10-Q 1 tel-20231229x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 29, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-33260

(Commission File Number)

Graphic

TE CONNECTIVITY LTD.

(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)

98-0518048
(I.R.S. Employer Identification No.)

Mühlenstrasse 26, CH-8200 Schaffhausen, Switzerland

(Address of principal executive offices)

+41 (0)52 633 66 61

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Shares, Par Value CHF 0.57

TEL

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of common shares outstanding as of January 19, 2024 was 308,798,987.

TE CONNECTIVITY LTD.

INDEX TO FORM 10-Q

   

   

   

Page

Part I.

Financial Information

Item 1.

Financial Statements

1

Condensed Consolidated Statements of Operations for the Quarters Ended December 29, 2023 and December 30, 2022 (unaudited)

1

Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended December 29, 2023 and December 30, 2022 (unaudited)

2

Condensed Consolidated Balance Sheets as of December 29, 2023 and September 29, 2023 (unaudited)

3

Condensed Consolidated Statements of Equity for the Quarters Ended December 29, 2023 and December 30, 2022 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Quarters Ended December 29, 2023 and December 30, 2022 (unaudited)

5

Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

Part II.

Other Information

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 5.

Other Information

36

Item 6.

Exhibits

36

Signatures

37

i

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

For the

Quarters Ended

December 29,

December 30,

    

2023

    

2022

    

(in millions, except per share data)

Net sales

$

3,831

$

3,841

Cost of sales

 

2,507

 

2,654

Gross margin

 

1,324

 

1,187

Selling, general, and administrative expenses

 

424

392

Research, development, and engineering expenses

 

173

173

Acquisition and integration costs

 

8

9

Restructuring and other charges, net

 

21

111

Operating income

698

502

Interest income

22

9

Interest expense

 

(18)

(21)

Other expense, net

 

(3)

(5)

Income from continuing operations before income taxes

 

699

 

485

Income tax (expense) benefit

 

1,105

(87)

Income from continuing operations

 

1,804

 

398

Loss from discontinued operations, net of income taxes

 

(1)

(1)

Net income

$

1,803

$

397

Basic earnings per share:

Income from continuing operations

$

5.80

$

1.26

Loss from discontinued operations

 

 

Net income

 

5.80

 

1.25

Diluted earnings per share:

Income from continuing operations

$

5.76

$

1.25

Loss from discontinued operations

 

 

Net income

 

5.76

 

1.24

Weighted-average number of shares outstanding:

Basic

 

311

317

Diluted

 

313

319

See Notes to Condensed Consolidated Financial Statements.

1

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

For the

Quarters Ended

December 29,

December 30,

    

2023

    

2022

    

(in millions)

Net income

$

1,803

$

397

Other comprehensive income:

Currency translation

 

163

305

Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes

 

(18)

2

Gains on cash flow hedges, net of income taxes

 

28

69

Other comprehensive income

 

173

 

376

Comprehensive income

1,976

773

Less: comprehensive income attributable to noncontrolling interests

(4)

(9)

Comprehensive income attributable to TE Connectivity Ltd.

$

1,972

$

764

See Notes to Condensed Consolidated Financial Statements.

2

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

December 29,

September 29,

    

2023

    

2023

    

(in millions, except share

data)

Assets

Current assets:

Cash and cash equivalents

$

1,170

$

1,661

Accounts receivable, net of allowance for doubtful accounts of $37 and $30, respectively

 

2,828

 

2,967

Inventories

 

2,783

 

2,552

Prepaid expenses and other current assets

 

660

 

712

Total current assets

 

7,441

 

7,892

Property, plant, and equipment, net

 

3,854

 

3,754

Goodwill

 

5,836

 

5,463

Intangible assets, net

 

1,278

 

1,175

Deferred income taxes

 

3,852

 

2,600

Other assets

 

810

 

828

Total assets

$

23,071

$

21,712

Liabilities, redeemable noncontrolling interests, and equity

Current liabilities:

Short-term debt

$

613

$

682

Accounts payable

 

1,690

 

1,563

Accrued and other current liabilities

 

1,708

 

2,218

Total current liabilities

 

4,011

 

4,463

Long-term debt

 

3,585

 

3,529

Long-term pension and postretirement liabilities

 

744

 

728

Deferred income taxes

 

188

 

185

Income taxes

 

380

 

365

Other liabilities

 

914

 

787

Total liabilities

 

9,822

 

10,057

Commitments and contingencies (Note 9)

Redeemable noncontrolling interests

108

104

Equity:

TE Connectivity Ltd. shareholders' equity:

Common shares, CHF 0.57 par value, 322,470,281 shares authorized and issued

 

142

142

Accumulated earnings

 

14,678

 

12,947

Treasury shares, at cost, 13,050,787 and 10,487,742 shares, respectively

 

(1,695)

 

(1,380)

Accumulated other comprehensive income (loss)

 

11

 

(158)

Total TE Connectivity Ltd. shareholders' equity

13,136

11,551

Noncontrolling interests

5

Total equity

 

13,141

 

11,551

Total liabilities, redeemable noncontrolling interests, and equity

$

23,071

$

21,712

See Notes to Condensed Consolidated Financial Statements.

3

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

For the Quarter Ended December 29, 2023

Accumulated

TE Connectivity

Other

Ltd.

Non-

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

controlling

Total

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Income (Loss)

   

Equity

   

Interests

   

Equity

   

(in millions)

Balance at September 29, 2023

 

322

$

142

 

(10)

$

(1,380)

$

$

12,947

$

(158)

$

11,551

$

$

11,551

Acquisition

5

5

Net income

 

 

 

 

 

 

1,803

 

 

1,803

 

 

1,803

Other comprehensive income

 

 

 

 

 

 

 

169

 

169

 

 

169

Share-based compensation expense

 

 

 

 

 

34

 

 

 

34

 

 

34

Exercise of share options

 

 

 

 

11

 

 

 

 

11

 

 

11

Restricted share award vestings and other activity

 

 

 

 

94

 

(34)

 

(72)

 

 

(12)

 

 

(12)

Repurchase of common shares

 

 

 

(3)

 

(420)

 

 

 

 

(420)

 

 

(420)

Balance at December 29, 2023

322

$

142

 

(13)

$

(1,695)

$

$

14,678

$

11

$

13,136

$

5

$

13,141

For the Quarter Ended December 30, 2022

Accumulated

TE Connectivity

Other

Ltd.

Non-

Common Shares

Treasury Shares

Contributed

Accumulated

Comprehensive

Shareholders'

controlling

Total

   

Shares

   

Amount

   

Shares

   

Amount

   

Surplus

   

Earnings

   

Loss

   

Equity

   

Interests

   

Equity

   

(in millions)

Balance at September 30, 2022

 

331

$

146

 

(13)

$

(1,681)

$

$

12,832

$

(495)

$

10,802

$

$

10,802

Net income

 

 

 

 

 

397

 

 

397

 

 

397

Other comprehensive income

 

 

 

 

 

 

 

367

 

367

 

 

367

Share-based compensation expense

 

 

 

 

 

32

 

 

 

32

 

 

32

Exercise of share options

 

 

 

 

11

 

 

 

 

11

 

 

11

Restricted share award vestings and other activity

 

 

 

1

 

49

 

(32)

 

(29)

 

 

(12)

 

 

(12)

Repurchase of common shares

 

 

 

(2)

 

(233)

 

 

 

 

(233)

 

 

(233)

Balance at December 30, 2022

331

$

146

 

(14)

$

(1,854)

$

$

13,200

$

(128)

$

11,364

$

$

11,364

See Notes to Condensed Consolidated Financial Statements.

4

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the

Quarters Ended

December 29,

December 30,

    

2023

    

2022

    

(in millions)

Cash flows from operating activities:

Net income

$

1,803

$

397

Loss from discontinued operations, net of income taxes

 

1

 

1

Income from continuing operations

 

1,804

 

398

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

Depreciation and amortization

 

194

 

187

Deferred income taxes

 

(1,217)

 

(35)

Non-cash lease cost

34

34

Provision for losses on accounts receivable and inventories

 

42

 

51

Share-based compensation expense

 

34

 

32

Other

 

40

 

49

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

Accounts receivable, net

 

127

 

(54)

Inventories

 

(282)

 

(324)

Prepaid expenses and other current assets

 

(48)

 

(86)

Accounts payable

 

128

 

149

Accrued and other current liabilities

 

(239)

