TE Connectivity plc 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including but not limited to those under the heading “Forward-Looking Information” and “Part II. Item 1A. Risk Factors.” Our Condensed Consolidated Financial Statements have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The following discussion includes organic net sales growth (decline) which is a non-GAAP financial measure. See “Non-GAAP Financial Measure” for additional information regarding this measure. Ov erview TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) is a global industrial technology leader creating a safer, sustainable, productive, and connected future. Our broad range of connectivity and sensor solutions enable the distribution of power, signal, and data to advance next-generation transportation, renewable energy, automated factories, data centers, medical technology, and more. Summary of Performance ● Our net sales were essentially flat in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 with declines in the Communications Solutions and Industrial Solutions segments offset by sales growth in the Transportation Solutions segment. On an organic basis, our net sales decreased 0.7% during the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. ● Our net sales by segment were as follows: ● Transportation Solutions —Our net sales increased 5.0% in the first quarter of fiscal 2024 due primarily to sales increases in the automotive end market. ● Industrial Solutions —Our net sales decreased 3.3% in the first quarter of fiscal 2024 as a result of sales declines in the industrial equipment end market, partially offset by sales increases in the medical; the aerospace, defense, and marine; and the energy end markets. ● Communications Solutions —Our net sales decreased 17.0% in the first quarter of fiscal 2024 due to sales declines in both the data and devices and the appliances end markets. ● Net cash provided by operating activities was $719 million in the first quarter of fiscal 2024. Economic Conditions Our business and operating results have been and will continue to be affected by worldwide economic conditions. The global economy has been impacted in recent years by supply chain disruptions and inflationary cost pressures as well as military conflict in certain parts of the world and the COVID-19 pandemic. We are monitoring the current environment and its potential effects on our customers and the end markets we serve. 19 Table of Contents In recent years, we have experienced inflationary cost pressures including increased costs for transportation, energy, and raw materials. However, we have been able to mitigate increased costs and supply chain disruptions through productivity or price increases which were initiated in prior years. Also, we have taken and continue to focus on actions to manage costs, including restructuring and other cost reduction initiatives such as reducing discretionary spending and travel. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund our future capital needs. See further discussion in “Liquidity and Capital Resources.” We continue to monitor military conflict in certain parts of the world as well as escalating tensions in surrounding countries and associated sanctions. These did not have a significant impact on our business, financial condition, or results of operations during fiscal 2023 or the first quarter of fiscal 2024. The COVID-19 pandemic had a global impact and resulted in business slowdowns or shutdowns, including systemic disruptions of global supply chains. The pandemic impacted certain aspects of our business, including certain of our operations in China in early fiscal 2023; however, we do not expect the pandemic to have a significant impact on our businesses globally in fiscal 2024. Outlook In the second quarter of fiscal 2024, we expect our net sales to be approximately $3.95 billion as compared to $4.16 billion in the second quarter of fiscal 2023, with sales declines in all segments. As compared to the first quarter of fiscal 2024, we expect net sales in the second quarter of fiscal 2024 to increase with sales growth in the Industrial Solutions segment partially offset by a slight decline in the Transportation Solutions segment. We expect diluted earnings per share from continuing operations to be approximately $1.75 per share in the second quarter of fiscal 2024. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $13 million and $0.05 per share, respectively, in the second quarter of fiscal 2024 as compared to the same period of fiscal 2023. Also, this outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels. Acquisition During the first quarter of fiscal 2024, we acquired approximately 98.7% of the outstanding shares of Schaffner Holding AG (“Schaffner”), a leader in electromagnetic solutions based in Switzerland, for CHF 505.00 per share in cash for a purchase price of CHF 302 million (equivalent to $349 million), net of cash acquired. The Schaffner business has been 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. Divestiture During the first quarter of fiscal 2024, we sold one business for net cash proceeds of $38 million. In connection with the divestiture, we recorded a pre-tax loss on sale of $11 million. The business sold was reported in our Transportation Solutions segment. See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding divestitures. 20 Table of Contents Results of Operations Net Sales The following table presents our net sales and the percentage of total net sales by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ 2023 2022 ​ ($ in millions) ​ Transportation Solutions ​ $ 2,373 ​ 62 % ​ $ 2,259 ​ 58 % ​ Industrial Solutions ​ 1,025 27 ​ ​ 1,060 28 ​ ​ Communications Solutions ​ 433 11 ​ ​ 522 14 ​ ​ Total ​ $ 3,831 100 % ​ $ 3,841 100 % ​ The following table provides an analysis of the change in our net sales by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in Net Sales for the Quarter Ended December 29, 2023 ​ ​ ​ versus Net Sales for the Quarter Ended December 30, 2022 ​ ​ ​ Net Sales ​ Organic Net Sales ​ ​ ​ ​ Acquisition ​ ​ Growth (Decline) ​ Growth (Decline) ​ Translation ​ (Divestitures) ​ ​ ($ in millions) Transportation Solutions ​ $ 114 5.0 % $ 113 5.0 % $ 26 ​ $ (25) ​ Industrial Solutions ​ (35) (3.3) ​ (52) (4.9) ​ 18 ​ (1) ​ Communications Solutions ​ (89) (17.0) ​ (89) (17.0) ​ — ​ — ​ Total ​ $ (10) (0.3) % $ (28) (0.7) % $ 44 ​ $ (26) ​ Net sales slightly decreased by $10 million, or 0.3%, in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. The decrease in net sales resulted from organic net sales declines of 0.7% and the net negative impact of 0.7% from an acquisition and divestitures, largely offset by the positive impact of foreign currency translation of 1.1% due to the strengthening of certain foreign currencies. Pricing actions initiated during fiscal 2023 positively affected organic net sales by $68 million in the first quarter of fiscal 2024. See further discussion of net sales below under “Segment Results.” Net Sales by Geographic Region. Our business operates in three geographic regions—Europe/Middle East/Africa (“EMEA”), Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period. Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first quarter of fiscal 2024. The following table presents our net sales and the percentage of total net sales by geographic region (1) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ 2023 2022 ​ ​ ($ in millions) ​ ​ EMEA ​ $ 1,411 ​ 37 % ​ $ 1,326 ​ 34 % ​ Asia–Pacific ​ ​ 1,379 36 ​ ​ ​ 1,407 37 ​ ​ Americas ​ 1,041 27 ​ ​ 1,108 29 ​ ​ Total ​ $ 3,831 100 % ​ $ 3,841 100 % ​ (1) Net sales to external customers are attributed to individual countries based on the legal entity that records the sale. 21 Table of Contents 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 29, 2023 ​ ​ ​ versus Net Sales for the Quarter Ended December 30, 2022 ​ ​ ​ Net Sales ​ Organic Net Sales ​ ​ ​ ​ Acquisition ​ ​ Growth (Decline) Growth (Decline) Translation (Divestitures) ​ ​ ($ in millions) EMEA ​ $ 85 6.4 % $ 33 2.5 % $ 60 ​ $ (8) ​ Asia–Pacific ​ ​ (28) ​ (2.0) ​ ​ (6) ​ (0.4) ​ ​ (18) ​ ​ (4) ​ Americas ​ (67) (6.0) ​ (55) (5.0) ​ 2 ​ (14) ​ Total ​ $ (10) (0.3) % $ (28) (0.7) % $ 44 ​ $ (26) ​ Cost of Sales and Gross Margin The following table presents cost of sales and gross margin information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ ​ ​ 2023 2022 Change ​ ​ ($ in millions) ​ Cost of sales ​ $ 2,507 ​ ​ $ 2,654 ​ ​ $ (147) ​ As a percentage of net sales ​ 65.4 % ​ 69.1 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross margin ​ $ 1,324 ​ ​ $ 1,187 ​ ​ $ 137 ​ As a percentage of net sales ​ 34.6 % ​ 30.9 % ​ ​ Gross margin increased $137 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 primarily as a result of improved manufacturing productivity and the positive impact of prior year pricing actions, partially offset by lower volume. We use a wide variety of raw materials in the manufacture of our products, and cost of sales and gross margin are subject to variability in raw material prices. In recent years, raw material prices and availability have been affected by worldwide economic conditions, including supply chain disruptions and inflationary cost pressures. The following table presents the average prices incurred related to copper, gold, silver, and palladium: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ December 29, ​ December 30, ​ ​ Measure 2023 2022 Copper Lb. ​ $ 3.87 ​ $ 4.18 ​ Gold Troy oz. ​ 1,943 ​ 1,821 ​ Silver ​ Troy oz. ​ ​ 23.15 ​ ​ 24.26 ​ Palladium Troy oz. ​ 1,500 ​ 2,083 ​ We expect to purchase approximately 185 million pounds of copper, 110,000 troy ounces of gold, 2.0 million troy ounces of silver, and 10,000 troy ounces of palladium in fiscal 2024. 22 Table of Contents Operating Expenses The following table presents operating expense information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ ​ ​ 2023 2022 Change ​ ​ ($ in millions) ​ Selling, general, and administrative expenses ​ $ 424 ​ ​ $ 392 ​ ​ $ 32 ​ As a percentage of net sales ​ 11.1 % ​ 10.2 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restructuring and other charges, net ​ $ 21 ​ ​ $ 111 ​ ​ $ (90) ​ Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $32 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 due primarily to the impact of inflation, partially offset by savings attributable to prior restructuring actions. Restructuring and Other Charges, Net. We are committed to continuous productivity improvements, and we evaluate opportunities to simplify our global manufacturing footprint, migrate facilities to lower-cost regions, reduce fixed costs, and eliminate excess capacity. These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for future growth. During fiscal 2024, we initiated a restructuring program to optimize our manufacturing footprint and improve the cost structure of the organization, primarily in the Industrial Solutions and Transportation Solutions segments. We incurred net restructuring charges of $9 million during the first quarter of fiscal 2024. Annualized cost savings related to the fiscal 2024 actions commenced during the first quarter of fiscal 2024 are expected to be approximately $3 million and are expected to be fully 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 2024, we expect total restructuring charges to be approximately $100 million and total spending, which will be funded with cash from operations, to be approximately $175 million. See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges. Operating Income The following table presents operating income and operating margin information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ ​ ​ 2023 2022 Change ​ ​ ($ in millions) ​ Operating income ​ $ 698 ​ ​ $ 502 ​ ​ $ 196 ​ Operating margin ​ 18.2 % ​ 13.1 % ​ ​ 23 Table of Contents Operating income included the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ Quarters Ended ​ ​ ​ December 29, ​ December 30, ​ ​ 2023 2022 ​ ​ (in millions) ​ Acquisition and integration costs ​ $ 8 ​ $ 9 ​ Restructuring and other charges, net ​ 21 ​ 111 ​ Taxes (non-income tax) recorded in selling, general, and administrative expenses ​ ​ 4 ​ ​ — ​ Total ​ $ 33 ​ $ 120 ​ See discussion of operating income below under “Segment Results.” Non-Operating Items The following table presents select non-operating information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ ​ ​ 2023 2022 Change ​ ​ ($ in millions) ​ Income tax expense (benefit) ​ $ (1,105) ​ ​ $ 87 ​ ​ $ (1,192) ​ Effective tax rate ​ (158.1) % ​ 17.9 % ​ ​ Income Taxes. See Note 12 to the Condensed Consolidated Financial Statements for discussion of income taxes. The Organisation for Economic Co-operation and Development (“OECD”) and participating countries continue to work toward the enactment of a 15% global minimum corporate tax. Member states have begun to enact the rules, with some countries accelerating the impact of these rules by proposing immediate statutory rate increases. In 2023, Swiss Parliament approved a constitutional amendment to implement the rules and the Swiss Federal Council acted in December to implement elements of the OECD’s global minimum tax rules, effective as of January 1, 2024. The global minimum tax is a significant structural change to the international taxation framework, which is expected to 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 impact, which could be material to our results of operations, cash taxes, and worldwide corporate effective tax rate. ​ Segment Results Transportation Solutions Net Sales. The following table presents the Transportation Solutions segment’s net sales and the percentage of total net sales by industry end market (1) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ 2023 2022 ​ ​ ($ in millions) ​ ​ Automotive ​ $ 1,776 75 % ​ $ 1,649 73 % ​ Commercial transportation ​ 356 15 ​ ​ 348 15 ​ ​ Sensors ​ 241 10 ​ ​ 262 12 ​ ​ Total ​ $ 2,373 100 % ​ $ 2,259 100 % ​ (1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary. 24 Table of Contents 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 29, 2023 ​ ​ ​ versus Net Sales for the Quarter Ended December 30, 2022 ​ ​ Net Sales Organic Net Sales ​ ​ ​ ​ ​ ​ Growth (Decline) ​ Growth (Decline) ​ Translation ​ Divestiture ​ ​ ($ in millions) Automotive ​ $ 127 ​ 7.7 % $ 135 ​ 8.1 % $ 17 $ (25) ​ Commercial transportation ​ 8 2.3 ​ 2 0.7 ​ 6 ​ — ​ Sensors ​ (21) (8.0) ​ (24) (9.2) ​ 3 ​ — ​ Total ​ $ 114 5.0 % $ 113 5.0 % $ 26 ​ $ (25) ​ Net sales in the Transportation Solutions segment increased $114 million, or 5.0%, in the first quarter of fiscal 2024 from the first quarter of fiscal 2023 due primarily to organic net sales growth of 5.0%. Our organic net sales by industry end market were as follows: ● Automotive— Our organic net sales increased 8.1% in the first quarter of fiscal 2024 with growth of 13.4% in the Asia–Pacific region and 7.4% in the EMEA region, partially offset by declines of 4.0% in the Americas region. Our organic net sales growth in the Asia–Pacific and EMEA regions was attributable primarily to vehicle production growth as well as increased content per vehicle. In the Americas region, our organic net sales declined primarily as a result of declines in vehicle production. For full year fiscal 2024, we expect slight growth in global vehicle production from fiscal 2023 levels. ● Commercial transportation— Our organic net sales increased 0.7% in the first quarter of fiscal 2024 due to growth in the Asia–Pacific region, partially offset by declines in the Americas region. ● Sensors— Our organic net sales decreased 9.2% in the first quarter of fiscal 2024 as a result of market weakness in both industrial and transportation applications and the strategic exit of certain lower margin and lower growth product lines. Operating Income. The following table presents the Transportation Solutions segment’s operating income and operating margin information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ ​ December 29, ​ December 30, ​ ​ ​ ​ ​ 2023 2022 Change ​ ​ ($ in millions) ​ Operating income ​ $ 478 ​ $ 282 ​ $ 196 ​ Operating margin ​ 20.1 % 12.5 % ​ ​ Operating income in the Transportation Solutions segment increased $196 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. Excluding the items below, operating income increased in the first quarter of fiscal 2024 primarily as a result of improved manufacturing productivity and the positive impact of prior year pricing actions. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ Quarters Ended ​ ​ ​ December 29, ​ December 30, ​ ​ 2023 2022 ​ ​ (in millions) ​ Acquisition and integration costs ​ $ — ​ $ 2 ​ Restructuring and other charges, net ​ ​ 14 ​ ​ 74 ​ Taxes (non-income tax) recorded in selling, general, and administrative expenses ​ ​ 3 ​ ​ — ​ Total ​ $ 17 ​ $ 76 ​ 25 Table of Contents Industrial Solutions Net Sales. The following table presents the Industrial Solutions segment’s net sales and the percentage of total net sales by industry end market (1) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ 2023 2022 ​ ​ ($ in millions) ​ ​ Industrial equipment ​ $ 330 32 % ​ $ 434 41 % ​ Aerospace, defense, and marine ​ ​ 290 ​ 28 ​ ​ ​ 264 ​ 25 ​ ​ Energy ​ 205 20 ​ ​ 189 18 ​ ​ Medical ​ ​ 200 20 ​ ​ ​ 173 ​ 16 ​ ​ Total ​ $ 1,025 100 % ​ $ 1,060 100 % ​ (1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary. The following table provides an analysis of the change in the Industrial Solutions segment’s net sales by industry end market: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in Net Sales for the Quarter Ended December 29, 2023 ​ ​ ​ versus Net Sales for the Quarter Ended December 30, 2022 ​ ​ ​ Net Sales ​ Organic Net Sales ​ ​ ​ ​ Acquisition ​ ​ Growth (Decline) Growth (Decline) Translation (Divestiture) ​ ​ ($ in millions) Industrial equipment ​ $ (104) (24.0) % $ (115) (26.3) % $ 11 ​ $ — ​ Aerospace, defense, and marine ​ 26 ​ 9.8 ​ ​ 33 ​ 12.5 ​ ​ 4 ​ ​ (11) ​ Energy ​ ​ 16 8.5 ​ 3 1.4 ​ 3 ​ 10 ​ Medical ​ 27 15.6 ​ 27 15.6 ​ — ​ — ​ Total ​ $ (35) (3.3) % $ (52) (4.9) % $ 18 ​ $ (1) ​ In the Industrial Solutions segment, net sales decreased $35 million, or 3.3%, in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 due primarily to organic net sales declines of 4.9%. Pricing actions initiated in fiscal 2023 positively affected organic net sales by $50 million in the first quarter of fiscal 2024. Our organic net sales by industry end market were as follows: ● Industrial equipment— Our organic net sales decreased 26.3% in the first quarter of fiscal 2024 with declines across all regions and reduced demand resulting from inventory corrections in the supply chain. ● Aerospace, defense, and marine— Our organic net sales increased 12.5% in the first quarter of fiscal 2024 as a result of growth in all markets. ● Energy— Our organic net sales increased 1.4% in the first quarter of fiscal 2024 primarily as a result of growth in the Americas region and strength in renewable energy applications, partially offset by declines in the EMEA region. ● Medical— Our organic net sales increased 15.6% in the first quarter of fiscal 2024 due primarily to growth in interventional medical applications . 26 Table of Contents Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ ​ December 29, ​ December 30, ​ ​ ​ ​ ​ 2023 2022 Change ​ ​ ($ in millions) ​ Operating income ​ $ 141 ​ $ 156 ​ $ (15) ​ Operating margin ​ 13.8 % 14.7 % ​ Operating income in the Industrial Solutions segment decreased $15 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. Excluding the items below, operating income decreased during the first quarter of fiscal 2024 primarily as a result of lower volume, partially offset by the positive impact of prior year pricing actions. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ Quarters Ended ​ ​ ​ December 29, ​ December 30, ​ ​ 2023 2022 ​ ​ (in millions) ​ Acquisition and integration costs ​ $ 7 ​ $ 6 ​ Restructuring and other charges, net ​ 6 ​ 13 ​ Taxes (non-income tax) recorded in selling, general, and administrative expenses ​ ​ 1 ​ ​ — ​ Total ​ $ 14 ​ $ 19 ​ Communications Solutions Net Sales. The following table presents the Communications Solutions segment’s net sales and the percentage of total net sales by industry end market (1) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ December 29, ​ ​ December 30, ​ ​ ​ 2023 2022 ​ ​ ($ in millions) ​ ​ Data and devices ​ $ 279 ​ 64 % ​ $ 329 ​ 63 % ​ Appliances ​ 154 36 ​ ​ 193 37 ​ ​ Total ​ $ 433 100 % ​ $ 522 100 % ​ (1) Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary. The following table provides an analysis of the change in the Communications Solutions segment’s net sales by industry end market: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in Net Sales for the Quarter Ended December 29, 2023 ​ ​ ​ versus Net Sales for the Quarter Ended December 30, 2022 ​ ​ Net Sales Organic Net Sales ​ ​ Decline ​ Decline ​ ​ ​ ​ ($ in millions) ​ Data and devices ​ $ (50) ​ (15.2) % $ (50) ​ (15.2) % ​ Appliances ​ (39) (20.2) ​ (39) (20.2) ​ ​ Total ​ $ (89) (17.0) % $ (89) (17.0) % ​ 27 Table of Contents Net sales in the Communications Solutions segment decreased $89 million, or 17.0%, in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 due to organic net sales declines of 17.0%. Our organic net sales by industry end market were as follows: ● Data and devices —Our organic net sales decreased 15.2% in the first quarter of fiscal 2024 as a result of market declines in the Asia–Pacific region and reduced demand resulting from inventory corrections in the supply chain . ● Appliances —Our organic net sales decreased 20.2% in the first quarter of fiscal 2024 due to market declines across all regions and reduced demand resulting from inventory corrections in the supply chain. Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ Quarters Ended ​ ​ ​ ​ ​ ​ December 29, ​ December 30, ​ ​ ​ ​ ​ 2023 2022 Change ​ ​ ($ in millions) ​ Operating income ​ $ 79 ​ $ 64 ​ $ 15 ​ Operating margin ​ 18.2 % 12.3 % ​ ​ Operating income in the Communications Solutions segment increased $15 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. Excluding the items below, operating income decreased slightly due primarily to lower volume, largely offset by improved manufacturing productivity. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ Quarters Ended ​ ​ ​ December 29, ​ December 30, ​ 2023 2022 ​ ​ ​ (in millions) ​ Acquisition and integration costs ​ $ 1 ​ $ 1 ​ Restructuring and other charges, net ​ ​ 1 ​ ​ 24 ​ Total ​ $ 2 ​ $ 25 ​ ​ ​ Liquidity and Capital Resources Our ability to fund our future capital needs will be affected by our ongoing ability to generate cash from operations and may be affected by our access to capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements. We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payment of $350 million of 3.45% senior notes due in August 2024. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions. We believe that we have sufficient financial resources and liquidity which will enable us to meet our ongoing working capital and other cash flow needs. Cash Flows from Operating Activities In the first quarter of fiscal 2024, net cash provided by operating activities increased $138 million to $719 million from $581 million in the first quarter of fiscal 2023. The increase resulted primarily from higher pre-tax income, partially offset by the impact of changes in working capital levels. The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2024 and 2023 was $100 million and $98 million, respectively. 28 Table of Contents Cash Flows from Investing Activities Capital expenditures were $151 million and $183 million in the first quarters of fiscal 2024 and 2023, respectively. We expect fiscal 2024 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 2024, we received net cash proceeds of $38 million related to the sale of one business. See Note 2 to the Condensed Consolidated Financial Statements for additional information. During the first quarter of fiscal 2024, we acquired one business for a cash purchase price of $349 million, net of cash acquired. We acquired one business for a cash purchase price of $109 million, net of cash acquired, during the first quarter of fiscal 2023. 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 29, 2023 and September 29, 2023 was $4,198 million and $4,211 million, respectively. See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding debt. As of December 29, 2023, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, had $261 million of commercial paper outstanding at a weighted-average interest rate of 5.50%. TEGSA had $330 million of commercial paper outstanding at a weighted-average interest rate of 5.50% at September 29, 2023. 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 29, 2023 or September 29, 2023. The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our other debt agreements contain other customary covenants. None of our covenants are presently considered restrictive to our operations. As of December 29, 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 $183 million and $178 million in the first quarters of fiscal 2024 and 2023, respectively. During the first quarter of fiscal 2024, our board of directors authorized an increase of $1.5 billion in our share repurchase program. We repurchased approximately three million of our common shares for $420 million and approximately two million of our common shares for $233 million under the share repurchase program during the first quarters of fiscal 2024 and 2023, respectively. At December 29, 2023, we had $1.8 billion of availability remaining under our share repurchase authorization. Summarized Guarantor Financial Information As discussed above, our senior notes, commercial paper, and Credit Facility are issued by TEGSA and are fully and unconditionally guaranteed on an unsecured basis by TEGSA’s parent, TE Connectivity Ltd. In addition to being the issuer of our debt securities, TEGSA owns, directly or indirectly, all of our operating subsidiaries. The following tables present 29 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 29, ​ September 29, ​ ​ 2023 2023 ​ ​ (in millions) ​ Balance Sheet Data: ​ ​ ​ ​ ​ ​ ​ Total current assets ​ $ 1,117 ​ $ 1,632 ​ Total noncurrent assets (1) ​ 3,485 ​ 2,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ Total current liabilities ​ 940 ​ 1,303 ​ Total noncurrent liabilities (2) ​ ​ 8,710 ​ ​ 7,592 ​ (1) Includes $3,454 million and $2,783 million as of December 29, 2023 and September 29, 2023, respectively, of intercompany loans receivable from non-guarantor subsidiaries. (2) Includes $5,070 million and $4,056 million as of December 29, 2023 and September 29, 2023, respectively, of intercompany loans payable to non-guarantor subsidiaries. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ For the ​ ​ ​ Quarter Ended ​ Fiscal Year Ended ​ ​ ​ December 29, ​ September 29, ​ ​ 2023 2023 ​ ​ (in millions) ​ Statement of Operations Data: ​ ​ ​ ​ ​ ​ ​ Loss from continuing operations ​ $ (153) ​ $ (606) ​ Net loss ​ (153) ​ (606) ​ Guarantees In certain instances, we have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from fiscal 2024 through the completion of such transactions. The guarantees would be triggered in the event of nonperformance, and the potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows. In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows. At December 29, 2023, we had outstanding letters of credit, letters of guarantee, and surety bonds of $196 million, including letters of credit of $22 million associated with our divestiture of the Subsea Communications business. In addition, as of December 29, 2023, we had $26 million of performance guarantees associated with the divestiture. We contractually agreed to continue to honor letters of credit and performance guarantees related to the business’ projects that existed as of the date of sale; however, based on historical experience, we do not anticipate having to perform on these guarantees. Commitments and Contingencies Legal Proceedings In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon 30 Table of Contents our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows. Trade Compliance Matters We have been investigating our past compliance with relevant U.S. trade controls and have made voluntary disclosures of apparent trade controls violations to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”). We are cooperating with the BIS and DDTC on these matters, and the resulting investigations are ongoing. We have also been contacted by the U.S. Department of Justice concerning aspects of these matters. We are unable to predict the timing and final outcome of the agencies’ investigations. An unfavorable outcome may include fines or penalties imposed in response to our disclosures, but we are not yet able to reasonably estimate the extent of any such fines or penalties. Although we have reserved for potential fines and penalties relating to these matters based on our current understanding of the facts, the investigations into these matters have yet to be completed and the final outcome of such investigations and related fines and penalties may differ from amounts currently reserved. Critical Accounting Policies and Estimates The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension plans are based on, among other things, judgments and assumptions made by management. For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023. There were no significant changes to this information during the first quarter of fiscal 2024. Accounting Pronouncements See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding recently issued and adopted accounting pronouncements. Non-GAAP Financial Measure Organic Net Sales Growth (Decline) We present organic net sales growth (decline) as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP. Organic net sales growth (decline) represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic net sales growth (decline) is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity. Organic net sales growth (decline) provides useful information about our results and the trends of our business. Management uses this measure to monitor and evaluate performance. Also, management uses this measure together with GAAP financial measures in its decision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The tables presented in “Results of Operations” and “Segment Results” provide reconciliations of organic net sales growth (decline) to net sales growth (decline) calculated in accordance with GAAP. 31 Table of Contents Organic net sales growth (decline) is a non-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP. This non-GAAP financial measure may not be comparable to similarly-titled measures reported by other companies. The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using organic net sales growth (decline) in combination with net sales growth (decline) to better understand the amounts, character, and impact of any increase or decrease in reported amounts. Forward-Looking Information Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These statements are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among others, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, acquisitions, divestitures, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” and “should,” or the negative of these terms or similar expressions. Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements after we file this report except as required by law. The following and other risks, which are described in greater detail in “Part I. Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended September 29, 2023, and in this report, could cause our results to differ materially from those expressed in forward-looking statements: ● conditions in the global or regional economies and global capital markets, and cyclical industry conditions, including recession, inflation, and higher interest rates; ● conditions affecting demand for products in the industries we serve, particularly the automotive industry; ● risk of future goodwill impairment; ● pricing pressure and competition, including competitive risks associated with the pace of technological change; ● market acceptance of our new product introductions and product innovations and product life cycles; ● raw material availability, quality, and cost; ● product liability, warranty, and product recall claims and our ability to defend such claims; ● fluctuations in foreign currency exchange rates and impacts of offsetting hedges; ● financial condition and consolidation of customers and vendors; ● reliance on third-party suppliers; ● risks associated with current and future acquisitions and divestitures; ● global risks of business interruptions due to natural disasters or other disasters which have impacted and could continue to negatively impact our results of operations as well as customer behaviors, business, and 32 Table of Contents manufacturing operations as well as our facilities and the facilities of our suppliers, and other aspects of our business; ● global risks of political, economic, and military instability, including the continuing military conflict in certain parts of the world, and volatile and uncertain economic conditions and the evolving regulatory system in China; ● risks associated with cybersecurity incidents and other disruptions to our information technology infrastructure; ● risks related to compliance with current and future environmental and other laws and regulations, including those related to climate change; ● risks related to the increasing scrutiny and expectations regarding environmental, social, and governance matters; ● risks associated with compliance with applicable antitrust or competition laws or applicable trade regulations; ● our ability to protect our intellectual property rights; ● risks of litigation, regulatory actions, and compliance issues; ● our ability to operate within the limitations imposed by our debt instruments; ● the possible effects on us of various non-U.S. and U.S. legislative proposals and other initiatives that, if adopted, could materially increase our worldwide corporate effective tax rate, increase global cash taxes, and negatively impact our U.S. government contracts business; ● requirements related to chemical usage, hazardous material content, recycling, and other circular economy initiatives; ● various risks associated with being a Swiss corporation; ● the impact of fluctuations in the market price of our shares; and ● the impact of certain provisions of our articles of association on unsolicited takeover proposals. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.