What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-01-27 compared with 2022-07-29 · 125 added, 187 removed, 270 unchanged (54% of the section changed)

10 unchanged sentences

Our broad range of connectivity and sensor solutions, proven in the harshest environments, enable advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.

The third quarter and first nine months of fiscal 2022 included the following:

● Our net sales increased 6.6% and 7.4% in the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of fiscal 2021 due primarily to sales growth in the Industrial Solutions and Communications Solutions segments.

On an organic basis, our net sales increased 10.6% and 9.0% during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of fiscal 2021.

Summary of Performance in the First Quarter of Fiscal 2023

● Our net sales increased 0.6% in the first quarter of fiscal 2023 as compared to the same period of fiscal 2022 due to sales growth in the Transportation Solutions segment and, to a lesser degree, the Industrial Solutions segment, largely offset by declines in the Communications Solutions segment.

On an organic basis, our net sales increased 8.2% during the first quarter of fiscal 2023 as compared to the same period of fiscal 2022.

● Our net sales by segment were as follows:

● Transportation Solutions —Our net sales increased 1.5% in the third quarter of fiscal 2022 due to sales increases in the automotive and commercial transportation end markets, partially offset by sales declines in the sensors end market.

In the first nine months of fiscal 2022, our net sales were flat as compared to the first nine months of fiscal 2021 as sales declines in the automotive and sensors end markets were offset by sales increases in the commercial transportation end market.

● Industrial Solutions —Our net sales increased 13.2% and 15.6% in the third quarter and first nine months of fiscal 2022, respectively, primarily as a result of sales increases in the industrial equipment end market.

● Communications Solutions —Our net sales increased 14.7% and 25.3% in the third quarter and first nine months of fiscal 2022, respectively, due primarily to sales increases in the data and devices end market.

● Net cash provided by operating activities was $1,524 million in the first nine months of fiscal 2022.

● Transportation Solutions —Our net sales increased 4.7% in the first quarter of fiscal 2023 due primarily to sales increases in the automotive end market.

● Industrial Solutions —Our net sales increased 0.8% in the first quarter of fiscal 2023 primarily as a result of sales increases in the aerospace, defense, and marine end market and, to a lesser degree, the medical end market, largely offset by declines in the industrial equipment end market.

● Communications Solutions —Our net sales decreased 14.1% in the first quarter of fiscal 2023 due to sales declines in the appliances and the data and devices end markets.

● Net cash provided by operating activities was $581 million in the first quarter of fiscal 2023.

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 by the COVID-19 pandemic and the military conflict between Russia and Ukraine as well as supply chain disruptions and inflationary cost pressures.

See “Russia-Ukraine Military Conflict” and “COVID-19 Pandemic” for additional information.

We are monitoring the current environment and its potential effects on our customers and the end markets we serve.

Our business operates globally and changes in foreign currency exchange rates may have a significant impact on our results.

Foreign currency translation negatively impacted our net sales by $299 million in the first quarter of fiscal 2023 as compared to the same period in fiscal 2022, and we expect translation to continue to have a negative impact on our operating results in the second quarter of fiscal 2023 as a result of continued strength of the U.S.

dollar against other currencies.

We expect translation to negatively impact our net sales by approximately $400 million in fiscal 2023 as compared to fiscal 2022.

We have experienced inflationary cost pressures including increased costs for transportation, energy, and raw materials.

However, we have been able to partially mitigate increased costs and supply chain disruptions through price increases or productivity.

We have implemented select price increases and have initiated additional price increases for certain products.

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.”

Russia-Ukraine Military Conflict

We are monitoring the military conflict between Russia and Ukraine, escalating tensions in surrounding countries, and associated sanctions.

We suspended our business operations in Russia, and our operations in Ukraine have been reduced

to focus on the safety of our employees.

We have experienced increased costs for transportation, energy, and raw materials due in part to the negative impact of the Russia-Ukraine military conflict on the global economy.

The increased costs and supply chain implications resulting from the conflict have not been significant to our business, and we have been able to partially mitigate them through price increases or productivity.

