What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-04-26 compared with 2024-01-26 · 178 added, 89 removed, 306 unchanged (47% of the section changed)

7 unchanged sentences

See “Non-GAAP Financial Measure” for additional information regarding this measure.

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.

Completion of the merger is subject to shareholder approval at a special general meeting which we expect to be held in June 2024 and certain other customary closing conditions.

If approved, we expect to implement the change in calendar year 2024 and 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.

TE Connectivity Ltd.

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Summary of Performance

● Our net sales were essentially flat in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 with declines in the Communications Solutions and Industrial Solutions segments offset by sales growth in the Transportation Solutions segment.

On an organic basis, our net sales decreased 0.7% during the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.

● Our net sales decreased 4.6% in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 with declines across all three segments.

In the first six months of fiscal 2024, our net sales decreased 2.5% as compared to the first six months of fiscal 2023 due to declines in the Communications Solutions and Industrial Solutions segments.

On an organic basis, our net sales decreased 3.1% and 2.0% during the second quarter and first six months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023.

● Our net sales by segment were as follows:

● Transportation Solutions —Our net sales increased 5.0% in the first quarter of fiscal 2024 due primarily to sales increases in the automotive end market.

● Industrial Solutions —Our net sales decreased 3.3% in the first quarter of fiscal 2024 as a result of sales declines in the industrial equipment end market, partially offset by sales increases in the medical;

the aerospace, defense, and marine;

● Transportation Solutions —Our net sales decreased 4.0% in the second quarter of fiscal 2024 as a result of declines across all end markets.

In the first six months of fiscal 2024, our net sales were flat compared to the same period of fiscal 2023 with sales increases in the automotive end market largely offset by sales declines in the sensors and the commercial transportation end markets.

● Industrial Solutions —Our net sales decreased 4.0% and 3.7% in the second quarter and first six months of fiscal 2024, respectively, as a result of sales declines in the industrial equipment end market,

partially offset by sales increases in the aerospace, defense, and marine;

and the energy end markets.

● Communications Solutions —Our net sales decreased 17.0% in the first quarter of fiscal 2024 due to sales declines in both the data and devices and the appliances end markets.

● Net cash provided by operating activities was $719 million in the first quarter of fiscal 2024.

● Communications Solutions —Our net sales decreased 9.5% and 13.4% in the second quarter and first six months of fiscal 2024, respectively, due to sales declines in both the appliances and the data and devices end markets.

● Net cash provided by operating activities was $1,429 million in the first six months of fiscal 2024.

Economic Conditions

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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 quarter of fiscal 2024.

These did not have a significant impact on our business, financial condition, or results of operations during fiscal 2023 or the first six 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.

1 unchanged sentence

however, we do not expect the pandemic to have a significant impact on our businesses globally in fiscal 2024.

In the second quarter of fiscal 2024, we expect our net sales to be approximately $3.95 billion as compared to $4.16 billion in the second quarter of fiscal 2023, with sales declines in all segments.

As compared to the first quarter of fiscal 2024, we expect net sales in the second quarter of fiscal 2024 to increase with sales growth in the Industrial Solutions segment partially offset by a slight decline in the Transportation Solutions segment.

We expect diluted earnings per share from continuing operations to be approximately $1.75 per share in the second quarter of fiscal 2024.

This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $13 million and $0.05 per share, respectively, in the second quarter of fiscal 2024 as compared to the same period of fiscal 2023.

In the third quarter of fiscal 2024, we expect our net sales to be approximately $4.0 billion, consistent with third quarter fiscal 2023 levels.

Sales growth in the Communications Solutions and Industrial Solutions segments is expected to be offset by declines in the Transportation Solutions segment.

Additional information regarding expectations for our reportable segments is as follow:

● Transportation Solutions —We expect our net sales to increase in the automotive end market in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

For full year fiscal 2024, we expect sales in the automotive end market to benefit from slight growth in global vehicle production from fiscal 2023 levels.

In the third quarter of fiscal 2024, we expect our net sales to decrease from the same period of fiscal 2023 in the commercial transportation end market as result of market declines.

● Industrial Solutions— In the third quarter of fiscal 2024, we expect our net sales to increase from the same period of fiscal 2023 in the aerospace, defense, and marine end market due to ongoing market improvement.

Also, we expect our net sales in the medical end market to increase as a result of continued growth in interventional medical applications.

These increases are expected to be partially offset by sales declines in the industrial equipment end market which continues to be negatively impacted by market weakness and inventory corrections in the supply chain.

● Communications Solutions— In the third quarter of fiscal 2024, we expect our net sales to increase from the same period of fiscal 2023 in both the data and devices and the appliances end markets as a result of supply chain normalization.

We expect diluted earnings per share from continuing operations to be approximately $1.71 per share in the third quarter of fiscal 2024.

This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $63 million and $0.06 per share, respectively, in the third 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 302 million (equivalent to $349 million), net of cash acquired.

During the first six months 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 Schaffner business has been reported as part of our Industrial Solutions segment from the date of acquisition.

See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.

During the first quarter of fiscal 2024, we sold one business for net cash proceeds of $38 million.

In connection with the divestiture, we recorded a pre-tax loss on sale of $11 million.

During the first six months of fiscal 2024, we sold one business for net cash proceeds of $38 million.

In connection with the divestiture, we recorded a pre-tax loss on sale of $11 million in the first six months of fiscal 2024.

Additionally, during the first six 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.

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Quarters Ended

Six Months Ended

($ in millions)

3 unchanged sentences

The following table provides an analysis of the change in our net sales by segment:

Change in Net Sales for the Quarter Ended December 29, 2023

versus Net Sales for the Quarter Ended December 30, 2022

Change in Net Sales for the Quarter Ended March 29, 2024

Change in Net Sales for the Six Months Ended March 29, 2024

versus Net Sales for the Quarter Ended March 31, 2023

versus Net Sales for the Six Months Ended March 31, 2023

Organic Net Sales

(Divestitures)

Growth (Decline)

5 unchanged sentences

Communications Solutions

Net sales slightly decreased by $10 million, or 0.3%, in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.

The decrease in net sales resulted from organic net sales declines of 0.7% and the net negative impact of 0.7% from an acquisition and divestitures, largely offset by the positive impact of foreign currency translation of 1.1% due to the strengthening of certain foreign currencies.

Pricing actions initiated during fiscal 2023 positively affected organic net sales by $68 million in the first quarter of fiscal 2024.

Net sales decreased $193 million, or 4.6%, in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023.

The decrease in net sales resulted primarily from organic net sales declines of 3.1% and the negative impact of foreign currency translation of 1.2% due to the weakening of certain foreign currencies.

Pricing actions initiated during fiscal 2023 positively affected organic net sales by $14 million in the second quarter of fiscal 2024.

In the first six months of fiscal 2024, net sales decreased $203 million, or 2.5%, as compared to the first six months of fiscal 2023 due primarily to organic net sales declines of 2.0%.

Pricing actions initiated during fiscal 2023 positively affected organic net sales by $82 million in the first six months of fiscal 2024.

See further discussion of net sales below under “Segment Results.”

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Approximately 60% of our net sales were invoiced in currencies other than the U.S.

dollar in the first quarter of fiscal 2024.

dollar in the first six months of fiscal 2024.

The following table presents our net sales and the percentage of total net sales by geographic region (1) :

Quarters Ended

Six Months Ended

($ in millions)

1 unchanged sentence

The following table provides an analysis of the change in our net sales by geographic region:

Change in Net Sales for the Quarter Ended December 29, 2023

versus Net Sales for the Quarter Ended December 30, 2022

Change in Net Sales for the Quarter Ended March 29, 2024

Change in Net Sales for the Six Months Ended March 29, 2024

versus Net Sales for the Quarter Ended March 31, 2023

versus Net Sales for the Six Months Ended March 31, 2023

Organic Net Sales

Growth (Decline)

(Divestitures)

Growth (Decline)

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Quarters Ended

Six Months Ended

($ in millions)

2 unchanged sentences

As a percentage of net sales

Gross margin increased $137 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 primarily as a result of improved manufacturing productivity and the positive impact of prior year pricing actions, partially offset by lower volume.

Gross margin increased $79 million in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 due primarily to improved manufacturing productivity, partially offset by the negative impact of foreign currency translation.

In the first six months of fiscal 2024, gross margin increased $216 million as compared to the same period of fiscal 2023 primarily as a result of improved manufacturing productivity and the positive impact of prior year 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.

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Quarters Ended

Six Months Ended

We expect to purchase approximately 190 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.

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Quarters Ended

Six Months Ended

($ in millions)

3 unchanged sentences

Selling, General, and Administrative Expenses.

Selling, general, and administrative expenses increased $32 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 due primarily to the impact of inflation, partially offset by savings attributable to prior restructuring actions.

Selling, general, and administrative expenses increased $41 million in the first six months of fiscal 2024 as compared to the first six 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.

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 $9 million during the first quarter of fiscal 2024.

Annualized cost savings related to the fiscal 2024 actions commenced during the first quarter of fiscal 2024 are expected to be approximately $3 million and are expected to be fully realized by the end of fiscal 2025.

We incurred net restructuring charges of $41 million during the first six months of fiscal 2024.

Annualized cost savings related to the fiscal 2024 actions commenced during the first six months of fiscal 2024 are expected to be approximately $10 million and are expected to be fully realized by the end of fiscal 2025.

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 six months of fiscal 2024, we incurred costs of $8 million related to our proposed change in place of incorporation from Switzerland to Ireland.

See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the proposed change.

See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.

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Quarters Ended

Six Months Ended

($ in millions)

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Quarters Ended

Six Months Ended

(in millions)

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Quarters Ended

Six Months Ended

($ in millions)

Interest income

Income tax expense (benefit)

Effective tax rate

Interest Income.

Interest income increased $7 million and $20 million in the second quarter and first six months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023 due to higher interest rates as well as an increase in our cash balances held and invested.

Income Taxes.

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Member states have begun to enact the rules, with some countries accelerating the impact of these rules by proposing immediate statutory rate increases.

In 2023, Swiss Parliament approved a constitutional amendment to implement the rules and the Swiss Federal Council acted in December to implement elements of the OECD’s global minimum tax rules, effective as of January 1, 2024.

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.

Although global enactment has begun, the OECD and participating countries continue to work on defining the underlying rules and administrative procedures.

We are currently monitoring these developments and evaluating the impact, which could be material to our results of operations, cash taxes, and worldwide corporate effective tax rate.

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

2 unchanged sentences

Quarters Ended

Six Months Ended

($ in millions)

2 unchanged sentences

The following table provides an analysis of the change in the Transportation Solutions segment’s net sales by industry end market:

Change in Net Sales for the Quarter Ended December 29, 2023

versus Net Sales for the Quarter Ended December 30, 2022

Change in Net Sales for the Quarter Ended March 29, 2024

Change in Net Sales for the Six Months Ended March 29, 2024

versus Net Sales for the Quarter Ended March 31, 2023

versus Net Sales for the Six Months Ended March 31, 2023

Organic Net Sales

Growth (Decline)

($ in millions)

Commercial transportation

Net sales in the Transportation Solutions segment increased $114 million, or 5.0%, in the first quarter of fiscal 2024 from the first quarter of fiscal 2023 due primarily to organic net sales growth of 5.0%.

Net sales in the Transportation Solutions segment decreased $99 million, or 4.0%, in the second quarter of fiscal 2024 from the second quarter of fiscal 2023 due to the negative impact of 1.8% from a divestiture, the negative impact of foreign currency translation of 1.2%, and organic net sales declines of 1.0%.

Our organic net sales by industry end market were as follows:

● Automotive— Our organic net sales increased 8.1% in the first quarter of fiscal 2024 with growth of 13.4% in the Asia–Pacific region and 7.4% in the EMEA region, partially offset by declines of 4.0% in the Americas region.

Our organic net sales growth in the Asia–Pacific and EMEA regions was attributable primarily to vehicle production growth as well as increased content per vehicle.

In the Americas region, our organic net sales declined primarily as a result of declines in vehicle production.

For full year fiscal 2024, we expect slight growth in global vehicle production from fiscal 2023 levels.

● Commercial transportation— Our organic net sales increased 0.7% in the first quarter of fiscal 2024 due to growth in the Asia–Pacific region, partially offset by declines in the Americas region.

● Sensors— Our organic net sales decreased 9.2% in the first quarter of fiscal 2024 as a result of market weakness in both industrial and transportation applications and the strategic exit of certain lower margin and lower growth product lines.

● Automotive— Our organic net sales increased 1.2% in the second quarter of fiscal 2024 as a result of growth of 12.1% in the Asia–Pacific region, partially offset by declines of 7.2% in the EMEA region and 2.2% in the Americas region.

Our organic net sales growth in the Asia–Pacific region was attributable primarily to increased content per vehicle.

In the EMEA and Americas regions, our organic net sales declined primarily as a result of declines in vehicle production.

● Commercial transportation— Our organic net sales decreased 4.2% in the second quarter of fiscal 2024 due to declines in the Americas and EMEA regions, partially offset by growth in the Asia–Pacific region.

● Sensors— Our organic net sales decreased 10.3% in the second quarter of fiscal 2024 as a result of market weakness in industrial applications and our strategic exit of certain lower margin and lower growth product lines.

In the first six months of fiscal 2024, net sales in the Transportation Solutions segment were flat as compared to the first six months of fiscal 2023 with organic net sales growth of 1.9% largely offset by the negative impact of 1.5% from a divestiture.

Our organic net sales by industry end market were as follows:

● Automotive— Our organic net sales increased 4.5% in the first six months of fiscal 2024 with growth of 12.8% in the Asia–Pacific region, partially offset by declines of 3.1% in the Americas region and 0.9% in the EMEA region.

Our organic net sales growth in the Asia–Pacific region resulted from vehicle production growth as well as increased content per vehicle.

In the Americas and EMEA regions, our organic net sales were impacted by essentially flat vehicle production levels compared to prior year and a shift in consumer demand to lower content vehicles.

● Commercial transportation— Our organic net sales decreased 2.0% in the first six months of fiscal 2024 as a result of declines in the Americas and EMEA regions, partially offset by growth in the Asia–Pacific region.

● Sensors— Our organic net sales decreased 9.7% in the first six months of fiscal 2024 due to market weakness in industrial applications and our strategic exit of certain lower margin and lower growth product lines.

Operating Income.

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Quarters Ended

Six Months Ended

($ in millions)

1 unchanged sentence

Operating margin

Operating income in the Transportation Solutions segment increased $196 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.

Excluding the items below, operating income increased in the first quarter of fiscal 2024 primarily as a result of improved manufacturing productivity and the positive impact of prior year pricing actions.

Operating income in the Transportation Solutions segment increased $134 million and $330 million in the second quarter and first six months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023.

Excluding the items below, operating income increased in the second quarter and first six months of fiscal 2024 primarily as a result of improved manufacturing productivity.

Quarters Ended

Six Months Ended

(in millions)

5 unchanged sentences

Quarters Ended

Six Months Ended

($ in millions)

3 unchanged sentences

The following table provides an analysis of the change in the Industrial Solutions segment’s net sales by industry end market:

Change in Net Sales for the Quarter Ended December 29, 2023

versus Net Sales for the Quarter Ended December 30, 2022

Change in Net Sales for the Quarter Ended March 29, 2024

Change in Net Sales for the Six Months Ended March 29, 2024

versus Net Sales for the Quarter Ended March 31, 2023

versus Net Sales for the Six Months Ended March 31, 2023

Organic Net Sales

Growth (Decline)

1 unchanged sentence

(Divestiture)

Growth (Decline)

(Divestiture)

($ in millions)

1 unchanged sentence

Aerospace, defense, and marine

In the Industrial Solutions segment, net sales decreased $35 million, or 3.3%, in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 due primarily to organic net sales declines of 4.9%.

Pricing actions initiated in fiscal 2023 positively affected organic net sales by $50 million in the first quarter of fiscal 2024.

In the Industrial Solutions segment, net sales decreased $48 million, or 4.0%, in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 due primarily to organic net sales declines of 5.6%, partially offset by the net positive impact of 2.7% from acquisitions and a divestiture.

Pricing actions initiated in fiscal 2023 positively affected organic net sales by $45 million in the second quarter of fiscal 2024.

Our organic net sales by industry end market were as follows:

● Industrial equipment— Our organic net sales decreased 26.3% in the first quarter of fiscal 2024 with declines across all regions and reduced demand resulting from inventory corrections in the supply chain.

● Aerospace, defense, and marine— Our organic net sales increased 12.5% in the first quarter of fiscal 2024 as a result of growth in all markets.

● Energy— Our organic net sales increased 1.4% in the first quarter of fiscal 2024 primarily as a result of growth in the Americas region and strength in renewable energy applications, partially offset by declines in the EMEA region.

● Medical— Our organic net sales increased 15.6% in the first quarter of fiscal 2024 due primarily to growth in interventional medical applications .

● Industrial equipment— Our organic net sales decreased 28.4% in the second quarter of fiscal 2024 with declines across all regions and reduced demand resulting from inventory corrections in the supply chain.

● Aerospace, defense, and marine— Our organic net sales increased 17.0% in the second quarter of fiscal 2024 primarily as a result of growth in the commercial aerospace and defense markets.

● Energy— Our organic net sales increased 0.6% in the second quarter of fiscal 2024 as a result of growth in the Americas region, partially offset by declines in the Asia–Pacific and EMEA regions.

● Medical— Our organic net sales increased 6.0% in the second quarter of fiscal 2024 due primarily to growth in interventional medical applications .

Net sales in the Industrial Solutions segment decreased $83 million, or 3.7%, in the first six months of fiscal 2024 as compared to the first six months of fiscal 2023 due primarily to organic net sales declines of 5.3%, partially offset by the net positive impact of 1.4% from acquisitions and a divestiture.

In the first six months of fiscal 2024, pricing actions initiated in fiscal 2023 positively affected organic net sales by $95 million.

Our organic net sales by industry end market were as follows:

● Industrial equipment— Our organic net sales decreased 27.4% in the first six months of fiscal 2024 as a result of declines across all regions and reduced demand resulting from inventory corrections in the supply chain.

● Aerospace, defense, and marine— Our organic net sales increased 14.9% in the first six months of fiscal 2024 due to growth in all markets.

● Energy— Our organic net sales increased 1.0% in the first six months of fiscal 2024 due to growth in the Americas region, partially offset by declines in the EMEA and Asia–Pacific regions.

● Medical— Our organic net sales increased 10.5% in the first six months of fiscal 2024 as a result of growth in interventional medical applications.

Operating Income.

1 unchanged sentence

Quarters Ended

Six Months Ended

($ in millions)

1 unchanged sentence

Operating margin

Operating income in the Industrial Solutions segment decreased $15 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.

Excluding the items below, operating income decreased during the first quarter of fiscal 2024 primarily as a result of lower volume, partially offset by the positive impact of prior year pricing actions.

Operating income in the Industrial Solutions segment increased $23 million and $8 million in the second quarter and first six months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023.

Excluding the items below, operating income in the second quarter of fiscal 2024 was consistent with fiscal 2023 levels as lower volume was largely offset by the positive impact of prior year pricing actions.

Excluding the items below, operating income decreased in the first six months of fiscal 2024 primarily as a result of lower volume and higher operating costs, partially offset by the positive impact of prior year pricing actions.

Quarters Ended

Six Months Ended

(in millions)

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Quarters Ended

Six Months Ended

($ in millions)

2 unchanged sentences

The following table provides an analysis of the change in the Communications Solutions segment’s net sales by industry end market:

Change in Net Sales for the Quarter Ended December 29, 2023

versus Net Sales for the Quarter Ended December 30, 2022

Change in Net Sales for the Quarter Ended March 29, 2024

Change in Net Sales for the Six Months Ended March 29, 2024

versus Net Sales for the Quarter Ended March 31, 2023

versus Net Sales for the Six Months Ended March 31, 2023

Organic Net Sales

($ in millions)

Data and devices

Net sales in the Communications Solutions segment decreased $89 million, or 17.0%, in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 due to organic net sales declines of 17.0%.

Net sales in the Communications Solutions segment decreased $46 million, or 9.5%, in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 due primarily to organic net sales declines of 8.2%.

Our organic net sales by industry end market were as follows:

● Data and devices —Our organic net sales decreased 15.2% in the first quarter of fiscal 2024 as a result of market declines in the Asia–Pacific region and reduced demand resulting from inventory corrections in the supply chain .

● Appliances —Our organic net sales decreased 20.2% in the first quarter of fiscal 2024 due to market declines across all regions and reduced demand resulting from inventory corrections in the supply chain.

● Data and devices —Our organic net sales decreased 4.4% in the second quarter of fiscal 2024 as a result of market declines and reduced demand resulting from inventory corrections in the supply chain , partially offset by growth in cloud and artificial intelligence applications.

● Appliances —Our organic net sales decreased 13.8% in the second quarter of fiscal 2024 due to market declines across all regions and reduced demand resulting from inventory corrections in the supply chain.

In the first six months of fiscal 2024, net sales in the Communications Solutions segment decreased $135 million, or 13.4%, as compared to the first six months of fiscal 2023 due primarily to organic net sales declines of 12.8%.

Our organic net sales by industry end market were as follows:

● Data and devices —Our organic net sales decreased 10.2% in the first six months of fiscal 2024 due to market declines and reduced demand resulting from inventory corrections in the supply chain, partially offset by growth in artificial intelligence applications.

● Appliances —Our organic net sales decreased 16.9% in the first six months of fiscal 2024 as a result of market declines across all regions and reduced demand resulting from inventory corrections in the supply chain.

Operating Income.

1 unchanged sentence

Quarters Ended

Six Months Ended

($ in millions)

1 unchanged sentence

Operating margin

Operating income in the Communications Solutions segment increased $15 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.

Excluding the items below, operating income decreased slightly due primarily to lower volume, largely offset by improved manufacturing productivity.

Operating income in the Communications Solutions segment decreased $2 million and increased $13 million in the second quarter and first six months of fiscal 2024, respectively, as compared to the same periods of fiscal 2023.

Excluding the items below, operating income in the second quarter of fiscal 2024 was consistent with fiscal 2023 levels as price erosion was largely offset by the favorable impact of product mix.

Operating income decreased in the first six months of fiscal 2024 due primarily to price erosion and lower volume, partially offset by improved manufacturing productivity.

Quarters Ended

Six Months Ended

(in millions)

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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 payment of $350 million of 3.45% senior notes due in August 2024.

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.

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.

2 unchanged sentences

Cash Flows from Operating Activities

In the first quarter of fiscal 2024, net cash provided by operating activities increased $138 million to $719 million from $581 million in the first quarter of fiscal 2023.

In the first six months of fiscal 2024, net cash provided by operating activities increased $214 million to $1,429 million from $1,215 million in the first six months of fiscal 2023.

The increase resulted primarily from higher pre-tax income, partially offset by the impact of changes in working capital levels.

The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2024 and 2023 was $100 million and $98 million, respectively.

The amount of income taxes paid, net of refunds, during the first six months of fiscal 2024 and 2023 was $238 million and $223 million, respectively.

Cash Flows from Investing Activities

Capital expenditures were $151 million and $183 million in the first quarters of fiscal 2024 and 2023, respectively.

Capital expenditures were $318 million and $372 million in the first six months of fiscal 2024 and 2023, respectively.

We expect fiscal 2024 capital spending levels to be approximately 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 quarter of fiscal 2024, we received net cash proceeds of $38 million related to the sale of one business.

See Note 2 to the Condensed Consolidated Financial Statements for additional information.

During the first quarter of fiscal 2024, we acquired one business for a cash purchase price of $349 million, net of cash acquired.

We acquired one business for a cash purchase price of $109 million, net of cash acquired, during the first quarter of fiscal 2023.

During the first six 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 six months of fiscal 2023.

See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.

During the first six months of fiscal 2024, we received net cash proceeds of $38 million related to the sale of one business.

We received net cash proceeds of $51 million related to the sale of two businesses during the first six 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 December 29, 2023 and September 29, 2023 was $4,198 million and $4,211 million, respectively.

Total debt at March 29, 2024 and September 29, 2023 was $4,196 million and $4,211 million, respectively.

See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding debt.

As of December 29, 2023, Tyco Electronics Group S.A.

As of March 29, 2024, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, had $291 million of commercial paper outstanding at a weighted-average interest rate of 5.50%.

TEGSA had $330 million of commercial paper outstanding at a weighted-average interest rate of 5.50% at September 29, 2023.

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.

TEGSA had no borrowings under the Credit Facility at December 29, 2023 or September 29, 2023.

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 Replaced Credit Facility at March 29, 2024 or 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.

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None of our covenants are presently considered restrictive to our operations.

As of December 29, 2023, 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.

As of March 29, 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 $183 million and $178 million in the first quarters of fiscal 2024 and 2023, respectively.

During the first quarter of fiscal 2024, our board of directors authorized an increase of $1.5 billion in our share repurchase program.

We repurchased approximately three million of our common shares for $420 million and approximately two million of our common shares for $233 million under the share repurchase program during the first quarters of fiscal 2024 and 2023, respectively.

At December 29, 2023, we had $1.8 billion of availability remaining under our share repurchase authorization.

Payments of common share dividends to shareholders were $365 million and $355 million in the first six months of fiscal 2024 and 2023, respectively.

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.

During the first six months of fiscal 2024, our board of directors authorized an increase of $1.5 billion in our share repurchase program.

We repurchased approximately six million of our common shares for $826 million and approximately four million of our common shares for $432 million under the share repurchase program during the first six months of fiscal 2024 and 2023, respectively.

At March 29, 2024, we had $1.4 billion of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

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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.

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.

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Total noncurrent liabilities (2)

(1) Includes $3,454 million and $2,783 million as of December 29, 2023 and September 29, 2023, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $5,070 million and $4,056 million as of December 29, 2023 and September 29, 2023, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Quarter Ended

(1) Includes $3,588 million and $2,783 million as of March 29, 2024 and September 29, 2023, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $10,241 million and $4,056 million as of March 29, 2024 and September 29, 2023, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Six Months Ended

Fiscal Year Ended

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We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.

At December 29, 2023, we had outstanding letters of credit, letters of guarantee, and surety bonds of $196 million, including letters of credit of $22 million associated with our divestiture of the Subsea Communications business.

In addition, as of December 29, 2023, we had $26 million of performance guarantees associated with the divestiture.

At March 29, 2024, we had outstanding letters of credit, letters of guarantee, and surety bonds of $180 million, including letters of credit of $22 million associated with our divestiture of the Subsea Communications business.

In addition, as of March 29, 2024, we had $25 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;

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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.

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

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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 quarter of fiscal 2024.

There were no significant changes to this information during the first six months of fiscal 2024.

Accounting Pronouncements

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● risks associated with current and future acquisitions and divestitures;

manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business;

● global risks of business interruptions due to natural disasters or other disasters which have impacted and could continue to negatively impact our results of operations as well as customer behaviors, business, and manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business;

● global risks of political, economic, and military instability, including the continuing military conflict in certain parts of the world, and volatile and uncertain economic conditions and the evolving regulatory system in China;

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● the impact of certain provisions of our articles of association on unsolicited takeover proposals;

● risks associated with the proposed change in our jurisdiction of incorporation to Ireland.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis