TE Connectivity(TEL) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements and related notes for the specified periods Condensed Consolidated Statements of Operations This chapter details the company's net sales, gross margin, operating income, and net income for the reported periods Condensed Consolidated Statements of Operations Data | Metric | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Net sales | $3,967 | $4,160 | $7,798 | $8,001 | | Gross margin | $1,363 | $1,284 | $2,687 | $2,471 | | Operating income | $692 | $537 | $1,390 | $1,039 | | Net income | $541 | $433 | $2,344 | $830 | | Basic EPS (continuing operations) | $1.76 | $1.34 | $7.59 | $2.60 | | Diluted EPS (continuing operations) | $1.75 | $1.34 | $7.54 | $2.58 | | Weighted-average shares (Basic) | 308 | 316 | 309 | 317 | | Weighted-average shares (Diluted) | 310 | 318 | 311 | 319 | - Net sales decreased by 4.6% in Q2 2024 compared to Q2 2023, and by 2.5% in the first six months of fiscal 2024 compared to the same period in fiscal 2023[10] - Net income significantly increased to $2,344 million for the six months ended March 29, 2024, from $830 million in the prior year, driven by a substantial income tax benefit[10][81] Condensed Consolidated Statements of Comprehensive Income This chapter presents the company's net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income Data | Metric | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :------------------------------------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Net income | $541 | $433 | $2,344 | $830 | | Other comprehensive income (loss) | $(97) | $117 | $76 | $493 | | Comprehensive income | $444 | $550 | $2,420 | $1,323 | | Comprehensive income attributable to TE Connectivity Ltd. | $446 | $548 | $2,418 | $1,312 | - Other comprehensive income (loss) shifted from a gain of $117 million in Q2 2023 to a loss of $97 million in Q2 2024, primarily due to currency translation impacts[12] Condensed Consolidated Balance Sheets This chapter provides a snapshot of the company's assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets Data | Metric | March 29, 2024 (millions) | September 29, 2023 (millions) | | :------------------------------------ | :------------------------- | :---------------------------- | | Total current assets | $7,504 | $7,892 | | Total assets | $22,824 | $21,712 | | Total current liabilities | $5,163 | $4,463 | | Total liabilities | $10,264 | $10,057 | | Total equity | $12,454 | $11,551 | - Total assets increased by $1,112 million to $22,824 million as of March 29, 2024, compared to September 29, 2023, primarily driven by an increase in deferred income taxes and goodwill[15] - Total current liabilities increased by $700 million, mainly due to an increase in short-term debt and accrued and other current liabilities[15] Condensed Consolidated Statements of Equity This chapter details changes in the company's shareholders' equity, including net income, dividends, and share repurchases Condensed Consolidated Statements of Equity Data | Metric | March 29, 2024 (millions) | September 29, 2023 (millions) | | :------------------------------------ | :------------------------- | :---------------------------- | | TE Connectivity Ltd. shareholders' equity | $12,449 | $11,551 | | Net income (6 months ended) | $2,344 | $830 | | Dividends (6 months ended) | $(795) | $(744) | | Repurchase of common shares (6 months ended) | $(826) | $(432) | - TE Connectivity Ltd shareholders' equity increased by $898 million to $12,449 million as of March 29, 2024, from $11,551 million at September 29, 2023[17] - The company repurchased $826 million of common shares during the six months ended March 29, 2024, compared to $432 million in the prior year period[17][90] Condensed Consolidated Statements of Cash Flows This chapter outlines the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Data | Metric | 6M 2024 (millions) | 6M 2023 (millions) | | :------------------------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $1,429 | $1,215 | | Net cash used in investing activities | $(627) | $(404) | | Net cash used in financing activities | $(1,284) | $(1,006) | | Net decrease in cash | $(485) | $(183) | | Cash, cash equivalents, and restricted cash at end of period | $1,176 | $905 | - Net cash provided by operating activities increased by $214 million to $1,429 million for the six months ended March 29, 2024, primarily due to higher pre-tax income[21][162] - Net cash used in investing activities increased to $627 million, mainly due to higher acquisition spending ($339 million in 2024 vs $108 million in 2023)[21][164] - Net cash used in financing activities increased to $1,284 million, driven by higher common share repurchases ($885 million in 2024 vs $466 million in 2023)[21][172] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Basis of Presentation and Accounting Policies This note describes the basis of financial statement preparation and significant accounting policies - The company's board of directors approved a proposed change in jurisdiction of incorporation from Switzerland to Ireland, expected to be completed in calendar year 2024, subject to shareholder approval[26][105] - The SEC issued final climate disclosure rules in March 2024, effective for the company in fiscal 2026, but currently stayed