TE CONNECTIVITY LTD. 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
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.
Overview
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, 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.
? 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
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 betweenRussia andUkraine as well as supply chain disruptions and inflationary cost pressures. See "Russia -Ukraine Military Conflict" and "COVID-19 Pandemic" for additional information. We are monitoring the current environment and its potential effects on our customers and the end markets we serve. 19
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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 theU.S. dollar against other currencies. We expect translation to negatively impact our net sales by approximately$400 million in fiscal 2023 as compared to fiscal 2022. We have experienced inflationary cost pressures including increased costs for transportation, energy, and raw materials. However, we have been able to partially mitigate increased costs and supply chain disruptions through price increases or productivity. We have implemented select price increases and have initiated additional price increases for certain products. Also, we have taken and continue to focus on actions to manage costs, including restructuring and other cost reduction initiatives such as reducing discretionary spending and travel. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund our future capital needs. See further discussion in "Liquidity and Capital Resources."
Russia-Ukraine Military Conflict
We are monitoring the continuing military conflict betweenRussia andUkraine , escalating tensions in surrounding countries, and associated sanctions. We suspended our business operations inRussia , and our operations inUkraine have been reduced to focus on the safety of our employees. NeitherRussia norUkraine 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. 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 significantlyChina , 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 inChina were impacted in the first quarter of fiscal 2023 and were shut down for a period of time in fiscal 2022, we do not expect the COVID-19 pandemic to have a significant impact on our businesses globally in fiscal 2023. However, it may have a negative impact on our financial condition and results of operations in future periods. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, shareholders, and the communities in which
we operate. Outlook
In the second quarter of fiscal 2023, we expect our net sales to be
approximately
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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.
Acquisition
During the first quarter of fiscal 2023, we acquired one business for a cash purchase price of$109 million , net of cash acquired. The acquisition was reported as part of our Industrial Solutions segment from the date of acquisition. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions. Results of Operations
The following table presents our net sales and the percentage of total net sales
by segment:
For the
Quarters Ended
December 30, December 24,
2022 2021
($ in millions)
Transportation Solutions $ 2,259 58 % $ 2,158 56 %
Industrial Solutions 1,060 28 1,052 28
Communications Solutions 522 14 608 16
Total $ 3,841 100 % $ 3,818 100 %
The following table provides an analysis of the change in our net sales by segment:
Change in Net
Sales for the Quarter Ended
versus Net
Sales for the Quarter Ended
Net Sales Organic Net Sales
Growth (Decline) Growth (Decline) Translation Acquisitions
($ in millions)
Transportation Solutions $ 101 4.7 % $ 310 14.4 % $ (209) $ -
Industrial Solutions 8 0.8 72 6.8 (64) -
Communications Solutions (86) (14.1) (69) (11.4) (26) 9
Total $ 23 0.6 % $ 313 8.2 % $ (299) $ 9
Net sales increased $23 million , or 0.6%, in the first quarter of fiscal 2023 as
compared to the first quarter of fiscal 2022. The increase in net sales resulted
primarily from organic net sales growth of 8.2%, largely offset by the negative
impact of foreign currency translation of 7.8% due to the weakening of certain
foreign currencies. In the first quarter of fiscal 2023, pricing actions
positively affected organic net sales by $129 million .
See further discussion of net sales below under "Segment Results."
Net Sales byGeographic Region . Our business operates in three geographic regions-Asia-Pacific ,Europe /Middle East /Africa ("EMEA"), and theAmericas -and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of theU.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies intoU.S. dollars at the end of each fiscal period.
Approximately 60% of our net sales were invoiced in currencies other than the
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The following table presents our net sales and the percentage of total net sales by geographic region(1):
For the
Quarters Ended
December 30, December 24,
2022 2021
($ in millions)
Asia-Pacific $ 1,407 37 % $ 1,470 39 %
EMEA 1,326 34 1,314 34
Americas 1,108 29 1,034 27
Total $ 3,841 100 % $ 3,818 100 %
(1) Net sales to external customers are attributed to individual countries based
on the legal entity that records the sale.
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
Net Sales Organic Net Sales
Growth (Decline) Growth Translation Acquisitions
($ in millions)
Asia-Pacific $ (63) (4.3) % $ 86 5.8 % $ (149) $ -
EMEA 12 0.9 161 12.2 (149) -
Americas 74 7.2 66 6.4 (1) 9
Total $ 23 0.6 % $ 313 8.2 % $ (299) $ 9
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
For the
Quarters Ended
December 30, December 24,
2022 2021 Change
($ in millions)
Cost of sales $ 2,654 $ 2,588 $ 66
As a percentage of net sales 69.1 % 67.8 %
Gross margin $ 1,187 $ 1,230 $ (43)
As a percentage of net sales 30.9 % 32.2 %
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.
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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. The following table presents the average prices incurred related to copper, gold, silver, and palladium:
For the
Quarters Ended
December 30, December 24,
Measure 2022 2021
Copper Lb. $ 4.18 $ 3.80
Gold Troy oz. 1,821 1,797
Silver Troy oz. 24.26 23.56
Palladium Troy oz. 2,083 2,356
We expect to purchase approximately 195 million pounds of copper, 125,000 troy ounces of gold, 2.6 million troy ounces of silver, and 9,000 troy ounces of palladium in fiscal 2023.
Operating Expenses
The following table presents operating expense information:
For the
Quarters Ended
December 30, December 24,
2022 2021 Change
($ in millions)Selling, general, and administrative expenses $ 392 $ 363$ 29 As a percentage of net sales 10.2 % 9.5 % Restructuring and other charges, net $ 111
$ 12
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. 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 2023, we initiated a restructuring program associated with cost structure improvements primarily in the Transportation Solutions and Communications Solutions segments. We incurred net restructuring charges of$104 million during the first quarter of fiscal 2023. Annualized cost savings related to the fiscal 2023 actions commenced during the first quarter of fiscal 2023 are expected to be approximately$86 million and are expected to be realized by the end of fiscal 2025. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses. In fiscal 2023, we expect total restructuring charges and spending, which will be funded with cash from operations, to exceed fiscal 2022 levels. As a result of market conditions, we are reevaluating our restructuring actions. We may broaden the scope of our cost reduction initiatives and accelerate cost reduction and footprint consolidation activities.
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
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Operating Income
The following table presents operating income and operating margin information:
For the
Quarters Ended
December 30, December 24,
2022 2021 Change
($ in millions)
Operating income $ 502 $ 672 $ (170)
Operating margin 13.1 % 17.6 %
Operating income included the following:
For the
Quarters Ended
December 30, December 24,
2022 2021
(in millions)
Acquisition-related charges:
Acquisition and integration costs $ 9 $ 8
Charges associated with the amortization of
acquisition-related fair value adjustments - 8
9 16
Restructuring and other charges, net 111 12
Restructuring-related charges recorded in cost of sales - 12 Total $ 120 $ 40
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 30, December 24,
2022 2021 Change
($ in millions)
Income tax expense $ 87 $ 110 $ (23)
Effective tax rate 17.9 % 16.2 %
Income Taxes. See Note 12 to the Condensed Consolidated Financial Statements for discussion of income taxes.
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Segment Results
Effective for fiscal 2023, we realigned certain product lines from the Industrial Solutions segment to the Communications Solutions segment. Prior period segment results have been restated to conform to the current segment reporting structure. See Note 16 to the Condensed Consolidated Financial Statements for additional information regarding our segments.
Transportation Solutions
For the
Quarters Ended
December 30, December 24,
2022 2021
($ in millions)
Automotive $ 1,649 73 % $ 1,520 70 %
Commercial transportation 348 15 365 17
Sensors 262 12 273 13
Total $ 2,259 100 % $ 2,158 100 %
Industry end market information is presented consistently with our internal (1) management reporting and may be revised periodically as management deems
necessary.
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
versus Net Sales for
the Quarter Ended
Net Sales Organic Net Sales
Growth (Decline) Growth Translation
($ in millions)
Automotive $ 129 8.5 % $ 294 19.6 % $ (165)
Commercial transportation (17) (4.7) 9 2.6 (26)
Sensors (11) (4.0) 7 2.6 (18)
Total $ 101 4.7 % $ 310 14.4 % $ (209)
Net sales in the Transportation Solutions segment increased $101 million , or
4.7%, in the first quarter of fiscal 2023 from the first quarter of fiscal 2022
due to organic net sales growth of 14.4%, partially offset by the negative
impact of foreign currency translation of 9.7%. In the first quarter of fiscal
2023, pricing actions positively affected organic net sales by $91 million . Our
organic net sales by industry end market were as follows:
Automotive-Our organic net sales increased 19.6% in the first quarter of fiscal
? 2023 with growth of 21.4% in the EMEA region, 19.1% in the
18.6% in the
regions was attributable primarily to increased content per vehicle.
Commercial transportation-Our organic net sales increased 2.6% in the first
? quarter of fiscal 2023 due to growth in the
partially offset by declines in the
Sensors-Our organic net sales increased 2.6% in the first quarter of fiscal
? 2023 as a result of growth in transportation applications, partially offset by
declines in industrial applications.
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Operating Income. The following table presents the Transportation Solutions segment's operating income and operating margin information:
For the
Quarters Ended
December 30, December 24,
2022 2021 Change
($ in millions)
Operating income $ 282 $ 395 $ (113)
Operating margin 12.5 % 18.3 %
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.
For the
Quarters Ended
December 30, December 24,
2022 2021
(in millions)Acquisition and integration costs $ 2 $
3
Restructuring and other charges (credits), net 74
(6) Total $ 76 $ (3) Industrial Solutions
For the
Quarters Ended
December 30, December 24,
2022 2021
($ in millions)
Industrial equipment $ 434 41 % $ 455 43 %
Aerospace, defense, and marine 264 25 242 23
Energy 189 18 188 18
Medical 173 16 167 16
Total $ 1,060 100 % $ 1,052 100 %
Industry end market information is presented consistently with our internal (1) 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
versus Net Sales for the Quarter Ended
Net Sales Organic Net Sales
Growth (Decline) Growth Translation
($ in millions)
Industrial equipment $ (21) (4.6) % $ 15 3.4 % $ (36)
Aerospace, defense, and marine 22 9.1 34 14.3 (12)
Energy 1 0.5 15 8.0 (14)
Medical 6 3.6 8 4.8 (2)
Total $ 8 0.8 % $ 72 6.8 % $ (64)
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In the Industrial Solutions segment, net sales increased $8 million , or 0.8%, in
the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022
due to organic net sales growth of 6.8%, largely offset by the negative impact
of foreign currency translation of 6.0%. In the first quarter of fiscal 2023,
pricing actions positively affected organic net sales by $34 million . Our
organic net sales by industry end market were as follows:
? Industrial equipment-Our organic net sales increased 3.4% in the first quarter
of fiscal 2023 due primarily to growth in automation applications.
Aerospace, defense, and marine-Our organic net sales increased 14.3% in the
? first quarter of fiscal 2023 primarily as a result of growth in the commercial
aerospace and the defense markets.
? Energy-Our organic net sales increased 8.0% in the first quarter of fiscal 2023
due primarily to growth in the
Medical-Our organic net sales increased 4.8% in the first quarter of fiscal
? 2023 due to growth in interventional medical applications as well as surgical
and imaging applications.
Operating Income. The following table presents the Industrial Solutions segment's operating income and operating margin information:
For the
Quarters Ended
December 30, December 24,
2022 2021 Change
($ in millions)
Operating income $ 156 $ 120 $ 36
Operating margin 14.7 % 11.4 %
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. For the Quarters EndedDecember 30 ,December 24, 2022 2021 (in millions) Acquisition-related charges:
Acquisition and integration costs $ 6 $ 4
Charges associated with the amortization of
acquisition-related fair value adjustments - 8
6 12
Restructuring and other charges, net 13 10
Restructuring-related charges recorded in cost of sales
- 12
Total $ 19 $ 34
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Communications Solutions
For the
Quarters Ended
December 30, December 24,
2022 2021
($ in millions)
Data and devices $ 329 63 % $ 356 59 %
Appliances 193 37 252 41
Total $ 522 100 % $ 608 100 %
Industry end market information is presented consistently with our internal (1) 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
versus Net
Sales for the Quarter Ended
Net Sales Organic Net Sales
Decline Decline Translation Acquisitions
($ in millions)
Data and devices $ (27) (7.6) % $ (22) (6.3) % $ (14) $ 9
Appliances (59) (23.4) (47) (18.3) (12) -
Total $ (86) (14.1) % $ (69) (11.4) % $ (26) $ 9
Net sales in the Communications Solutions segment decreased$86 million , or 14.1%, in the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022 due primarily to organic net sales declines of 11.4% and the negative impact of foreign currency translation of 4.3%. Our organic net sales by industry end market were as follows:
Data and devices-Our organic net sales decreased 6.3% in the first quarter of
? fiscal 2023 as a result of market declines in all regions and reduced demand
resulting from high inventory levels at distributors.
? Appliances-Our organic net sales decreased 18.3% in the first quarter of fiscal
2023 due to market declines across all regions.
Operating Income. The following table presents the Communications Solutions segment's operating income and operating margin information:
For the
Quarters Ended
December 30, December 24,
2022 2021 Change
($ in millions)
Operating income $ 64 $ 157 $ (93)
Operating margin 12.3 % 25.8 %
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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.
For the
Quarters Ended
December 30, December 24,
2022 2021
(in millions)
Acquisition and integration costs $ 1 $ 1
Restructuring and other charges, net 24 8
Total $ 25 $ 9
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 €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. 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 2023, net cash provided by operating activities increased$49 million to$581 million from$532 million in the first quarter of fiscal 2022. The increase resulted primarily from the impact of changes in working capital levels, partially offset by lower pre-tax income. The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2023 and 2022 was$98 million and$71 million , respectively.
Cash Flows from Investing Activities
Capital expenditures were$183 million and$172 million in the first quarters of fiscal 2023 and 2022, respectively. We expect fiscal 2023 capital spending levels to be approximately 5% of net sales. We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities. During the first quarter of fiscal 2023, we acquired one business for a cash purchase price of$109 million , net of cash acquired. We acquired one business for a cash purchase price of$125 million , net of cash acquired, during the first quarter of fiscal 2022. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions.
Cash Flows from Financing Activities and Capitalization
Total debt atDecember 30, 2022 andSeptember 30, 2022 was$4,218 million and$4,206 million , respectively. See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding debt. As ofDecember 30, 2022 ,Tyco Electronics Group S.A. ("TEGSA"), our wholly-owned subsidiary, had$231 million of commercial paper outstanding at a weighted-average interest rate of 4.70%. TEGSA had$370 million of commercial paper outstanding at a weighted-average interest rate of 3.45% at September
30,
2022.
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TEGSA has a five-year unsecured senior revolving credit facility ("Credit
Facility") with a maturity date of
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 ofDecember 30, 2022 , we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future. In addition to the Credit Facility, TEGSA is the borrower under our senior notes and commercial paper. TEGSA's payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed on an unsecured basis by its parent,TE Connectivity Ltd.
Payments of common share dividends to shareholders were
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. AtDecember 30, 2022 , we had$1.4 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 summarized financial information, excluding investments in and equity in earnings of our non-guarantor subsidiaries, forTE Connectivity Ltd. and TEGSA on a combined basis. December 30, September 30, 2022 2022 (in millions) Balance Sheet Data: Total current assets $ 820 $ 1,400 Total noncurrent assets(1) 2,786 2,769 Total current liabilities 1,156 1,937 Total noncurrent liabilities(2) 12,152 15,871
Includes
(1)
non-guarantor subsidiaries.
Includes
(2)
non-guarantor subsidiaries.
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For the For the
Quarter Ended Fiscal Year Ended
December 30, September 30,
2022 2022
(in millions)
Statement of Operations Data:
Loss from continuing operations $ (288) $ (35)
Net loss (288) (35)
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 2023
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
During fiscal 2019, we sold ourSubCom business. In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to theSubCom 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 ofDecember 30, 2022 and are expected to expire at various dates through fiscal 2027. We have contractual recourse against theSubCom business if we are required to perform on anySubCom guarantees; however, based on historical experience, we do not anticipate having to perform. 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 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 relevantU.S. trade controls and have made voluntary disclosures of apparent trade controls violations to theU.S. Department of Commerce's Bureau of Industry and Security ("BIS") and theU.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 theU.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. 31 Table of Contents 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 endedSeptember 30, 2022 . There were no significant changes to this information during the first quarter of fiscal 2023. 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.
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.
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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.
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