Neither Russia nor Ukraine represents a material portion of our business, and the military conflict has not had a significant impact on our business, financial condition, or result of operations during the first nine months of fiscal 2022.

We are monitoring the continuing military conflict between Russia and Ukraine, escalating tensions in surrounding countries, and associated sanctions.

We suspended our business operations in Russia, and our operations in Ukraine have been reduced to focus on the safety of our employees.

Neither Russia nor Ukraine represents a material portion of our business, and the military conflict did not have a significant impact on our business, financial condition, or results of operations during the first quarter of fiscal 2023.

The full impact of the military conflict on our business operations and financial performance remains uncertain.

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COVID-19 Pandemic

The COVID-19 pandemic has affected nearly all regions around the world and resulted in business slowdowns or shutdowns and travel restrictions in affected areas.

The pandemic had a negative impact on certain of our businesses in fiscal 2021 and continued to impact certain of our operations in China in the first nine months of fiscal 2022.

The pandemic has not had a significant impact on our ability to staff our operations, and we do not expect that it will continue to have a significant impact on our businesses globally in fiscal 2022 .

Throughout our operations, we implemented additional health and safety measures for the protection of our employees, including providing personal protective equipment, enhanced cleaning and sanitizing of our facilities, and remote working arrangements.

The COVID-19 pandemic has impacted and continues to impact our business operations globally, causing disruption in our suppliers’ and customers’ supply chains, some of our business locations to reduce or suspend operations, and a reduction in demand for certain products from direct customers or end markets.

The COVID-19 pandemic has affected nearly all regions around the world, most recently and significantly China, and has resulted in business slowdowns or shutdowns.

Although the pandemic has impacted certain aspects of our business, we do not expect that it will have a significant impact on our businesses globally in the near term .

The COVID-19 pandemic has impacted and continues to impact our business operations globally, causing disruption in our suppliers’ and customers’ supply chains and a reduction in demand for certain products from direct customers or end markets.

In addition, the pandemic had far-reaching impacts on many additional aspects of our operations, both directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, inventory, our employees, and the market generally .

We assessed the impact of the COVID-19 pandemic and adjusted our operations and businesses, a number of which are operating as essential businesses, and will continue to do so if necessary .

The extent to which the pandemic will continue to impact our business and the markets we serve will depend on future developments which may include the further spread of the virus, variant strains of the virus, and the resumption of high levels of infections and hospitalizations as well as the success of public health advancements, including vaccine production and distribution.

While certain of our operations were shut down in China for a period of time in fiscal 2022, we do not expect the COVID-19 pandemic to have a significant impact on our businesses globally in fiscal 2022.

However, it may have a negative impact on our financial condition, liquidity, and results of operations in future periods.

In response to the pandemic and resulting economic environment, we have taken and continue to focus on actions to manage costs.

These include restructuring and other cost reduction initiatives, such as reducing discretionary spending and travel.

The extent to which the pandemic will continue to impact our business and the markets we serve will depend on future developments which may include the resurgence of the spread of the virus and variant strains of the virus as well as the success of public health advancements.

While certain of our operations in China were impacted in the first quarter of fiscal 2023 and were shut down for a period of time in fiscal 2022, we do not expect the COVID-19 pandemic to have a significant impact on our businesses globally in fiscal 2023.

However, it may have a negative impact on our financial condition and results of operations in future periods.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, shareholders, and the communities in which we operate.

In the fourth quarter of fiscal 2022, we expect our net sales to be approximately $4.2 billion as compared to $3.8 billion in the fourth quarter of fiscal 2021.

We expect diluted earnings per share from continuing operations to be approximately $1.79 per share in the fourth quarter of fiscal 2022.

This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $275 million and $0.11 per share, respectively, in the fourth quarter of fiscal 2022 as compared to the fourth quarter of fiscal 2021.

Additionally, this outlook includes approximately $250 million in net sales and $0.10 earnings per share resulting from an additional week in the fourth quarter of fiscal 2022.

We expect our net sales to be approximately $16.1 billion in fiscal 2022 as compared to $14.9 billion in fiscal 2021.

We expect diluted earnings per share from continuing operations to be approximately $7.04 per share in fiscal 2022.

outlook includes an additional week in fiscal 2022 and reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $700 million and $0.17 per share, respectively, in fiscal 2022 as compared to fiscal 2021.

The above outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.

We are monitoring the current macroeconomic environment, including any continued impacts from the Russia-Ukraine military conflict and the COVID-19 pandemic, and its potential effects on our customers and the end markets we serve.

We have taken actions to manage costs and will continue to closely manage our costs in line with economic conditions.

Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs.

See further discussion in “Liquidity and Capital Resources.”

During the first nine months of fiscal 2022, we acquired two businesses for a combined cash purchase price of $141 million, net of cash acquired.

The acquisitions were reported as part of our Communications Solutions segment from the date of acquisition.

In the second quarter of fiscal 2023, we expect our net sales to be approximately $3.9 billion as compared to $4.0 billion in the second quarter of fiscal 2022.

This represents an increase in net sales relative to the first quarter of fiscal 2023

with growth in the Transportation Solutions and Industrial Solutions segments, partially offset by a decline in the Communications Solutions segment.

We expect diluted earnings per share from continuing operations to be approximately $1.44 per share in the second quarter of fiscal 2023.

This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $165 million and $0.11 per share, respectively, in the second quarter of fiscal 2023 as compared to the second quarter of fiscal 2022.

Also, this outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.

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

The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition.

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

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($ in millions)

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

Change in Net Sales for the Quarter Ended June 24, 2022

Change in Net Sales for the Nine Months Ended June 24, 2022

versus Net Sales for the Quarter Ended June 25, 2021

versus Net Sales for the Nine Months Ended June 25, 2021

Organic Net Sales

Change in Net Sales for the Quarter Ended December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Organic Net Sales

(Divestiture)

Growth (Decline)

(Divestitures)

Growth (Decline)

($ in millions)

2 unchanged sentences

Communications Solutions

Net sales increased $252 million, or 6.6%, in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021.

The increase in net sales resulted from organic net sales growth of 10.6% and net sales contributions of 1.9% from acquisitions and a divestiture, partially offset by the negative impact of foreign currency translation of 5.9% due to the weakening of certain foreign currencies.

In the third quarter of fiscal 2022, pricing actions positively affected organic net sales by $159 million.

In the first nine months of fiscal 2022, net sales increased $817 million, or 7.4%, as compared to the first nine months of fiscal 2021.

The increase in net sales resulted from organic net sales growth of 9.0% and net sales contributions of 1.8% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 3.4% due to the weakening of certain foreign currencies.

Pricing actions positively affected organic net sales by $332 million in the first nine months of fiscal 2022.

Net sales increased $23 million, or 0.6%, in the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022.

The increase in net sales resulted primarily from organic net sales growth of 8.2%, largely offset by the negative impact of foreign currency translation of 7.8% due to the weakening of certain foreign currencies.

In the first quarter of fiscal 2023, pricing actions positively affected organic net sales by $129 million.

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.

Our business operates in three geographic regions—Asia–Pacific, Europe/Middle East/Africa (“EMEA”), 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.

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

dollar in the first nine months of fiscal 2022.

dollar in the first quarter of fiscal 2023.

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

Quarters Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

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

Change in Net Sales for the Quarter Ended June 24, 2022

Change in Net Sales for the Nine Months Ended June 24, 2022

versus Net Sales for the Quarter Ended June 25, 2021

versus Net Sales for the Nine Months Ended June 25, 2021

Organic Net Sales

Change in Net Sales for the Quarter Ended December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Organic Net Sales

(Divestiture)

(Divestitures)

Growth (Decline)

($ in millions)

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Nine Months Ended

($ in millions)

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As a percentage of net sales

Gross margin increased $60 million and $271 million in the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of fiscal 2021.

The increases were primarily a result of the positive impact of pricing actions and higher volume, partially offset by inflationary pressure on material and operating costs.

