 

Total

 

$

2,740

 

$

(1,144)

 

$

1,596

 

$

2,762

 

$

(1,058)

 

$

1,704

 

December 27, 2019

September 27, 2019

    

Gross

    

    

Net

    

Gross

    

    

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

    

(in millions)

Customer relationships

$

1,561

$

(486)

$

1,075

$

1,513

$

(459)

$

1,054

Intellectual property

1,269

(758)

511

1,260

(734)

526

Other

 

33

 

(17)

 

16

 

33

 

(17)

 

16

Total

$

2,863

$

(1,261)

$

1,602

$

2,806

$

(1,210)

$

1,596

Intangible asset amortization expense was $45 million for both the quarters ended March 29,December 27, 2019 and March 30, 2018 and $90 million for the six months ended March 29, 2019 and March 30,December 28, 2018.

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(Continued)

At March 29,December 27, 2019, the aggregate amortization expense on intangible assets is expected to be as follows:

 

 

 

 

    

(in millions)

    

Remainder of fiscal 2019

 

$

90

 

Fiscal 2020

 

 

174

 

    

(in millions)

  

Remainder of fiscal 2020

$

137

Fiscal 2021

 

 

171

 

180

Fiscal 2022

 

 

171

 

 

180

Fiscal 2023

 

 

170

 

 

179

Fiscal 2024

 

 

140

 

 

149

Fiscal 2025

 

129

Thereafter

 

 

680

 

 

648

Total

 

$

1,596

 

$

1,602

8. Debt

7. Debt

During the six months ended March 29,As of December 27, 2019, Tyco Electronics Group S.A. (“TEGSA”TEGSA’), our 100%-owned subsidiary, issued $350 million aggregate principal amount of senior floating rate notes due June 2020. The notes bear interest at a rate of three-month London Interbank Offered Rate (“LIBOR”) plus 0.45% per year. 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.

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

During the six months ended March 29, 2019, TEGSA repaid, at maturity, $325 million 2.375% senior notes due 2018.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with total commitments of $1,500 million. The Credit Facility was amended in November 2018 primarily to extend the maturity date from December 2020 to November 2023. The amended Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies. TEGSA had no borrowings under the Credit Facility at March 29, 2019 or September 28, 2018.

As of March 29, 2019, TEGSA had $360$210 million of commercial paper outstanding at a weighted-average interest rate of 2.63%1.85%. TEGSA had $270$219 million of commercial paper outstanding at a weighted-average interest rate of 2.35%2.20% at September 28, 2018.27, 2019.

The fair value of our debt, based on indicative valuations, was approximately $4,172$4,292 million and $4,149$4,278 million at March 29,December 27, 2019 and September 28, 2018,27, 2019, respectively.

8.9. Leases

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. 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.

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(Continued)

The components of lease cost were as follows:

For the

Quarter Ended

December 27,

2019

    

(in millions)

    

Operating lease cost

$

27

Variable lease cost

11

Total lease cost

$

38

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

December 27,

2019

    

($ in millions)

Operating lease ROU assets:

Other assets

$

506

Operating lease liabilities:

Accrued and other current liabilities

$

122

Other liabilities

397

Total operating lease liabilities

$

519

Weighted-average remaining lease term (in years)

6.1

Weighted-average discount rate

1.3

%

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

For the

Quarter Ended

December 27,

2019

    

(in millions)

    

Cash paid for amounts included in the measurement of lease liabilities:

Payments for operating leases(1)

$

26

ROU assets obtained in exchange for new operating lease liabilities(2)

525

(1)These payments are included in cash flows from continuing operating activities, primarily in changes in other liabilities.
(2)Includes ROU assets obtained in connection with the adoption of ASC 842.

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

At December 27, 2019, the maturities of operating lease liabilities were as follows:

    

(in millions)

    

Remainder of fiscal 2020

$

91

Fiscal 2021

 

105

Fiscal 2022

85

Fiscal 2023

72

Fiscal 2024

60

Thereafter

126

Total lease payments

539

Less: interest

(20)

Present value of lease liabilities

$

519

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)

  

Fiscal 2020

$

117

Fiscal 2021

 

102

Fiscal 2022

 

81

Fiscal 2023

 

67

Fiscal 2024

 

55

Thereafter

 

118

Total

$

540

10. Commitments and Contingencies

Legal Proceedings

In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non‑incomenon-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. 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.

Environmental Matters

We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. 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 29,December 27, 2019, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $14 million to $44$45 million, and we accrued $17$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.

Guarantees

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

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(Continued)

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 March 29,December 27, 2019, we had outstanding letters of credit, letters of guarantee, and surety bonds of $307$279 million.

We sold our SubCom business during the six months ended March 29,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.

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(Continued)

9.11. Financial Instruments

Foreign Currency Exchange Rate Risk

During fiscal 2015, we entered into cross-currency swap contracts with an aggregate notional value of €1,000 million to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans. 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 5.33% per annum. Upon the maturity of these contracts in fiscal 2022, we will pay the notional value of the contracts in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, both counterparties to each contract are required to postprovide cash collateral.

At March 29,December 27, 2019 and September 28, 2018, our27, 2019, these cross-currency swap contracts were in liability positions of $30 million and $100 million, respectively, and were recorded in other liabilities on the Condensed Consolidated Balance Sheets. Sheets as follows:

December 27,

September 27,

    

2019

    

2019

    

(in millions)

Other assets

$

6

$

19

Other liabilities

 

5

 

At March 29,December 27, 2019 and September 28, 2018,27, 2019, collateral received from or paid to our counterparties approximated the net derivative positions and wasposition. 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. The impacts of ourthese cross-currency swap contracts were as follows:

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Gains recorded in other comprehensive income (loss)

$

4

$

19

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

 

(22)

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

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

 

$

13

 

$

(22)

 

$

32

    

$

(32)

 

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

 

 

21

 

 

(31)

 

 

38

 

 

(50)

 


(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. dollar.

Hedge of Net Investment

During fiscal 2019, we expanded our cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the fiscal 2019 contracts was $1,901 million at March 29, 2019. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 3.00% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2023, we will pay the notional value of the contracts in the designated foreign currencies and receive U.S. dollars from our counterparties.

In addition to the cross-currency swap program, weWe 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 $3,415$3,296 million and $4,064$3,374 million at March 29,December 27, 2019 and September 28, 2018,27, 2019, respectively.

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

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 $2,283 million and $1,844 million at December 27, 2019 and September 27, 2019, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.76% per annum and pay 0 interest. Upon the maturity of these contracts at various dates through fiscal 2023, we will pay the notional value of the contracts in the designated foreign currency and receive U.S. dollars from our counterparties. We are not required to provide collateral for these contracts.

At December 27, 2019 and September 27, 2019, these cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 27,

September 27,

    

2019

    

2019

    

(in millions)

Prepaid expenses and other current assets

$

16

$

27

Other assets

 

26

 

46

Accrued and other current liabilities

7

2

Other liabilities

1

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

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

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

$

(65)

$

76

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

 

(33)

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

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

 

$

36

 

$

(79)

 

$

112

 

$

(145)

 

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

 

 

42

 

 

 —

 

 

37

 

 

 —

 

(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.

(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.

10.12. Retirement Plans

The net periodic pension benefit cost (credit) for all non‑U.S.non-U.S. and U.S. defined benefit pension plans was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-U.S. Plans

 

U.S. Plans

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Quarters Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Service cost

 

$

12

 

$

11

 

$

 3

 

$

 4

 

Interest cost

 

 

10

 

 

11

 

 

11

 

 

11

 

Expected return on plan assets

 

 

(16)

 

 

(17)

 

 

(15)

 

 

(15)

 

Amortization of net actuarial loss

 

 

 6

 

 

 5

 

 

 5

 

 

 5

 

Amortization of prior service credit

 

 

(2)

 

 

(1)

 

 

 —

 

 

 —

 

Net periodic pension benefit cost

 

$

10

 

$

 9

 

$

 4

 

$

 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-U.S. Plans

 

U.S. Plans

 

 

For the

 

For the

 

 

Six Months Ended

 

Six Months Ended

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

    

2019

    

2018

    

2019

    

2018

    

 

(in millions)

 

Non-U.S. Plans

U.S. Plans

For the

For the

Quarters Ended

Quarters Ended

December 27,

December 28,

December 27,

December 28,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Operating expense:

Service cost

 

$

24

 

$

23

 

$

 6

 

$

 7

 

$

13

$

12

$

3

$

3

Other (income) expense:

Interest cost

 

 

21

 

 

21

 

 

23

 

 

22

 

 

6

 

11

 

9

 

12

Expected return on plan assets

 

 

(32)

 

 

(34)

 

 

(29)

 

 

(30)

 

 

(15)

 

(16)

 

(15)

 

(14)

Amortization of net actuarial loss

 

 

12

 

 

11

 

 

 9

 

 

11

 

 

10

 

6

 

2

 

4

Amortization of prior service credit

 

 

(4)

 

 

(3)

 

 

 —

 

 

 —

 

 

(2)

 

(2)

 

 

Net periodic pension benefit cost

 

$

21

 

$

18

 

$

 9

 

$

10

 

Net periodic pension benefit cost (credit)

$

12

$

11

$

(1)

$

5

The components of net periodic pension benefit cost other than service cost are included in net other income on the Condensed Consolidated Statements of Operations.

During the six months ended March 29, 2019, we contributed $19 million to our non-U.S. pension plans.

1514


Table of Contents

TE CONNECTIVITY LTD.

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

11.13. Income Taxes

We recorded income tax expense of $91$447 million and $108$78 million for the quarters ended March 29,December 27, 2019 and March 30,December 28, 2018, respectively. 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. The income tax expense for the quarter ended March 30, 2018 included a $17 million income tax benefit resulting from lapses of statutes of limitations in certain non-U.S. jurisdictions.

We recorded income tax expense of $169 million and $707 million for the six months ended March 29, 2019 and March 30, 2018, respectively. The income tax expense for the six months ended March 29,December 27, 2019 included $15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions. The income tax expense for the six months ended March 30, 2018 included $567$355 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act (the “Act”) and a $61 million net income tax benefit related to certain legal entity restructurings. During the quarter ended December 29, 2017, the period of enactmentmeasures of the Switzerland Federal Act we were required to revalue our U.S. federal deferred tax assetson Tax Reform and liabilities at a U.S. federal corporate income tax rate of 21% and we recorded income tax expense of $567 million primarily in connection with the write-down of our U.S. federal deferred tax assetAHV Financing (“Swiss Tax Reform”). See “Swiss Tax Reform” below for net operating loss and interest carryforwards. Included in the expense of $567 million was an income tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards.additional information.

Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $130$100 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 29,December 27, 2019.

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.

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

Tax Sharing Agreement

Under a Tax Sharing Agreement we,entered into upon our separation from Tyco International plc (“Tyco International”), in fiscal 2007, we, Tyco International, and Covidien plc (“Covidien”) share 31%, 27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to the collective income tax returns for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications with Tyco International and Covidien. As a result of subsequent transactions, Tyco International and Covidien now operate as part of Johnson Controls International plc and Medtronic plc, respectively.

We have substantially settled all U.S. federal income tax matters with the Internal Revenue Service for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We expect resolution of these matters and the termination of the Tax Sharing Agreement in fiscal 2020. We do not expect these matters willor the termination of the TSA to have a material effect on our results of operations, financial position, or cash flows.

16


Table of Contents

TE CONNECTIVITY LTD.

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

12.14. Earnings Per Share

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

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Basic

 

335

342

Dilutive impact of share-based compensation arrangements

 

2

2

Diluted

 

337

 

344

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Basic

 

338

 

351

 

340

 

351

 

Dilutive impact of share-based compensation arrangements

 

 2

 

 3

 

 2

 

 4

 

Diluted

 

340

 

354

 

342

 

355

 

15

Table of Contents

TE CONNECTIVITY LTD.

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

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:

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Antidilutive share options

 

 1

 

 —

 

 1

 

 1

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Antidilutive share options

 

3

1

13.

15. Shareholders’ Equity

Common Shares Held in Treasury

In March 2019, our shareholders approved the cancellation of 6 million shares purchased under our share repurchase program during the period beginning September 30, 2017 and ending September 28, 2018. 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.

Dividends

We paid cash dividends to shareholders as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

    

March 29,

    

March 30,

    

March 29,

    

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

Dividends paid per common share

 

$

0.44

 

$

0.40

 

$

0.88

 

$

0.80

 

In March 2019, our shareholders approved a dividend payment to shareholders of $1.84 per share, payable in four equal quarterly installments of $0.46 per share beginning in the third quarter of fiscal 2019 and ending in the second quarter of fiscal 2020.

For the

Quarters Ended

    

December 27,

    

December 28,

    

2019

    

2018

Dividends paid per common share

$

0.46

$

0.44

17


Table of Contents

TE CONNECTIVITY LTD.

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

Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity. At March 29,December 27, 2019 and September 28, 2018,27, 2019, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $620$154 million and $303$308 million, respectively.

Share Repurchase Program

During the six months ended March 29, 2019, our board of directors authorized an increase of $1.5 billion in the share repurchase program. Common shares repurchased under the share repurchase program were as follows:

 

 

 

 

 

 

 

 

 

 

For the

 

 

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

 

 

(in millions)

 

Number of common shares repurchased

 

 

 9

 

 

 4

 

Repurchase value

 

$

684

 

$

383

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Number of common shares repurchased

 

2

 

6

Repurchase value

 

$

143

 

$

495

At March 29,December 27, 2019, we had $1.8$1.4 billion of availability remaining under our share repurchase authorization.

14.

16. Share Plans

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

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Share-based compensation expense

 

$

22

 

$

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Share-based compensation expense

 

$

15

 

$

23

 

$

38

 

$

51

 

16

Table of Contents

TE CONNECTIVITY LTD.

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

As of March 29,December 27, 2019, there was $150$176 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 2.12.4 years.

During the quarter ended December 28, 2018,27, 2019, we granted the following share-based awards as part of our annual incentive plan grant:

 

 

 

 

 

 

 

 

 

 

 

Grant-Date

 

 

    

Shares

    

Fair Value

    

 

 

(in millions)

 

 

 

 

Share options

 

1.6

 

$

13.36

 

Restricted share awards

 

0.6

 

 

76.66

 

Performance share awards

 

0.2

 

 

76.66

 

Grant-Date

    

Shares

    

Fair Value

    

(in millions)

Share options

1.5

$

15.52

Restricted share awards

0.5

 

93.63

Performance share awards

0.2

93.63

As of March 29,December 27, 2019, we had 1815 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.

18


Table of Contents

TE CONNECTIVITY LTD.

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

Share‑BasedShare-Based Compensation Assumptions

The assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:

 

 

 

 

 

 

 

    

 

 

 

    

Expected share price volatility

 

 

20

%  

 

Risk-free interest rate

 

 

3.0

%  

 

Expected annual dividend per share

 

$

1.76

 

 

Expected life of options (in years)

 

 

5.2

 

 

Expected share price volatility

 

21

%  

Risk-free interest rate

 

1.8

%  

Expected annual dividend per share

$

1.84

Expected life of options (in years)

 

5.1

17

Table of Contents

15.TE CONNECTIVITY LTD.

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

17. Segment and Geographic Data

Net sales by segment(1) and industry end market(2) were as follows:

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Transportation Solutions:

Automotive

$

1,405

$

1,469

Commercial transportation

 

258

 

297

Sensors

 

205

 

220

Total Transportation Solutions

1,868

1,986

Industrial Solutions:

Aerospace, defense, oil, and gas

 

309

 

285

Industrial equipment

263

315

Medical(3)

179

168

Energy

 

176

 

160

Total Industrial Solutions

927

928

Communications Solutions:

Data and devices

219

257

Appliances

 

154

 

176

Total Communications Solutions

373

433

Total

$

3,168

$

3,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Transportation Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Automotive

 

$

1,425

 

$

1,571

 

$

2,894

 

$

3,088

 

Commercial transportation

 

 

324

 

 

333

 

 

621

 

 

633

 

Sensors

 

 

222

 

 

230

 

 

442

 

 

445

 

Total Transportation Solutions

 

 

1,971

 

 

2,134

 

 

3,957

 

 

4,166

 

Industrial Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial equipment

 

 

502

 

 

496

 

 

985

 

 

967

 

Aerospace, defense, oil, and gas

 

 

331

 

 

298

 

 

616

 

 

552

 

Energy

 

 

174

 

 

178

 

 

334

 

 

335

 

Total Industrial Solutions

 

 

1,007

 

 

972

 

 

1,935

 

 

1,854

 

Communications Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Data and devices

 

 

251

 

 

258

 

 

508

 

 

496

 

Appliances

 

 

183

 

 

198

 

 

359

 

 

382

 

Total Communications Solutions

 

 

434

 

 

456

 

 

867

 

 

878

 

Total

 

$

3,412

 

$

3,562

 

$

6,759

 

$

6,898

 


(1)

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

(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.

1918


Table of Contents

TE CONNECTIVITY LTD.

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

Net sales by geographic region(1) and segment were as follows:

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Europe/Middle East/Africa (“EMEA”):

Transportation Solutions

$

702

$

756

Industrial Solutions

 

340

 

350

Communications Solutions

 

55

 

65

Total EMEA

 

1,097

 

1,171

Asia–Pacific:

Transportation Solutions

 

742

 

764

Industrial Solutions

 

145

 

155

Communications Solutions

226

254

Total Asia–Pacific

 

1,113

 

1,173

Americas:

Transportation Solutions

424

466

Industrial Solutions

 

442

 

423

Communications Solutions

92

114

Total Americas

 

958

 

1,003

Total

$

3,168

$

3,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Europe/Middle East/Africa (“EMEA”):

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation Solutions

 

$

824

 

$

934

 

$

1,580

 

$

1,742

 

Industrial Solutions

 

 

382

 

 

410

 

 

732

 

 

754

 

Communications Solutions

 

 

70

 

 

81

 

 

135

 

 

147

 

Total EMEA

 

 

1,276

 

 

1,425

 

 

2,447

 

 

2,643

 

Asia–Pacific:

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation Solutions

 

 

674

 

 

756

 

 

1,438

 

 

1,561

 

Industrial Solutions

 

 

155

 

 

164

 

 

310

 

 

327

 

Communications Solutions

 

 

241

 

 

262

 

 

495

 

 

514

 

Total Asia–Pacific

 

 

1,070

 

 

1,182

 

 

2,243

 

 

2,402

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation Solutions

 

 

473

 

 

444

 

 

939

 

 

863

 

Industrial Solutions

 

 

470

 

 

398

 

 

893

 

 

773

 

Communications Solutions

 

 

123

 

 

113

 

 

237

 

 

217

 

Total Americas

 

 

1,066

 

 

955

 

 

2,069

 

 

1,853

 

Total

 

$

3,412

 

$

3,562

 

$

6,759

 

$

6,898

 


(1)

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

Operating income by segment was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Transportation Solutions

 

$

316

 

$

427

 

$

648

 

$

844

 

Industrial Solutions

 

 

137

 

 

125

 

 

237

 

 

227

 

Communications Solutions

 

 

77

 

 

69

 

 

129

 

 

136

 

Total

 

$

530

 

$

621

 

$

1,014

 

$

1,207

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Transportation Solutions

$

316

$

332

Industrial Solutions

115

100

Communications Solutions

40

52

Total

$

471

$

484

2019


Table of Contents

TE CONNECTIVITY LTD.

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

16.18. Tyco Electronics Group S.A.

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 Credit Facility,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 29,December 27, 2019

TE

 

Connectivity

Other

Consolidating

 

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

    

(in millions)

 

Net sales

$

$

$

3,168

$

$

3,168

Cost of sales

 

 

 

2,138

 

 

2,138

Gross margin

 

 

 

1,030

 

 

1,030

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

 

26

 

16

 

325

 

 

367

Research, development, and engineering expenses

 

 

 

161

 

 

161

Acquisition and integration costs

 

1

 

 

6

 

 

7

Restructuring and other charges, net

 

 

 

24

 

 

24

Operating income (loss)

 

(27)

 

(16)

 

514

 

 

471

Interest income

 

 

 

6

 

 

6

Interest expense

 

 

(10)

 

(2)

 

 

(12)

Other income, net

 

 

 

5

 

 

5

Equity in net income of subsidiaries

 

74

 

101

 

 

(175)

 

Equity in net income of subsidiaries of discontinued operations

 

3

 

 

 

(3)

 

Intercompany interest income (expense), net

 

(24)

 

(1)

 

25

 

 

Income from continuing operations before income taxes

 

26

 

74

 

548

 

(178)

 

470

Income tax expense

 

 

 

(447)

 

 

(447)

Income from continuing operations

 

26

 

74

 

101

 

(178)

 

23

Income from discontinued operations, net of income taxes

 

 

3

 

 

 

3

Net income

 

26

 

77

 

101

 

(178)

 

26

Other comprehensive income

 

89

 

89

 

108

 

(197)

 

89

Comprehensive income

$

115

$

166

$

209

$

(375)

$

115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

    

 

 

(in millions)

 

Net sales

 

$

 —

 

$

 —

 

$

3,412

 

$

 —

 

$

3,412

 

Cost of sales

 

 

 —

 

 

 —

 

 

2,294

 

 

 —

 

 

2,294

 

Gross margin

 

 

 —

 

 

 —

 

 

1,118

 

 

 —

 

 

1,118

 

Selling, general, and administrative expenses, net

 

 

28

 

 

 9

 

 

336

 

 

 —

 

 

373

 

Research, development, and engineering expenses

 

 

 —

 

 

 —

 

 

166

 

 

 —

 

 

166

 

Acquisition and integration costs

 

 

 —

 

 

 —

 

 

 7

 

 

 —

 

 

 7

 

Restructuring and other charges, net

 

 

 —

 

 

 —

 

 

42

 

 

 —

 

 

42

 

Operating income (loss)

 

 

(28)

 

 

(9)

 

 

567

 

 

 —

 

 

530

 

Interest income

 

 

 —

 

 

 1

 

 

 3

 

 

 —

 

 

 4

 

Interest expense

 

 

 —

 

 

(14)

 

 

(1)

 

 

 —

 

 

(15)

 

Other income, net

 

 

 —

 

 

 1

 

 

 —

 

 

 —

 

 

 1

 

Equity in net income of subsidiaries

 

 

489

 

 

560

 

 

 —

 

 

(1,049)

 

 

 —

 

Equity in net income of subsidiaries of discontinued operations

 

 

10

 

 

 3

 

 

 —

 

 

(13)

 

 

 —

 

Intercompany interest income (expense), net

 

 

(32)

 

 

(50)

 

 

82

 

 

 —

 

 

 —

 

Income from continuing operations before income taxes

 

 

439

 

 

492

 

 

651

 

 

(1,062)

 

 

520

 

Income tax expense

 

 

 —

 

 

 —

 

 

(91)

 

 

 —

 

 

(91)

 

Income from continuing operations

 

 

439

 

 

492

 

 

560

 

 

(1,062)

 

 

429

 

Income from discontinued operations, net of income taxes

 

 

 —

 

 

 7

 

 

 3

 

 

 —

 

 

10

 

Net income

 

 

439

 

 

499

 

 

563

 

 

(1,062)

 

 

439

 

Other comprehensive income

 

 

97

 

 

97

 

 

47

 

 

(144)

 

 

97

 

Comprehensive income

 

$

536

 

$

596

 

$

610

 

$

(1,206)

 

$

536

 

(1)

TE Connectivity Ltd. and TEGSA selling, general, and administrative expenses include gains of $14 million and losses of $13 million, respectively, related to intercompany transactions. These gains and losses are offset by corresponding net losses recorded by other subsidiaries.

2120


Table of Contents

TE CONNECTIVITY LTD.

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

Condensed Consolidating Statement of Operations (unaudited)

For the Quarter Ended March 30,December 28, 2018

TE

 

Connectivity

Other

Consolidating

 

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

    

(in millions)

 

Net sales

$

$

$

3,347

$

$

3,347

Cost of sales

 

 

 

2,233

 

 

2,233

Gross margin

 

 

 

1,114

 

 

1,114

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

 

35

 

(107)

 

461

 

 

389

Research, development, and engineering expenses

 

 

 

161

 

 

161

Acquisition and integration costs

 

 

 

5

 

 

5

Restructuring and other charges, net

 

 

 

75

 

 

75

Operating income (loss)

 

(35)

 

107

 

412

 

 

484

Interest income

 

 

 

5

 

 

5

Interest expense

 

 

(27)

 

 

 

(27)

Other expense, net

 

 

 

(1)

 

 

(1)

Equity in net income of subsidiaries

 

441

389

(830)

Equity in net loss of subsidiaries of discontinued operations

 

(107)

 

(49)

 

 

156

 

Intercompany interest income (expense), net

 

(23)

(28)

51

Income from continuing operations before income taxes

 

276

 

392

 

467

 

(674)

 

461

Income tax expense

 

 

 

(78)

 

 

(78)

Income from continuing operations

 

276

 

392

 

389

 

(674)

 

383

Loss from discontinued operations, net of income taxes

 

 

(58)

 

(49)

 

 

(107)

Net income

 

276

 

334

 

340

 

(674)

 

276

Other comprehensive income

 

49

 

49

 

35

 

(84)

 

49

Comprehensive income

$

325

$

383

$

375

$

(758)

$

325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

    

 

 

(in millions)

 

Net sales

 

$

 —

 

$

 —

 

$

3,562

 

$

 —

 

$

3,562

 

Cost of sales

 

 

 —

 

 

 —

 

 

2,350

 

 

 —

 

 

2,350

 

Gross margin

 

 

 —

 

 

 —

 

 

1,212

 

 

 —

 

 

1,212

 

Selling, general, and administrative expenses, net

 

 

41

 

 

 9

 

 

359

 

 

 —

 

 

409

 

Research, development, and engineering expenses

 

 

 —

 

 

 —

 

 

173

 

 

 —

 

 

173

 

Acquisition and integration costs

 

 

 —

 

 

 —

 

 

 3

 

 

 —

 

 

 3

 

Restructuring and other charges, net

 

 

 —

 

 

 —

 

 

 6

 

 

 —

 

 

 6

 

Operating income (loss)

 

 

(41)

 

 

(9)

 

 

671

 

 

 —

 

 

621

 

Interest income

 

 

 —

 

 

 1

 

 

 3

 

 

 —

 

 

 4

 

Interest expense

 

 

 —

 

 

(29)

 

 

 1

 

 

 —

 

 

(28)

 

Other income, net

 

 

 —

 

 

 —

 

 

 1

 

 

 —

 

 

 1

 

Equity in net income of subsidiaries

 

 

548

 

 

555

 

 

 —

 

 

(1,103)

 

 

 —

 

Intercompany interest income (expense), net

 

 

(17)

 

 

30

 

 

(13)

 

 

 —

 

 

 —

 

Income from continuing operations before income taxes

 

 

490

 

 

548

 

 

663

 

 

(1,103)

 

 

598

 

Income tax expense

 

 

 —

 

 

 —

 

 

(108)

 

 

 —

 

 

(108)

 

Net income

 

 

490

 

 

548

 

 

555

 

 

(1,103)

 

 

490

 

Other comprehensive income

 

 

73

 

 

73

 

 

94

 

 

(167)

 

 

73

 

Comprehensive income

 

$

563

 

$

621

 

$

649

 

$

(1,270)

 

$

563

 

(1)

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.

2221


Table of Contents

TE CONNECTIVITY LTD.

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

Condensed Consolidating Balance Sheet (unaudited)

As of December 27, 2019

TE

Connectivity

Other

Consolidating

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

  

(in millions)

Assets

Current assets:

Cash and cash equivalents

$

$

$

742

$

$

742

Accounts receivable, net

 

 

 

2,338

 

 

2,338

Inventories

 

 

 

2,003

 

 

2,003

Intercompany receivables

 

51

 

3,253

 

62

 

(3,366)

 

Prepaid expenses and other current assets

 

6

 

29

 

448

 

 

483

Total current assets

 

57

 

3,282

 

5,593

 

(3,366)

 

5,566

Property, plant, and equipment, net

 

 

 

3,659

 

 

3,659

Goodwill

 

 

 

5,846

 

 

5,846

Intangible assets, net

 

 

 

1,602

 

 

1,602

Deferred income taxes

 

 

 

2,360

 

 

2,360

Investment in subsidiaries

 

13,994

 

28,344

 

 

(42,338)

 

Intercompany loans receivable

 

 

2,595

 

16,189

 

(18,784)

 

Other assets

 

 

38

 

905

 

 

943

Total assets

$

14,051

$

34,259

$

36,154

$

(64,488)

$

19,976

Liabilities and shareholders’ equity

Current liabilities:

Short-term debt

$

$

559

$

2

$

$

561

Accounts payable

 

1

 

 

1,432

 

 

1,433

Accrued and other current liabilities

 

178

 

66

 

1,166

 

 

1,410

Intercompany payables

3,315

51

(3,366)

Total current liabilities

 

3,494

 

625

 

2,651

 

(3,366)

 

3,404

Long-term debt

 

 

3,412

 

 

 

3,412

Intercompany loans payable

 

 

16,189

 

2,595

 

(18,784)

 

Long-term pension and postretirement liabilities

 

 

 

1,365

 

 

1,365

Deferred income taxes

 

 

 

142

 

 

142

Income taxes

 

 

 

247

 

 

247

Other liabilities

 

 

39

 

810

 

 

849

Total liabilities

 

3,494

 

20,265

 

7,810

 

(22,150)

 

9,419

Total shareholders’ equity

 

10,557

 

13,994

 

28,344

 

(42,338)

 

10,557

Total liabilities and shareholders’ equity

$

14,051

$

34,259

$

36,154

$

(64,488)

$

19,976

22

Condensed Consolidating Statement of Operations (unaudited)

For the Six Months Ended March 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

TE

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

 

Ltd.

 

TEGSA

 

Subsidiaries

 

Adjustments

 

Total

    

 

 

(in millions)

 

Net sales

 

$

 —

 

$

 —

 

$

6,759

 

$

 —

 

$

6,759

 

Cost of sales

 

 

 —

 

 

 —

 

 

4,527

 

 

 —

 

 

4,527

 

Gross margin

 

 

 —

 

 

 —

 

 

2,232

 

 

 —

 

 

2,232

 

Selling, general, and administrative expenses, net

 

 

63

 

 

(98)

 

 

797

 

 

 —

 

 

762

 

Research, development, and engineering expenses

 

 

 —

 

 

 —

 

 

327

 

 

 —

 

 

327

 

Acquisition and integration costs

 

 

 —

 

 

 —

 

 

12

 

 

 —

 

 

12

 

Restructuring and other charges, net

 

 

 —

 

 

 —

 

 

117

 

 

 —

 

 

117

 

Operating income (loss)

 

 

(63)

 

 

98

 

 

979

 

 

 —

 

 

1,014

 

Interest income

 

 

 —

 

 

 1

 

 

 8

 

 

 —

 

 

 9

 

Interest expense

 

 

 —

 

 

(41)

 

 

(1)

 

 

 —

 

 

(42)

 

Other income (expense), net

 

 

 —

 

 

 1

 

 

(1)

 

 

 —

 

 

 —

 

Equity in net income of subsidiaries

 

 

930

 

 

949

 

 

 —

 

 

(1,879)

 

 

 —

 

Equity in net loss of subsidiaries of discontinued operations

 

 

(97)

 

 

(46)

 

 

 —

 

 

143

 

 

 —

 

Intercompany interest income (expense), net

 

 

(55)

 

 

(78)

 

 

133

 

 

 —

 

 

 —

 

Income from continuing operations before income taxes

 

 

715

 

 

884

 

 

1,118

 

 

(1,736)

 

 

981

 

Income tax expense

 

 

 —

 

 

 —

 

 

(169)

 

 

 —

 

 

(169)

 

Income from continuing operations

 

 

715

 

 

884

 

 

949

 

 

(1,736)

 

 

812

 

Loss from discontinued operations, net of income taxes

 

 

 —

 

 

(51)

 

 

(46)

 

 

 —

 

 

(97)

 

Net income

 

 

715

 

 

833

 

 

903

 

 

(1,736)

 

 

715

 

Other comprehensive income

 

 

146

 

 

146

 

 

82

 

 

(228)

 

 

146

 

Comprehensive income

 

$

861

 

$

979

 

$

985

 

$

(1,964)

 

$

861

 

23


Table of Contents

TE CONNECTIVITY LTD.

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

Condensed Consolidating Balance Sheet (unaudited)

As of September 27, 2019

TE

Connectivity

Other

Consolidating

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

  

(in millions)

Assets

Current assets:

Cash and cash equivalents

$

$

$

927

$

$

927

Accounts receivable, net

 

 

 

2,320

 

 

2,320

Inventories

 

 

 

1,836

 

 

1,836

Intercompany receivables

 

49

 

2,959

 

60

 

(3,068)

 

Prepaid expenses and other current assets

 

4

 

36

 

431

 

 

471

Total current assets

 

53

 

2,995

 

5,574

 

(3,068)

 

5,554

Property, plant, and equipment, net

 

 

 

3,574

 

 

3,574

Goodwill

 

 

 

5,740

 

 

5,740

Intangible assets, net

 

 

 

1,596

 

 

1,596

Deferred income taxes

 

 

 

2,776

 

 

2,776

Investment in subsidiaries

 

13,865

 

28,336

 

 

(42,201)

 

Intercompany loans receivable

 

2,562

 

16,033

 

(18,595)

 

Other assets

 

 

72

 

382

 

 

454

Total assets

$

13,918

$

33,965

$

35,675

$

(63,864)

$

19,694

Liabilities and shareholders’ equity

Current liabilities:

Short-term debt

$

$

568

$

2

$

$

570

Accounts payable

 

1

 

 

1,356

 

 

1,357

Accrued and other current liabilities

 

328

 

57

 

1,228

 

 

1,613

Intercompany payables

 

3,019

 

 

49

 

(3,068)

 

Total current liabilities

 

3,348

 

625

 

2,635

 

(3,068)

 

3,540

Long-term debt

 

 

3,395

 

 

 

3,395

Intercompany loans payable

 

 

16,033

 

2,562

 

(18,595)

 

Long-term pension and postretirement liabilities

 

 

 

1,367

 

 

1,367

Deferred income taxes

 

 

 

156

 

 

156

Income taxes

 

 

 

239

 

 

239

Other liabilities

 

 

47

 

380

 

 

427

Total liabilities

 

3,348

 

20,100

 

7,339

 

(21,663)

 

9,124

Total shareholders’ equity

 

10,570

13,865

28,336

(42,201)

10,570

Total liabilities and shareholders’ equity

$

13,918

$

33,965

$

35,675

$

(63,864)

$

19,694

23

Condensed Consolidating Statement of Operations (unaudited)
For the Six Months Ended March 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

TE

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

 

Ltd.

 

TEGSA

 

Subsidiaries

 

Adjustments

 

Total

    

 

 

(in millions)

 

Net sales

 

$

 —

 

$

 —

 

$

6,898

 

$

 —

 

$

6,898

 

Cost of sales

 

 

 —

 

 

 —

 

 

4,522

 

 

 —

 

 

4,522

 

Gross margin

 

 

 —

 

 

 —

 

 

2,376

 

 

 —

 

 

2,376

 

Selling, general, and administrative expenses, net

 

 

88

 

 

 6

 

 

692

 

 

 —

 

 

786

 

Research, development, and engineering expenses

 

 

 —

 

 

 —

 

 

338

 

 

 —

 

 

338

 

Acquisition and integration costs

 

 

 —

 

 

 —

 

 

 5

 

 

 —

 

 

 5

 

Restructuring and other charges, net

 

 

 —

 

 

 —

 

 

40

 

 

 —

 

 

40

 

Operating income (loss)

 

 

(88)

 

 

(6)

 

 

1,301

 

 

 —

 

 

1,207

 

Interest income

 

 

 —

 

 

 1

 

 

 7

 

 

 —

 

 

 8

 

Interest expense

 

 

 —

 

 

(55)

 

 

 1

 

 

 —

 

 

(54)

 

Other income, net

 

 

 —

 

 

 —

 

 

 3

 

 

 —

 

 

 3

 

Equity in net income of subsidiaries

 

 

575

 

 

577

 

 

 —

 

 

(1,152)

 

 

 —

 

Equity in net loss of subsidiaries of discontinued operations

 

 

(7)

 

 

(7)

 

 

 —

 

 

14

 

 

 —

 

Intercompany interest income (expense), net

 

 

(30)

 

 

58

 

 

(28)

 

 

 —

 

 

 —

 

Income from continuing operations before income taxes

 

 

450

 

 

568

 

 

1,284

 

 

(1,138)

 

 

1,164

 

Income tax expense

 

 

 —

 

 

 —

 

 

(707)

 

 

 —

 

 

(707)

 

Income from continuing operations

 

 

450

 

 

568

 

 

577

 

 

(1,138)

 

 

457

 

Loss from discontinued operations, net of income taxes

 

 

 —

 

 

 —

 

 

(7)

 

 

 —

 

 

(7)

 

Net income

 

 

450

 

 

568

 

 

570

 

 

(1,138)

 

 

450

 

Other comprehensive income

 

 

149

 

 

149

 

 

181

 

 

(330)

 

 

149

 

Comprehensive income

 

$

599

 

$

717

 

$

751

 

$

(1,468)

 

$

599

 

24


Table of Contents

TE CONNECTIVITY LTD.

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

Condensed Consolidating Balance Sheet (unaudited)

As of March 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

TE

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

 

Ltd.

 

TEGSA

 

Subsidiaries

 

Adjustments

 

Total

    

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

 —

 

$

565

 

$

 —

 

$

565

 

Accounts receivable, net

 

 

 —

 

 

 —

 

 

2,463

 

 

 —

 

 

2,463

 

Inventories

 

 

 —

 

 

 —

 

 

1,970

 

 

 —

 

 

1,970

 

Intercompany receivables

 

 

43

 

 

3,493

 

 

64

 

 

(3,600)

 

 

 —

 

Prepaid expenses and other current assets

 

 

 3

 

 

52

 

 

393

 

 

 —

 

 

448

 

Total current assets

 

 

46

 

 

3,545

 

 

5,455

 

 

(3,600)

 

 

5,446

 

Property, plant, and equipment, net

 

 

 —

 

 

 —

 

 

3,596

 

 

 —

 

 

3,596

 

Goodwill

 

 

 —

 

 

 —

 

 

5,626

 

 

 —

 

 

5,626

 

Intangible assets, net

 

 

 —

 

 

 —

 

 

1,596

 

 

 —

 

 

1,596

 

Deferred income taxes

 

 

 —

 

 

 —

 

 

2,607

 

 

 —

 

 

2,607

 

Investment in subsidiaries

 

 

14,169

 

 

32,623

 

 

 —

 

 

(46,792)

 

 

 —

 

Intercompany loans receivable

 

 

 —

 

 

1,565

 

 

19,531

 

 

(21,096)

 

 

 —

 

Other assets

 

 

 —

 

 

30

 

 

361

 

 

 —

 

 

391

 

Total assets

 

$

14,215

 

$

37,763

 

$

38,772

 

$

(71,488)

 

$

19,262

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

 —

 

$

610

 

$

 2

 

$

 —

 

$

612

 

Accounts payable

 

 

 3

 

 

 —

 

 

1,482

 

 

 —

 

 

1,485

 

Accrued and other current liabilities

 

 

662

 

 

36

 

 

1,072

 

 

 —

 

 

1,770

 

Intercompany payables

 

 

3,556

 

 

 2

 

 

42

 

 

(3,600)

 

 

 —

 

Total current liabilities

 

 

4,221

 

 

648

 

 

2,598

 

 

(3,600)

 

 

3,867

 

Long-term debt

 

 

 —

 

 

3,368

 

 

 2

 

 

 —

 

 

3,370

 

Intercompany loans payable

 

 

 —

 

 

19,531

 

 

1,565

 

 

(21,096)

 

 

 —

 

Long-term pension and postretirement liabilities

 

 

 —

 

 

 —

 

 

1,081

 

 

 —

 

 

1,081

 

Deferred income taxes

 

 

 —

 

 

 —

 

 

196

 

 

 —

 

 

196

 

Income taxes

 

 

 —

 

 

 —

 

 

333

 

 

 —

 

 

333

 

Other liabilities

 

 

 —

 

 

47

 

 

374

 

 

 —

 

 

421

 

Total liabilities

 

 

4,221

 

 

23,594

 

 

6,149

 

 

(24,696)

 

 

9,268

 

Total shareholders' equity

 

 

9,994

 

 

14,169

 

 

32,623

 

 

(46,792)

 

 

9,994

 

Total liabilities and shareholders' equity

 

$

14,215

 

$

37,763

 

$

38,772

 

$

(71,488)

 

$

19,262

 

25


Table of Contents

TE CONNECTIVITY LTD.

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

Condensed Consolidating Balance Sheet (unaudited)

As of September 28, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

TE

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

 

Ltd.

 

TEGSA

 

Subsidiaries

 

Adjustments

 

Total

    

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

 —

 

$

848

 

$

 —

 

$

848

 

Accounts receivable, net

 

 

 —

 

 

 —

 

 

2,361

 

 

 —

 

 

2,361

 

Inventories

 

 

 —

 

 

 —

 

 

1,857

 

 

 —

 

 

1,857

 

Intercompany receivables

 

 

37

 

 

2,391

 

 

48

 

 

(2,476)

 

 

 —

 

Prepaid expenses and other current assets

 

 

 5

 

 

112

 

 

544

 

 

 —

 

 

661

 

Assets held for sale

 

 

 —

 

 

 —

 

 

472

 

 

 —

 

 

472

 

Total current assets

 

 

42

 

 

2,503

 

 

6,130

 

 

(2,476)

 

 

6,199

 

Property, plant, and equipment, net

 

 

 —

 

 

 —

 

 

3,497

 

 

 —

 

 

3,497

 

Goodwill

 

 

 —

 

 

 —

 

 

5,684

 

 

 —

 

 

5,684

 

Intangible assets, net

 

 

 —

 

 

 —

 

 

1,704

 

 

 —

 

 

1,704

 

Deferred income taxes

 

 

 —

 

 

 —

 

 

2,144

 

 

 —

 

 

2,144

 

Investment in subsidiaries

 

 

13,626

 

 

26,613

 

 

 —

 

 

(40,239)

 

 

 —

 

Intercompany loans receivable

 

 

 2

 

 

6,535

 

 

17,887

 

 

(24,424)

 

 

 —

 

Other assets

 

 

 —

 

 

 —

 

 

1,158

 

 

 —

 

 

1,158

 

Total assets

 

$

13,670

 

$

35,651

 

$

38,204

 

$

(67,139)

 

$

20,386

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

 —

 

$

961

 

$

 2

 

$

 —

 

$

963

 

Accounts payable

 

 

 2

 

 

 —

 

 

1,546

 

 

 —

 

 

1,548

 

Accrued and other current liabilities

 

 

400

 

 

36

 

 

1,275

 

 

 —

 

 

1,711

 

Intercompany payables

 

 

2,437

 

 

 —

 

 

39

 

 

(2,476)

 

 

 —

 

Liabilities held for sale

 

 

 —

 

 

 —

 

 

188

 

 

 —

 

 

188

 

Total current liabilities

 

 

2,839

 

 

997

 

 

3,050

 

 

(2,476)

 

 

4,410

 

Long-term debt

 

 

 —

 

 

3,033

 

 

 4

 

 

 —

 

 

3,037

 

Intercompany loans payable

 

 

 —

 

 

17,888

 

 

6,536

 

 

(24,424)

 

 

 —

 

Long-term pension and postretirement liabilities

 

 

 —

 

 

 —

 

 

1,102

 

 

 —

 

 

1,102

 

Deferred income taxes

 

 

 —

 

 

 —

 

 

207

 

 

 —

 

 

207

 

Income taxes

 

 

 —

 

 

 —

 

 

312

 

 

 —

 

 

312

 

Other liabilities

 

 

 —

 

 

107

 

 

380

 

 

 —

 

 

487

 

Total liabilities

 

 

2,839

 

 

22,025

 

 

11,591

 

 

(26,900)

 

 

9,555

 

Total shareholders' equity

 

 

10,831

 

 

13,626

 

 

26,613

 

 

(40,239)

 

 

10,831

 

Total liabilities and shareholders' equity

 

$

13,670

 

$

35,651

 

$

38,204

 

$

(67,139)

 

$

20,386

 

26


Table of Contents

TE CONNECTIVITY LTD.

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

Condensed Consolidating Statement of Cash Flows (unaudited)

For the Six MonthsQuarter Ended March 29,December 27, 2019

TE

Connectivity

Other

Consolidating

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

  

(in millions)

Cash flows from operating activities:

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

$

(69)

$

462

$

476

$

(458)

$

411

Cash flows from investing activities:

Capital expenditures

 

 

 

(176)

 

 

(176)

Acquisition of businesses, net of cash acquired

(115)

(115)

Change in intercompany loans

 

 

(149)

 

 

149

 

Other

 

 

 

2

 

 

2

Net cash used in investing activities

(149)

(289)

149

(289)

Cash flows from financing activities:

Changes in parent company equity(2)

 

46

 

(304)

 

258

 

 

Net decrease in commercial paper

 

 

(9)

 

 

 

(9)

Proceeds from exercise of share options

 

 

 

14

 

 

14

Repurchase of common shares

 

(119)

 

 

(20)

 

 

(139)

Payment of common share dividends to shareholders

 

(154)

 

 

 

 

(154)

Intercompany distributions(1)

 

 

 

(458)

 

458

 

Loan activity with parent

 

296

 

 

(147)

 

(149)

 

Other

 

 

 

(26)

 

 

(26)

Net cash provided by (used in) financing activities

69

(313)

(379)

309

(314)

Effect of currency translation on cash

 

 

 

7

 

 

7

Net decrease in cash, cash equivalents, and restricted cash

 

 

 

(185)

 

 

(185)

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

 

 

 

927

 

 

927

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

$

$

$

742

$

$

742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

TE

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

 

Ltd.

 

TEGSA

 

Subsidiaries

 

Adjustments

 

Total

    

 

 

(in millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) continuing operating activities

 

$

(121)

 

$

(79)

 

$

1,083

 

$

 —

 

$

883

 

Net cash used in discontinued operating activities

 

 

 —

 

 

 —

 

 

(30)

 

 

 —

 

 

(30)

 

Net cash provided by (used in) operating activities

 

 

(121)

 

 

(79)

 

 

1,053

 

 

 —

 

 

853

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 —

 

 

 —

 

 

(401)

 

 

 —

 

 

(401)

 

Proceeds from sale of property, plant, and equipment

 

 

 —

 

 

 —

 

 

13

 

 

 —

 

 

13

 

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

 

 

 —

 

 

312

 

 

(15)

 

 

 —

 

 

297

 

Change in intercompany loans

 

 

 —

 

 

5,475

 

 

 —

 

 

(5,475)

 

 

 —

 

Other

 

 

 —

 

 

 —

 

 

 8

 

 

 —

 

 

 8

 

Net cash provided by (used in) continuing investing activities

 

 

 —

 

 

5,787

 

 

(395)

 

 

(5,475)

 

 

(83)

 

Net cash used in discontinued investing activities

 

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

(2)

 

Net cash provided by (used in) investing activities

 

 

 —

 

 

5,787

 

 

(397)

 

 

(5,475)

 

 

(85)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in parent company equity(1)

 

 

38

 

 

(5,704)

 

 

5,666

 

 

 —

 

 

 —

 

Net increase in commercial paper

 

 

 —

 

 

90

 

 

 —

 

 

 —

 

 

90

 

Proceeds from issuance of debt

 

 

 —

 

 

350

 

 

 —

 

 

 —

 

 

350

 

Repayment of debt

 

 

 —

 

 

(441)

 

 

 —

 

 

 —

 

 

(441)

 

Proceeds from exercise of share options

 

 

 —

 

 

 —

 

 

17

 

 

 —

 

 

17

 

Repurchase of common shares

 

 

(739)

 

 

 —

 

 

 —

 

 

 —

 

 

(739)

 

Payment of common share dividends to shareholders

 

 

(299)

 

 

 —

 

 

 —

 

 

 —

 

 

(299)

 

Loan activity with parent

 

 

1,121

 

 

 —

 

 

(6,596)

 

 

5,475

 

 

 —

 

Transfers to discontinued operations

 

 

 —

 

 

 —

 

 

(32)

 

 

 —

 

 

(32)

 

Other

 

 

 —

 

 

(3)

 

 

(27)

 

 

 —

 

 

(30)

 

Net cash provided by (used in) continuing financing activities

 

 

121

 

 

(5,708)

 

 

(972)

 

 

5,475

 

 

(1,084)

 

Net cash provided by discontinued financing activities

 

 

 —

 

 

 —

 

 

32

 

 

 —

 

 

32

 

Net cash provided by (used in) financing activities

 

 

121

 

 

(5,708)

 

 

 (940)

 

 

5,475

 

 

(1,052)

 

Effect of currency translation on cash

 

 

 —

 

 

 —

 

 

 1

 

 

 —

 

 

 1

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

 —

 

 

 —

 

 

(283)

 

 

 —

 

 

(283)

 

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

 

 

 —

 

 

 —

 

 

848

 

 

 —

 

 

848

 

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

 

$

 —

 

$

 —

 

$

565

 

$

 —

 

$

565

 


(1)

(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.

2724


Table of Contents

TE CONNECTIVITY LTD.

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

Condensed Consolidating Statement of Cash Flows (unaudited)

For the Six MonthsQuarter Ended March 30,December 28, 2018

TE

Connectivity

Other

Consolidating

    

Ltd.

    

TEGSA

    

Subsidiaries

    

Adjustments

    

Total

  

(in millions)

Cash flows from operating activities:

Net cash provided by (used in) continuing operating activities

$

(73)

$

(9)

$

410

$

$

328

Net cash used in discontinued operating activities

 

 

 

(31)

 

 

(31)

Net cash provided by (used in) operating activities

 

(73)

 

(9)

 

379

 

 

297

Cash flows from investing activities:

Capital expenditures

 

 

 

(210)

 

 

(210)

Proceeds from divestiture of business, net of cash retained by sold business

303

(15)

288

Change in intercompany loans

 

 

(25)

 

 

25

 

Other

 

 

 

4

 

 

4

Net cash provided by (used in) continuing investing activities

278

(221)

25

82

Net cash used in discontinued investing activities

(2)

(2)

Net cash provided by (used in) investing activities

278

(223)

25

80

Cash flows from financing activities:

Changes in parent company equity(1)

 

23

 

(240)

 

217

 

 

Net increase in commercial paper

 

 

63

 

 

 

63

Proceeds from issuance of debt

350

350

Repayment of debt

(441)

(441)

Proceeds from exercise of share options

 

 

 

7

 

 

7

Repurchase of common shares

 

(519)

 

 

 

 

(519)

Payment of common share dividends to shareholders

 

(150)

 

 

 

 

(150)

Loan activity with parent

 

719

 

 

(694)

 

(25)

 

Transfers to discontinued operations

(33)

(33)

Other

 

 

(1)

 

(28)

 

 

(29)

Net cash provided by (used in) continuing financing activities

 

73

 

(269)

 

(531)

 

(25)

 

(752)

Net cash provided by discontinued financing activities

 

 

 

33

 

 

33

Net cash provided by (used in) financing activities

 

73

 

(269)

 

(498)

 

(25)

 

(719)

Effect of currency translation on cash

 

 

 

(1)

 

 

(1)

Net decrease in cash, cash equivalents, and restricted cash

 

 

 

(343)

 

 

(343)

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

 

 

 

848

 

 

848

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

$

$

$

505

$

$

505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

TE

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

Connectivity

 

 

 

 

Other

 

Consolidating

 

 

 

 

 

 

Ltd.

 

TEGSA

 

Subsidiaries

 

Adjustments

 

Total

    

 

 

(in millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(116)

 

$

(67)

 

$

835

 

$

(7)

 

$

645

 

Net cash provided by discontinued operating activities

 

 

 —

 

 

 —

 

 

82

 

 

 —

 

 

82

 

Net cash provided by (used in) operating activities

 

 

(116)

 

 

(67)

 

 

917

 

 

(7)

 

 

727

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 —

 

 

 —

 

 

(439)

 

 

 —

 

 

(439)

 

Proceeds from sale of property, plant, and equipment

 

 

 —

 

 

 —

 

 

 7

 

 

 —

 

 

 7

 

Intercompany distribution receipts(1)

 

 

 —

 

 

64

 

 

 —

 

 

(64)

 

 

 —

 

Change in intercompany loans

 

 

 —

 

 

335

 

 

 —

 

 

(335)

 

 

 —

 

Other

 

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

(2)

 

Net cash provided by (used in) continuing investing activities

 

 

 —

 

 

399

 

 

(434)

 

 

(399)

 

 

(434)

 

Net cash used in discontinued investing activities

 

 

 —

 

 

 —

 

 

(8)

 

 

 —

 

 

(8)

 

Net cash provided by (used in) investing activities

 

 

 —

 

 

399

 

 

(442)

 

 

(399)

 

 

(442)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in parent company equity(2)

 

 

62

 

 

32

 

 

(94)

 

 

 —

 

 

 —

 

Net increase in commercial paper

 

 

 —

 

 

225

 

 

 —

 

 

 —

 

 

225

 

Proceeds from issuance of debt

 

 

 —

 

 

119

 

 

 —

 

 

 —

 

 

119

 

Repayment of debt

 

 

 —

 

 

(708)

 

 

 —

 

 

 —

 

 

(708)

 

Proceeds from exercise of share options

 

 

 —

 

 

 —

 

 

94

 

 

 —

 

 

94

 

Repurchase of common shares

 

 

(218)

 

 

 —

 

 

(163)

 

 

 —

 

 

(381)

 

Payment of common share dividends to shareholders

 

 

(285)

 

 

 —

 

 

 4

 

 

 —

 

 

(281)

 

Intercompany distributions(1)

 

 

 —

 

 

 —

 

 

(71)

 

 

71

 

 

 —

 

Loan activity with parent

 

 

557

 

 

 —

 

 

(892)

 

 

335

 

 

 —

 

Transfers from discontinued operations

 

 

 —

 

 

 —

 

 

74

 

 

 —

 

 

74

 

Other

 

 

 —

 

 

 —

 

 

(32)

 

 

 —

 

 

(32)

 

Net cash provided by (used in) continuing financing activities

 

 

116

 

 

(332)

 

 

(1,080)

 

 

406

 

 

(890)

 

Net cash used in discontinued financing activities

 

 

 —

 

 

 —

 

 

(74)

 

 

 —

 

 

(74)

 

Net cash provided by (used in) financing activities

 

 

116

 

 

(332)

 

 

(1,154)

 

 

406

 

 

(964)

 

Effect of currency translation on cash

 

 

 —

 

 

 —

 

 

20

 

 

 —

 

 

20

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

 —

 

 

 —

 

 

(659)

 

 

 —

 

 

(659)

 

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

 

 

 —

 

 

 —

 

 

1,218

 

 

 —

 

 

1,218

 

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

 

$

 —

 

$

 —

 

$

559

 

$

 —

 

$

559

 


(1)

(1)

During fiscal 2018, other subsidiaries made distributions to TEGSA in the amount of $71 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.

2825


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10‑Q.10-Q. The following discussion may contain forward‑lookingforward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward‑lookingforward-looking statements as a result of many factors, including but not limited to those under the heading “Forward‑Looking“Forward-Looking Information” and “Part II. Item 1A. Risk Factors.”

Our Condensed Consolidated Financial Statements have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).

The following discussion includes organic net sales growth (decline) which is a non‑GAAPnon-GAAP financial measure. See “Non‑GAAP“Non-GAAP Financial Measure” for additional information regarding this measure.

OverviewOverview

TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) is a global industrial technology and manufacturing leader creating a safer, sustainable, productive, and connected future. For more than 75 years, ourOur broad range of connectivity and sensor solutions, proven in the harshest environments, have enabledenable advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.

Highlights for the secondThe first quarter and first six months of fiscal 2019 include2020 included the following:

·

Our net sales decreased 4.2% and 2.0%5.3% in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 as compared to the same periodsfirst quarter of fiscal 2018, with2019, due to sales declines in the Transportation Solutions and to a lesser degree, the Communications Solutions segment, partially offset by growth in the Industrial Solutions segment.segments. On an organic basis, our net sales decreased 0.5%4.8% during the secondfirst quarter of fiscal 2019 and increased 0.7% during the first six months of fiscal 2019,2020 as compared to the same periodsfirst quarter of fiscal 2018.

2019.

·

Our net sales by segment were as follows:

·

Transportation Solutions—Our net sales decreased 7.6% and 5.0%5.9% in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 due primarily to sales declines in the automotiveall end market.

markets.

·

Industrial Solutions—Our net sales increased 3.6% and 4.4% duringwere flat in the secondfirst quarter and first six months of fiscal 2019, respectively, primarily as a result of2020 with sales declines in the industrial equipment end market offset by increased sales in the aerospace, defense, oil, and gas, the energy, and the medical end market.

markets.

·

Communications Solutions—Our net sales decreased 4.8% and 1.3%13.9% in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 due primarily to sales declines in both the data and devices and the appliances end market.

markets.

·

Net cash provided by continuing operating activities was $883$411 million in the first six monthsquarter of fiscal 2019.

2020.

2926


Outlook

In the thirdsecond quarter of fiscal 2019,2020, we expect our net sales to be between $3.4$3.1 billion and $3.5$3.3 billion as compared to $3.6$3.4 billion in the thirdsecond quarter of fiscal 2018. This decrease reflects2019, with sales declines in the Transportation Solutions and Communications Solutions segments relative to the third quarter of fiscal 2018.all segments. Additional information regarding expectations for our reportable segments for the thirdsecond quarter of fiscal 20192020 as compared to the same period of fiscal 20182019 is as follows:

·

Transportation Solutions—We expect our net sales to decrease in the automotive end market due primarily to market weaknessdeclines in the Asia–Pacific and Europe/Middle East/Africa (“EMEA”) regions. Excluding the negative impact of changes in foreign currency exchange rates, weglobal automotive production. We also expect our net sales to decrease at a lesser rate than declines in global automotive productiondecline in the third quarter of fiscal 2019commercial transportation end market as a result of our increased content per vehicle.

continued market weakness.

·

Industrial Solutions—We expect our net sales growth in the aerospace, defense, oil, and gas end market to be offset by declines in the energy and industrial equipment end markets. In the industrial equipment end market, market weakness in factory automation and controls applications is expected to be partially offset by growth in medical applications.

·

Communications Solutions—We expect our net sales to decline in the industrial equipment end market due to continued market weakness. This decrease is expected to be partially offset by our net sales growth in the medical end market.

Communications Solutions—We expect our net sales to decline in both the data and devices and the appliances end markets primarily as a result of reduced demand resulting from high inventory levels at distributors and market weakness in the Asia–Pacific region.

across all regions.

We expect diluted earnings per share from continuing operations to be in the range of $1.13$1.05 to $1.17$1.11 per share in the thirdsecond quarter of fiscal 2019.2020. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $120$77 million and $0.06$0.04 per share, respectively, in the thirdsecond quarter of fiscal 20192020 as compared to the thirdsecond quarter of fiscal 2018.2019.

For fiscal 2019,2020, we expect our net sales to be between $13.55$12.85 billion and $13.75$13.25 billion as compared to $14.0$13.4 billion in fiscal 2018.2019. This decrease is driven primarily by sales declines in the Transportation Solutions and Communications Solutions segments relative to fiscal 2018.2019. Additional information regarding expectations for our reportable segments for fiscal 20192020 compared to fiscal 20182019 is as follows:

·

Transportation Solutions—We expect our net sales to decrease in the automotive end market as a result of declines in global automotive production. However, we expect our content gains to partially offset the impact of the overall market decline. We expect our net sales to decrease in the commercial transportation end market due primarily to market weakness in China and the EMEA region. We expect global automotive production to decline approximately 5% in fiscal 2019.

weakness.

·

Industrial Solutions—We expect our net sales increasegrowth in the medical and the aerospace, defense, oil, and gas end marketmarkets to be partially offset by declines in the energy end market. In the industrial equipment end market we expect market weakness in factory automation and controls applicationsdue primarily to be largely offset by growth in medical applications.

reduced demand resulting from high inventory levels at distributors.

·

Communications Solutions—We expect our net sales to decline in the data and devices and the appliances end markets due primarily to market weakness in the Asia–Pacific region.

and reduced demand resulting from high inventory levels at distributors.

WeIn fiscal 2020, we expect diluted earnings per share from continuing operations to be in the range of $4.88$3.23 to $4.98$3.53 per share in fiscal 2019.share. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $400$209 million and $0.16$0.11 per share, respectively, in fiscal 20192020 as compared to fiscal 2018.2019.

The above outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.

We are monitoring the current macroeconomic environment and its potential effects on our customers and the end markets we serve. We continue to closely manage our costs in line with economic conditions. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs. See further discussion in “Liquidity and Capital Resources.”

3027


In September 2018, Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”), subject to a referendum and a public vote in May 2019. Swiss Tax Reform will change income taxation at both the federal and cantonal levels. Prior to approval in the referendum and its subsequent cantonal implementation, the proposed Swiss Tax Reform is not enacted and therefore we have not reflected any of the potential impacts on our Condensed Consolidated Financial Statements or in the above outlook. We are currently assessing the impacts of the proposed Swiss Tax Reform. If enacted, the federal provisions and subsequent cantonal implementation of Swiss Tax Reform may have a material impact on our Condensed Consolidated Financial Statements.

Discontinued OperationsAcquisitions

During the first six monthsquarter of fiscal 2020, we acquired two businesses for a combined cash purchase price of $112 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

Pending Acquisition

During fiscal 2019, we sold our Subsea Communicationsentered into a business combination agreement and commenced a voluntary public tender offer for all outstanding shares of First Sensor AG (“SubCom”First Sensor”) business, a provider of sensing solutions based in Germany. The offer was accepted for approximately 72% of First Sensor’s shares. The transaction, including the assumption of First Sensor’s outstanding net cash proceeds of $297debt, is valued at approximately €330 million, and incurred a pre‑tax loss on sale of $86 million. The SubCom business met the held for sale and discontinued operations criteria and was reported as such in all periods presentedbased on the Condensed Consolidated Financial Statements. Priortendered shares and an estimated premium for untendered shares. Completion of the offer will be subject to reclassificationcustomary closing conditions, including receipt of any outstanding regulatory approvals. We expect to discontinued operations,complete the SubCom business was includedtransaction in the Communications Solutions segment. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.fiscal 2020.

Results of Operations

Net Sales

The following table presents our net sales and the percentage of total net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

 

For the

 

 

 

 

Quarters Ended

 

 

Six Months Ended

 

 

 

 

March 29,

 

 

March 30,

 

 

March 29,

 

 

March 30,

 

 

 

    

2019

    

    

2018

    

    

2019

    

    

2018

    

    

 

 

($ in millions)

 

 

Transportation Solutions

 

$

1,971

 

58

%  

 

$

2,134

 

60

%  

 

$

3,957

 

58

%  

 

$

4,166

 

60

%  

 

Industrial Solutions

 

 

1,007

 

29

 

 

 

972

 

27

 

 

 

1,935

 

29

 

 

 

1,854

 

27

 

 

Communications Solutions

 

 

434

 

13

 

 

 

456

 

13

 

 

 

867

 

13

 

 

 

878

 

13

 

 

Total

 

$

3,412

 

100

%  

 

$

3,562

 

100

%  

 

$

6,759

 

100

%  

 

$

6,898

 

100

%  

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

 

($ in millions)

Transportation Solutions

$

1,868

59

%  

$

1,986

59

%  

Industrial Solutions

 

927

 

29

 

928

 

28

Communications Solutions

 

373

 

12

 

433

 

13

Total

$

3,168

 

100

%  

$

3,347

 

100

%  

The following table provides an analysis of the change in our net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in Net Sales for the Quarter Ended March 29, 2019

 

Changes in Net Sales for the Six Months Ended March 29, 2019

 

 

 

versus Net Sales for the Quarter Ended March 30, 2018

 

versus Net Sales for the Six Months Ended March 30, 2018

 

 

 

Net

 

Organic Net

 

 

 

 

 

 

 

Net

 

Organic Net

 

 

 

 

 

 

 

 

    

Sales Growth

    

Sales Growth

    

Translation

    

Acquisition

    

Sales Growth

    

Sales Growth

    

Translation

    

Acquisition

     

 

 

($ in millions)

 

Transportation Solutions

 

$

(163)

 

(7.6)

%  

$

(62)

 

(2.9)

%  

$

(101)

 

$

 —

 

$

(209)

 

(5.0)

%  

$

(58)

 

(1.4)

%  

$

(151)

 

$

 —

 

Industrial Solutions

 

 

35

 

3.6

 

 

53

 

5.4

 

 

(39)

 

 

21

 

 

81

 

4.4

 

 

93

 

5.0

 

 

(54)

 

 

42

 

Communications Solutions

 

 

(22)

 

(4.8)

 

 

(8)

 

(1.8)

 

 

(14)

 

 

 —

 

 

(11)

 

(1.3)

 

 

11

 

1.3

 

 

(22)

 

 

 —

 

Total

 

$

(150)

 

(4.2)

%  

$

(17)

 

(0.5)

%  

$

(154)

 

$

21

 

$

(139)

 

(2.0)

%  

$

46

 

0.7

%  

$

(227)

 

$

42

 

Changes in Net Sales for the Quarter Ended December 27, 2019

versus Net Sales for the Quarter Ended December 28, 2018

Net Sales

Organic Net Sales

    

Growth (Decline)

Growth (Decline)

Translation

Acquisitions

  

($ in millions)

 

Transportation Solutions

$

(118)

 

(5.9)

%  

$

(113)

 

(5.6)

%  

$

(30)

$

25

Industrial Solutions

 

(1)

 

(0.1)

 

11

 

1.2

 

(12)

 

Communications Solutions

 

(60)

 

(13.9)

 

(59)

 

(13.7)

 

(1)

 

Total

$

(179)

 

(5.3)

%  

$

(161)

 

(4.8)

%  

$

(43)

$

25

Net sales decreased $150$179 million, or 4.2%5.3%, in the secondfirst quarter of fiscal 20192020 as compared to the secondfirst quarter of fiscal 2018 primarily as a result2019. The decrease in net sales resulted from organic net sales declines of 4.8% and the negative impact of foreign currency translation of 4.3% due to the weakening of certain foreign currencies. Price erosion adversely affected organic net sales by $27 million in the second quarter of fiscal 2019.

In the first six months of fiscal 2019, net sales decreased $139 million, or 2.0%, as compared to the first six months of fiscal 2018. The decrease resulted from the negative impact of foreign currency translation of 3.3%1.2% due to the weakening of certain foreign currencies, partially offset by organic sales growth of 0.7% and sales contributions from an acquisitionacquisitions of 0.6%0.7%. Price erosion adversely affected organic net sales by $55$41 million in the first six monthsquarter of fiscal 2019.2020.

See further discussion of net sales below under “Segment Results.”

31


Net Sales by Geographic Region. Our business operates in three geographic regions—EMEA,Europe/Middle East/Africa (“EMEA”), Asia–Pacific and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.

28

Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first six monthsquarter of fiscal 2019.2020.

The following table presents our net sales and the percentage of total net sales by geographic region(1):

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

($ in millions)

EMEA

$

1,097

35

%  

$

1,171

35

%  

Asia–Pacific

 

1,113

 

35

 

1,173

 

35

Americas

 

958

 

30

 

1,003

 

30

Total

$

3,168

 

100

%  

$

3,347

 

100

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

 

For the

 

 

 

 

Quarters Ended

 

 

Six Months Ended

 

 

 

 

March 29,

 

 

March 30,

 

 

March 29,

 

 

March 30,

 

 

 

    

2019

    

    

2018

    

    

2019

    

    

2018

    

    

 

 

($ in millions)

 

 

EMEA

 

$

1,276

 

38

%  

 

$

1,425

 

40

%  

 

$

2,447

 

36

%  

 

$

2,643

 

38

%  

 

Asia–Pacific

 

 

1,070

 

31

 

 

 

1,182

 

33

 

 

 

2,243

 

33

 

 

 

2,402

 

35

 

 

Americas

 

 

1,066

 

31

 

 

 

955

 

27

 

 

 

2,069

 

31

 

 

 

1,853

 

27

 

 

Total

 

$

3,412

 

100

%  

 

$

3,562

 

100

%  

 

$

6,759

 

100

%  

 

$

6,898

 

100

%  

 


(1)

(1)

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

The following table provides an analysis of the change in our net sales by geographic region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Net Sales for the Quarter Ended March 29, 2019

 

Change in Net Sales for the Six Months Ended March 29, 2019

 

 

versus Net Sales for the Quarter Ended March 30, 2018

 

versus Net Sales for the Six Months Ended March 30, 2018

 

 

Net

 

Organic Net

 

 

 

 

 

 

 

Net

 

Organic Net

 

 

 

 

 

 

 

    

Sales Growth

    

Sales Growth

    

Translation

    

Acquisition

    

Sales Growth

    

Sales Growth

    

Translation

    

Acquisition

     

 

($ in millions)

 

Change in Net Sales for the Quarter Ended December 27, 2019

versus Net Sales for the Quarter Ended December 28, 2018

Net Sales

Organic Net Sales

    

Growth (Decline)

    

Growth (Decline)

    

Translation

    

Acquisitions

    

($ in millions)

EMEA

 

$

(149)

 

(10.5)

%  

$

(57)

 

(4.2)

%  

$

(105)

 

$

13

 

$

(196)

 

(7.4)

%  

$

(79)

 

(3.0)

%  

$

(143)

 

$

26

 

$

(74)

(6.3)

%  

$

(54)

(4.5)

%  

$

(31)

$

11

Asia–Pacific

 

 

(112)

 

(9.5)

 

 

(74)

 

(6.4)

 

 

(40)

 

 

 2

 

 

(159)

 

(6.6)

 

 

(96)

 

(4.0)

 

 

(67)

 

 

 4

 

 

(60)

 

(5.1)

 

(53)

 

(4.5)

 

(7)

 

Americas

 

 

111

 

11.6

 

 

114

 

12.0

 

 

(9)

 

 

 6

 

 

216

 

11.7

 

 

221

 

11.9

 

 

(17)

 

 

12

 

 

(45)

 

(4.5)

 

(54)

 

(5.4)

 

(5)

 

14

Total

 

$

(150)

 

(4.2)

%  

$

(17)

 

(0.5)

%  

$

(154)

 

$

21

 

$

(139)

 

(2.0)

%  

$

46

 

0.7

%  

$

(227)

 

$

42

 

$

(179)

 

(5.3)

%  

$

(161)

 

(4.8)

%  

$

(43)

$

25

Cost of Sales and Gross Margin

The following table presents cost of sales and gross margin information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

    

2019

    

    

2018

    

    

Change

    

2019

    

    

2018

    

    

Change

    

 

 

($ in millions)

 

Cost of sales

 

$

2,294

 

 

$

2,350

 

 

$

(56)

 

$

4,527

 

 

$

4,522

 

 

$

 5

 

As a percentage of net sales

 

 

67.2

%  

 

 

66.0

%  

 

 

  

 

 

67.0

%  

 

 

65.6

%  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

$

1,118

 

 

$

1,212

 

 

$

(94)

 

$

2,232

 

 

$

2,376

 

 

$

(144)

 

As a percentage of net sales

 

 

32.8

%  

 

 

34.0

%  

 

 

  

 

 

33.0

%  

 

 

34.4

%  

 

 

  

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

Change

    

($ in millions)

Cost of sales

$

2,138

$

2,233

$

(95)

As a percentage of net sales

 

67.5

%  

 

66.7

%  

 

  

Gross margin

$

1,030

$

1,114

$

(84)

As a percentage of net sales

 

32.5

%  

 

33.3

%  

 

  

Gross margin decreased $94 million and $144$84 million in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 primarily as compared to the same periodsa result of fiscal 2018. The decreases were due primarily to the unfavorable impact of product mixlower volume and the negative impact of foreign currency translation,price erosion, partially offset by lower material costs. Gross margin as a percentage of net sales decreased to 32.8%32.5% in the secondfirst quarter of fiscal 20192020 from 34.0%33.3% in the secondfirst quarter of fiscal 2018 and decreased to 33.0%2019.

We use a wide variety of raw materials in the first six monthsmanufacture of fiscal 2019 from 34.4% in the same period of fiscal 2018.

our products. Cost of sales and gross margin are subject to variability in raw material prices which continue to fluctuate for many of the raw materials used in the manufacture of our products.we use, including copper, gold, and silver. We expect to purchase approximately 175 million pounds of

32


copper, 130,000125,000 troy ounces of gold,

29

and 2.72.4 million troy ounces of silver in fiscal 2019.2020. The following table presents the average prices incurred related to copper, gold, and silver:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

    

Measure

    

2019

    

2018

    

2019

    

2018

    

For the

Quarters Ended

December 27,

December 28,

    

Measure

    

2019

    

2018

    

Copper

 

Lb.

 

$

3.01

 

$

2.76

 

$

2.92

 

$

2.78

 

 

Lb.

$

2.84

$

2.88

 

Gold

 

Troy oz.

 

 

1,312

 

 

1,293

 

 

1,303

 

 

1,279

 

 

Troy oz.

 

1,354

 

1,293

 

Silver

 

Troy oz.

 

 

16.60

 

 

17.51

 

 

16.60

 

 

17.30

 

 

Troy oz.

 

16.26

 

16.60

 

Operating Expenses

The following table presents operating expense information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

Quarters Ended

 

Six Months Ended

 

 

March 29,

 

 

March 30,

 

 

 

 

March 29,

 

 

March 30,

 

 

 

 

    

2019

    

    

2018

    

    

Change

    

2019

    

    

2018

    

    

Change

    

 

($ in millions)

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

Change

    

($ in millions)

Selling, general, and administrative expenses

 

$

373

 

 

$

409

 

 

$

(36)

 

$

762

 

 

$

786

 

 

$

(24)

 

$

367

$

389

$

(22)

As a percentage of net sales

 

 

10.9

%  

 

 

11.5

%  

 

 

  

 

 

11.3

%  

 

 

11.4

%  

 

 

  

 

 

11.6

%  

 

11.6

%  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and other charges, net

 

$

42

 

 

$

 6

 

 

$

36

 

$

117

 

 

$

40

 

 

$

77

 

$

24

$

75

$

(51)

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased $36$22 million in the secondfirst quarter of fiscal 20192020 from the secondfirst quarter of fiscal 20182019 due primarily to cost control measures and savings attributable to restructuring actions as well as reduced selling expenses and lower incentive compensation costs. Selling, general, and administrative expenses decreased $24 million in the first six months of fiscal 2019 from the same period of fiscal 2018 due primarily to cost control measures and savings attributable to restructuring actions as well as lower incentive compensation costs.expenses. Selling, general, and administrative expenses as a percentage of net sales decreased to 10.9%was 11.6% in both the second quarterfirst quarters of fiscal 2019 from 11.5% in the second quarter of fiscal 20182020 and decreased to 11.3% in the first six months of fiscal 2019 from 11.4% in the same period of fiscal 2018.2019.

Restructuring and Other Charges, Net. We are committed to continuous productivity improvements, and consistentlywe evaluate opportunities to simplify our global manufacturing footprint, migrate facilities to lower‑costlower-cost regions, reduce fixed costs, and eliminate excess capacity. These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for future growth.

During fiscal 2020 and 2019, we initiated a restructuring programprograms associated with footprint consolidation and structural improvements impactingacross all segments. During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments. In connection with these initiatives, we incurred net restructuring charges of $117$24 million during the first six monthsquarter of fiscal 2019,2020, of which $107$15 million related to the fiscal 20192020 restructuring program. Annualized cost savings related to the fiscal 20192020 actions commenced during the first six monthsquarter of fiscal 20192020 are expected to be approximately $100$20 million and are expected to be realized by the end of fiscal 2021.2022. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses.

In response to market weakness, we are initiating incremental restructuring actions, primarily in our Transportation Solutions segment, to broaden the scope of our cost reduction initiatives and accelerate cost reduction and factory footprint consolidation activities. These incremental actions, which are primarily comprised of employee severance, are expected to result in incremental restructuring charges of approximately $100 million during For fiscal 2019.

In fiscal 2019,2020, we expect total restructuring charges to be approximately $200 million to $250 million and we expect total spending, which will be funded with cash from operations, to be approximately $140$220 million.

33


See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.

Operating Income

The following table presents operating income and operating margin information:

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

Change

    

($ in millions)

Operating income

$

471

$

484

$

(13)

Operating margin

 

14.9

%  

 

14.5

%  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

    

2019

    

    

2018

    

    

Change

    

2019

    

    

2018

    

    

Change

    

 

 

($ in millions)

 

Operating income

 

$

530

 

 

$

621

 

 

$

(91)

 

$

1,014

 

 

$

1,207

 

 

$

(193)

 

Operating margin

 

 

15.5

%  

 

 

17.4

%  

 

 

  

 

 

15.0

%  

 

 

17.5

%  

 

 

  

 

30

Operating income included the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Acquisition related charges:

 

 

  

 

 

  

 

 

  

 

 

  

 

Acquisition and integration costs

 

$

 7

 

$

 3

 

$

12

 

$

 5

 

Charges associated with the amortization of acquisition-related fair value adjustments

 

 

 2

 

 

 2

 

 

 3

 

 

 7

 

 

 

 

 9

 

 

 5

 

 

15

 

 

12

 

Restructuring and other charges, net

 

 

42

 

 

 6

 

 

117

 

 

40

 

Total

 

$

51

 

$

11

 

$

132

 

$

52

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Acquisition-related charges:

 

  

 

  

 

Acquisition and integration costs

$

7

$

5

Charges associated with the amortization of acquisition-related fair value adjustments

 

 

1

 

7

 

6

Restructuring and other charges, net

 

24

 

75

Total

$

31

$

81

See discussion of operating income below under “Segment Results.”

Non‑OperatingNon-Operating Items

The following table presents select non‑operatingnon-operating information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

    

2019

    

    

2018

    

    

Change

    

2019

    

    

2018

    

    

Change

    

 

 

($ in millions)

 

Interest expense

 

$

15

 

 

$

28

 

 

$

(13)

 

$

42

 

 

$

54

 

 

$

(12)

 

Income tax expense

 

 

91

 

 

 

108

 

 

 

(17)

 

 

169

 

 

 

707

 

 

 

(538)

 

Effective tax rate

 

 

17.5

%  

 

 

18.1

%  

 

 

  

 

 

17.2

%  

 

 

60.7

%  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

10

 

 

$

 —

 

 

$

10

 

$

(97)

 

 

$

(7)

 

 

$

(90)

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

Change

    

($ in millions)

Interest expense

$

12

$

27

$

(15)

Income tax expense

$

447

$

78

$

369

Effective tax rate

 

95.1

%  

 

16.9

%  

 

  

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

$

3

$

(107)

$

110

Interest Expense. Interest expense decreased $13$15 million and $12 million duringin the secondfirst quarter and first six months of fiscal 2020 as compared to the first quarter of fiscal 2019 respectively, due primarily to the expansion of our cross-currency swap program that hedges our net investment in fiscal 2019.certain foreign operations. Under the terms of the fiscal 2019these contracts, we receive interest in U.S. dollars at a weighted-average rate of 3.00%2.76% per annum and pay no interest. See Note 911 to the Condensed Consolidated Financial Statements for additional information regarding our cross-currency swap program.

Income Taxes. See Note 1113 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the secondfirst quarters and first six months of fiscal 2020 and 2019, including the Switzerland Federal Act on Tax Reform and 2018.AHV Financing.

34


Income (Loss) from Discontinued Operations, Net of Income Taxes. During the first six monthsquarter of fiscal 2019, we sold our SubComSubsea Communications (“SubCom”) business for net cash proceeds of $297$288 million and incurred a pre‑taxpre-tax loss on sale of $86$96 million. 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. The net sales of the business were $41 million and $326 million in the first six monthsquarter of fiscal 2019 and 2018, respectively. The results for the first six months of fiscal 2019 representwhich represented one month of activity. In the first six months of fiscal 2018, net sales and operating income were negatively impacted by production delays on a program. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.

31

Segment Results

Transportation Solutions

Net Sales. The following table presents the Transportation Solutions segment’s net sales and the percentage of total net sales by industry end market(1):

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

($ in millions)

Automotive

$

1,405

75

%  

$

1,469

74

%  

Commercial transportation

 

258

 

14

 

297

 

15

Sensors

 

205

 

11

 

220

 

11

Total

$

1,868

 

100

%  

$

1,986

 

100

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

 

For the

 

 

 

 

Quarters Ended

 

 

Six Months Ended

 

 

 

 

March 29,

 

 

March 30,

 

 

March 29,

 

 

March 30,

 

 

 

    

2019

    

    

2018

    

    

2019

    

    

2018

    

    

 

 

($ in millions)

 

 

Automotive

 

$

1,425

 

72

%  

 

$

1,571

 

74

%  

 

$

2,894

 

73

%  

 

$

3,088

 

74

%  

 

Commercial transportation

 

 

324

 

17

 

 

 

333

 

15

 

 

 

621

 

16

 

 

 

633

 

15

 

 

Sensors

 

 

222

 

11

 

 

 

230

 

11

 

 

 

442

 

11

 

 

 

445

 

11

 

 

Total

 

$

1,971

 

100

%  

 

$

2,134

 

100

%  

 

$

3,957

 

100

%  

 

$

4,166

 

100

%  

 


(1)

(1)

Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.

The following table provides an analysis of the change in the Transportation Solutions segment’s net sales by industry end market:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Net Sales for the Quarter Ended March 29, 2019

 

Change in Net Sales for the Six Months Ended March 29, 2019

 

 

 

versus Net Sales for the Quarter Ended March 30, 2018

 

versus Net Sales for the Six Months Ended March 30, 2018

 

 

    

Net

    

Organic Net

    

 

 

    

Net

    

Organic Net

    

 

 

    

 

 

Sales Growth

 

Sales Growth

 

Translation

 

Sales Growth

 

Sales Growth

 

Translation

 

 

 

($ in millions)

 

Automotive

 

$

(146)

 

(9.3)

%  

$

(70)

 

(4.6)

%  

$

(76)

 

$

(194)

 

(6.3)

%  

$

(79)

 

(2.6)

%  

$

(115)

 

Commercial transportation

 

 

(9)

 

(2.7)

 

 

 6

 

1.6

 

 

(15)

 

 

(12)

 

(1.9)

 

 

11

 

1.6

 

 

(23)

 

Sensors

 

 

(8)

 

(3.5)

 

 

 2

 

1.0

 

 

(10)

 

 

(3)

 

(0.7)

 

 

10

 

2.3

 

 

(13)

 

Total

 

$

(163)

 

(7.6)

%  

$

(62)

 

(2.9)

%  

$

(101)

 

$

(209)

 

(5.0)

%  

$

(58)

 

(1.4)

%  

$

(151)

 

Change in Net Sales for the Quarter Ended December 27, 2019

versus Net Sales for the Quarter Ended December 28, 2018

    

Net Sales

    

Organic Net Sales

    

    

    

Growth (Decline)

Growth (Decline)

Translation

Acquisitions

($ in millions)

Automotive

$

(64)

(4.4)

%  

$

(43)

(2.9)

%  

$

(21)

    

$

Commercial transportation

 

(39)

 

(13.1)

 

(45)

 

(15.6)

 

(7)

 

13

Sensors

 

(15)

 

(6.8)

 

(25)

 

(11.3)

 

(2)

 

12

Total

$

(118)

 

(5.9)

%  

$

(113)

 

(5.6)

%  

$

(30)

$

25

Net sales in the Transportation Solutions segment decreased $163$118 million, or 7.6%5.9%, in the secondfirst quarter of fiscal 2020 from the first quarter of fiscal 2019 from the second quarterdue to organic net sales declines of fiscal 2018 due to5.6% and the negative impact of foreign currency translation of 4.7% and organic net1.5%, partially offset by sales declinescontributions from acquisitions of 2.9%1.2%. Our organic net sales by industry end market were as follows:

·

Automotive—Our organic net sales decreased 4.6%2.9% in the secondfirst quarter of fiscal 2019 with2020 due to declines of 9.8%in global automotive production. Organic net sales declines were 4.4%, 3.2%, and 3.4%1.8% in the Americas, Asia–Pacific, and EMEA regions, respectively, partially offset by growth of 4.0% in the Americas region. Our declines in the Asia–Pacific and EMEA regions were driven by market weakness. In the Americas region, our growth resulted from electronification and market share gains.

respectively.

·

Commercial transportation—Our organic net sales increased 1.6%decreased 15.6% in the secondfirst quarter of fiscal 2019 due to content and share gains2020 primarily as a result of market weakness in the Americas and EMEA regions, partially offset by weakness in the AsiaPacific region.

regions.

·

Sensors—Our organic net sales increased 1.0% in the second quarter of fiscal 2019 due primarily to growth in the industrial equipment market.

35


In the first six months of fiscal 2019, net sales in the Transportation Solutions segment decreased $209 million, or 5.0%, as compared to the first six months of fiscal 2018 as a result of the negative impact of foreign currency translation of 3.6% and organic net sales declines of 1.4%. Our organic net sales by industry end market were as follows:

·

Automotive—Our organic net sales decreased 2.6%11.3% in the first six monthsquarter of fiscal 20192020 due to declines of 6.4%weakness in commercial transportation and 3.1% in the Asia–Pacific and EMEA regions, respectively, partially offset by growth of 7.8% in the Americas region. Our declines in the Asia–Pacific and EMEA regions resulted from market weakness. In the Americas region, our growth was attributable to electronification and market share gains.

industrial applications.

·

Commercial transportation—Our organic net sales increased 1.6% in the first six months of fiscal 2019 as a result of content and share gains in the Americas and EMEA regions, partially offset by declines in the AsiaPacific region.

32

·

Sensors—Our organic net sales increased 2.3% in the first six months of fiscal 2019 primarily as a result of growth in the industrial equipment market.

Operating Income. The following table presents the Transportation Solutions segment’s operating income and operating margin information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

 

    

2019

    

    

2018

    

    

Change

    

2019

    

    

2018

    

    

Change

    

 

 

($ in millions)

 

Operating income

 

$

316

 

 

$

427

 

 

$

(111)

 

$

648

 

 

$

844

 

 

$

(196)

 

Operating margin

 

 

16.0

%  

 

 

20.0

%  

 

 

 

 

 

16.4

%  

 

 

20.3

%  

 

 

 

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

Change

    

($ in millions)

Operating income

$

316

$

332

$

(16)

Operating margin

 

16.9

%  

 

16.7

%  

 

Operating income in the Transportation Solutions segment decreased $111 million and $196$16 million in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 as compared to the same periodsfirst quarter of fiscal 2018.2019. The Transportation Solutions segment’s operating income included the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Acquisition related charges:

 

 

  

 

 

  

 

 

  

 

 

  

 

Acquisition and integration costs

 

$

 4

 

$

 2

 

$

 7

 

$

 3

 

Charges associated with the amortization of acquisition-related fair value adjustments

 

 

 —

 

 

 —

 

 

 —

 

 

 4

 

 

 

 

 4

 

 

 2

 

 

 7

 

 

 7

 

Restructuring and other charges, net

 

 

24

 

 

(2)

 

 

45

 

 

 2

 

Total

 

$

28

 

$

 —

 

$

52

 

$

 9

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Acquisition and integration costs

$

5

$

3

Restructuring and other charges, net

4

21

Total

$

9

$

24

Excluding these items, operating income decreased in the secondfirst quarter and first six months of fiscal 2019 due2020 primarily to the unfavorable impactas a result of product mixlower volume and price erosion.erosion, partially offset by lower material costs.

36


Industrial Solutions

Net Sales. The following table presents the Industrial Solutions segment’s net sales and the percentage of total net sales by industry end market(1):

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

($ in millions)

Aerospace, defense, oil, and gas

$

309

33

%  

$

285

31

%  

Industrial equipment

 

263

 

28

 

315

 

34

Medical

179

 

20

168

18

Energy

 

176

 

19

 

160

 

17

Total

$

927

 

100

%  

$

928

 

100

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

 

For the

 

 

 

 

Quarters Ended

 

 

Six Months Ended

 

 

 

 

March 29,

 

 

March 30,

 

 

March 29,

 

 

March 30,

 

 

 

    

2019

    

    

2018

    

    

2019

    

    

2018

    

    

 

 

($ in millions)

 

 

Industrial equipment

 

$

502

 

50

%  

 

$

496

 

51

%  

 

$

985

 

51

%  

 

$

967

 

52

%  

 

Aerospace, defense, oil, and gas

 

 

331

 

33

 

 

 

298

 

31

 

 

 

616

 

32

 

 

 

552

 

30

 

 

Energy

 

 

174

 

17

 

 

 

178

 

18

 

 

 

334

 

17

 

 

 

335

 

18

 

 

Total

 

$

1,007

 

100

%  

 

$

972

 

100

%  

 

$

1,935

 

100

%  

 

$

1,854

 

100

%  

 


(1)

(1)

Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.

33

The following table provides an analysis of the change in the Industrial Solutions segment’s net sales by industry end market:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Net Sales for the Quarter Ended March 29, 2019

 

Change in Net Sales for the Six Months Ended March 29, 2019

 

 

 

versus Net Sales for the Quarter Ended March 30, 2018

 

versus Net Sales for the Six Months Ended March 30, 2018

 

 

 

Net

 

Organic Net

 

 

 

 

 

 

 

Net

 

Organic Net

 

 

 

 

 

 

 

 

    

Sales Growth

    

Sales Growth

    

Translation

    

Acquisition

    

Sales Growth

    

Sales Growth

    

Translation

    

Acquisition

    

 

 

($ in millions)

 

Industrial equipment

 

$

 6

 

1.2

%  

$

 5

 

0.8

%  

$

(20)

 

$

21

 

$

18

 

1.9

%  

$

 3

 

0.2

%  

$

(27)

 

$

42

 

Aerospace, defense, oil, and gas

 

 

33

 

11.1

 

 

39

 

13.3

 

 

(6)

 

 

 —

 

 

64

 

11.6

 

 

72

 

13.1

 

 

(8)

 

 

 —

 

Energy

 

 

(4)

 

(2.2)

 

 

 9

 

4.2

 

 

(13)

 

 

 —

 

 

(1)

 

(0.3)

 

 

18

 

5.0

 

 

(19)

 

 

 —

 

Total

 

$

35

 

3.6

%  

$

53

 

5.4

%  

$

(39)

 

$

21

 

$

81

 

4.4

%  

$

93

 

5.0

%  

$

(54)

 

$

42

 

Change in Net Sales for the Quarter Ended December 27, 2019

versus Net Sales for the Quarter Ended December 28, 2018

Net Sales

Organic Net Sales

    

Growth (Decline)

    

Growth (Decline)

    

Translation

    

($ in millions)

Aerospace, defense, oil, and gas

$

24

8.4

%  

$

27

9.4

%  

$

(3)

Industrial equipment

 

(52)

 

(16.5)

 

(47)

 

(15.0)

 

(5)

Medical

11

 

6.5

 

12

 

6.9

 

(1)

Energy

 

16

 

10.0

 

19

 

12.1

 

(3)

Total

$

(1)

 

(0.1)

%  

$

11

 

1.2

%  

$

(12)

Net sales inIn the Industrial Solutions segment, increased $35 million, or 3.6%,net sales were flat in the secondfirst quarter of fiscal 2019 from2020 as compared to the second quartersame period of fiscal 2018 as a result of organic net sales growth of 5.4% and sales contributions from an acquisition of 2.2%, partially offset by2019 with the negative impact of foreign currency translation of 4.0%1.3% largely offset by organic net sales growth of 1.2%. Our organic net sales by industry end market were as follows:

·

Industrial equipment—Aerospace, defense, oil, and gas—Our organic net sales increased 0.8%9.4% in the secondfirst quarter of fiscal 2019 due primarily to strength in medical applications, partially offset by market weakness in factory automation and controls.

·

Aerospace, defense, oil, and gas—Our organic net sales increased 13.3% in the second quarter of fiscal 2019 primarily2020 as a result of strength in the commercial aerospace, defense, and oil and gas, and commercial aerospace markets.

·

Industrial equipment—Our organic net sales decreased 15.0% in the first quarter of fiscal 2020 due to market weakness across all regions and reduced demand resulting from high inventory levels at distributors.

Energy—

Medical—Our organic net sales increased 4.2%6.9% in the secondfirst quarter of fiscal 20192020 due primarily to strength in the Americas region.

interventional medical applications.

In the first six months of fiscal 2019, net sales in the Industrial Solutions segment increased $81 million, or 4.4%, from the first six months of fiscal 2018 due primarily to organic net sales growth of 5.0% and sales contributions from an acquisition of 2.3%, partially offset by the negative impact of foreign currency translation of 2.9%. Our organic net sales by industry end market were as follows:

·

Industrial equipment—Our organic net sales were flat in the first six months of fiscal 2019 with strength in medical applications offset by market weakness in factory automation and controls.

·

Aerospace, defense, oil, and gas—Energy—Our organic net sales increased 13.1%12.1% in the first six monthsquarter of fiscal 2019 due primarily to2020 with growth in the commercial aerospace, defense, and oil and gas markets.

all regions.

37


·

Energy—Our organic net sales increased 5.0% in the first six months of fiscal 2019 primarily as a result of strength in the Americas region.

Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

 

    

2019

    

    

2018

    

    

Change

    

2019

    

    

2018

    

    

Change

    

 

 

($ in millions)

 

Operating income

 

$

137

 

 

$

125

 

 

$

12

 

$

237

 

 

$

227

 

 

$

10

 

Operating margin

 

 

13.6

%  

 

 

12.9

%  

 

 

  

 

 

12.2

%  

 

 

12.2

%  

 

 

  

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

Change

    

($ in millions)

Operating income

$

115

$

100

$

15

Operating margin

 

12.4

%  

 

10.8

%  

 

  

Operating income in the Industrial Solutions segment increased $12 million and $10$15 million in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 as compared to the same periodsfirst quarter of fiscal 2018.2019. The Industrial Solutions segment’s operating income included the following:

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

(in millions)

Acquisition-related charges:

 

  

 

  

 

Acquisition and integration costs

$

2

$

2

Charges associated with the amortization of acquisition-related fair value adjustments

 

 

1

 

2

 

3

Restructuring and other charges, net

 

15

 

35

Total

$

17

$

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Acquisition related charges:

 

 

  

 

 

  

 

 

  

 

 

  

 

Acquisition and integration costs

 

$

 3

 

$

 1

 

$

 5

 

$

 2

 

Charges associated with the amortization of acquisition-related fair value adjustments

 

 

 2

 

 

 2

 

 

 3

 

 

 3

 

 

 

 

 5

 

 

 3

 

 

 8

 

 

 5

 

Restructuring and other charges, net

 

 

17

 

 

 7

 

 

52

 

 

29

 

Total

 

$

22

 

$

10

 

$

60

 

$

34

 

34

Excluding these items, operating income increaseddecreased slightly in the secondfirst quarter and first six months of fiscal 2019 primarily2020 as a resultcompared to the first quarter of higher volume.fiscal 2019.

Communications Solutions

Net Sales. The following table presents the Communications Solutions segment’s net sales and the percentage of total net sales by industry end market(1):

��

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

($ in millions)

Data and devices

$

219

59

%  

$

257

59

%  

Appliances

 

154

 

41

 

176

 

41

Total

$

373

 

100

%  

$

433

 

100

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

 

For the

 

 

 

 

Quarters Ended

 

 

Six Months Ended

 

 

 

 

March 29,

 

 

March 30,

 

 

March 29,

 

 

March 30,

 

 

 

    

2019

    

    

2018

    

    

2019

    

    

2018

    

    

 

 

($ in millions)

 

 

Data and devices

 

$

251

 

58

%  

 

$

258

 

57

%  

 

$

508

 

59

%  

 

$

496

 

56

%  

 

Appliances

 

 

183

 

42

 

 

 

198

 

43

 

 

 

359

 

41

 

 

 

382

 

44

 

 

Total

 

$

434

 

100

%  

 

$

456

 

100

%  

 

$

867

 

100

%  

 

$

878

 

100

%  

 


(1)

(1)

Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.

38


The following table provides an analysis of the change in the Communications Solutions segment’s net sales by industry end market:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Net Sales for the Quarter Ended March 29, 2019

 

Change in Net Sales for the Six Months Ended March 29, 2019

 

 

 

versus Net Sales for the Quarter Ended March 30, 2018

 

versus Net Sales for the Six Months Ended March 30, 2018

 

 

    

Net

    

Organic Net

    

 

 

    

Net

    

Organic Net

    

 

 

    

 

 

Sales Growth

 

Sales Growth

 

Translation

 

Sales Growth

 

Sales Growth

 

Translation

 

 

 

($ in millions)

 

Data and devices

 

$

(7)

 

(2.7)

%  

$

 —

 

(0.1)

%  

$

(7)

 

$

12

 

2.4

%  

$

22

 

4.5

%  

$

(10)

 

Appliances

 

 

(15)

 

(7.6)

 

 

(8)

 

(4.1)

 

 

(7)

 

 

(23)

 

(6.0)

 

 

(11)

 

(2.9)

 

 

(12)

 

Total

 

$

(22)

 

(4.8)

%  

$

(8)

 

(1.8)

%  

$

(14)

 

$

(11)

 

(1.3)

%  

$

11

 

1.3

%  

$

(22)

 

Change in Net Sales for the Quarter Ended December 27, 2019

versus Net Sales for the Quarter Ended December 28, 2018

    

Net Sales

    

Organic Net Sales

    

    

Growth (Decline)

Growth (Decline)

Translation

($ in millions)

Data and devices

$

(38)

(14.8)

%  

$

(38)

(14.8)

%  

$

Appliances

 

(22)

 

(12.5)

 

(21)

 

(11.4)

 

(1)

Total

$

(60)

 

(13.9)

%  

$

(59)

 

(13.7)

%  

$

(1)

Net sales in the Communications Solutions segment decreased $22$60 million, or 4.8%13.9%, in the secondfirst quarter of fiscal 2020 as compared to the first quarter of fiscal 2019 as compareddue primarily to the second quarter of fiscal 2018 due to the negative impact of foreign currency translation of 3.0% and organic net sales declines of 1.8%13.7%. Our organic net sales by industry end market were as follows:

·

Data and devices—Our organic net sales were flat in the second quarter of fiscal 2019 with market weakness in the Asia–Pacific region offset by growth in high speed connectivity in data center applications.

·

Appliances—Our organic net sales decreased 4.1% in the second quarter of fiscal 2019 due to market weakness in the Asia–Pacific and EMEA regions, partially offset by growth in the Americas region.

In the first six months of fiscal 2019, net sales in the Communications Solutions segment decreased $11 million, or 1.3%, as compared to the same period of fiscal 2018 due to the negative impact of foreign currency translation of 2.6%, partially offset by organic net sales growth of 1.3%. Our organic net sales by industry end market were as follows:

·

Data and devices—Our organic net sales increased 4.5% in the first six months of fiscal 2019 primarily as a result of increased sales to cloud infrastructure customers and growth in high speed connectivity in data center applications.

·

Appliances—Our organic net sales decreased 2.9%14.8% in the first six monthsquarter of fiscal 20192020 as a result of reduced demand resulting from high inventory levels at distributors and market weakness across all regions.

Appliances—Our organic net sales decreased 11.4% in the Asia–Pacificfirst quarter of fiscal 2020 due to reduced demand resulting from high inventory levels at distributors and EMEA regions, partially offset by growthmarket declines in the Americas region.

all regions.

Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information:

For the

Quarters Ended

December 27,

December 28,

    

2019

    

    

2018

    

    

Change

    

($ in millions)

Operating income

$

40

$

52

$

(12)

Operating margin

 

10.7

%  

 

12.0

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

March 29,

 

 

March 30,

 

 

 

 

 

 

    

2019

    

    

2018

    

    

Change

    

2019

    

    

2018

    

    

Change

    

 

 

($ in millions)

 

Operating income

 

$

77

 

 

$

69

 

 

$

 8

 

$

129

 

 

$

136

 

 

$

(7)

 

Operating margin

 

 

17.7

%  

 

 

15.1

%  

 

 

 

 

 

14.9

%  

 

 

15.5

%  

 

 

  

 

35

Operating income in the Communications Solutions segment increased $8 million in the second quarter of fiscal 2019 and decreased $7$12 million in the first six monthsquarter of fiscal 20192020 as compared to the same periodsfirst quarter of fiscal 2018.2019. The Communications Solutions segment’s operating income included the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

 

 

Quarters Ended

 

Six Months Ended

 

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

(in millions)

 

Restructuring and other charges, net

 

$

 1

 

$

 1

 

$

20

 

$

 9

 

For the

Quarters Ended

December 27,

December 28,

    

2019

    

2018

    

Restructuring and other charges, net

$

5

$

19

Excluding these items, operating income increased slightlydecreased in the secondfirst quarter and first six months of fiscal 2019 as compared2020 due primarily to the same periods of fiscal 2018.lower volume and price erosion.

39


Liquidity and Capital Resources

Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements. We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payment of $250$350 million of 2.35%floating rate senior notes due in 2019.fiscal 2020, the pending acquisition of First Sensor, and cash spending related to restructuring initiatives. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions.

Cash Flows from Operating Activities

In the first six monthsquarter of fiscal 2019,2020, net cash provided by continuing operating activities increased $238$83 million to $883$411 million from $645$328 million in the first six monthsquarter of fiscal 2018.2019. The increase resulted primarily from higher collections of accounts receivablea reduction in income tax payments and fluctuations in cash collateral requirements under our cross-currency swap contracts.

lower incentive compensation payments. The amount of income taxes paid, net of refunds, during the first six monthsquarters of fiscal 2020 and 2019 and 2018 was $177$43 million and $208$75 million, respectively.

Cash Flows from Investing Activities

Capital expenditures were $401$176 million and $439$210 million in the first six monthsquarters of fiscal 20192020 and 2018,2019, respectively. We expect fiscal 20192020 capital spending levels to be approximately 5‑6%5-6% of net sales. We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.

During the first six monthsquarter of fiscal 2020, we acquired two businesses for a combined cash purchase price of $112 million, net of cash acquired. See Note 4 to the Condensed Consolidated Financial Statements for additional information.

During the first quarter of fiscal 2019, we received net cash proceeds of $297$288 million related to the sale of our SubCom business. See additional information in Note 3 to the Condensed Consolidated Financial Statements.

Cash Flows from Financing Activities and Capitalization

Total debt at March 29,December 27, 2019 and September 28, 201827, 2019 was $3,982$3,973 million and $4,000$3,965 million, respectively. See Note 78 to the Condensed Consolidated Financial Statements for additional information regarding debt.

During the first six months of fiscal 2019, Tyco Electronics Group S.A. (“TEGSA”), our 100%‑owned subsidiary, issued $350 million aggregate principal amount of senior floating rate notes due June 2020. The notes bear interest at a rate of three‑month London Interbank Offered Rate (“LIBOR”) plus 0.45% per year. 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.

During the first six months of fiscal 2019, TEGSA repaid, at maturity, $325 million 2.375% senior notes due 2018.

TEGSA has a five‑yearfive-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of November 2023 and total commitments of $1,500 million. The Credit Facility was amended in November 2018 primarily to extend the maturity date from December 2020 to November 2023. The amended Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies.$1.5 billion. TEGSA had no borrowings under the Credit Facility at March 29,December 27, 2019 or September 28, 2018.27, 2019.

36

The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our other debt agreements contain other customary covenants. None of our

40


covenants are presently considered restrictive to our operations. As of March 29,December 27, 2019, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.

In addition to the Credit Facility, TEGSA is the borrower under our senior notes and commercial paper. TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd.

Payments of common share dividends to shareholders were $299$154 million and $281$150 million in the first six monthsquarters of fiscal 2020 and 2019, and 2018, respectively.

In March 2019, our shareholders approved a dividend payment to shareholders of $1.84 per share, payable in four equal quarterly installments of $0.46 per share beginning in the third quarter of fiscal 2019 and ending in the second quarter of fiscal 2020.

During the first six months of fiscal 2019, our board of directors authorized an increase of $1.5 billion in the share repurchase program.

We repurchased approximately 92 million of our common shares for $684$143 million and approximately 46 million of our common shares for $383$495 million under ourthe share repurchase program during the first six monthsquarters of fiscal 20192020 and 2018,2019, respectively. At March 29,December 27, 2019, we had $1.8$1.4 billion of availability remaining under our share repurchase authorization.

Commitments and Contingencies

Legal Proceedings

In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non‑incomenon-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. 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.

Guarantees

In certain instances, we have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from fiscal 20192020 through the completion of such transactions. The guarantees would be triggered in the event of nonperformance, and the potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows.

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 March 29,December 27, 2019, we had outstanding letters of credit, letters of guarantee, and surety bonds of $307$279 million.

As discussed above, in the first six monthsquarter of fiscal 2019, we sold our SubCom business. 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 $1.7$1.2 billion as of March 29,December 27, 2019 and are expected to expire at various dates through fiscal 2025; however, the majority are expected to expire within two years.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. During the first six monthsAs of fiscalDecember 27, 2019, we issued a guarantee of $70 million for athere were no such new project.performance guarantees outstanding. We have contractual recourse against the SubCom business if we are required to perform on any SubCom

41


guarantees; however, based on historical experience, we do not anticipate having

37

to perform. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding the divestiture of the SubCom business.

Critical Accounting Policies and Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses.

Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension liabilities are based on, among other things, judgments and assumptions made by management. For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018. Except as set forth below, there27, 2019.There were no significant changes to this information during the first six months of fiscal 2019.

Revenue Recognition

We adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, in the first quarter of fiscal 2019. See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding our revenue recognition policy and the adoption of ASC 606.2020.

Accounting Pronouncements

See Note 1 to the Condensed Consolidated Financial Statements for information regarding recently issued and adopted accounting pronouncements.pronouncements including adoption of ASU 2016-02 which codified Accounting Standards Codification (“ASC”) 842, Leases.

Non‑GAAPNon-GAAP Financial Measure

Organic Net Sales Growth (Decline)

We present organic net sales growth (decline) as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP. Organic net sales growth (decline) represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic net sales growth (decline) is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.

Organic net sales growth (decline) provides useful information about our results and the trends of our business. Management uses organic net sales growththis measure to monitor and evaluate performance. Also, management uses organic net sales growththis measure together with GAAP financial measures in its decision‑makingdecision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The tables presented in “Results of Operations” and “Segment Results” provide reconciliations of organic net sales growth (decline) to net sales growth (decline) calculated in accordance with GAAP.

Organic net sales growth (decline) is a non‑GAAPnon-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP. This non‑GAAPnon-GAAP financial measure may not be comparable to similarly‑titledsimilarly-titled measures reported by other companies. The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using organic net sales growth (decline) in combination with net sales growth in order(decline) to better understand the amounts, character, and impact of any increase or decrease in reported amounts.

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Forward‑LookingForward-Looking Information

Certain statements in this Quarterly Report on Form 10‑Q10-Q are “forward‑looking“forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on our management’s beliefs and assumptions and on information currently available to our management. Forward‑lookingForward-looking statements include, among others, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, acquisitions,

38

divestitures, the effects of competition, and the effects of future legislation or regulations. Forward‑lookingForward-looking statements include all statements that are not historical facts and can be identified by the use of forward‑lookingforward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” and “should,” or the negative of these terms or similar expressions.

Forward‑lookingForward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward‑lookingforward-looking statements. Investors should not place undue reliance on any forward‑lookingforward-looking statements. We do not have any intention or obligation to update forward‑lookingforward-looking statements after we file this report except as required by law.

The following and other risks, which are described in greater detail in “Part I. Item 1A. Risk Factors,” in our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018,27, 2019, could cause our results to differ materially from those expressed in forward‑lookingforward-looking statements:

·

conditions in the global or regional economies and global capital markets, and cyclical industry conditions;

·

conditions affecting demand for products in the industries we serve, particularly the automotive industry;

·

competition and pricing pressure;

·

market acceptance of our new product introductions and product innovations and product life cycles;

·

raw material availability, quality, and cost;

·

fluctuations in foreign currency exchange rates and impacts of offsetting hedges;

·

financial condition and consolidation of customers and vendors;

·

reliance on third‑partythird-party suppliers;

·

risks associated with current and future acquisitions and divestitures;

·

global risks of business interruptions such as natural disasters anddisasters;

global risks of political, economic, and military instability;

instability, including volatile and uncertain economic conditions in China;

·

risks associated with security breaches and other disruptions to our information technology infrastructure;

·

risks related to compliance with current and future environmental and other laws and regulations;

·

our ability to protect our intellectual property rights;

·

risks of litigation;

·

our ability to operate within the limitations imposed by our debt instruments;

43


·

the possible effects on us of various non‑U.S.non-U.S. and U.S. legislative proposals including Swiss Tax Reform, and other initiatives that, if adopted, could materially increase our worldwide corporate effective tax rate and negatively impact our U.S. government contracts business;

·

various risks associated with being a Swiss corporation;

39

·

the impact of fluctuations in the market price of our shares; and

·

the impact of certain provisions of our articles of association on unsolicited takeover proposals.

There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the first six months of fiscal 2019, we expanded our cross‑currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the fiscal 2019 contracts was $1,901 million at March 29, 2019. See Note 9 to the Condensed Consolidated Financial Statements for further information regarding our exposures to market risk.

There have been no significant changes in our exposures to market risk during the first six monthsquarter of fiscal 2019, except for the item noted above.2020. For further discussion of our exposures to market risk, refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018.27, 2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a‑15(e)13a-15(e) under the Securities Exchange Act of 1934), as of March 29,December 27, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 29,December 27, 2019.

Changes in Internal Control Over Financial Reporting

During the quarter ended March 29,December 27, 2019, therewe adopted ASC 842, Leases. In connection with the adoption, we implemented changes to our accounting policies, internal controls, financial statement disclosures, and systems to enable compliance with this new standard. See Notes 1 and 9 to the Condensed Consolidated Financial Statements for additional information regarding adoption of the new standard. There were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material developments in our legal proceedings since we filed our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018, except as set forth in “Part II. Item 1. Legal Proceedings” in our Quarterly Report on Form 10‑Q for the quarterly period ended December 28, 2018.27, 2019. Refer to “Part I. Item 3. Legal Proceedings” in our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018 and ‘‘Part II. Item 1. Legal Proceedings’’ in our Quarterly Report on Form 10‑Q for the quarterly period ended December 28, 201827, 2019 for additional information regarding legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018.27, 2019. The risk factors described in our Annual Report on Form 10‑K,10-K, in addition to other information in this report, could materially affect our business operations, financial condition, or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impair our business operations, financial condition, and liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table presents information about our purchases of our common shares during the quarter ended March 29,December 27, 2019:

Maximum

 

Total Number of

Approximate

 

Shares Purchased

Dollar Value

 

as Part of

of Shares that May

 

Total Number

Average Price

Publicly Announced

Yet Be Purchased

 

of Shares

Paid Per

Plans or

Under the Plans

 

Period

    

Purchased(1)

    

Share(1)

    

Programs(2)

    

or Programs(2)

  

September 28–October 25, 2019

493,376

$

91.23

493,200

$

1,455,737,091

October 26–November 29, 2019

 

715,037

 

92.58

 

578,600

 

1,402,285,398

November 30–December 27, 2019

 

623,668

 

92.65

 

476,700

 

1,358,100,303

Total

 

1,832,081

$

92.24

 

1,548,500

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum

 

 

 

 

 

 

 

 

 

 

Approximate

 

 

 

 

 

 

 

 

Total Number of

 

Dollar Value of

 

 

 

 

 

 

 

 

Shares Purchased

 

Shares that May

 

 

 

Total Number

 

Average Price

 

as Part of Publicly

 

Yet Be Purchased

 

 

 

of Shares

 

Paid Per

 

Announced Plans

 

Under the Plans

 

Period

    

Purchased(1)

    

Share(1)

    

or Programs(2)

    

or Programs(2)

     

December 29, 2018–January 25, 2019

    

706,734

    

$

77.15

    

705,300

    

$

1,965,986,697

 

January 26–March 1, 2019

 

858,303

 

 

81.72

 

855,100

 

 

1,896,101,939

 

March 2–March 29, 2019

 

799,014

 

 

82.31

 

786,900

 

 

1,831,311,414

 

Total

 

2,364,051

 

$

80.56

 

2,347,300

 

 

  

 


(1)

(1)

These columns include the following transactions which occurred during the quarter ended March 29,December 27, 2019:

(i)the acquisition of 283,581 common shares from individuals in order to satisfy tax withholding requirements in connection with the vesting of restricted share awards issued under equity compensation plans; and
(ii)open market purchases totaling 1,548,500 common shares, summarized on a trade-date basis, in conjunction with the share repurchase program announced in September 2007.

(2)

(i)

the acquisition of 16,751 common shares from individuals in order to satisfy tax withholding requirements in connection with the vesting of restricted share awards issued under equity compensation plans; and

(ii)

open market purchases totaling 2,347,300 common shares, summarized on a trade‑date basis, in conjunction with the share repurchase program announced in September 2007.

(2)

Our share repurchase program authorizes us to purchase a portion of our outstanding common shares from time to time through open market or private transactions, depending on business and market conditions. The share repurchase program does not have an expiration date.

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ITEM 6. EXHIBITS

    

 

Exhibit
Number

Exhibit

10.1

‡*

TE Connectivity Ltd. Annual Incentive Plan (as amended and restated)

31.1

*

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002

31.2

*

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002

32.1

**

Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002

101

*101.INS

Financial statements from the Quarterly Report on Form 10‑Q of TE Connectivity Ltd. for the quarterly period ended March 29, 2019, filed on April 26, 2019, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements

XBRL Instance Document(1)(2)

101.SCH

XBRL Taxonomy Extension Schema Document(2)

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document(2)

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document(2)

101.LAB

XBRL Taxonomy Extension Label Linkbase Document(2)

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document(2)

104

Cover Page Interactive Data File(3)

Management contract or compensatory plan or arrangement

*

Filed herewith

**

Furnished herewith


(1)Submitted electronically with this report in accordance with the provisions of Regulation S-T
(2)The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
(3)Formatted in Inline XBRL and contained in exhibit 101

*           Filed herewith

**         Furnished herewith

4642


SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TE CONNECTIVITY LTD.

By:

/s/ HEATHHeath A. MITTSMitts

Heath A. Mitts
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)

Date: April 26, 2019January 29, 2020

4743