What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2023-01-27 · 179 added, 102 removed, 293 unchanged (49% 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.

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.

Summary of Performance

● Our net sales increased 3.8% and 2.2% in the second quarter and first six months of fiscal 2023, respectively, as compared to the same periods of fiscal 2022 due to sales growth in the Transportation Solutions and Industrial Solutions segments, partially offset by declines in the Communications Solutions segment.

On an organic basis, our net sales increased 7.6% and 7.7% during the second quarter and first six months of fiscal 2023, respectively, as compared to the same periods of fiscal 2022.

● Our net sales by segment were as follows:

● 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.

● Transportation Solutions —Our net sales increased 7.3% and 6.0% in the second quarter and first six months of fiscal 2023, respectively, due primarily to sales increases in the automotive end market.

● Industrial Solutions —Our net sales increased 11.5% and 6.2% in the second quarter and first six months of fiscal 2023, respectively, as a result of sales increases in the aerospace, defense, and marine, the energy, and the medical end markets, partially offset by declines in the industrial equipment end market.

● Communications Solutions —Our net sales decreased 22.2% and 18.2% in the second quarter and first six months of fiscal 2023, respectively, due to sales declines in the data and devices and the appliances end markets.

● Net cash provided by operating activities was $1,215 million in the first six months 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.

The global economy has been impacted by supply chain disruptions and inflationary cost pressures as well as the military

conflict between Russia and Ukraine and the COVID-19 pandemic in recent years.

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.

We have implemented select 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.

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See further discussion in “Liquidity and Capital Resources.”

Russia-Ukraine Military Conflict

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.

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

The extent to which the conflict may impact our business in future periods will depend on future developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, and supply chain disruptions.

We will continue to actively monitor the conflict and assess the related sanctions and other effects and may take further actions if necessary.

COVID-19 Pandemic

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 .

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.

The COVID-19 pandemic has had a global impact, most recently and significantly in China, and has resulted in business slowdowns or shutdowns.

While the pandemic has impacted certain aspects of our business, 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 six months 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 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.

We will continue to actively monitor the COVID-19 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 third quarter of fiscal 2023, we expect our net sales to be approximately $4.0 billion as compared to $4.1 billion in the third quarter of fiscal 2022.

This decrease reflects sales declines in the Communications Solutions segment, partially offset by growth in the Transportation Solutions segment.

We expect diluted earnings per share from continuing operations to be approximately $1.56 per share in the third quarter of fiscal 2023.

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

During the first six months of fiscal 2023, we acquired one business for a cash purchase price of $108 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.

During the first six months of fiscal 2023, we sold two businesses for net cash proceeds of $51 million.

In connection with the divestitures, we recorded pre-tax impairment charges and a net pre-tax gain on sales, which totaled to a net charge of $2 million.

The businesses sold were both reported in our Industrial Solutions segment.

Additionally, during the first six months of fiscal 2023, we recorded a pre-tax impairment charge of $60 million in connection with a held for sale business in the Transportation Solutions segment.

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

Results of Operations

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Quarters Ended

Six Months Ended

($ 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 December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Change in Net Sales for the Quarter Ended March 31, 2023

Change in Net Sales for the Six Months Ended March 31, 2023

versus Net Sales for the Quarter Ended March 25, 2022

versus Net Sales for the Six Months Ended March 25, 2022

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestiture)

($ in millions)

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Communications Solutions

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.

Net sales increased $153 million, or 3.8%, in the second quarter of fiscal 2023 as compared to the second quarter of fiscal 2022.

The increase in net sales resulted primarily from organic net sales growth of 7.6%, partially offset by the negative impact of foreign currency translation of 3.9% due to the weakening of certain foreign currencies.

In the second quarter of fiscal 2023, pricing actions positively affected organic net sales by $166 million.

In the first six months of fiscal 2023, net sales increased $176 million, or 2.2%, as compared to the first six months of fiscal 2022.

The increase in net sales resulted primarily from organic net sales growth of 7.7%, partially offset by the negative impact of foreign currency translation of 5.6% due to the weakening of certain foreign currencies.

Pricing actions positively affected organic net sales by $295 million in the first six months of fiscal 2023.

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

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

dollar in the first quarter of fiscal 2023.

dollar in the first six months of fiscal 2023.

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

Quarters Ended

Six Months Ended

($ in millions)

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

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

versus Net Sales for the Quarter Ended December 24, 2021

Change in Net Sales for the Quarter Ended March 31, 2023

Change in Net Sales for the Six Months Ended March 31, 2023

versus Net Sales for the Quarter Ended March 25, 2022

versus Net Sales for the Six Months Ended March 25, 2022

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestiture)

($ in millions)

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Quarters Ended

Six Months Ended

($ in millions)

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As a percentage of net sales

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.

Gross margin decreased $53 million and $96 million in the second quarter and first six months of fiscal 2023, respectively, as compared to the same periods of fiscal 2022 due primarily to inflationary pressure on material and operating costs and the negative impact of foreign currency translation, 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 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.

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

As a result, we have experienced shortages and price increases in some of our input materials;

however, we have

been able to initiate pricing actions which have partially offset these impacts.

The following table presents the average prices incurred related to copper, gold, silver, and palladium:

Quarters Ended

Six Months Ended

We expect to purchase approximately 185 million pounds of copper, 120,000 troy ounces of gold, 2.5 million troy ounces of silver, and 8,000 troy ounces of palladium in fiscal 2023.

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Quarters Ended

Six Months Ended

($ in millions)

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Selling, General, and Administrative Expenses.

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.

Selling, general, and administrative expenses increased $19 million in the second quarter of fiscal 2023 as compared to the second quarter of fiscal 2022 due primarily to the impact of cost inflation, partially offset by the positive impact of foreign currency translation.

In the first six months of fiscal 2023, selling, general, and administrative expenses increased $48 million as compared to the first six months of fiscal 2022 due primarily to a gain on the sale of real estate in the first six months of fiscal 2022 and the impact of cost 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 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.

During fiscal 2023, we initiated a restructuring program associated with cost structure improvements across all segments.

We incurred net restructuring charges of $166 million during the first six months of fiscal 2023.

Annualized cost savings related to the fiscal 2023 actions commenced during the first six months of fiscal 2023 are expected to be approximately $125 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.

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.

For fiscal 2023, we expect total restructuring charges to be approximately $250 million and total spending, which will be funded with cash from operations, to be approximately $225 million.

During the first six months of fiscal 2023, we recorded a pre-tax impairment charge of $60 million in connection with a held for sale business in the Transportation Solutions segment.

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

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Quarters Ended

Six Months Ended

($ in millions)

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Quarters Ended

Six Months Ended

(in millions)

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Quarters Ended

Six Months Ended

($ in millions)

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

The Organisation for Economic Co-operation and Development (“OECD”) and participating countries continue to work towards the enactment of a 15% global minimum tax.

South Korea and Japan are the first countries to enact the global minimum tax.

European Union members must adopt the global minimum tax by the end of calendar 2023 and many other jurisdictions have also committed to implementing the global minimum tax.

The global minimum tax is a significant structural change to the international taxation framework, which will affect us beginning in fiscal 2025.

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

We are currently monitoring these developments and evaluating the potential impact on our results of operations, cash taxes, and worldwide corporate effective tax rate.

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.

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.

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Quarters Ended

Six Months Ended

($ 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 December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Change in Net Sales for the Quarter Ended March 31, 2023

Change in Net Sales for the Six Months Ended March 31, 2023

versus Net Sales for the Quarter Ended March 25, 2022

versus Net Sales for the Six Months Ended March 25, 2022

Organic Net Sales

Growth (Decline)

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Commercial transportation

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.

Net sales in the Transportation Solutions segment increased $169 million, or 7.3%, in the second quarter of fiscal 2023 from the second quarter of fiscal 2022 due to organic net sales growth of 11.9%, partially offset by the negative impact of foreign currency translation of 4.6%.

In the second quarter of fiscal 2023, pricing actions positively affected organic net sales by $107 million.

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

● 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.

● Automotive— Our organic net sales increased 13.6% in the second quarter of fiscal 2023 with growth of 22.7% in the EMEA region, 11.5% in the Americas region, and 6.2% in the Asia–Pacific region.

Our organic net sales growth across all regions was attributable to increased content per vehicle as well as vehicle production growth, primarily in the EMEA and Americas regions.

● Commercial transportation— Our organic net sales increased 6.5% in the second quarter of fiscal 2023 due to growth in the EMEA and Americas regions, partially offset by declines in the Asia–Pacific region.

● Sensors— Our organic net sales increased 8.8% in the second quarter of fiscal 2023 as a result of growth in transportation and industrial applications.

In the first six months of fiscal 2023, net sales in the Transportation Solutions segment increased $270 million, or 6.0%, as compared to the first six months of fiscal 2022 due to organic net sales growth of 12.8%, partially offset by the

negative impact of foreign currency translation of 6.8%.

In the first six months of fiscal 2023, pricing actions positively affected organic net sales by $198 million.

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

● Automotive— Our organic net sales increased 16.0% in the first six months of fiscal 2023 with growth of 21.5% in the EMEA region, 14.5% in the Americas region, and 12.1% in the Asia–Pacific region.

Our organic net sales growth across all regions resulted from increased content per vehicle as well as vehicle production growth, primarily in the Americas and EMEA regions.

● Commercial transportation— Our organic net sales increased 4.4% in the first six months of fiscal 2023 as a result of growth in the EMEA and Americas regions, partially offset by declines in the Asia–Pacific region.

● Sensors— Our organic net sales increased 5.6% in the first six months of fiscal 2023 due primarily to growth in transportation applications.

Operating Income.

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Quarters Ended

Six Months Ended

($ in millions)

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Operating margin

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.

Operating income in the Transportation Solutions segment decreased $76 million and $189 million in the second quarter and first six months of fiscal 2023, respectively, as compared to the same periods of fiscal 2022.

Excluding the items below, operating income decreased in the second quarter of fiscal 2023 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.

Excluding the items below, operating income decreased in the first six months of fiscal 2023 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.

Quarters Ended

Six Months Ended

(in millions)

Acquisition and integration costs

Restructuring and other charges (credits), net

Restructuring and other charges, net

Industrial Solutions

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Quarters Ended

Six Months Ended

($ in millions)

3 unchanged sentences

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

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

versus Net Sales for the Quarter Ended December 24, 2021

Change in Net Sales for the Quarter Ended March 31, 2023

Change in Net Sales for the Six Months Ended March 31, 2023

versus Net Sales for the Quarter Ended March 25, 2022

versus Net Sales for the Six Months Ended March 25, 2022

Organic Net Sales

Growth (Decline)

(Divestiture)

Growth (Decline)

(Divestiture)

($ in millions)

1 unchanged sentence

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.

In the Industrial Solutions segment, net sales increased $123 million, or 11.5%, in the second quarter of fiscal 2023 as compared to the second quarter of fiscal 2022 due primarily to organic net sales growth of 14.6%, partially offset by the negative impact of foreign currency translation of 3.0%.

In the second quarter of fiscal 2023, pricing actions positively affected organic net sales by $58 million.

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

● 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.

● Industrial equipment— Our organic net sales increased 3.2% in the second quarter of fiscal 2023 due to growth in the EMEA and Asia–Pacific regions, partially offset by declines in the Americas region .

● Aerospace, defense, and marine— Our organic net sales increased 18.6% in the second quarter of fiscal 2023 primarily as a result of growth in the defense and the commercial aerospace markets.

● Energy— Our organic net sales increased 27.7% in the second quarter of fiscal 2023 as a result of growth across all regions and strength in renewable energy applications.

● Medical— Our organic net sales increased 26.3% in the second quarter of fiscal 2023 due to growth in interventional medical applications as well as surgical and imaging applications.

Net sales in the Industrial Solutions segment increased $131 million, or 6.2%, in the first six months of fiscal 2023 as compared to the first six months of fiscal 2022 due primarily to organic net sales growth of 10.7%, partially offset by the

negative impact of foreign currency translation of 4.5%.

In the first six months of fiscal 2023, pricing actions positively affected organic net sales by $92 million.

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

● Industrial equipment— Our organic net sales increased 3.2% in the first six months of fiscal 2023 as a result of growth in the EMEA and Asia–Pacific regions, partially offset by declines in the Americas region.

● Aerospace, defense, and marine— Our organic net sales increased 16.3% in the first six months of fiscal 2023 due primarily to growth in the defense and the commercial aerospace markets.

● Energy— Our organic net sales increased 17.6% in the first six months of fiscal 2023 due to growth across all regions and strength in renewable energy applications.

● Medical— Our organic net sales increased 15.2% in the first six months of fiscal 2023 as a result of growth in interventional medical applications as well as surgical and imaging applications.

Operating Income.

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Quarters Ended

Six Months Ended

($ in millions)

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Operating margin

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.

Operating income in the Industrial Solutions segment decreased $11 million in the second quarter of fiscal 2023 and increased $25 million in the first six months of fiscal 2023, as compared to the same periods of fiscal 2022.

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

Quarters Ended

Six Months Ended

(in millions)

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Quarters Ended

Six Months Ended

($ 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 December 30, 2022

versus Net Sales for the Quarter Ended December 24, 2021

Change in Net Sales for the Quarter Ended March 31, 2023

Change in Net Sales for the Six Months Ended March 31, 2023

versus Net Sales for the Quarter Ended March 25, 2022

versus Net Sales for the Six Months Ended March 25, 2022

Organic Net Sales

($ in millions)

Data and devices

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%.

Net sales in the Communications Solutions segment decreased $139 million, or 22.2%, in the second quarter of fiscal 2023 as compared to the second quarter of fiscal 2022 due primarily to organic net sales declines of 20.2% and the negative impact of foreign currency translation of 2.7%.

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

● 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.

● Data and devices —Our organic net sales decreased 24.9% in the second quarter of fiscal 2023 as a result of market declines and reduced demand resulting from inventory corrections in the supply chain .

● Appliances —Our organic net sales decreased 12.4% in the second quarter of fiscal 2023 due primarily to market declines across all regions.

In the first six months of fiscal 2023, net sales in the Communications Solutions segment decreased $225 million, or 18.2%, as compared to the first six months of fiscal 2022 due primarily to organic net sales declines of 15.7% and the negative impact of foreign currency translation of 3.6%.

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

● Data and devices —Our organic net sales decreased 15.9% in the first six months of fiscal 2023 due to market declines and reduced demand resulting from inventory corrections in the supply chain.

● Appliances —Our organic net sales decreased 15.3% in the first six months of fiscal 2023 primarily as a result of market declines across all regions.

Operating Income.

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Quarters Ended

Six Months Ended

($ in millions)

1 unchanged sentence

Operating margin

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.

Operating income in the Communications Solutions segment decreased $81 million and $174 million in the second quarter and first six months of fiscal 2023, respectively, as compared to the same periods of fiscal 2022.

Excluding the items below, operating income decreased due primarily to lower volume.

Quarters Ended

Six Months Ended

(in millions)

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Our ability to fund our future capital needs will be affected by our ongoing ability to generate cash from operations and may be affected by our access to capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements.

We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payment of €550 million of 1.10% senior notes due in March 2023.

We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt.

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Cash Flows from Operating Activities

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.

In the first six months of fiscal 2023, net cash provided by operating activities increased $270 million to $1,215 million from $945 million in the first six months 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.

The amount of income taxes paid, net of refunds, during the first six months of fiscal 2023 and 2022 was $223 million and $177 million, respectively.

Cash Flows from Investing Activities

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

Capital expenditures were $372 million and $351 million in the first six months 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 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.

During the first six months of fiscal 2023, we received net cash proceeds of $51 million related to the sale of two businesses.

We received net cash proceeds of $16 million related to the sale of two businesses during the first six months of fiscal 2022.

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

During the first six months of fiscal 2023, we acquired one business for a cash purchase price of $108 million, net of cash acquired.

We acquired one business for a cash purchase price of $127 million, net of cash acquired, during the first six

months 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 December 30, 2022 and September 30, 2022 was $4,218 million and $4,206 million, respectively.

Total debt at March 31, 2023 and September 30, 2022 was $4,202 million and $4,206 million, respectively.

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

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%.

During the second quarter of fiscal 2023, Tyco Electronics Group S.A.

(“TEGSA”), our wholly-owned subsidiary, issued $500 million aggregate principal amount of 4.50% senior notes due in February 2026.

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 second quarter of fiscal 2023, TEGSA repaid, at maturity, €550 million of 1.10% senior notes due in March 2023.

As of March 31, 2023, TEGSA had $285 million of commercial paper outstanding at a weighted-average interest rate of 5.5%.

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 December 30, 2022 or September 30, 2022.

TEGSA had no borrowings under the Credit Facility at March 31, 2023 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 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.

As of March 31, 2023, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.

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 $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.

Payments of common share dividends to shareholders were $355 million and $326 million in the first six months of fiscal 2023 and 2022, respectively.

In March 2023, our shareholders approved a dividend payment to shareholders of $2.36 per share, payable in four equal quarterly installments of $0.59 per share beginning in the third quarter of fiscal 2023 and ending in the second quarter of fiscal 2024.

We repurchased approximately four million of our common shares for $432 million and approximately five million of our common shares for $752 million under the share repurchase program during the first six months of fiscal 2023 and 2022, respectively.

At March 31, 2023, we had $1.2 billion of availability remaining under our share repurchase authorization.

Summarized Guarantor Financial Information

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Total noncurrent liabilities (2)

(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

(1) Includes $2,546 million and $2,601 million as of March 31, 2023 and September 30, 2022, respectively, of intercompany loans receivable from non-guarantor subsidiaries.

(2) Includes $5,166 million and $12,582 million as of March 31, 2023 and September 30, 2022, respectively, of intercompany loans payable to non-guarantor subsidiaries.

Six Months Ended

Fiscal Year Ended

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

At December 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.

At March 31, 2023, we had outstanding letters of credit, letters of guarantee, and surety bonds of $171 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 $59 million as of December 30, 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 $58 million as of March 31, 2023 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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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 quarter of fiscal 2023.

There were no significant changes to this information during the first six months 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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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