Item 2. Management’s Discussion and Analysis
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.
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.
Ov erview
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
● Our net sales decreased 0.5% in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 with sales declines in the Transportation Solutions segment largely offset by sales increases in the Communications Solutions segment. In the first nine months of fiscal 2024, our net sales decreased 1.9% as compared to the first nine months of fiscal 2023 with declines across all three segments. On an organic basis, our net sales increased 1.7% and decreased 0.7% during the third quarter and first nine 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 decreased 4.2% in the third quarter of fiscal 2024 as a result of sales declines in all end markets. In the first nine months of fiscal 2024, our net sales decreased 1.2% with sales declines in the sensors and commercial transportation end markets, partially offset by increases in the automotive end market.
● Industrial Solutions —Our net sales decreased 0.7% and 2.7% in the third quarter and first nine months of fiscal 2024, respectively, primarily as a result of sales declines in the industrial equipment end
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market, partially offset by sales increases in the aerospace, defense, and marine and the medical end markets.
● Communications Solutions —Our net sales increased 21.7% in the third quarter of fiscal 2024 as a results of sales increases across all end markets. In the first nine months of fiscal 2024, our net sales decreased 3.0% due to sales declines in the appliances end market, partially offset by sales increases in the data and devices end market.
● Net cash provided by operating activities was $2,435 million in the first nine months of fiscal 2024.
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:
● Transportation Solutions —We expect our net sales in the automotive end market to decrease in the fourth quarter of fiscal 2024 as compared to the fourth quarter of fiscal 2023, primarily as a result of a divestiture. For full year fiscal 2024, we expect our sales in the automotive end market to benefit from slight growth in global vehicle production from fiscal 2023 levels. In the fourth 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 fourth 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 to decline in the fourth quarter of fiscal 2024 from the same period of fiscal 2023 in the industrial equipment end market which continues to be negatively impacted by market weakness and inventory corrections in the supply chain.
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● Communications Solutions— In the fourth 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. We expect our sales in the data and devices end market to benefit from continuing momentum in artificial intelligence applications.
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.
Acquisition
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 $60 million when the business was reclassified to held for sale. The business sold was reported in our Transportation Solutions segment. See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding divestitures.
Results of Operations
Net Sales
The following table presents our net sales and the percentage of total net sales by segment:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
($ in millions)
Transportation Solutions
$
2,330
59
%
$
2,433
61
%
$
7,087
60
%
$
7,175
60
%
Industrial Solutions
1,133
28
1,141
28
3,301
28
3,392
28
Communications Solutions
516
13
424
11
1,389
12
1,432
12
Total
$
3,979
100
%
$
3,998
100
%
$
11,777
100
%
$
11,999
100
%
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
Net Sales
Organic Net Sales
Acquisition
Net Sales
Organic Net Sales
Acquisitions
Growth (Decline)
Growth (Decline)
Translation
(Divestiture)
Decline
Growth (Decline)
Translation
(Divestitures)
($ in millions)
Transportation Solutions
$
(103)
(4.2)
%
$
(8)
(0.3)
%
$
(51)
$
(44)
$
(88)
(1.2)
%
$
81
1.1
%
$
(56)
$
(113)
Industrial Solutions
(8)
(0.7)
(23)
(2.1)
(21)
36
(91)
(2.7)
(142)
(4.2)
(16)
67
Communications Solutions
92
21.7
100
23.7
(8)
—
(43)
(3.0)
(29)
(2.0)
(14)
—
Total
$
(19)
(0.5)
%
$
69
1.7
%
$
(80)
$
(8)
$
(222)
(1.9)
%
$
(90)
(0.7)
%
$
(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
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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 $91 million in the first nine months of fiscal 2024.
See further discussion of net sales below under “Segment Results.”
Net Sales by Geographic Region. Our business operates in three geographic regions—Europe/Middle East/Africa (“EMEA”), Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.
Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first nine months of fiscal 2024.
The following table presents our net sales and the percentage of total net sales by geographic region (1) :
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
($ in millions)
EMEA
$
1,466
37
%
$
1,610
41
%
$
4,429
37
%
$
4,603
38
%
Asia–Pacific
1,333
33
1,215
30
3,969
34
3,921
33
Americas
1,180
30
1,173
29
3,379
29
3,475
29
Total
$
3,979
100
%
$
3,998
100
%
$
11,777
100
%
$
11,999
100
%
(1) Net sales to external customers are attributed to individual countries based on the legal entity that records the sale.
The following table provides an analysis of the change in our net sales by geographic region:
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
Net Sales
Organic Net Sales
Acquisition
Net Sales
Organic Net Sales
Acquisitions
Growth (Decline)
Growth (Decline)
Translation
(Divestiture)
Growth (Decline)
Growth (Decline)
Translation
(Divestitures)
($ in millions)
EMEA
$
(144)
(8.9)
%
$
(118)
(7.3)
%
$
(15)
$
(11)
$
(174)
(3.8)
%
$
(211)
(4.5)
%
$
60
$
(23)
Asia–Pacific
118
9.7
165
13.5
(52)
5
48
1.2
175
4.4
(130)
3
Americas
7
0.6
22
1.9
(13)
(2)
(96)
(2.8)
(54)
(1.6)
(16)
(26)
Total
$
(19)
(0.5)
%
$
69
1.7
%
$
(80)
$
(8)
$
(222)
(1.9)
%
$
(90)
(0.7)
%
$
(86)
$
(46)
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Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
Change
2024
2023
Change
($ in millions)
Cost of sales
$
2,593
$
2,699
$
(106)
$
7,704
$
8,229
$
(525)
As a percentage of net sales
65.2
%
67.5
%
65.4
%
68.6
%
Gross margin
$
1,386
$
1,299
$
87
$
4,073
$
3,770
$
303
As a percentage of net sales
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:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
Measure
2024
2023
2024
2023
Copper
Lb.
$
3.98
$
4.04
$
3.88
$
4.12
Gold
Troy oz.
2,048
1,876
1,986
1,853
Silver
Troy oz.
25.71
22.83
24.06
23.45
Palladium
Troy oz.
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:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
Change
2024
2023
Change
($ in millions)
Selling, general, and administrative expenses
$
431
$
431
$
—
$
1,299
$
1,258
$
41
As a percentage of net sales
10.8
%
10.8
%
11.0
%
10.5
%
Restructuring and other charges, net
$
6
$
53
$
(47)
$
67
$
283
$
(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.
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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 $11 million related to our change in place of incorporation from Switzerland to Ireland. See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the change.
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
Operating Income
The following table presents operating income and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
Change
2024
2023
Change
($ in millions)
Operating income
$
755
$
630
$
125
$
2,145
$
1,669
$
476
Operating margin
19.0
%
15.8
%
18.2
%
13.9
%
Operating income included the following:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
(in millions)
Acquisition and integration costs
$
5
$
9
$
16
$
26
Restructuring and other charges, net
6
53
67
283
Taxes (non-income tax) recorded in selling, general, and administrative expenses
—
—
4
—
Total
$
11
$
62
$
87
$
309
See discussion of operating income below under “Segment Results.”
Non-Operating Items
The following table presents select non-operating information:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
Change
2024
2023
Change
($ in millions)
Interest income
$
20
$
18
$
2
$
61
$
39
$
22
Income tax expense (benefit)
181
96
85
(778)
283
(1,061)
Effective tax rate
24.0
%
15.4
%
(36.4)
%
17.3
%
Interest Income. Interest income increased $22 million in the first nine months of fiscal 2024 as compared to the same period of fiscal 2023 due to higher interest rates as well as an increase in our cash balances held and invested.
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Income Taxes. See Note 12 to the Condensed Consolidated Financial Statements for discussion of income taxes.
The Organisation for Economic Co-operation and Development (“OECD”) and participating countries continue to work toward the enactment of a 15% global minimum corporate tax. Member states have begun to enact the rules, with some countries accelerating the impact of these rules by proposing immediate statutory rate increases. Both Switzerland and Ireland have implemented elements of the OECD’s global minimum tax rules, effective as of January 1, 2024. The OECD and participating countries continue to work on defining the underlying rules and administrative procedures. The global minimum tax is a significant structural change to the international taxation framework, which is expected to affect us beginning in fiscal 2025. We are currently monitoring global minimum tax developments and evaluating the impact, which could be material to our results of operations, cash taxes, and worldwide corporate effective tax rate.
Segment Results
Transportation Solutions
Net Sales. The following table presents the Transportation Solutions segment’s net sales and the percentage of total net sales by industry end market (1) :
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
($ in millions)
Automotive
$
1,727
74
%
$
1,747
71
%
$
5,252
74
%
$
5,191
72
%
Commercial transportation
363
16
403
17
1,103
16
1,156
16
Sensors
240
10
283
12
732
10
828
12
Total
$
2,330
100
%
$
2,433
100
%
$
7,087
100
%
$
7,175
100
%
(1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.
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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Decline
Growth (Decline)
Translation
Divestiture
Growth (Decline)
Growth (Decline)
Translation
Divestiture
($ in millions)
Automotive
$
(20)
(1.1)
%
$
63
3.6
%
$
(39)
$
(44)
$
61
1.2
%
$
220
4.2
%
$
(46)
$
(113)
Commercial transportation
(40)
(9.9)
(34)
(8.4)
(6)
—
(53)
(4.6)
(49)
(4.2)
(4)
—
Sensors
(43)
(15.2)
(37)
(13.1)
(6)
—
(96)
(11.6)
(90)
(10.9)
(6)
—
Total
$
(103)
(4.2)
%
$
(8)
(0.3)
%
$
(51)
$
(44)
$
(88)
(1.2)
%
$
81
1.1
%
$
(56)
$
(113)
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:
● Automotive— Our organic net sales increased 3.6% in the third quarter of fiscal 2024 as a result of growth of 21.4% in the Asia–Pacific region, partially offset by declines of 7.8% in the EMEA region and 5.2% in the Americas region. Our organic net sales growth in the Asia–Pacific region was attributable primarily to vehicle production growth as well as 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 8.4% in the third quarter of fiscal 2024 due primarily to market weakness in the EMEA region.
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● Sensors— Our organic net sales decreased 13.1% in the third 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 nine months of fiscal 2024, net sales in the Transportation Solutions segment decreased $88 million, or 1.2%, as compared to the first nine months of fiscal 2023 due to the negative impact of 1.5% from a divestiture and the negative impact of foreign currency translation of 0.8%, partially offset by organic net sales growth of 1.1%. Our organic net sales by industry end market were as follows:
● Automotive— Our organic net sales increased 4.2% in the first nine months of fiscal 2024 with growth of 15.4% in the Asia–Pacific region, partially offset by declines of 3.8% in the Americas region and 3.4% in the EMEA region. Our organic net sales growth in the Asia–Pacific region resulted from vehicle production growth as well as increased content per vehicle. In the Americas and EMEA regions, our organic net sales were impacted by essentially flat vehicle production levels compared to prior year and a shift in platform mix consistent with consumer demand.
● Commercial transportation— Our organic net sales decreased 4.2% in the first nine months of fiscal 2024 as a result of declines in the EMEA and Americas regions, partially offset by growth in the Asia–Pacific region.
● Sensors— Our organic net sales decreased 10.9% in the first nine months of fiscal 2024 due to market weakness in industrial applications and our strategic exit of certain lower margin and lower growth product lines .
Operating Income. The following table presents the Transportation Solutions segment’s operating income and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
Change
2024
2023
Change
($ in millions)
Operating income
$
498
$
425
$
73
$
1,443
$
1,040
$
403
Operating margin
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.
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
(in millions)
Acquisition and integration costs
$
—
$
—
$
—
$
2
Restructuring and other charges (credits), net
(8)
27
25
179
Taxes (non-income tax) recorded in selling, general, and administrative expenses
—
—
3
—
Total
$
(8)
$
27
$
28
$
181
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Industrial Solutions
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) :
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
($ in millions)
Industrial equipment
$
353
31
%
$
423
37
%
$
1,039
31
%
$
1,318
39
%
Aerospace, defense, and marine
345
31
293
26
977
30
855
25
Energy
226
20
230
20
665
20
652
19
Medical
209
18
195
17
620
19
567
17
Total
$
1,133
100
%
$
1,141
100
%
$
3,301
100
%
$
3,392
100
%
(1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.
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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Acquisitions
Growth (Decline)
Growth (Decline)
Translation
Acquisition
Growth (Decline)
Growth (Decline)
Translation
(Divestiture)
($ in millions)
Industrial equipment
$
(70)
(16.5)
%
$
(98)
(23.6)
%
$
(8)
$
36
$
(279)
(21.2)
%
$
(344)
(26.2)
%
$
—
$
65
Aerospace, defense, and marine
52
17.7
53
18.7
(1)
—
122
14.3
137
16.2
3
(18)
Energy
(4)
(1.7)
8
3.4
(12)
—
13
2.0
12
1.8
(19)
20
Medical
14
7.2
14
7.0
—
—
53
9.3
53
9.4
—
—
Total
$
(8)
(0.7)
%
$
(23)
(2.1)
%
$
(21)
$
36
$
(91)
(2.7)
%
$
(142)
(4.2)
%
$
(16)
$
67
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:
● Industrial equipment— Our organic net sales decreased 23.6% in the third 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 18.7% in the third quarter of fiscal 2024 as a result of growth in all markets.
● Energy— Our organic net sales increased 3.4% in the third quarter of fiscal 2024 as a result of growth in the Americas and EMEA regions, partially offset by declines in the Asia–Pacific region.
● Medical— Our organic net sales increased 7.0% in the third quarter of fiscal 2024 due primarily to growth in interventional medical applications .
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
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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 $131 million. Our organic net sales by industry end market were as follows:
● Industrial equipment— Our organic net sales decreased 26.2% in the first nine months of fiscal 2024 as a result of declines across all regions and reduced demand resulting from inventory corrections in the supply chain.
● Aerospace, defense, and marine— Our organic net sales increased 16.2% in the first nine months of fiscal 2024 due to growth in all markets.
● Energy— Our organic net sales increased 1.8% in the first nine months of fiscal 2024 due to growth in the Americas region, partially offset by declines in the Asia–Pacific and EMEA regions.
● Medical— Our organic net sales increased 9.4% in the first nine months of fiscal 2024 primarily as a result of growth in interventional medical applications.
Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
Change
2024
2023
Change
($ in millions)
Operating income
$
153
$
150
$
3
$
451
$
440
$
11
Operating margin
13.5
%
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.
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
(in millions)
Acquisition and integration costs
$
5
$
8
$
15
$
21
Restructuring and other charges, net
13
22
32
68
Taxes (non-income tax) recorded in selling, general, and administrative expenses
—
—
1
—
Total
$
18
$
30
$
48
$
89
Communications Solutions
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) :
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
($ in millions)
Data and devices
$
329
64
%
$
252
59
%
$
881
63
%
$
869
61
%
Appliances
187
36
172
41
508
37
563
39
Total
$
516
100
%
$
424
100
%
$
1,389
100
%
$
1,432
100
%
(1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.
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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 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
Net Sales
Organic Net Sales
Net Sales
Organic Net Sales
Growth
Growth
Translation
Growth (Decline)
Growth (Decline)
Translation
($ in millions)
Data and devices
$
77
30.6
%
$
80
31.8
%
$
(3)
$
12
1.4
%
$
17
2.0
%
$
(5)
Appliances
15
8.7
20
11.7
(5)
(55)
(9.8)
(46)
(8.2)
(9)
Total
$
92
21.7
%
$
100
23.7
%
$
(8)
$
(43)
(3.0)
%
$
(29)
(2.0)
%
$
(14)
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:
● Data and devices —Our organic net sales increased 31.8% in the third quarter of fiscal 2024 primarily as a result of growth in cloud and artificial intelligence applications and market improvements.
● Appliances —Our organic net sales increased 11.7% in the third quarter of fiscal 2024 due primarily to growth in the Americas and Asia–Pacific regions.
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 $41 million. Our organic net sales by industry end market were as follows:
● Data and devices —Our organic net sales increased 2.0% in the first nine months of fiscal 2024 due to growth in cloud and artificial intelligence applications, partially offset by market declines and reduced demand resulting from inventory corrections in the supply chain in the first half of the year.
● Appliances —Our organic net sales decreased 8.2% in the first nine months of fiscal 2024 as a result of market declines across all regions and reduced demand resulting from inventory corrections in the supply chain in the first half of the year.
Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information:
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
Change
2024
2023
Change
($ in millions)
Operating income
$
104
$
55
$
49
$
251
$
189
$
62
Operating margin
20.2
%
13.0
%
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
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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.
For the
For the
Quarters Ended
Nine Months Ended
June 28,
June 30,
June 28,
June 30,
2024
2023
2024
2023
(in millions)
Acquisition and integration costs
$
—
$
1
$
1
$
3
Restructuring and other charges, net
1
4
10
36
Total
$
1
$
5
$
11
$
39
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.
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.
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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.
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 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.
June 28,
September 29,
2024
2023
(in millions)
Balance Sheet Data:
Total current assets
$
1,363
$
1,632
Total noncurrent assets (1)
2,379
2,857
Total current liabilities
1,972
1,303
Total noncurrent liabilities (2)
7,177
7,592
(1) Includes $2,336 million and $2,783 million as of June 28, 2024 and September 29, 2023, respectively, of intercompany loans receivable from non-guarantor subsidiaries.
(2) Includes $4,208 million and $4,056 million as of June 28, 2024 and September 29, 2023, respectively, of intercompany loans payable to non-guarantor subsidiaries.
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For the
For the
Nine Months Ended
Fiscal Year Ended
June 28,
September 29,
2024
2023
(in millions)
Statement of Operations Data:
Loss from continuing operations
$
(57)
$
(606)
Net loss
(57)
(606)
Guarantees
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.
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.
Commitments and Contingencies
Legal Proceedings
In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.
Trade Compliance Matters
We have been investigating our past compliance with relevant U.S. trade controls and have made voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”). We are cooperating with the BIS and DDTC on these matters, and the resulting investigations 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.
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.
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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.
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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:
● conditions in the global or regional economies and global capital markets, and cyclical industry conditions, including recession, inflation, and higher interest rates;
● conditions affecting demand for products in the industries we serve, particularly the automotive industry;
● risk of future goodwill impairment;
● pricing pressure and competition, including competitive risks associated with the pace of technological change;
● market acceptance of our new product introductions and product innovations and product life cycles;
● raw material availability, quality, and cost;
● product liability, warranty, and product recall claims and our ability to defend such claims;
● fluctuations in foreign currency exchange rates and impacts of offsetting hedges;
● financial condition and consolidation of customers and vendors;
● reliance on third-party suppliers;
● risks associated with current and future acquisitions and divestitures;
● 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;
● risks associated with cybersecurity incidents and other disruptions to our information technology infrastructure;
● risks related to compliance with current and future environmental and other laws and regulations, including those related to climate change;
● risks related to the increasing scrutiny and expectations regarding environmental, social, and governance matters;
● risks associated with compliance with applicable antitrust or competition laws or applicable trade regulations;
● our ability to protect our intellectual property rights;
● risks of litigation, regulatory actions, and compliance issues;
● our ability to operate within the limitations imposed by our debt instruments;
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● the possible effects on us of various non-U.S. and U.S. legislative proposals and other initiatives that, if adopted, could materially increase our worldwide corporate effective tax rate, increase global cash taxes, and negatively impact our U.S. government contracts business;
● requirements related to chemical usage, hazardous material content, recycling, and other circular economy initiatives;
● various risks associated with being a Swiss corporation;
● the impact of fluctuations in the market price of our shares;
● the impact of certain provisions of our articles of association on unsolicited takeover proposals; and
● risks associated with the 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.