pending judicial review The company is assessing the impact[27] - The FASB issued ASU No 2023-09 (Income Tax Disclosures) and ASU No 2023-07 (Segment Reporting), effective for the company in fiscal 2026 and 2025 respectively, with early adoption permitted The company is assessing their impact[28][30] - The company adopted ASU No 2022-04 (Supplier Finance Programs) in Q1 fiscal 2024, which did not have a material impact on financial statements[31] 2. Restructuring and Other Charges, Net This note details the company's restructuring activities and other related charges Restructuring and Other Charges, Net Data | Charge Type | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Restructuring charges, net | $32 | $62 | $41 | $166 | | Impairment of held for sale businesses and (gain) loss on divestitures, net | $0 | $56 | $11 | $62 | | Costs related to change in place of incorporation | $8 | $0 | $8 | $0 | | Other charges, net | $0 | $1 | $1 | $2 | | Total Restructuring and other charges, net | $40 | $119 | $61 | $230 | - Net restructuring and other charges decreased significantly to $40 million in Q2 2024 from $119 million in Q2 2023, and to $61 million for the six months ended March 29, 2024, from $230 million in the prior year[32] - A new restructuring program was initiated in fiscal 2024 to optimize manufacturing footprint and improve cost structure, primarily in Industrial Solutions and Transportation Solutions segments, incurring $11 million in charges during the first six months[36] - The company sold one business for $38 million net cash proceeds, recording an $11 million pre-tax loss on sale in the first six months of fiscal 2024 This business was part of the Transportation Solutions segment[42] 3. Acquisitions This note provides details on business acquisitions completed during the reporting period - During the first six months of fiscal 2024, TE Connectivity acquired 98.7% of Schaffner Holding AG for CHF 294 million ($339 million), net of cash acquired Schaffner is a leader in electromagnetic solutions and is reported under the Industrial Solutions segment[45] - The valuation of identifiable intangible assets, assets acquired, and liabilities assumed for the Schaffner acquisition is ongoing and subject to adjustment[45] 4. Inventories This note presents the breakdown and changes in the company's inventory balances Inventories Data | Inventory Type | March 29, 2024 (millions) | September 29, 2023 (millions) | | :--------------- | :------------------------- | :---------------------------- | | Raw materials | $375 | $367 | | Work in progress | $1,230 | $1,185 | | Finished goods | $1,139 | $1,000 | | Total Inventories | $2,744 | $2,552 | - Total inventories increased by $192 million to $2,744 million as of March 29, 2024, from $2,552 million at September 29, 2023, with increases across all categories, particularly finished goods[48] 5. Goodwill This note details the company's goodwill balances by segment and changes during the period Goodwill by Segment | Segment | September 29, 2023 (millions) | Acquisition (millions) | Currency translation and other (millions) | March 29, 2024 (millions) | | :------------------------ | :---------------------------- | :--------------------- | :---------------------------------------- | :------------------------ | | Transportation Solutions | $1,478 | $0 | $8 | $1,486 | | Industrial Solutions | $3,263 | $181 | $20 | $3,464 | | Communications Solutions | $722 | $0 | $6 | $728 | | Total | $5,463 | $181 | $34 | $5,678 | - Goodwill increased by $215 million to $5,678 million as of March 29, 2024, primarily due to $181 million recognized in the Industrial Solutions segment from the Schaffner acquisition[49][50] 6. Intangible Assets, Net This note provides information on the company's intangible assets, including amortization expense Intangible Assets, Net Carrying Amount | Intangible Asset Type | March 29, 2024 (Net Carrying Amount, millions) | September 29, 2023 (Net Carrying Amount, millions) | | :---------------------- | :--------------------------------------------- | :------------------------------------------------- | | Customer relationships | $981 | $914 | | Intellectual property | $226 | $248 | | Other | $13 | $13 | | Total | $1,220 | $1,175 | - Net intangible assets increased by $45 million to $1,220 million as of March 29, 2024, primarily driven by an increase in customer relationships[51] - Amortization expense for intangible assets was $43 million in Q2 2024 and $85 million for the six months ended March 29, 2024[51] Expected Amortization Expense for Intangible Assets | Fiscal Year | Expected Amortization Expense (millions) | | :---------- | :--------------------------------------- | | Remainder of fiscal 2024 | $83 | | Fiscal 2025 | $159 | | Fiscal 2026 | $152 | | Fiscal 2027 | $134 | | Fiscal 2028 | $100 | | Fiscal 2029 | $93 | | Thereafter | $499 | | Total | $1,220 | 7. Debt This note outlines the company's debt structure, including commercial paper, senior notes, and credit facilities - Commercial paper outstanding for Tyco Electronics Group S.A (TEGSA) decreased to $291 million at March 29, 2024, from $330 million at September 29, 2023, both at a weighted-average interest rate of 5.50%[55] - The company reclassified €550 million of 0.00% euro-denominated senior notes due February 2025 from