TE Connectivity(TEL) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents TE Connectivity's unaudited condensed consolidated financial statements and detailed notes on various financial aspects Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Net sales | $3,818 | $3,522 | | Cost of sales | $2,588 | $2,376 | | Gross margin | $1,230 | $1,146 | | Operating income | $672 | $448 | | Income from continuing operations before income taxes | $677 | $435 | | Income tax expense | $(110) | $(60) | | Net income | $566 | $381 | | Basic earnings per share | $1.73 | $1.15 | | Diluted earnings per share | $1.72 | $1.14 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Net income | $566 | $381 | | 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 | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in millions) | Metric | Dec 24, 2021 (in millions) | Sep 24, 2021 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $982 | $1,203 | | Total current assets | $7,244 | $7,263 | | Total assets | $21,409 | $21,462 | | Total current liabilities | $4,274 | $4,656 | | Total liabilities | $10,281 | $10,714 | | Total shareholders' equity | $11,020 | $10,634 | Condensed Consolidated Statements of Shareholders' Equity - Shareholders' equity increased from $10,634 million at September 24, 2021, to $11,020 million at December 24, 2021, driven by net income and share-based compensation, partially offset by share repurchases[19] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $532 | $640 | | Net cash used in investing activities | $(199) | $(246) | | Net cash used in financing activities | $(552) | $(252) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(221) | $153 | | Cash, cash equivalents, and restricted cash at end of period | $982 | $1,098 | Notes to Condensed Consolidated Financial Statements Note 1. Basis of Presentation - The unaudited Condensed Consolidated Financial Statements are prepared in U.S. dollars, in accordance with GAAP, and include all normal recurring adjustments necessary for a fair presentation of interim results[23] - References to fiscal 2022 and fiscal 2021 are to the fiscal years ending September 30, 2022, and September 24, 2021, respectively[25] Note 2. Restructuring and Other Charges, Net Restructuring and Other Charges, Net (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Restructuring charges, net | $21 | $149 | | (Gain) loss on divestitures and impairment of held for sale businesses | $(9) | $17 | | Other charges, net | $0 | $1 | | Restructuring and other charges, net | $12 | $167 | - During fiscal 2022, the company initiated a restructuring program for footprint consolidation and cost structure improvements, recording $33 million in charges in Q1 2022, with expected completion by the end of fiscal 2024[29] - The fiscal 2021 restructuring program incurred $4 million in Q1 2022 and $142 million in Q1 2021, with an additional $12 million in charges expected by the end of fiscal 2023[30][31] Note 3. Acquisitions - Acquired one business for a cash purchase price of $125 million (net of cash acquired) in Q1 2022, reported as part of the Communications Solutions segment[35] - Acquired one business for a cash purchase price of $106 million (net of cash acquired) in Q1 2021, reported as part of the Industrial Solutions segment[35] Note 4. Inventories Inventories (in millions) | Inventory Type | Dec 24, 2021 (in millions) | Sep 24, 2021 (in millions) | | :--- | :--- | :--- | | Raw materials | $423 | $320 | | Work in progress | $1,134 | $991 | | Finished goods | $1,288 | $1,200 | | Total Inventories | $2,845 | $2,511 | Note 5. Goodwill Goodwill by Segment (in millions) | Segment | Sep 24, 2021 (in millions) | Dec 24, 2021 (in millions) | | :--- | :--- | :--- | | Transportation Solutions | $1,549 | $1,529 | | Industrial Solutions | $3,446 | $3,307 | | Communications Solutions | $595 | $667 | | Total Goodwill | $5,590 | $5,503 | - Goodwill increased by $78 million due to an acquisition in the Communications Solutions segment and decreased by $103 million due to purchase price adjustments in the Industrial Solutions segment, and $62 million due to currency translation[38][39] Note 6. Intangible Assets, Net Intangible Assets, Net (in millions) | Intangible Asset Type | Dec 24, 2021 Net (in millions) | Sep 24, 2021 Net (in millions) | | :--- | :--- | :--- | | Customer relationships | $1,086 | $1,106 | | Intellectual property | $410 | $430 | | Other | $13 | $13 | | Total Intangible Assets, Net | $1,509 | $1,549 | - Intangible asset amortization expense was $48 million for both the quarters ended December 24, 2021, and December 25, 2020[40] Expected Amortization Expense (in millions) | Fiscal Year | Expected Amortization Expense (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 | Note 7. Debt - Tyco Electronics Group S.A. (TEGSA) redeemed $500 million aggregate principal amount of its 3.50% senior notes due February 2022 in November 2021[43] - TEGSA had $479 million of commercial paper outstanding at a weighted-average interest rate of 0.25% as of December 24, 2021, compared to none at September 24, 2021[44] - The fair value of debt was approximately $4,343 million at December 24, 2021, down from $4,465 million at September 24, 2021[44] Note 8. Leases Lease Cost (in millions) | Lease Cost Type | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Operating lease cost | $31 | $30 | | Variable lease cost | $12 | $11 | | Total lease cost | $43 | $41 | - Cash paid for operating leases was $34 million in Q4 2021, compared to $30 million in Q4 2020[45] Note 9. Commitments and Contingencies Legal Proceedings - The company is subject to various legal proceedings and claims in the normal course of business, but does not expect them to have a material effect on its results of operations, financial position, or cash flows[46] Trade Compliance Matters - The company is investigating past compliance with U.S. trade controls and has made voluntary disclosures of apparent violations to BIS and DDTC, reserving for potential fines, though the final outcome is uncertain[48] Environmental Matters - Estimated environmental remediation costs range from $18 million to $46 million, with $21 million accrued as the probable loss, not expected to materially affect financial results[49] Guarantees - Outstanding letters of credit, letters of guarantee, and surety bonds totaled $132 million as of December 24, 2021, excluding those related to the Subsea Communications (SubCom) business[51] - Performance guarantees and letters of credit for the divested SubCom business had a combined value of approximately $118 million as of December 24, 2021, expiring through fiscal 2025, with contractual recourse against SubCom[52] Note 10. Financial Instruments Foreign Currency Exchange Rate Risk - Cross-currency swap contracts to reduce foreign currency exchange rate risk on intercompany loans had aggregate notional values of €500 million at December 24, 2021, and €700 million at September 24, 2021[53] - Losses recorded in other comprehensive income (loss) from these contracts were $3 million in Q4 2021, compared to $4 million in Q4 2020[55] Hedge of Net Investment - Hedges of net investment in foreign operations included intercompany loans and external borrowings with an aggregate notional value of $3,055 million and cross-currency swap contracts with an aggregate notional value of $1,576 million at December 24, 2021[56][57] - Foreign currency exchange gains on intercompany loans and external borrowings were $108 million in Q4 2021, compared to losses of $168 million in Q4 2020[60] - Gains on cross-currency swap contracts designated as hedges of net investment were $37 million in Q4 2021, compared to losses of $85 million in Q4 2020[60] Interest Rate Risk Management - Forward starting interest rate swap contracts, designated as cash flow hedges, had an aggregate notional value of $450 million at both December 24, 2021, and September 24, 2021[61] - Gains recorded in other comprehensive income (loss) from these swaps were $2 million in Q4 2021, compared to $13 million in Q4 2020[61] Commodity Hedges - Commodity swap contracts, designated as cash flow hedges, had an aggregate notional value of $545 million at December 24, 2021, and $512 million at September 24, 2021[62] - Gains recorded in other comprehensive income (loss) from these contracts were $15 million in Q4 2021, compared to $37 million in Q4 2020[64] - Gains reclassified from accumulated other comprehensive income (loss) into cost of sales were $15 million for both Q4 2021 and Q4 2020[64] Note 11. Retirement Plans Net Periodic Pension Benefit Cost (Credit) (in millions) | Metric | Non-U.S. Plans Q4 2021 (in millions) | Non-U.S. Plans Q4 2020 (in millions) | U.S. Plans Q4 2021 (in millions) | U.S. Plans Q4 2020 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Service cost | $10 | $12 | $2 | $3 | | Interest cost | $9 | $7 | $7 | $8 | | Expected return on plan assets | $(15) | $(14) | $(12) | $(13) | | Amortization of net actuarial loss | $6 | $8 | $1 | $2 | | Amortization of prior service credit | $(1) | $(1) | $0 | $0 | | Net periodic pension benefit cost (credit) | $9 | $12 | $(2) | $0 | - The company contributed $9 million to its non-U.S. pension plans during the quarter ended December 24, 2021[65] Note 12. Income Taxes - Income tax expense was $110 million in Q4 2021, up from $60 million in Q4 2020[66] - Q4 2021 income tax expense included a $17 million benefit related to an intercompany transaction and $12 million expense from an income tax audit of an acquired entity (offset by an $11 million indemnification receivable)[66] - Approximately $100 million of unrecognized income tax benefits, excluding interest and penalties, could be resolved within the next twelve months[67] Note 13. Earnings Per Share Earnings Per Share (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Basic weighted-average shares outstanding | 327 | 331 | | Dilutive impact of share-based compensation arrangements | 3 | 2 | | Diluted weighted-average shares outstanding | 330 | 333 | - One million share options were not included in the computation of diluted earnings per share for Q4 2021 because their exercise prices were greater than the average market prices of common shares, making their inclusion antidilutive[70] Note 14. Shareholders' Equity Dividends Dividends Paid Per Common Share | Metric | Q4 2021 | Q4 2020 | | :--- | :--- | :--- | | Dividends paid per common share | $0.50 | $0.48 | Share Repurchase Program Share Repurchase Program (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Number of common shares repurchased | 2 | 1 | | Repurchase value | $246 | $127 | - As of December 24, 2021, $1.3 billion of availability remained under the share repurchase authorization[72] Note 15. Share Plans - Share-based compensation expense was $32 million in Q4 2021, compared to $19 million in Q4 2020[74] - As of December 24, 2021, $214 million of unrecognized compensation expense related to share-based awards is expected to be recognized over a weighted-average period of 2.2 years[74] - As of December 24, 2021, 11 million shares were available for issuance under the TE Connectivity Ltd. 2007 Stock and Incentive Plan[75] Share-Based Compensation Assumptions Share-Based Compensation Assumptions | Assumption | Value | | :--- | :--- | | Expected share price volatility | 29 % | | Risk-free interest rate | 1.1 % | | Expected annual dividend per share | $2.00 | | Expected life of options (in years) | 5.1 | Note 16. Segment and Geographic Data Net sales by segment and industry end market Net Sales by Segment and Industry End Market (in millions) | Segment/End Market | Q4 2021 (in millions) | Q4 2021 % of Total | Q4 2020 (in millions) | Q4 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | | Transportation Solutions | $2,158 | 56 % | $2,224 | 63 % | | Automotive | $1,520 | 70 % | $1,629 | 73 % | | Commercial transportation | $365 | 17 % | $331 | 15 % | | Sensors | $273 | 13 % | $264 | 12 % | | Industrial Solutions | $1,059 | 28 % | $873 | 25 % | | Industrial equipment | $462 | 44 % | $295 | 34 % | | Aerospace, defense, oil, and gas | $242 | 22 % | $250 | 28 % | | Energy | $188 | 18 % | $172 | 20 % | | Medical | $167 | 16 % | $156 | 18 % | | Communications Solutions | $601 | 16 % | $425 | 12 % | | Data and devices | $349 | 58 % | $234 | 55 % | | Appliances | $252 | 42 % | $191 | 45 % | | Total | $3,818 | 100 % | $3,522 | 100 % | Net sales by geographic region and segment Net Sales by Geographic Region and Segment (in millions) | Region/Segment | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Europe/Middle East/Africa ("EMEA") | $1,314 | $1,316 | | Transportation Solutions | $771 | $894 | | Industrial Solutions | $452 | $358 | | Communications Solutions | $91 | $64 | | Asia–Pacific | $1,470 | $1,293 | | Transportation Solutions | $928 | $876 | | Industrial Solutions | $209 | $163 | | Communications Solutions | $333 | $254 | | Americas | $1,034 | $913 | | Transportation Solutions | $459 | $454 | | Industrial Solutions | $398 | $352 | | Communications Solutions | $177 | $107 | | Total | $3,818 | $3,522 | Operating income by segment Operating Income by Segment (in millions) | Segment | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Transportation Solutions | $395 | $308 | | Industrial Solutions | $123 | $76 | | Communications Solutions | $154 | $64 | | Total Operating Income | $672 | $448 | Note 17. Subsequent Event - A reduction in Switzerland's corporate income tax rate on December 27, 2021, is expected to result in approximately $25 million of income tax expense in Q2 2022 due to the write-down of certain deferred tax assets[84] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of TE Connectivity's Q1 FY22 financial condition, operational results, outlook, and key metrics Overview - TE Connectivity Ltd. is a global industrial technology leader providing connectivity and sensor solutions across transportation, industrial applications, medical technology, energy, data communications, and home sectors[89] - Net sales increased 8.4% in Q1 FY22 (8.0% organic) compared to Q1 FY21, driven by growth in Industrial Solutions and Communications Solutions, partially offset by declines in Transportation Solutions[90] - Net cash provided by operating activities was $532 million in Q1 FY22[90] - The COVID-19 pandemic has not significantly impacted staffing and is not expected to have a significant near-term impact on businesses, but the company continues to monitor and manage costs[90][92][93] - Q2 FY22 outlook projects net sales of approximately $3.8 billion and diluted EPS from continuing operations of approximately $1.52, including a $25 million income tax expense from a Swiss tax rate reduction[94][95] - Acquired one business for a cash purchase price of $125 million (net of cash acquired) in Q1 FY22, reported under the Communications Solutions segment[97] Results of Operations Net Sales Net Sales by Segment (in millions) | Segment | Q4 2021 Net Sales (in millions) | Q4 2021 % of Total | Q4 2020 Net Sales (in millions) | Q4 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | | Transportation Solutions | $2,158 | 56 % | $2,224 | 63 % | | Industrial Solutions | $1,059 | 28 % | $873 | 25 % | | Communications Solutions | $601 | 16 % | $425 | 12 % | | Total | $3,818 | 100 % | $3,522 | 100 % | Net Sales Growth (Decline) Q4 2021 vs Q4 2020 (in millions) | Metric | Net Sales Growth (Decline) Q4 2021 vs Q4 2020 (in millions) | Organic Net Sales Growth (Decline) Q4 2021 vs Q4 2020 (in millions) | Translation Impact (in millions) | Acquisitions (Divestitures) Impact (in millions) | | :--- | :--- | :--- | :--- | :--- | | Transportation Solutions | $(66) (-3.0%) | $(42) (-1.8%) | $(24) | $0 | | Industrial Solutions | $186 (21.3%) | $154 (17.6%) | $(20) | $52 | | Communications Solutions | $176 (41.4%) | $172 (40.2%) | $(1) | $5 | | Total | $296 (8.4%) | $284 (8.0%) | $(45) | $57 | - Pricing actions positively affected organic net sales by $52 million in the first quarter of fiscal 2022[99] - Approximately 60% of net sales were invoiced in currencies other than the U.S. dollar in Q1 FY22[101] Net Sales by Region (in millions) | Region | Q4 2021 Net Sales (in millions) | Q4 2021 % of Total | Q4 2020 Net Sales (in millions) | Q4 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | | EMEA | $1,314 | 34 % | $1,316 | 37 % | | Asia–Pacific | $1,470 | 39 % | $1,293 | 37 % | | Americas | $1,034 | 27 % | $913 | 26 % | | Total | $3,818 | 100 % | $3,522 | 100 % | Net Sales Growth (Decline) by Region Q4 2021 vs Q4 2020 (in millions) | Region | Net Sales Growth (Decline) Q4 2021 vs Q4 2020 (in millions) | Organic Net Sales Growth Q4 2021 vs Q4 2020 (in millions) | Translation Impact (in millions) | Acquisitions (Divestitures) Impact (in millions) | | :--- | :--- | :--- | :--- | :--- | | EMEA | $(2) (-0.2%) | $6 (0.3%) | $(44) | $36 | | Asia–Pacific | $177 (13.7%) | $164 (12.6%) | $0 | $13 | | Americas | $121 (13.3%) | $114 (12.5%) | $(1) | $8 | | Total | $296 (8.4%) | $284 (8.0%) | $(45) | $57 | Cost of Sales and Gross Margin Cost of Sales and Gross Margin (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Cost of sales | $2,588 | $2,376 | $212 | | As a percentage of net sales | 67.8 % | 67.5 % | +0.3 % | | Gross margin | $1,230 | $1,146 | $84 | | As a percentage of net sales | 32.2 % | 32.5 % | -0.3 % | - Gross margin increased by $84 million primarily due to higher volume and pricing actions, partially offset by higher material costs[105] Commodity Average Prices | Commodity | Measure | Q4 2021 Average Price | Q4 2020 Average Price | | :--- | :--- | :--- | :--- | | Copper | Lb. | $3.80 | $2.88 | | Gold | Troy oz. | $1,797 | $1,599 | | Silver | Troy oz. | $23.56 | $19.70 | | Palladium | Troy oz. | $2,356 | $2,137 | - Expected purchases in fiscal 2022 include approximately 220 million pounds of copper, 125,000 troy ounces of gold, 2.9 million troy ounces of silver, and 15,000 troy ounces of palladium[106] Operating Expenses Selling, General, and Administrative Expenses Selling, General, and Administrative Expenses (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Selling, general, and administrative expenses | $363 | $361 | $2 | | As a percentage of net sales | 9.5 % | 10.2 % | -0.7 % | - Selling, general, and administrative expenses increased slightly due to increased selling expenses supporting higher sales levels, largely offset by a gain on the sale of real estate[107] Restructuring and Other Charges, Net Restructuring and Other Charges, Net (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Restructuring and other charges, net | $12 | $167 | $(155) | - Incurred net restructuring and related charges of $33 million during Q1 FY22 (including $12 million in cost of sales) for footprint consolidation and cost structure improvements[109] - Annualized cost savings related to fiscal 2022 actions are expected to be approximately $28 million, realized by the end of fiscal 2024[109] - Total restructuring charges for fiscal 2022 are expected to be approximately $150 million, with total spending of approximately $190 million funded by cash from operations[109] Operating Income Operating Income (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Operating income | $672 | $448 | $224 | | Operating margin | 17.6 % | 12.7 % | +4.9 % | Acquisition and Restructuring Related Charges (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | | :--- | :--- | :--- | | Acquisition and integration costs | $8 | $8 | | Charges associated with the amortization of acquisition-related fair value adjustments | $8 | $1 | | Restructuring and other charges, net | $12 | $167 | | Restructuring-related charges recorded in cost of sales | $12 | $0 | | Total | $40 | $176 | Segment Results Transportation Solutions Net Sales Transportation Solutions Net Sales by End Market (in millions) | End Market | Q4 2021 (in millions) | Q4 2021 % of Total | Q4 2020 (in millions) | Q4 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | | Automotive | $1,520 | 70 % | $1,629 | 73 % | | Commercial transportation | $365 | 17 % | $331 | 15 % | | Sensors | $273 | 13 % | $264 | 12 % | | Total | $2,158 | 100 % | $2,224 | 100 % | - Net sales decreased 3.0% in Q1 FY22 due to organic net sales declines of 1.8% and negative foreign currency translation of 1.2%[116] - Organic net sales for Automotive decreased 5.6% (EMEA -17.4%, Americas -5.4%, Asia-Pacific +5.6%) due to global automotive production declines, mitigated by increased content per vehicle[116][118] - Organic net sales for Commercial transportation increased 10.8% due to market growth in EMEA and Americas and content gains[116][118] - Organic net sales for Sensors increased 4.8% due to growth in industrial applications[116][118] Operating Income Transportation Solutions Operating Income (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Operating income | $395 | $308 | $87 | | Operating margin | 18.3 % | 13.8 % | +4.5 % | - Operating income increased by $87 million, primarily due to reduced restructuring and other charges (from $118 million in Q4 2020 to $(6) million in Q4 2021), partially offset by higher material costs and lower volume[117][118] Industrial Solutions Net Sales Industrial Solutions Net Sales by End Market (in millions) | End Market | Q4 2021 (in millions) | Q4 2021 % of Total | Q4 2020 (in millions) | Q4 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | | Industrial equipment | $462 | 44 % | $295 | 34 % | | Aerospace, defense, oil, and gas | $242 | 22 % | $250 | 28 % | | Energy | $188 | 18 % | $172 | 20 % | | Medical | $167 | 16 % | $156 | 18 % | | Total | $1,059 | 100 % | $873 | 100 % | - Net sales increased 21.3% in Q1 FY22 due to organic net sales growth of 17.6% and net sales contributions of 6.0% from acquisitions and divestitures, partially offset by a 2.3% negative impact from foreign currency translation[120] - Organic net sales for Industrial equipment increased 39.7% due to strength in factory automation and controls applications across all regions[120][121] - Organic net sales for Aerospace, defense, oil, and gas decreased 2.5% due to declines in oil and gas and defense markets, partially offset by growth in commercial aerospace[120][121] - Organic net sales for Energy increased 16.7% with growth across all regions and continued strength in renewable energy applications[120][121] - Organic net sales for Medical increased 7.7% primarily due to market growth attributable to increases in interventional medical applications[120][121] Operating Income Industrial Solutions Operating Income (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Operating income | $123 | $76 | $47 | | Operating margin | 11.6 % | 8.7 % | +2.9 % | - Operating income increased by $47 million primarily due to higher volume, despite acquisition-related charges ($12 million in Q4 2021 vs. $4 million in Q4 2020) and restructuring charges ($10 million in Q4 2021 vs. $38 million in Q4 2020)[122][123] Communications Solutions Net Sales Communications Solutions Net Sales by End Market (in millions) | End Market | Q4 2021 (in millions) | Q4 2021 % of Total | Q4 2020 (in millions) | Q4 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | | Data and devices | $349 | 58 % | $234 | 55 % | | Appliances | $252 | 42 % | $191 | 45 % | | Total | $601 | 100 % | $425 | 100 % | - Net sales increased 41.4% in Q1 FY22, primarily due to 40.2% organic net sales growth[126] - Organic net sales for Data and devices increased 47.5% due to market strength and growth in high-speed cloud applications[125][130] - Organic net sales for Appliances increased 31.9% due to sales growth in all regions attributable primarily to market improvements and share gains[125][130] Operating Income Communications Solutions Operating Income (in millions) | Metric | Q4 2021 (in millions) | Q4 2020 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Operating income | $154 | $64 | $90 | | Operating margin | 25.6 % | 15.1 % | +10.5 % | - Operating income increased by $90 million primarily due to higher volume, with acquisition and integration costs of $1 million in Q4 2021 (vs. $0 in Q4 2020) and restructuring charges of $8 million (vs. $11 million in Q4 2020)[126][127] Liquidity and Capital Resources Cash Flows from Operating Activities - Net cash provided by operating activities decreased by $108 million to $532 million in Q1 FY22 from $640 million in Q1 FY21[130] - The decrease resulted primarily from higher incentive compensation payments and increased inventory levels to meet anticipated customer demand, partially offset by higher pre-tax income[130] - Income taxes paid, net of refunds, were $71 million in Q1 FY22, compared to $85 million in Q1 FY21[130] Cash Flows from Investing Activities - Capital expenditures increased to $172 million in Q1 FY22 from $142 million in Q1 FY21[131] - Fiscal 2022 capital spending levels are expected to be approximately 5% of net sales[131] - Acquired one business for a cash purchase price of $125 million (net of cash acquired) in Q1 FY22, compared to $106 million in Q1 FY21[132] Cash Flows from Financing Activities and Capitalization - Total debt decreased to $4,003 million at December 24, 2021, from $4,092 million at September 24, 2021[133] - Tyco Electronics Group S.A. (TEGSA) redeemed $500 million of 3.50% senior notes due February 2022 in November 2021[134] - TEGSA had $479 million of commercial paper outstanding at a weighted-average interest rate of 0.25% at December 24, 2021, compared to none at September 24, 2021[134] - TEGSA has a $1.5 billion unsecured senior revolving credit facility maturing June 2026, with no borrowings outstanding at December 24, 2021, or September 24, 2021[135] - The company was in compliance with all debt covenants as of December 24, 2021, and expects to remain so for the foreseeable future[136] - Repurchased approximately two million common shares for $246 million in Q1 FY22, with $1.3 billion remaining under the share repurchase authorization[138] - Common share dividends paid were $163 million in Q1 FY22, up from $159 million in Q1 FY21[137] Summarized Guarantor Financial Information - TE Connectivity Ltd. and TEGSA (guarantor entities) had total current assets of $135 million and total noncurrent assets of $3,865 million (including $3,835 million intercompany loans receivable) as of December 24, 2021[141] - Guarantor entities had total current liabilities of $815 million and total noncurrent liabilities of $14,811 million (including $11,298 million intercompany loans payable) as of December 24, 2021[141] - Guarantor entities reported a net loss of $20 million for the quarter ended December 24, 2021[141] Guarantees - The company provides various performance and financial guarantees, including those related to the divested SubCom business ($118 million as of December 24, 2021), with no material adverse effect expected[142][145] Commitments and Contingencies Legal Proceedings - The company is subject to various legal proceedings and claims in the normal course of business, including patent infringement, product liability, and environmental matters, but does not expect a material adverse effect on its financial position or results[147] Trade Compliance Matters - The company is investigating past compliance with U.S. trade controls and has made voluntary disclosures of apparent violations to BIS and DDTC, reserving for potential fines, though the final outcome is uncertain[148] Critical Accounting Policies and Estimates - The preparation of financial statements requires management to make estimates and assumptions, particularly for revenue recognition, goodwill and other intangible assets, income taxes, and pension plans[150][151] - There were no significant changes to critical accounting policies and estimates during the first quarter of fiscal 2022[151] Non-GAAP Financial Measure Organic Net Sales Growth (Decline) - Organic net sales growth (decline) is a non-GAAP financial measure that excludes the impact of foreign currency exchange rates and acquisitions/divestitures, used to assess underlying business growth[153] - Management uses this measure to monitor and evaluate performance, in decision-making processes, and as a significant component in incentive compensation plans[154] - This non-GAAP measure should not be considered a replacement for GAAP results, and its primary limitation is that it excludes financial impacts that would otherwise alter reported results[156] Forward-Looking Information - The report contains forward-looking statements based on management's beliefs and assumptions, which involve risks, uncertainties, and assumptions, and actual results may differ materially[158][159] - Risks include conditions in global economies, demand in industries (especially automotive), goodwill impairment, competition, raw material costs, foreign currency fluctuations, acquisitions/divestitures, and global business interruptions (e.g., COVID-19 pandemic)[160] - The company does not have any intention or obligation to update forward-looking statements after filing this report, except as required by law[159] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that there have been no significant changes in the company's exposures to market risk during the first quarter of fiscal 2022 and refers to the Annual Report on Form 10-K for further discussion - There have been no significant changes in the company's exposures to market risk during the first quarter of fiscal 2022[163] ITEM 4. CONTROLS AND PROCEDURES This section reports on the evaluation of the company's disclosure controls and procedures, concluding their effectiveness as of December 24, 2021, and confirms that there were no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures and concluded they were effective as of December 24, 2021[164] Changes in Internal Control Over Financial Reporting - During the quarter ended December 24, 2021, there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[165] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section reports no material developments in legal proceedings since the last Annual Report on Form 10-K, except for a voluntary disclosure regarding miscalculated sulfur hexafluoride (SF6) emissions at a manufacturing site, which is not expected to have a material adverse effect on the company's financial position or results - No material developments in legal proceedings since the Annual Report on Form 10-K for fiscal year ended September 24, 2021, except for a voluntary disclosure regarding miscalculated SF6 emissions at the Silicon Microstructures, Inc. (SMI) manufacturing site[167][168] - Monetary sanctions may be faced for the SF6 emissions issue, but are not anticipated to have a material adverse effect on results of operations, financial position, or cash flows[168] ITEM 1A. RISK FACTORS This section states that there have been no material changes in the company's risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended September 24, 2021, and refers to that report for further details - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended September 24, 2021[169] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section provides information on the company's purchases of its own common shares during the quarter ended December 24, 2021, including shares acquired to satisfy tax withholding requirements and those purchased through open market transactions under the share repurchase program Issuer Purchases of Equity Securities Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | :--- | | September 25–October 22, 2021 | 606,466 | $143.95 | 605,800 | $1,503,530,133 | | October 23–November 26, 2021 | 696,004 | $157.99 | 576,000 | $1,413,296,836 | | November 27–December 24, 2021 | 508,700 | $157.08 | 437,400 | $1,344,652,772 | | Total | 1,811,170 | $153.03 | 1,619,200 | | - Purchases included 191,970 common shares acquired from individuals to satisfy tax withholding requirements and 1,619,200 common shares through open market purchases under the share repurchase program[170] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications by the Chief Executive Officer and Chief Financial Officer, guaranteed securities, and various Inline XBRL documents - Exhibits include certifications by the Chief Executive Officer (31.1, 32.1) and Chief Financial Officer (31.2, 32.1), Guaranteed Securities (22.1), and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[171] Signatures This section contains the signature block for the Form 10-Q, confirming its authorization and submission by Heath A. Mitts, Executive Vice President and Chief Financial Officer, on January 28, 2022 - The report was signed by Heath A. Mitts, Executive Vice President and Chief Financial Officer, on January 28, 2022[175]