 

(39)

Income taxes

 

12

 

25

Other

 

90

 

194

Net cash provided by operating activities

 

719

 

581

Cash flows from investing activities:

Capital expenditures

 

(151)

 

(183)

Proceeds from sale of property, plant, and equipment

 

2

 

1

Acquisition of businesses, net of cash acquired

 

(349)

 

(109)

Proceeds from divestiture of business, net of cash retained by business sold

38

Other

 

(8)

 

26

Net cash used in investing activities

 

(468)

 

(265)

Cash flows from financing activities:

Net decrease in commercial paper

 

(69)

 

(139)

Repayment of debt

 

(1)

 

(4)

Proceeds from exercise of share options

 

11

 

11

Repurchase of common shares

 

(476)

 

(287)

Payment of common share dividends to shareholders

 

(183)

 

(178)

Other

 

(27)

 

(24)

Net cash used in financing activities

 

(745)

 

(621)

Effect of currency translation on cash

 

3

 

10

Net decrease in cash, cash equivalents, and restricted cash

 

(491)

 

(295)

Cash, cash equivalents, and restricted cash at beginning of period

 

1,661

 

1,088

Cash, cash equivalents, and restricted cash at end of period

$

1,170

$

793

See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Accounting Policies

The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and the instructions to Form 10-Q under the Securities Exchange Act of 1934. In management’s opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.

The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023.

Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2024 and fiscal 2023 are to our fiscal years ending September 27, 2024 and ended September 29, 2023, respectively.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for our fiscal 2025 Annual Report and subsequent interim periods; however, early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements. We are currently assessing the impact that adoption will have on our Condensed Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvement to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures through improvements to disclosures related primarily to the rate reconciliation and income taxes paid information. The amendments are effective for us in fiscal 2026; however, early adoption is permitted. We are currently assessing the impact that adoption will have on our Condensed Consolidated Financial Statements.

Recently Adopted Accounting Pronouncement

In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50)—Disclosure of Supplier Finance Program Obligations, to enhance transparency and introduce new disclosures related to an entity’s use of supplier finance programs in connection with the purchase of goods and services. The ASU requires us, as a buyer in a supplier finance program, to disclose the key terms of the program, the amount of obligations outstanding, the balance sheet presentation of such amounts, and a rollforward of the obligation activity during the annual period. We adopted this update in the first quarter of fiscal 2024. Adoption did not have a material impact on our Condensed Consolidated Financial Statements. See Note 9 for additional information regarding our supply chain finance program.

6

Table of Contents

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

2. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

For the

Quarters Ended

December 29,

December 30,

    

2023

    

2022

    

(in millions)

Restructuring charges, net

$

9

$

104

Loss on divestiture and impairment of held for sale business

11

6

Other charges, net

 

1

 

1

Restructuring and other charges, net

$

21

$

111

Restructuring Charges, Net

Net restructuring and charges by segment were as follows:

For the

Quarters Ended

December 29,

December 30,

    

2023

    

2022

    

(in millions)

Transportation Solutions

$

2

$

74

Industrial Solutions

 

6

 

6

Communications Solutions

 

1

 

24

Restructuring charges, net

$

9

$

104

Activity in our restructuring reserves was as follows:

Balance at

Balance at

  

September 29,

Changes in

Cash

Non-Cash

Currency

December 29,

    

2023

    

Charges

    

Estimate

    

Payments

    

Items

    

Translation

    

2023

    

(in millions)

Fiscal 2024 Actions:

Employee severance

$

$

5

$

$

$

$

$

5

Fiscal 2023 Actions:

Employee severance

187

(8)

(20)

8

167

Facility and other exit costs

2

1

(3)

Property, plant, and equipment

4

(4)

Total

189

5

(8)

(23)

(4)

8

167

Pre-Fiscal 2023 Actions:

Employee severance

127

5

(23)

4

113

Facility and other exit costs

4

2

(2)

4

Total

131

2

5

(25)

4

117

Total Activity

$

320

$

12

$

(3)

$

(48)

$

(4)

$

12

$

289

7

Table of Contents

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

Fiscal 2024 Actions

During fiscal 2024, we initiated a restructuring program to optimize our manufacturing footprint and improve the cost structure of the organization, primarily in the Industrial Solutions and Transportation Solutions segments. During the quarter ended December 29, 2023, we recorded restructuring charges of $5 million in connection with this program. We expect to complete all restructuring actions commenced during the quarter ended December 29, 2023 by the end of fiscal 2025, and we expect additional charges related to actions commenced during the quarter ended December 29, 2023 will be insignificant.

Fiscal 2023 Actions

During fiscal 2023, we initiated a restructuring program associated with cost structure improvements across all segments. In connection with this program, during the quarters ended December 29, 2023 and December 30, 2022, we recorded net restructuring credits of $3 million and charges of $105 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2023 by the end of fiscal 2025, and to incur additional charges of approximately $24 million related primarily to employee severance and facility exit costs.

The following table summarizes expected, incurred, and remaining charges for the fiscal 2023 program by segment as of December 29, 2023:

Total

Cumulative

Remaining

Expected

Charges

Expected

    

Charges

    

Incurred

    

Charges

    

(in millions)

Transportation Solutions

$

153

$

138

$

15

Industrial Solutions

 

80

 

73

 

7

Communications Solutions

 

35

 

33

 

2

Total

$

268

$

244

$

24

Pre-Fiscal 2023 Actions

During the quarters ended December 29, 2023 and December 30, 2022, we recorded net restructuring charges of $7 million and credits of $1 million, respectively, related to pre-fiscal 2023 actions. We expect that any additional charges related to restructuring actions commenced prior to fiscal 2023 will be insignificant.

Total Restructuring Reserves

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

December 29,

September 29,

    

2023

    

2023

    

(in millions)

Accrued and other current liabilities

$

204

$

240

Other liabilities

 

85

 

80

Restructuring reserves

$

289

$

320

Divestiture

During the quarter ended December 29, 2023, we sold one business for net cash proceeds of $38 million. In connection with the divestiture, we recorded a pre-tax loss on sale of $11 million. The business sold was reported in our Transportation Solutions segment.

8

Table of Contents

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

3. Acquisitions

During the quarter ended December 29, 2023, we acquired approximately 98.7% of the outstanding shares of Schaffner Holding AG (“Schaffner”), a leader in electromagnetic solutions based in Switzerland, for CHF 505.00 per share in cash for a purchase price of CHF 302 million (equivalent to $349 million), net of cash acquired. As a result of the transaction, we recognized a noncontrolling interest with a fair value of $5 million as of the acquisition date. Due to the timing of the transaction, which was reported as part of our Industrial Solutions segment, we preliminarily allocated the purchase price to goodwill and identifiable intangible assets. Our valuation of identifiable intangible assets, assets acquired, and liabilities assumed is currently in process; therefore, the current allocation is subject to adjustment upon finalization of the valuations. The amount of these potential adjustments could be significant. We intend to initiate a squeeze-out procedure and delist the remaining Schaffner shares from SIX Swiss Exchange during fiscal 2024.

We acquired one business for a cash purchase price of $109 million, net of cash acquired, during the quarter ended December 30, 2022. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.

4. Inventories

Inventories consisted of the following:

December 29,

September 29,

    

2023

    

2023

    

(in millions)

Raw materials

$

394

$

367

Work in progress

 

1,284

 

1,185

Finished goods

 

1,105

 

1,000

Inventories

$

2,783

$

2,552

5. Goodwill

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

    

Transportation

    

Industrial

    

Communications

    

    

Solutions

Solutions

Solutions

Total

(in millions)

September 29, 2023(1)

$

1,478

$

3,263

$

722

$

5,463

Acquisition

257

257

Currency translation and other

 

29

 

71

 

16

 

116

December 29, 2023(1)

$

1,507

$

3,591

$

738

$

5,836

(1)At December 29, 2023 and September 29, 2023, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $3,091 million, $669 million, and $489 million, respectively.

During the quarter ended December 29, 2023, we recognized goodwill in the Industrial Solutions segment in connection with an acquisition. See Note 3 for additional information regarding acquisitions.

9

Table of Contents

TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

6. Intangible Assets, Net

Intangible assets consisted of the following:

December 29, 2023

September 29, 2023

    

Gross

    

    

Net

    

Gross

    

    

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

    

(in millions)

Customer relationships

$

1,876

$

(856)

$

1,020

$

1,720

$

(806)