Gross margin decreased $43 million in the first quarter of fiscal 2023 as compared to the same period of fiscal 2022.

The decrease was primarily a result of the negative impact of foreign currency translation and inflationary pressure on material and operating costs, partially offset by the positive impact of pricing actions.

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 impacted by worldwide events, including the COVID-19 pandemic and, more recently, the military conflict between Russia and Ukraine.

In recent years, raw material prices and availability have been impacted by worldwide economic conditions, including the COVID-19 pandemic, supply chain disruptions, and inflationary cost pressures.

As a result, we have experienced shortages and price increases in some of our input materials—including copper, gold, silver, and palladium—however, we have been able to initiate pricing actions which have partially offset these impacts.

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We expect to purchase approximately 195 million pounds of copper, 125,000 troy ounces of gold, 2.6 million troy ounces of silver, and 9,000 troy ounces of palladium in fiscal 2023.

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($ in millions)

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Selling, General, and Administrative Expenses.

Selling, general, and administrative expenses increased $27 million and $44 million in the third quarter and first nine months of fiscal 2022, respectively, from the same periods of fiscal 2021 due primarily to increased selling expenses to support higher sales levels, the impact of inflation, and incremental expenses attributable to recent acquisitions, partially offset by lower incentive compensation costs.

Selling, general, and administrative expenses increased $29 million in the first quarter of fiscal 2023 from the same period of fiscal 2022 due primarily to a gain on the sale of real estate in the first quarter of fiscal 2022 and the impact of inflation, partially offset by the positive impact of foreign currency translation.

Restructuring and Other Charges, Net.

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These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for future growth.

During fiscal 2022 and 2021, we initiated restructuring programs associated with footprint consolidation and cost structure improvements across all segments.

We incurred net restructuring and related charges of $85 million during the first nine months of fiscal 2022, of which $16 million was recorded in cost of sales.

Annualized cost savings related to the fiscal 2022 actions commenced during the first nine months of fiscal 2022 are expected to be approximately $75 million and are expected to be realized by the end of fiscal 2024.

During fiscal 2023, we initiated a restructuring program associated with cost structure improvements primarily in the Transportation Solutions and Communications Solutions segments.

We incurred net restructuring charges of $104 million during the first quarter of fiscal 2023.

Annualized cost savings related to the fiscal 2023 actions commenced during the first quarter of fiscal 2023 are expected to be approximately $86 million and are expected to be realized by the end of fiscal 2025.

Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses.

For fiscal 2022, we expect total restructuring charges to be approximately $150 million and total spending, which will be funded with cash from operations, to be approximately $160 million.

In fiscal 2023, we expect total restructuring charges and spending, which will be funded with cash from operations, to exceed fiscal 2022 levels.

As a result of market conditions, we are reevaluating our restructuring actions.

We may broaden the scope of our cost reduction initiatives and accelerate cost reduction and footprint consolidation activities.

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

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($ in millions)

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(in millions)

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Nine Months Ended

($ in millions)

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Income Taxes.

See Note 12 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the third quarters and first nine months of fiscal 2022 and 2021.

See Note 12 to the Condensed Consolidated Financial Statements for discussion of income taxes.

Segment Results

Effective for fiscal 2023, we realigned certain product lines from the Industrial Solutions segment to the Communications Solutions segment.

Prior period segment results have been restated to conform to the current segment reporting structure.

See Note 16 to the Condensed Consolidated Financial Statements for additional information regarding our segments.

Transportation Solutions

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($ in millions)

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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 24, 2022

Change in Net Sales for the Nine Months Ended June 24, 2022

versus Net Sales for the Quarter Ended June 25, 2021

versus Net Sales for the Nine Months Ended June 25, 2021

Organic Net Sales

Change in Net Sales for the Quarter Ended December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Organic Net Sales

Growth (Decline)

($ in millions)

Commercial transportation

Net sales in the Transportation Solutions segment increased $35 million, or 1.5%, in the third quarter of fiscal 2022 from the third quarter of fiscal 2021 due to organic net sales growth of 8.3%, partially offset by the negative impact of foreign currency translation of 6.8%.

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

● Automotive— Our organic net sales increased 9.1% in the third quarter of fiscal 2022 with growth of 15.0% in the Americas region, 8.2% in the EMEA region, and 7.4% in the Asia–Pacific region.

Overall, our organic net sales growth resulted primarily from increased content per vehicle.

Global automotive production in the third quarter of fiscal 2022 was consistent with third quarter fiscal 2021 levels .

● Commercial transportation— Our organic net sales increased 9.8% in the third quarter of fiscal 2022 due primarily to market growth in the Americas and EMEA regions as well as content and share gains.

● Sensors— Our organic net sales increased 1.5% in the third quarter of fiscal 2022 as a result of growth in industrial applications , partially offset by declines in transportation applications.

In the first nine months of fiscal 2022, net sales in the Transportation Solutions segment decreased slightly as compared to the first nine months of fiscal 2021 as the negative impact of foreign currency translation of 3.8% was offset by organic net sales growth of 3.7%.

Net sales in the Transportation Solutions segment increased $101 million, or 4.7%, in the first quarter of fiscal 2023 from the first quarter of fiscal 2022 due to organic net sales growth of 14.4%, partially offset by the negative impact of foreign currency translation of 9.7%.

In the first quarter of fiscal 2023, pricing actions positively affected organic net sales by $91 million.

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

● Automotive— Our organic net sales increased 2.7% in the first nine months of fiscal 2022 with growth of 6.5% in the Asia–Pacific region and 5.9% in the Americas region, partially offset by declines of 2.4% in the EMEA region.

Overall, our organic net sales increased due primarily to increased content per vehicle, despite declines in global automotive production.

● Commercial transportation— Our organic net sales increased 8.6% in the first nine months of fiscal 2022 primarily as a result of market growth in the Americas and EMEA regions as well as content and share gains.

● Sensors— Our organic net sales increased 2.2% in the first nine months of fiscal 2022 due to growth in industrial applications, partially offset by declines in transportation applications.

● Automotive— Our organic net sales increased 19.6% in the first quarter of fiscal 2023 with growth of 21.4% in the EMEA region, 19.1% in the Americas region, and 18.6% in the Asia–Pacific region.

Our organic net sales growth across all regions was attributable primarily to increased content per vehicle .

● Commercial transportation— Our organic net sales increased 2.6% in the first quarter of fiscal 2023 due to growth in the Americas and EMEA regions, partially offset by declines in the Asia–Pacific region.

● Sensors— Our organic net sales increased 2.6% in the first quarter of fiscal 2023 as a result of growth in transportation applications , partially offset by declines in industrial applications.

Operating Income.

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($ in millions)

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Operating margin

Operating income in the Transportation Solutions segment decreased $50 million in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021 and increased $48 million in the first nine months of fiscal 2022 as compared to the same period of fiscal 2021.

Excluding the items below, operating income in the third quarter and first nine months of fiscal 2022 decreased primarily as a result of inflationary pressure on material and operating costs, partially offset by the positive impact of pricing actions.

Operating income in the Transportation Solutions segment decreased $113 million in the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022.

Excluding the items below, operating income decreased primarily as a result of inflationary pressure on material and operating costs and the negative impact of foreign currency translation, partially offset by the positive impact of pricing actions and higher volume.

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(in millions)

Acquisition-related charges:

Acquisition and integration costs

Charges associated with the amortization of acquisition-related fair value adjustments

Restructuring and other charges, net

Restructuring and other charges (credits), net

Industrial Solutions

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($ in millions)

Industrial equipment

Aerospace, defense, oil, and gas

Aerospace, defense, and marine

(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 24, 2022

Change in Net Sales for the Nine Months Ended June 24, 2022

versus Net Sales for the Quarter Ended June 25, 2021

versus Net Sales for the Nine Months Ended June 25, 2021

Organic Net Sales

Change in Net Sales for the Quarter Ended December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestitures)

($ in millions)

Industrial equipment

Aerospace, defense, oil, and gas

In the Industrial Solutions segment, net sales increased $132 million, or 13.2%, in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021 due to organic net sales growth of 12.7% and net sales contributions of 5.9% from an acquisition and a divestiture, partially offset by the negative impact of foreign currency translation of 5.4%.

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

● Industrial equipment— Our organic net sales increased 19.1% in the third quarter of fiscal 2022 due to growth in all regions and continued strength in factory automation and controls applications.

● Aerospace, defense, oil, and gas— Our organic net sales increased 8.7% in the third quarter of fiscal 2022 primarily as a result of growth in the commercial aerospace and the defense markets.

● Energy— Our organic net sales increased 16.7% in the third quarter of fiscal 2022 with growth across all regions and continued strength in renewable energy applications.

● Medical— Our organic net sales increased 0.6% in the third quarter of fiscal 2022 due to market growth in surgical and imaging as well as interventional medical applications .

Net sales in the Industrial Solutions segment increased $441 million, or 15.6%, in the first nine months of fiscal 2022 as compared to the first nine months of fiscal 2021 due to organic net sales growth of 13.5% and net sales contributions

of 5.7% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 3.6%.

Aerospace, defense, and marine

In the Industrial Solutions segment, net sales increased $8 million, or 0.8%, in the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022 due to organic net sales growth of 6.8%, largely offset by the negative impact of foreign currency translation of 6.0%.

In the first quarter of fiscal 2023, pricing actions positively affected organic net sales by $34 million.

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

● Industrial equipment— Our organic net sales increased 27.9% in the first nine months of fiscal 2022 as a result of growth in all regions and continued strength in factory automation and controls applications.

● Aerospace, defense, oil, and gas— Our organic net sales increased 2.0% in the first nine months of fiscal 2022 due to growth in the commercial aerospace market, partially offset by declines in the oil and gas and the defense markets.

● Energy— Our organic net sales increased 12.7% in the first nine months of fiscal 2022 due to growth across all regions and continued strength in renewable energy applications.

● Medical— Our organic net sales increased 2.2% in the first nine months of fiscal 2022 as a result of market growth in surgical and imaging as well as interventional medical applications.

● Industrial equipment— Our organic net sales increased 3.4% in the first quarter of fiscal 2023 due primarily to growth in automation applications .

● Aerospace, defense, and marine— Our organic net sales increased 14.3% in the first quarter of fiscal 2023 primarily as a result of growth in the commercial aerospace and the defense markets.

● Energy— Our organic net sales increased 8.0% in the first quarter of fiscal 2023 due primarily to growth in the Americas and EMEA regions.

● Medical— Our organic net sales increased 4.8% in the first quarter of fiscal 2023 due to growth in interventional medical applications as well as surgical and imaging applications.

Operating Income.

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($ in millions)

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Operating margin

Operating income in the Industrial Solutions segment increased $21 million and $105 million in the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of fiscal 2021.

Excluding the items below, operating income increased primarily as a result of higher volume and the positive impact of pricing actions, partially offset by inflationary pressure on material and operating costs.

Operating income in the Industrial Solutions segment increased $36 million in the first quarter of fiscal 2023 as compared to the same period of fiscal 2022.

Excluding the items below, operating income increased primarily as a result of the positive impact of pricing actions.

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(in millions)

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($ in millions)

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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 24, 2022

Change in Net Sales for the Nine Months Ended June 24, 2022

versus Net Sales for the Quarter Ended June 25, 2021

versus Net Sales for the Nine Months Ended June 25, 2021

Organic Net Sales

Change in Net Sales for the Quarter Ended December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Organic Net Sales

Growth (Decline)

($ in millions)

Data and devices

Net sales in the Communications Solutions segment increased $85 million, or 14.7%, in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021 due primarily to organic net sales growth of 15.9%.

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

● Data and devices —Our organic net sales increased 26.2% in the third quarter of fiscal 2022 as a result of market strength in all regions and growth across all product lines.

● Appliances —Our organic net sales increased 2.2% in the third quarter of fiscal 2022 due to sales growth in the Americas and EMEA regions attributable primarily to share gains, partially offset by declines in the Asia–Pacific region.

In the first nine months of fiscal 2022, net sales in the Communications Solutions segment increased $380 million, or 25.3%, as compared to the first nine months of fiscal 2021 due primarily to organic net sales growth of 25.1%.

Net sales in the Communications Solutions segment decreased $86 million, or 14.1%, in the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022 due primarily to organic net sales declines of 11.4% and the negative impact of foreign currency translation of 4.3%.

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

● Data and devices —Our organic net sales increased 35.0% in the first nine months of fiscal 2022 due to market strength in all regions and growth across all product lines.

● Appliances —Our organic net sales increased 12.4% in the first nine months of fiscal 2022 due to sales growth in the Americas and EMEA regions resulting primarily from share gains, partially offset by declines in the Asia–Pacific region.

● Data and devices —Our organic net sales decreased 6.3% in the first quarter of fiscal 2023 as a result of market declines in all regions and reduced demand resulting from high inventory levels at distributors .

● Appliances —Our organic net sales decreased 18.3% in the first quarter of fiscal 2023 due to market declines across all regions.

Operating Income.

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($ in millions)

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Operating margin

Operating income in the Communications Solutions segment increased $34 million and $169 million in the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of fiscal 2021.

Excluding the items below, operating income increased due primarily to higher volume.

Operating income in the Communications Solutions segment decreased $93 million in the first quarter of fiscal 2023 as compared to the same period of fiscal 2022.

Excluding the items below, operating income decreased due primarily to lower volume and inflationary pressure on material and operating costs.

Quarters Ended

Nine Months Ended

(in millions)

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Cash Flows from Operating Activities

In the first nine months of fiscal 2022, net cash provided by operating activities decreased $378 million to $1,524 million from $1,902 million in the first nine months of fiscal 2021.

The decrease resulted primarily from the impact of increased working capital levels including changes in accrued and other current liabilities resulting from higher incentive compensation payments, partially offset by higher pre-tax income.

The amount of income taxes paid, net of refunds, during the first nine months of fiscal 2022 and 2021 was $326 million and $291 million, respectively.

In the first quarter of fiscal 2023, net cash provided by operating activities increased $49 million to $581 million from $532 million in the first quarter of fiscal 2022.

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

The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2023 and 2022 was $98 million and $71 million, respectively.

Cash Flows from Investing Activities

Capital expenditures were $556 million and $454 million in the first nine months of fiscal 2022 and 2021, respectively.

Capital expenditures were $183 million and $172 million in the first quarters of fiscal 2023 and 2022, respectively.

We expect fiscal 2023 capital spending levels to be approximately 5% of net sales.

We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.

During the first nine months of fiscal 2022, we acquired two businesses for a combined cash purchase price of $141 million, net of cash acquired.

We acquired two businesses for a combined cash purchase price of $125 million, net of cash

acquired, during the first nine months of fiscal 2021.

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

We acquired one business for a cash purchase price of $125 million, net of cash acquired, during the first quarter of fiscal 2022.

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

Cash Flows from Financing Activities and Capitalization

Total debt at June 24, 2022 and September 24, 2021 was $4,202 million and $4,092 million, respectively.

Total debt at December 30, 2022 and September 30, 2022 was $4,218 million and $4,206 million, respectively.

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

During the first nine months of fiscal 2022, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, issued $600 million aggregate principal amount of 2.50% senior notes due in February 2032.

The notes are TEGSA’s unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.

During the first nine months of fiscal 2022, TEGSA completed an early redemption of $500 million aggregate principal amount of 3.50% senior notes due in February 2022.

As of June 24, 2022, TEGSA had $237 million of commercial paper outstanding at a weighted-average interest rate of 1.92%.

TEGSA had no commercial paper outstanding at September 24, 2021.

As of December 30, 2022, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, had $231 million of commercial paper outstanding at a weighted-average interest rate of 4.70%.

TEGSA had $370 million of commercial paper outstanding at a weighted-average interest rate of 3.45% at September 30, 2022.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of June 2026 and total commitments of $1.5 billion.

TEGSA had no borrowings under the Credit Facility at June 24, 2022 or September 24, 2021.

TEGSA had no borrowings under the Credit Facility at December 30, 2022 or September 30, 2022.

The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered.

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

As of June 24, 2022, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.

As of December 30, 2022, 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 $506 million and $483 million in the first nine months of fiscal 2022 and 2021, respectively.

In March 2022, our shareholders approved a dividend payment to shareholders of $2.24 per share, payable in four equal quarterly installments of $0.56 per share beginning in the third quarter of fiscal 2022 and ending in the second quarter of fiscal 2023.

During the third quarter of fiscal 2022, our board of directors authorized an increase of $1.5 billion in our share repurchase program.

We repurchased approximately eight million of our common shares for $1,072 million and approximately five million of our common shares for $591 million under the share repurchase program during the first nine months of fiscal 2022 and 2021, respectively.

At June 24, 2022, we had $2.0 billion of availability remaining under our share repurchase authorization.

Payments of common share dividends to shareholders were $178 million and $163 million in the first quarters of fiscal 2023 and 2022, respectively.

We repurchased approximately two million of our common shares for $233 million and approximately two million of our common shares for $246 million under the share repurchase program during the first quarters of fiscal 2023 and 2022, respectively.

At December 30, 2022, we had $1.4 billion of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

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In addition to being the issuer of our debt securities, TEGSA owns, directly or indirectly, all of our operating subsidiaries.

The following tables present

summarized financial information, excluding investments in and equity in earnings of our non-guarantor subsidiaries, for TE Connectivity Ltd.

The following tables present summarized financial information, excluding investments in and equity in earnings of our non-guarantor subsidiaries, for TE Connectivity Ltd.

and TEGSA on a combined basis.

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Total noncurrent liabilities (2)

(1) Includes $4,167 million and $1,810 million as of June 24, 2022 and September 24, 2021, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $14,445 million and $8,832 million as of June 24, 2022 and September 24, 2021, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Nine Months Ended

(1) Includes $2,723 million and $2,601 million as of December 30, 2022 and September 30, 2022, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $8,744 million and $12,582 million as of December 30, 2022 and September 30, 2022, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Quarter Ended

Fiscal Year Ended

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

At June 24, 2022, we had outstanding letters of credit, letters of guarantee, and surety bonds of $134 million, excluding those related to our Subsea Communications (“SubCom”) business which are discussed below.

At December 30, 2022, we had outstanding letters of credit, letters of guarantee, and surety bonds of $170 million, excluding those related to our former Subsea Communications (“SubCom”) business which are discussed below.

During fiscal 2019, we sold our SubCom business.

In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale.

These performance guarantees and letters of credit had a combined value of approximately $116 million as of June 24, 2022 and are expected to expire at various dates through fiscal 2027.

These performance guarantees and letters of credit had a combined value of approximately $59 million as of December 30, 2022 and are expected to expire at various dates through fiscal 2027.

We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees;

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Trade Compliance Matters

We are investigating our past compliance with relevant U.S.

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.

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State Department’s Directorate of Defense Trade Controls (“DDTC”).

We are cooperating with the BIS and DDTC on these matters, and both our internal assessment and the resulting investigations by the agencies remain ongoing.

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.

While 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.

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

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Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

There were no significant changes to this information during the first nine months of fiscal 2022.

There were no significant changes to this information during the first quarter of fiscal 2023.

Non-GAAP Financial Measure

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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.

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.

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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.

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.

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● risks associated with current and future acquisitions and divestitures;

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 continuing military conflict between Russia and Ukraine resulting from Russia’s invasion of Ukraine or escalating tensions in surrounding countries, and volatile and uncertain economic conditions in China;

● global risks of business interruptions due to natural disasters or other disasters such as the COVID-19 pandemic, 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 between Russia and Ukraine resulting from Russia’s invasion of Ukraine or escalating tensions in surrounding countries, and volatile and uncertain economic conditions in China;

● risks associated with security breaches and other disruptions to our information technology infrastructure;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis