TE CONNECTIVITY LTD., 10-Q filed on 4/23/2021
Quarterly Report
v3.21.1
Document and Entity Information - shares
6 Months Ended
Mar. 26, 2021
Apr. 19, 2021
Document and Entity Information    
Entity Registrant Name TE CONNECTIVITY LTD.  
Entity Central Index Key 0001385157  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 26, 2021  
Document Transition Report false  
Entity File Number 001-33260  
Entity Incorporation, State or Country Code V8  
Entity Tax Identification Number 98-0518048  
Entity Address, Address Line One Mühlenstrasse 26  
Entity Address, City or Town Schaffhausen  
Entity Address, Country CH  
Entity Address, Postal Zip Code CH-8200  
Country Region +41  
City Area Code (0)52  
Local Phone Number 633 66 61  
Title of 12(b) Security Common Shares, Par Value CHF 0.57  
Trading Symbol TEL  
Security Exchange Name NYSE  
Amendment Flag false  
Current Fiscal Year End Date --09-24  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   330,224,626
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q2  
v3.21.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Mar. 26, 2021
Mar. 27, 2020
Mar. 26, 2021
Mar. 27, 2020
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        
Net sales $ 3,738 $ 3,195 $ 7,260 $ 6,363
Cost of sales 2,528 2,166 4,904 4,304
Gross margin 1,210 1,029 2,356 2,059
Selling, general, and administrative expenses 401 352 762 719
Research, development, and engineering expenses 174 158 336 319
Acquisition and integration costs 6 12 14 19
Restructuring and other charges, net 17 22 184 46
Impairment of goodwill   900   900
Operating income (loss) 612 (415) 1,060 56
Interest income 8 5 11 11
Interest expense (13) (11) (28) (23)
Other income, net 4 11 3 16
Income (loss) from continuing operations before income taxes 611 (410) 1,046 60
Income tax expense (106) (42) (166) (489)
Income (loss) from continuing operations 505 (452) 880 (429)
Income (loss) from discontinued operations, net of income taxes 1 (4) 7 (1)
Net income (loss) $ 506 $ (456) $ 887 $ (430)
Basic earnings (loss) per share:        
Income (loss) from continuing operations (in dollars per share) $ 1.53 $ (1.35) $ 2.66 $ (1.28)
Income (loss) from discontinued operations (in dollars per share)   (0.01) 0.02  
Net income (loss) (in dollars per share) 1.53 (1.37) 2.68 (1.29)
Diluted earnings (loss) per share:        
Income (loss) from continuing operations (in dollars per share) 1.51 (1.35) 2.64 (1.28)
Income (loss) from discontinued operations (in dollars per share)   (0.01) 0.02  
Net income (loss) (in dollars per share) $ 1.51 $ (1.37) $ 2.66 $ (1.29)
Weighted-average number of shares outstanding:        
Basic (in shares) 331 334 331 334
Diluted (in shares) 334 334 333 334
v3.21.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Mar. 26, 2021
Mar. 27, 2020
Mar. 26, 2021
Mar. 27, 2020
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)        
Net income (loss) $ 506 $ (456) $ 887 $ (430)
Other comprehensive income (loss):        
Currency translation 21 (114) 132 (64)
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes 6 8 12 16
Gains (losses) on cash flow hedges, net of income taxes 28 (53) 57 (22)
Other comprehensive income (loss) 55 (159) 201 (70)
Comprehensive income (loss) 561 (615) 1,088 (500)
Less: comprehensive (income) loss attributable to noncontrolling interests 4 2 (2) 2
Comprehensive income (loss) attributable to TE Connectivity Ltd. $ 565 $ (613) $ 1,086 $ (498)
v3.21.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 26, 2021
Sep. 25, 2020
Current assets:    
Cash and cash equivalents $ 1,748 $ 945
Accounts receivable, net of allowance for doubtful accounts of $35 and $29, respectively 2,921 2,377
Inventories 2,134 1,950
Prepaid expenses and other current assets 619 512
Total current assets 7,422 5,784
Property, plant, and equipment, net 3,662 3,650
Goodwill 5,342 5,224
Intangible assets, net 1,548 1,593
Deferred income taxes 2,204 2,178
Other assets 789 813
Total assets 20,967 19,242
Current liabilities:    
Short-term debt 919 694
Accounts payable 1,793 1,276
Accrued and other current liabilities 2,327 1,720
Total current liabilities 5,039 3,690
Long-term debt 3,602 3,452
Long-term pension and postretirement liabilities 1,299 1,336
Deferred income taxes 140 143
Income taxes 277 252
Other liabilities 827 874
Total liabilities 11,184 9,747
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests 114 112
Shareholders' equity:    
Common shares, CHF 0.57 par value, 338,953,381 shares authorized and issued 149 149
Accumulated earnings 10,541 10,348
Treasury shares, at cost, 8,520,155 and 8,295,878 shares, respectively (775) (669)
Accumulated other comprehensive loss (246) (445)
Total shareholders' equity 9,669 9,383
Total liabilities, redeemable noncontrolling interests, and shareholders' equity $ 20,967 $ 19,242
v3.21.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical)
$ in Millions
Mar. 26, 2021
USD ($)
shares
Mar. 26, 2021
SFr / shares
Sep. 25, 2020
USD ($)
shares
Sep. 25, 2020
SFr / shares
CONDENSED CONSOLIDATED BALANCE SHEETS        
Accounts receivable, allowance for doubtful accounts (in dollars) | $ $ 35   $ 29  
Common shares, par value (in currency per share) | SFr / shares   SFr 0.57   SFr 0.57
Common shares, shares authorized 338,953,381   338,953,381  
Common shares, shares issued 338,953,381   338,953,381  
Treasury shares 8,520,155   8,295,878  
v3.21.1
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY - USD ($)
shares in Millions, $ in Millions
Common Shares
Treasury Shares
Contributed Surplus
Accumulated Earnings
Accumulated Other Comprehensive Loss
TE Connectivity Ltd. Shareholders' Equity
Noncontrolling Interests
Total
Balance at at Sep. 27, 2019 $ 154 $ (1,337)   $ 12,256 $ (503) $ 10,570   $ 10,570
Balance (in shares) at at Sep. 27, 2019 351 (16)            
Increase (Decrease) in Equity:                
Acquisition             $ 107 107
Net income (loss)       (430)   (430)   (430)
Other comprehensive income (loss)         (68) (68) (2) (70)
Share-based compensation expense     $ 37     37   37
Dividends       (635)   (635)   (635)
Exercise of share options   $ 27       27   27
Restricted share award vestings and other activity   $ 94 (37) (69)   (12)   (12)
Restricted share award vestings and other activity (in shares)   1            
Repurchase of common shares   $ (423)       (423)   $ (423)
Repurchase of common shares (in shares)   (5)           (5)
Balance at at Mar. 27, 2020 $ 154 $ (1,639)   11,122 (571) 9,066 105 $ 9,171
Balance (in shares) at at Mar. 27, 2020 351 (20)            
Balance at at Dec. 27, 2019 $ 154 $ (1,389)   12,206 (414) 10,557   10,557
Balance (in shares) at at Dec. 27, 2019 351 (17)            
Increase (Decrease) in Equity:                
Acquisition             107 107
Net income (loss)       (456)   (456)   (456)
Other comprehensive income (loss)         (157) (157) (2) (159)
Share-based compensation expense     15     15   15
Dividends       (635)   (635)   (635)
Exercise of share options   $ 13       13   13
Restricted share award vestings and other activity   17 (15) 7   9   9
Repurchase of common shares   $ (280)       (280)   (280)
Repurchase of common shares (in shares)   (3)            
Balance at at Mar. 27, 2020 $ 154 $ (1,639)   11,122 (571) 9,066 $ 105 9,171
Balance (in shares) at at Mar. 27, 2020 351 (20)            
Balance at at Sep. 25, 2020 $ 149 $ (669)   10,348 (445) 9,383   9,383
Balance (in shares) at at Sep. 25, 2020 339 (8)            
Increase (Decrease) in Equity:                
Net income (loss)       887   887   887
Other comprehensive income (loss)         199 199   199
Share-based compensation expense     49     49   49
Dividends       (661)   (661)   (661)
Exercise of share options   $ 119       119   119
Exercise of share options (in shares)   2            
Restricted share award vestings and other activity   $ 84 (49) (33)   2   2
Repurchase of common shares   $ (309)       (309)   $ (309)
Repurchase of common shares (in shares)   (3)           (3)
Balance at at Mar. 26, 2021 $ 149 $ (775)   10,541 (246) 9,669   $ 9,669
Balance (in shares) at at Mar. 26, 2021 339 (9)            
Balance at at Dec. 25, 2020 $ 149 $ (655)   10,672 (305) 9,861   9,861
Balance (in shares) at at Dec. 25, 2020 339 (8)            
Increase (Decrease) in Equity:                
Net income (loss)       506   506   506
Other comprehensive income (loss)         59 59   59
Share-based compensation expense     30     30   30
Dividends       (661)   (661)   (661)
Exercise of share options   $ 44       44   44
Exercise of share options (in shares)   1            
Restricted share award vestings and other activity   $ 18 $ (30) 24   12   12
Repurchase of common shares   $ (182)       (182)   (182)
Repurchase of common shares (in shares)   (2)            
Balance at at Mar. 26, 2021 $ 149 $ (775)   $ 10,541 $ (246) $ 9,669   $ 9,669
Balance (in shares) at at Mar. 26, 2021 339 (9)            
v3.21.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
6 Months Ended
Mar. 26, 2021
Mar. 27, 2020
Cash flows from operating activities:    
Net income (loss) $ 887 $ (430)
(Income) loss from discontinued operations, net of income taxes (7) 1
Income (loss) from continuing operations 880 (429)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:    
Impairment of goodwill   900
Depreciation and amortization 380 354
Deferred income taxes (48) 345
Non-cash lease cost 59 52
Provision for losses on accounts receivable and inventories 22 18
Share-based compensation expense 49 37
Other (20) 11
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:    
Accounts receivable, net (567) (140)
Inventories (212) (151)
Prepaid expenses and other current assets (30) 25
Accounts payable 510 49
Accrued and other current liabilities 125 (180)
Income taxes 34 1
Other 38  
Net cash provided by operating activities 1,220 892
Cash flows from investing activities:    
Capital expenditures (284) (309)
Proceeds from sale of property, plant, and equipment 58 3
Acquisition of businesses, net of cash acquired (107) (359)
Other 10 (2)
Net cash used in investing activities (323) (667)
Cash flows from financing activities:    
Net decrease in commercial paper   (219)
Proceeds from issuance of debt 661 593
Repayment of debt (280)  
Proceeds from exercise of share options 119 27
Repurchase of common shares (259) (408)
Payment of common share dividends to shareholders (318) (307)
Other (24) (31)
Net cash used in financing activities (101) (345)
Effect of currency translation on cash 7 (11)
Net increase (decrease) in cash, cash equivalents, and restricted cash 803 (131)
Cash, cash equivalents, and restricted cash at beginning of period 945 927
Cash, cash equivalents, and restricted cash at end of period $ 1,748 $ 796
v3.21.1
Basis of Presentation
6 Months Ended
Mar. 26, 2021
Basis of Presentation  
Basis of Presentation

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 25, 2020.

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

v3.21.1
Restructuring and Other Charges, Net
6 Months Ended
Mar. 26, 2021
Restructuring and Other Charges, Net  
Restructuring and Other Charges, Net

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 26,

March 27,

March 26,

March 27,

    

2021

    

2020

    

2021

    

2020

    

(in millions)

Restructuring charges, net

$

11

$

22

$

160

$

46

Impairment of held for sale businesses and loss on divestiture

4

21

Other charges, net

 

2

 

 

3

 

Restructuring and other charges, net

$

17

$

22

$

184

$

46

Net restructuring charges by segment were as follows:

For the

For the

Quarters Ended

Six Months Ended

March 26,

March 27,

March 26,

March 27,

    

2021

    

2020

    

2021

    

2020

    

(in millions)

Transportation Solutions

$

10

$

18

$

128

$

22

Industrial Solutions

 

 

1

 

20

 

16

Communications Solutions

 

1

 

3

 

12

 

8

Restructuring charges, net

$

11

$

22

$

160

$

46

Activity in our restructuring reserves was as follows:

Balance at

Balance at

  

September 25,

Changes in

Cash

Non-Cash

Currency

March 26,

    

2020

    

Charges

    

Estimate

    

Payments

    

Items

    

Translation

    

2021

    

(in millions)

Fiscal 2021 Actions:

Employee severance

$

$

161

$

(14)

$

(5)

$

$

(4)

$

138

Facility and other exit costs

2

(2)

Property, plant, and equipment

4

(4)

Total

167

(14)

(7)

(4)

(4)

138

Fiscal 2020 Actions:

Employee severance

180

2

(59)

5

128

Facility and other exit costs

8

7

(1)

1

15

Property, plant, and equipment

5

(5)

Total

188

14

(60)

(5)

6

143

Pre-Fiscal 2020 Actions:

Employee severance

93

(6)

(36)

1

52

Facility and other exit costs

4

1

(5)

Property, plant, and equipment

(2)

2

Total

97

1

(8)

(41)

2

1

52

Total Activity

$

285

$

182

$

(22)

$

(108)

$

(7)

$

3

$

333

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. During the six months ended March 26, 2021, we recorded net restructuring charges of $153 million in connection with this program. We expect to complete all restructuring actions commenced during the six months ended March 26, 2021 by the end of fiscal 2022 and to incur additional charges of approximately $20 million related primarily to employee severance and facility exit costs across all segments.

Fiscal 2020 Actions

During fiscal 2020, we initiated a restructuring program associated with footprint consolidation and structural improvements, due in part to the COVID-19 pandemic, across all segments. In connection with this program, during the six months ended March 26, 2021 and March 27, 2020, we recorded restructuring charges of $14 million and $43 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2020 by the end of fiscal 2023 and to incur additional charges of approximately $26 million related primarily to employee severance and facility exit costs.

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

Total

Cumulative

Remaining

Expected

Charges

Expected

    

Charges

    

Incurred

    

Charges

    

(in millions)

Transportation Solutions

$

140

$

127

$

13

Industrial Solutions

 

109

 

100

 

9

Communications Solutions

 

41

 

37

 

4

Total

$

290

$

264

$

26

Pre-Fiscal 2020 Actions

Prior to fiscal 2020, we initiated restructuring programs associated with footprint consolidation and structural improvements impacting all segments. During the six months ended March 26, 2021 and March 27, 2020, we recorded net restructuring credits of $7 million and charges of $3 million, respectively, related to pre-fiscal 2020 actions. We expect additional charges related to pre-fiscal 2020 actions to be insignificant.

Total Restructuring Reserves

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

March 26,

September 25,

    

2021

    

2020

    

(in millions)

Accrued and other current liabilities

$

270

$

229

Other liabilities

 

63

 

56

Restructuring reserves

$

333

$

285

v3.21.1
Acquisitions
6 Months Ended
Mar. 26, 2021
Acquisitions  
Acquisitions

3. Acquisitions

During the six months ended March 26, 2021, we acquired one business for a cash purchase price of $106 million, net of cash acquired. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.

We acquired four businesses, including First Sensor AG (“First Sensor”), for a combined cash purchase price of $356 million, net of cash acquired, during the six months ended March 27, 2020. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

In connection with the acquisition of First Sensor, we and First Sensor entered into a Domination and Profit and Loss Transfer Agreement (“DPLTA”). Under the terms of the DPLTA, upon its effectiveness in July 2020, First Sensor minority shareholders can elect either (1) to remain First Sensor minority shareholders and receive recurring annual compensation of €0.56 per First Sensor share or (2) to put their First Sensor shares in exchange for compensation of €33.27 per First Sensor share. The ultimate amount and timing of any future cash payments related to the DPLTA is uncertain. Our First Sensor noncontrolling interest balance, which was originally recorded at a fair value of €96 million (equivalent to $107 million), is recorded as redeemable noncontrolling interest outside of equity on the Condensed Consolidated Balance Sheet as of March 26, 2021 and September 25, 2020 as the exercise of the put right by First Sensor minority shareholders is not within our control.

v3.21.1
Inventories
6 Months Ended
Mar. 26, 2021
Inventories  
Inventories

4. Inventories

Inventories consisted of the following:

March 26,

September 25,

    

2021

    

2020

    

(in millions)

Raw materials

$

290

$

251

Work in progress

 

924

 

851

Finished goods

 

920

 

848

Inventories

$

2,134

$

1,950

v3.21.1
Goodwill
6 Months Ended
Mar. 26, 2021
Goodwill  
Goodwill

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 25, 2020(1)

$

1,527

$

3,110

$

587

$

5,224

Acquisitions

54

54

Purchase price adjustments

1

(1)

Currency translation and other

 

20

 

36

 

8

 

64

March 26, 2021(1)

$

1,548

$

3,199

$

595

$

5,342

(1)At March 26, 2021 and September 25, 2020, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $3,091 million, $669 million, and $489 million, respectively.

During the six months ended March 26, 2021, we recognized goodwill in the Industrial Solutions segment in connection with a recent acquisition. See Note 3 for additional information regarding the acquisition.

v3.21.1
Intangible Assets, Net
6 Months Ended
Mar. 26, 2021
Intangible Assets, Net  
Intangible Assets, Net

6. Intangible Assets, Net

Intangible assets consisted of the following:

March 26, 2021

September 25, 2020

    

Gross

    

    

Net

    

Gross

    

    

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

    

(in millions)

Customer relationships

$

1,699

$

(610)

$

1,089

$

1,648

$

(554)

$

1,094

Intellectual property

1,233

(787)

446

1,225

(739)

486

Other

 

19

 

(6)

 

13

 

19

 

(6)

 

13

Total

$

2,951

$

(1,403)

$

1,548

$

2,892

$

(1,299)

$

1,593

Intangible asset amortization expense was $48 million and $46 million for the quarters ended March 26, 2021 and March 27, 2020, respectively, and $96 million and $91 million for the six months ended March 26, 2021 and March 27, 2020, respectively.

At March 26, 2021, the aggregate amortization expense on intangible assets is expected to be as follows:

    

(in millions)

  

Remainder of fiscal 2021

$

96

Fiscal 2022

192

Fiscal 2023

 

191

Fiscal 2024

 

159

Fiscal 2025

 

143

Fiscal 2026

 

137

Thereafter

 

630

Total

$

1,548

v3.21.1
Debt
6 Months Ended
Mar. 26, 2021
Debt  
Debt

7. Debt

During the quarter ended March 26, 2021, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, repaid, at maturity, $250 million of 4.875% senior notes due in January 2021.

In February 2021, TEGSA issued €550 million aggregate principal amount of 0.00% senior notes due in February 2029. The notes are TEGSA’s unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur. The notes are fully and unconditionally guaranteed as to payment on an unsecured basis by TE Connectivity Ltd.

During the quarter ended March 26, 2021, we reclassified $500 million of 3.50% senior notes due in February 2022 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet.

The fair value of our debt, based on indicative valuations, was approximately $4,899 million and $4,550 million at March 26, 2021 and September 25, 2020, respectively.

v3.21.1
Leases
6 Months Ended
Mar. 26, 2021
Leases  
Leases

8. Leases

The components of lease cost were as follows:

For the

For the

Quarters Ended

    

Six Months Ended

March 26,

March 27,

March 26,

March 27,

    

2021

    

2020

    

2021

    

2020

    

    

(in millions)

    

Operating lease cost

$

29

$

25

$

59

$

52

Variable lease cost

13

15

24

26

Total lease cost

$

42

$

40

$

83

$

78

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

For the

Six Months Ended

March 26,

March 27,

    

2021

    

2020

    

    

(in millions)

    

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

Payments for operating leases(1)

$

59

$

51

Right-of-use assets obtained in exchange for new operating lease liabilities

38

12

(1)These payments are included in cash flows from continuing operating activities, primarily in changes in other liabilities.
v3.21.1
Commitments and Contingencies
6 Months Ended
Mar. 26, 2021
Commitments and Contingencies  
Commitments and Contingencies

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.

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 March 26, 2021, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $17 million to $47 million, and we accrued $20 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 March 26, 2021, we had outstanding letters of credit, letters of guarantee, and surety bonds of $157 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 $130 million as of March 26, 2021 and are expected to expire at various dates through fiscal 2025. During the quarter ended March 26, 2021, we amended our agreement with SubCom and removed the requirement to issue new performance guarantees. 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.

v3.21.1
Financial Instruments
6 Months Ended
Mar. 26, 2021
Financial Instruments  
Financial Instruments

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 €700 million at March 26, 2021 and September 25, 2020. Under the terms of these contracts, which have been designated as cash flow hedges, we make interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.34% per annum. Upon maturity 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 provide cash collateral.

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

March 26,

September 25,

    

2021

    

2020

    

(in millions)

Other assets

$

$

1

Other liabilities

 

24

 

9

At March 26, 2021 and September 25, 2020, collateral received from or paid to our counterparties approximated the net derivative position. Collateral is recorded in accrued and other current liabilities when the contracts are in a net asset position, or prepaid expenses and other current assets when the contracts are in a net liability position on the Condensed Consolidated Balance Sheets. The impacts of these cross-currency swap contracts were as follows:

For the

For the

Quarters Ended

Six Months Ended

March 26,

March 27,

March 26,

March 27,

    

2021

    

2020

    

2021

    

2020

    

(in millions)

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

$

$

28

$

(4)

    

$

32

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

 

28

 

17

 

(12)

 

(5)

(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 $4,154 million and $3,511 million at March 26, 2021 and September 25, 2020, respectively.

We also use a cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the contracts under this program was $1,380 million and $1,664 million at March 26, 2021 and September 25, 2020, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.29% 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:

March 26,

September 25,

    

2021

    

2020

    

(in millions)

Prepaid expenses and other current assets

$

1

$

1

Other assets

 

11

 

3

Accrued and other current liabilities

11

6

Other liabilities

27

16

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

For the

For the

Quarters Ended

Six Months Ended

March 26,

March 27,

March 26,

March 27,

    

2021

    

2020

    

2021

    

2020

    

(in millions)

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

$

133

$

57

$

(35)

$

(8)

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

 

58

 

55

 

(27)

 

22

(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 March 26, 2021 and September 25, 2020 and were designated as cash flow hedges. These forward starting interest rate swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

March 26,

September 25,

    

2021

    

2020

    

(in millions)

Prepaid expenses and other current assets

$

10

$

Accrued and other current liabilities

27

Other liabilities

64

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

For the

For the

Quarters Ended

Six Months Ended

March 26,

March 27,

March 26,

March 27,

    

2021

    

2020

    

2021

    

2020

    

(in millions)

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

$

34

$

(42)

$

47

    

$

(32)

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 $410 million and $312 million at March

26, 2021 and September 25, 2020, respectively, and were designated as cash flow hedges. These commodity swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

March 26,

September 25,

    

2021

    

2020

    

(in millions)

Prepaid expenses and other current assets

$

53

$

41

Other assets

 

2

 

3

Accrued and other current liabilities

6

2

Other liabilities

3

1

The impacts of these commodity swap contracts were as follows:

For the

For the

Quarters Ended

Six Months Ended

March 26,

March 27,

March 26,

March 27,

    

2021

    

2020

    

2021

    

2020

    

(in millions)

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

$

17

$

(37)

$

54

    

$

(18)

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

24

4

39

3

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.

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Retirement Plans
6 Months Ended
Mar. 26, 2021
Retirement Plans  
Retirement Plans