long-term to short-term debt[56] - TEGSA entered into a new $1.5 billion five-year unsecured senior revolving credit facility in April 2024, replacing the existing facility and maturing in April 2029[57] - The fair value of the company's debt was approximately $4,074 million at March 29, 2024, up from $3,974 million at September 29, 2023[59] 8. Leases This note details the company's lease costs and cash flows related to operating leases Lease Cost Components | Lease Cost Component | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :--------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Operating lease cost | $33 | $36 | $67 | $70 | | Variable lease cost | $13 | $13 | $25 | $25 | | Total lease cost | $46 | $49 | $92 | $95 | - Total lease cost decreased slightly to $46 million in Q2 2024 from $49 million in Q2 2023, and to $92 million for the six months ended March 29, 2024, from $95 million in the prior year[62] - Cash paid for operating leases was $69 million for the six months ended March 29, 2024, an increase from $64 million in the prior year period[62] 9. Commitments and Contingencies This note describes the company's various commitments, legal proceedings, and environmental contingencies - The company is subject to various legal proceedings and claims, but does not expect their outcome to have a material effect on results of operations, financial position, or cash flows[63] - The company is investigating past compliance with U.S trade controls and has made voluntary disclosures of apparent violations to BIS and DDTC Investigations are ongoing, and potential fines/penalties are reserved for, but the final outcome is uncertain[64] - Environmental remediation costs are estimated to be in the range of $17 million to $43 million, with $20 million accrued as the probable loss These are not expected to have a material adverse effect[66] - Outstanding letters of credit, letters of guarantee, and surety bonds totaled $180 million at March 29, 2024, including $22 million for the Subsea Communications business divestiture[68] - Outstanding payment obligations under the supply chain finance program were $113 million at March 29, 2024, included in accounts payable[69] 10. Financial Instruments This note explains the company's use of financial instruments for risk management - The company uses cross-currency swap contracts and foreign currency forward contracts to manage foreign currency exchange rate risk, with a portion designated as cash flow hedges[70] - Net investment in foreign operations is hedged using intercompany loans and external borrowings, with an aggregate notional value of $2,723 million at March 29, 2024 (up from $1,709 million at September 29, 2023)[71] - Cross-currency swap contracts for hedging net investment had an aggregate notional value of $3,522 million at March 29, 2024 (down from $3,806 million at September 29, 2023)[73] - Commodity swap contracts, designated as cash flow hedges, had an aggregate notional value of $422 million at March 29, 2024, to manage commodity price fluctuations[75] 11. Retirement Plans This note provides details on the company's pension and other post-retirement benefit plans Net Periodic Pension Benefit Cost | Metric | Non-U.S. Plans (6M 2024, millions) | U.S. Plans (6M 2024, millions) | | :-------------------------- | :--------------------------------- | :----------------------------- | | Service cost | $14 | $4 | | Interest cost | $30 | $19 | | Expected returns on plan assets | $(25) | $(19) | | Amortization of net actuarial loss | $2 | $2 | | Amortization of prior service credit | $(2) | $0 | | Net periodic pension benefit cost | $19 | $6 | - Net periodic pension benefit cost for non-U.S plans was $19 million and for U.S plans was $6 million for the six months ended March 29, 2024[78] - The company contributed $23 million to its non-U.S pension plans during the six months ended March 29, 2024[78] 12. Income Taxes This note details the company's income tax expense or benefit and effective tax rate - The company recorded an income tax benefit of $959 million for the six months ended March 29, 2024, compared to an expense of $187 million in the prior year[81] - The significant tax benefit for the six months ended March 29, 2024, includes an $874 million net income tax benefit from a ten-year tax credit in a Swiss subsidiary and a $262 million benefit from revaluation of deferred tax assets due to a Swiss corporate tax rate increase[81] - Approximately $30 million of unrecognized income tax benefits are estimated to be resolved within the next twelve months[82] 13. Earnings Per Share This note presents the calculation of basic and diluted earnings per share Weighted-Average Shares Outstanding | Metric | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Basic weighted-average shares outstanding | 308 | 316 | 309 | 317 | | Diluted weighted-average shares outstanding | 310 | 318 | 311 | 319 | - Weighted-average basic shares outstanding decreased to 308 million in Q2 2024 from 316 million in Q2 2023, reflecting share repurchases[83] 14. Equity This note details changes in equity, including share repurchases and dividend payments - Shareholders reapproved and extended the board's authorization to issue and/or reduce shares through March 13, 2025[86] - Shareholders approved the cancellation of approximately six million shares purchased under the share repurchase program, effective March 2024[87] Dividends Paid Per Common Share | Metric | Q2 2024 | Q2 2023 | 6M 2024 | 6M 2023 | | :-------------------------- | :------ | :------ | :------ | :------ | | Dividends paid per common share | $0.59 | $0.56 | $1.18 | $1.12 | - Shareholders approved a dividend payment of $2.60 per share, payable in four equal quarterly installments of $0.65 per share starting Q3 fiscal 2024[88] - The board authorized a $1.5 billion increase in the share repurchase program The company repurchased 6 million common shares for $826 million in the first six months of fiscal 2024[90] 15. Share Plans This note provides information on the company's share-based compensation plans and expenses Share-Based Compensation Expense | Metric | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :-------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Share-based compensation expense | $35 | $31 | $69 | $63 | - Share-based compensation expense increased to $35 million in Q2 2024 from $31 million in Q2 2023, and to $69 million for the six months ended March 29, 2024, from $63 million in the prior year[92] - As of March 29, 2024, $180 million of unrecognized compensation expense related to share-based awards is expected to be recognized over a weighted-average period of 1.7 years[92] - The TE Connectivity Ltd 2024 Stock and Incentive Plan was approved by shareholders in March 2024, replacing the 2007 Plan, with 20 million shares available for issuance[93] 16. Segment and Geographic Data This note presents financial data broken down by business segment and geographic region Net Sales by Segment | Segment | Q2 2024 Net Sales (millions) | Q2 2023 Net Sales (millions) | 6M 2024 Net Sales (millions) | 6M 2023 Net Sales (millions) | | :------------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Transportation Solutions | $2,384 | $2,483 | $4,757 | $4,742 | | Industrial Solutions | $1,143 | $1,191 | $2,168 | $2,251 | | Communications Solutions | $440 | $486 | $873 | $1,008 | | Total | $3,967 | $4,160 | $7,798 | $8,001 | - All three segments experienced net sales declines in Q2 2024 compared to Q2 2023 Transportation Solutions was flat for 6M 2024, while Industrial and Communications Solutions declined[96][109] Net Sales by Geographic Region | Geographic Region | Q2 2024 Net Sales (millions) | Q2 2023 Net Sales (millions) | 6M 2024 Net Sales (millions) | 6M 2023 Net Sales (millions) | | :------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | EMEA | $1,552 | $1,667 | $2,963 | $2,993 | | Asia–Pacific | $1,257 | $1,299 | $2,636 | $2,706 | | Americas | $1,158 | $1,194 | $2,199 | $2,302 | | Total | $3,967 | $4,160 | $7,798 | $8,001 | Operating Income by Segment | Segment | Q2 2024 Operating Income (millions) | Q2 2023 Operating Income (millions) | 6M 2024 Operating Income (millions) | 6M 2023 Operating Income (millions) | | :------------------------ | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Transportation Solutions | $467 | $333 | $945 | $615 | | Industrial Solutions | $157 | $134 | $298 | $290 | | Communications Solutions | $68 | $70 | $147 | $134 | | Total | $692 | $537 | $1,390 | $1,039 | - Operating income increased across all segments for the six months ended March 29, 2024, with Transportation Solutions showing the largest increase of $330 million[101] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operational results Change in Place of Incorporation This section discusses the proposed change in the company's jurisdiction of incorporation - The board approved a proposed change in jurisdiction of incorporation from Switzerland to Ireland, with a merger into TE Connectivity plc, expected to be completed in calendar year 2024, subject to shareholder approval[105] - No material change in operations or financial results is anticipated from the change in incorporation[105] Overview This section provides a general overview of the company's business and strategic focus - TE Connectivity Ltd is a global industrial technology leader providing connectivity and sensor solutions for next-generation transportation, renewable energy, automated factories, data centers, and medical technology[107] Summary of Performance This section summarizes the company's key financial performance metrics for the reporting period - Net sales decreased by 4.6% in Q2 fiscal 2024 and 2.5% in the first six months of fiscal 2024, with declines across all three segments in Q2[109] - Organic net sales decreased by 3.1% in Q2 and 2.0% in the first six months of fiscal 2024[109] - Transportation Solutions net sales decreased 4.0% in Q2 2024, while Industrial Solutions and Communications Solutions also saw declines[109][114] - Net cash provided by operating activities was $1,429 million in the first six months of fiscal 2024[114] Economic Conditions This section discusses the impact of global economic conditions on the company's operations - The global economy has been impacted by supply chain disruptions, inflationary cost pressures, military conflicts, and the COVID-19 pandemic[111] - The company has mitigated increased costs and supply chain disruptions through productivity improvements and prior year price increases, and continues to focus on cost management initiatives[112] - Military conflicts and escalating tensions did not have a significant impact on the business in fiscal 2023 or the first six months of fiscal 2024[112] Outlook This section provides the company's forward-looking expectations for future financial performance - For Q3 fiscal 2024, net sales are expected to be approximately $4.0 billion, consistent with Q3 fiscal 2023 levels, with growth in Communications and Industrial Solutions offsetting declines in Transportation Solutions[114] - Automotive end market sales are expected to increase in Q3 fiscal 2024, benefiting from slight growth in global vehicle production for full year fiscal 2024[115] - Industrial Solutions expects Q3 fiscal 2024 sales increases in aerospace, defense, marine, and medical end markets, partially offset by declines in industrial equipment due to market weakness and inventory corrections[115] - Communications Solutions expects Q3 fiscal 2024 sales increases in data and devices and appliances due to supply chain normalization[116] - Diluted EPS from continuing operations is expected to be approximately $1.71 per share in Q3 fiscal 2024, reflecting a negative impact of $0.06 per share from foreign currency exchange rates[116] Acquisition This section discusses significant business acquisitions completed during the period - The company acquired approximately 98.7% of Schaffner Holding AG for $339 million (net of cash acquired) during the first six months of fiscal 2024, integrating it into the Industrial Solutions segment[117] Divestiture This section details the sale of a business unit during the reporting period - One business in the Transportation Solutions segment was sold for $38 million net cash proceeds, resulting in an $11 million pre-tax loss on sale in the first six months of fiscal 2024[118] Results of Operations This section provides a detailed analysis of the company's operational performance Net Sales This section analyzes the company's net sales performance by segment and drivers of change Net Sales by Segment | Segment | Q2 2024 Net Sales (millions) | Q2 2023 Net Sales (millions) | 6M 2024 Net Sales (millions) | 6M 2023 Net Sales (millions) | | :------------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Transportation Solutions | $2,384 | $2,483 | $4,757 | $4,742 | | Industrial Solutions | $1,143 | $1,191 | $2,168 | $2,251 | | Communications Solutions | $440 | $486 | $873 | $1,008 | | Total | $3,967 | $4,160 | $7,798 | $8,001 | - Total net sales decreased by $193 million (4.6%) in Q2 2024 and $203 million (2.5%) in the first six months of fiscal 2024, primarily due to organic net sales declines and negative foreign currency translation[121][122] - Pricing actions from fiscal 2023 positively affected organic net sales by $14 million in Q2 2024 and $82 million in the first six months of fiscal 2024[121][122] - Approximately 60% of net sales were invoiced in non-U.S dollar currencies in the first six months of fiscal 2024[124] Cost of Sales and Gross Margin This section analyzes the company's cost of sales, gross margin, and commodity price impacts Cost of Sales and Gross Margin Data | Metric | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :-------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Cost of sales | $2,604 | $2,876 | $5,111 | $5,530 | | Gross margin | $1,363 | $1,284 | $2,687 | $2,471 | | Gross margin as % of net sales | 34.4% | 30.9% | 34.5% | 30.9% | - Gross margin increased by $79 million in Q2 2024 and $216 million in the first six months of fiscal 2024, primarily due to improved manufacturing productivity and positive impact of prior year pricing actions[128] Average Commodity Prices | Commodity | Q2 2024 Average Price | Q2 2023 Average Price | 6M 2024 Average Price | 6M 2023 Average Price | | :---------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Copper (Lb.) | $3.79 | $4.13 | $3.83 | $4.16 | | Gold (Troy oz.) | $1,966 | $1,870 | $1,955 | $1,843 | | Silver (Troy oz.) | $23.32 | $23.34 | $23.23 | $23.75 | | Palladium (Troy oz.) | $1,493 | $2,308 | $1,497 | $2,185 | - The company expects 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[129] Operating Expenses This section details the company's selling, general, administrative, and restructuring expenses Operating Expenses Data | Expense Type | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :------------------------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Selling, general, and administrative expenses | $444 | $435 | $868 | $827 | | Restructuring and other charges, net | $40 | $119 | $61 | $230 | - Selling, general, and administrative expenses increased by $41 million in the first six months of fiscal 2024 due to inflation, partially offset by savings from prior restructuring actions[130] - Net restructuring charges of $41 million were incurred in the first six months of fiscal 2024 for a new program to optimize manufacturing footprint and cost structure, primarily in Industrial and Transportation Solutions[133] - Annualized cost savings of approximately $10 million are expected from fiscal 2024 restructuring actions, fully realized by the end of fiscal 2025[133] - Costs of $8 million were incurred in the first six months of fiscal 2024 related to the proposed change in place of incorporation[134] Operating Income This section analyzes the company's operating income and operating margin performance Operating Income and Margin Data | Metric | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :--------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Operating income | $692 | $537 | $1,390 | $1,039 | | Operating margin | 17.4% | 12.9% | 17.8% | 13.0% | - Operating income increased by $155 million in Q2 2024 and $351 million in the first six months of fiscal 2024, driven by improved manufacturing productivity[135] Non-Operating Items This section discusses interest income, income tax expense, and other non-operating financial items Non-Operating Items Data | Metric | Q2 2024 (millions) | Q2 2023 (millions) | 6M 2024 (millions) | 6M 2023 (millions) | | :-------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Interest income | $19 | $12 | $41 | $21 | | Income tax expense (benefit) | $146 | $100 | $(959) | $187 | | Effective tax rate | 21.3% | 19.0% | (69.2)% | 18.5% | - Interest income increased due to higher interest rates and increased cash balances[137] - The company recorded a significant income tax benefit of $959 million for the six months ended March 29, 2024, compared to an expense in the prior year, leading to a negative effective tax rate[137] - The OECD's 15% global minimum corporate tax rules are expected to affect the company starting in fiscal 2025, with potential material impact on results, cash taxes, and effective tax rate[139] Segment Results This section provides a detailed breakdown of financial results for each business segment Transportation Solutions This section analyzes the financial performance of the Transportation Solutions segment by end market Transportation Solutions Net Sales by End Market | End Market | Q2 2024 Net Sales (millions) | Q2 2023 Net Sales (millions) | 6M 2024 Net Sales (millions) | 6M 2023 Net Sales (millions) | | :-------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Automotive | $1,749 | $1,795 | $3,525 | $3,444 | | Commercial transportation | $384 | $405 | $740 | $753 | | Sensors | $251 | $283 | $492 | $545 | | Total | $2,384 | $2,483 | $4,757 | $4,742 | - Net sales decreased by 4.0% in Q2 2024 due to divestiture impact (1.8%), foreign currency translation (1.2%), and organic declines (1.0%)[143] - Organic net sales in Automotive increased 1.2% in Q2 2024, driven by 12.1% growth in Asia–Pacific due to increased content per vehicle, offsetting declines in EMEA and Americas[144] - Sensors organic net sales decreased 10.3% in Q2 2024 due to market weakness in industrial applications and strategic exit of lower margin product lines[144] Transportation Solutions Operating Income | Metric | Q2 2024 Operating Income (millions) | Q2 2023 Operating Income (millions) | 6M 2024 Operating Income (millions) | 6M 2023 Operating Income (millions) | | :--------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Operating income | $467 | $333 | $945 | $615 | | Operating margin | 19.6% | 13.4% | 19.9% | 13.0% | - Operating income increased by $134 million in Q2 2024 and $330 million in the first six months of fiscal 2024, primarily due to improved manufacturing productivity[145] Industrial Solutions This section analyzes the financial performance of the Industrial Solutions segment by end market Industrial Solutions Net Sales by End Market | End Market | Q2 2024 Net Sales (millions) | Q2 2023 Net Sales (millions) | 6M 2024 Net Sales (millions) | 6M 2023 Net Sales (millions) | | :-------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Industrial equipment | $356 | $461 | $686 | $895 | | Aerospace, defense, and marine | $342 | $298 | $632 | $562 | | Energy | $234 | $233 | $439 | $422 | | Medical | $211 | $199 | $411 | $372 | | Total | $1,143 | $1,191 | $2,168 | $2,251 | - Net sales decreased by 4.0% in Q2 2024 due to organic net sales declines (5.6%), partially offset by acquisitions and divestitures (2.7%)[149] - Industrial equipment organic net sales decreased 28.4% in Q2 2024 due to reduced demand and inventory corrections[151] - Aerospace, defense, and marine organic net sales increased 17.0% in Q2 2024 due to growth in commercial aerospace and defense markets[151] Industrial Solutions Operating Income | Metric | Q2 2024 Operating Income (millions) | Q2 2023 Operating Income (millions) | 6M 2024 Operating Income (millions) | 6M 2023 Operating Income (millions) | | :--------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Operating income | $157 | $134 | $298 | $290 | | Operating margin | 13.7% | 11.3% | 13.7% | 12.9% | - Operating income increased by $23 million in Q2 2024 and $8 million in the first six months of fiscal 2024, with Q2 operating income consistent with prior year levels due to pricing actions offsetting lower volume[152] Communications Solutions This section analyzes the financial performance of the Communications Solutions segment by end market Communications Solutions Net Sales by End Market | End Market | Q2 2024 Net Sales (millions) | Q2 2023 Net Sales (millions) | 6M 2024 Net Sales (millions) | 6M 2023 Net Sales (millions) | | :---------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Data and devices | $273 | $288 | $552 | $617 | | Appliances | $167 | $198 | $321 | $391 | | Total | $440 | $486 | $873 | $1,008 | - Net sales decreased by 9.5% in Q2 2024 and 13.4% in the first six months of fiscal 2024, primarily due to organic net sales declines[156] - Data and devices organic net sales decreased 4.4% in Q2 2024 due to market declines and inventory corrections, partially offset by growth in cloud and AI applications[160] - Appliances organic net sales decreased 13.8% in Q2 2024 due to market declines and inventory corrections across all regions[160] Communications Solutions Operating Income | Metric | Q2 2024 Operating Income (millions) | Q2 2023 Operating Income (millions) | 6M 2024 Operating Income (millions) | 6M 2023 Operating Income (millions) | | :--------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Operating income | $68 | $70 | $147 | $134 | | Operating margin | 15.5% | 14.4% | 16.8% | 13.3% | - Operating income decreased by $2 million in Q2 2024 but increased by $13 million in the first six months of fiscal 2024 Q2 operating income was consistent with prior year due to product mix offsetting price erosion[157] Liquidity and Capital Resources This section discusses the company's cash flows, debt, and overall financial liquidity and capital structure - The company believes cash from operations and other funding sources will be sufficient to meet anticipated capital needs, including debt payments of $350 million (August 2024) and €550 million (February 2025)[160] - Excess cash may be used for share repurchases, strategic acquisitions, dividends, or debt reduction[161] Cash Flows from Operating Activities This section details cash generated from the company's primary business operations - Net cash provided by operating activities increased by $214 million to $1,429 million in the first six months of fiscal 2024, primarily due to higher pre-tax income[162] - Income taxes paid, net of refunds, were $238 million in the first six months of fiscal 2024[162] Cash Flows from Investing Activities This section details cash used for or generated from investment activities, including capital expenditures and acquisitions - Capital expenditures decreased to $318 million in the first six months of fiscal 2024 from $372 million in the prior year, with fiscal 2024 capital spending expected to be approximately 5% of net sales[163] - Acquisition of businesses, net of cash acquired, totaled $339 million in the first six months of fiscal 2024, compared to $108 million in the prior year[164] - Proceeds from divestiture of businesses, net of cash retained, were $38 million in the first six months of fiscal 2024, compared to $51 million in the prior year[165] Cash Flows from Financing Activities and Capitalization This section details cash flows related to debt, equity, and dividend payments - Total debt was $4,196 million at March 29, 2024, a slight decrease from $4,211 million at September 29, 2023[166] - TEGSA's commercial paper outstanding was $291 million at March 29, 2024, at a 5.50% weighted-average interest rate[167] - A new $1.5 billion five-year unsecured senior revolving credit facility was entered into in April 2024, maturing in April 2029[168] - The company was in compliance with all debt covenants as of March 29, 2024[169] - Payments of common share dividends to shareholders were $365 million in the first six months of fiscal 2024[170] - The board authorized a $1.5 billion increase in the share repurchase program, with $1.4 billion remaining availability at March 29, 2024[172] Summarized Guarantor Financial Information This section provides summarized financial information for the guarantor and non-guarantor subsidiaries - TE Connectivity Ltd fully and unconditionally guarantees TEGSA's senior notes, commercial paper, and Credit Facility[173] Summarized Guarantor Balance Sheet Data | Balance Sheet Data | March 29, 2024 (millions) | September 29, 2023 (millions) | | :------------------- | :------------------------- | :---------------------------- | | Total current assets | $1,077 | $1,632 | | Total noncurrent assets | $3,625 | $2,857 | | Total current liabilities | $2,157 | $1,303 | | Total noncurrent liabilities | $13,231 | $7,592 | Summarized Guarantor Statement of Operations Data | Statement of Operations Data | 6M 2024 (millions) | FY 2023 (millions) | | :--------------------------- | :------------------ | :----------------- | | Loss from continuing operations | $(48) | $(606) | | Net loss | $(48) | $(606) | Guarantees This section describes the company's various guarantees and potential financial exposures - The company provides various guarantees for third-party performance, uncompleted work, and financial commitments, with potential exposure not expected to materially affect financial results[177] - Outstanding letters of credit, letters of guarantee, and surety bonds totaled $180 million at March 29, 2024[179] Commitments and Contingencies This note describes the company's various commitments, legal proceedings, and environmental contingencies Legal Proceedings This section discusses ongoing legal proceedings and their potential impact on the company - The company is subject to various legal proceedings and claims, but does not expect their outcome to have a material effect on results of operations, financial position, or cash flows[181] Trade Compliance Matters This section addresses investigations and disclosures related to U.S trade controls compliance - The company is investigating past compliance with U.S trade controls and has made voluntary disclosures of apparent violations to BIS and DDTC Investigations are ongoing, and potential fines/penalties are reserved for, but the final outcome is uncertain[182] Critical Accounting Policies and Estimates This section highlights the company's most significant accounting policies and estimates - Key accounting policies and estimates include revenue recognition, goodwill and other intangible assets, income taxes, and pension plans[185] - No significant changes to critical accounting policies and estimates occurred during the first six months of fiscal 2024[185] Accounting Pronouncements This section refers to recently issued and adopted accounting pronouncements and their impact - Refer to Note 1 for information regarding recently issued and adopted accounting pronouncements[187] Non-GAAP Financial Measure This section defines and explains the use of non-GAAP financial measures, such as organic net sales - Organic net sales growth (decline) is presented as a non-GAAP financial measure, excluding the impact of foreign currency exchange rates and acquisitions/divestitures, to provide insight into underlying business growth[189] - Management uses organic net sales growth (decline) to monitor and evaluate performance and in decision-making processes, and it is a significant component in incentive compensation plans[190] Forward-Looking Information This section provides cautionary statements regarding forward-looking information and associated risks - The report contains forward-looking statements regarding future results, business strategies, financing plans, competitive position, and potential growth opportunities[193] - Forward-looking statements involve risks, uncertainties, and assumptions, and actual results may differ materially[194] - Key risks include global economic conditions, demand in served industries (especially automotive), raw material costs, foreign currency fluctuations, and risks associated with acquisitions, divestitures, and the proposed change in incorporation to Ireland[195][197][198] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that there have been no significant changes in the company's exposures to market risk during the first six months of fiscal 2024 - No significant changes in market risk exposures occurred during the first six months of fiscal 2024[199] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of March 29, 2024[200] Changes in Internal Control Over Financial Reporting This section reports on any material changes in the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during the quarter ended March 29, 2024[201] PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, and other miscellaneous information ITEM 1. LEGAL PROCEEDINGS This section states that there have been no material developments in the company's legal proceedings since the last Annual Report on Form 10-K - No material developments in legal proceedings since the fiscal year ended September 29, 2023, Annual Report on Form 10-K[204] ITEM 1A. RISK FACTORS This section confirms no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K, emphasizing that these and other unpredicted risks could still materially affect the business - No material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended September 29, 2023[205] - Additional unknown or currently immaterial risks may also impair business operations, financial condition, and liquidity[205] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section provides information on the company's purchases of its common shares during the quarter ended March 29, 2024, under its share repurchase program Common Share Repurchases | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :----------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :------------------------------------------------------------------------------------ | | December 30, 2023–January 26, 2024 | 893,745 | $134.57 | 893,796 | $1,695,479,687 | | January 27–March 1, 2024 | 1,109,848 | $142.67 | 1,104,599 | $1,537,893,156 | | March 2–March 29, 2024 | 908,132 | $141.94 | 908,132 | $1,408,990,414 | | Total | 2,911,725 | $139.96 | 2,906,527 | | - The company repurchased 2,911,725 common shares at an average price of $139.96 per share during the quarter ended March 29, 2024[206] - The share repurchase program has no expiration date, and $1.4 billion of availability remained at March 29, 2024[207] ITEM 5. OTHER INFORMATION This section reports on Rule 10b5-1 trading arrangements by directors and officers - No directors or officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended March 29, 2024[208] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including the merger agreement, articles of association, credit facility agreement, stock and incentive plan, employment agreements, and certifications - Key exhibits include the Merger Agreement between TE Connectivity Ltd and TE Connectivity plc, the Second Amended and Restated Five-Year Senior Credit Agreement, and the TE Connectivity Ltd 2024 Stock and Incentive Plan[209] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are also included[209] Signatures This section contains the signature of the registrant, confirming the due authorization and filing of the report - The report was signed by Heath A Mitts, Executive Vice President and Chief Financial Officer, on April 26, 2024[212]