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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended December 24, 2021

or

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

001-33260

(Commission File Number)

GRAPHIC

TE CONNECTIVITY LTD.

(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)

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

Mühlenstrasse 26, CH-8200 Schaffhausen, Switzerland

(Address of principal executive offices)

+41 (0)52 633 66 61

(Registrant’s telephone number)

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common Shares, Par Value CHF 0.57

TEL

New York Stock Exchange

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

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

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

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

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

The number of common shares outstanding as of January 21, 2022 was 325,575,225.

TE CONNECTIVITY LTD.

INDEX TO FORM 10-Q

   

   

   

Page

Part I.

Financial Information

Item 1.

Financial Statements

1

Condensed Consolidated Statements of Operations for the Quarters Ended December 24, 2021 and December 25, 2020 (unaudited)

1

Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended December 24, 2021 and December 25, 2020 (unaudited)

2

Condensed Consolidated Balance Sheets as of December 24, 2021 and September 24, 2021 (unaudited)

3

Condensed Consolidated Statements of Shareholders’ Equity for the Quarters Ended December 24, 2021 and December 25, 2020 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Quarters Ended December 24, 2021 and December 25, 2020 (unaudited)

5

Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

Part II.

Other Information

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 6.

Exhibits

35

Signatures

36

i

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions, except per share data)

Net sales

$

3,818

$

3,522

Cost of sales

 

2,588

 

2,376

Gross margin

 

1,230

 

1,146

Selling, general, and administrative expenses

 

363

361

Research, development, and engineering expenses

 

175

162

Acquisition and integration costs

 

8

8

Restructuring and other charges, net

 

12

167

Operating income

672

448

Interest income

2

3

Interest expense

 

(12)

(15)

Other income (expense), net

 

15

(1)

Income from continuing operations before income taxes

 

677

 

435

Income tax expense

 

(110)

(60)

Income from continuing operations

 

567

 

375

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

 

(1)

6

Net income

$

566

$

381

Basic earnings per share:

Income from continuing operations

$

1.73

$

1.13

Income from discontinued operations

 

 

0.02

Net income

 

1.73

 

1.15

Diluted earnings per share:

Income from continuing operations

$

1.72

$

1.13

Income from discontinued operations

 

 

0.02

Net income

 

1.72

 

1.14

Weighted-average number of shares outstanding:

Basic

 

327

331

Diluted

 

330

333

See Notes to Condensed Consolidated Financial Statements.

1

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Net income

$

566

$

381

Other comprehensive income:

Currency translation

 

18

111

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

 

4

6

Gains on cash flow hedges, net of income taxes

 

1

29

Other comprehensive income

 

23

 

146

Comprehensive income

589

527

Less: comprehensive (income) loss attributable to noncontrolling interests

6

(6)

Comprehensive income attributable to TE Connectivity Ltd.

$

595

$

521

See Notes to Condensed Consolidated Financial Statements.

2

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

December 24,

September 24,

    

2021

    

2021

    

(in millions, except share

data)

Assets

Current assets:

Cash and cash equivalents

$

982

$

1,203

Accounts receivable, net of allowance for doubtful accounts of $41

 

2,844

 

2,928

Inventories

 

2,845

 

2,511

Prepaid expenses and other current assets

 

573

 

621

Total current assets

 

7,244

 

7,263

Property, plant, and equipment, net

 

3,827

 

3,778

Goodwill

 

5,503

 

5,590

Intangible assets, net

 

1,509

 

1,549

Deferred income taxes

 

2,513

 

2,499

Other assets

 

813

 

783

Total assets

$

21,409

$

21,462

Liabilities, redeemable noncontrolling interests, and shareholders' equity

Current liabilities:

Short-term debt

$

484

$

503

Accounts payable

 

1,964

 

1,911

Accrued and other current liabilities

 

1,826

 

2,242

Total current liabilities

 

4,274

 

4,656

Long-term debt

 

3,519

 

3,589

Long-term pension and postretirement liabilities

 

1,119

 

1,139

Deferred income taxes

 

192

 

181

Income taxes

 

331

 

302

Other liabilities

 

846

 

847

Total liabilities

 

10,281

 

10,714

Commitments and contingencies (Note 9)

Redeemable noncontrolling interests

108

114

Shareholders' equity:

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

 

148

148

Accumulated earnings

 

12,285

 

11,709

Treasury shares, at cost, 9,911,977 and 9,060,919 shares, respectively

 

(1,274)

 

(1,055)

Accumulated other comprehensive loss

 

(139)

 

(168)

Total shareholders' equity

 

11,020

 

10,634

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

$

21,409

$

21,462

See Notes to Condensed Consolidated Financial Statements.

3

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the Quarter Ended December 24, 2021

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at September 24, 2021

 

336

$

148

 

(9)

$

(1,055)

$

$

11,709

$

(168)

$

10,634

Net income

 

 

 

 

 

 

566

 

 

566

Other comprehensive income

 

 

 

 

 

 

 

29

 

29

Share-based compensation expense

 

 

 

 

 

32

 

 

 

32

Exercise of share options

 

 

 

 

22

 

 

 

 

22

Restricted share award vestings and other activity

 

 

 

1

 

5

 

(32)

 

10

 

 

(17)

Repurchase of common shares

 

 

 

(2)

 

(246)

 

 

 

 

(246)

Balance at December 24, 2021

336

$

148

 

(10)

$

(1,274)

$

$

12,285

$

(139)

$

11,020

For the Quarter Ended December 25, 2020

Accumulated

Other

Total

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

(in millions)

Balance at September 25, 2020

 

339

$

149

 

(8)

$

(669)

$

$

10,348

$

(445)

$

9,383

Net income

381

381

Other comprehensive income

 

 

 

 

 

 

 

140

 

140

Share-based compensation expense

 

 

 

 

 

19

 

 

 

19

Exercise of share options

 

 

 

1

 

75

 

 

 

 

75

Restricted share award vestings and other activity

 

 

 

 

66

 

(19)

 

(57)

 

 

(10)

Repurchase of common shares

 

 

 

(1)

 

(127)

 

 

 

 

(127)

Balance at December 25, 2020

339

$

149

 

(8)

$

(655)

$

$

10,672

$

(305)

$

9,861

See Notes to Condensed Consolidated Financial Statements.

4

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Cash flows from operating activities:

Net income

$

566

$

381

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

 

1

 

(6)

Income from continuing operations

 

567

 

375

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

Depreciation and amortization

 

198

 

187

Deferred income taxes

 

4

 

(42)

Non-cash lease cost

31

30

Provision for losses on accounts receivable and inventories

 

33

 

6

Share-based compensation expense

 

32

 

19

Other

 

(9)

 

21

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

Accounts receivable, net

 

148

 

(299)

Inventories

 

(264)

 

(145)

Prepaid expenses and other current assets

 

52

 

(87)

Accounts payable

 

15

 

349

Accrued and other current liabilities

 

(285)

 

88

Income taxes

 

34

 

17

Other

 

(24)

 

121

Net cash provided by operating activities

 

532

 

640

Cash flows from investing activities:

Capital expenditures

 

(172)

 

(142)

Proceeds from sale of property, plant, and equipment

 

54

 

1

Acquisition of businesses, net of cash acquired

 

(100)

 

(107)

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

16

Other

 

3

 

2

Net cash used in investing activities

 

(199)

 

(246)

Cash flows from financing activities:

Net increase in commercial paper

 

479

 

Repayment of debt

 

(555)

 

(30)

Proceeds from exercise of share options

 

22

 

75

Repurchase of common shares

 

(304)

 

(119)

Payment of common share dividends to shareholders

 

(163)

 

(159)

Other

 

(31)

 

(19)

Net cash used in financing activities

 

(552)

 

(252)

Effect of currency translation on cash

 

(2)

 

11

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

 

(221)

 

153

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

 

1,203

 

945

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

$

982

$

1,098

See Notes to Condensed Consolidated Financial Statements.

5

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

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

The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 24, 2021.

Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2022 and fiscal 2021 are to our fiscal years ending September 30, 2022 and ended September 24, 2021, respectively.

2. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Restructuring charges, net

$

21

$

149

(Gain) loss on divestitures and impairment of held for sale businesses

(9)

17

Other charges, net

 

 

1

Restructuring and other charges, net

$

12

$

167

Net restructuring and related charges by segment were as follows:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Transportation Solutions

$

5

$

118

Industrial Solutions

 

8

 

20

Communications Solutions

 

8

 

11

Restructuring charges, net

21

149

Plus: charges included in cost of sales(1)

12

Restructuring and related charges, net

$

33

$

149

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

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 24,

Changes in

Cash

Non-Cash

Currency

December 24,

    

2021

    

Charges

    

Estimate

    

Payments

    

Items

    

Translation

    

2021

    

(in millions)

Fiscal 2022 Actions:

Employee severance

$

$

15

$

$

(1)

$

$

$

14

Property, plant, and equipment and inventories

18

(18)

Total

33

(1)

(18)

14

Fiscal 2021 Actions:

Employee severance

152

1

(29)

(5)

119

Facility and other exit costs

2

1

(1)

2

Property, plant, and equipment

2

(2)

Total

154

4

(30)

(2)

(5)

121

Pre-Fiscal 2021 Actions:

Employee severance

135

(6)

(12)

(3)

114

Facility and other exit costs

15

2

(3)

14

Total

150

2

(6)

(15)

(3)

128

Total Activity

$

304

$

39

$

(6)

$

(46)

$

(20)

$

(8)

$

263

Fiscal 2022 Actions

During fiscal 2022, we initiated a restructuring program associated with footprint consolidation and cost structure improvements across all segments. During the quarter ended December 24, 2021, we recorded restructuring and related charges of $33 million in connection with this program. We expect to complete all restructuring actions commenced during the quarter ended December 24, 2021 by the end of fiscal 2024 and anticipate that any additional charges will be insignificant.

Fiscal 2021 Actions

During fiscal 2021, we initiated a restructuring program across all segments to optimize our manufacturing footprint and improve the cost structure of the organization. In connection with this program, during the quarters ended December 24, 2021 and December 25, 2020, we recorded restructuring charges of $4 million and $142 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2021 by the end of fiscal 2023 and to incur additional charges of approximately $12 million related to employee severance and facility exit costs.

The following table summarizes expected, incurred, and remaining charges for the fiscal 2021 program by segment:

Total

Cumulative

Remaining

Expected

Charges

Expected

    

Charges

    

Incurred

    

Charges

    

(in millions)

Transportation Solutions

$

131

$

125

$

6

Industrial Solutions

 

53

 

50

 

3

Communications Solutions

 

27

 

24

 

3

Total

$

211

$

199

$

12

7

Table of Contents

TE CONNECTIVITY LTD.

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

Pre-Fiscal 2021 Actions

During the quarters ended December 24, 2021 and December 25, 2020, we recorded net restructuring credits of $4 million and charges of $7 million, respectively, related to pre-fiscal 2021 actions. We expect additional charges related to pre-fiscal 2021 actions to be insignificant.

Total Restructuring Reserves

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

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Accrued and other current liabilities

$

208

$

236

Other liabilities

 

55

 

68

Restructuring reserves

$

263

$

304

3. Acquisitions

During the quarter ended December 24, 2021, we acquired one business for a cash purchase price of $125 million, net of cash acquired. The acquisition was reported as part of our Communications Solutions segment from the date of acquisition.

We acquired one business for a cash purchase price of $106 million, net of cash acquired, during the quarter ended December 25, 2020. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.

4. Inventories

Inventories consisted of the following:

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Raw materials

$

423

$

320

Work in progress

 

1,134

 

991

Finished goods

 

1,288

 

1,200

Inventories

$

2,845

$

2,511

8

Table of Contents

TE CONNECTIVITY LTD.

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

5. Goodwill

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

    

Transportation

    

Industrial

    

Communications

    

    

Solutions

Solutions

Solutions

Total

(in millions)

September 24, 2021(1)

$

1,549

$

3,446

$

595

$

5,590

Acquisition

78

78

Purchase price adjustments

(103)

(103)

Currency translation and other

 

(20)

 

(36)

 

(6)

 

(62)

December 24, 2021(1)

$

1,529

$

3,307

$

667

$

5,503

(1) At December 24, 2021 and September 24, 2021, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $3,091 million, $669 million, and $489 million, respectively.

During the quarter ended December 24, 2021, we recognized goodwill in the Communications Solutions segment in connection with a recent acquisition. Also during the quarter ended December 24, 2021, we recognized purchase price adjustments in the Industrial Solutions segment in connection with prior year acquisitions, including two acquisitions that closed late in the fourth quarter of fiscal 2021. See Note 3 for additional information regarding acquisitions.

6. Intangible Assets, Net

Intangible assets consisted of the following:

December 24, 2021

September 24, 2021

    

Gross

    

    

Net

    

Gross

    

    

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

    

(in millions)

Customer relationships

$

1,766

$

(680)

$

1,086

$

1,766

$

(660)

$

1,106

Intellectual property

1,262

(852)

410

1,262

(832)

430

Other

 

19

 

(6)

 

13

 

19

 

(6)

 

13

Total

$

3,047

$

(1,538)

$

1,509

$

3,047

$

(1,498)

$

1,549

Intangible asset amortization expense was $48 million for the quarters ended December 24, 2021 and December 25, 2020.

At December 24, 2021, the aggregate amortization expense on intangible assets is expected to be as follows:

    

(in millions)

  

Remainder of fiscal 2022

$

150

Fiscal 2023

199

Fiscal 2024

 

167

Fiscal 2025

 

151

Fiscal 2026

 

145

Fiscal 2027

 

124

Thereafter

 

573

Total

$

1,509

9

Table of Contents

TE CONNECTIVITY LTD.

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

7. Debt

During the quarter ended December 24, 2021, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, called for the early redemption of all of its outstanding 3.50% senior notes due in February 2022, representing $500 million aggregate principal amount. The notes were redeemed in November 2021.

As of December 24, 2021, TEGSA had $479 million of commercial paper outstanding at a weighted-average interest rate of 0.25%. TEGSA had no commercial paper outstanding at September 24, 2021.

The fair value of our debt, based on indicative valuations, was approximately $4,343 million and $4,465 million at December 24, 2021 and September 24, 2021, respectively.

8. Leases

The components of lease cost were as follows:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

    

(in millions)

    

Operating lease cost

$

31

$

30

Variable lease cost

12

11

Total lease cost

$

43

$

41

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

    

(in millions)

    

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

Payments for operating leases(1)

$

34

$

30

Right-of-use assets, including modifications and extensions, obtained in exchange for operating lease liabilities

36

22

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

9. 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-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.

10

Table of Contents

TE CONNECTIVITY LTD.

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

Trade Compliance Matters

We are investigating our past compliance with relevant U.S. trade controls and have made voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”). We are cooperating with the BIS and DDTC on these matters, and both our internal assessment and the resulting investigations by the agencies remain ongoing. We are unable to predict the timing and final outcome of the agencies’ investigations. An unfavorable outcome may include fines or penalties imposed in response to our disclosures, but we are not yet able to reasonably estimate the extent of any such fines or penalties. While we have reserved for potential fines and penalties relating to these matters based on our current understanding of the facts, the investigations into these matters have yet to be completed and the final outcome of such investigations and related fines and penalties may differ from amounts currently reserved.

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 December 24, 2021, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $18 million to $46 million, and we accrued $21 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 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 December 24, 2021, we had outstanding letters of credit, letters of guarantee, and surety bonds of $132 million, excluding those related to our Subsea Communications (“SubCom”) business which are discussed below.

During 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 performance guarantees and letters of credit had a combined value of approximately $118 million as of December 24, 2021 and are expected to expire at various dates through fiscal 2025. 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.

10. Financial Instruments

Foreign Currency Exchange Rate Risk

We utilize cross-currency swap contracts to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans. The aggregate notional value of these contracts was €500 million and €700 million at December 24, 2021 and September 24, 2021, respectively. Certain contracts were terminated in the quarter ended December 24, 2021; the remaining contracts mature in the fourth quarter of fiscal 2022. 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 5.32% per annum. Upon maturity, we will pay the notional value of the contracts in

11

Table of Contents

TE CONNECTIVITY LTD.

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

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 provide cash collateral.

These cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

4

$

Other liabilities

 

 

20

At December 24, 2021 and September 24, 2021, collateral received from or paid to our counterparties approximated the net derivative position. Collateral is recorded in accrued and other current liabilities when the contracts are in a net asset position, or prepaid expenses and other current assets when the contracts are in a net liability position on the Condensed Consolidated Balance Sheets. The impacts of these cross-currency swap contracts were as follows:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Losses recorded in other comprehensive income (loss)

$

(3)

$

(4)

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

 

29

 

(40)

(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

We hedge our net investment in certain foreign operations using intercompany loans and external borrowings denominated in the same currencies. The aggregate notional value of these hedges was $3,055 million and $3,798 million at December 24, 2021 and September 24, 2021, respectively.

We also use a cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the contracts under this program was $1,576 million and $1,430 million at December 24, 2021 and September 24, 2021, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 1.67% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2025, 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.

These cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

6

$

3

Other assets

 

29

 

18

Accrued and other current liabilities

13

Other liabilities

9

18

12

Table of Contents

TE CONNECTIVITY LTD.

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

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

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

$

108

$

(168)

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

 

37

 

(85)

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

Interest Rate Risk Management

We utilize forward starting interest rate swap contracts to manage interest rate exposure in periods prior to the anticipated issuance of fixed rate debt. These contracts had an aggregate notional value of $450 million at December 24, 2021 and September 24, 2021 and were designated as cash flow hedges. These forward starting interest rate swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

8

$

7

Accrued and other current liabilities

37

38

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

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Gains recorded in other comprehensive income (loss)

$

2

$

13

Commodity Hedges

As part of managing the exposure to certain commodity price fluctuations, we utilize commodity swap contracts. The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in prices of commodities used in production. These contracts had an aggregate notional value of $545 million and $512 million at December 24, 2021 and September 24, 2021, respectively, and were designated as cash flow hedges. These commodity swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

December 24,

September 24,

    

2021

    

2021

    

(in millions)

Prepaid expenses and other current assets

$

18

$

23

Other assets

 

1

 

Accrued and other current liabilities

13

18

Other liabilities

1

4

13

Table of Contents

TE CONNECTIVITY LTD.

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

The impacts of these commodity swap contracts were as follows:

For the

Quarters Ended

December 24,

December 25,

    

2021

    

2020

    

(in millions)

Gains recorded in other comprehensive income (loss)

$

15

$

37

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

15

15

We expect that significantly all of the balance in accumulated other comprehensive income (loss) associated with commodity hedges will be reclassified into the Condensed Consolidated Statement of Operations within the next twelve months.

11. Retirement Plans

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