Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 28, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-33260
(Commission File Number)
TE CONNECTIVITY LTD.
(Exact name of registrant as specified in its charter)
Switzerland(Jurisdiction of Incorporation)
98-0518048(I.R.S. Employer Identification No.)
Mühlenstrasse 26, CH-8200 Schaffhausen, Switzerland
(Address of principal executive offices)
+41 (0)52 633 66 61
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Shares, Par Value CHF 0.57
TEL
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares outstanding as of July 19, 2024 was 303,918,662.
INDEX TO FORM 10-Q
Page
Part I.
Financial Information
Item 1.
Financial Statements
1
Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended June 28, 2024 and June 30, 2023 (unaudited)
Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended June 28, 2024 and June 30, 2023 (unaudited)
2
Condensed Consolidated Balance Sheets as of June 28, 2024 and September 29, 2023 (unaudited)
3
Condensed Consolidated Statements of Equity for the Quarters and Nine Months Ended June 28, 2024 and June 30, 2023 (unaudited)
4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 28, 2024 and June 30, 2023 (unaudited)
6
Notes to Condensed Consolidated Financial Statements (unaudited)
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
Part II.
Other Information
Legal Proceedings
37
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.
Item 6.
Exhibits
38
Signatures
39
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
2024
2023
(in millions, except per share data)
Net sales
$
3,979
3,998
11,777
11,999
Cost of sales
2,593
2,699
7,704
8,229
Gross margin
1,386
1,299
4,073
3,770
Selling, general, and administrative expenses
431
1,258
Research, development, and engineering expenses
189
176
546
534
Acquisition and integration costs
5
9
16
26
Restructuring and other charges, net
53
67
283
Operating income
755
630
2,145
1,669
Interest income
18
61
Interest expense
(18)
(20)
(55)
(61)
Other expense, net
(3)
(4)
(11)
(13)
Income from continuing operations before income taxes
754
624
2,140
1,634
Income tax (expense) benefit
(181)
(96)
778
(283)
Income from continuing operations
573
528
2,918
1,351
Income (loss) from discontinued operations, net of income taxes
—
(1)
Net income
2,917
1,358
Basic earnings per share:
1.87
1.68
9.47
4.28
Income (loss) from discontinued operations
0.02
4.30
Diluted earnings per share:
1.86
1.67
9.41
4.25
4.27
Weighted-average number of shares outstanding:
Basic
306
315
308
316
Diluted
317
310
318
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Other comprehensive income (loss):
Currency translation
(45)
(25)
358
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes
(12)
Gains (losses) on cash flow hedges, net of income taxes
15
(42)
65
Other comprehensive income (loss)
(30)
(66)
46
427
Comprehensive income
543
462
2,963
1,785
Less: comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income attributable to TE Connectivity Ltd.
544
461
2,962
1,773
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29,
(in millions, except share
data)
Assets
Current assets:
Cash and cash equivalents
1,469
1,661
Accounts receivable, net of allowance for doubtful accounts of $37 and $30, respectively
2,889
2,967
Inventories
2,669
2,552
Prepaid expenses and other current assets
686
712
Total current assets
7,713
7,892
Property, plant, and equipment, net
3,758
3,754
Goodwill
5,664
5,463
Intangible assets, net
1,177
1,175
Deferred income taxes
3,768
2,600
Other assets
818
828
Total assets
22,898
21,712
Liabilities, redeemable noncontrolling interests, and shareholders' equity
Current liabilities:
Short-term debt
1,249
682
Accounts payable
1,662
1,563
Accrued and other current liabilities
2,206
2,218
Total current liabilities
5,117
4,463
Long-term debt
2,953
3,529
Long-term pension and postretirement liabilities
720
728
186
185
Income taxes
386
365
Other liabilities
781
787
Total liabilities
10,143
10,057
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests
123
104
Shareholders' equity:
Common shares, CHF 0.57 par value, 316,574,781 shares authorized and issued, and 322,470,281 shares authorized and issued, respectively
139
142
Accumulated earnings
14,253
12,947
Treasury shares, at cost, 12,129,385 and 10,487,742 shares, respectively
(1,647)
(1,380)
Accumulated other comprehensive loss
(113)
(158)
Total shareholders' equity
12,632
11,551
Total liabilities, redeemable noncontrolling interests, and shareholders' equity
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Quarter Ended June 28, 2024
Accumulated
Other
Total
Non-
Common Shares
Treasury Shares
Contributed
Comprehensive
Shareholders'
controlling
Shares
Amount
Surplus
Earnings
Loss
Equity
Interests
Balance at March 29, 2024
(10)
(1,295)
13,689
(84)
12,449
12,454
Other comprehensive loss
(29)
Share-based compensation expense
31
Dividends
Exercise of share options
19
Restricted share award vestings and other activity
(31)
(15)
(8)
Repurchase of common shares
(409)
Purchase of noncontrolling interests
(5)
Balance at June 28, 2024
For the Nine Months Ended June 28, 2024
Balance at September 29, 2023
322
Noncontrolling interests associated with acquisition
Other comprehensive income
45
100
(789)
52
169
(100)
(78)
(9)
(1,235)
Cancellation of treasury shares
(6)
747
(744)
(UNAUDITED) (Continued)
For the Quarter Ended June 30, 2023
Balance at March 31, 2023
(7)
(933)
11,824
11,020
(67)
32
13
24
(32)
8
(189)
Balance at June 30, 2023
(1,085)
12,372
(80)
11,349
For the Nine Months Ended June 30, 2023
Balance at September 30, 2022
331
146
(1,681)
12,832
(495)
10,802
415
95
(740)
33
89
(95)
(621)
1,095
(1,091)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
(Income) loss from discontinued operations, net of income taxes
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization
594
(1,190)
(121)
Non-cash lease cost
106
Provision for losses on accounts receivable and inventories
70
82
Impairment of held for sale businesses
85
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net
(202)
(127)
(323)
12
99
68
(324)
(14)
28
51
Net cash provided by operating activities
2,435
1,994
Cash flows from investing activities:
Capital expenditures
(467)
(538)
Proceeds from sale of property, plant, and equipment
Acquisition of businesses, net of cash acquired
(339)
(108)
Proceeds from divestiture of businesses, net of cash retained by businesses sold
59
48
22
Net cash used in investing activities
(573)
Cash flows from financing activities:
Net decrease in commercial paper
(21)
(82)
Proceeds from issuance of debt
499
Repayment of debt
(2)
(591)
Proceeds from exercise of share options
(1,301)
(674)
Payment of common share dividends to shareholders
(564)
(541)
(39)
Net cash used in financing activities
(1,875)
(1,386)
Effect of currency translation on cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
(192)
43
Cash, cash equivalents, and restricted cash at beginning of period
1,088
Cash, cash equivalents, and restricted cash at end of period
1,131
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Accounting Policies
The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and the instructions to Form 10-Q under the Securities Exchange Act of 1934. In management’s opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.
The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023.
Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2024 and fiscal 2023 are to our fiscal years ending September 27, 2024 and ended September 29, 2023, respectively.
Change in Place of Incorporation
In March 2024, our board of directors approved a proposed change in our jurisdiction of incorporation from Switzerland to Ireland. In connection with the proposed change, we entered into a merger agreement with our wholly-owned subsidiary, TE Connectivity plc, a public limited company incorporated under Irish law. Under the merger agreement, we will be merged with and into TE Connectivity plc, which will be the surviving entity. The merger was approved by shareholders at a special general meeting in June 2024 and is subject to certain closing conditions. We expect to implement the change on or about September 30, 2024. Our shareholders will receive one ordinary share of TE Connectivity plc for each common share of TE Connectivity Ltd. held immediately prior to the merger. Upon completion of the merger, we will be organized under the laws of Ireland. We do not anticipate any material change in our operations or financial results as a result of the merger and change in place of incorporation.
Recently Issued Accounting Pronouncements
In March 2024, the U.S. Securities and Exchange Commission (“SEC”) issued its final climate disclosure rules, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which require all registrants to provide certain climate-related information in their registration statements and annual reports. The rules require disclosure of, among other things, material climate-related risks, activities to mitigate or adapt to such risks, governance and oversight of such risks, material climate targets and goals, and Scope 1 and/or Scope 2 greenhouse gas emissions, on a phased-in basis, when those emissions are material. In addition, the final rules require certain disclosures in the notes to the financial statements, including the effects of severe weather events and other natural conditions. The rules are effective for us on a phased-in timeline starting in fiscal 2026; however, in April 2024, the SEC issued an order to voluntarily stay its final climate rules pending the completion of judicial review thereof by the U.S. Court of Appeals for the Eighth Circuit. We are currently assessing the impact of the rules on our Consolidated Financial Statements.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740)—Improvement to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures through improvements to disclosures related primarily to the rate reconciliation and income taxes paid information. The amendments are effective for us in fiscal 2026; however, early adoption is permitted. We are currently assessing the impact that adoption will have on our Consolidated Financial Statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for our fiscal 2025 Annual Report and subsequent interim periods; however, early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements. We are currently assessing the impact that adoption will have on our Consolidated Financial Statements.
Recently Adopted Accounting Pronouncement
In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50)—Disclosure of Supplier Finance Program Obligations, to enhance transparency and introduce new disclosures related to an entity’s use of supplier finance programs in connection with the purchase of goods and services. The ASU requires us, as a buyer in a supplier finance program, to disclose the key terms of the program, the amount of obligations outstanding, the balance sheet presentation of such amounts, and a rollforward of the obligation activity during the annual period. We adopted this update in the first quarter of fiscal 2024. Adoption did not have a material impact on our Condensed Consolidated Financial Statements. See Note 9 for additional information regarding our supply chain finance program.
2. Restructuring and Other Charges, Net
Net restructuring and other charges consisted of the following:
Restructuring charges, net
42
57
208
(Gain) loss on divestitures and impairment of held for sale businesses, net
10
72
Costs related to change in place of incorporation
11
Other charges, net
Restructuring Charges, Net
Net restructuring charges by segment were as follows:
Transportation Solutions
27
119
Industrial Solutions
Communications Solutions
Activity in our restructuring reserves was as follows:
Balance at
Changes in
Cash
Non-Cash
Currency
Charges
Estimate
Payments
Items
Translation
Fiscal 2024 Actions:
Employee severance
Fiscal 2023 Actions:
187
Facility and other exit costs
Property, plant, and equipment
21
(69)
Pre-Fiscal 2023 Actions:
127
(56)
84
131
(68)
94
Total Activity
320
64
(141)
237
Fiscal 2024 Actions
During fiscal 2024, we initiated a restructuring program to optimize our manufacturing footprint and improve the cost structure of the organization, primarily in the Industrial Solutions and Transportation Solutions segments. During the nine months ended June 28, 2024, we recorded restructuring charges of $24 million in connection with this program. We expect to complete all restructuring actions commenced during the nine months ended June 28, 2024 by the end of fiscal 2025 and anticipate that additional charges related to actions commenced during the nine months ended June 28, 2024 will be insignificant.
Fiscal 2023 Actions
During fiscal 2023, we initiated a restructuring program associated with cost structure improvements across all segments. In connection with this program, during the nine months ended June 28, 2024 and June 30, 2023, we recorded net restructuring charges of $7 million and $200 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2023 by the end of fiscal 2025 and to incur additional charges of approximately $10 million related primarily to employee severance and facility exit costs.
