Item 16. FORM 10-K SUMMARY

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Item 16. FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	TE CONNECTIVITY LTD.

	By:	/s/ Heath A. Mitts
		Heath A. Mitts
		Executive Vice President
		and Chief Financial Officer
		(Principal Financial Officer)

Date: November 15, 2022

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date


/s/ Terrence R. Curtin	Chief Executive Officer and Director	November 15, 2022
Terrence R. Curtin	(Principal Executive Officer)

/s/ Heath A. Mitts	Executive Vice President,
Heath A. Mitts	Chief Financial Officer, and Director	November 15, 2022
	(Principal Financial Officer)

/s/ Robert J. Ott	Senior Vice President and
Robert J. Ott	Corporate Controller	November 15, 2022
	(Principal Accounting Officer)

*	Director	November 15, 2022
Carol A. Davidson

*	Director	November 15, 2022
Lynn A. Dugle

*	Director	November 15, 2022
William A. Jeffrey

*	Director	November 15, 2022
Syaru Shirley Lin

*	Director	November 15, 2022
Thomas J. Lynch

*	Director	November 15, 2022
Yong Nam

*	Director	November 15, 2022
Abhijit Y. Talwalkar

*	Director	November 15, 2022
Mark C. Trudeau


Signature	Title	Date


*	Director	November 15, 2022
Dawn C. Willoughby

*	Director	November 15, 2022
Laura H. Wright

*	John S. Jenkins, Jr., by signing his name hereto, does sign this document on behalf of the above noted individuals, pursuant to powers of attorney duly executed by such individuals, which have been filed as Exhibit 24.1 to this Report.


	By:	/s/ John S. Jenkins, Jr.
		John S. Jenkins, Jr.
		Attorney-in-fact

TE CONNECTIVITY LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34)		53
Consolidated Statements of Operations for the Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020		56
Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020		57
Consolidated Balance Sheets as of September 30, 2022 and September 24, 2021		58
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020		59
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020		60
Notes to Consolidated Financial Statements		61
Schedule II—Valuation and Qualifying Accounts		99

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of TE Connectivity Ltd.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TE Connectivity Ltd. and subsidiaries (the "Company") as of September 30, 2022 and September 24, 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended September 30, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and September 24, 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 15, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes — Realizability of Deferred Tax Assets — Refer to Notes 2 and 15 to the financial statements

Critical Audit Matter Description

The Company recognizes deferred income taxes for temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Future realization of deferred tax assets depends on the existence of sufficient taxable income of the appropriate character prior to expiration. Sources of taxable income include future reversals of deferred tax assets and liabilities, expected future taxable income, taxable income in prior carryback years if permitted under the tax law, and tax planning strategies. Management has determined that it is more likely than not that sufficient taxable income will be generated in the future to

realize a portion of its deferred tax assets, and therefore, a valuation allowance of $7.1 billion has been recorded to offset the Company’s gross deferred tax assets as of September 30, 2022 of $9.8 billion.

We identified the realizability of deferred tax assets as a critical audit matter because of the Company’s tax structure and the significant judgments and estimates made by management to determine that sufficient taxable income will be generated in the future prior to expiration to realize a portion of its deferred tax assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, when performing audit procedures to evaluate the appropriateness of qualifying tax planning strategies and the reasonableness of management’s estimates of taxable income prior to expiration.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination that it is more likely than not that sufficient taxable income will be generated in the future to realize deferred tax assets included the following, among others:

	•	We tested the effectiveness of controls over management’s estimates of the realization of the deferred tax assets, including those over the estimates of taxable income, the approval of tax planning strategies and the determination of whether it is more likely than not that the deferred tax assets will be realized prior to expiration.

	•	We evaluated the reasonableness of management’s assessment of the significance and weighting of negative evidence and positive evidence that is objectively verifiable.

	•	We evaluated management’s ability to accurately estimate taxable income by comparing actual results to management’s historical estimates and evaluating whether there have been any changes that would impact management’s ability to continue accurately estimating taxable income.

	•	We tested the reasonableness of management’s estimates of taxable income by comparing the estimates to:

	–	Historical taxable income.

	–	Internal communications to management and the board of directors.

	–	Management’s history of carrying out its stated plans and its ability to carry out its plans considering contractual commitments, available financing, or debt covenants.

	•	We evaluated whether the estimates of future taxable income were consistent with evidence obtained in other areas of the audit.

	•	We evaluated whether the taxable income in prior carryback years was of the appropriate character and available under the tax law.

	•	With the assistance of our income tax specialists, we evaluated (1) the appropriateness of qualifying tax planning strategies, including that they were prudent, feasible and would more likely than not result in the realization of deferred tax assets and (2) management’s assessment that sufficient taxable income will be generated in the future to realize a portion of the deferred tax assets prior to expiration.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 15, 2022

We have served as the Company’s auditor since 2007.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of TE Connectivity Ltd.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of TE Connectivity Ltd. and subsidiaries (the “Company”) as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the fiscal year ended September 30, 2022, of the Company and our report dated November 15, 2022 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 15, 2022

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020


	Fiscal
	2022		2021		2020

	(in millions, except per share data)
Net sales	$	16,281	$	14,923	$	12,172
Cost of sales		11,037		10,036		8,437
Gross margin		5,244		4,887		3,735
Selling, general, and administrative expenses		1,584		1,512		1,392
Research, development, and engineering expenses		718		677		613
Acquisition and integration costs		45		31		36
Restructuring and other charges, net		141		233		257
Impairment of goodwill		—		—		900
Operating income		2,756		2,434		537
Interest income		15		17		15
Interest expense		(66)		(56)		(48)
Other income (expense), net		28		(17)		20
Income from continuing operations before income taxes		2,733		2,378		524
Income tax expense		(306)		(123)		(783)
Income (loss) from continuing operations		2,427		2,255		(259)
Income from discontinued operations, net of income taxes		1		6		18
Net income (loss)	$	2,428	$	2,261	$	(241)

Basic earnings (loss) per share:
Income (loss) from continuing operations	$	7.51	$	6.83	$	(0.78)
Income from discontinued operations		—		0.02		0.05
Net income (loss)		7.52		6.85		(0.73)

Diluted earnings (loss) per share:
Income (loss) from continuing operations	$	7.47	$	6.77	$	(0.78)
Income from discontinued operations		—		0.02		0.05
Net income (loss)		7.47		6.79		(0.73)

Weighted-average number of shares outstanding:
Basic		323		330		332
Diluted		325		333		332

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020


	Fiscal
	2022		2021		2020

	(in millions)
Net income (loss)	$	2,428	$	2,261	$	(241)
Other comprehensive income (loss):
Currency translation		(510)		144		(11)
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes		259		138		34
Gains (losses) on cash flow hedges, net of income taxes		(95)		(3)		40
Other comprehensive income (loss)		(346)		279		63
Comprehensive income (loss)		2,082		2,540		(178)
Less: comprehensive (income) loss attributable to noncontrolling interests		19		(2)		(5)
Comprehensive income (loss) attributable to TE Connectivity Ltd.	$	2,101	$	2,538	$	(183)

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED BALANCE SHEETS

As of September 30, 2022 and September 24, 2021


	Fiscal Year End
	2022		2021

	(in millions, except
	share data)
Assets
Current assets:
Cash and cash equivalents	$	1,088	$	1,203
Accounts receivable, net of allowance for doubtful accounts of $45 and $41, respectively		2,865		2,928
Inventories		2,676		2,511
Prepaid expenses and other current assets		639		621
Total current assets		7,268		7,263
Property, plant, and equipment, net		3,567		3,778
Goodwill		5,258		5,590
Intangible assets, net		1,288		1,549
Deferred income taxes		2,498		2,499
Other assets		903		783
Total assets	$	20,782	$	21,462
Liabilities, redeemable noncontrolling interests, and shareholders' equity
Current liabilities:
Short-term debt	$	914	$	503
Accounts payable		1,593		1,911
Accrued and other current liabilities		2,125		2,242
Total current liabilities		4,632		4,656
Long-term debt		3,292		3,589
Long-term pension and postretirement liabilities		695		1,139
Deferred income taxes		244		181
Income taxes		304		302
Other liabilities		718		847
Total liabilities		9,885		10,714
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests		95		114
Shareholders' equity:
Common shares, CHF 0.57 par value, 330,830,781 shares authorized and issued, and 336,099,881 shares authorized and issued, respectively		146		148
Accumulated earnings		12,832		11,709
Treasury shares, at cost, 12,749,540 and 9,060,919 shares, respectively		(1,681)		(1,055)
Accumulated other comprehensive loss		(495)		(168)
Total shareholders' equity		10,802		10,634
Total liabilities, redeemable noncontrolling interests, and shareholders' equity	$	20,782	$	21,462

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020


											Accumulated
											Other		Total
	Common Shares			Treasury Shares			Contributed		Accumulated		Comprehensive		Shareholders'
	Shares	Amount		Shares	Amount		Surplus		Earnings		Income (Loss)		Equity

	(in millions)
Balance at fiscal year end 2019	351	$	154	(16)	$	(1,337)	$	—	$	12,256	$	(503)	$	10,570
Net loss	—		—	—		—		—		(241)		—		(241)
Other comprehensive income	—		—	—		—		—		—		58		58
Share-based compensation expense	—		—	—		—		74		—		—		74
Dividends	—		—	—		—		—		(634)		—		(634)
Exercise of share options	—		—	1		55		—		—		—		55
Restricted share award vestings and other activity	—		—	1		143		(74)		(63)		—		6
Repurchase of common shares	—		—	(6)		(505)		—		—		—		(505)
Cancellation of treasury shares	(12)		(5)	12		975		—		(970)		—		—
Balance at fiscal year end 2020	339	$	149	(8)	$	(669)	$	—	$	10,348	$	(445)	$	9,383
Net income	—		—	—		—		—		2,261		—		2,261
Other comprehensive income	—		—	—		—		—		—		277		277
Share-based compensation expense	—		—	—		—		94		—		—		94
Dividends	—		—	—		—		—		(656)		—		(656)
Exercise of share options	—		—	2		167		—		—		—		167
Restricted share award vestings and other activity	—		—	1		89		(94)		17		—		12
Repurchase of common shares	—		—	(7)		(904)		—		—		—		(904)
Cancellation of treasury shares	(3)		(1)	3		262		—		(261)		—		—
Balance at fiscal year end 2021	336	$	148	(9)	$	(1,055)	$	—	$	11,709	$	(168)	$	10,634
Net income	—		—	—		—		—		2,428		—		2,428
Other comprehensive loss	—		—	—		—		—		—		(327)		(327)
Share-based compensation expense	—		—	—		—		119		—		—		119
Dividends	—		—	—		—		—		(714)		—		(714)
Exercise of share options	—		—	—		54		—		—		—		54
Restricted share award vestings and other activity	—		—	1		20		(119)		116		—		17
Repurchase of common shares	—		—	(10)		(1,409)		—		—		—		(1,409)
Cancellation of treasury shares	(5)		(2)	5		709		—		(707)		—		—
Balance at fiscal year end 2022	331	$	146	(13)	$	(1,681)	$	—	$	12,832	$	(495)	$	10,802

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020


	Fiscal
	2022		2021		2020

	(in millions)
Cash flows from operating activities:
Net income (loss)	$	2,428	$	2,261	$	(241)
Income from discontinued operations, net of income taxes		(1)		(6)		(18)
Income (loss) from continuing operations		2,427		2,255		(259)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
Impairment of goodwill		—		—		900
Depreciation and amortization		785		769		711
Deferred income taxes		(147)		(354)		535
Non-cash lease cost		131		120		108
Provision for losses on accounts receivable and inventories		70		46		14
Share-based compensation expense		119		94		74
Other		23		(61)		54
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net		200		(518)		(63)
Inventories		(41)		(556)		(89)
Prepaid expenses and other current assets		50		(19)		51
Accounts payable		(396)		560		(80)
Accrued and other current liabilities		(398)		173		(99)
Income taxes		32		106		(9)
Other		(387)		61		143
Net cash provided by continuing operating activities		2,468		2,676		1,991
Net cash provided by discontinued operating activities		—		—		1
Net cash provided by operating activities		2,468		2,676		1,992
Cash flows from investing activities:
Capital expenditures		(768)		(690)		(560)
Proceeds from sale of property, plant, and equipment		106		86		17
Acquisition of businesses, net of cash acquired		(220)		(423)		(339)
Other		4		(10)		17
Net cash used in investing activities		(878)		(1,037)		(865)
Cash flows from financing activities:
Net increase (decrease) in commercial paper		370		—		(219)
Proceeds from issuance of debt		588		661		593
Repayment of debt		(558)		(708)		(352)
Proceeds from exercise of share options		54		167		55
Repurchase of common shares		(1,412)		(831)		(523)
Payment of common share dividends to shareholders		(685)		(647)		(625)
Other		(41)		(28)		(33)
Net cash used in continuing financing activities		(1,684)		(1,386)		(1,104)
Net cash used in discontinued financing activities		—		—		(1)
Net cash used in financing activities		(1,684)		(1,386)		(1,105)
Effect of currency translation on cash		(21)		5		(4)
Net increase (decrease) in cash, cash equivalents, and restricted cash		(115)		258		18
Cash, cash equivalents, and restricted cash at beginning of fiscal year		1,203		945		927
Cash, cash equivalents, and restricted cash at end of fiscal year	$	1,088	$	1,203	$	945

Supplemental cash flow information:
Interest paid on debt, net	$	58	$	58	$	50
Income taxes paid, net of refunds		421		371		257

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The Consolidated Financial Statements reflect the consolidated operations of TE Connectivity Ltd. and its subsidiaries and have been prepared in United States (“U.S.”) dollars in accordance with accounting principles generally accepted in the U.S. (“GAAP”).

Description of the Business

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

We operate through three reportable segments:

	●	Transportation Solutions—The Transportation Solutions segment is a leader in connectivity and sensor technologies. Our products, which must withstand harsh conditions, are used in the automotive, commercial transportation, and sensors markets.

	●	Industrial Solutions—The Industrial Solutions segment is a leading supplier of products that connect and distribute power, data, and signals. Our products are used in the industrial equipment; aerospace, defense, and marine; energy; and medical markets.

	●	Communications Solutions—The Communications Solutions segment is a leading supplier of electronic components for the data and devices and the appliances markets.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.

Fiscal Year

We have a 52- or 53-week fiscal year that ends on the last Friday of September. Fiscal 2022 was 53 weeks in length and ended on September 30, 2022; fiscal 2021 and 2020 were each 52 weeks in length and ended on September 24, 2021 and September 25, 2020, respectively. For fiscal years in which there are 53 weeks, the fourth fiscal quarter includes 14 weeks.

2. Summary of Significant Accounting Policies

Principles of Consolidation

We consolidate entities in which we own or control more than 50% of the voting shares or otherwise control through similar rights. All intercompany transactions have been eliminated. The results of companies acquired or disposed of are included on the Consolidated Financial Statements from the effective date of acquisition or up to the date of disposal.

Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which is a single, comprehensive, five-step revenue recognition model. Our revenues are generated principally from the sale of our products. Revenue is recognized as performance obligations under the terms of a contract, such as a purchase order with a customer, are satisfied; generally this occurs with the transfer of control. We transfer control and recognize revenue when we ship product to our customers, the customers accept and have legal title for the product, and we have a right to payment for such product. Revenue is measured as the amount of consideration that we

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

expect to receive in exchange for those products and excludes taxes assessed by governmental authorities and collected from customers concurrent with the sale of products. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales. Since we typically invoice our customers when we satisfy our performance obligations, we do not have material contract assets or contract liabilities. Our credit terms are customary and do not contain significant financing components that extend beyond one year of fulfillment of performance obligations. We apply the practical expedient of ASC 606 with respect to financing components and do not evaluate contracts in which payment is due within one year of satisfaction of the related performance obligation. Since our performance obligations to deliver products are part of contracts that generally have original durations of one year or less, we have elected to use the optional exemption to not disclose the aggregate amount of transaction prices associated with unsatisfied or partially satisfied performance obligations. See Note 20 for net sales disaggregated by industry end market and geographic region which is summarized by segment and that we consider meaningful to depict the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.

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

Although products are generally sold at fixed prices, certain distributors and customers receive incentives or awards, such as sales rebates, return allowances, scrap allowances, and other rights, which are accounted for as variable consideration. We estimate these amounts in the same period revenue is recognized based on the expected value to be provided to customers and reduce revenue accordingly. Our estimates of variable consideration and ultimate determination of the estimated amounts to include in the transaction price are based primarily on our assessment of anticipated performance and historical and forecasted information that is reasonably available to us.

Inventories

Inventories are recorded at the lower of cost or net realizable value using the first-in, first-out cost method.

Property, Plant, and Equipment, Net

Property, plant, and equipment is recorded at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense when incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are 10 to 20 years for land improvements, 5 to 40 years for buildings and improvements, and 1 to 15 years for machinery and equipment.

We periodically evaluate, when events and circumstances warrant, the net realizable value of property, plant, and equipment and other long-lived assets, relying on several factors including operating results, business plans, economic projections, and anticipated future cash flows. When indicators of potential impairment are present, the carrying values of the asset group are evaluated in relation to the operating performance and estimated future undiscounted cash flows of the underlying asset group. Impairment of the carrying value is recognized whenever anticipated future undiscounted cash flow estimates are less than the carrying value of the asset. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and discount rates, reflecting varying degrees of perceived risk.

Goodwill and Other Intangible Assets

We account for goodwill and other intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other.

Intangible assets include both indeterminable-lived residual goodwill and determinable-lived identifiable intangible assets. Intangible assets with determinable lives primarily include intellectual property, consisting of patents, trademarks, and unpatented technology, and customer relationships. Recoverability estimates range from 1 to 50 years and costs are generally amortized on a straight-line basis. Evaluations of the remaining useful lives of determinable-lived intangible assets are performed on a periodic basis and when events and circumstances warrant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At fiscal year end 2022, we had five reporting units, all of which contained goodwill. There were two reporting units in both the Transportation Solutions and Industrial Solutions segments and one reporting unit in the Communications Solutions segment. When changes occur in the composition of one or more reporting units, goodwill is reassigned to the reporting units affected based on their relative fair values.

Goodwill impairment is evaluated by comparing the carrying value of each reporting unit to its fair value on the first day of the fourth fiscal quarter of each year or more frequently if events or changes in circumstances indicate that the asset may be impaired. In assessing a potential impairment, management relies on several reporting unit-specific factors including operating results, business plans, economic projections, anticipated future cash flows, transactions, and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors to the impairment analysis.

When testing for goodwill impairment, we identify potential impairment by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a goodwill impairment charge will be recorded for the amount of the excess, limited to the total amount of goodwill allocated to the reporting unit.

Fair value estimates used in the goodwill impairment tests are calculated using an income approach based on the present value of future cash flows of each reporting unit. The income approach is supported by a guideline analysis (a market approach). These approaches incorporate several assumptions including future growth rates, discount rates, income tax rates, and market activity in assessing fair value and are reporting unit specific. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.

Research and Development

Research and development expenditures are expensed when incurred and are included in research, development, and engineering expenses on the Consolidated Statements of Operations. Research and development expenses include salaries, direct costs incurred, and building and overhead expenses. The amounts expensed in fiscal 2022, 2021, and 2020 were $610 million, $612 million, and $539 million, respectively.

Income Taxes

Income taxes are computed in accordance with the provisions of ASC 740, Income Taxes. Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected on the Consolidated Financial Statements. Deferred tax liabilities and assets are determined based on the differences between the book and tax bases of particular assets and liabilities and operating loss carryforwards using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The calculation of our tax liabilities includes estimates for uncertainties in the application of complex tax regulations across multiple global jurisdictions where we conduct our operations. Under the uncertain tax position provisions of ASC 740, we recognize liabilities for tax and related interest for issues in tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and related interest will be due. These tax liabilities and related interest are reflected net of the impact of related tax loss carryforwards, as such tax loss carryforwards will be applied against these tax liabilities and will reduce the amount of cash tax payments due upon the eventual settlement with the tax authorities. These estimates may change due to changing facts and circumstances. Due to the complexity of these uncertainties, the ultimate resolution may result in a settlement that differs from our current estimate of the tax liabilities and related interest.

Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, debt, and derivative financial instruments.

We account for derivative financial instrument contracts on the Consolidated Balance Sheets at fair value. For instruments not designated as hedges under ASC 815, Derivatives and Hedging, the changes in the instruments’ fair value are

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

recognized currently in earnings. For instruments designated as cash flow hedges, the effective portion of changes in the fair value of a derivative is recorded in other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. Amounts excluded from the hedging relationship are recognized currently in earnings. Changes in the fair value of instruments designated as fair value hedges affect the carrying value of the asset or liability hedged, with changes in both the derivative instrument and the hedged asset or liability being recognized currently in earnings.

We determine the fair value of our financial instruments using methods and assumptions that are based on market conditions and risks existing at each balance sheet date. Standard market conventions are used to determine the fair value of financial instruments, including derivatives.

The cash flows related to derivative financial instruments are reported in the operating activities section of the Consolidated Statements of Cash Flows.

Our derivative financial instruments present certain market and counterparty risks. Concentration of counterparty risk is mitigated, however, by our use of financial institutions worldwide, substantially all of which have long-term S&P, Moody’s, and/or Fitch credit ratings of A/A2 or higher. In addition, we utilize only conventional derivative financial instruments. We are exposed to potential losses if a counterparty fails to perform according to the terms of its agreement. With respect to counterparty net asset positions recognized at fiscal year end 2022, we have assessed the likelihood of counterparty default as remote. We currently provide guarantees from a wholly-owned subsidiary to the counterparties to our commodity swap derivatives and, prior to maturity, exchanged cash collateral with the counterparties to certain of our cross-currency swap contracts. The likelihood of performance on the guarantees has been assessed as remote. For all other derivative financial instruments, we are not required to provide, nor do we require counterparties to provide, collateral or other security.

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, specifies a fair value hierarchy based upon the observable inputs utilized in valuation of certain assets and liabilities. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. Fair value measurements are classified under the following hierarchy:

	●	_Level 1—_Quoted prices in active markets for identical assets and liabilities.

	●	_Level 2—_Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

	●	_Level 3—_Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flows methodologies, and similar techniques that use significant unobservable inputs.

Derivative financial instruments measured at fair value on a recurring basis are generally valued using level 2 inputs.

Financial instruments other than derivative instruments include cash and cash equivalents, accounts receivable, accounts payable, and debt. These instruments are recorded on the Consolidated Balance Sheets at book value. For cash and cash equivalents, accounts receivable, and accounts payable, we believe book value approximates fair value due to the short-term nature of these instruments. See Note 10 for disclosure of the fair value of debt. The following is a description of the valuation methodologies used for the respective financial instruments:

	●	_Cash and cash equivalents—_Cash and cash equivalents are valued at book value, which we consider to be equivalent to unadjusted quoted prices (level 1).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

	●	_Accounts receivable—_Accounts receivable are valued based on the net value expected to be realized. The net realizable value generally represents an observable contractual agreement (level 2).

	●	_Accounts payable—_Accounts payable are valued based on the net value expected to be paid, generally supported by an observable contractual agreement (level 2).

	●	_Debt—_The fair value of debt, including both current and non-current maturities, is derived from quoted market prices or other pricing determinations based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information, and benchmark securities (level 2).

Pension Plans

The funded status of our defined benefit pension plans is recognized on the Consolidated Balance Sheets and is measured as the difference between the fair value of plan assets and the projected benefit obligation at the measurement date. The projected benefit obligation represents the actuarial present value of benefits projected to be paid upon retirement factoring in estimated future compensation levels. The fair value of plan assets represents the current market value of cumulative company and participant contributions made to irrevocable trust funds, held for the sole benefit of participants, which are invested by the trustees of the funds. The benefits under our defined benefit pension plans are based on various factors, such as years of service and compensation.

Net periodic pension benefit cost is based on the utilization of the projected unit credit method of calculation and is charged to earnings on a systematic basis over the expected average remaining service lives of current participants, or, for inactive plans, over the remaining life expectancy of participants.

The measurement of benefit obligations and net periodic benefit cost is based on estimates and assumptions determined by our management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age, and years of service, as well as certain assumptions, including estimates of discount rates, expected returns on plan assets, rates of compensation increases, interest crediting rates, and mortality rates.

Share-Based Compensation

We determine the fair value of share awards on the date of grant. Share options are valued using the Black-Scholes-Merton valuation model; restricted share awards and performance awards are valued using our end-of-day share price on the date of grant. The fair value is expensed ratably over the expected service period, with an allowance made for estimated forfeitures based on historical employee activity. Estimates regarding the attainment of performance criteria are reviewed periodically; the cumulative impact of a change in estimate regarding the attainment of performance criteria is recorded in the period in which that change is made.

Earnings Per Share

Basic earnings per share is computed by dividing net income by the basic weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding adjusted for the potentially dilutive impact of share-based compensation arrangements.

Leases

We account for leases in accordance with of ASC 842, Leases. We have facility, land, vehicle, and equipment leases that expire at various dates. We determine if a contract qualifies as a lease at inception. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the identified asset and the right to direct the use of the identified asset.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date of the lease based on the present value of remaining lease payments over the lease term. Lease ROU assets represent our right to use the underlying assets for the lease term and lease liabilities represent the obligation to make lease payments arising from the leases. We do not recognize ROU assets or lease liabilities that arise from short-term leases. Since our lease contracts do not contain a readily determinable implicit rate, we determine a fully-collateralized incremental borrowing rate that reflects a similar term to the lease and the economic environment of the applicable country or region in which the asset is leased.

We have elected to account for fixed lease and non-lease components in our real estate leases as a single lease component; other leases generally do not contain non-lease components. The non-lease components in our real estate leases include logistics services, warehousing, and other operational costs. Many of these costs are variable, fluctuating based on services provided, such as pallets shipped in and out of a location or square footage of space occupied. These costs, and any other variable rental costs, are excluded from our ROU assets and lease liabilities and are expensed as incurred. Some of our leases may include options to either renew or early terminate the lease. The exercise of these options is generally at our sole discretion and would only occur if there is an economic, financial, or business reason to do so. Such options are included in the lease term if we determine it is reasonably certain they will be exercised.

Currency Translation

For our non-U.S. dollar functional currency subsidiaries, assets and liabilities are translated into U.S. dollars using fiscal year end exchange rates. Sales and expenses are translated at average monthly exchange rates. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) within equity. Gains and losses resulting from foreign currency transactions are included in earnings.

Restructuring Charges

Restructuring activities involve employee-related termination costs, facility exit costs, and asset impairments resulting from reductions-in-force, migration of facilities or product lines from higher-cost to lower-cost countries, or consolidation of facilities within countries. We recognize termination costs based on requirements established by severance policy, government law, or previous actions. Facility exit costs generally reflect the accelerated rent expense for ROU assets, expected lease termination costs, or costs that will continue to be incurred under the facility lease without future economic benefit to us. Restructuring activities often result in the disposal or abandonment of assets that require an acceleration of depreciation or impairment reflecting the excess of the assets’ carrying values over fair value.

The recognition of restructuring costs require that we make certain judgments and estimates regarding the nature, timing, and amount of costs associated with the planned exit activity. To the extent our actual results differ from our estimates and assumptions, we may be required to revise the estimated liabilities, requiring the recognition of additional restructuring costs or the reduction of liabilities already recognized. At the end of each reporting period, we evaluate the remaining accrued balances to ensure these balances are properly stated and the utilization of the reserves are for their intended purpose in accordance with developed exit plans.

Contingent Liabilities

We record a loss contingency when the available information indicates it is probable that we have incurred a liability and the amount of the loss is reasonably estimable. When a range of possible losses with equal likelihood exists, we record the low end of the range. The likelihood of a loss with respect to a particular contingency is often difficult to predict, and determining a meaningful estimate of the loss or a range of loss may not be practicable based on information available. In addition, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must continuously be evaluated to determine whether a loss is probable and a reasonable estimate of that loss can be made. When a loss is probable but a reasonable estimate cannot be made, or when a loss is at least reasonably possible, disclosure is provided.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Recently Issued Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update No. 2022-04 to enhance transparency and introduce new disclosures related to a buyer’s use of supplier finance programs. This update is effective for us in the first quarter of fiscal 2024. We are currently assessing the impact of adopting the update, but do not expect adoption to have a material impact on our Consolidated Financial Statements.

3. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:


	Fiscal
	2022		2021		2020

	(in millions)
Restructuring charges, net	$	137	$	208	$	257
Impairment of held for sale businesses and loss on divestitures, net		4		21		—
Other charges, net		—		4		—
Restructuring and other charges, net	$	141	$	233	$	257

Net restructuring and related charges by segment were as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Transportation Solutions	$	80	$	135	$	113
Industrial Solutions		34		50		102
Communications Solutions		23		23		42
Restructuring charges, net		137		208		257
Plus: charges included in cost of sales(1)		16		—		—
Restructuring and related charges, net	$	153	$	208	$	257

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Activity in our restructuring reserves was as follows:


	Balance at												Balance at
	Beginning										Currency		End
	of Fiscal				Changes in		Cash		Non-Cash		Translation		of Fiscal
	Year		Charges		Estimate		Payments		Items		and Other		Year

	(in millions)
Fiscal 2022 Activity:
Fiscal 2022 Actions:
Employee severance	$	—	$	126	$	—	$	(15)	$	—	$	(3)	$	108
Facility and other exit costs		—		2		—		(1)		—		—		1
Property, plant, and equipment and other non-cash charges		—		33		—		—		(33)		—		—
Total		—		161		—		(16)		(33)		(3)		109
Fiscal 2021 Actions:
Employee severance		152		2		(8)		(83)		—		(14)		49
Facility and other exit costs		2		5		—		(7)		—		—		—
Property, plant, and equipment		—		3		—		—		(3)		—		—
Total		154		10		(8)		(90)		(3)		(14)		49
Fiscal 2020 Actions:
Employee severance		104		—		(17)		(27)		—		(11)		49
Facility and other exit costs		15		—		(2)		(5)		—		(1)		7
Property, plant, and equipment		—		4		(3)		—		(1)		—		—
Total		119		4		(22)		(32)		(1)		(12)		56
Pre-Fiscal 2020 Actions:
Employee severance		31		—		—		(14)		—		(3)		14
Facility and other exit costs		—		8		—		(8)		—		—		—
Total		31		8		—		(22)		—		(3)		14
Total fiscal 2022 activity	$	304	$	183	$	(30)	$	(160)	$	(37)	$	(32)	$	228
Fiscal 2021 Activity:
Fiscal 2021 Actions:
Employee severance	$	—	$	199	$	(17)	$	(26)	$	—	$	(4)	$	152
Facility and other exit costs		—		4		—		(2)		—		—		2
Property, plant, and equipment		—		9		—		—		(9)		—		—
Total		—		212		(17)		(28)		(9)		(4)		154
Fiscal 2020 Actions:
Employee severance		180		5		—		(84)		—		3		104
Facility and other exit costs		8		11		—		(4)		—		—		15
Property, plant, and equipment		—		7		—		—		(7)		—		—
Total		188		23		—		(88)		(7)		3		119
Pre-Fiscal 2020 Actions:
Employee severance		93		—		(9)		(53)		—		—		31
Facility and other exit costs		4		2		—		(6)		—		—		—
Property, plant, and equipment		—		—		(3)		—		3		—		—
Total		97		2		(12)		(59)		3		—		31
Total fiscal 2021 activity	$	285	$	237	$	(29)	$	(175)	$	(13)	$	(1)	$	304
Fiscal 2020 Activity:
Fiscal 2020 Actions:
Employee severance	$	—	$	214	$	—	$	(35)	$	—	$	1	$	180
Facility and other exit costs		—		8		—		—		—		—		8
Property, plant, and equipment		—		28		—		—		(28)		—		—
Total		—		250		—		(35)		(28)		1		188
Pre-Fiscal 2020 Actions:
Employee severance		261		7		(26)		(153)		—		4		93
Facility and other exit costs		3		17		—		(18)		—		2		4
Property, plant, and equipment		—		9		—		—		(9)		—		—
Total		264		33		(26)		(171)		(9)		6		97
Total fiscal 2020 activity	$	264	$	283	$	(26)	$	(206)	$	(37)	$	7	$	285

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fiscal 2022 Actions

During fiscal 2022, we initiated a restructuring program associated with footprint consolidation and cost structure improvements across all segments. In connection with this program, during fiscal 2022, we recorded restructuring and related charges of $161 million. We expect to complete all restructuring actions commenced during fiscal 2022 by the end of fiscal 2024 and to incur additional charges of approximately $24 million related primarily to employee severance and facility exit costs.

The following table summarizes expected, incurred, and remaining charges for the fiscal 2022 program by segment as of fiscal year end 2022:


	Total		Cumulative		Remaining
	Expected		Charges		Expected
	Charges		Incurred		Charges

	(in millions)
Transportation Solutions	$	99	$	88	$	11
Industrial Solutions		56		52		4
Communications Solutions		30		21		9
Total	$	185	$	161	$	24

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 fiscal 2022 and 2021, we recorded net restructuring charges of $2 million and $195 million, respectively. We expect additional charges related to fiscal 2021 actions to be insignificant.

The following table summarizes charges incurred for the fiscal 2021 program by segment as of fiscal year end 2022:


	Cumulative
	Charges
	Incurred
	(in millions)
Transportation Solutions	$	124
Industrial Solutions		49
Communications Solutions		24
Total	$	197

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 fiscal 2022, 2021, and 2020, we recorded net restructuring credits of $18 million, charges of $23 million, and charges of $250 million, respectively. We expect that any additional charges related to fiscal 2020 actions will be insignificant.

Pre-Fiscal 2020 Actions

During fiscal 2022, 2021, and 2020, we recorded net restructuring charges of $8 million, credits of $10 million, and charges of $7 million, respectively, related to pre-fiscal 2020 actions. We expect that any additional charges related to restructuring actions commenced prior to fiscal 2020 will be insignificant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Total Restructuring Reserves

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


	Fiscal Year End
	2022		2021

	(in millions)
Accrued and other current liabilities	$	182	$	236
Other liabilities		46		68
Restructuring reserves	$	228	$	304

4. Acquisitions

During fiscal 2022, we acquired three businesses for a combined cash purchase price of $245 million, net of cash acquired. The acquisitions were reported as part of our Communications Solutions segment from the date of acquisition.

We acquired four businesses for a combined cash purchase price of $422 million, net of cash acquired, during fiscal 2021. The acquisitions were reported as part of our Industrial Solutions segment from the date of acquisition. In fiscal 2021, due to the timing of two transactions that closed in the fourth quarter, we preliminarily allocated the purchase price of those acquisitions to goodwill and identifiable intangibles assets. During fiscal 2022, we finalized the purchase price allocation, which included the recognition of $25 million of cash acquired, and the associated goodwill was reduced. See Note 7 for additional information.

During fiscal 2020, we acquired five businesses, including First Sensor AG (“First Sensor”), for a combined cash purchase price of $336 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

In connection with our acquisition of approximately 72% of the outstanding shares of First Sensor, we and First Sensor entered into a Domination and Profit and Loss Transfer Agreement (“DPLTA”) which became effective in fiscal 2020. Under the terms of the DPLTA, 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 at the acquisition date (equivalent to $107 million), is recorded as redeemable noncontrolling interest outside of equity on the Consolidated Balance Sheets as of fiscal year end 2022 and 2021 as the exercise of the put right by First Sensor minority shareholders is not within our control.

5. Inventories

Inventories consisted of the following:


	Fiscal Year End
	2022		2021

	(in millions)
Raw materials	$	390	$	320
Work in progress		1,066		991
Finished goods		1,220		1,200
Inventories	$	2,676	$	2,511

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Property, Plant, and Equipment, Net

Net property, plant, and equipment consisted of the following:


	Fiscal Year End
	2022		2021

	(in millions)
Property, plant, and equipment, gross:
Land and improvements	$	106	$	128
Buildings and improvements		1,331		1,469
Machinery and equipment		7,727		8,308
Construction in process		609		614
		9,773		10,519
Accumulated depreciation		(6,206)		(6,741)
Property, plant, and equipment, net	$	3,567	$	3,778

Depreciation expense was $593 million, $576 million, and $529 million in fiscal 2022, 2021, and 2020, respectively.

7. Goodwill

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


	Transportation		Industrial		Communications
	Solutions		Solutions		Solutions		Total

	(in millions)
Balance at fiscal year end 2020(1)	$	1,527	$	3,110	$	587	$	5,224
Acquisitions		—		307		—		307
Currency translation and other		22		29		8		59
Balance at fiscal year end 2021(1)		1,549		3,446		595		5,590
Acquisitions		—		—		141		141
Purchase price adjustments		—		(91)		—		(91)
Currency translation and other		(110)		(228)		(44)		(382)
Balance at fiscal year end 2022(1)	$	1,439	$	3,127	$	692	$	5,258

(1)	At fiscal year end 2022, 2021, and 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 fiscal 2022 and 2021, we recognized goodwill of $141 million and $307 million, respectively, in connection with new acquisitions. Also during fiscal 2022, we recognized purchase price adjustments in connection with prior year acquisitions, including two acquisitions that closed late in the fourth quarter of fiscal 2021. See Note 4 for additional information regarding acquisitions.

We completed our annual goodwill impairment test in the fourth quarter of fiscal 2022 and determined that no impairment existed.

During the second quarter of fiscal 2020, as a result of current and projected declines in sales and profitability of the Sensors reporting unit of the Transportation Solutions segment, due in part to the impact of the COVID-19 pandemic and projected reductions in global automotive production as of March 2020, we determined that an indicator of impairment had occurred and goodwill impairment testing of this reporting unit was required. We determined the fair value of the Sensors reporting unit to be $1.0 billion as of March 27, 2020. This valuation was based on a discounted cash flows analysis incorporating our estimate of future operating performance, which we consider to be a level 3 unobservable input in the fair value hierarchy, and was corroborated using a market approach valuation. The goodwill impairment test indicated that the carrying value of the reporting unit exceeded its fair value by $900 million. As a result, we recorded a partial impairment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

charge of $900 million in the quarter ended March 27, 2020. No additional impairment was identified during our annual goodwill impairment test in the fourth quarter of fiscal 2020.

8. Intangible Assets, Net

Intangible assets consisted of the following:


	2022						2021
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount

	(in millions)
Customer relationships	$	1,642	$	(687)	$	955	$	1,766	$	(660)	$	1,106
Intellectual property		1,174		(852)		322		1,262		(832)		430
Other		16		(5)		11		19		(6)		13
Total	$	2,832	$	(1,544)	$	1,288	$	3,047	$	(1,498)	$	1,549

Intangible asset amortization expense was $192 million, $193 million, and $182 million for fiscal 2022, 2021, and 2020, respectively. At fiscal year end 2022, the aggregate amortization expense on intangible assets is expected to be as follows:


	(in millions)
Fiscal 2023	$	185
Fiscal 2024		156
Fiscal 2025		141
Fiscal 2026		135
Fiscal 2027		117
Thereafter		554
Total	$	1,288

9. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following:


	Fiscal Year End
	2022		2021

	(in millions)
Accrued payroll and employee benefits	$	535	$	690
Dividends payable to shareholders		356		327
Restructuring reserves		182		236
Income taxes payable		162		146
Lease liability		126		118
Share repurchase program payable		70		73
Deferred revenue		63		51
Interest payable		28		28
Other		603		573
Accrued and other current liabilities	$	2,125	$	2,242

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Debt

Debt was as follows:


	Fiscal Year End
	2022		2021

	(in millions)
Principal debt:
Commercial paper, at a weighted-average interest rate of 3.45% at fiscal year end 2022	$	370	$	—
3.50% senior notes due 2022		—		500
1.10% euro-denominated senior notes due 2023		538		644
3.45% senior notes due 2024		350		350
0.00% euro-denominated senior notes due 2025		538		644
3.70% senior notes due 2026		350		350
3.125% senior notes due 2027		400		400
0.00% euro-denominated senior notes due 2029		538		644
2.50% senior notes due in 2032		600		—
7.125% senior notes due 2037		477		477
Other		83		110
		4,244		4,119
Unamortized discounts, premiums, and debt issuance costs, net		(38)		(29)
Effects of fair value hedge-designated interest rate swap contracts		—		2
Total debt	$	4,206	$	4,092

During fiscal 2022, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, issued $600 million aggregate principal amount of 2.50% senior notes due in February 2032. 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.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of June 2026 and total commitments of $1.5 billion. The Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies. TEGSA had no borrowings under the Credit Facility at fiscal year end 2022 or 2021.

Borrowings under the Credit Facility bear interest at a rate per annum equal to, at the option of TEGSA, (1) the term secured overnight financing rate (“Term SOFR”) (as defined in the Credit Facility), (2) an alternate base rate equal to the highest of (i) Bank of America, N.A.’s base rate, (ii) the federal funds effective rate plus 1/2 of 1%, and (iii) the Term SOFR for a one-month interest period plus 1%, (3) an alternative currency daily rate, or (4) an alternative currency term rate, plus, in each case, an applicable margin based upon the senior, unsecured, long-term debt rating of TEGSA. TEGSA is required to pay an annual facility fee. Based on the applicable credit ratings of TEGSA, this fee ranges from 5.0 to 12.5 basis points of the lenders’ commitments under the Credit Facility.

The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our other debt agreements contain other customary covenants.

Periodically, TEGSA issues commercial paper to U.S. institutional accredited investors and qualified institutional buyers in accordance with available exemptions from the registration requirements of the Securities Act of 1933 as part of our ongoing effort to maintain financial flexibility and to potentially decrease the cost of borrowings. Borrowings under the commercial paper program are backed by the Credit Facility.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed on an unsecured basis by its parent, TE Connectivity Ltd.

At fiscal year end 2022, principal payments required for debt are as follows:


	(in millions)
Fiscal 2023	$	914
Fiscal 2024		352
Fiscal 2025		540
Fiscal 2026		351
Fiscal 2027		401
Thereafter		1,686
Total	$	4,244

The fair value of our debt, based on indicative valuations, was approximately $3,990 million and $4,465 million at fiscal year end 2022 and 2021, respectively.

11. Leases

The components of lease cost were as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Operating lease cost	$	131	$	120	$	108
Variable lease cost		52		49		49
Total lease cost	$	183	$	169	$	157

Amounts recognized on the Consolidated Balance Sheets were as follows:


	Fiscal Year End
	2022			2021

	($ in millions)
Operating lease ROU assets:
Other assets	$	424		$	444
Operating lease liabilities:
Accrued and other current liabilities	$	126		$	118
Other liabilities		308			334
Total operating lease liabilities	$	434		$	452

Weighted-average remaining lease term (in years)		5.3			5.2
Weighted-average discount rate		2.0	%		1.2	%

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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


	Fiscal
	2022		2021		2020

	(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Payments for operating leases(1)	$	122	$	123	$	108

ROU assets, including modifications of existing leases, obtained in exchange for operating lease liabilities		135		123		28

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

At fiscal year end 2022, the maturities of operating lease liabilities were as follows:


	(in millions)
Fiscal 2023	$	126
Fiscal 2024		104
Fiscal 2025		81
Fiscal 2026		52
Fiscal 2027		29
Thereafter		68
Total lease payments		460
Less: interest		(26)
Present value of lease liabilities	$	434

12. 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 have been 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 the resulting investigations by the agencies remain ongoing. We have also been contacted by the U.S. Department of Justice concerning aspects of these matters. 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. Although 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.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 fiscal year end 2022, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $17 million to $44 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 fiscal year end 2022, we had outstanding letters of credit, letters of guarantee, and surety bonds of $127 million, excluding those related to our former 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 $115 million as of fiscal year end 2022 and are expected to expire at various dates through fiscal 2027. 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.

13. Financial Instruments and Fair Value Measurements

We use derivative and non-derivative financial instruments to manage certain exposures to foreign currency, interest rate, investment, and commodity risks.

Foreign Currency Exchange Rate Risk

As part of managing the exposure to changes in foreign currency exchange rates, we utilize cross-currency swap contracts and foreign currency forward contracts, a portion of which are designated as cash flow hedges. The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in foreign currency exchange rates on intercompany and other cash transactions. We expect that significantly all of the balance in accumulated other comprehensive income (loss) associated with the cash flow hedge-designated instruments addressing foreign exchange risks will be reclassified into the Consolidated Statement of Operations within the next twelve months.

During fiscal 2015, we entered into cross-currency swap contracts, which were designated as cash flow hedges, 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 fiscal year end 2021. During fiscal 2022, certain contracts were terminated and the remaining contracts matured. Under the terms of the contracts that matured in fiscal 2022, we made interest payments in euros at 3.50% per annum and received interest in U.S. dollars at a weighted-average rate of 5.26% per annum. Upon maturity, we paid the notional value of the remaining contracts in euros and received U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, both counterparties to each contract were required to provide cash collateral. As of fiscal year end 2022, all collateral positions related to these cross-currency swap contracts were settled.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At fiscal year end 2021, these cross-currency swap contracts were recorded on the Consolidated Balance Sheet as follows; there were no such balances at fiscal year end 2022:


	Fiscal Year End
	2021
	(in millions)
Other liabilities	$	20

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


	Fiscal
	2022		2021		2020

	(in millions)
Gains (losses) recorded in other comprehensive income (loss)	$	(7)	$	(6)	$	28
Gains (losses) excluded from the hedging relationship(1)		70		(6)		(48)
Gains reclassified from other comprehensive income (loss) into selling, general, and administrative expenses		2		—		—

(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 $1,658 million and $3,798 million at fiscal year end 2022 and 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 $1,873 million and $1,430 million at fiscal year end 2022 and 2021, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 1.57% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2026, 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 Consolidated Balance Sheets as follows:


	Fiscal Year End
	2022		2021

	(in millions)
Prepaid expenses and other current assets	$	55	$	3
Other assets		172		18
Accrued and other current liabilities		—		13
Other liabilities		—		18

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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


	Fiscal
	2022		2021		2020

	(in millions)
Foreign currency exchange gains (losses) on intercompany loans and external borrowings(1)	$	516	$	(12)	$	(172)
Gains (losses) on cross-currency swap contracts designated as hedges of net investment(1)		265		(22)		(69)

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

Interest Rate and Investment Risk Management

We issue debt, as needed, to fund our operations and capital requirements. Such borrowings can result in interest rate exposure. To manage the interest rate exposure, we use interest rate swap contracts to convert a portion of fixed rate debt into variable rate debt. We may use forward starting interest rate swap contracts to manage interest rate exposure in periods prior to the anticipated issuance of fixed rate debt. During fiscal 2022, we terminated forward starting interest rate swap contracts with an aggregate notional value of $450 million as a result of the issuance of our 2.50% senior notes due in 2032. At fiscal year end 2021, these forward starting interest rate swap contracts were recorded on the Consolidated Balance Sheet as follows; there were no such balances at fiscal year end 2022:


	Fiscal Year End
	2021
	(in millions)
Prepaid expenses and other current assets	$	7
Accrued and other current liabilities		38

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


	Fiscal
	2022		2021		2020

	(in millions)
Gains (losses) recorded in other comprehensive income (loss)	$	13	$	33	$	(30)

We also utilize investment swap contracts to manage earnings exposure on certain nonqualified deferred compensation liabilities.

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 $566 million and $512 million at fiscal year end 2022 and 2021, respectively, and were designated as cash flow hedges. These commodity swap contracts were recorded on the Consolidated Balance Sheets as follows:


	Fiscal Year End
	2022		2021

	(in millions)
Prepaid expenses and other current assets	$	2	$	23
Accrued and other current liabilities		77		18
Other liabilities		7		4

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The impacts of these commodity swap contracts were as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Gains (losses) recorded in other comprehensive income (loss)	$	(86)	$	58	$	60
Gains reclassified from accumulated other comprehensive income (loss) into cost of sales		22		92		11

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

Fair Value Measurements

Financial instruments recorded at fair value on a recurring basis, which consist of marketable securities and derivative instruments not discussed above, were immaterial at fiscal year end 2022 and 2021.

14. Retirement Plans

Defined Benefit Pension Plans

We have several contributory and noncontributory defined benefit retirement plans covering certain of our non-U.S. and U.S. employees, designed in accordance with local customs and practice.

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


	Non-U.S. Plans									U.S. Plans
	Fiscal									Fiscal
	2022			2021			2020			2022			2021			2020

	($ in millions)
Operating expense:
Service cost	$	38		$	48		$	52		$	8		$	12		$	10
Other (income) expense:
Interest cost		32			30			25			26			30			36
Expected returns on plan assets		(55)			(57)			(61)			(47)			(52)			(59)
Amortization of net actuarial loss		24			32			41			3			9			9
Amortization of prior service credit		(5)			(6)			(6)			—			—			—
Settlement and curtailment losses (gains)		(3)			(2)			—			—			28			—
Net periodic pension benefit cost (credit)	$	31		$	45		$	51		$	(10)		$	27		$	(4)
Weighted-average assumptions used to determine net pension benefit cost (credit) during the fiscal year:
Discount rate		1.37	%		1.13	%		1.01	%		2.84	%		2.57	%		3.14	%
Expected returns on plan assets		3.77	%		3.65	%		4.07	%		5.90	%		5.60	%		6.50	%
Rates of compensation increases		2.53	%		2.50	%		2.53	%		—	%		—	%		—	%

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table represents the changes in benefit obligation and plan assets and the net amount recognized on the Consolidated Balance Sheets for all non-U.S. and U.S. defined benefit pension plans:


	Non-U.S. Plans						U.S. Plans
	Fiscal						Fiscal
	2022			2021			2022			2021

	($ in millions)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	2,520		$	2,519		$	952		$	1,219
Service cost		38			48			8			12
Interest cost		32			30			26			30
Actuarial (gains) losses		(660)			6			(204)			(46)
Benefits and administrative expenses paid		(82)			(85)			(65)			(80)
Settlements and curtailments		(10)			(67)			—			(183)
Currency translation		(353)			63			—			—
Other		17			6			—			—
Benefit obligation at end of fiscal year		1,502			2,520			717			952

Change in plan assets:
Fair value of plan assets at beginning of fiscal year		1,582			1,537			833			968
Actual returns on plan assets		(320)			81			(158)			110
Employer contributions		40			43			2			18
Benefits and administrative expenses paid		(82)			(85)			(65)			(80)
Settlements		(10)			(52)			—			(183)
Currency translation		(235)			54			—			—
Other		14			4			—			—
Fair value of plan assets at end of fiscal year		989			1,582			612			833
Funded status	$	(513)		$	(938)		$	(105)		$	(119)

Amounts recognized on the Consolidated Balance Sheets:
Other assets	$	92		$	102		$	—		$	—
Accrued and other current liabilities		(25)			(30)			(4)			(4)
Long-term pension and postretirement liabilities		(580)			(1,010)			(101)			(115)
Net amount recognized	$	(513)		$	(938)		$	(105)		$	(119)

Pre-tax amounts included in accumulated other comprehensive income (loss) which have not yet been recognized in net periodic pension benefit cost:
Net actuarial loss	$	(176)		$	(547)		$	(149)		$	(151)
Prior service (cost) credit		16			26			(1)			(1)
Total	$	(160)		$	(521)		$	(150)		$	(152)

Weighted-average assumptions used to determine pension benefit obligation at fiscal year end:
Discount rate		3.80	%		1.37	%		5.53	%		2.84	%
Rates of compensation increases		2.62	%		2.53	%		—	%		—	%

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The pre-tax amounts recognized in accumulated other comprehensive income (loss) for all non-U.S. and U.S. defined benefit pension plans were as follows:


	Non-U.S. Plans				U.S. Plans
	Fiscal				Fiscal
	2022		2021		2022		2021

	(in millions)
Current year net actuarial gain (loss) recorded in accumulated other comprehensive income (loss)	$	350	$	16	$	(1)	$	103
Amortization of net actuarial loss(1)		21		34		3		37
Current year prior service cost recorded in accumulated other comprehensive income (loss)		(5)		(1)		—		—
Amortization of prior service (credit) cost(1)		(5)		(10)		—		1
	$	361	$	39	$	2	$	141

(1)	Includes amounts reflected as settlement and curtailment losses (gains) in the above net periodic pension benefit cost (credit) table.

As part of our continued effort to manage U.S. pension plan obligations, during fiscal 2021, we transferred approximately $190 million of U.S. pension plan liabilities to an insurance company through the purchase of a group annuity contract funded by a transfer of plan assets totaling approximately $180 million. As a result of this transaction, we recognized a settlement charge of $28 million, which was recorded in net other income (expense) on the Consolidated Statement of Operations.

In fiscal 2022, unrecognized actuarial gains recorded in accumulated other comprehensive income (loss) were primarily the result of higher discount rates, partially offset by unfavorable asset performance, for our non-U.S. defined benefit pension plans as compared to fiscal 2021. In fiscal 2021, unrecognized actuarial gains recorded in accumulated other comprehensive income (loss) were primarily the result of favorable asset performance and higher discount rates for our non-U.S. and U.S. defined benefit pension plans as compared to fiscal 2020.

In determining the expected returns on plan assets, we consider the relative weighting of plan assets by class and individual asset class performance expectations.

The investment strategies for non-U.S. and U.S. pension plans are governed locally. Our investment strategy for our pension plans is to manage the plans on a going concern basis. Current investment policy is to achieve a reasonable return on assets, subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for participants. Projected returns are based primarily on pro forma asset allocation, expected long-term returns, and forward-looking estimates of active portfolio and investment management.

At fiscal year end 2022, the long-term target asset allocation in our U.S. plans’ master trust is 25% return-seeking assets and 75% liability-hedging assets. Return-seeking assets, including non-U.S. and U.S. equity securities, are assets intended to generate returns in excess of pension liability growth. Liability-hedging assets, including government and corporate bonds, are assets intended to have characteristics similar to pension liabilities and are used to better match asset cash flows with expected obligation cash flows. Asset re-allocation to meet that target is occurring over a multi-year period based on the funded status. We expect to reach our target allocation when the funded status of the plans exceeds 110%. Based on the funded status of the plans as of fiscal year end 2022, our target asset allocation is 67% return-seeking and 33% liability-hedging.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Target weighted-average asset allocation and weighted-average asset allocation for non-U.S. and U.S. pension plans were as follows:


	Non-U.S. Plans						U.S. Plans
			Fiscal		Fiscal				Fiscal		Fiscal
			Year End		Year End				Year End		Year End
	Target		2022		2021		Target		2022		2021
Asset category:
Equity securities	29	%	22	%	35	%	67	%	48	%	51	%
Fixed income	37		63		48		33		52		49
Other	34		15		17		—		—		—
Total	100	%	100	%	100	%	100	%	100	%	100	%

Our common shares are not a direct investment of our pension funds; however, the pension funds may indirectly include our shares. The aggregate amount of our common shares would not be considered material relative to the total pension fund assets.

Our funding policy is to make contributions in accordance with the laws and customs of the various countries in which we operate as well as to make discretionary voluntary contributions from time to time. We expect to make the minimum required contributions of $39 million and $4 million to our non-U.S. and U.S. pension plans, respectively, in fiscal 2023. We may also make voluntary contributions at our discretion.

At fiscal year end 2022, benefit payments, which reflect future expected service, as appropriate, are expected to be paid as follows:


	Non-U.S. Plans		U.S. Plans

	(in millions)
Fiscal 2023	$	78	$	63
Fiscal 2024		96		60
Fiscal 2025		75		60
Fiscal 2026		79		60
Fiscal 2027		82		59
Fiscal 2028-2032		475		281

Presented below is the accumulated benefit obligation for all non-U.S. and U.S. pension plans as well as additional information related to plans with an accumulated benefit obligation in excess of plan assets and plans with a projected benefit obligation in excess of plan assets.


	Non-U.S. Plans				U.S. Plans
	Fiscal Year End				Fiscal Year End
	2022		2021		2022		2021

	(in millions)
Accumulated benefit obligation	$	1,434	$	2,410	$	717	$	952
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation		598		1,027		717		918
Fair value of plan assets		43		75		612		798
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation		689		1,166		717		918
Fair value of plan assets		84		128		612		798

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We value our pension assets based on the fair value hierarchy of ASC 820, Fair Value Measurements and Disclosures. Details of the fair value hierarchy are described in Note 2. The following table presents our defined benefit pension plans’ asset categories and their associated fair value within the fair value hierarchy:


	Fiscal Year End 2022
	Non-U.S. Plans								U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(in millions)
Equity:
Commingled equity funds(1)	$	—	$	159	$	—	$	159	$	—	$	161	$	—	$	161
Fixed income:
Government and corporate bonds(2)		—		6		—		6		—		—		—		—
Commingled fixed income funds(3)		—		534		—		534		—		306		—		306
Other(4)		—		141		—		141		—		14		—		14
Subtotal	$	—	$	840	$	—		840	$	—	$	481	$	—		481
Items to reconcile to fair value of plan assets(5)								149								131
Fair value of plan assets							$	989							$	612


	Fiscal Year End 2021
	Non-U.S. Plans								U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(in millions)
Equity:
Commingled equity funds(1)	$	—	$	220	$	—	$	220	$	—	$	280	$	—	$	280
Fixed income:
Government and corporate bonds(2)		—		6		—		6		—		—		—		—
Commingled fixed income funds(3)		—		1,101		—		1,101		—		392		—		392
Other(4)		—		178		—		178		—		23		—		23
Subtotal	$	—	$	1,505	$	—		1,505	$	—	$	695	$	—		695
Items to reconcile to fair value of plan assets(5)								77								138
Fair value of plan assets							$	1,582							$	833

(1)	Commingled equity funds are pooled investments in multiple equity-type securities. Fair value is calculated as the closing price of the underlying investments, an observable market condition, divided by the number of shares of the fund outstanding.

(2)	Government and corporate bonds are marked to fair value based on quoted market prices or market approach valuation models using observable market data such as quotes, spreads, and data points for yield curves.

(3)	Commingled fixed income funds are pooled investments in multiple fixed income-type securities. Fair value is calculated as the closing price of the underlying investments, an observable market condition, divided by the number of shares of the fund outstanding.

(4)

Other investments are composed of insurance contracts, derivatives, short-term investments, structured products such as collateralized obligations and mortgage- and asset-backed securities, real estate investments, and hedge funds. Insurance contracts are valued using cash surrender value, or face value of the contract if a cash surrender value is unavailable (level 2), as these values represent the amount that the plan would receive on termination of the underlying contract. Derivatives, short-term investments, and structured products are marked to fair value using models that are supported by observable market-based data (level 2). Real estate investments include investments in commingled real estate funds and are valued at net asset value which is calculated using unobservable inputs that are supported by little or no market activity (level 3). Hedge funds are valued at their net asset value which is calculated using unobservable inputs that are supported by little or no market activity (level 3).

(5)	Items to reconcile to fair value of plan assets include certain investments containing no significant redemption restrictions that were measured at net asset value (“NAV”) using the NAV practical expedient available in ASC 820 and amounts receivable or payable for unsettled transactions and cash balances, both of which are considered to be carried at book value.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Defined Contribution Retirement Plans

We maintain several defined contribution retirement plans, the most significant of which is located in the U.S. These plans include 401(k) matching programs, as well as qualified and nonqualified profit sharing and share bonus retirement plans. Expense for the defined contribution plans is computed as a percentage of participants’ compensation and was $59 million, $60 million, and $60 million for fiscal 2022, 2021, and 2020, respectively.

Deferred Compensation Plans

We maintain nonqualified deferred compensation plans, which permit eligible employees to defer a portion of their compensation. A record-keeping account is set up for each participant and the participant chooses from a variety of measurement funds for the deemed investment of their accounts. The measurement funds correspond to several funds in our 401(k) plans and the account balance fluctuates with the investment returns on those funds. At fiscal year end 2022 and 2021, total deferred compensation liabilities were $206 million and $263 million, respectively, and were recorded in other liabilities on the Consolidated Balance Sheets. See Note 13 for additional information regarding our risk management strategy related to deferred compensation liabilities.

Postretirement Benefit Plans

In addition to providing pension and 401(k) benefits, we also provide certain health care coverage continuation for qualifying retirees from the date of retirement to age 65 or lifetime, as applicable. The accumulated postretirement benefit obligation was $13 million and $16 million at fiscal year end 2022 and 2021, respectively, and the underfunded status of the postretirement benefit plans was included primarily in long-term pension and postretirement liabilities on the Consolidated Balance Sheets. Activity during fiscal 2022, 2021, and 2020 was not significant.

15. Income Taxes

Income Tax Expense

Significant components of the income tax expense were as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Current income tax expense (benefit):
U.S. Federal	$	20	$	3	$	9
U.S. State		(19)		12		(23)
Non-U.S.		452		462		262
		453		477		248
Deferred income tax expense (benefit):
U.S. Federal		(90)		(24)		(16)
U.S. State		—		(15)		(10)
Non-U.S.		(57)		(315)		561
		(147)		(354)		535
Income tax expense	$	306	$	123	$	783

The U.S. and non-U.S. components of income from continuing operations before income taxes were as follows:


	Fiscal
	2022		2021		2020

	(in millions)
U.S.	$	(4)	$	(336)	$	(1,053)
Non-U.S.		2,737		2,714		1,577
Income from continuing operations before income taxes	$	2,733	$	2,378	$	524

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The reconciliation between U.S. federal income taxes at the statutory rate and income tax expense was as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Notional U.S. federal income tax expense at the statutory rate(1)	$	574	$	499	$	110
Adjustments to reconcile to the income tax expense:
U.S. state income tax benefit, net		(15)		(2)		(26)
Tax law changes		21		12		349
Tax credits		(13)		(13)		(13)
Non-U.S. net earnings(2)		(105)		(71)		(88)
Change in accrued income tax liabilities		(14)		37		30
Valuation allowance		(37)		(353)		231
Legal entity restructurings and intercompany transactions		(123)		19		—
Divestitures and goodwill impairments		—		—		185
Excess tax benefits from share-based payments		(15)		(21)		(6)
Other		33		16		11
Income tax expense	$	306	$	123	$	783

	(1)	The U.S. federal statutory rate was 21% for fiscal 2022, 2021, and 2020.

	(2)	Excludes items which are separately presented.

The income tax expense for fiscal 2022 included a $124 million income tax benefit related to the tax impacts of certain intercompany transactions, a $64 million income tax benefit related primarily to a lapse of a statute of limitation, and a $51 million income tax benefit related to the release of a valuation allowance associated primarily with improved current and expected future operating profit and taxable income. In addition, the income tax expense for fiscal 2022 included $27 million of income tax expense related to the write-down of certain deferred tax assets to the lower corporate tax rate enacted in the canton of Schaffhausen and $12 million of income tax expense related to an income tax audit of an acquired entity. As we are entitled to indemnification of pre-acquisition period tax obligations under the terms of the purchase agreement, we recorded an associated indemnification receivable and other income of $11 million during fiscal 2022.

The income tax expense for fiscal 2021 included a $353 million income tax benefit related to changes in valuation allowances, of which $327 million related to the net reduction in valuation allowances associated primarily with certain tax planning actions as well as improved current and expected future operating profit and taxable income. In addition, the income tax expense for fiscal 2021 included a $29 million income tax benefit related to an Internal Revenue Service approved change in the tax method of depreciating or amortizing certain assets and $23 million of income tax expense associated with the tax impacts of an intercompany transaction.

The income tax expense for fiscal 2020 included $355 million of income tax expense related to the tax impacts of certain measures of the Switzerland Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”) and an income tax benefit of $31 million related to pre-separation tax matters and the termination of the Tax Sharing Agreement. See “Swiss Tax Reform” and “Tax Sharing Agreement” below for additional information. In addition, the income tax expense for fiscal 2020 included $226 million of income tax expense related to increases to the valuation allowance for certain deferred tax assets, related primarily to the COVID-19 pandemic. As a result of the pandemic and its negative impact on our current and expected operating profit and taxable income, we believed it was more likely than not that a portion of our deferred tax assets would not be realized. The pre-tax goodwill impairment charge of $900 million recorded during fiscal 2020 resulted in a tax benefit of $4 million as the associated goodwill was primarily not deductible for income tax purposes. See Note 7 for additional information regarding the impairment of goodwill.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred Tax Assets and Liabilities

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax asset were as follows:


	Fiscal Year End
	2022		2021

	(in millions)
Deferred tax assets:
Accrued liabilities and reserves	$	317	$	313
Tax loss and credit carryforwards		8,288		3,836
Inventories		62		46
Intangible assets		563		535
Pension and postretirement benefits		71		177
Deferred revenue		1		7
Interest		406		310
Unrecognized income tax benefits		1		4
Lease liabilities		81		94
Other		1		9
Gross deferred tax assets		9,791		5,331
Valuation allowance		(7,112)		(2,729)
Deferred tax assets, net of valuation allowance		2,679		2,602

Deferred tax liabilities:
Property, plant, and equipment		(101)		(97)
Write-down of investments in subsidiaries		(125)		(2)
Lease ROU assets		(79)		(92)
Other		(120)		(93)
Total deferred tax liabilities		(425)		(284)

Net deferred tax assets	$	2,254	$	2,318

Our tax loss and credit carryforwards (tax effected) at fiscal year end 2022 were as follows:


	Expiration Period
			Fiscal 2028
	Through		Through		No
	Fiscal 2027		Fiscal 2042		Expiration		Total

	(in millions)
U.S. Federal:
Net operating loss carryforwards	$	30	$	426	$	55	$	511
Tax credit carryforwards		53		110		—		163
U.S. State:
Net operating loss carryforwards		52		19		4		75
Tax credit carryforwards		11		—		6		17
Non-U.S.:
Net operating loss carryforwards		107		5,934		1,443		7,484
Tax credit carryforwards		—		—		1		1
Capital loss carryforwards		3		—		34		37
Total tax loss and credit carryforwards	$	256	$	6,489	$	1,543	$	8,288

The valuation allowance for deferred tax assets of $7,112 million and $2,729 million at fiscal year end 2022 and 2021, respectively, related principally to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various jurisdictions. During fiscal 2022, the valuation allowance increased primarily as a result of

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

$4,464 million (tax effected) net write-downs of investments in subsidiaries in certain jurisdictions, with a corresponding increase to tax loss and credit carryforwards. We believe that we will generate sufficient future taxable income to realize the income tax benefits related to the remaining net deferred tax assets on the Consolidated Balance Sheet.

We have provided income taxes for earnings that are currently distributed as well as the taxes associated with several subsidiaries’ earnings that are expected to be distributed in the future. No additional provision has been made for Swiss or non-Swiss income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or we have concluded that no additional tax liability will arise as a result of the distribution of such earnings. As of fiscal year end 2022, certain subsidiaries had approximately $33.6 billion of cumulative undistributed earnings that have been retained indefinitely and reinvested in our global manufacturing operations, including working capital; property, plant, and equipment; intangible assets; and research and development activities. A liability could arise if our intention to permanently reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries. As of fiscal year end 2022, we had approximately $7.0 billion of cash, cash equivalents, and intercompany deposits, principally in our subsidiaries, that we have the ability to distribute to TEGSA, our Luxembourg subsidiary, which is the obligor of substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company, but we consider to be permanently reinvested. We estimate that an immaterial amount of tax expense would be recognized on the Consolidated Financial Statements if our intention to permanently reinvest these amounts were to change. Our current plans do not demonstrate a need to repatriate cash, cash equivalents, and intercompany deposits that are designated as permanently reinvested in order to fund our operations, including investing and financing activities.

Uncertain Tax Positions

The following table summarizes the activity related to unrecognized income tax benefits:


	Fiscal
	2022		2021		2020

	(in millions)
Balance at beginning of fiscal year	$	359	$	414	$	542
Additions for tax positions related to prior years		10		14		29
Reductions for tax positions related to prior years		(17)		(77)		(87)
Additions for tax positions related to the current year		37		50		39
Current year acquisitions		—		4		—
Settlements		(2)		(9)		(12)
Reductions due to lapse of applicable statutes of limitations		(100)		(37)		(97)
Balance at end of fiscal year	$	287	$	359	$	414

The total amount of unrecognized tax benefits that, if recognized, would reduce income tax expense and the effective tax rate were $272 million, $378 million, and $393 million at fiscal year end 2022, 2021, and 2020, respectively.

We record accrued interest and penalties related to uncertain tax positions as part of income tax expense (benefit). As of fiscal year end 2022 and 2021, we had $54 million and $53 million, respectively, of accrued interest and penalties related to uncertain tax positions on the Consolidated Balance Sheets, recorded primarily in income taxes. During fiscal 2022, 2021, and 2020, we recognized income tax expense of $3 million, expense of $12 million, and benefits of $1 million, respectively, related to interest and penalties on the Consolidated Statements of Operations.

We file income tax returns on a unitary, consolidated, or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 4 years. Various state and local income tax returns are currently in the process of examination or administrative appeal.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our non-U.S. subsidiaries file income tax returns in the countries in which they have operations. Generally, these countries have statutes of limitations ranging from 3 to 10 years. Various non-U.S. subsidiary income tax returns are currently in the process of examination by taxing authorities.

As of fiscal year end 2022, under applicable statutes, the following tax years remained subject to examination in the major tax jurisdictions indicated:


Jurisdiction		Open Years
Brazil		2017 through 2022
China		2012 through 2022
Czech Republic		2017 through 2022
France		2019 through 2022
Germany		2012 through 2022
Hong Kong		2016 through 2022
India		2012 through 2022
Ireland		2017 through 2022
Italy		2017 through 2022
Japan		2016 through 2022
Luxembourg		2017 through 2022
Mexico		2017 through 2022
Singapore		2017 through 2022
South Korea		2017 through 2022
Spain		2018 through 2022
Switzerland		2017 through 2022
Thailand		2020 through 2022
United Kingdom		2020 through 2022
U.S.—federal		2019 through 2022

In most jurisdictions, taxing authorities retain the ability to review prior tax years and to adjust any net operating loss and tax credit carryforwards from these years that are utilized in a subsequent period.

Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $20 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.

We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Consolidated Balance Sheet as of fiscal year end 2022.

Other Income Tax Matters

Swiss Tax Reform

In September 2018, Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing, which was approved by public vote in May 2019. Swiss Tax Reform eliminated certain preferential tax items and implemented new tax rates at both the federal and cantonal levels.

The federal provisions of Swiss Tax Reform were enacted into law in fiscal 2019 and became effective in January 2020. Additionally, in fiscal 2019, the federal tax authority issued guidance abolishing certain interest deductions which became effective in January 2020.

In October 2019, the canton of Schaffhausen enacted Swiss Tax Reform into law, including reductions in tax rates. Consequently, during fiscal 2020, we recognized $355 million of income tax expense related primarily to cantonal implementation and the resulting write-down of certain deferred tax assets to the lower tax rates.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Tax Sharing Agreement

Upon our separation from Tyco International plc in fiscal 2007, we entered into a Tax Sharing Agreement with Tyco International plc (now part of Johnson Controls International plc) and Covidien plc (now part of Medtronic plc) under which we shared certain income tax liabilities for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications.

In fiscal 2020, we, Johnson Controls International plc, and Medtronic plc entered into an agreement to terminate the Tax Sharing Agreement. We believe that substantially all income tax matters that may be subject to the Tax Sharing Agreement have been settled with tax authorities and we do not expect any remaining tax matters to have a material effect on our results of operations, financial position, or cash flows. Accordingly, during fiscal 2020, we recognized an income tax benefit of $31 million and net other income of $8 million representing settlement of the remaining shared pre-separation income tax matters and indemnification balances.

16. Earnings (Loss) Per Share

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


	Fiscal
	2022	2021	2020

	(in millions)
Basic	323	330	332
Dilutive impact of share-based compensation arrangements	2	3	—
Diluted	325	333	332

For fiscal 2020, there were two million nonvested share awards and options outstanding with underlying exercise prices less than the average market prices of our common shares; however, these were excluded from the calculation of diluted loss per share as inclusion would be antidilutive as a result of our loss during the period.

The following share options were not included in the computation of diluted earnings (loss) per share because the instruments’ underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive:


	Fiscal
	2022	2021	2020

	(in millions)
Antidilutive share options	1	—	3

17. Shareholders’ Equity

Common Shares

We are organized under the laws of Switzerland. The rights of holders of our shares are governed by Swiss law, our Swiss articles of association, and our Swiss organizational regulations. The par value of our common shares is stated in Swiss francs (“CHF”); however, we use the U.S. dollar as our reporting currency on the Consolidated Financial Statements.

Subject to certain conditions specified in our articles of association, we are authorized to increase our conditional share capital by issuing new shares in aggregate not exceeding 50% of our authorized shares. Until recently, Swiss law provided for the option to create authorized share capital that could be issued by the board of directors, but this authorization was limited to authorized share capital up to 50% of the existing registered shares with the authorization valid for a maximum of two years. Such authorization period under our articles of association ended on March 11, 2022. As part of the Swiss corporate law reform, effective as of January 1, 2023, the concept of authorized share capital will be replaced by a capital

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

band. Under a capital band, the articles of association may authorize the board of directors for a maximum period of five years to increase the ordinary share capital registered in the commercial register to a maximum of 150% and/or reduce it to a minimum of 50% of the share capital existing at the time of the introduction of the capital band. Our articles of association do not currently provide for a capital band.

Common Shares Held in Treasury

At fiscal year end 2022, approximately 13 million common shares were held in treasury, of which 5 million were owned by one of our subsidiaries. At fiscal year end 2021, approximately 9 million common shares were held in treasury, of which 4 million were owned by one of our subsidiaries. Shares held both directly by us and by our subsidiary are presented as treasury shares on the Consolidated Balance Sheets.

In fiscal 2022, 2021, and 2020, our shareholders approved the cancellation of 5 million, 3 million, and 12 million shares, respectively, purchased under our share repurchase program. These capital reductions by cancellation of shares were subject to a notice period and filing with the commercial register in Switzerland.

Contributed Surplus

As a result of cumulative equity transactions, including dividend activity and treasury share cancellations, our contributed surplus balance was reduced to zero with residual activity recorded against accumulated earnings as reflected on the Consolidated Statement of Shareholders’ Equity. To the extent that the contributed surplus balance continues to be zero, the impact of future transactions that normally would have been recorded as a reduction of contributed surplus will be recorded in accumulated earnings. Contributed surplus established for Swiss tax and statutory purposes (“Swiss Contributed Surplus”) is not impacted by our GAAP treatment.

Swiss Contributed Surplus, subject to certain conditions, is a freely distributable reserve. As of fiscal year end 2022 and 2021, Swiss Contributed Surplus was CHF 4,239 million and CHF 4,902 million, respectively (equivalent to $3,191 million and $3,905 million, respectively).

Dividends

We paid cash dividends to shareholders of $2.12, $1.96, and $1.88 per share in fiscal 2022, 2021, and 2020, respectively.

Under Swiss law, subject to certain conditions, dividends paid from reserves from capital contributions (equivalent to Swiss Contributed Surplus) are exempt from Swiss withholding tax. Dividends on our shares must be approved by our shareholders.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our shareholders approved the following dividends on our common shares:


Approval Date	Annual Payment Per Share	Payment Timing
March 2019	$1.84, payable in four quarterly installments of $0.46	Third quarter of fiscal 2019 Fourth quarter of fiscal 2019 First quarter of fiscal 2020 Second quarter of fiscal 2020
March 2020	$1.92, payable in four quarterly installments of $0.48	Third quarter of fiscal 2020 Fourth quarter of fiscal 2020 First quarter of fiscal 2021 Second quarter of fiscal 2021
March 2021	$2.00, payable in four quarterly installments of $0.50	Third quarter of fiscal 2021 Fourth quarter of fiscal 2021 First quarter of fiscal 2022 Second quarter of fiscal 2022
March 2022	$2.24, payable in four quarterly installments of $0.56	Third quarter of fiscal 2022 Fourth quarter of fiscal 2022 First quarter of fiscal 2023 Second quarter of fiscal 2023

Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity. At fiscal year end 2022 and 2021, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Consolidated Balance Sheets totaled $356 million and $327 million, respectively.

Share Repurchase Program

In both fiscal 2022 and 2021, our board of directors authorized increases of $1.5 billion in our share repurchase program. Common shares repurchased under the share repurchase program were as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Number of common shares repurchased		10		7		6
Repurchase value	$	1,409	$	904	$	505

At fiscal year end 2022, we had $1.7 billion of availability remaining under our share repurchase authorization.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

18. Accumulated Other Comprehensive Income (Loss)

The changes in each component of accumulated other comprehensive income (loss) were as follows:


	Foreign		Unrecognized		Gains (Losses)		Accumulated
	Currency		Pension and		on Cash		Other
	Translation		Postretirement		Flow		Comprehensive
	Adjustments(1)		Benefit Costs		Hedges		Income (Loss)

	(in millions)
Balance at fiscal year end 2019	$	188	$	(647)	$	(44)	$	(503)
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss) before reclassifications		(11)		8		58		55
Amounts reclassified from accumulated other comprehensive income (loss)		—		44		(13)		31
Income tax expense		—		(18)		(5)		(23)
Other comprehensive income (loss), net of tax		(11)		34		40		63
Less: other comprehensive income attributable to noncontrolling interests		(5)		—		—		(5)
Balance at fiscal year end 2020	$	172	$	(613)	$	(4)	$	(445)
Other comprehensive income (loss), net of tax:
Other comprehensive income before reclassifications		144		120		84		348
Amounts reclassified from accumulated other comprehensive income (loss)		—		62		(92)		(30)
Income tax (expense) benefit		—		(44)		5		(39)
Other comprehensive income (loss), net of tax		144		138		(3)		279
Less: other comprehensive income attributable to noncontrolling interests		(2)		—		—		(2)
Balance at fiscal year end 2021	$	314	$	(475)	$	(7)	$	(168)
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss) before reclassifications		(510)		344		(76)		(242)
Amounts reclassified from accumulated other comprehensive income (loss)		—		19		(26)		(7)
Income tax (expense) benefit		—		(104)		7		(97)
Other comprehensive income (loss), net of tax		(510)		259		(95)		(346)
Less: other comprehensive loss attributable to noncontrolling interests		19		—		—		19
Balance at fiscal year end 2022	$	(177)	$	(216)	$	(102)	$	(495)

(1)	Includes hedges of net investment foreign currency exchange gains or losses which offset foreign currency exchange losses or gains attributable to the translation of the net investments.

19. Share Plans

Our equity compensation plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of September 17, 2020 (the “2007 Plan”), is the primary plan, provide for the award of annual performance bonuses and long-term performance awards, including share options; restricted, performance, and deferred share units; and other share-based awards (collectively, “Awards”) and allow for the use of unissued shares or treasury shares to be used to satisfy such Awards. As of fiscal year end 2022, the 2007 Plan provided for a maximum of 70 million shares to be issued as Awards, subject to adjustment as provided under the terms of the plan. A total of 11 million shares remained available for issuance under the 2007 Plan as of fiscal year end 2022.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Share-Based Compensation Expense

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


	Fiscal
	2022		2021		2020

	(in millions)
Share-based compensation expense	$	119	$	94	$	74

We recognized a related tax benefit associated with our share-based compensation arrangements of $24 million, $19 million, and $15 million in fiscal 2022, 2021, and 2020, respectively.

Restricted Share Awards

Restricted share awards, which are generally in the form of restricted share units, are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant. All restrictions on an award will lapse upon death or disability of the employee. If the employee satisfies retirement requirements, all or a portion of the award may vest, depending on the terms and conditions of the particular grant. Recipients of restricted share units have no voting rights, but do receive dividend equivalents. For grants that vest through passage of time, the fair value of the award at the time of the grant is amortized to expense over the period of vesting. The fair value of restricted share awards is determined based on the closing value of our shares on the grant date. Restricted share awards generally vest in increments over a period of four years as determined by the management development and compensation committee of our board of directors.

Restricted share award activity was as follows:


		Weighted-Average
		Grant-Date
	Shares	Fair Value
Nonvested at fiscal year end 2021	1,316,645	$	96.03
Granted	720,801		150.99
Vested	(484,884)		91.35
Forfeited	(131,956)		116.72
Nonvested at fiscal year end 2022	1,420,606	$	123.25

The weighted-average grant-date fair value of restricted share awards granted during fiscal 2022, 2021, and 2020 was $150.99, $112.54, and $92.94, respectively.

The total fair value of restricted share awards that vested during fiscal 2022, 2021, and 2020 was $44 million, $43 million, and $44 million, respectively.

As of fiscal year end 2022, there was $88 million of unrecognized compensation expense related to nonvested restricted share awards, which is expected to be recognized over a weighted-average period of 1.7 years.

Performance Share Awards

Performance share awards, which are generally in the form of performance share units, are granted with pay-out subject to vesting requirements and certain performance conditions that are determined at the time of grant. Based on our performance, the pay-out of performance share units can range from 0% to 200% of the number of units originally granted. The grant-date fair value of performance share awards is expensed over the period of performance once achievement of the performance criteria is deemed probable. Recipients of performance share units have no voting rights but do receive dividend equivalents. Performance share awards generally vest after a period of three years as determined by the management development and compensation committee of our board of directors.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Performance share award activity was as follows:


		Weighted-Average
		Grant-Date
	Shares	Fair Value
Outstanding at fiscal year end 2021	526,071	$	88.99
Granted	139,037		157.56
Vested	(160,673)		72.85
Forfeited	(35,002)		78.18
Outstanding at fiscal year end 2022	469,433	$	114.88

The weighted-average grant-date fair value of performance share awards granted during fiscal 2022, 2021, and 2020 was $157.56, $105.86, and $83.30, respectively.

The total fair value of performance share awards that vested during fiscal 2022, 2021, and 2020 was $12 million, $10 million, and $20 million, respectively.

As of fiscal year end 2022, there was $17 million of unrecognized compensation expense related to nonvested performance share awards, which is expected to be recognized over a weighted-average period of 1.2 years.

Share Options

Share options are granted to purchase our common shares at prices which are equal to or greater than the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. All restrictions on the award will lapse upon death or disability of the employee. If the employee satisfies retirement requirements, all or a portion of the award may vest, depending on the terms and conditions of the particular grant. Options generally vest and become exercisable in equal annual installments over a period of four years and expire ten years after the date of grant.

Share option award activity was as follows:


				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
				(in years)	(in millions)
Outstanding at fiscal year end 2021	5,348,944	$	88.00
Granted	873,300		157.02
Exercised	(683,871)		74.32
Forfeited	(187,019)		111.14
Outstanding at fiscal year end 2022	5,351,354	$	100.21	6.6	$	94
Vested and expected to vest at fiscal year end 2022	5,227,306	$	99.60	6.6	$	93
Exercisable at fiscal year end 2022	2,704,322	$	84.86	5.4	$	69

The weighted-average exercise price of share option awards granted during fiscal 2022, 2021, and 2020 was $157.02, $106.52, and $93.39, respectively.

The total intrinsic value of options exercised during fiscal 2022, 2021, and 2020 was $49 million, $49 million, and $39 million, respectively. We received cash related to the exercise of options of $54 million, $167 million, and $55 million in fiscal 2022, 2021, and 2020, respectively.

As of fiscal year end 2022, there was $32 million of unrecognized compensation expense related to nonvested share options granted under our share option plans, which is expected to be recognized over a weighted-average period of 1.5 years.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Share-Based Compensation Assumptions

The grant-date fair value of each share option grant was estimated using the Black-Scholes-Merton option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. We employ our historical share volatility when calculating the grant-date fair value of our share option grants using the Black-Scholes-Merton option pricing model. Currently, we do not have exchange-traded options of sufficient duration to employ an implied volatility assumption in the calculation and therefore rely solely on the historical volatility calculation. The average expected life was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The risk-free interest rate was based on U.S. Treasury zero-coupon issues with a remaining term that approximated the expected life assumed at the date of grant. The expected annual dividend per share was based on our expected dividend rate. The recognized share-based compensation expense was net of estimated forfeitures, which are based on voluntary termination behavior as well as an analysis of actual option forfeitures.

The weighted-average grant-date fair value of options granted and the weighted-average assumptions we used in the Black-Scholes-Merton option pricing model were as follows:


	Fiscal
	2022			2021			2020
Weighted-average grant-date fair value	$	37.51		$	22.21		$	15.49

Assumptions:
Expected share price volatility		29	%		28	%		21	%
Risk-free interest rate		1.2	%		0.5	%		1.7	%
Expected annual dividend per share	$	2.00		$	1.92		$	1.84
Expected life of options (in years)		5.1			5.4			5.1

20. Segment and Geographic Data

We operate through three reportable segments: Transportation Solutions, Industrial Solutions, and Communications Solutions. See Note 1 for a description of the segments in which we operate.

Segment performance is evaluated based on net sales and operating income. Generally, we consider all expenses to be of an operating nature and, accordingly, allocate them to each reportable segment. Costs specific to a segment are charged to the segment. Corporate expenses, such as headquarters administrative costs, are allocated to the segments based on segment operating income. Intersegment sales are not material. Corporate assets are allocated to the segments based on segment assets.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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


	Fiscal
	2022		2021		2020

	(in millions)
Transportation Solutions:
Automotive	$	6,527	$	6,379	$	4,903
Commercial transportation		1,582		1,467		1,051
Sensors		1,110		1,128		891
Total Transportation Solutions		9,219		8,974		6,845
Industrial Solutions:
Industrial equipment		1,934		1,397		1,098
Aerospace, defense, and marine		1,087		1,035		1,201
Energy		804		738		717
Medical		695		674		697
Total Industrial Solutions		4,520		3,844		3,713
Communications Solutions:
Data and devices		1,576		1,198		973
Appliances		966		907		641
Total Communications Solutions		2,542		2,105		1,614
Total	$	16,281	$	14,923	$	12,172

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

Net sales by geographic region and segment were as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Asia–Pacific:
Transportation Solutions	$	3,537	$	3,466	$	2,662
Industrial Solutions		843		703		604
Communications Solutions		1,391		1,205		980
Total Asia–Pacific		5,771		5,374		4,246
Europe/Middle East/Africa (“EMEA”):
Transportation Solutions		3,490		3,570		2,625
Industrial Solutions		1,871		1,586		1,359
Communications Solutions		346		315		236
Total EMEA		5,707		5,471		4,220
Americas:
Transportation Solutions		2,192		1,938		1,558
Industrial Solutions		1,806		1,555		1,750
Communications Solutions		805		585		398
Total Americas		4,803		4,078		3,706
Total	$	16,281	$	14,923	$	12,172

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Operating income (loss) by segment was as follows:


	Fiscal
	2022		2021		2020

	(in millions)
Transportation Solutions	$	1,534	$	1,526	$	(93)
Industrial Solutions		620		469		412
Communications Solutions		602		439		218
Total	$	2,756	$	2,434	$	537

No single customer accounted for a significant amount of our net sales in fiscal 2022, 2021, or 2020.

As we are not organized by product or service, it is not practicable to disclose net sales by product or service.

Depreciation and amortization and capital expenditures were as follows:


	Depreciation and
	Amortization						Capital Expenditures
	Fiscal						Fiscal
	2022		2021		2020		2022		2021		2020

	(in millions)
Transportation Solutions	$	505	$	512	$	463	$	483	$	487	$	365
Industrial Solutions		194		189		184		153		121		139
Communications Solutions		86		68		64		132		82		56
Total	$	785	$	769	$	711	$	768	$	690	$	560

Segment assets and a reconciliation of segment assets to total assets were as follows:


	Segment Assets
	Fiscal Year End
	2022		2021		2020

	(in millions)
Transportation Solutions	$	5,530	$	5,791	$	4,973
Industrial Solutions		2,442		2,275		2,117
Communications Solutions		1,136		1,151		887
Total segment assets(1)		9,108		9,217		7,977
Other current assets		1,727		1,824		1,457
Other non-current assets		9,947		10,421		9,808
Total assets	$	20,782	$	21,462	$	19,242

	(1)	Segment assets are composed of accounts receivable, inventories, and net property, plant, and equipment.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net sales and net property, plant, and equipment by geographic region were as follows:


							Property, Plant, and
	Net Sales(1)						Equipment, Net
	Fiscal						Fiscal Year End
	2022		2021		2020		2022		2021		2020

	(in millions)
Asia–Pacific:
China	$	3,589	$	3,297	$	2,459	$	779	$	755	$	659
Other Asia–Pacific		2,182		2,077		1,787		296		377		418
Total Asia–Pacific		5,771		5,374		4,246		1,075		1,132		1,077
EMEA:
Switzerland		3,709		3,616		2,878		16		41		79
Germany		561		417		343		597		599		559
Other EMEA		1,437		1,438		999		821		937		871
Total EMEA		5,707		5,471		4,220		1,434		1,577		1,509
Americas:
U.S.		4,280		3,615		3,348		947		960		963
Other Americas		523		463		358		111		109		101
Total Americas		4,803		4,078		3,706		1,058		1,069		1,064
Total	$	16,281	$	14,923	$	12,172	$	3,567	$	3,778	$	3,650

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

TE CONNECTIVITY LTD.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years Ended September 30, 2022, September 24, 2021, and September 25, 2020


			Additions
	Balance at		Charged to		Acquisitions,		Write-offs		Balance at
	Beginning of		Costs and		Divestitures,		and		End of
Description	Fiscal Year		Expenses		and Other		Deductions		Fiscal Year

	(in millions)
Fiscal 2022:
Allowance for doubtful accounts receivable	$	41		15		(7)		(4)	$	45
Valuation allowance on deferred tax assets		2,729		4,463		—		(80)		7,112

Fiscal 2021:
Allowance for doubtful accounts receivable	$	29	$	15	$	1	$	(4)	$	41
Valuation allowance on deferred tax assets		4,429		31		—		(1,731)		2,729

Fiscal 2020:
Allowance for doubtful accounts receivable	$	25	$	10	$	(1)	$	(5)	$	29
Valuation allowance on deferred tax assets		4,970		493		—		(1,034)		4,429

Previous: Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES