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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the Quarterly Period Ended March 30, 2018 |
||
Or |
||
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
001-33260
(Commission File Number)
TE CONNECTIVITY LTD.
(Exact name of registrant as specified in its charter)
Switzerland (Jurisdiction of Incorporation) |
98-0518048 (I.R.S. Employer Identification No.) |
Rheinstrasse 20
CH-8200 Schaffhausen, Switzerland
(Address of principal executive offices)
+41 (0)52 633 66 61
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The number of common shares outstanding as of April 20, 2018 was 350,139,019.
TE CONNECTIVITY LTD.
INDEX TO FORM 10-Q
i
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions, except per share data) |
||||||||||||
Net sales |
$ | 3,745 | $ | 3,227 | $ | 7,225 | $ | 6,290 | |||||
Cost of sales |
2,502 | 2,117 | 4,805 | 4,113 | |||||||||
| | | | | | | | | | | | | |
Gross margin |
1,243 | 1,110 | 2,420 | 2,177 | |||||||||
Selling, general, and administrative expenses |
428 | 407 | 811 | 774 | |||||||||
Research, development, and engineering expenses |
182 | 161 | 358 | 317 | |||||||||
Acquisition and integration costs |
3 | 2 | 5 | 4 | |||||||||
Restructuring and other charges, net |
6 | 59 | 41 | 106 | |||||||||
| | | | | | | | | | | | | |
Operating income |
624 | 481 | 1,205 | 976 | |||||||||
Interest income |
4 | 6 | 8 | 11 | |||||||||
Interest expense |
(29 | ) | (32 | ) | (55 | ) | (63 | ) | |||||
Other income (expense), net |
1 | (10 | ) | 3 | (19 | ) | |||||||
| | | | | | | | | | | | | |
Income from continuing operations before income taxes |
600 | 445 | 1,161 | 905 | |||||||||
Income tax expense |
(108 | ) | (39 | ) | (708 | ) | (93 | ) | |||||
| | | | | | | | | | | | | |
Income from continuing operations |
492 | 406 | 453 | 812 | |||||||||
Income (loss) from discontinued operations, net of income taxes |
(2 | ) | (1 | ) | (3 | ) | 2 | ||||||
| | | | | | | | | | | | | |
Net income |
$ | 490 | $ | 405 | $ | 450 | $ | 814 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Basic earnings per share: |
|||||||||||||
Income from continuing operations |
$ | 1.40 | $ | 1.14 | $ | 1.29 | $ | 2.28 | |||||
Income (loss) from discontinued operations |
(0.01 | ) | | (0.01 | ) | 0.01 | |||||||
Net income |
1.40 | 1.14 | 1.28 | 2.29 | |||||||||
Diluted earnings per share: |
|||||||||||||
Income from continuing operations |
$ | 1.39 | $ | 1.13 | $ | 1.28 | $ | 2.26 | |||||
Income (loss) from discontinued operations |
(0.01 | ) | | (0.01 | ) | 0.01 | |||||||
Net income |
1.38 | 1.13 | 1.27 | 2.27 | |||||||||
Dividends paid per common share |
$ |
0.40 |
$ |
0.37 |
$ |
0.80 |
$ |
0.74 |
|||||
Weighted-average number of shares outstanding: |
|||||||||||||
Basic |
351 | 356 | 351 | 356 | |||||||||
Diluted |
354 | 359 | 355 | 359 |
See Notes to Condensed Consolidated Financial Statements.
1
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Net income. |
$ | 490 | $ | 405 | $ | 450 | $ | 814 | |||||
Other comprehensive income (loss): |
|||||||||||||
Currency translation |
114 | 83 | 181 | (102 | ) | ||||||||
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes |
8 | 12 | 15 | 25 | |||||||||
Gains (losses) on cash flow hedges, net of income taxes |
(49 | ) | 19 | (47 | ) | 35 | |||||||
| | | | | | | | | | | | | |
Other comprehensive income (loss) |
73 | 114 | 149 | (42 | ) | ||||||||
| | | | | | | | | | | | | |
Comprehensive income. |
$ | 563 | $ | 519 | $ | 599 | $ | 772 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
2
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
March 30, 2018 |
September 29, 2017 |
|||||
---|---|---|---|---|---|---|---|
|
(in millions, except share data) |
||||||
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 559 | $ | 1,218 | |||
Accounts receivable, net of allowance for doubtful accounts of $22 and $21, respectively |
2,643 | 2,290 | |||||
Inventories |
2,045 | 1,813 | |||||
Prepaid expenses and other current assets |
713 | 605 | |||||
| | | | | | | |
Total current assets |
5,960 | 5,926 | |||||
Property, plant, and equipment, net |
3,676 | 3,400 | |||||
Goodwill |
5,730 | 5,651 | |||||
Intangible assets, net |
1,786 | 1,841 | |||||
Deferred income taxes |
1,631 | 2,141 | |||||
Other assets |
464 | 444 | |||||
| | | | | | | |
Total Assets |
$ | 19,247 | $ | 19,403 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities and Shareholders' Equity |
|||||||
Current liabilities: |
|||||||
Short-term debt |
$ | 675 | $ | 710 | |||
Accounts payable |
1,613 | 1,436 | |||||
Accrued and other current liabilities |
1,729 | 1,626 | |||||
Deferred revenue |
147 | 75 | |||||
| | | | | | | |
Total current liabilities |
4,164 | 3,847 | |||||
Long-term debt |
3,335 | 3,634 | |||||
Long-term pension and postretirement liabilities |
1,149 | 1,160 | |||||
Deferred income taxes |
238 | 236 | |||||
Income taxes |
302 | 293 | |||||
Other liabilities |
579 | 482 | |||||
| | | | | | | |
Total Liabilities |
9,767 | 9,652 | |||||
| | | | | | | |
Commitments and contingencies (Note 7) |
|||||||
Shareholders' equity: |
|||||||
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued |
157 | 157 | |||||
Accumulated earnings |
9,957 | 10,175 | |||||
Treasury shares, at cost, 6,444,345 and 5,356,369 shares, respectively |
(585 | ) | (421 | ) | |||
Accumulated other comprehensive loss |
(49 | ) | (160 | ) | |||
| | | | | | | |
Total Shareholders' Equity |
9,480 | 9,751 | |||||
| | | | | | | |
Total Liabilities and Shareholders' Equity |
$ | 19,247 | $ | 19,403 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
3
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
|
Common Shares | Treasury Shares | |
|
Accumulated Other Comprehensive Loss |
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Contributed Surplus |
Accumulated Earnings |
Total Shareholders' Equity |
||||||||||||||||||||||
|
Shares | Amount | Shares | Amount | |||||||||||||||||||||
|
(in millions) |
||||||||||||||||||||||||
Balance at September 29, 2017 |
357 | $ | 157 | (5 | ) | $ | (421 | ) | $ | | $ | 10,175 | $ | (160 | ) | $ | 9,751 | ||||||||
Adoption of ASU No. 2018-02 |
| | | | | 38 | (38 | ) | | ||||||||||||||||
Net income |
| | | | | 450 | | 450 | |||||||||||||||||
Other comprehensive income |
| | | | | | 149 | 149 | |||||||||||||||||
Share-based compensation expense |
| | | | 52 | | | 52 | |||||||||||||||||
Dividends approved |
| | | | | (617 | ) | | (617 | ) | |||||||||||||||
Exercise of share options |
| | 2 | 94 | | | | 94 | |||||||||||||||||
Restricted share award vestings and other activity |
| | 1 | 125 | (52 | ) | (89 | ) | | (16 | ) | ||||||||||||||
Repurchase of common shares |
| | (4 | ) | (383 | ) | | | | (383 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 30, 2018 |
357 | $ | 157 | (6 | ) | $ | (585 | ) | $ | | $ | 9,957 | $ | (49 | ) | $ | 9,480 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2016 |
383 |
$ |
168 |
(28 |
) |
$ |
(1,624 |
) |
$ |
1,801 |
$ |
8,682 |
$ |
(542 |
) |
$ |
8,485 |
||||||||
Adoption of ASU No. 2016-09 |
| | | | | 165 | | 165 | |||||||||||||||||
Net income |
| | | | | 814 | | 814 | |||||||||||||||||
Other comprehensive loss |
| | | | | | (42 | ) | (42 | ) | |||||||||||||||
Share-based compensation expense |
| | | | 47 | | | 47 | |||||||||||||||||
Dividends approved |
| | | | (569 | ) | | | (569 | ) | |||||||||||||||
Exercise of share options |
| | 2 | 64 | | | | 64 | |||||||||||||||||
Restricted share award vestings and other activity |
| | 1 | 126 | (132 | ) | | | (6 | ) | |||||||||||||||
Repurchase of common shares |
| | (3 | ) | (205 | ) | | | | (205 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2017 |
383 | $ | 168 | (28 | ) | $ | (1,639 | ) | $ | 1,147 | $ | 9,661 | $ | (584 | ) | $ | 8,753 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
4
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For the Six Months Ended |
||||||
---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
|||||
|
(in millions) |
||||||
Cash Flows From Operating Activities: |
|||||||
Net income |
$ | 450 | $ | 814 | |||
(Income) loss from discontinued operations, net of income taxes |
3 | (2 | ) | ||||
| | | | | | | |
Income from continuing operations |
453 | 812 | |||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
341 | 312 | |||||
Deferred income taxes |
499 | (118 | ) | ||||
Provision for losses on accounts receivable and inventories |
23 | 9 | |||||
Share-based compensation expense |
52 | 47 | |||||
Other |
(17 | ) | 12 | ||||
Changes in assets and liabilities, net of the effects of acquisitions and divestitures: |
|||||||
Accounts receivable, net |
(337 | ) | (215 | ) | |||
Inventories |
(244 | ) | (69 | ) | |||
Prepaid expenses and other current assets |
(107 | ) | 32 | ||||
Accounts payable |
187 | 148 | |||||
Accrued and other current liabilities |
(224 | ) | 13 | ||||
Deferred revenue |
72 | (83 | ) | ||||
Income taxes |
2 | 33 | |||||
Other |
27 | (8 | ) | ||||
| | | | | | | |
Net cash provided by operating activities |
727 | 925 | |||||
| | | | | | | |
Cash Flows From Investing Activities: |
|||||||
Capital expenditures |
(447 | ) | (289 | ) | |||
Proceeds from sale of property, plant, and equipment |
7 | 8 | |||||
Other |
(2 | ) | (16 | ) | |||
| | | | | | | |
Net cash used in investing activities |
(442 | ) | (297 | ) | |||
| | | | | | | |
Cash Flows From Financing Activities: |
|||||||
Net increase (decrease) in commercial paper |
225 | (162 | ) | ||||
Proceeds from issuance of debt |
119 | 89 | |||||
Repayment of debt |
(708 | ) | | ||||
Proceeds from exercise of share options |
94 | 64 | |||||
Repurchase of common shares |
(381 | ) | (198 | ) | |||
Payment of common share dividends to shareholders |
(281 | ) | (263 | ) | |||
Other |
(32 | ) | (22 | ) | |||
| | | | | | | |
Net cash used in financing activities |
(964 | ) | (492 | ) | |||
| | | | | | | |
Effect of currency translation on cash |
20 | (10 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
(659 | ) | 126 | ||||
Cash and cash equivalents at beginning of period |
1,218 | 647 | |||||
| | | | | | | |
Cash and cash equivalents at end of period |
$ | 559 | $ | 773 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
5
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Accounting Pronouncements
Basis of Presentation
The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") have been prepared in United States ("U.S.") dollars, in accordance with accounting principles generally accepted in the U.S. ("GAAP") and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. In management's opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.
The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017.
Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2018 and fiscal 2017 are to our fiscal years ending September 28, 2018 and ended September 29, 2017, respectively.
Recently Issued Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 which codified Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. ASC 606, as amended, is effective for us beginning in fiscal 2019, and we intend to adopt the new standard using the modified retrospective approach applied to contracts that are not completed as of that date. We are continuing to assess the impact of adopting ASC 606. Based on the ongoing evaluation of our current contracts and revenue streams, we do not expect that adoption will have a material impact on our results of operations or financial position. We are in the process of identifying necessary changes to accounting policies, processes, financial statement disclosures, internal controls, and systems to enable compliance with this new standard. We believe we are following an appropriate timeline to allow for the proper recognition, reporting, and disclosure of revenue upon adoption of ASC 606 at the beginning of fiscal 2019.
Recently Adopted Accounting Pronouncement
In February 2018, the FASB issued ASU No. 2018-02, an update to ASC 220, Income StatementReporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive income (loss) for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act"). See Note 10 for additional information regarding the Act. We elected to early adopt this update in the quarter ended March 30, 2018 and reclassify the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate. This change in accounting principle resulted in a reclassification of $38 million, primarily associated with our pension plans, during the period of adoption. The reclassification increased both accumulated other comprehensive loss and accumulated earnings with no impact to total shareholders' equity.
6
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
1. Basis of Presentation and Accounting Pronouncements (Continued)
In March 2017, the FASB issued ASU No. 2017-07, an update to ASC 715, CompensationRetirement Benefits, which changes the income statement presentation of net periodic pension and postretirement benefit costs. The ASU requires that service costs be presented with other employee compensation costs within operating income and that other cost components be presented outside of operating income. We elected to early adopt this update in the quarter ended December 29, 2017. The update was applied retrospectively and did not have a material impact on our Condensed Consolidated Statements of Operations.
2. Restructuring and Other Charges, Net
Net restructuring and other charges consisted of the following:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Restructuring charges, net |
$ | 10 | $ | 59 | $ | 45 | $ | 105 | |||||
Other charges (credits), net |
(4 | ) | | (4 | ) | 1 | |||||||
| | | | | | | | | | | | | |
|
$ | 6 | $ | 59 | $ | 41 | $ | 106 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net restructuring charges by segment were as follows:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Transportation Solutions |
$ | 1 | $ | 33 | $ | 5 | $ | 57 | |||||
Industrial Solutions |
7 | 19 | 30 | 39 | |||||||||
Communications Solutions |
2 | 7 | 10 | 9 | |||||||||
| | | | | | | | | | | | | |
Restructuring charges, net |
$ | 10 | $ | 59 | $ | 45 | $ | 105 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
7
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
2. Restructuring and Other Charges, Net (Continued)
Activity in our restructuring reserves was as follows:
|
Balance at September 29, 2017 |
Charges | Changes in Estimates |
Cash Payments |
Non-Cash Items |
Currency Translation |
Balance at March 30, 2018 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||||||||
Fiscal 2018 Actions: |
||||||||||||||||||||||
Employee severance |
$ | | $ | 30 | $ | | $ | (8 | ) | $ | | $ | 1 | $ | 23 | |||||||
Facility and other exit costs |
| 6 | | | | | 6 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
| 36 | | (8 | ) | | 1 | 29 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Fiscal 2017 Actions: |
||||||||||||||||||||||
Employee severance |
103 | 4 | (2 | ) | (42 | ) | | 2 | 65 | |||||||||||||
Facility and other exit costs |
1 | 1 | | (2 | ) | | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
104 | 5 | (2 | ) | (44 | ) | | 2 | 65 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Pre-Fiscal 2017 Actions: |
||||||||||||||||||||||
Employee severance |
36 | 6 | (2 | ) | (14 | ) | | 1 | 27 | |||||||||||||
Facility and other exit costs |
9 | 4 | | (5 | ) | | | 8 | ||||||||||||||
Property, plant, and equipment |
| 1 | (3 | ) | 3 | (1 | ) | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
45 | 11 | (5 | ) | (16 | ) | (1 | ) | 1 | 35 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total Activity |
$ | 149 | $ | 52 | $ | (7 | ) | $ | (68 | ) | $ | (1 | ) | $ | 4 | $ | 129 | |||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Fiscal 2018 Actions
During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions segment. In connection with this program, during the six months ended March 30, 2018, we recorded restructuring charges of $36 million. We expect to complete significantly all restructuring actions commenced during the six months ended March 30, 2018 by the end of fiscal 2019 and to incur total charges of approximately $40 million.
Fiscal 2017 Actions
During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. In connection with this program, during the six months ended March 30, 2018 and March 31, 2017, we recorded net restructuring charges of $3 million and $100 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2017 by the end of fiscal 2019 and anticipate that any additional charges will be insignificant.
Pre-Fiscal 2017 Actions
Prior to fiscal 2017, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. During the six months ended March 30, 2018 and March 31, 2017, we recorded net restructuring charges of
8
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
2. Restructuring and Other Charges, Net (Continued)
$6 million and $5 million, respectively, related to pre-fiscal 2017 actions. We expect to incur additional charges of approximately $15 million related to pre-fiscal 2017 actions with the remaining charges related to employee severance primarily in the Communications Solutions segment.
Total Restructuring Reserves
Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:
|
March 30, 2018 |
September 29, 2017 |
|||||
---|---|---|---|---|---|---|---|
|
(in millions) |
||||||
Accrued and other current liabilities |
$ | 116 | $ | 130 | |||
Other liabilities |
13 | 19 | |||||
| | | | | | | |
Restructuring reserves |
$ | 129 | $ | 149 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
3. Inventories
Inventories consisted of the following:
|
March 30, 2018 |
September 29, 2017 |
|||||
---|---|---|---|---|---|---|---|
|
(in millions) |
||||||
Raw materials |
$ | 342 | $ | 306 | |||
Work in progress |
662 | 580 | |||||
Finished goods |
910 | 810 | |||||
Inventoried costs on long-term contracts |
131 | 117 | |||||
| | | | | | | |
Inventories |
$ | 2,045 | $ | 1,813 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
4. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
|
Transportation Solutions |
Industrial Solutions |
Communications Solutions |
Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
||||||||||||
September 29, 2017(1) |
$ | 2,011 | $ | 3,047 | $ | 593 | $ | 5,651 | |||||
Currency translation and other |
25 | 46 | 8 | 79 | |||||||||
| | | | | | | | | | | | | |
March 30, 2018(1) |
$ | 2,036 | $ | 3,093 | $ | 601 | $ | 5,730 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
9
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
5. Intangible Assets, Net
Intangible assets consisted of the following:
|
March 30, 2018 | September 29, 2017 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||
|
(in millions) |
||||||||||||||||||
Customer relationships |
$ | 1,461 | $ | (351 | ) | $ | 1,110 | $ | 1,433 | $ | (300 | ) | $ | 1,133 | |||||
Intellectual property |
1,276 | (620 | ) | 656 | 1,263 | (575 | ) | 688 | |||||||||||
Other |
37 | (17 | ) | 20 | 36 | (16 | ) | 20 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 2,774 | $ | (988 | ) | $ | 1,786 | $ | 2,732 | $ | (891 | ) | $ | 1,841 | |||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Intangible asset amortization expense was $45 million and $41 million for the quarters ended March 30, 2018 and March 31, 2017, respectively, and $90 million and $83 million for the six months ended March 30, 2018 and March 31, 2017, respectively.
The aggregate amortization expense on intangible assets is expected to be as follows:
|
(in millions) | |||
---|---|---|---|---|
Remainder of fiscal 2018 |
$ | 94 | ||
Fiscal 2019 |
185 | |||
Fiscal 2020 |
177 | |||
Fiscal 2021 |
174 | |||
Fiscal 2022 |
173 | |||
Fiscal 2023 |
173 | |||
Thereafter |
810 | |||
| | | | |
Total |
$ | 1,786 | ||
| | | | |
| | | | |
| | | | |
6. Debt
During the six months ended March 30, 2018, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, repaid, at maturity, $708 million of 6.55% senior notes due October 2017.
We reclassified $325 million of 2.375% senior notes due December 2018 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet during the six months ended March 30, 2018.
During the six months ended March 30, 2018, TEGSA entered into an uncommitted revolving credit facility under which it borrowed €100 million at a 0% interest rate with repayment due at maturity in December 2018.
As of March 30, 2018, TEGSA had $225 million of commercial paper outstanding at a weighted-average interest rate of 2.26%. TEGSA had no commercial paper outstanding at September 29, 2017.
The fair value of our debt, based on indicative valuations, was approximately $4,223 million and $4,622 million at March 30, 2018 and September 29, 2017, respectively.
10
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
7. 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.
Environmental Matters
We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of March 30, 2018, we concluded that it was probable that we would incur investigation and remediation costs at these sites in the range of $15 million to $45 million, and we accrued $19 million which was the best estimate within this range. We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.
Guarantees
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 March 30, 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds of $285 million.
We generally record estimated product warranty costs when contract revenues are recognized under the percentage-of-completion method for construction related contracts; other warranty reserves are not significant. The estimation is based primarily on historical experience and actual warranty claims. Amounts accrued for warranty claims were $46 million and $50 million at March 30, 2018 and September 29, 2017, respectively.
Tax Sharing Agreement
Under a Tax Sharing Agreement, we, Tyco International plc ("Tyco International"), and Covidien plc ("Covidien") share 31%, 27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to the collective income tax returns for certain of our, Tyco International's, and Covidien's income tax liabilities for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and
11
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
7. Commitments and Contingencies (Continued)
indemnifications with Tyco International and Covidien. We have substantially settled all U.S. federal income tax matters with the Internal Revenue Service ("IRS") for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will have a material effect on our results of operations, financial position, or cash flows.
8. Financial Instruments
During fiscal 2015, we entered into cross-currency swap contracts with an aggregate notional value of €1,000 million to reduce our exposure to foreign currency exchange risk associated with certain intercompany loans. Under the terms of these contracts, which have been designated as cash flow hedges, we make quarterly interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.33% per annum. Upon the maturities of these contracts in fiscal 2022, we will pay the principal amount of the loans in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swaps, we are required to post cash collateral with our counterparties.
At March 30, 2018 and September 29, 2017, our cross-currency swap contracts were in a liability position of $178 million and $96 million, respectively, and were recorded in other liabilities on the Condensed Consolidated Balance Sheets. At March 30, 2018 and September 29, 2017, collateral paid to our counterparties approximated the derivative positions and was recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The impacts of our cross-currency swap contracts were as follows:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Gains (losses) recorded in other comprehensive income (loss) |
$ | (22 | ) | $ | 8 | $ | (32 | ) | $ | (8 | ) | ||
Gains (losses) excluded from the hedging relationship(1) |
(31 | ) | (16 | ) | (50 | ) | 54 |
We hedge our net investment in certain foreign operations using intercompany non-derivative financial instruments denominated in the same currencies. The aggregate notional value of these
12
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
8. Financial Instruments (Continued)
hedges was $3,111 million and $3,110 million at March 30, 2018 and September 29, 2017, respectively. The impacts of our hedging program were as follows:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Foreign currency exchange gains (losses)(1) |
$ | (79 | ) | $ | (78 | ) | $ | (145 | ) | $ | 144 |
9. Retirement Plans
The net periodic pension benefit cost for all U.S. and non-U.S. defined benefit pension plans was as follows:
|
U.S. Plans | Non-U.S. Plans | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the Quarters Ended |
For the Quarters Ended |
|||||||||||
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Service cost |
$ | 4 | $ | 3 | $ | 11 | $ | 13 | |||||
Interest cost |
11 | 11 | 11 | 9 | |||||||||
Expected return on plan assets |
(15 | ) | (14 | ) | (17 | ) | (17 | ) | |||||
Amortization of net actuarial loss |
5 | 10 | 5 | 10 | |||||||||
Amortization of prior service credit |
| | (1 | ) | (1 | ) | |||||||
| | | | | | | | | | | | | |
Net periodic pension benefit cost |
$ | 5 | $ | 10 | $ | 9 | $ | 14 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
U.S. Plans | Non-U.S. Plans | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the Six Months Ended |
For the Six Months Ended |
|||||||||||
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Service cost |
$ | 7 | $ | 6 | $ | 23 | $ | 26 | |||||
Interest cost |
22 | 22 | 21 | 18 | |||||||||
Expected return on plan assets |
(30 | ) | (27 | ) | (34 | ) | (35 | ) | |||||
Amortization of net actuarial loss |
11 | 20 | 11 | 21 | |||||||||
Amortization of prior service credit |
| | (3 | ) | (3 | ) | |||||||
| | | | | | | | | | | | | |
Net periodic pension benefit cost |
$ | 10 | $ | 21 | $ | 18 | $ | 27 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The components of net periodic pension benefit cost other than service cost are included in other income (expense), net on the Condensed Consolidated Statements of Operations.
13
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
9. Retirement Plans (Continued)
During the six months ended March 30, 2018, we contributed $26 million to our non-U.S. pension plans.
10. Income Taxes
We recorded income tax expense of $108 million and $39 million for the quarters ended March 30, 2018 and March 31, 2017, respectively. The income tax expense for the quarter ended March 30, 2018 included a $17 million income tax benefit resulting from lapses of statutes of limitations in certain non-U.S. jurisdictions. The income tax expense for the quarter ended March 31, 2017 included a $24 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions, and a $22 million income tax benefit associated with the tax impacts of certain intercompany transactions.
We recorded income tax expense of $708 million and $93 million for the six months ended March 30, 2018 and March 31, 2017, respectively. The tax expense for the six months ended March 30, 2018 included $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act and a $61 million net income tax benefit related to certain legal entity restructurings. See "Tax Cuts and Jobs Act" below for additional information. The tax expense for the six months ended March 31, 2017 included a $52 million income tax benefit associated with the tax impacts of certain intercompany transactions and the corresponding reduction in the valuation allowance for U.S. tax loss carryforwards, as well as a $24 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions.
We record accrued interest and penalties related to uncertain tax positions as part of income tax expense. As of March 30, 2018 and September 29, 2017, we had $59 million and $60 million, respectively, of accrued interest and penalties related to uncertain tax positions on the Condensed Consolidated Balance Sheets, recorded primarily in income taxes. During the six months ended March 30, 2018, we recognized $1 million of income tax benefits related to interest and penalties on the Condensed Consolidated Statement of Operations.
Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $30 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.
We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Condensed Consolidated Balance Sheet as of March 30, 2018.
Tax Cuts and Jobs Act
On December 22, 2017, the President of the U.S. signed the Tax Cuts and Jobs Act (the "Act") into law. The Act includes numerous significant changes to existing tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, further limitations on the deductibility of interest expense and certain executive compensation, repeal of the corporate Alternative Minimum Tax, and imposition of a territorial tax system with a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. While some of the new provisions of the Act will impact us in fiscal 2019 and beyond, the change in the tax rate was effective January 1, 2018. In the
14
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
10. Income Taxes (Continued)
period of enactment, we were required to revalue our U.S. federal deferred tax assets and liabilities at the new tax rate. Accordingly, during the quarter ended December 29, 2017, we recorded income tax expense of $567 million primarily in connection with the write-down of our U.S. federal deferred tax asset for net operating loss and interest carryforwards to the lower tax rate. Included in the expense of $567 million was an income tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards. The limitations on interest expense deductions contained in the Act are expected to increase prospective taxable income and thereby allow the utilization of more tax credits in future years. As a Swiss corporation, the one-time repatriation tax imposed by the Act will not be significant to us.
The Act makes broad and complex changes to the U.S. Internal Revenue Code, and in certain instances, lacks clarity and is subject to interpretation until additional IRS guidance is issued. The ultimate impact of the Act may differ from our estimates due to changes in the interpretations and assumptions we made as well as any forthcoming regulatory guidance. One area requiring guidance is a transition rule regarding limitations on interest expense deductions. The Act does not address the treatment of the carryforward of disallowed interest expense generated under the prior law. Our interpretation is that the carryforward of interest should survive and will be deductible in future periods subject to the new interest limitations. Accordingly, during the quarter ended December 29, 2017, we revalued our beginning deferred tax asset related to our interest carryforwards to $223 million to reflect the lower tax rate. It is possible additional regulatory guidance could be issued contrary to this interpretation at which point we may be required to record a charge to income tax expense to revalue or eliminate the related deferred tax asset. On April 2, 2018, the Treasury Department and the IRS issued Notice 2018-28 stating their intention to issue regulations consistent with our position related to the carryforward of the disallowed interest expense.
11. Earnings Per Share
The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Basic |
351 | 356 | 351 | 356 | |||||||||
Dilutive impact of share-based compensation arrangements |
3 | 3 | 4 | 3 | |||||||||
| | | | | | | | | | | | | |
Diluted |
354 | 359 | 355 | 359 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
There were one million share options that were not included in the computation of diluted earnings per share for the six months ended March 30, 2018 and March 31, 2017 because the instruments' underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive.
15
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
12. Shareholders' Equity
Common Shares
In March 2018, our shareholders reapproved and extended through March 14, 2020, our board of directors' authorization to issue additional new shares, subject to certain conditions specified in our articles of association, in aggregate not exceeding 50% of the amount of our authorized shares.
Dividends
In March 2018, our shareholders approved a dividend payment to shareholders of $1.76 per share, payable in four equal quarterly installments of $0.44 per share beginning in the third quarter of fiscal 2018 and ending in the second quarter of fiscal 2019.
Upon shareholders' approval of a dividend payment, we record a liability with a corresponding charge to shareholders' equity. At March 30, 2018 and September 29, 2017, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $617 million and $281 million, respectively.
Share Repurchase Program
During the six months ended March 30, 2018, our board of directors authorized an increase of $1.5 billion in the share repurchase program. Common shares repurchased under the share repurchase program were as follows:
|
For the Six Months Ended |
||||||
---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
|||||
|
(in millions) |
||||||
Number of common shares repurchased |
4 | 3 | |||||
Repurchase value |
$ | 383 | $ | 205 |
At March 30, 2018, we had $1.6 billion of availability remaining under our share repurchase authorization.
13. Share Plans
Share-based compensation expense, which was included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Share-based compensation expense |
$ | 23 | $ | 23 | $ | 52 | $ | 47 |
As of March 30, 2018, there was $180 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 2.1 years.
16
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
13. Share Plans (Continued)
During the quarter ended December 29, 2017, we granted the following share-based awards as part of our annual incentive plan grant:
|
Shares | Weighted-Average Grant-Date Fair Value |
|||||
---|---|---|---|---|---|---|---|
|
(in millions) |
|
|||||
Share options |
1.4 | $ | 16.47 | ||||
Restricted share awards |
0.5 | 93.36 | |||||
Performance share awards |
0.2 | 93.36 |
As of March 30, 2018, we had 20 million shares available for issuance under our stock and incentive plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of March 8, 2017, was the primary plan.
Share-Based Compensation Assumptions
The weighted-average assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:
Expected share price volatility |
20 | % | ||
Risk free interest rate |
2.2 | % | ||
Expected annual dividend per share |
$ | 1.60 | ||
Expected life of options (in years) |
5.3 |
14. Segment Data
Net sales by segment were as follows:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Transportation Solutions |
$ | 2,134 | $ | 1,755 | $ | 4,166 | $ | 3,430 | |||||
Industrial Solutions |
972 | 853 | 1,854 | 1,648 | |||||||||
Communications Solutions |
639 | 619 | 1,205 | 1,212 | |||||||||
| | | | | | | | | | | | | |
Total(1) |
$ | 3,745 | $ | 3,227 | $ | 7,225 | $ | 6,290 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
17
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
14. Segment Data (Continued)
Operating income by segment was as follows:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Transportation Solutions |
$ | 428 | $ | 305 | $ | 848 | $ | 653 | |||||
Industrial Solutions |
126 | 88 | 228 | 158 | |||||||||
Communications Solutions |
70 | 88 | 129 | 165 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 624 | $ | 481 | $ | 1,205 | $ | 976 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
18
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A.
Tyco Electronics Group S.A. ("TEGSA"), a Luxembourg company and our 100%-owned subsidiary, is a holding company that owns, directly or indirectly, all of our operating subsidiaries. TEGSA is the obligor under our senior notes, commercial paper, and five-year unsecured senior revolving credit facility, which are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd. The following tables present condensed consolidating financial information for TE Connectivity Ltd., TEGSA, and all other subsidiaries that are not providing a guarantee of debt but which represent assets of TEGSA, using the equity method of accounting.
Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended March 30, 2018
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Net sales |
$ | | $ | | $ | 3,745 | $ | | $ | 3,745 | ||||||
Cost of sales |
| | 2,502 | | 2,502 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross margin |
| | 1,243 | | 1,243 | |||||||||||
Selling, general, and administrative expenses, net |
41 | 9 | 378 | | 428 | |||||||||||
Research, development, and engineering expenses |
| | 182 | | 182 | |||||||||||
Acquisition and integration costs |
| | 3 | | 3 | |||||||||||
Restructuring and other charges, net |
| | 6 | | 6 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(41 | ) | (9 | ) | 674 | | 624 | |||||||||
Interest income |
| 1 | 3 | | 4 | |||||||||||
Interest expense |
| (29 | ) | | | (29 | ) | |||||||||
Other income, net |
| | 1 | | 1 | |||||||||||
Equity in net income of subsidiaries |
550 | 557 | | (1,107 | ) | | ||||||||||
Equity in net loss of subsidiaries of discontinued operations |
(2 | ) | (2 | ) | | 4 | | |||||||||
Intercompany interest income (expense), net |
(17 | ) | 30 | (13 | ) | | | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes |
490 | 548 | 665 | (1,103 | ) | 600 | ||||||||||
Income tax expense |
| | (108 | ) | | (108 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations |
490 | 548 | 557 | (1,103 | ) | 492 | ||||||||||
Loss from discontinued operations, net of income taxes |
| | (2 | ) | | (2 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net income |
490 | 548 | 555 | (1,103 | ) | 490 | ||||||||||
Other comprehensive income |
73 | 73 | 94 | (167 | ) | 73 | ||||||||||
| | | | | | | | | | | | | | | | |
Comprehensive income |
$ | 563 | $ | 621 | $ | 649 | $ | (1,270 | ) | $ | 563 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
19
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended March 31, 2017
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Net sales |
$ | | $ | | $ | 3,227 | $ | | $ | 3,227 | ||||||
Cost of sales |
| | 2,117 | | 2,117 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross margin |
| | 1,110 | | 1,110 | |||||||||||
Selling, general, and administrative expenses, net |
48 | 18 | 341 | | 407 | |||||||||||
Research, development, and engineering expenses |
| | 161 | | 161 | |||||||||||
Acquisition and integration costs |
| | 2 | | 2 | |||||||||||
Restructuring and other charges, net |
| | 59 | | 59 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(48 | ) | (18 | ) | 547 | | 481 | |||||||||
Interest income |
| | 6 | | 6 | |||||||||||
Interest expense |
| (32 | ) | | | (32 | ) | |||||||||
Other expense, net |
| | (10 | ) | | (10 | ) | |||||||||
Equity in net income of subsidiaries |
462 | 483 | | (945 | ) | | ||||||||||
Equity in net income (loss) of subsidiaries of discontinued operations |
(1 | ) | 10 | | (9 | ) | | |||||||||
Intercompany interest income (expense), net |
(8 | ) | 29 | (21 | ) | | | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes |
405 | 472 | 522 | (954 | ) | 445 | ||||||||||
Income tax expense |
| | (39 | ) | | (39 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations |
405 | 472 | 483 | (954 | ) | 406 | ||||||||||
Income (loss) from discontinued operations, net of income taxes(1) |
| (11 | ) | 10 | | (1 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net income |
405 | 461 | 493 | (954 | ) | 405 | ||||||||||
Other comprehensive income |
114 | 114 | 106 | (220 | ) | 114 | ||||||||||
| | | | | | | | | | | | | | | | |
Comprehensive income |
$ | 519 | $ | 575 | $ | 599 | $ | (1,174 | ) | $ | 519 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
20
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations (UNAUDITED)
For the Six Months Ended March 30, 2018
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Net sales |
$ | | $ | | $ | 7,225 | $ | | $ | 7,225 | ||||||
Cost of sales |
| | 4,805 | | 4,805 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross margin |
| | 2,420 | | 2,420 | |||||||||||
Selling, general, and administrative expenses, net |
88 | 6 | 717 | | 811 | |||||||||||
Research, development, and engineering expenses |
| | 358 | | 358 | |||||||||||
Acquisition and integration costs |
| | 5 | | 5 | |||||||||||
Restructuring and other charges, net |
| | 41 | | 41 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(88 | ) | (6 | ) | 1,299 | | 1,205 | |||||||||
Interest income |
| 1 | 7 | | 8 | |||||||||||
Interest expense |
| (55 | ) | | | (55 | ) | |||||||||
Other income, net |
| | 3 | | 3 | |||||||||||
Equity in net income of subsidiaries |
571 | 573 | | (1,144 | ) | | ||||||||||
Equity in net loss of subsidiaries of discontinued operations |
(3 | ) | (3 | ) | | 6 | | |||||||||
Intercompany interest income (expense), net |
(30 | ) | 58 | (28 | ) | | | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes |
450 | 568 | 1,281 | (1,138 | ) | 1,161 | ||||||||||
Income tax expense |
| | (708 | ) | | (708 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations |
450 | 568 | 573 | (1,138 | ) | 453 | ||||||||||
Loss from discontinued operations, net of income taxes |
| | (3 | ) | | (3 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net income |
450 | 568 | 570 | (1,138 | ) | 450 | ||||||||||
Other comprehensive income |
149 | 149 | 181 | (330 | ) | 149 | ||||||||||
| | | | | | | | | | | | | | | | |
Comprehensive income |
$ | 599 | $ | 717 | $ | 751 | $ | (1,468 | ) | $ | 599 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
21
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations (UNAUDITED)
For the Six Months Ended March 31, 2017
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Net sales |
$ | | $ | | $ | 6,290 | $ | | $ | 6,290 | ||||||
Cost of sales |
| | 4,113 | | 4,113 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross margin |
| | 2,177 | | 2,177 | |||||||||||
Selling, general, and administrative expenses, net |
76 | (70 | ) | 768 | | 774 | ||||||||||
Research, development, and engineering expenses |
| | 317 | | 317 | |||||||||||
Acquisition and integration costs |
| | 4 | | 4 | |||||||||||
Restructuring and other charges, net |
| | 106 | | 106 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(76 | ) | 70 | 982 | | 976 | ||||||||||
Interest income |
| | 11 | | 11 | |||||||||||
Interest expense |
| (63 | ) | | | (63 | ) | |||||||||
Other expense, net |
| | (19 | ) | | (19 | ) | |||||||||
Equity in net income of subsidiaries |
902 | 839 | | (1,741 | ) | | ||||||||||
Equity in net income of subsidiaries of discontinued operations |
2 | 14 | | (16 | ) | | ||||||||||
Intercompany interest income (expense), net |
(14 | ) | 56 | (42 | ) | | | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes |
814 | 916 | 932 | (1,757 | ) | 905 | ||||||||||
Income tax expense |
| | (93 | ) | | (93 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations |
814 | 916 | 839 | (1,757 | ) | 812 | ||||||||||
Income (loss) from discontinued operations, net of income taxes(1) |
| (12 | ) | 14 | | 2 | ||||||||||
| | | | | | | | | | | | | | | | |
Net income |
814 | 904 | 853 | (1,757 | ) | 814 | ||||||||||
Other comprehensive loss |
(42 | ) | (42 | ) | (69 | ) | 111 | (42 | ) | |||||||
| | | | | | | | | | | | | | | | |
Comprehensive income |
$ | 772 | $ | 862 | $ | 784 | $ | (1,646 | ) | $ | 772 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
22
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet (UNAUDITED)
As of March 30, 2018
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 559 | $ | | $ | 559 | ||||||
Accounts receivable, net |
| | 2,643 | | 2,643 | |||||||||||
Inventories |
| | 2,045 | | 2,045 | |||||||||||
Intercompany receivables |
40 | 2,473 | 55 | (2,568 | ) | | ||||||||||
Prepaid expenses and other current assets |
7 | 176 | 530 | | 713 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current assets |
47 | 2,649 | 5,832 | (2,568 | ) | 5,960 | ||||||||||
Property, plant, and equipment, net |
| | 3,676 | | 3,676 | |||||||||||
Goodwill |
| | 5,730 | | 5,730 | |||||||||||
Intangible assets, net |
| | 1,786 | | 1,786 | |||||||||||
Deferred income taxes |
| | 1,631 | | 1,631 | |||||||||||
Investment in subsidiaries |
12,587 | 20,672 | | (33,259 | ) | | ||||||||||
Intercompany loans receivable |
2 | 6,561 | 13,077 | (19,640 | ) | | ||||||||||
Other assets |
| | 464 | | 464 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Assets |
$ | 12,636 | $ | 29,882 | $ | 32,196 | $ | (55,467 | ) | $ | 19,247 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Short-term debt |
$ | | $ | 673 | $ | 2 | $ | | $ | 675 | ||||||
Accounts payable |
3 | | 1,610 | | 1,613 | |||||||||||
Accrued and other current liabilities |
625 | 33 | 1,071 | | 1,729 | |||||||||||
Deferred revenue |
| | 147 | | 147 | |||||||||||
Intercompany payables |
2,528 | | 40 | (2,568 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Total current liabilities |
3,156 | 706 | 2,870 | (2,568 | ) | 4,164 | ||||||||||
Long-term debt |
| 3,330 | 5 | | 3,335 | |||||||||||
Intercompany loans payable |
| 13,078 | 6,562 | (19,640 | ) | | ||||||||||
Long-term pension and postretirement liabilities |
| | 1,149 | | 1,149 | |||||||||||
Deferred income taxes |
| | 238 | | 238 | |||||||||||
Income taxes |
| | 302 | | 302 | |||||||||||
Other liabilities |
| 181 | 398 | | 579 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities |
3,156 | 17,295 | 11,524 | (22,208 | ) | 9,767 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Shareholders' Equity |
9,480 | 12,587 | 20,672 | (33,259 | ) | 9,480 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities and Shareholders' Equity |
$ | 12,636 | $ | 29,882 | $ | 32,196 | $ | (55,467 | ) | $ | 19,247 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
23
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet (UNAUDITED)
As of September 29, 2017
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 1,218 | $ | | $ | 1,218 | ||||||
Accounts receivable, net |
| | 2,290 | | 2,290 | |||||||||||
Inventories |
| | 1,813 | | 1,813 | |||||||||||
Intercompany receivables |
49 | 1,914 | 60 | (2,023 | ) | | ||||||||||
Prepaid expenses and other current assets |
4 | 96 | 505 | | 605 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current assets |
53 | 2,010 | 5,886 | (2,023 | ) | 5,926 | ||||||||||
Property, plant, and equipment, net |
| | 3,400 | | 3,400 | |||||||||||
Goodwill |
| | 5,651 | | 5,651 | |||||||||||
Intangible assets, net |
| | 1,841 | | 1,841 | |||||||||||
Deferred income taxes |
| | 2,141 | | 2,141 | |||||||||||
Investment in subsidiaries |
11,960 | 20,109 | | (32,069 | ) | | ||||||||||
Intercompany loans receivable |
| 4,027 | 9,700 | (13,727 | ) | | ||||||||||
Other assets |
| 6 | 438 | | 444 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Assets |
$ | 12,013 | $ | 26,152 | $ | 29,057 | $ | (47,819 | ) | $ | 19,403 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Short-term debt |
$ | | $ | 708 | $ | 2 | $ | | $ | 710 | ||||||
Accounts payable |
2 | | 1,434 | | 1,436 | |||||||||||
Accrued and other current liabilities |
286 | 59 | 1,281 | | 1,626 | |||||||||||
Deferred revenue |
| | 75 | | 75 | |||||||||||
Intercompany payables |
1,974 | | 49 | (2,023 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Total current liabilities |
2,262 | 767 | 2,841 | (2,023 | ) | 3,847 | ||||||||||
Long-term debt |
| 3,629 | 5 | | 3,634 | |||||||||||
Intercompany loans payable |
| 9,700 | 4,027 | (13,727 | ) | | ||||||||||
Long-term pension and postretirement liabilities |
| | 1,160 | | 1,160 | |||||||||||
Deferred income taxes |
| | 236 | | 236 | |||||||||||
Income taxes |
| | 293 | | 293 | |||||||||||
Other liabilities |
| 96 | 386 | | 482 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities |
2,262 | 14,192 | 8,948 | (15,750 | ) | 9,652 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Shareholders' Equity |
9,751 | 11,960 | 20,109 | (32,069 | ) | 9,751 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities and Shareholders' Equity |
$ | 12,013 | $ | 26,152 | $ | 29,057 | $ | (47,819 | ) | $ | 19,403 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
24
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows (UNAUDITED)
For the Six Months Ended March 30, 2018
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||
Net cash provided by (used in) operating activities(1) |
$ | (116 | ) | $ | (67 | ) | $ | 917 | $ | (7 | ) | $ | 727 | |||
| | | | | | | | | | | | | | | | |
Cash Flows From Investing Activities: |
||||||||||||||||
Capital expenditures |
| | (447 | ) | | (447 | ) | |||||||||
Proceeds from sale of property, plant, and equipment |
| | 7 | | 7 | |||||||||||
Intercompany distribution receipts(1) |
| 64 | | (64 | ) | | ||||||||||
Change in intercompany loans |
| 335 | | (335 | ) | | ||||||||||
Other |
| | (2 | ) | | (2 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
| 399 | (442 | ) | (399 | ) | (442 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Cash Flows From Financing Activities: |
||||||||||||||||
Changes in parent company equity(2) |
62 | 32 | (94 | ) | | | ||||||||||
Net increase in commercial paper |
| 225 | | | 225 | |||||||||||
Proceeds from issuance of debt |
| 119 | | | 119 | |||||||||||
Repayment of debt |
| (708 | ) | | | (708 | ) | |||||||||
Proceeds from exercise of share options |
| | 94 | | 94 | |||||||||||
Repurchase of common shares |
(218 | ) | | (163 | ) | | (381 | ) | ||||||||
Payment of common share dividends to shareholders |
(285 | ) | | 4 | | (281 | ) | |||||||||
Intercompany distributions(1) |
| | (71 | ) | 71 | | ||||||||||
Loan activity with parent |
557 | | (892 | ) | 335 | | ||||||||||
Other |
| | (32 | ) | | (32 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
116 | (332 | ) | (1,154 | ) | 406 | (964 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Effect of currency translation on cash |
| | 20 | | 20 | |||||||||||
Net decrease in cash and cash equivalents |
| | (659 | ) | | (659 | ) | |||||||||
Cash and cash equivalents at beginning of period |
| | 1,218 | | 1,218 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | | $ | | $ | 559 | $ | | $ | 559 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
25
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows (UNAUDITED)
For the Six Months Ended March 31, 2017
|
TE Connectivity Ltd. |
TEGSA | Other Subsidiaries |
Consolidating Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|||||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | (86 | ) | $ | (2 | ) | $ | 1,013 | $ | | $ | 925 | ||||
| | | | | | | | | | | | | | | | |
Cash Flows From Investing Activities: |
||||||||||||||||
Capital expenditures |
| | (289 | ) | | (289 | ) | |||||||||
Proceeds from sale of property, plant, and equipment |
| | 8 | | 8 | |||||||||||
Change in intercompany loans |
| (37 | ) | | 37 | | ||||||||||
Other |
| (12 | ) | (4 | ) | | (16 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Net cash used in investing activities |
| (49 | ) | (285 | ) | 37 | (297 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Cash Flows From Financing Activities: |
||||||||||||||||
Changes in parent company equity(1) |
45 | 124 | (169 | ) | | | ||||||||||
Net decrease in commercial paper |
| (162 | ) | | | (162 | ) | |||||||||
Proceeds from issuance of debt |
| 89 | | | 89 | |||||||||||
Proceeds from exercise of share options |
| | 64 | | 64 | |||||||||||
Repurchase of common shares |
| | (198 | ) | | (198 | ) | |||||||||
Payment of common share dividends to shareholders |
(264 | ) | | 1 | | (263 | ) | |||||||||
Loan activity with parent |
305 | | (268 | ) | (37 | ) | | |||||||||
Other |
| | (22 | ) | | (22 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
86 | 51 | (592 | ) | (37 | ) | (492 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Effect of currency translation on cash |
| | (10 | ) | | (10 | ) | |||||||||
Net increase in cash and cash equivalents |
| | 126 | | 126 | |||||||||||
Cash and cash equivalents at beginning of period |
| | 647 | | 647 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | | $ | | $ | 773 | $ | | $ | 773 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
26
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 which is a non-GAAP financial measure. See "Non-GAAP Financial Measure" for additional information regarding this measure.
TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") is a global technology and manufacturing leader creating a safer, sustainable, productive, and connected future. For more than 75 years, our connectivity and sensor solutions, proven in the harshest environments, have enabled advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.
Highlights for the second quarter and first six months of fiscal 2018 include the following:
Outlook
In the third quarter of fiscal 2018, we expect our net sales to be between $3.65 billion and $3.7 billion as compared to $3.4 billion in the third quarter of fiscal 2017. We expect our net sales to be
27
between $14.5 billion and $14.7 billion in fiscal 2018 as compared to $13.1 billion in fiscal 2017. These increases are due primarily to sales growth in the Transportation Solutions and Industrial Solutions segments. Additional information regarding expectations for our reportable segments for the third quarter of fiscal 2018 as compared to the same period of fiscal 2017 and for fiscal 2018 compared to fiscal 2017 is as follows:
We expect diluted earnings per share from continuing operations to be in the range of $1.13 to $1.15 per share in the third quarter of fiscal 2018. For fiscal 2018, we expect diluted earnings per share from continuing operations to be in the range of $3.70 to $3.76 per share. This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $120 million and $0.05 per share, respectively, in the third quarter of fiscal 2018 as compared to the same period of fiscal 2017 and approximately $500 million and $0.20 per share, respectively, in fiscal 2018 as compared to fiscal 2017.
The above outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.
We are monitoring the current macroeconomic environment and its potential effects on our customers and the end markets we serve. We continue to closely manage our costs in line with economic conditions. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs. See further discussion in "Liquidity and Capital Resources."
Net Sales
The following table presents our net sales and the percentage of total net sales by segment:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||
Transportation Solutions |
$ | 2,134 | 57 | % | $ | 1,755 | 55 | % | $ | 4,166 | 57 | % | $ | 3,430 | 55 | % | |||||||||
Industrial Solutions |
972 | 26 | 853 | 26 | 1,854 | 26 | 1,648 | 26 | |||||||||||||||||
Communications Solutions |
639 | 17 | 619 | 19 | 1,205 | 17 | 1,212 | 19 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 3,745 | 100 | % | $ | 3,227 | 100 | % | $ | 7,225 | 100 | % | $ | 6,290 | 100 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
28
The following table provides an analysis of the change in our net sales by segment:
|
Change in Net Sales for the Quarter Ended March 30, 2018 versus Net Sales for the Quarter Ended March 31, 2017 |
Change in Net Sales for the Six Months Ended March 30, 2018 versus Net Sales for the Six Months Ended March 31, 2017 |
|||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisitions | Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisitions | |||||||||||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||||||||||||||
Transportation Solutions |
$ | 379 | 21.6 | % | $ | 167 | 9.5 | % | $ | 159 | $ | 53 | $ | 736 | 21.5 | % | $ | 390 | 11.4 | % | $ | 239 | $ | 107 | |||||||||||||
Industrial Solutions |
119 | 14.0 | 50 | 5.9 | 60 | 9 | 206 | 12.5 | 101 | 6.1 | 88 | 17 | |||||||||||||||||||||||||
Communications Solutions |
20 | 3.2 | 4 | 0.6 | 16 | | (7 | ) | (0.6 | ) | (30 | ) | (2.5 | ) | 23 | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 518 | 16.1 | % | $ | 221 | 6.9 | % | $ | 235 | $ | 62 | $ | 935 | 14.9 | % | $ | 461 | 7.4 | % | $ | 350 | $ | 124 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales increased $518 million, or 16.1%, in the second quarter of fiscal 2018 as compared to the second quarter of fiscal 2017. The increase in net sales resulted from the positive impact of foreign currency translation of 7.3% due to the strengthening of certain foreign currencies, organic net sales growth of 6.9%, and sales contributions from acquisitions of 1.9%. Price erosion adversely affected organic net sales by $49 million in the second quarter of fiscal 2018.
In the first six months of fiscal 2018, net sales increased $935 million, or 14.9%, as compared to the first six months of fiscal 2017 as a result of organic net sales growth of 7.4%, the positive impact of foreign currency translation of 5.5% due to the strengthening of certain foreign currencies, and sales contributions from acquisitions of 2.0%. Price erosion adversely affected organic net sales by $93 million in the first six months of fiscal 2018.
See further discussion of net sales below under "Segment Results."
Net Sales by Geographic Region. Our business operates in three geographic regionsthe Americas, Europe/Middle East/Africa ("EMEA"), and AsiaPacificand our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.
Approximately 59% of our net sales were invoiced in currencies other than the U.S. dollar in the first six months of fiscal 2018.
The following table presents our net sales and the percentage of total net sales by geographic region(1):
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||
Americas |
$ | 1,138 | 30 | % | $ | 1,070 | 33 | % | $ | 2,179 | 30 | % | $ | 2,075 | 33 | % | |||||||||
EMEA |
1,425 | 38 | 1,099 | 34 | 2,644 | 37 | 2,070 | 33 | |||||||||||||||||
AsiaPacific |
1,182 | 32 | 1,058 | 33 | 2,402 | 33 | 2,145 | 34 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 3,745 | 100 | % | $ | 3,227 | 100 | % | $ | 7,225 | 100 | % | $ | 6,290 | 100 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
29
The following table provides an analysis of the change in our net sales by geographic region:
|
Change in Net Sales for the Quarter Ended March 30, 2018 versus Net Sales for the Quarter Ended March 31, 2017 |
Change in Net Sales for the Six Months Ended March 30, 2018 versus Net Sales for the Six Months Ended March 31, 2017 |
|||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisitions | Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisitions | |||||||||||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||||||||||||||
Americas |
$ | 68 | 6.4 | % | $ | 54 | 5.0 | % | $ | 1 | $ | 13 | $ | 104 | 5.0 | % | $ | 73 | 3.5 | % | $ | 6 | $ | 25 | |||||||||||||
EMEA |
326 | 29.7 | 109 | 9.9 | 172 | 45 | 574 | 27.7 | 222 | 10.7 | 260 | 92 | |||||||||||||||||||||||||
AsiaPacific |
124 | 11.7 | 58 | 5.5 | 62 | 4 | 257 | 12.0 | 166 | 7.7 | 84 | 7 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 518 | 16.1 | % | $ | 221 | 6.9 | % | $ | 235 | $ | 62 | $ | 935 | 14.9 | % | $ | 461 | 7.4 | % | $ | 350 | $ | 124 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
Change | March 30, 2018 |
March 31, 2017 |
Change | |||||||||||||
|
($ in millions) |
||||||||||||||||||
Cost of sales |
$ | 2,502 | $ | 2,117 | $ | 385 | $ | 4,805 | $ | 4,113 | $ | 692 | |||||||
As a percentage of net sales |
66.8 | % | 65.6 | % | 66.5 | % | 65.4 | % | |||||||||||
Gross margin |
$ | 1,243 | $ | 1,110 | $ | 133 | $ | 2,420 | $ | 2,177 | $ | 243 | |||||||
As a percentage of net sales |
33.2 | % | 34.4 | % | 33.5 | % | 34.6 | % |
Gross margin increased $133 million and $243 million in the second quarter and first six months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The increases were due primarily to higher volume, the positive impact of changes in foreign currency exchange rates, and lower material costs, partially offset by the negative impact of price erosion and declines in our Subsea Communications business related to production delays. Gross margin as a percentage of net sales decreased to 33.2% in the second quarter of fiscal 2018 from 34.4% in the second quarter of fiscal 2017 and decreased to 33.5% in the first six months of fiscal 2018 from 34.6% in the same period of fiscal 2017.
Cost of sales and gross margin are subject to variability in raw material prices which continue to fluctuate for many of the raw materials used in the manufacture of our products. We expect to purchase approximately 200 million pounds of copper, 150,000 troy ounces of gold, and 2.8 million troy ounces of silver in fiscal 2018. The following table presents the average prices incurred related to copper, gold, and silver:
|
|
For the Quarters Ended |
For the Six Months Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Measure | March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
||||||||||
Copper |
Lb. | $ | 2.78 | $ | 2.35 | $ | 2.79 | $ | 2.35 | ||||||
Gold |
Troy oz. | 1,293 | 1,220 | 1,279 | 1,213 | ||||||||||
Silver |
Troy oz. | 17.51 | 16.74 | 17.30 | 16.53 |
30
Operating Expenses
The following table presents operating expense information:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
Change | March 30, 2018 |
March 31, 2017 |
Change | |||||||||||||
|
($ in millions) |
||||||||||||||||||
Selling, general, and administrative expenses |
$ | 428 | $ | 407 | $ | 21 | $ | 811 | $ | 774 | $ | 37 | |||||||
As a percentage of net sales |
11.4 | % | 12.6 | % | 11.2 | % | 12.3 | % | |||||||||||
Research, development, and engineering expenses |
$ |
182 |
$ |
161 |
$ |
21 |
$ |
358 |
$ |
317 |
$ |
41 |
|||||||
Acquisition and integration costs |
$ | 3 | $ | 2 | $ | 1 | $ | 5 | $ | 4 | $ | 1 | |||||||
Restructuring and other charges, net |
$ | 6 | $ | 59 | $ | (53 | ) | $ | 41 | $ | 106 | $ | (65 | ) |
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $21 million and $37 million in the second quarter and first six months of fiscal 2018, respectively, from the same periods in fiscal 2017. The increases resulted primarily from increased selling expenses to support higher sales levels. Selling, general, and administrative expenses as a percentage of net sales decreased to 11.4% in the second quarter of fiscal 2018 from 12.6% in the second quarter of fiscal 2017 and decreased to 11.2% in the first six months of fiscal 2018 from 12.3% in the same period of fiscal 2017.
Research, Development, and Engineering Expenses. In the second quarter and first six months of fiscal 2018, research, development, and engineering expenses increased $21 million and $41 million, respectively, as compared to the same periods of fiscal 2017 due to costs related to growth initiatives, primarily in the Transportation Solutions segment.
Restructuring and Other Charges, Net. We are committed to continuous productivity improvements and consistently 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 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions segment. During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments.
In connection with these initiatives, we incurred net restructuring charges of $45 million during the first six months of fiscal 2018, of which $36 million related to the fiscal 2018 restructuring program. Annualized cost savings related to the fiscal 2018 actions commenced during the first six months of fiscal 2018 are expected to be approximately $30 million and are expected to be realized by the end of fiscal 2019. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses. During fiscal 2018, we expect to incur net restructuring charges of approximately $150 million. We expect total spending, which will be funded with cash from operations, to be approximately $130 million in fiscal 2018.
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
31
Operating Income
The following table presents operating income and operating margin information:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
Change | March 30, 2018 |
March 31, 2017 |
Change | |||||||||||||
|
($ in millions) |
||||||||||||||||||
Operating income |
$ | 624 | $ | 481 | $ | 143 | $ | 1,205 | $ | 976 | $ | 229 | |||||||
Operating margin |
16.7 | % | 14.9 | % | 16.7 | % | 15.5 | % |
Operating income included the following:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Acquisition related charges: |
|||||||||||||
Acquisition and integration costs |
$ | 3 | $ | 2 | $ | 5 | $ | 4 | |||||
Charges associated with the amortization of acquisition related fair value adjustments |
2 | 1 | 7 | 2 | |||||||||
| | | | | | | | | | | | | |
|
5 | 3 | 12 | 6 | |||||||||
Restructuring and other charges, net |
6 | 59 | 41 | 106 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 11 | $ | 62 | $ | 53 | $ | 112 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See discussion of operating income below under "Segment Results."
Non-Operating Items
The following table presents select non-operating information:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
Change | March 30, 2018 |
March 31, 2017 |
Change | |||||||||||||
|
($ in millions) |
||||||||||||||||||
Interest expense |
$ | 29 | $ | 32 | $ | (3 | ) | $ | 55 | $ | 63 | $ | (8 | ) | |||||
Other (income) expense, net |
$ | (1 | ) | $ | 10 | $ | (11 | ) | $ | (3 | ) | $ | 19 | $ | (22 | ) | |||
Income tax expense |
$ |
108 |
$ |
39 |
$ |
69 |
$ |
708 |
$ |
93 |
$ |
615 |
|||||||
Effective tax rate |
18.0 | % | 8.8 | % | 61.0 | % | 10.3 | % |
Income Taxes. See Note 10 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense for the second quarters and first six months of fiscal 2018 and 2017 and information regarding the Tax Cuts and Jobs Act (the "Act"). We do not expect a significant change in our effective tax rate on future results of operations as a result of the Act.
32
Transportation Solutions
Net Sales. The following table presents the Transportation Solutions segment's net sales and the percentage of total net sales by primary industry end market(1):
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||
Automotive |
$ | 1,571 | 74 | % | $ | 1,309 | 75 | % | $ | 3,088 | 74 | % | $ | 2,584 | 76 | % | |||||||||
Commercial transportation |
333 | 15 | 248 | 14 | 633 | 15 | 461 | 13 | |||||||||||||||||
Sensors |
230 | 11 | 198 | 11 | 445 | 11 | 385 | 11 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 2,134 | 100 | % | $ | 1,755 | 100 | % | $ | 4,166 | 100 | % | $ | 3,430 | 100 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides an analysis of the change in the Transportation Solutions segment's net sales by primary industry end market:
|
Change in Net Sales for the Quarter Ended March 30, 2018 versus Net Sales for the Quarter Ended March 31, 2017 |
Change in Net Sales for the Six Months Ended March 30, 2018 versus Net Sales for the Six Months Ended March 31, 2017 |
|||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisition | Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisition | |||||||||||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||||||||||||||
Automotive |
$ | 262 | 20.0 | % | $ | 91 | 7.0 | % | $ | 118 | $ | 53 | $ | 504 | 19.5 | % | $ | 222 | 8.6 | % | $ | 175 | $ | 107 | |||||||||||||
Commercial transportation |
85 | 34.3 | 61 | 24.4 | 24 | | 172 | 37.3 | 133 | 28.9 | 39 | | |||||||||||||||||||||||||
Sensors |
32 | 16.2 | 15 | 7.6 | 17 | | 60 | 15.6 | 35 | 9.0 | 25 | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 379 | 21.6 | % | $ | 167 | 9.5 | % | $ | 159 | $ | 53 | $ | 736 | 21.5 | % | $ | 390 | 11.4 | % | $ | 239 | $ | 107 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales in the Transportation Solutions segment increased $379 million, or 21.6%, in the second quarter of fiscal 2018 from the second quarter of fiscal 2017 due to organic net sales growth of 9.5%, the positive impact of foreign currency translation of 9.1%, and sales contributions from an acquisition of 3.0%. Our organic net sales by primary industry end market were as follows:
In the first six months of fiscal 2018, net sales in the Transportation Solutions segment increased $736 million, or 21.5%, as compared to the first six months of fiscal 2017 as a result of organic net sales growth of 11.4%, the positive impact of foreign currency translation of 7.0%, and sales
33
contributions from an acquisition of 3.1%. Our organic net sales by primary industry end market were as follows:
Operating Income. The following table presents the Transportation Solutions segment's operating income and operating margin information:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
Change | March 30, 2018 |
March 31, 2017 |
Change | |||||||||||||
|
($ in millions) |
||||||||||||||||||
Operating income |
$ | 428 | $ | 305 | $ | 123 | $ | 848 | $ | 653 | $ | 195 | |||||||
Operating margin |
20.1 | % | 17.4 | % | 20.4 | % | 19.0 | % |
Operating income in the Transportation Solutions segment increased $123 million and $195 million in the second quarter and first six months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The Transportation Solutions segment's operating income included the following:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Acquisition related charges: |
|||||||||||||
Acquisition and integration costs |
$ | 2 | $ | | $ | 3 | $ | 1 | |||||
Charges associated with the amortization of acquisition related fair value adjustments |
| | 4 | | |||||||||
| | | | | | | | | | | | | |
|
2 | | 7 | 1 | |||||||||
Restructuring and other charges, net |
(2 | ) | 33 | 2 | 57 | ||||||||
| | | | | | | | | | | | | |
Total |
$ | | $ | 33 | $ | 9 | $ | 58 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Excluding these items, operating income increased in the second quarter and first six months of fiscal 2018 due primarily to higher volume and lower material costs, partially offset by the negative impact of price erosion.
34
Industrial Solutions
Net Sales. The following table presents the Industrial Solutions segment's net sales and the percentage of total net sales by primary industry end market(1):
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||
Industrial equipment |
$ | 496 | 51 | % | $ | 418 | 49 | % | $ | 967 | 52 | % | $ | 801 | 48 | % | |||||||||
Aerospace, defense, oil, and gas |
298 | 31 | 268 | 31 | 552 | 30 | 520 | 32 | |||||||||||||||||
Energy |
178 | 18 | 167 | 20 | 335 | 18 | 327 | 20 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 972 | 100 | % | $ | 853 | 100 | % | $ | 1,854 | 100 | % | $ | 1,648 | 100 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides an analysis of the change in the Industrial Solutions segment's net sales by primary industry end market:
|
Change in Net Sales for the Quarter Ended March 30, 2018 versus Net Sales for the Quarter Ended March 31, 2017 |
Change in Net Sales for the Six Months Ended March 30, 2018 versus Net Sales for the Six Months Ended March 31, 2017 |
|||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisition | Net Sales Growth |
Organic Net Sales Growth |
Translation | Acquisition | |||||||||||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||||||||||||||
Industrial equipment |
$ | 78 | 18.7 | % | $ | 38 | 9.1 | % | $ | 31 | $ | 9 | $ | 166 | 20.7 | % | $ | 105 | 12.8 | % | $ | 44 | $ | 17 | |||||||||||||
Aerospace, defense, oil, and gas |
30 | 11.2 | 14 | 5.1 | 16 | | 32 | 6.2 | 8 | 1.6 | 24 | | |||||||||||||||||||||||||
Energy |
11 | 6.6 | (2 | ) | (1.2 | ) | 13 | | 8 | 2.4 | (12 | ) | (3.6 | ) | 20 | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 119 | 14.0 | % | $ | 50 | 5.9 | % | $ | 60 | $ | 9 | $ | 206 | 12.5 | % | $ | 101 | 6.1 | % | $ | 88 | $ | 17 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales in the Industrial Solutions segment increased $119 million, or 14.0%, in the second quarter of fiscal 2018 as compared to the second quarter of fiscal 2017 primarily as a result of the positive impact of foreign currency translation of 7.0% and organic net sales growth of 5.9%. Our organic net sales by primary industry end market were as follows:
In the first six months of fiscal 2018, net sales in the Industrial Solutions segment increased $206 million, or 12.5%, from the first six months of fiscal 2017 due primarily to organic net sales
35
growth of 6.1% and the positive impact of foreign currency translation of 5.3%. Our organic net sales by primary industry end market were as follows:
Operating Income. The following table presents the Industrial Solutions segment's operating income and operating margin information:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
Change | March 30, 2018 |
March 31, 2017 |
Change | |||||||||||||
|
($ in millions) |
||||||||||||||||||
Operating income |
$ | 126 | $ | 88 | $ | 38 | $ | 228 | $ | 158 | $ | 70 | |||||||
Operating margin |
13.0 | % | 10.3 | % | 12.3 | % | 9.6 | % |
Operating income in the Industrial Solutions segment increased $38 million and $70 million in the second quarter and first six months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The Industrial Solutions segment's operating income included the following:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Acquisition related charges: |
|||||||||||||
Acquisition and integration costs |
$ | 1 | $ | 2 | $ | 2 | $ | 3 | |||||
Charges associated with the amortization of acquisition related fair value adjustments |
2 | 1 | 3 | 2 | |||||||||
| | | | | | | | | | | | | |
|
3 | 3 | 5 | 5 | |||||||||
Restructuring and other charges, net |
6 | 19 | 29 | 40 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 9 | $ | 22 | $ | 34 | $ | 45 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Excluding these items, operating income increased in the second quarter and first six months of fiscal 2018 primarily as a result of higher volume.
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Communications Solutions
Net Sales. The following table presents the Communications Solutions segment's net sales and the percentage of total net sales by primary industry end market(1):
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||
Data and devices |
$ | 258 | 40 | % | $ | 233 | 38 | % | $ | 497 | 41 | % | $ | 464 | 38 | % | |||||||||
Subsea communications |
183 | 29 | 221 | 36 | 326 | 27 | 435 | 36 | |||||||||||||||||
Appliances |
198 | 31 | 165 | 26 | 382 | 32 | 313 | 26 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 639 | 100 | % | $ | 619 | 100 | % | $ | 1,205 | 100 | % | $ | 1,212 | 100 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides an analysis of the change in the Communications Solutions segment's net sales by primary industry end market:
|
Change in Net Sales for the Quarter Ended March 30, 2018 versus Net Sales for the Quarter Ended March 31, 2017 |
Change in Net Sales for the Six Months Ended March 30, 2018 versus Net Sales for the Six Months Ended March 31, 2017 |
|||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Sales Growth |
Organic Net Sales Growth |
Translation | Net Sales Growth |
Organic Net Sales Growth |
Translation | |||||||||||||||||||||||||
|
($ in millions) |
||||||||||||||||||||||||||||||
Data and devices |
$ | 25 | 10.7 | % | $ | 17 | 7.4 | % | $ | 8 | $ | 33 | 7.1 | % | $ | 22 | 4.7 | % | $ | 11 | |||||||||||
Subsea communications |
(38 | ) | (17.2 | ) | (38 | ) | (17.2 | ) | | (109 | ) | (25.1 | ) | (109 | ) | (25.1 | ) | | |||||||||||||
Appliances |
33 | 20.0 | 25 | 14.4 | 8 | 69 | 22.0 | 57 | 17.9 | 12 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 20 | 3.2 | % | $ | 4 | 0.6 | % | $ | 16 | $ | (7 | ) | (0.6 | )% | $ | (30 | ) | (2.5 | )% | $ | 23 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In the second quarter of fiscal 2018, net sales in the Communications Solutions segment increased $20 million, or 3.2%, from the second quarter of fiscal 2017 due to the positive impact of foreign currency translation of 2.6% and organic net sales growth of 0.6%. Our organic net sales by primary industry end market were as follows:
Net sales in the Communications Solutions segment decreased $7 million, or 0.6%, in the first six months of fiscal 2018 as compared to the same period of fiscal 2017 due to organic net sales declines of 2.5%, partially offset by the positive impact of foreign currency translation of 1.9%. Our organic net sales by primary industry end market were as follows:
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Operating Income. The following table presents the Communications Solutions segment's operating income and operating margin information:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
Change | March 30, 2018 |
March 31, 2017 |
Change | |||||||||||||
|
($ in millions) |
||||||||||||||||||
Operating income |
$ | 70 | $ | 88 | $ | (18 | ) | $ | 129 | $ | 165 | $ | (36 | ) | |||||
Operating margin |
11.0 | % | 14.2 | % | 10.7 | % | 13.6 | % |
Operating income in the Communications Solutions segment decreased $18 million and $36 million in the second quarter and first six months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The Communications Solutions segment's operating income included the following:
|
For the Quarters Ended |
For the Six Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 30, 2018 |
March 31, 2017 |
March 30, 2018 |
March 31, 2017 |
|||||||||
|
(in millions) |
||||||||||||
Restructuring and other charges, net |
$ | 2 | $ | 7 | $ | 10 | $ | 9 |
Excluding these items, operating income decreased in the second quarter and first six months of fiscal 2018 due primarily to declines in our Subsea Communications business related to production delays.
Liquidity and Capital Resources
Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the 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 $325 million of 2.375% senior notes and €100 million borrowed under the uncommitted revolving credit facility, both of which are due in December 2018. 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, including through the possible repurchase of our debt in accordance with applicable law. 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.
Cash Flows from Operating Activities
In the first six months of fiscal 2018, net cash provided by operating activities decreased $198 million to $727 million from $925 million in the first six months of fiscal 2017. The decrease resulted primarily from an increase in employee-compensation related payments and the unfavorable effects of changes in accounts receivable and inventory levels, partially offset by higher pre-tax income levels.
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The amount of income taxes paid, net of refunds, during the first six months of fiscal 2018 and 2017 was $208 million and $177 million, respectively. We do not expect a significant change in our income tax payments as a result of the Tax Cuts and Jobs Act.
Cash Flows from Investing Activities
Capital expenditures were $447 million and $289 million in the first six months of fiscal 2018 and 2017, respectively. We expect fiscal 2018 capital spending levels to be approximately 6% 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.
Cash Flows from Financing Activities and Capitalization
Total debt at March 30, 2018 and September 29, 2017 was $4,010 million and $4,344 million, respectively. See Note 6 to the Condensed Consolidated Financial Statements for additional information regarding debt.
During the first six months of fiscal 2018, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, repaid, at maturity, $708 million of 6.55% senior notes due October 2017.
During the first six months of fiscal 2018, TEGSA entered into an uncommitted revolving credit facility under which it borrowed €100 million at a 0% interest rate with repayment due at maturity in December 2018.
TEGSA has a five-year unsecured senior revolving credit facility ("Credit Facility") with a maturity date of December 2020 and total commitments of $1,500 million. TEGSA had no borrowings under the Credit Facility at March 30, 2018 or September 29, 2017. Borrowings under our commercial paper program are backed by the Credit Facility and reduce the availability of funds from the Credit Facility.
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 March 30, 2018, 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 by its parent, TE Connectivity Ltd.
Payments of common share dividends to shareholders were $281 million and $263 million in the first six months of fiscal 2018 and 2017, respectively.
In March 2018, our shareholders approved a dividend payment to shareholders of $1.76 per share, payable in four equal quarterly installments of $0.44 per share beginning in the third quarter of fiscal 2018 and ending in the second quarter of fiscal 2019.
During the first six months of fiscal 2018, our board of directors authorized an increase of $1.5 billion in the share repurchase program. We repurchased approximately 4 million of our common shares for $383 million and approximately 3 million of our common shares for $205 million under our share repurchase program during the first six months of fiscal 2018 and 2017, respectively. At March 30, 2018, we had $1.6 billion of availability remaining under our share repurchase authorization.
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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.
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 2018 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 March 30, 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds of $285 million.
Tax Sharing Agreement
We are a party to a Tax Sharing Agreement that generally governs our, Tyco International plc's, and Covidien plc's respective rights, responsibilities, and obligations with respect to taxes for periods prior to and including June 29, 2007. See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding the Tax Sharing Agreement.
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 liabilities 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 the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017. There were no significant changes to this information during the first six months of fiscal 2018.
40
See Note 1 to the Condensed Consolidated Financial Statements for information regarding recently issued and adopted accounting pronouncements.
Organic Net Sales Growth
We present organic net sales growth 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 represents net sales growth (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 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 provides useful information about our results and the trends of our business. Management uses organic net sales growth to monitor and evaluate performance. Also, management uses organic net sales growth 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 to net sales growth calculated in accordance with GAAP.
Organic net sales growth 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 in combination with net sales growth in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts.
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. 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," "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.
41
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, 2017, could cause our results to differ materially from those expressed in forward-looking statements:
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our exposures to market risk during the six months ended March 30, 2018. For further discussion of our exposures to market risk, refer to "Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017.
42
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of March 30, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 30, 2018.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 30, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
43
There have been no material developments in our legal proceedings since we filed our Annual Report on Form 10-K for the fiscal year ended September 29, 2017. Refer to "Part I. Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017 for additional information regarding legal proceedings.
There have been no material changes in our risk factors from those disclosed in "Part I. Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017 except as described below. The risk factors described in our Annual Report on Form 10-K, in addition to other information set forth below and in this report, could materially affect our business operations, financial condition, or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impair our business operations, financial condition, and liquidity.
Changes in United States federal tax laws could result in adverse consequences to United States persons treated as owning 10% or more of our shares.
Although we are a Swiss corporation, recent U.S. tax law changes have expanded application of certain ownership attribution rules and cause certain of our non-U.S. subsidiaries to be treated as Controlled Foreign Corporations ("CFCs") for U.S. federal income tax purposes. A U.S. person that is treated for U.S. federal income tax purposes as owning, directly, indirectly, or constructively, 10% or more of our shares may be required to annually report and include in its U.S. taxable income its pro rata share of certain types of income earned by our subsidiaries that are treated as CFCs, whether or not we make any distributions to such U.S. shareholder. A U.S. person that owns 10% or more of our shares should consult its own tax advisers regarding any potential implications to it of these changes in U.S. federal income tax law. The risk of U.S. federal income tax reporting and compliance obligations with respect to our subsidiaries that now are treated as CFCs may deter our current shareholders from increasing their investment in us, and others from investing in us, which could impact the demand for, and value of, our shares.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None.
44
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the quarter ended March 30, 2018:
Period
|
Total Number of Shares Purchased(1) |
Average Price Paid Per Share(1) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) |
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 30, 2017January 26, 2018 |
428,476 | $ | 100.07 | 427,100 | $ | 1,723,550,156 | |||||||
January 27March 2, 2018 |
693,557 | 100.67 | 689,200 | 1,654,180,167 | |||||||||
March 3March 30, 2018 |
564,897 | 100.84 | 564,470 | 1,597,258,621 | |||||||||
| | | | | | | | | | | | | |
Total |
1,686,930 | $ | 100.58 | 1,680,770 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Exhibit Number |
|
Exhibit | ||
---|---|---|---|---|
3.1 | Articles of Association of TE Connectivity Ltd., as amended and restated (incorporated by reference to Exhibit 3.1 to TE Connectivity's Current Report on Form 8-K, filed March 19, 2018) | |||
31.1 | * | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | * | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32.1 | ** | Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
101 | * | Financial statements from the Quarterly Report on Form 10-Q of TE Connectivity Ltd. for the quarterly period ended March 30, 2018, filed on April 25, 2018, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Shareholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TE CONNECTIVITY LTD. | ||||
By: |
/s/ HEATH A. MITTS Heath A. Mitts Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: April 25, 2018
46