The following table summarizes expected, incurred, and remaining charges for the fiscal 2023 program by segment as of June 28, 2024:
Cumulative
Remaining
Expected
Incurred
147
141
79
35
34
264
254
Pre-Fiscal 2023 Actions
During the nine months ended June 28, 2024 and June 30, 2023, we recorded net restructuring charges of $26 million and $8 million, respectively, related to pre-fiscal 2023 actions. We expect that any additional charges related to restructuring actions commenced prior to fiscal 2023 will be insignificant.
Total Restructuring Reserves
Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:
197
240
40
80
Restructuring reserves
Divestitures
During the nine months ended June 28, 2024, we sold one business for net cash proceeds of $59 million. In connection with the divestiture, we recorded a pre-tax gain on sale of $10 million in the nine months ended June 28, 2024. Additionally, during the nine months ended June 30, 2023, we recorded a pre-tax impairment charge of $60 million when the business was reclassified to held for sale. The business sold was reported in our Transportation Solutions segment.
During the nine months ended June 30, 2023, we sold three businesses for net cash proceeds of $48 million. In connection with the divestitures, we recorded pre-tax impairment charges and a net pre-tax loss on sales, which totaled to a net charge of $12 million. The businesses sold were both reported in our Industrial Solutions segment.
During the nine months ended June 28, 2024, we incurred costs of $11 million related to our change in place of incorporation from Switzerland to Ireland. See Note 1 for additional information regarding the change.
3. Acquisitions
During the quarter ended December 29, 2023, we acquired approximately 98.7% of the outstanding shares of Schaffner Holding AG (“Schaffner”), a leader in electromagnetic solutions based in Switzerland, for CHF 505.00 per share in cash for a purchase price of CHF 294 million (equivalent to $339 million), net of cash acquired. As a result of the transaction, we recognized a noncontrolling interest with a fair value of $5 million as of the acquisition date. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition. Our valuation of identifiable intangible assets, assets acquired, and liabilities assumed is currently in process; therefore, the current allocation is subject to adjustment upon finalization of the valuations. The amount of these potential adjustments could be significant. During the quarter ended June 28, 2024, we completed a squeeze-out of the remaining minority shareholders for $5 million and the Schaffner shares were delisted from the SIX Swiss Exchange.
We acquired one business for a cash purchase price of $108 million, net of cash acquired, during the nine months ended June 30, 2023. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.
4. Inventories
Inventories consisted of the following:
Raw materials
351
367
Work in progress
1,170
1,185
Finished goods
1,148
1,000
5. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
Transportation
Industrial
Communications
Solutions
September 29, 2023(1)
1,478
3,263
722
Acquisition
181
Currency translation and other
June 28, 2024(1)
1,483
3,455
726
During the nine months ended June 28, 2024, we recognized goodwill in the Industrial Solutions segment in connection with an acquisition. See Note 3 for additional information regarding acquisitions.
6. Intangible Assets, Net
Intangible assets consisted of the following:
June 28, 2024
September 29, 2023
Gross
Net
Carrying
Amortization
Customer relationships
1,840
(891)
949
1,720
(806)
914
Intellectual property
(500)
212
1,186
(938)
248
23
2,575
(1,398)
2,925
(1,750)
Intangible asset amortization expense was $41 million and $46 million for the quarters ended June 28, 2024 and June 30, 2023, respectively, and $126 million and $141 million for the nine months ended June 28, 2024 and June 30, 2023, respectively.
At June 28, 2024, the aggregate amortization expense on intangible assets is expected to be as follows:
Remainder of fiscal 2024
41
Fiscal 2025
159
Fiscal 2026
152
Fiscal 2027
133
Fiscal 2028
Fiscal 2029
93
Thereafter
7. Debt
As of June 28, 2024, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, had $309 million of commercial paper outstanding at a weighted-average interest rate of 5.48%. TEGSA had $330 million of commercial paper outstanding at a weighted-average interest rate of 5.50% at September 29, 2023.
During the nine months ended June 28, 2024, we reclassified €550 million of 0.00% euro-denominated senior notes due in February 2025 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet.
TEGSA entered into a new five-year unsecured senior revolving credit facility (“Credit Facility”) in April 2024 with aggregate commitments of $1.5 billion, which refinanced and replaced in full TEGSA’s existing $1.5 billion five-year unsecured senior revolving credit facility (the “Replaced Credit Facility”). The Credit Facility matures in April 2029 and permits, subject to conditions set forth therein, our contemplated merger and change in jurisdiction of incorporation. See Note 1 for additional information regarding the merger and change in our jurisdiction of incorporation. TEGSA had no borrowings under the Credit Facility at June 28, 2024 or the Replaced Credit Facility at September 29, 2023.
Borrowings under the Credit Facility bear interest at a rate per annum equal to, at the option of TEGSA, (1) with respect to revolving loans denominated in U.S. dollars, (a) the term secured overnight financing rate (“Term SOFR”) (as defined in the Credit Facility) or (b) 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%, (iii) the Term SOFR for a one-month interest period plus 1%, and (iv) 1%, and (2) with respect to revolving loans determined in an alternative currency, (a) an alternative currency daily rate or (b) an alternative currency term rate, as applicable, 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 fair value of our debt, based on indicative valuations, was approximately $4,079 million and $3,974 million at June 28, 2024 and September 29, 2023, respectively.
8. Leases
The components of lease cost were as follows:
Operating lease cost
Variable lease cost
Total lease cost
138
Cash flow information, including significant non-cash transactions, related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Payments for operating leases(1)
105
Right-of-use assets, including modifications of existing leases, obtained in exchange for operating lease liabilities
144
9. Commitments and Contingencies
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 are 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.
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 June 28, 2024, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $17 million to $43 million, and we accrued $21 million as the probable loss, which was the best estimate within this range. We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.
Guarantees
In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.
At June 28, 2024, we had outstanding letters of credit, letters of guarantee, and surety bonds of $185 million, including letters of credit of $22 million associated with our divestiture of the Subsea Communications business. In addition, as of June 28, 2024, we had $24 million of performance guarantees associated with the divestiture. We contractually agreed to continue to honor letters of credit and performance guarantees related to the business’ projects that existed as of the date of sale; however, based on historical experience, we do not anticipate having to perform on these guarantees.
Supply Chain Finance Program
We have an agreement with a financial institution that allows participating suppliers the ability to finance payment obligations. The financial institution has separate arrangements with the suppliers and provides them with the option to request early payment for invoices. We do not determine the terms or conditions of the arrangement between the financial institution and suppliers. Our obligation to suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to finance amounts under the arrangement and we are not required to post collateral with the financial institution. The outstanding payment obligations under our supply chain finance program, which are included in accounts payable on our Condensed Consolidated Balance Sheets, were $106 million and $109 million at June 28, 2024 and September 29, 2023, respectively.
10. Financial Instruments
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 Condensed Consolidated Statement of Operations within the next twelve months.
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 $1,556 million and $1,709 million at June 28, 2024 and September 29, 2023, 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 $4,316 million and $3,806 million at June 28, 2024 and September 29, 2023, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 1.6% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2028, we will pay the notional value of the contracts in the designated foreign currency and receive U.S. dollars from our counterparties. We are not required to provide collateral for these contracts.
These cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:
88
109
47
The impacts of our hedge of net investment programs were as follows:
Foreign currency exchange gains (losses) on intercompany loans and external borrowings(1)
29
(208)
Gains (losses) on cross-currency swap contracts designated as hedges of net investment(1)
(110)
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 $459 million at both June 28, 2024 and September 29, 2023 and were designated as cash flow hedges. These commodity swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:
14
The impacts of our commodity swap contracts were as follows:
Gains (losses) recorded in other comprehensive income (loss)
62
Gains (losses) reclassified from accumulated other comprehensive income (loss) into cost of sales
(35)
We expect that significantly all of the balance in accumulated other comprehensive income (loss) associated with commodity hedges will be reclassified into the Condensed Consolidated Statement of Operations within the next twelve months.
11. Retirement Plans
The net periodic pension benefit cost for all non-U.S. and U.S. defined benefit pension plans was as follows:
Non-U.S. Plans
U.S. Plans
Operating expense:
Service cost
Other (income) expense:
Interest cost
Expected returns on plan assets
Amortization of net actuarial loss
Amortization of prior service credit
Net periodic pension benefit cost
(37)
(34)
During the nine months ended June 28, 2024, we contributed $33 million and $20 million to our non-U.S. and U.S. pension plans, respectively.
12. Income Taxes
We recorded income tax expense of $181 million and $96 million for the quarters ended June 28, 2024 and June 30, 2023, respectively. The income tax expense for the quarter ended June 30, 2023 included a $19 million net income tax benefit related to a divestiture.
We recorded an income tax benefit of $778 million and expense of $283 million for the nine months ended June 28, 2024 and June 30, 2023, respectively. The income tax benefit for the nine months ended June 28, 2024 included an $874 million net income tax benefit associated with a ten-year tax credit obtained by a Swiss subsidiary and a $262 million income tax benefit related to the revaluation of deferred tax assets as a result of a corporate tax rate increase in Switzerland. In addition, the income tax benefit for the nine months ended June 28, 2024 included a $118 million income tax benefit associated with the tax impacts of a legal entity restructuring with related costs of $4 million recorded in selling, general, and administrative expenses for other non-income taxes. The income tax expense for the nine months ended June 30, 2023 included a $19 million net income tax benefit related to a divestiture.
Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that, as of June 28, 2024, approximately $30 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.
We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Condensed Consolidated Balance Sheet as of June 28, 2024.
13. Earnings Per Share
The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:
Dilutive impact of share-based compensation arrangements
The following share options were not included in the computation of diluted earnings per share because the instruments’ underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive:
Antidilutive share options
14. Shareholders’ Equity
In March 2024, our shareholders reapproved and extended through March 13, 2025, our board of directors’ authorization to issue additional new shares to a maximum of 120% and/or reduce shares to a minimum of 80% of the existing share capital, subject to certain conditions specified in our articles of association.
Common Shares Held in Treasury
In March 2024, our shareholders approved the cancellation of approximately six million shares purchased under our share repurchase program during the period beginning October 1, 2022 and ending September 29, 2023. The capital reduction by cancellation of these shares, which was subject to a notice period, filing with the commercial register in Switzerland, and other requirements, became effective in March 2024.
We paid cash dividends to shareholders as follows:
Dividends paid per common share
0.65
0.59
1.83
1.71
In March 2024, our shareholders approved a dividend payment to shareholders of $2.60 per share, payable in four equal quarterly installments of $0.65 per share beginning in the third quarter of fiscal 2024 and ending in the second quarter of fiscal 2025.
Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to equity. At June 28, 2024 and September 29, 2023, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $594 million and $368 million, respectively.
Share Repurchase Program
During the nine months ended June 28, 2024, our board of directors authorized an increase of $1.5 billion in our share repurchase program. Common shares repurchased under the share repurchase program were as follows:
Number of common shares repurchased
Repurchase value
1,235
621
At June 28, 2024, we had $1.0 billion of availability remaining under our share repurchase authorization.
15. Share Plans
Share-based compensation expense, which was included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:
As of June 28, 2024, there was $160 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 1.7 years.
During the quarter ended December 29, 2023, we granted the following share-based awards as part of our annual incentive plan grant:
Grant-Date
Fair Value
Share options
0.9
39.77
Restricted share awards
0.4
131.77
Performance share awards
0.2
17
In March 2024, our shareholders approved the TE Connectivity Ltd. 2024 Stock and Incentive Plan (the “2024 Plan”). The 2024 Plan replaces the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of December 12, 2023 (the “2007 Plan”), as the source of awards granted. No further awards will be granted under the 2007 Plan and all remaining shares available under the 2007 plan have been cancelled. As of June 28, 2024, we had 20 million shares available for issuance under the 2024 Plan.
Share-Based Compensation Assumptions
The assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:
Expected share price volatility
%
Risk-free interest rate
4.6
Expected annual dividend per share
2.36
Expected life of options (in years)
5.3
16. Segment and Geographic Data
Net sales by segment(1) and industry end market(2) were as follows:
Transportation Solutions:
Automotive
1,727
1,747
5,252
5,191
Commercial transportation
363
403
1,103
1,156
Sensors
732
Total Transportation Solutions
2,330
2,433
7,087
7,175
Industrial Solutions:
Industrial equipment
353
423
1,039
1,318
Aerospace, defense, and marine
345
293
977
855
Energy
226
230
665
652
Medical
209
195
620
567
Total Industrial Solutions
1,133
1,141
3,301
3,392
Communications Solutions:
Data and devices
329
252
881
869
Appliances
172
508
563
Total Communications Solutions
516
424
1,389
1,432
Net sales by geographic region(1) and segment were as follows:
Europe/Middle East/Africa (“EMEA”):
870
1,011
2,686
2,869
529
1,545
1,500
198
234
Total EMEA
1,466
1,610
4,429
4,603
Asia–Pacific:
898
813
2,796
2,598
158
182
459
277
220
714
756
Total Asia–Pacific
1,333
1,215
3,969
3,921
Americas:
562
609
1,605
1,708
447
430
1,297
1,325
171
134
477
442
Total Americas
1,180
1,173
3,379
3,475
Operating income by segment was as follows:
498
425
1,443
1,040
153
150
451
440
55
251
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including but not limited to those under the heading “Forward-Looking Information” and “Part II. Item 1A. Risk Factors.”
Our Condensed Consolidated Financial Statements have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).
The following discussion includes organic net sales growth (decline) which is a non-GAAP financial measure. See “Non-GAAP Financial Measure” for additional information regarding this measure.
Overview
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 enable the distribution of power, signal, and data to advance next-generation transportation, renewable energy, automated factories, data centers, medical technology, and more.
Summary of Performance
Economic Conditions
Our business and operating results have been and will continue to be affected by worldwide economic conditions. The global economy has been impacted in recent years by supply chain disruptions and inflationary cost pressures as well as military conflict in certain parts of the world and the COVID-19 pandemic. We are monitoring the current environment and its potential effects on our customers and the end markets we serve.
In recent years, we have experienced inflationary cost pressures including increased costs for transportation, energy, and raw materials. However, we have been able to mitigate increased costs and supply chain disruptions through productivity or price increases. Also, we have taken and continue to focus on actions to manage costs, including restructuring and other cost reduction initiatives such as reducing discretionary spending and travel. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund our future capital needs. See further discussion in “Liquidity and Capital Resources.”
We continue to monitor military conflict in certain parts of the world as well as escalating tensions in surrounding countries and associated sanctions. These did not have a significant impact on our business, financial condition, or results of operations during fiscal 2023 or the first nine months of fiscal 2024.
The COVID-19 pandemic had a global impact and resulted in business slowdowns or shutdowns, including systemic disruptions of global supply chains. The pandemic impacted certain aspects of our business, including certain of our operations in China in early fiscal 2023; however, we do not expect the pandemic to have a significant impact on our businesses globally in fiscal 2024.
Outlook
In the fourth quarter of fiscal 2024, we expect our net sales to be approximately $4.0 billion, down slightly from fourth quarter fiscal 2023 levels. Sales declines in the Transportation Solutions segment are expected to be largely offset by sales growth in the Communications Solutions segment. Additional information regarding expectations for our reportable segments is as follows:
We expect diluted earnings per share from continuing operations to be approximately $1.80 per share in the fourth quarter of fiscal 2024. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $56 million and $0.03 per share, respectively, in the fourth quarter of fiscal 2024 as compared to the same period of fiscal 2023. Also, this outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.
During the first quarter of fiscal 2024, we acquired approximately 98.7% of the outstanding shares of Schaffner Holding AG (“Schaffner”), a leader in electromagnetic solutions based in Switzerland, for CHF 505.00 per share in cash for a purchase price of CHF 294 million (equivalent to $339 million), net of cash acquired. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition. During the third quarter of fiscal 2024, we completed a squeeze-out of the remaining minority shareholders for $5 million and the Schaffner shares were delisted from the SIX Swiss Exchange. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.
Divestiture
During the first nine months of fiscal 2024, we sold one business for net cash proceeds of $59 million. In connection with the divestiture, we recorded a pre-tax gain on sale of $10 million in the first nine months of fiscal 2024. Additionally, during the first nine months of fiscal 2023, we recorded a pre-tax impairment charge of $60 million when the business was reclassified to held for sale. The business sold was reported in our Transportation Solutions segment. See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding divestitures.
Results of Operations
Net Sales
The following table presents our net sales and the percentage of total net sales by segment:
($ in millions)
60
The following table provides an analysis of the change in our net sales by segment:
Change in Net Sales for the Quarter Ended June 28, 2024
Change in Net Sales for the Nine Months Ended June 28, 2024
versus Net Sales for the Quarter Ended June 30, 2023
versus Net Sales for the Nine Months Ended June 30, 2023
Organic Net Sales
Acquisitions
Growth (Decline)
(Divestiture)
Decline
(Divestitures)
(103)
(4.2)
(0.3)
(51)
(44)
(88)
(1.2)
81
1.1
(0.7)
(23)
(2.1)
(91)
(2.7)
(142)
(16)
92
21.7
23.7
(43)
(3.0)
(2.0)
(19)
(0.5)
69
1.7
(222)
(1.9)
(90)
(86)
(46)
Net sales decreased $19 million, or 0.5%, in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023. The decrease in net sales resulted primarily from the negative impact of foreign currency translation of 2.0% due to the
weakening of certain foreign currencies, partially offset by organic net sales growth of 1.7%. Pricing actions positively affected organic net sales by $10 million in the third quarter of fiscal 2024.
In the first nine months of fiscal 2024, net sales decreased $222 million, or 1.9%, as compared to the first nine months of fiscal 2023 due primarily to organic net sales declines of 0.7% and the negative impact of foreign currency translation of 0.7% due to the weakening of certain foreign currencies. Pricing actions positively affected organic net sales by $91 million in the first nine months of fiscal 2024.
See further discussion of net sales below under “Segment Results.”
Net Sales by Geographic Region. Our business operates in three geographic regions—Europe/Middle East/Africa (“EMEA”), Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.
Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first nine months of fiscal 2024.
The following table presents our net sales and the percentage of total net sales by geographic region(1):
EMEA
Asia–Pacific
30
Americas
The following table provides an analysis of the change in our net sales by geographic region:
(144)
(8.9)
(118)
(7.3)
(174)
(3.8)
(211)
(4.5)
118
9.7
165
13.5
(52)
1.2
175
4.4
(130)
0.6
1.9
(2.8)
(54)
(1.6)
(26)
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
Change
(106)
(525)
As a percentage of net sales
65.2
67.5
65.4
68.6
87
303
34.8
32.5
34.6
31.4
Gross margin increased $87 million in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 due primarily to improved manufacturing productivity and the favorable impact of product mix. In the first nine months of fiscal 2024, gross margin increased $303 million as compared to the same period of fiscal 2023 primarily as a result of improved manufacturing productivity and the positive impact of pricing actions, partially offset by lower volume.
We use a wide variety of raw materials in the manufacture of our products, and cost of sales and gross margin are subject to variability in raw material prices. In recent years, raw material prices and availability have been affected by worldwide economic conditions, including supply chain disruptions and inflationary cost pressures. The following table presents the average prices incurred related to copper, gold, silver, and palladium:
Measure
Copper
Lb.
3.98
4.04
3.88
4.12
Gold
Troy oz.
2,048
1,876
1,986
1,853
Silver
25.71
22.83
24.06
23.45
Palladium
1,418
2,219
1,470
2,211
We expect to purchase approximately 185 million pounds of copper, 100,000 troy ounces of gold, 2.1 million troy ounces of silver, and 10,000 troy ounces of palladium in fiscal 2024.
Operating Expenses
The following table presents operating expense information:
10.8
11.0
10.5
(47)
(216)
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $41 million in the first nine months of fiscal 2024 as compared to the first nine months of fiscal 2023 due primarily to the impact of inflation, partially offset by savings attributable to prior restructuring actions.
Restructuring and Other Charges, Net. We are committed to continuous productivity improvements, and we evaluate opportunities to simplify our global manufacturing footprint, migrate facilities to lower-cost regions, reduce fixed costs, and eliminate excess capacity. These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for future growth.
During fiscal 2024, we initiated a restructuring program to optimize our manufacturing footprint and improve the cost structure of the organization, primarily in the Industrial Solutions and Transportation Solutions segments. We incurred net restructuring charges of $57 million during the first nine months of fiscal 2024. Annualized cost savings related to the fiscal 2024 actions commenced during the first nine months of fiscal 2024 are expected to be approximately $30 million and are expected to be fully realized by the end of fiscal 2026. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses. For fiscal 2024, we expect total restructuring charges to be approximately $100 million and total spending, which will be funded with cash from operations, to be approximately $200 million.
During the first nine months of fiscal 2024, we incurred costs of $11 million related to our change in place of incorporation from Switzerland to Ireland. See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the change.
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
Operating Income
The following table presents operating income and operating margin information:
125
476
Operating margin
19.0
15.8
18.2
13.9
Operating income included the following:
Taxes (non-income tax) recorded in selling, general, and administrative expenses
309
See discussion of operating income below under “Segment Results.”
Non-Operating Items
The following table presents select non-operating information:
Income tax expense (benefit)
96
(778)
(1,061)
Effective tax rate
24.0
15.4
(36.4)
17.3
Interest Income. Interest income increased $22 million in the first nine months of fiscal 2024 as compared to the same period of fiscal 2023 due to higher interest rates as well as an increase in our cash balances held and invested.
25
Income Taxes. See Note 12 to the Condensed Consolidated Financial Statements for discussion of income taxes.
The Organisation for Economic Co-operation and Development (“OECD”) and participating countries continue to work toward the enactment of a 15% global minimum corporate tax. Member states have begun to enact the rules, with some countries accelerating the impact of these rules by proposing immediate statutory rate increases. Both Switzerland and Ireland have implemented elements of the OECD’s global minimum tax rules, effective as of January 1, 2024. The OECD and participating countries continue to work on defining the underlying rules and administrative procedures. The global minimum tax is a significant structural change to the international taxation framework, which is expected to affect us beginning in fiscal 2025. We are currently monitoring global minimum tax developments and evaluating the impact, which could be material to our results of operations, cash taxes, and worldwide corporate effective tax rate.
Segment Results
Net Sales. The following table presents the Transportation Solutions segment’s net sales and the percentage of total net sales by industry end market(1):
74
71
The following table provides an analysis of the change in the Transportation Solutions segment’s net sales by industry end market:
(1.1)
63
3.6
4.2
(40)
(9.9)
(8.4)
(53)
(4.6)
(49)
(15.2)
(13.1)
(11.6)
(10.9)
Net sales in the Transportation Solutions segment decreased $103 million, or 4.2%, in the third quarter of fiscal 2024 from the third quarter of fiscal 2023 due primarily to the negative impact of foreign currency translation of 2.1% and the negative impact of 1.8% from a divestiture. Our organic net sales by industry end market were as follows:
In the first nine months of fiscal 2024, net sales in the Transportation Solutions segment decreased $88 million, or 1.2%, as compared to the first nine months of fiscal 2023 due to the negative impact of 1.5% from a divestiture and the negative impact of foreign currency translation of 0.8%, partially offset by organic net sales growth of 1.1%. Our organic net sales by industry end market were as follows:
Operating Income. The following table presents the Transportation Solutions segment’s operating income and operating margin information:
73
21.4
17.5
20.4
14.5
Operating income in the Transportation Solutions segment increased $73 million and $403 million in the third quarter and first nine months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023. Excluding the items below, operating income increased in the third quarter and first nine months of fiscal 2024 primarily as a result of improved manufacturing productivity.
Restructuring and other charges (credits), net
179
Net Sales. The following table presents the Industrial Solutions segment’s net sales and the percentage of total net sales by industry end market(1):
The following table provides an analysis of the change in the Industrial Solutions segment’s net sales by industry end market:
(70)
(16.5)
(98)
(23.6)
(279)
(21.2)
(344)
(26.2)
17.7
18.7
122
14.3
137
16.2
(1.7)
3.4
2.0
1.8
7.2
7.0
9.3
9.4
In the Industrial Solutions segment, net sales decreased $8 million, or 0.7%, in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 due to organic net sales declines of 2.1% and the negative impact of foreign currency translation of 1.8%, partially offset by the positive impact of 3.2% from an acquisition. Our organic net sales by industry end market were as follows:
Net sales in the Industrial Solutions segment decreased $91 million, or 2.7%, in the first nine months of fiscal 2024 as compared to the first nine months of fiscal 2023 due primarily to organic net sales declines of 4.2%, partially offset by the
net positive impact of 2.0% from acquisitions and a divestiture. In the first nine months of fiscal 2024, pricing actions positively affected organic net sales by $131 million. Our organic net sales by industry end market were as follows:
Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information:
13.1
13.7
13.0
Operating income in the Industrial Solutions segment increased $3 million and $11 million in the third quarter and first nine months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023. Excluding the items below, operating income decreased in the third quarter and first nine months of fiscal 2024 primarily as a result of lower volume and higher operating costs, partially offset by the positive impact of pricing actions.
Net Sales. The following table presents the Communications Solutions segment’s net sales and the percentage of total net sales by industry end market(1):
The following table provides an analysis of the change in the Communications Solutions segment’s net sales by industry end market:
Growth
77
30.6
31.8
1.4
8.7
11.7
(9.8)
(8.2)
Net sales in the Communications Solutions segment increased $92 million, or 21.7%, in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 due primarily to organic net sales growth of 23.7%. Our organic net sales by industry end market were as follows:
In the first nine months of fiscal 2024, net sales in the Communications Solutions segment decreased $43 million, or 3.0%, as compared to the first nine months of fiscal 2023 due primarily to organic net sales declines of 2.0%. In the first nine months of fiscal 2024, price erosion negatively affected organic net sales by $41 million. Our organic net sales by industry end market were as follows:
Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information:
49
20.2
18.1
13.2
Operating income in the Communications Solutions segment increased $49 million and $62 million in the third quarter and first nine months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023. Excluding the items below, operating income increased in the third quarter of fiscal 2024 primarily as a result of higher volume. Excluding
the items below, operating income increased in the first nine months of fiscal 2024 due primarily to improved manufacturing productivity and the favorable impact of product mix, partially offset by price erosion.
Liquidity and Capital Resources
Our ability to fund our future capital needs will be affected by our ongoing ability to generate cash from operations and may be affected by our access to capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements. We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payments of $350 million of 3.45% senior notes due in August 2024 and €550 million of 0.00% euro-denominated senior notes due in February 2025. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions. We believe that we have sufficient financial resources and liquidity which will enable us to meet our ongoing working capital and other cash flow needs.
Cash Flows from Operating Activities
In the first nine months of fiscal 2024, net cash provided by operating activities increased $441 million to $2,435 million from $1,994 million in the first nine months of fiscal 2023. The increase resulted primarily from higher pre-tax income and the impact of changes in working capital levels. The amount of income taxes paid, net of refunds, during the first nine months of fiscal 2024 and 2023 was $384 million and $354 million, respectively.
Cash Flows from Investing Activities
Capital expenditures were $467 million and $538 million in the first nine months of fiscal 2024 and 2023, respectively. We expect fiscal 2024 capital spending levels to be approximately 4% to 5% of net sales. We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.
During the first nine months of fiscal 2024, we acquired one business for a cash purchase price of $339 million, net of cash acquired. We acquired one business for a cash purchase price of $108 million, net of cash acquired, during the first nine months of fiscal 2023. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.
During the first nine months of fiscal 2024, we received net cash proceeds of $59 million related to the sale of one business. We received net cash proceeds of $48 million related to the sale of three businesses during the first nine months of fiscal 2023. See Note 2 to the Condensed Consolidated Financial Statements for additional information.
Cash Flows from Financing Activities and Capitalization
Total debt at June 28, 2024 and September 29, 2023 was $4,202 million and $4,211 million, respectively. See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding debt.
TEGSA entered into a new five-year unsecured senior revolving credit facility (“Credit Facility”) in April 2024 with aggregate commitments of $1.5 billion, which refinanced and replaced in full TEGSA’s existing $1.5 billion five-year unsecured senior revolving credit facility (the “Replaced Credit Facility”). The Credit Facility matures in April 2029 and permits, subject to conditions set forth therein, our contemplated merger and change in jurisdiction of incorporation. See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the merger and change in our jurisdiction of incorporation. TEGSA had no borrowings under the Credit Facility at June 28, 2024 or the Replaced Credit Facility at September 29, 2023.
The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our other debt agreements contain other customary covenants. None of our covenants are presently considered restrictive to our operations. As of June 28, 2024, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.
In addition to the Credit Facility, TEGSA is the borrower under our senior notes and commercial paper. TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed on an unsecured basis by its parent, TE Connectivity Ltd.
Payments of common share dividends to shareholders were $564 million and $541 million in the first nine months of fiscal 2024 and 2023, respectively.
During the first nine months of fiscal 2024, our board of directors authorized an increase of $1.5 billion in our share repurchase program. We repurchased approximately nine million of our common shares for $1,235 million and approximately five million of our common shares for $621 million under the share repurchase program during the first nine months of fiscal 2024 and 2023, respectively. At June 28, 2024, we had $1.0 billion of availability remaining under our share repurchase authorization.
Summarized Guarantor Financial Information
As discussed above, our senior notes, commercial paper, and Credit Facility are issued by TEGSA and are fully and unconditionally guaranteed on an unsecured basis by TEGSA’s parent, TE Connectivity Ltd. In addition to being the issuer of our debt securities, TEGSA owns, directly or indirectly, all of our operating subsidiaries. The following tables present summarized financial information, excluding investments in and equity in earnings of our non-guarantor subsidiaries, for TE Connectivity Ltd. and TEGSA on a combined basis.
Balance Sheet Data:
1,363
1,632
Total noncurrent assets(1)
2,379
2,857
1,972
1,303
Total noncurrent liabilities(2)
7,177
7,592
Fiscal Year Ended
Statement of Operations Data:
Loss from continuing operations
(57)
(606)
Net loss
In certain instances, we have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from fiscal 2024 through the completion of such transactions. The guarantees would be triggered in the event of nonperformance, and the potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows.
Commitments and Contingencies
Critical Accounting Policies and Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses.
Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension plans are based on, among other things, judgments and assumptions made by management. For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023. There were no significant changes to this information during the first nine months of fiscal 2024.
Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding recently issued and adopted accounting pronouncements.
Non-GAAP Financial Measure
Organic Net Sales Growth (Decline)
We present organic net sales growth (decline) as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP. Organic net sales growth (decline) represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic net sales growth (decline) is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.
Organic net sales growth (decline) provides useful information about our results and the trends of our business. Management uses this measure to monitor and evaluate performance. Also, management uses this measure together with GAAP financial measures in its decision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The tables presented in “Results of Operations” and “Segment Results” provide reconciliations of organic net sales growth (decline) to net sales growth (decline) calculated in accordance with GAAP.
Organic net sales growth (decline) is a non-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP. This non-GAAP financial measure may not be comparable to similarly-titled measures reported by other companies. The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using organic net sales growth (decline) in combination with net sales growth (decline) to better understand the amounts, character, and impact of any increase or decrease in reported amounts.
Forward-Looking Information
Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These statements are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among others, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, acquisitions, divestitures, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” and “should,” or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements after we file this report except as required by law.
The following and other risks, which are described in greater detail in “Part I. Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023, and in this report, could cause our results to differ materially from those expressed in forward-looking statements:
There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our exposures to market risk during the first nine months of fiscal 2024. For further discussion of our exposures to market risk, refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of June 28, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 28, 2024.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 28, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in our legal proceedings since we filed our Annual Report on Form 10-K for the fiscal year ended September 29, 2023. Refer to “Part I. Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023 for additional information regarding legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023. The risk factors described in our Annual Report on Form 10-K, in addition to other information in this report, could materially affect our business operations, financial condition, or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impair our business operations, financial condition, and liquidity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the quarter ended June 28, 2024:
Maximum
Total Number of
Approximate
Shares Purchased
Dollar Value
as Part of
of Shares that May
Total Number
Average Price
Publicly Announced
Yet Be Purchased
of Shares
Paid Per
Plans or
Under the Plans
Period
Purchased(1)
Share(1)
Programs(2)
or Programs(2)
March 30–April 26, 2024
917,228
143.27
1,277,579,916
April 27–May 31, 2024
1,071,981
146.97
1,052,689
1,122,924,455
June 1–June 28, 2024
824,897
149.48
999,619,364
2,814,106
146.50
2,794,814
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
In the quarter ended June 28, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-Rule 10b5-1 trading arrangement for the purchase or sale of our securities, within the meaning of Item 408 of Regulation S-K.
ITEM 6. EXHIBITS
Exhibit Number
Exhibit
10.1
Second Amended and Restated Five-Year Senior Credit Agreement, dated as of April 24, 2024, by and among Tyco Electronics Group S.A., as borrower, TE Connectivity Ltd., as parent guarantor, the lenders party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of TE Connectivity’s Current Report on Form 8-K, filed with the SEC on April 25, 2024)
22.1
*
Guaranteed Securities
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
**
Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document(1)
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File(2)
*Filed herewith
Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By:
/s/ Heath A. Mitts
Heath A. MittsExecutive Vice President and Chief FinancialOfficer (Principal Financial Officer)
Date: July 29, 2024