UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q10-Q
| |
| |
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended | |
or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
001‑33260001-33260
(Commission File Number)
TE CONNECTIVITY LTD.
(Exact name of registrant as specified in its charter)
Switzerland |
|
Rheinstrasse 20
CH‑8200 Schaffhausen, Switzerland
(Address of principal executive offices)
+41 (0)52
Mühlenstrasse 26, CH-8200Schaffhausen, Switzerland
(Address of principal executive offices)
+41(0)52633 66 61
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered |
Common Shares, Par Value CHF 0.57 | TEL | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑TS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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☒ | Accelerated filer☐ |
| Smaller reporting company☐ | Emerging growth company☐ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares outstanding as of April 22, 2019January 24, 2020 was 336,866,119.334,142,101.
TE CONNECTIVITY LTD.
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| | | 4 | |
| | | 5 | |
| | Notes to Condensed Consolidated Financial Statements (unaudited) | | 6 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 26 | |
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40 | ||||
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i
PART I. FINANCIAL INFORMATION
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(UNAUDITED)
|
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|
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|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions, except per share data) |
| ||||||||||
Net sales |
| $ | 3,412 |
| $ | 3,562 |
| $ | 6,759 |
| $ | 6,898 |
|
Cost of sales |
|
| 2,294 |
|
| 2,350 |
|
| 4,527 |
|
| 4,522 |
|
Gross margin |
|
| 1,118 |
|
| 1,212 |
|
| 2,232 |
|
| 2,376 |
|
Selling, general, and administrative expenses |
|
| 373 |
|
| 409 |
|
| 762 |
|
| 786 |
|
Research, development, and engineering expenses |
|
| 166 |
|
| 173 |
|
| 327 |
|
| 338 |
|
Acquisition and integration costs |
|
| 7 |
|
| 3 |
|
| 12 |
|
| 5 |
|
Restructuring and other charges, net |
|
| 42 |
|
| 6 |
|
| 117 |
|
| 40 |
|
Operating income |
|
| 530 |
|
| 621 |
|
| 1,014 |
|
| 1,207 |
|
Interest income |
|
| 4 |
|
| 4 |
|
| 9 |
|
| 8 |
|
Interest expense |
|
| (15) |
|
| (28) |
|
| (42) |
|
| (54) |
|
Other income, net |
|
| 1 |
|
| 1 |
|
| — |
|
| 3 |
|
Income from continuing operations before income taxes |
|
| 520 |
|
| 598 |
|
| 981 |
|
| 1,164 |
|
Income tax expense |
|
| (91) |
|
| (108) |
|
| (169) |
|
| (707) |
|
Income from continuing operations |
|
| 429 |
|
| 490 |
|
| 812 |
|
| 457 |
|
Income (loss) from discontinued operations, net of income taxes |
|
| 10 |
|
| — |
|
| (97) |
|
| (7) |
|
Net income |
| $ | 439 |
| $ | 490 |
| $ | 715 |
| $ | 450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 1.27 |
| $ | 1.40 |
| $ | 2.39 |
| $ | 1.30 |
|
Income (loss) from discontinued operations |
|
| 0.03 |
|
| — |
|
| (0.29) |
|
| (0.02) |
|
Net income |
|
| 1.30 |
|
| 1.40 |
|
| 2.10 |
|
| 1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 1.26 |
| $ | 1.38 |
| $ | 2.37 |
| $ | 1.29 |
|
Income (loss) from discontinued operations |
|
| 0.03 |
|
| — |
|
| (0.28) |
|
| (0.02) |
|
Net income |
|
| 1.29 |
|
| 1.38 |
|
| 2.09 |
|
| 1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 338 |
|
| 351 |
|
| 340 |
|
| 351 |
|
Diluted |
|
| 340 |
|
| 354 |
|
| 342 |
|
| 355 |
|
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions, except per share data) | | ||||
Net sales | | $ | 3,168 | | $ | 3,347 | |
Cost of sales | |
| 2,138 | |
| 2,233 | |
Gross margin | |
| 1,030 | |
| 1,114 | |
Selling, general, and administrative expenses | |
| 367 | | | 389 | |
Research, development, and engineering expenses | |
| 161 | | | 161 | |
Acquisition and integration costs | |
| 7 | | | 5 | |
Restructuring and other charges, net | |
| 24 | | | 75 | |
Operating income | | | 471 | | | 484 | |
Interest income | | | 6 | | | 5 | |
Interest expense | |
| (12) | | | (27) | |
Other income (expense), net | |
| 5 | | | (1) | |
Income from continuing operations before income taxes | |
| 470 | |
| 461 | |
Income tax expense | |
| (447) | | | (78) | |
Income from continuing operations | |
| 23 | |
| 383 | |
Income (loss) from discontinued operations, net of income taxes | |
| 3 | | | (107) | |
Net income | | $ | 26 | | $ | 276 | |
| | | | | | | |
Basic earnings per share: | | | | | | | |
Income from continuing operations | | $ | 0.07 | | $ | 1.12 | |
Income (loss) from discontinued operations | |
| 0.01 | |
| (0.31) | |
Net income | |
| 0.08 | |
| 0.81 | |
| | | | | | | |
Diluted earnings per share: | | | | | | | |
Income from continuing operations | | $ | 0.07 | | $ | 1.11 | |
Income (loss) from discontinued operations | |
| 0.01 | |
| (0.31) | |
Net income | |
| 0.08 | |
| 0.80 | |
| | | | | | | |
Weighted-average number of shares outstanding: | | | | | | | |
Basic | |
| 335 | | | 342 | |
Diluted | |
| 337 | | | 344 | |
See Notes to Condensed Consolidated Financial Statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(UNAUDITED)
|
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|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Net income |
| $ | 439 |
| $ | 490 |
| $ | 715 |
| $ | 450 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation |
|
| 64 |
|
| 114 |
|
| 83 |
|
| 181 |
|
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes |
|
| 6 |
|
| 8 |
|
| 12 |
|
| 15 |
|
Gains (losses) on cash flow hedges, net of income taxes |
|
| 27 |
|
| (49) |
|
| 51 |
|
| (47) |
|
Other comprehensive income |
|
| 97 |
|
| 73 |
|
| 146 |
|
| 149 |
|
Comprehensive income |
| $ | 536 |
| $ | 563 |
| $ | 861 |
| $ | 599 |
|
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Net income | | $ | 26 | | $ | 276 | |
Other comprehensive income: | | | | | | | |
Currency translation | |
| 50 | | | 19 | |
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes | |
| 8 | | | 6 | |
Gains on cash flow hedges, net of income taxes | |
| 31 | | | 24 | |
Other comprehensive income | |
| 89 | |
| 49 | |
Comprehensive income | | $ | 115 | | $ | 325 | |
See Notes to Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
| March 29, |
| September 28, |
| ||
|
| 2019 |
| 2018 |
| ||
|
| (in millions, except share |
| ||||
|
| data) |
| ||||
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 565 |
| $ | 848 |
|
Accounts receivable, net of allowance for doubtful accounts of $24 and $22, respectively |
|
| 2,463 |
|
| 2,361 |
|
Inventories |
|
| 1,970 |
|
| 1,857 |
|
Prepaid expenses and other current assets |
|
| 448 |
|
| 661 |
|
Assets held for sale |
|
| — |
|
| 472 |
|
Total current assets |
|
| 5,446 |
|
| 6,199 |
|
Property, plant, and equipment, net |
|
| 3,596 |
|
| 3,497 |
|
Goodwill |
|
| 5,626 |
|
| 5,684 |
|
Intangible assets, net |
|
| 1,596 |
|
| 1,704 |
|
Deferred income taxes |
|
| 2,607 |
|
| 2,144 |
|
Other assets |
|
| 391 |
|
| 1,158 |
|
Total assets |
| $ | 19,262 |
| $ | 20,386 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Short-term debt |
| $ | 612 |
| $ | 963 |
|
Accounts payable |
|
| 1,485 |
|
| 1,548 |
|
Accrued and other current liabilities |
|
| 1,770 |
|
| 1,711 |
|
Liabilities held for sale |
|
| — |
|
| 188 |
|
Total current liabilities |
|
| 3,867 |
|
| 4,410 |
|
Long-term debt |
|
| 3,370 |
|
| 3,037 |
|
Long-term pension and postretirement liabilities |
|
| 1,081 |
|
| 1,102 |
|
Deferred income taxes |
|
| 196 |
|
| 207 |
|
Income taxes |
|
| 333 |
|
| 312 |
|
Other liabilities |
|
| 421 |
|
| 487 |
|
Total liabilities |
|
| 9,268 |
|
| 9,555 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued |
|
| 157 |
|
| 157 |
|
Accumulated earnings |
|
| 11,710 |
|
| 12,114 |
|
Treasury shares, at cost, 19,761,517 and 12,279,603 shares, respectively |
|
| (1,713) |
|
| (1,134) |
|
Accumulated other comprehensive loss |
|
| (160) |
|
| (306) |
|
Total shareholders’ equity |
|
| 9,994 |
|
| 10,831 |
|
Total liabilities and shareholders’ equity |
| $ | 19,262 |
| $ | 20,386 |
|
| | | | | | | |
| | December 27, | | September 27, | | ||
|
| 2019 |
| 2019 |
| ||
| | (in millions, except share | | ||||
| | data) | | ||||
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 742 | | $ | 927 | |
Accounts receivable, net of allowance for doubtful accounts of $29 and $25, respectively | |
| 2,338 | |
| 2,320 | |
Inventories | |
| 2,003 | |
| 1,836 | |
Prepaid expenses and other current assets | |
| 483 | |
| 471 | |
Total current assets | |
| 5,566 | |
| 5,554 | |
Property, plant, and equipment, net | |
| 3,659 | |
| 3,574 | |
Goodwill | |
| 5,846 | |
| 5,740 | |
Intangible assets, net | |
| 1,602 | |
| 1,596 | |
Deferred income taxes | |
| 2,360 | |
| 2,776 | |
Other assets | |
| 943 | |
| 454 | |
Total assets | | $ | 19,976 | | $ | 19,694 | |
Liabilities and shareholders’ equity | | | | | | | |
Current liabilities: | | | | | | | |
Short-term debt | | $ | 561 | | $ | 570 | |
Accounts payable | |
| 1,433 | |
| 1,357 | |
Accrued and other current liabilities | |
| 1,410 | |
| 1,613 | |
Total current liabilities | |
| 3,404 | |
| 3,540 | |
Long-term debt | |
| 3,412 | |
| 3,395 | |
Long-term pension and postretirement liabilities | |
| 1,365 | |
| 1,367 | |
Deferred income taxes | |
| 142 | |
| 156 | |
Income taxes | |
| 247 | |
| 239 | |
Other liabilities | |
| 849 | |
| 427 | |
Total liabilities | |
| 9,419 | |
| 9,124 | |
Commitments and contingencies (Note 10) | | | | | | | |
Shareholders’ equity: | | | | | | | |
Common shares, CHF 0.57 par value, 350,951,381 shares authorized and issued | |
| 154 | | | 154 | |
Accumulated earnings | |
| 12,206 | |
| 12,256 | |
Treasury shares, at cost, 16,520,951 and 15,862,337 shares, respectively | |
| (1,389) | |
| (1,337) | |
Accumulated other comprehensive loss | |
| (414) | |
| (503) | |
Total shareholders’ equity | |
| 10,557 | |
| 10,570 | |
Total liabilities and shareholders’ equity | | $ | 19,976 | | $ | 19,694 | |
See Notes to Condensed Consolidated Financial Statements.
3
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended December 27, 2019 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | Accumulated | | | | ||||
| | | | | | | | | | | | | | | | | Other | | Total | | |||
| | Common Shares | | Treasury Shares | | Contributed | | Accumulated | | Comprehensive | | Shareholders' | | ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Surplus |
| Earnings |
| Loss |
| Equity |
| ||||||
| | (in millions) | | ||||||||||||||||||||
Balance at September 27, 2019 |
| 351 | | $ | 154 |
| (16) | | $ | (1,337) | | $ | — | | $ | 12,256 | | $ | (503) | | $ | 10,570 | |
Net income |
| — | |
| — |
| — | |
| — | |
| — | |
| 26 | |
| — | |
| 26 | |
Other comprehensive income |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 89 | |
| 89 | |
Share-based compensation expense |
| — | |
| — |
| — | |
| — | |
| 22 | |
| — | |
| — | |
| 22 | |
Exercise of share options |
| — | |
| — |
| — | |
| 14 | |
| — | |
| — | |
| — | |
| 14 | |
Restricted share award vestings and other activity |
| — | |
| — |
| 1 | |
| 77 | |
| (22) | |
| (76) | |
| — | |
| (21) | |
Repurchase of common shares |
| — | |
| — |
| (2) | |
| (143) | |
| — | |
| — | |
| — | |
| (143) | |
Balance at December 27, 2019 | | 351 | | $ | 154 |
| (17) | | $ | (1,389) | | $ | — | | $ | 12,206 | | $ | (414) | | $ | 10,557 | |
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Quarter Ended March 29, 2019 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
| Total |
| |||
|
| Common Shares |
| Treasury Shares |
| Contributed |
| Accumulated |
| Comprehensive |
| Shareholders' |
| ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Surplus |
| Earnings |
| Loss |
| Equity |
| ||||||
|
| (in millions) |
| ||||||||||||||||||||
Balance at December 28, 2018 |
| 357 |
| $ | 157 |
| (18) |
| $ | (1,550) |
| $ | — |
| $ | 11,886 |
| $ | (257) |
| $ | 10,236 |
|
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 439 |
|
| — |
|
| 439 |
|
Other comprehensive income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 97 |
|
| 97 |
|
Share-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| 16 |
|
| — |
|
| — |
|
| 16 |
|
Dividends |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (620) |
|
| — |
|
| (620) |
|
Exercise of share options |
| — |
|
| — |
| — |
|
| 10 |
|
| — |
|
| — |
|
| — |
|
| 10 |
|
Restricted share award vestings and other activity |
| — |
|
| — |
| 1 |
|
| 16 |
|
| (16) |
|
| 5 |
|
| — |
|
| 5 |
|
Repurchase of common shares |
| — |
|
| — |
| (3) |
|
| (189) |
|
| — |
|
| — |
|
| — |
|
| (189) |
|
Balance at March 29, 2019 |
| 357 |
| $ | 157 |
| (20) |
| $ | (1,713) |
| $ | — |
| $ | 11,710 |
| $ | (160) |
| $ | 9,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended March 29, 2019 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
| Total |
| |||
|
| Common Shares |
| Treasury Shares |
| Contributed |
| Accumulated |
| Comprehensive |
| Shareholders' |
| ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Surplus |
| Earnings |
| Loss |
| Equity |
| ||||||
|
| (in millions) |
| ||||||||||||||||||||
Balance at September 28, 2018 |
| 357 |
| $ | 157 |
| (12) |
| $ | (1,134) |
| $ | — |
| $ | 12,114 |
| $ | (306) |
| $ | 10,831 |
|
Adoption of ASU No. 2016‑16 |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (443) |
|
| — |
|
| (443) |
|
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 715 |
|
| — |
|
| 715 |
|
Other comprehensive income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 146 |
|
| 146 |
|
Share-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| 39 |
|
| — |
|
| — |
|
| 39 |
|
Dividends |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (616) |
|
| — |
|
| (616) |
|
Exercise of share options |
| — |
|
| — |
| — |
|
| 17 |
|
| — |
|
| — |
|
| — |
|
| 17 |
|
Restricted share award vestings and other activity |
| — |
|
| — |
| 1 |
|
| 88 |
|
| (39) |
|
| (60) |
|
| — |
|
| (11) |
|
Repurchase of common shares |
| — |
|
| — |
| (9) |
|
| (684) |
|
| — |
|
| — |
|
| — |
|
| (684) |
|
Balance at March 29, 2019 |
| 357 |
| $ | 157 |
| (20) |
| $ | (1,713) |
| $ | — |
| $ | 11,710 |
| $ | (160) |
| $ | 9,994 |
|
4
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Quarter Ended March 30, 2018 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
| Total |
| |||
|
| Common Shares |
| Treasury Shares |
| Contributed |
| Accumulated |
| Comprehensive |
| Shareholders' |
| ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Surplus |
| Earnings |
| Loss |
| Equity |
| ||||||
|
| (in millions) |
| ||||||||||||||||||||
Balance at December 29, 2017 |
| 357 |
| $ | 157 |
| (6) |
| $ | (489) |
| $ | — |
| $ | 10,047 |
| $ | (84) |
| $ | 9,631 |
|
Adoption of ASU No. 2018‑02 |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 38 |
|
| (38) |
|
| — |
|
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 490 |
|
| — |
|
| 490 |
|
Other comprehensive income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 73 |
|
| 73 |
|
Share-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| 23 |
|
| — |
|
| — |
|
| 23 |
|
Dividends |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (617) |
|
| — |
|
| (617) |
|
Exercise of share options |
| — |
|
| — |
| 1 |
|
| 40 |
|
| — |
|
| — |
|
| — |
|
| 40 |
|
Restricted share award vestings and other activity |
| — |
|
| — |
| 1 |
|
| 33 |
|
| (23) |
|
| (1) |
|
| — |
|
| 9 |
|
Repurchase of common shares |
| — |
|
| — |
| (2) |
|
| (169) |
|
| — |
|
| — |
|
| — |
|
| (169) |
|
Balance at March 30, 2018 |
| 357 |
| $ | 157 |
| (6) |
| $ | (585) |
| $ | — |
| $ | 9,957 |
| $ | (49) |
| $ | 9,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended March 30, 2018 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
| Total |
| |||
|
| Common Shares |
| Treasury Shares |
| Contributed |
| Accumulated |
| Comprehensive |
| Shareholders' |
| ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Surplus |
| Earnings |
| Loss |
| Equity |
| ||||||
|
| (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 |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (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 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended December 28, 2018 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | Accumulated | | | | ||||
| | | | | | | | | | | | | | | | | Other | | Total | | |||
| | Common Shares | | Treasury Shares | | Contributed | | Accumulated | | Comprehensive | | Shareholders' | | ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Surplus |
| Earnings |
| Loss |
| Equity |
| ||||||
| | (in millions) | | ||||||||||||||||||||
Balance at September 28, 2018 |
| 357 | | $ | 157 |
| (12) | | $ | (1,134) | | $ | — | | $ | 12,114 | | $ | (306) | | $ | 10,831 | |
Adoption of ASU No. 2016-16 |
| — | |
| — |
| — | |
| — | |
| — | |
| (443) | |
| — | |
| (443) | |
Net income | | — | | | — | | — | | | — | | | — | | | 276 | | | — | | | 276 | |
Other comprehensive income |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 49 | |
| 49 | |
Share-based compensation expense |
| — | |
| — |
| — | |
| — | |
| 23 | |
| — | |
| — | |
| 23 | |
Exercise of share options |
| — | |
| — |
| — | |
| 7 | |
| — | |
| — | |
| — | |
| 7 | |
Restricted share award vestings and other activity |
| — | |
| — |
| — | |
| 72 | |
| (23) | |
| (61) | |
| — | |
| (12) | |
Repurchase of common shares |
| — | |
| — |
| (6) | |
| (495) | |
| — | |
| — | |
| — | |
| (495) | |
Balance at December 28, 2018 | | 357 | | $ | 157 |
| (18) | | $ | (1,550) | | $ | — | | $ | 11,886 | | $ | (257) | | $ | 10,236 | |
See Notes to Condensed Consolidated Financial Statements.
54
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
| For the |
| ||||
|
| Six Months Ended |
| ||||
|
| March 29, |
| March 30, |
| ||
|
| 2019 |
| 2018 |
| ||
|
| (in millions) |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
| $ | 715 |
| $ | 450 |
|
Loss from discontinued operations, net of income taxes |
|
| 97 |
|
| 7 |
|
Income from continuing operations |
|
| 812 |
|
| 457 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 341 |
|
| 329 |
|
Deferred income taxes |
|
| (28) |
|
| 497 |
|
Provision for losses on accounts receivable and inventories |
|
| 28 |
|
| 25 |
|
Share-based compensation expense |
|
| 38 |
|
| 51 |
|
Other |
|
| 32 |
|
| (17) |
|
Changes in assets and liabilities, net of the effects of acquisitions and divestitures: |
|
|
|
|
|
|
|
Accounts receivable, net |
|
| (107) |
|
| (376) |
|
Inventories |
|
| (70) |
|
| (227) |
|
Prepaid expenses and other current assets |
|
| 91 |
|
| (105) |
|
Accounts payable |
|
| (44) |
|
| 184 |
|
Accrued and other current liabilities |
|
| (206) |
|
| (210) |
|
Income taxes |
|
| 21 |
|
| 2 |
|
Other |
|
| (25) |
|
| 35 |
|
Net cash provided by continuing operating activities |
|
| 883 |
|
| 645 |
|
Net cash provided by (used in) discontinued operating activities |
|
| (30) |
|
| 82 |
|
Net cash provided by operating activities |
|
| 853 |
|
| 727 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Capital expenditures |
|
| (401) |
|
| (439) |
|
Proceeds from sale of property, plant, and equipment |
|
| 13 |
|
| 7 |
|
Proceeds from divestiture of discontinued operation, net of cash retained by sold operation |
|
| 297 |
|
| — |
|
Other |
|
| 8 |
|
| (2) |
|
Net cash used in continuing investing activities |
|
| (83) |
|
| (434) |
|
Net cash used in discontinued investing activities |
|
| (2) |
|
| (8) |
|
Net cash used in investing activities |
|
| (85) |
|
| (442) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Net increase in commercial paper |
|
| 90 |
|
| 225 |
|
Proceeds from issuance of debt |
|
| 350 |
|
| 119 |
|
Repayment of debt |
|
| (441) |
|
| (708) |
|
Proceeds from exercise of share options |
|
| 17 |
|
| 94 |
|
Repurchase of common shares |
|
| (739) |
|
| (381) |
|
Payment of common share dividends to shareholders |
|
| (299) |
|
| (281) |
|
Transfers (to) from discontinued operations |
|
| (32) |
|
| 74 |
|
Other |
|
| (30) |
|
| (32) |
|
Net cash used in continuing financing activities |
|
| (1,084) |
|
| (890) |
|
Net cash provided by (used in) discontinued financing activities |
|
| 32 |
|
| (74) |
|
Net cash used in financing activities |
|
| (1,052) |
|
| (964) |
|
Effect of currency translation on cash |
|
| 1 |
|
| 20 |
|
Net decrease in cash, cash equivalents, and restricted cash |
|
| (283) |
|
| (659) |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 848 |
|
| 1,218 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 565 |
| $ | 559 |
|
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 26 | | $ | 276 | |
(Income) loss from discontinued operations, net of income taxes | |
| (3) | |
| 107 | |
Income from continuing operations | |
| 23 | |
| 383 | |
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 174 | |
| 168 | |
Deferred income taxes | |
| 394 | |
| (11) | |
Non-cash lease cost | | | 27 | | | — | |
Provision for losses on accounts receivable and inventories | |
| 20 | |
| 23 | |
Share-based compensation expense | |
| 22 | |
| 23 | |
Other | |
| 10 | |
| 18 | |
Changes in assets and liabilities, net of the effects of acquisitions and divestitures: | | | | | | | |
Accounts receivable, net | |
| (24) | |
| (26) | |
Inventories | |
| (176) | |
| (119) | |
Prepaid expenses and other current assets | |
| (23) | |
| 67 | |
Accounts payable | |
| 94 | |
| (9) | |
Accrued and other current liabilities | |
| (185) | |
| (190) | |
Income taxes | |
| 10 | |
| 15 | |
Other | |
| 45 | |
| (14) | |
Net cash provided by continuing operating activities | |
| 411 | |
| 328 | |
Net cash used in discontinued operating activities | |
| — | |
| (31) | |
Net cash provided by operating activities | |
| 411 | |
| 297 | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | |
| (176) | |
| (210) | |
Acquisition of businesses, net of cash acquired | |
| (115) | |
| — | |
Proceeds from divestiture of discontinued operation, net of cash retained by sold operation | | | — | | | 288 | |
Other | |
| 2 | |
| 4 | |
Net cash provided by (used in) continuing investing activities | | | (289) | | | 82 | |
Net cash used in discontinued investing activities | | | — | | | (2) | |
Net cash provided by (used in) investing activities | |
| (289) | |
| 80 | |
Cash flows from financing activities: | | | | | | | |
Net increase (decrease) in commercial paper | |
| (9) | |
| 63 | |
Proceeds from issuance of debt | |
| — | |
| 350 | |
Repayment of debt | |
| — | |
| (441) | |
Proceeds from exercise of share options | |
| 14 | |
| 7 | |
Repurchase of common shares | |
| (139) | |
| (519) | |
Payment of common share dividends to shareholders | |
| (154) | |
| (150) | |
Transfers to discontinued operations | | | — | | | (33) | |
Other | |
| (26) | |
| (29) | |
Net cash used in continuing financing activities | |
| (314) | |
| (752) | |
Net cash provided by discontinued financing activities | |
| — | |
| 33 | |
Net cash used in financing activities | |
| (314) | |
| (719) | |
Effect of currency translation on cash | |
| 7 | |
| (1) | |
Net decrease in cash, cash equivalents, and restricted cash | |
| (185) | |
| (343) | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| 927 | |
| 848 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 742 | | $ | 505 | |
See Notes to Condensed Consolidated Financial Statements.
65
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Accounting Policies
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. 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 28, 2018.27, 2019.
Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 20192020 and fiscal 20182019 are to our fiscal years ending September 27, 201925, 2020 and ended September 28, 2018,27, 2019, respectively.
Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which introduced a single, comprehensive, five-step revenue recognition model. Our revenues are generated principally from the sale of our products. Revenue is recognized as performance obligations under the terms of a contract, such as a purchase order with a customer, are satisfied; generally this occurs with the transfer of control. We transfer control and recognize revenue when we ship product to our customers, the customers accept and have legal title for the product, and we have a right to payment for such product. Revenue is measured as the amount of consideration that we expect to receive in exchange for those products and excludes taxes assessed by governmental authorities and collected from customers concurrent with the sale of products. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales. Since we typically invoice our customers when we satisfy our performance obligations, we do not have material contract assets or contract liabilities. Our credit terms are customary and do not contain significant financing components that extend beyond one year of fulfillment of performance obligations. We apply the practical expedient of ASC 606 with respect to financing components and do not evaluate contracts in which payment is due within one year of satisfaction of the related performance obligation. Since our performance obligations to deliver products are part of contracts that generally have original durations of one year or less, we have elected to use the optional exemption to not disclose the aggregate amount of transaction prices associated with unsatisfied or partially satisfied performance obligations as of March 29, 2019. See Note 15 for net sales disaggregated by industry end market and geographic region which is summarized by segment and that we consider meaningful to depict the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.
We generally warrant that our products will conform to our, or mutually agreed to, specifications and that our products will be free from material defects in materials and workmanship for a limited time. We limit our warranty to the replacement or repair of defective parts, or a refund or credit of the price of the defective product. We do not account for these warranties as separate performance obligations.
Although products are generally sold at fixed prices, certain distributors and customers receive incentives or awards, such as sales rebates, return allowances, scrap allowances, and other rights, which are accounted for as variable consideration. We estimate these amounts in the same period revenue is recognized based on the expected value to be provided to customers and reduce revenue accordingly. Our estimates of variable consideration and ultimate determination of
7
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
the estimated amounts to include in the transaction price are based primarily on our assessment of anticipated performance and historical and forecasted information that is reasonably available to us.
Recently IssuedAdopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 which codified ASCAccounting Standards Codification (“ASC”) 842, Leases. This guidance, as subsequently amended, requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset for most leases and is effective for usleases. We adopted ASC 842, as amended, in the first quarter of fiscal 2020. We are currently in the process of updating policies, internal controls, financial statement disclosures, and systems to incorporate the impact of the new standard in our financial reporting processes. We intend to adopt the standardended December 27, 2019 using the optional transition method permitted by ASU No. 2018-11 which allows for application of the standard at the adoption date and no restatement of comparative periods. We expect thatelected to use the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the carry forward of historical lease classification of existing and expired leases. In addition, we elected to use the hindsight practical expedient in determining the lease term for existing leases. As a result of adoption, will likely have a material impactwe recorded ROU assets and related lease liabilities of approximately $520 million on ourthe Condensed Consolidated Balance Sheet; however, we currently doSheet. Adoption did not expect adoption to have a material impact on our results of operations or cash flows. We believe that we are following an appropriate timeline to allowSee Note 9 for the proper recognition, reporting, and disclosure of leases upon adoption of ASC 842 at the beginning of fiscal 2020.additional information regarding leases.
Recently Adopted Accounting Pronouncements
In August 2017, the FASB issued ASU No. 2017-12, an update to ASC 815, Derivatives and Hedging. The update improves and simplifies hedge accounting and related disclosures. We elected to early adopt this update, which did not have a material impact on our Condensed Consolidated Financial Statements, in the quarter ended December 28, 2018.
In October 2016, the FASB issued ASU No. 2016-16, an update to ASC 740, Income Taxes. This guidance requires the recognition of the income tax consequences of intra-entity transfers of assets other than inventory in the period in which the transfer occurs. The update was adopted on a modified retrospective basis in the quarter ended December 28, 2018 and resulted in a $443 million cumulative-effect adjustment to beginning accumulated earnings, which represented the net reversal of all balances associated with deferred tax impacts of intra-entity transfers of assets other than inventory. This included a decrease in other assets of $798 million, an increase in deferred tax assets of $418 million, and a decrease in prepaid expenses and other current assets of $63 million on the Condensed Consolidated Balance Sheet.
In May 2014, the FASB issued ASU No. 2014-09 which codified 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. We adopted ASC 606, as amended, in the quarter ended December 28, 2018 using a modified retrospective approach. Prior period amounts have not been adjusted and continue to be reported under the accounting standards in effect for those periods. Transition impacts, which relate primarily to incentive compensation arrangements, were not material to our results of operations or financial position. Because the impact of adoption was immaterial, we have not recorded a cumulative-effect adjustment to beginning accumulated earnings.
2. Restructuring and Other Charges, Net
Net restructuring and other charges consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Restructuring charges, net |
| $ | 42 |
| $ | 10 |
| $ | 117 |
| $ | 44 |
|
Other charges (credits), net |
|
| — |
|
| (4) |
|
| — |
|
| (4) |
|
Restructuring and other charges, net |
| $ | 42 |
| $ | 6 |
| $ | 117 |
| $ | 40 |
|
8
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Net restructuring charges by segment were as follows:
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Transportation Solutions | | $ | 4 | | $ | 21 | |
Industrial Solutions | |
| 15 | |
| 35 | |
Communications Solutions | |
| 5 | |
| 19 | |
Restructuring charges, net | | $ | 24 | | $ | 75 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Transportation Solutions |
| $ | 24 |
| $ | 1 |
| $ | 45 |
| $ | 5 |
|
Industrial Solutions |
|
| 17 |
|
| 8 |
|
| 52 |
|
| 30 |
|
Communications Solutions |
|
| 1 |
|
| 1 |
|
| 20 |
|
| 9 |
|
Restructuring charges, net |
| $ | 42 |
| $ | 10 |
| $ | 117 |
| $ | 44 |
|
6
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Activity in our restructuring reserves was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
| ||
|
| September 28, |
|
|
|
| Changes in |
| Cash |
| Non-Cash |
| Currency |
| March 29, |
| ||||||
|
| 2018 |
| Charges |
| Estimate |
| Payments |
| Items |
| Translation |
| 2019 |
| |||||||
|
| (in millions) |
| |||||||||||||||||||
Fiscal 2019 Actions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance |
| $ | — |
| $ | 107 |
| $ | — |
| $ | (14) |
| $ | — |
| $ | — |
| $ | 93 |
|
Fiscal 2018 Actions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance |
|
| 114 |
|
| 1 |
|
| — |
|
| (32) |
|
| — |
|
| (3) |
|
| 80 |
|
Facility and other exit costs |
|
| 4 |
|
| 2 |
|
| — |
|
| (2) |
|
| — |
|
| — |
|
| 4 |
|
Property, plant, and equipment |
|
| — |
|
| 2 |
|
| — |
|
| — |
|
| (2) |
|
| — |
|
| — |
|
Total |
|
| 118 |
|
| 5 |
|
| — |
|
| (34) |
|
| (2) |
|
| (3) |
|
| 84 |
|
Pre-Fiscal 2018 Actions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance |
|
| 49 |
|
| 7 |
|
| (4) |
|
| (14) |
|
| — |
|
| (2) |
|
| 36 |
|
Facility and other exit costs |
|
| — |
|
| 1 |
|
| — |
|
| (2) |
|
| — |
|
| 1 |
|
| — |
|
Property, plant, and equipment |
|
| — |
|
| 1 |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| — |
|
Total |
|
| 49 |
|
| 9 |
|
| (4) |
|
| (16) |
|
| (1) |
|
| (1) |
|
| 36 |
|
Total Activity |
| $ | 167 |
| $ | 121 |
| $ | (4) |
| $ | (64) |
| $ | (3) |
| $ | (4) |
| $ | 213 |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | | | | | | | | | | Currency | | Balance at |
| ||||||
| | September 27, | | | | | Changes in | | Cash | | Non-Cash | | Translation | | December 27, | | ||||||
|
| 2019 |
| Charges |
| Estimate |
| Payments |
| Items |
| and Other |
| 2019 |
| |||||||
| | (in millions) | | |||||||||||||||||||
Fiscal 2020 Actions: | | | | | | | | | | | | | | | | | | | | | | |
Employee severance | | $ | — | | $ | 15 | | $ | — | | $ | (1) | | $ | — | | $ | — | | $ | 14 | |
Fiscal 2019 Actions: | | | | | | | | | | | | | | | | | | | | | | |
Employee severance | | | 188 | | | 5 | | | (3) | | | (23) | | | (1) | | | 3 | | | 169 | |
Facility and other exit costs | | | 1 | | | 1 | | | — | | | (2) | | | — | | | 2 | | | 2 | |
Property, plant, and equipment | | | — | | | 4 | | | — | | | — | | | (4) | | | — | | | — | |
Total | | | 189 | | | 10 | | | (3) | | | (25) | | | (5) | | | 5 | | | 171 | |
Pre-Fiscal 2019 Actions: | | | | | | | | | | | | | | | | | | | | | | |
Employee severance | | | 73 | | | 1 | | | (3) | | | (18) | | | — | | | 1 | | | 54 | |
Facility and other exit costs | | | 2 | | | 4 | | | — | | | (5) | | | — | | | — | | | 1 | |
Total | | | 75 | | | 5 | | | (3) | | | (23) | | | — | | | 1 | | | 55 | |
Total Activity | | $ | 264 | | $ | 30 | | $ | (6) | | $ | (49) | | $ | (5) | | $ | 6 | | $ | 240 | |
Fiscal 2020 Actions
During fiscal 2020, we initiated a restructuring program associated with footprint consolidation and structural improvements across all segments. In connection with this program, during the quarter ended December 27, 2019, we recorded restructuring charges of $15 million. We expect to complete all restructuring actions commenced during the quarter ended December 27, 2019 by the end of fiscal 2021 and to incur additional charges of approximately $5 million.
Fiscal 2019 Actions
During fiscal 2019, we initiated a restructuring program associated with footprint consolidation and structural improvements impacting all segments. In connection with this program, during the six monthsquarters ended March 29,December 27, 2019 and December 28, 2018, we recorded net restructuring charges of $107 million.$7 million and $67 million, respectively. We expect to complete all restructuring actions commenced during the six months ended March 29,fiscal 2019 by the end of fiscal 2021 and to incur additional charges of approximately $20$25 million related primarily to employee severance and facility exit costs in the Transportation Solutions and Industrial Solutions segments.
Fiscal 2018Pre-Fiscal 2019 Actions
DuringPrior to fiscal 2018,2019, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments. In connection with this program, during the six months ended March 29, 2019 and March 30, 2018, we recorded restructuring charges of $5 million and $35 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2018 by the end of fiscal 2020 and to incur additional charges of approximately $10 million primarily in the Industrial Solutions segment.
9
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Pre-Fiscal 2018 Actions
PriorAlso prior to fiscal 2018,2019, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. Also prior to fiscal 2018, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. During the six monthsquarters ended March 29,December 27, 2019 and March 30,December 28, 2018, we recorded net restructuring charges of $5$2 million and $9$8 million, respectively, related to pre-fiscal 20182019 actions. We expect additional charges related to pre-fiscal 20182019 actions to be insignificant.
7
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Total Restructuring Reserves
Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
| March 29, |
| September 28, |
| ||
|
| 2019 |
| 2018 |
| ||
|
| (in millions) |
| ||||
Accrued and other current liabilities |
| $ | 193 |
| $ | 141 |
|
Other liabilities |
|
| 20 |
|
| 26 |
|
Restructuring reserves |
| $ | 213 |
| $ | 167 |
|
| | | | | | |
| | December 27, | | September 27, | ||
|
| 2019 |
| 2019 | ||
| | (in millions) | ||||
Accrued and other current liabilities | | $ | 215 | | $ | 245 |
Other liabilities | |
| 25 | |
| 19 |
Restructuring reserves | | $ | 240 | | $ | 264 |
3. Discontinued Operations
During the six monthsquarter ended March 29, 2019,December 28, 2018, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $297$288 million and incurred a pre-tax loss on sale of $86$96 million, related primarily to the recognition of cumulative translation adjustment losses of $67 million and thecertain guarantee liabilities discussed below.liabilities. The SubCom business met the held for sale and discontinued operations criteria and was reported as such in all periods presented on the Condensed Consolidated Financial Statements. Prior to reclassification to discontinued operations, the SubCom business was included in the Communications Solutions segment.
In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These guarantees had a combined value of approximately $1.7$1.2 billion as of March 29,December 27, 2019 and are expected to expire at various dates through fiscal 2025; however, the majority are expected to expire within two years. At the time of sale, we determined that the fair value of these guarantees was $12 million, which we recognized by a charge to pre-tax loss on sale.2025. Also, under the terms of the definitive agreement, we are required to issue up to $300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years. During the six months ended March 29,As of December 27, 2019, we issued a guarantee of $70 million for athere were 0 such new project.performance guarantees outstanding. We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees; however, based on historical experience, we do not anticipate having to perform.
10
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The following table presents the summarized components of income (loss)loss from discontinued operations, net of income taxes for the SubComquarter ended December 28, 2018:
| | | | |
| | (in millions) | | |
Net sales | | $ | 41 | |
Cost of sales | |
| (50) | |
Operating expenses | | | (10) | |
Pre-tax loss from discontinued operations | |
| (19) | |
Pre-tax loss on sale of discontinued operations | |
| (96) | |
Income tax benefit | |
| 8 | |
Loss from discontinued operations, net of income taxes | | $ | (107) | |
4. Acquisitions
During the quarter ended December 27, 2019, we acquired 2 businesses for a combined cash purchase price of $112 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.
Pending Acquisition
During fiscal 2019, we entered into a business combination agreement and prior divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| |||||||
|
|
| Quarters Ended |
| Six Months Ended |
| |||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Net sales |
| $ | — |
| $ | 183 |
| $ | 41 |
| $ | 326 |
|
Cost of sales |
|
| — |
|
| (151) |
|
| (50) |
|
| (283) |
|
Selling, general, and administrative expenses |
|
| (1) |
|
| (16) |
|
| (5) |
|
| (23) |
|
Research, development, and engineering expenses |
|
| — |
|
| (10) |
|
| (3) |
|
| (20) |
|
Restructuring and other charges, net |
|
| — |
|
| (4) |
|
| (3) |
|
| (4) |
|
Pre-tax income (loss) from discontinued operations |
|
| (1) |
|
| 2 |
|
| (20) |
|
| (4) |
|
Pre-tax gain (loss) on sale of discontinued operations |
|
| 10 |
|
| (1) |
|
| (86) |
|
| (1) |
|
Income tax (expense) benefit |
|
| 1 |
|
| (1) |
|
| 9 |
|
| (2) |
|
Income (loss) from discontinued operations, net of income taxes |
| $ | 10 |
| $ | — |
| $ | (97) |
| $ | (7) |
|
The following table presents balance sheet informationcommenced a voluntary public tender offer for assets and liabilities held for sale at September 28, 2018; there were no such balances at March 29, 2019:
|
|
|
|
|
|
| September 28, |
| |
|
| 2018 |
| |
|
| (in millions) |
| |
Accounts receivable, net |
| $ | 72 |
|
Inventories |
|
| 130 |
|
Other current assets |
|
| 32 |
|
Property, plant, and equipment, net |
|
| 221 |
|
Other assets |
|
| 17 |
|
Total assets held for sale |
| $ | 472 |
|
|
|
|
|
|
Accounts payable |
| $ | 63 |
|
Accrued and other current liabilities |
|
| 26 |
|
Deferred revenue |
|
| 60 |
|
Other liabilities |
|
| 39 |
|
Total liabilities held for sale |
| $ | 188 |
|
4. Inventories
Inventories consistedall outstanding shares of the following:
|
|
|
|
|
|
|
|
|
| March 29, |
| September 28, |
| ||
|
| 2019 |
| 2018 |
| ||
|
| (in millions) |
| ||||
Raw materials |
| $ | 282 |
| $ | 276 |
|
Work in progress |
|
| 777 |
|
| 656 |
|
Finished goods |
|
| 911 |
|
| 925 |
|
Inventories |
| $ | 1,970 |
| $ | 1,857 |
|
First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany. The
118
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
offer was accepted for approximately 72% of First Sensor’s shares. The transaction, including the assumption of First Sensor’s outstanding net debt, is valued at approximately €330 million, based on the tendered shares and an estimated premium for untendered shares. Completion of the offer will be subject to customary closing conditions, including receipt of any outstanding regulatory approvals. We expect to complete the transaction in fiscal 2020.
5. Inventories Inventories consisted of the following: December 27, September 27, 2019 2019 (in millions) Raw materials $ 282 $ 260 Work in progress 817 739 Finished goods 904 837 Inventories $ 2,003 $ 1,836 6. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
| | | | | | | | | | | | | |
|
| Transportation |
| Industrial |
| Communications |
| | |
| |||
| | Solutions | | Solutions | | Solutions | | Total | | ||||
| | (in millions) | | ||||||||||
September 27, 2019(1) | | $ | 2,124 | | $ | 3,039 | | $ | 577 | | $ | 5,740 | |
Acquisitions | | | 50 | | | 9 | | | — | | | 59 | |
Currency translation | |
| 19 | |
| 24 | |
| 4 | |
| 47 | |
December 27, 2019(1) | | $ | 2,193 | | $ | 3,072 | | $ | 581 | | $ | 5,846 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Transportation |
| Industrial |
| Communications |
|
|
|
| |||
|
| Solutions |
| Solutions |
| Solutions |
| Total |
| ||||
|
| (in millions) |
| ||||||||||
September 28, 2018(1) |
| $ | 1,993 |
| $ | 3,104 |
| $ | 587 |
| $ | 5,684 |
|
Currency translation and other |
|
| (14) |
|
| (39) |
|
| (5) |
|
| (58) |
|
March 29, 2019(1) |
| $ | 1,979 |
| $ | 3,065 |
| $ | 582 |
| $ | 5,626 |
|
During the quarter ended December 27, 2019, we recognized goodwill in the Transportation Solutions and Industrial Solutions (1) At March 29,(1) At December 27, 2019 and September 27, 2019, and September 28, 2018, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and $489 million, respectively.and Communications Solutions segments were $2,191 million, $669 million, and $489 million, respectively. in connection with recent acquisitions. See Note 4 for additional information regarding acquisitions.
6.7. Intangible Assets, Net
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 29, 2019 |
| September 28, 2018 |
| ||||||||||||||
|
| Gross |
|
|
|
| Net |
| Gross |
|
|
|
| Net |
| ||||
|
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying |
| ||||||
|
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount |
| ||||||
|
| (in millions) |
| ||||||||||||||||
Customer relationships |
| $ | 1,451 |
| $ | (433) |
| $ | 1,018 |
| $ | 1,468 |
| $ | (389) |
| $ | 1,079 |
|
Intellectual property |
|
| 1,255 |
|
| (694) |
|
| 561 |
|
| 1,261 |
|
| (653) |
|
| 608 |
|
Other |
|
| 34 |
|
| (17) |
|
| 17 |
|
| 33 |
|
| (16) |
|
| 17 |
|
Total |
| $ | 2,740 |
| $ | (1,144) |
| $ | 1,596 |
| $ | 2,762 |
| $ | (1,058) |
| $ | 1,704 |
|
| | | | | | | | | | | | | | | | | | | |
| | December 27, 2019 | | September 27, 2019 | | ||||||||||||||
|
| Gross |
| | |
| Net |
| Gross |
| | |
| Net | | ||||
| | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | | ||||||
| | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount |
| ||||||
| | (in millions) | | ||||||||||||||||
Customer relationships | | $ | 1,561 | | $ | (486) | | $ | 1,075 | | $ | 1,513 | | $ | (459) | | $ | 1,054 | |
Intellectual property | | | 1,269 | | | (758) | | | 511 | | | 1,260 | | | (734) | | | 526 | |
Other | |
| 33 | |
| (17) | |
| 16 | |
| 33 | |
| (17) | |
| 16 | |
Total | | $ | 2,863 | | $ | (1,261) | | $ | 1,602 | | $ | 2,806 | | $ | (1,210) | | $ | 1,596 | |
Intangible asset amortization expense was $45 million for both the quarters ended March 29,December 27, 2019 and March 30, 2018 and $90 million for the six months ended March 29, 2019 and March 30,December 28, 2018.
9
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
At March 29,December 27, 2019, the aggregate amortization expense on intangible assets is expected to be as follows:
|
|
|
|
| ||||
|
| (in millions) |
| |||||
Remainder of fiscal 2019 |
| $ | 90 |
| ||||
Fiscal 2020 |
|
| 174 |
| ||||
| | | | | ||||
|
| (in millions) |
| |||||
Remainder of fiscal 2020 | | $ | 137 | | ||||
Fiscal 2021 |
|
| 171 |
| | | 180 | |
Fiscal 2022 |
|
| 171 |
| |
| 180 | |
Fiscal 2023 |
|
| 170 |
| |
| 179 | |
Fiscal 2024 |
|
| 140 |
| |
| 149 | |
Fiscal 2025 | |
| 129 | | ||||
Thereafter |
|
| 680 |
| |
| 648 | |
Total |
| $ | 1,596 |
| | $ | 1,602 | |
8. Debt
During the six months ended March 29,As of December 27, 2019, Tyco Electronics Group S.A. (“TEGSA”TEGSA’), our 100%-owned subsidiary, issued $350 million aggregate principal amount of senior floating rate notes due June 2020. The notes bear interest at a rate of three-month London Interbank Offered Rate (“LIBOR”) plus 0.45% per year. The notes are TEGSA’s unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.
12
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
During the six months ended March 29, 2019, TEGSA repaid, at maturity, $325 million 2.375% senior notes due 2018.
TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with total commitments of $1,500 million. The Credit Facility was amended in November 2018 primarily to extend the maturity date from December 2020 to November 2023. The amended Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies. TEGSA had no borrowings under the Credit Facility at March 29, 2019 or September 28, 2018.
As of March 29, 2019, TEGSA had $360$210 million of commercial paper outstanding at a weighted-average interest rate of 2.63%1.85%. TEGSA had $270$219 million of commercial paper outstanding at a weighted-average interest rate of 2.35%2.20% at September 28, 2018.27, 2019.
The fair value of our debt, based on indicative valuations, was approximately $4,172$4,292 million and $4,149$4,278 million at March 29,December 27, 2019 and September 28, 2018,27, 2019, respectively.
8.9. Leases
We have facility, land, vehicle, and equipment leases that expire at various dates. We determine if a contract qualifies as a lease at inception. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the identified asset and the right to direct the use of the identified asset.
Lease ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of remaining lease payments over the lease term. Lease ROU assets represent our right to use the underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. We do not recognize ROU assets or lease liabilities that arise from short-term leases. Since our lease contracts do not contain a readily determinable implicit rate, we determine a fully-collateralized incremental borrowing rate that reflects a similar term to the lease and the economic environment of the applicable country or region in which the asset is leased.
We have elected to account for lease and non-lease components in our real estate leases as a single lease component; other leases generally do not contain non-lease components. The non-lease components in our real estate leases include logistics services, warehousing, and other operational costs. Many of these costs are variable, fluctuating based on services provided, such as pallets shipped in and out of a location or square footage of space occupied. These costs, and any other variable rental costs, are excluded from our ROU assets and lease liabilities, and instead are expensed as incurred. Some of our leases may include options to either renew or early terminate the lease. The exercise of these options is generally at our sole discretion and would only occur if there is an economic, financial, or business reason to do so. Such options are included in the lease term if we determine it is reasonably certain they will be exercised.
10
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The components of lease cost were as follows:
| | | | |
| | For the | | |
| | Quarter Ended | | |
| | December 27, | | |
| | 2019 | | |
|
| (in millions) |
| |
Operating lease cost | | $ | 27 | |
Variable lease cost | | | 11 | |
Total lease cost | | $ | 38 | |
Amounts recognized on the Condensed Consolidated Balance Sheet were as follows:
| | | | |
| | December 27, | | |
| | 2019 | | |
|
| ($ in millions) | | |
Operating lease ROU assets: | | | | |
Other assets | | $ | 506 | |
Operating lease liabilities: | | | | |
Accrued and other current liabilities | | $ | 122 | |
Other liabilities | | | 397 | |
Total operating lease liabilities | | $ | 519 | |
| | | | |
Weighted-average remaining lease term (in years) | | | 6.1 | |
Weighted-average discount rate | | | 1.3 | % |
Cash flow information, including significant non-cash transactions, related to leases was as follows:
| | | | |
| | For the | | |
| | Quarter Ended | | |
| | December 27, | | |
| | 2019 | | |
|
| (in millions) |
| |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Payments for operating leases(1) | | $ | 26 | |
| | | | |
ROU assets obtained in exchange for new operating lease liabilities(2) | | | 525 | |
(1) | These payments are included in cash flows from continuing operating activities, primarily in changes in other liabilities. |
(2) | Includes ROU assets obtained in connection with the adoption of ASC 842. |
11
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
At December 27, 2019, the maturities of operating lease liabilities were as follows:
| | | | |
|
| (in millions) |
| |
Remainder of fiscal 2020 | | $ | 91 | |
Fiscal 2021 | |
| 105 | |
Fiscal 2022 | | | 85 | |
Fiscal 2023 | | | 72 | |
Fiscal 2024 | | | 60 | |
Thereafter | | | 126 | |
Total lease payments | | | 539 | |
Less: interest | | | (20) | |
Present value of lease liabilities | | $ | 519 | |
The following table, which was included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2019 and presented in accordance with the previous lease accounting standard, presents the future minimum lease payments under non-cancelable operating lease obligations as of September 27, 2019:
| | | | |
|
| (in millions) |
| |
Fiscal 2020 | | $ | 117 | |
Fiscal 2021 | |
| 102 | |
Fiscal 2022 | |
| 81 | |
Fiscal 2023 | |
| 67 | |
Fiscal 2024 | |
| 55 | |
Thereafter | |
| 118 | |
Total | | $ | 540 | |
10. 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‑incomenon-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 29,December 27, 2019, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $14 million to $44$45 million, and we accrued $17$18 million as the probable loss, 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
12
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 29,December 27, 2019, we had outstanding letters of credit, letters of guarantee, and surety bonds of $307$279 million.
We sold our SubCom business during the six months ended March 29,fiscal 2019. In connection with the sale, we contractually agreed to honor certain performance guarantees and letters of credit related to the SubCom business. See Note 3 for additional information regarding these guarantees and the divestiture of the SubCom business.
13
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
9.11. Financial Instruments
Foreign Currency Exchange Rate Risk
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 rate risk associated with certain intercompany loans. Under the terms of these contracts, which have been designated as cash flow hedges, we make 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 maturity of these contracts in fiscal 2022, we will pay the notional value of the contracts in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, both counterparties to each contract are required to postprovide cash collateral.
At March 29,December 27, 2019 and September 28, 2018, our27, 2019, these cross-currency swap contracts were in liability positions of $30 million and $100 million, respectively, and were recorded in other liabilities on the Condensed Consolidated Balance Sheets. Sheets as follows:
| | | | | | | |
| | December 27, | | September 27, | | ||
|
| 2019 |
| 2019 |
| ||
| | (in millions) | | ||||
Other assets | | $ | 6 | | $ | 19 | |
Other liabilities | |
| 5 | |
| — | |
At March 29,December 27, 2019 and September 28, 2018,27, 2019, collateral received from or paid to our counterparties approximated the net derivative positions and wasposition. Collateral is recorded in accrued and other current liabilities when the contracts are in a net asset position, or prepaid expenses and other current assets when the contracts are in a net liability position on the Condensed Consolidated Balance Sheets. The impacts of ourthese cross-currency swap contracts were as follows:
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Gains recorded in other comprehensive income (loss) | | $ | 4 | | $ | 19 | |
Gains (losses) excluded from the hedging relationship(1) | |
| (22) | |
| 17 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Gains (losses) recorded in other comprehensive income (loss) |
| $ | 13 |
| $ | (22) |
| $ | 32 |
| $ | (32) |
|
Gains (losses) excluded from the hedging relationship(1) |
|
| 21 |
|
| (31) |
|
| 38 |
|
| (50) |
|
(1) |
| Gains and losses excluded from the hedging relationship are recognized prospectively in selling, general, and administrative expenses and are offset by losses and gains generated as a result of re-measuring certain intercompany loans to the U.S. dollar. |
Hedge of Net Investment
During fiscal 2019, we expanded our cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the fiscal 2019 contracts was $1,901 million at March 29, 2019. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 3.00% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2023, we will pay the notional value of the contracts in the designated foreign currencies and receive U.S. dollars from our counterparties.
In addition to the cross-currency swap program, weWe hedge our net investment in certain foreign operations using intercompany loans and external borrowings denominated in the same currencies. The aggregate notional value of these hedges was $3,415$3,296 million and $4,064$3,374 million at March 29,December 27, 2019 and September 28, 2018,27, 2019, respectively.
1413
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
We also use a cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the contracts under this program was $2,283 million and $1,844 million at December 27, 2019 and September 27, 2019, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.76% per annum and pay 0 interest. Upon the maturity of these contracts at various dates through fiscal 2023, we will pay the notional value of the contracts in the designated foreign currency and receive U.S. dollars from our counterparties. We are not required to provide collateral for these contracts.
At December 27, 2019 and September 27, 2019, these cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:
| | | | | | | |
| | December 27, | | September 27, | | ||
|
| 2019 |
| 2019 |
| ||
| | (in millions) | | ||||
Prepaid expenses and other current assets | | $ | 16 | | $ | 27 | |
Other assets | |
| 26 | |
| 46 | |
Accrued and other current liabilities | | | 7 | | | 2 | |
Other liabilities | | | — | | | 1 | |
The impacts of our hedge of net investment programs were as follows:
| | | | | | | |
| | | For the | | |||
| | | Quarters Ended | | |||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Foreign currency exchange gains (losses) on intercompany loans and external borrowings(1) | | $ | (65) | | $ | 76 | |
Losses on cross-currency swap contracts designated as hedges of net investment(2) | |
| (33) | |
| (5) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| |||||||
|
|
| Quarters Ended |
| Six Months Ended |
| |||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) | |||||||||||
Foreign currency exchange gains (losses) on intercompany loans and external borrowings(1) |
| $ | 36 |
| $ | (79) |
| $ | 112 |
| $ | (145) |
|
Gains on cross-currency swap contracts designated as hedges of net investment(2) |
|
| 42 |
|
| — |
|
| 37 |
|
| — |
|
(1) | Foreign currency exchange gains and losses on intercompany loans and external borrowings are recorded as currency translation, a component of accumulated other comprehensive income (loss), and are offset by changes attributable to the translation of the net investment. |
(2) | Gains and losses on cross-currency swap contracts designated as hedges of net investment are recorded as currency translation. |
(1) Foreign currency exchange gains and losses on intercompany loans and external borrowings are recorded as currency translation, a component of accumulated other comprehensive income (loss), and are offset by changes attributable to the translation of the net investment.
(2) Gains and losses on cross-currency swap contracts designated as hedges of net investment are recorded as currency translation.
10.12. Retirement Plans
The net periodic pension benefit cost (credit) for all non‑U.S.non-U.S. and U.S. defined benefit pension plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-U.S. Plans |
| U.S. Plans |
| ||||||||
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Quarters Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Service cost |
| $ | 12 |
| $ | 11 |
| $ | 3 |
| $ | 4 |
|
Interest cost |
|
| 10 |
|
| 11 |
|
| 11 |
|
| 11 |
|
Expected return on plan assets |
|
| (16) |
|
| (17) |
|
| (15) |
|
| (15) |
|
Amortization of net actuarial loss |
|
| 6 |
|
| 5 |
|
| 5 |
|
| 5 |
|
Amortization of prior service credit |
|
| (2) |
|
| (1) |
|
| — |
|
| — |
|
Net periodic pension benefit cost |
| $ | 10 |
| $ | 9 |
| $ | 4 |
| $ | 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Non-U.S. Plans |
| U.S. Plans |
| |||||||||||||||||||||
|
| For the |
| For the |
| |||||||||||||||||||||
|
| Six Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| |||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| (in millions) |
| |||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Non-U.S. Plans | | U.S. Plans | | |||||||||||||||||||||
| | For the | | For the | | |||||||||||||||||||||
| | Quarters Ended | | Quarters Ended | | |||||||||||||||||||||
| | December 27, | | December 28, | | December 27, | | December 28, | | |||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
| | (in millions) | | |||||||||||||||||||||||
Operating expense: | | | | | | | | | | | | | | |||||||||||||
Service cost |
| $ | 24 |
| $ | 23 |
| $ | 6 |
| $ | 7 |
| | $ | 13 | | $ | 12 | | $ | 3 | | $ | 3 | |
Other (income) expense: | | | | | | | | | | | | | | |||||||||||||
Interest cost |
|
| 21 |
|
| 21 |
|
| 23 |
|
| 22 |
| |
| 6 | |
| 11 | |
| 9 | |
| 12 | |
Expected return on plan assets |
|
| (32) |
|
| (34) |
|
| (29) |
|
| (30) |
| |
| (15) | |
| (16) | |
| (15) | |
| (14) | |
Amortization of net actuarial loss |
|
| 12 |
|
| 11 |
|
| 9 |
|
| 11 |
| |
| 10 | |
| 6 | |
| 2 | |
| 4 | |
Amortization of prior service credit |
|
| (4) |
|
| (3) |
|
| — |
|
| — |
| |
| (2) | |
| (2) | |
| — | |
| — | |
Net periodic pension benefit cost |
| $ | 21 |
| $ | 18 |
| $ | 9 |
| $ | 10 |
| |||||||||||||
Net periodic pension benefit cost (credit) | | $ | 12 | | $ | 11 | | $ | (1) | | $ | 5 | |
The components of net periodic pension benefit cost other than service cost are included in net other income on the Condensed Consolidated Statements of Operations.
During the six months ended March 29, 2019, we contributed $19 million to our non-U.S. pension plans.
1514
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
11.13. Income Taxes
We recorded income tax expense of $91$447 million and $108$78 million for the quarters ended March 29,December 27, 2019 and March 30,December 28, 2018, respectively. The income tax expense for the quarter ended March 29, 2019 included $15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions, partially offset by a $12 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 30, 2018 included a $17 million income tax benefit resulting from lapses of statutes of limitations in certain non-U.S. jurisdictions.
We recorded income tax expense of $169 million and $707 million for the six months ended March 29, 2019 and March 30, 2018, respectively. The income tax expense for the six months ended March 29,December 27, 2019 included $15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions. The income tax expense for the six months ended March 30, 2018 included $567$355 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act (the “Act”) and a $61 million net income tax benefit related to certain legal entity restructurings. During the quarter ended December 29, 2017, the period of enactmentmeasures of the Switzerland Federal Act we were required to revalue our U.S. federal deferred tax assetson Tax Reform and liabilities at a U.S. federal corporate income tax rate of 21% and we recorded income tax expense of $567 million primarily in connection with the write-down of our U.S. federal deferred tax assetAHV Financing (“Swiss Tax Reform”). See “Swiss Tax Reform” below for net operating loss and interest carryforwards. 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.additional information.
Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $130$100 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 29,December 27, 2019.
Swiss Tax Reform
The Federal Act on Tax Reform and AHV Financing eliminates certain preferential tax items and implements new tax rates at both the federal and cantonal levels. During fiscal 2019, Switzerland enacted the federal provisions of Swiss Tax Reform, and the federal tax authority issued guidance abolishing certain interest deductions. The impacts of these measures were reflected in our fiscal 2019 Consolidated Financial Statements.
In October 2019, the canton of Schaffhausen enacted Swiss Tax Reform into law, including reductions in tax rates. During the quarter ended December 27, 2019, we recognized $355 million of income tax expense related primarily to cantonal implementation and the resulting write-down of certain deferred tax assets to the lower tax rates.
Tax Sharing Agreement
Under a Tax Sharing Agreement we,entered into upon our separation from Tyco International plc (“Tyco International”), in fiscal 2007, we, 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 periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications with Tyco International and Covidien. As a result of subsequent transactions, Tyco International and Covidien now operate as part of Johnson Controls International plc and Medtronic plc, respectively.
We have substantially settled all U.S. federal income tax matters with the Internal Revenue Service for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We expect resolution of these matters and the termination of the Tax Sharing Agreement in fiscal 2020. We do not expect these matters willor the termination of the TSA to have a material effect on our results of operations, financial position, or cash flows.
16
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
12.14. Earnings Per Share
The weighted‑averageweighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:
| | | | | |
| | For the | | ||
| | Quarters Ended | | ||
| | December 27, | | December 28, | |
|
| 2019 |
| 2018 |
|
| | (in millions) | | ||
Basic |
| 335 | | 342 | |
Dilutive impact of share-based compensation arrangements |
| 2 | | 2 | |
Diluted |
| 337 |
| 344 | |
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||
|
| Quarters Ended |
| Six Months Ended |
| ||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
|
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
|
| (in millions) |
| ||||||
Basic |
| 338 |
| 351 |
| 340 |
| 351 |
|
Dilutive impact of share-based compensation arrangements |
| 2 |
| 3 |
| 2 |
| 4 |
|
Diluted |
| 340 |
| 354 |
| 342 |
| 355 |
|
15
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The following share options were not included in the computation of diluted earnings per share because the instruments’ underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive:
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||
|
| Quarters Ended |
| Six Months Ended |
| ||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
|
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
|
| (in millions) |
| ||||||
Antidilutive share options |
| 1 |
| — |
| 1 |
| 1 |
|
| | | | | |
| | For the | | ||
| | Quarters Ended | | ||
| | December 27, | | December 28, | |
|
| 2019 |
| 2018 |
|
| | (in millions) | | ||
Antidilutive share options |
| 3 | | 1 | |
13.
15. Shareholders’ Equity
Common Shares Held in Treasury
In March 2019, our shareholders approved the cancellation of 6 million shares purchased under our share repurchase program during the period beginning September 30, 2017 and ending September 28, 2018. The capital reduction by cancellation of these shares is subject to a notice period and filing with the commercial register in Switzerland and is not yet reflected on the Condensed Consolidated Balance Sheet.
Dividends
We paid cash dividends to shareholders as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Dividends paid per common share |
| $ | 0.44 |
| $ | 0.40 |
| $ | 0.88 |
| $ | 0.80 |
|
In March 2019, our shareholders approved a dividend payment to shareholders of $1.84 per share, payable in four equal quarterly installments of $0.46 per share beginning in the third quarter of fiscal 2019 and ending in the second quarter of fiscal 2020.
| | | | | | |
| | For the | ||||
| | Quarters Ended | ||||
|
| December 27, |
| December 28, | ||
|
| 2019 |
| 2018 | ||
Dividends paid per common share | | $ | 0.46 | | $ | 0.44 |
17
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity. At March 29,December 27, 2019 and September 28, 2018,27, 2019, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $620$154 million and $303$308 million, respectively.
Share Repurchase Program
During the six months ended March 29, 2019, 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 29, |
| March 30, |
| ||
|
| 2019 |
| 2018 |
| ||
|
| (in millions) |
| ||||
Number of common shares repurchased |
|
| 9 |
|
| 4 |
|
Repurchase value |
| $ | 684 |
| $ | 383 |
|
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Number of common shares repurchased |
| | 2 |
| | 6 | |
Repurchase value |
| $ | 143 |
| $ | 495 | |
At March 29,December 27, 2019, we had $1.8$1.4 billion of availability remaining under our share repurchase authorization.
Share‑basedShare-based compensation expense, which was included primarily in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Share-based compensation expense |
| $ | 22 |
| $ | 23 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Share-based compensation expense |
| $ | 15 |
| $ | 23 |
| $ | 38 |
| $ | 51 |
|
16
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
As of March 29,December 27, 2019, there was $150$176 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 2.12.4 years.
During the quarter ended December 28, 2018,27, 2019, we granted the following share-based awards as part of our annual incentive plan grant:
|
|
|
|
|
|
|
|
|
|
| Grant-Date |
| |
|
| Shares |
| Fair Value |
| |
|
| (in millions) |
|
|
|
|
Share options |
| 1.6 |
| $ | 13.36 |
|
Restricted share awards |
| 0.6 |
|
| 76.66 |
|
Performance share awards |
| 0.2 |
|
| 76.66 |
|
| | | | | | |
| | | | Grant-Date | | |
|
| Shares |
| Fair Value |
| |
| | (in millions) | | | | |
Share options | | 1.5 | | $ | 15.52 | |
Restricted share awards | | 0.5 | |
| 93.63 | |
Performance share awards | | 0.2 | | | 93.63 | |
As of March 29,December 27, 2019, we had 1815 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.
18
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Share‑BasedShare-Based Compensation Assumptions
The 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 |
|
| 3.0 | % |
|
Expected annual dividend per share |
| $ | 1.76 |
|
|
Expected life of options (in years) |
|
| 5.2 |
|
|
| | | | | |
Expected share price volatility | |
| 21 | % | |
Risk-free interest rate | |
| 1.8 | % | |
Expected annual dividend per share | | $ | 1.84 | | |
Expected life of options (in years) | |
| 5.1 | | |
17
15.TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
17. Segment and Geographic Data
Net sales by segment(1) and industry end market(2) were as follows:
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Transportation Solutions: | | | | | | | |
Automotive | | $ | 1,405 | | $ | 1,469 | |
Commercial transportation | |
| 258 | |
| 297 | |
Sensors | |
| 205 | |
| 220 | |
Total Transportation Solutions | | | 1,868 | | | 1,986 | |
Industrial Solutions: | | | | | | | |
Aerospace, defense, oil, and gas | |
| 309 | |
| 285 | |
Industrial equipment | | | 263 | | | 315 | |
Medical(3) | | | 179 | | | 168 | |
Energy | |
| 176 | |
| 160 | |
Total Industrial Solutions | | | 927 | | | 928 | |
Communications Solutions: | | | | | | | |
Data and devices | | | 219 | | | 257 | |
Appliances | |
| 154 | |
| 176 | |
Total Communications Solutions | | | 373 | | | 433 | |
Total | | $ | 3,168 | | $ | 3,347 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Transportation Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive |
| $ | 1,425 |
| $ | 1,571 |
| $ | 2,894 |
| $ | 3,088 |
|
Commercial transportation |
|
| 324 |
|
| 333 |
|
| 621 |
|
| 633 |
|
Sensors |
|
| 222 |
|
| 230 |
|
| 442 |
|
| 445 |
|
Total Transportation Solutions |
|
| 1,971 |
|
| 2,134 |
|
| 3,957 |
|
| 4,166 |
|
Industrial Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial equipment |
|
| 502 |
|
| 496 |
|
| 985 |
|
| 967 |
|
Aerospace, defense, oil, and gas |
|
| 331 |
|
| 298 |
|
| 616 |
|
| 552 |
|
Energy |
|
| 174 |
|
| 178 |
|
| 334 |
|
| 335 |
|
Total Industrial Solutions |
|
| 1,007 |
|
| 972 |
|
| 1,935 |
|
| 1,854 |
|
Communications Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and devices |
|
| 251 |
|
| 258 |
|
| 508 |
|
| 496 |
|
Appliances |
|
| 183 |
|
| 198 |
|
| 359 |
|
| 382 |
|
Total Communications Solutions |
|
| 434 |
|
| 456 |
|
| 867 |
|
| 878 |
|
Total |
| $ | 3,412 |
| $ | 3,562 |
| $ | 6,759 |
| $ | 6,898 |
|
(1) | Intersegment sales were not material and were recorded at selling prices that approximated market prices. |
(2) | Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary. |
(3) | Effective for fiscal 2020, we are separately presenting net sales in the medical end market. Such amounts were previously included in net sales in the industrial equipment end market. |
1918
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Net sales by geographic region(1) and segment were as follows:
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | | ||||
Europe/Middle East/Africa (“EMEA”): | | | | | | | |
Transportation Solutions | | $ | 702 | | $ | 756 | |
Industrial Solutions | |
| 340 | |
| 350 | |
Communications Solutions | |
| 55 | |
| 65 | |
Total EMEA | |
| 1,097 | |
| 1,171 | |
Asia–Pacific: | | | | | | | |
Transportation Solutions | |
| 742 | |
| 764 | |
Industrial Solutions | |
| 145 | |
| 155 | |
Communications Solutions | | | 226 | | | 254 | |
Total Asia–Pacific | |
| 1,113 | |
| 1,173 | |
Americas: | | | | | | | |
Transportation Solutions | | | 424 | | | 466 | |
Industrial Solutions | |
| 442 | |
| 423 | |
Communications Solutions | | | 92 | | | 114 | |
Total Americas | |
| 958 | |
| 1,003 | |
Total | | $ | 3,168 | | $ | 3,347 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Europe/Middle East/Africa (“EMEA”): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation Solutions |
| $ | 824 |
| $ | 934 |
| $ | 1,580 |
| $ | 1,742 |
|
Industrial Solutions |
|
| 382 |
|
| 410 |
|
| 732 |
|
| 754 |
|
Communications Solutions |
|
| 70 |
|
| 81 |
|
| 135 |
|
| 147 |
|
Total EMEA |
|
| 1,276 |
|
| 1,425 |
|
| 2,447 |
|
| 2,643 |
|
Asia–Pacific: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation Solutions |
|
| 674 |
|
| 756 |
|
| 1,438 |
|
| 1,561 |
|
Industrial Solutions |
|
| 155 |
|
| 164 |
|
| 310 |
|
| 327 |
|
Communications Solutions |
|
| 241 |
|
| 262 |
|
| 495 |
|
| 514 |
|
Total Asia–Pacific |
|
| 1,070 |
|
| 1,182 |
|
| 2,243 |
|
| 2,402 |
|
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation Solutions |
|
| 473 |
|
| 444 |
|
| 939 |
|
| 863 |
|
Industrial Solutions |
|
| 470 |
|
| 398 |
|
| 893 |
|
| 773 |
|
Communications Solutions |
|
| 123 |
|
| 113 |
|
| 237 |
|
| 217 |
|
Total Americas |
|
| 1,066 |
|
| 955 |
|
| 2,069 |
|
| 1,853 |
|
Total |
| $ | 3,412 |
| $ | 3,562 |
| $ | 6,759 |
| $ | 6,898 |
|
(1) | Net sales to external customers are attributed to individual countries based on the legal entity that records the sale. |
Operating income by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Transportation Solutions |
| $ | 316 |
| $ | 427 |
| $ | 648 |
| $ | 844 |
|
Industrial Solutions |
|
| 137 |
|
| 125 |
|
| 237 |
|
| 227 |
|
Communications Solutions |
|
| 77 |
|
| 69 |
|
| 129 |
|
| 136 |
|
Total |
| $ | 530 |
| $ | 621 |
| $ | 1,014 |
| $ | 1,207 |
|
| | | | | | | |
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | |||||
Transportation Solutions | | $ | 316 | | $ | 332 | |
Industrial Solutions | | | 115 | | | 100 | |
Communications Solutions | | | 40 | | | 52 | |
Total | | $ | 471 | | $ | 484 | |
2019
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
16.18. 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 Credit Facility,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 29,December 27, 2019
| | | | | | | | | | | | | | | | |
| | TE | | | | | | | | | | | | |
| |
| | Connectivity | | | | | Other | | Consolidating | | | |
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
| | (in millions) |
| |||||||||||||
Net sales | | $ | — | | $ | — | | $ | 3,168 | | $ | — | | $ | 3,168 | |
Cost of sales | |
| — | |
| — | |
| 2,138 | |
| — | |
| 2,138 | |
Gross margin | |
| — | |
| — | |
| 1,030 | |
| — | |
| 1,030 | |
Selling, general, and administrative expenses, net(1) | |
| 26 | |
| 16 | |
| 325 | |
| — | |
| 367 | |
Research, development, and engineering expenses | |
| — | |
| — | |
| 161 | |
| — | |
| 161 | |
Acquisition and integration costs | |
| 1 | |
| — | |
| 6 | |
| — | |
| 7 | |
Restructuring and other charges, net | |
| — | |
| — | |
| 24 | |
| — | |
| 24 | |
Operating income (loss) | |
| (27) | |
| (16) | |
| 514 | |
| — | |
| 471 | |
Interest income | |
| — | |
| — | |
| 6 | |
| — | |
| 6 | |
Interest expense | |
| — | |
| (10) | |
| (2) | |
| — | |
| (12) | |
Other income, net | |
| — | |
| — | |
| 5 | |
| — | |
| 5 | |
Equity in net income of subsidiaries | |
| 74 | |
| 101 | |
| — | |
| (175) | |
| — | |
Equity in net income of subsidiaries of discontinued operations | |
| 3 | |
| — | |
| — | |
| (3) | |
| — | |
Intercompany interest income (expense), net | |
| (24) | |
| (1) | |
| 25 | |
| — | |
| — | |
Income from continuing operations before income taxes | |
| 26 | |
| 74 | |
| 548 | |
| (178) | |
| 470 | |
Income tax expense | |
| — | |
| — | |
| (447) | |
| — | |
| (447) | |
Income from continuing operations | |
| 26 | |
| 74 | |
| 101 | |
| (178) | |
| 23 | |
Income from discontinued operations, net of income taxes | |
| — | |
| 3 | |
| — | |
| — | |
| 3 | |
Net income | |
| 26 | |
| 77 | |
| 101 | |
| (178) | |
| 26 | |
Other comprehensive income | |
| 89 | |
| 89 | |
| 108 | |
| (197) | |
| 89 | |
Comprehensive income | | $ | 115 | | $ | 166 | | $ | 209 | | $ | (375) | | $ | 115 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Net sales |
| $ | — |
| $ | — |
| $ | 3,412 |
| $ | — |
| $ | 3,412 |
|
Cost of sales |
|
| — |
|
| — |
|
| 2,294 |
|
| — |
|
| 2,294 |
|
Gross margin |
|
| — |
|
| — |
|
| 1,118 |
|
| — |
|
| 1,118 |
|
Selling, general, and administrative expenses, net |
|
| 28 |
|
| 9 |
|
| 336 |
|
| — |
|
| 373 |
|
Research, development, and engineering expenses |
|
| — |
|
| — |
|
| 166 |
|
| — |
|
| 166 |
|
Acquisition and integration costs |
|
| — |
|
| — |
|
| 7 |
|
| — |
|
| 7 |
|
Restructuring and other charges, net |
|
| — |
|
| — |
|
| 42 |
|
| — |
|
| 42 |
|
Operating income (loss) |
|
| (28) |
|
| (9) |
|
| 567 |
|
| — |
|
| 530 |
|
Interest income |
|
| — |
|
| 1 |
|
| 3 |
|
| — |
|
| 4 |
|
Interest expense |
|
| — |
|
| (14) |
|
| (1) |
|
| — |
|
| (15) |
|
Other income, net |
|
| — |
|
| 1 |
|
| — |
|
| — |
|
| 1 |
|
Equity in net income of subsidiaries |
|
| 489 |
|
| 560 |
|
| — |
|
| (1,049) |
|
| — |
|
Equity in net income of subsidiaries of discontinued operations |
|
| 10 |
|
| 3 |
|
| — |
|
| (13) |
|
| — |
|
Intercompany interest income (expense), net |
|
| (32) |
|
| (50) |
|
| 82 |
|
| — |
|
| — |
|
Income from continuing operations before income taxes |
|
| 439 |
|
| 492 |
|
| 651 |
|
| (1,062) |
|
| 520 |
|
Income tax expense |
|
| — |
|
| — |
|
| (91) |
|
| — |
|
| (91) |
|
Income from continuing operations |
|
| 439 |
|
| 492 |
|
| 560 |
|
| (1,062) |
|
| 429 |
|
Income from discontinued operations, net of income taxes |
|
| — |
|
| 7 |
|
| 3 |
|
| — |
|
| 10 |
|
Net income |
|
| 439 |
|
| 499 |
|
| 563 |
|
| (1,062) |
|
| 439 |
|
Other comprehensive income |
|
| 97 |
|
| 97 |
|
| 47 |
|
| (144) |
|
| 97 |
|
Comprehensive income |
| $ | 536 |
| $ | 596 |
| $ | 610 |
| $ | (1,206) |
| $ | 536 |
|
(1) | TE Connectivity Ltd. and TEGSA selling, general, and administrative expenses include gains of $14 million and losses of $13 million, respectively, related to intercompany transactions. These gains and losses are offset by corresponding net losses recorded by other subsidiaries. |
2120
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Operations (unaudited)
For the Quarter Ended March 30,December 28, 2018
| | | | | | | | | | | | | | | | |
| | TE | | | | | | | | | | | | |
| |
| | Connectivity | | | | | Other | | Consolidating | | | |
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
| | (in millions) |
| |||||||||||||
Net sales | | $ | — | | $ | — | | $ | 3,347 | | $ | — | | $ | 3,347 | |
Cost of sales | |
| — | |
| — | |
| 2,233 | |
| — | |
| 2,233 | |
Gross margin | |
| — | |
| — | |
| 1,114 | |
| — | |
| 1,114 | |
Selling, general, and administrative expenses, net(1) | |
| 35 | |
| (107) | |
| 461 | |
| — | |
| 389 | |
Research, development, and engineering expenses | |
| — | |
| — | |
| 161 | |
| — | |
| 161 | |
Acquisition and integration costs | |
| — | |
| — | |
| 5 | |
| — | |
| 5 | |
Restructuring and other charges, net | |
| — | |
| — | |
| 75 | |
| — | |
| 75 | |
Operating income (loss) | |
| (35) | |
| 107 | |
| 412 | |
| — | |
| 484 | |
Interest income | |
| — | |
| — | |
| 5 | |
| — | |
| 5 | |
Interest expense | |
| — | |
| (27) | |
| — | |
| — | |
| (27) | |
Other expense, net | |
| — | |
| — | |
| (1) | |
| — | |
| (1) | |
Equity in net income of subsidiaries | |
| 441 | | | 389 | | | — | | | (830) | | | — | |
Equity in net loss of subsidiaries of discontinued operations | |
| (107) | |
| (49) | |
| — | |
| 156 | |
| — | |
Intercompany interest income (expense), net | |
| (23) | | | (28) | | | 51 | | | — | | | — | |
Income from continuing operations before income taxes | |
| 276 | |
| 392 | |
| 467 | |
| (674) | |
| 461 | |
Income tax expense | |
| — | |
| — | |
| (78) | |
| — | |
| (78) | |
Income from continuing operations | |
| 276 | |
| 392 | |
| 389 | |
| (674) | |
| 383 | |
Loss from discontinued operations, net of income taxes | |
| — | |
| (58) | |
| (49) | |
| — | |
| (107) | |
Net income | |
| 276 | |
| 334 | |
| 340 | |
| (674) | |
| 276 | |
Other comprehensive income | |
| 49 | |
| 49 | |
| 35 | |
| (84) | |
| 49 | |
Comprehensive income | | $ | 325 | | $ | 383 | | $ | 375 | | $ | (758) | | $ | 325 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Net sales |
| $ | — |
| $ | — |
| $ | 3,562 |
| $ | — |
| $ | 3,562 |
|
Cost of sales |
|
| — |
|
| — |
|
| 2,350 |
|
| — |
|
| 2,350 |
|
Gross margin |
|
| — |
|
| — |
|
| 1,212 |
|
| — |
|
| 1,212 |
|
Selling, general, and administrative expenses, net |
|
| 41 |
|
| 9 |
|
| 359 |
|
| — |
|
| 409 |
|
Research, development, and engineering expenses |
|
| — |
|
| — |
|
| 173 |
|
| — |
|
| 173 |
|
Acquisition and integration costs |
|
| — |
|
| — |
|
| 3 |
|
| — |
|
| 3 |
|
Restructuring and other charges, net |
|
| — |
|
| — |
|
| 6 |
|
| — |
|
| 6 |
|
Operating income (loss) |
|
| (41) |
|
| (9) |
|
| 671 |
|
| — |
|
| 621 |
|
Interest income |
|
| — |
|
| 1 |
|
| 3 |
|
| — |
|
| 4 |
|
Interest expense |
|
| — |
|
| (29) |
|
| 1 |
|
| — |
|
| (28) |
|
Other income, net |
|
| — |
|
| — |
|
| 1 |
|
| — |
|
| 1 |
|
Equity in net income of subsidiaries |
|
| 548 |
|
| 555 |
|
| — |
|
| (1,103) |
|
| — |
|
Intercompany interest income (expense), net |
|
| (17) |
|
| 30 |
|
| (13) |
|
| — |
|
| — |
|
Income from continuing operations before income taxes |
|
| 490 |
|
| 548 |
|
| 663 |
|
| (1,103) |
|
| 598 |
|
Income tax expense |
|
| — |
|
| — |
|
| (108) |
|
| — |
|
| (108) |
|
Net income |
|
| 490 |
|
| 548 |
|
| 555 |
|
| (1,103) |
|
| 490 |
|
Other comprehensive income |
|
| 73 |
|
| 73 |
|
| 94 |
|
| (167) |
|
| 73 |
|
Comprehensive income |
| $ | 563 |
| $ | 621 |
| $ | 649 |
| $ | (1,270) |
| $ | 563 |
|
(1) | TEGSA selling, general, and administrative expenses include gains of $110 million related to intercompany transactions. These gains are offset by corresponding losses recorded by other subsidiaries. |
2221
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Balance Sheet (unaudited)
As of December 27, 2019
| | | | | | | | | | | | | | | | |
| | TE | | | | | | | | | | | | | | |
| | Connectivity | | | | | Other | | Consolidating | | | | | |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
| | (in millions) | | |||||||||||||
Assets | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | — | | $ | 742 | | $ | — | | $ | 742 | |
Accounts receivable, net | |
| — | |
| — | |
| 2,338 | |
| — | |
| 2,338 | |
Inventories | |
| — | |
| — | |
| 2,003 | |
| — | |
| 2,003 | |
Intercompany receivables | |
| 51 | |
| 3,253 | |
| 62 | |
| (3,366) | |
| — | |
Prepaid expenses and other current assets | |
| 6 | |
| 29 | |
| 448 | |
| — | |
| 483 | |
Total current assets | |
| 57 | |
| 3,282 | |
| 5,593 | |
| (3,366) | |
| 5,566 | |
Property, plant, and equipment, net | |
| — | |
| — | |
| 3,659 | |
| — | |
| 3,659 | |
Goodwill | |
| — | |
| — | |
| 5,846 | |
| — | |
| 5,846 | |
Intangible assets, net | |
| — | |
| — | |
| 1,602 | |
| — | |
| 1,602 | |
Deferred income taxes | |
| — | |
| — | |
| 2,360 | |
| — | |
| 2,360 | |
Investment in subsidiaries | |
| 13,994 | |
| 28,344 | |
| — | |
| (42,338) | |
| — | |
Intercompany loans receivable | |
| — | |
| 2,595 | |
| 16,189 | |
| (18,784) | |
| — | |
Other assets | |
| — | |
| 38 | |
| 905 | |
| — | |
| 943 | |
Total assets | | $ | 14,051 | | $ | 34,259 | | $ | 36,154 | | $ | (64,488) | | $ | 19,976 | |
Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Short-term debt | | $ | — | | $ | 559 | | $ | 2 | | $ | — | | $ | 561 | |
Accounts payable | |
| 1 | |
| — | |
| 1,432 | |
| — | |
| 1,433 | |
Accrued and other current liabilities | |
| 178 | |
| 66 | |
| 1,166 | |
| — | |
| 1,410 | |
Intercompany payables | | | 3,315 | | | — | | | 51 | | | (3,366) | | | — | |
Total current liabilities | |
| 3,494 | |
| 625 | |
| 2,651 | |
| (3,366) | |
| 3,404 | |
Long-term debt | |
| — | |
| 3,412 | |
| — | |
| — | |
| 3,412 | |
Intercompany loans payable | |
| — | |
| 16,189 | |
| 2,595 | |
| (18,784) | |
| — | |
Long-term pension and postretirement liabilities | |
| — | |
| — | |
| 1,365 | |
| — | |
| 1,365 | |
Deferred income taxes | |
| — | |
| — | |
| 142 | |
| — | |
| 142 | |
Income taxes | |
| — | |
| — | |
| 247 | |
| — | |
| 247 | |
Other liabilities | |
| — | |
| 39 | |
| 810 | |
| — | |
| 849 | |
Total liabilities | |
| 3,494 | |
| 20,265 | |
| 7,810 | |
| (22,150) | |
| 9,419 | |
Total shareholders’ equity | |
| 10,557 | |
| 13,994 | |
| 28,344 | |
| (42,338) | |
| 10,557 | |
Total liabilities and shareholders’ equity | | $ | 14,051 | | $ | 34,259 | | $ | 36,154 | | $ | (64,488) | | $ | 19,976 | |
22
Condensed Consolidating Statement of Operations (unaudited)
For the Six Months Ended March 29, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Net sales |
| $ | — |
| $ | — |
| $ | 6,759 |
| $ | — |
| $ | 6,759 |
|
Cost of sales |
|
| — |
|
| — |
|
| 4,527 |
|
| — |
|
| 4,527 |
|
Gross margin |
|
| — |
|
| — |
|
| 2,232 |
|
| — |
|
| 2,232 |
|
Selling, general, and administrative expenses, net |
|
| 63 |
|
| (98) |
|
| 797 |
|
| — |
|
| 762 |
|
Research, development, and engineering expenses |
|
| — |
|
| — |
|
| 327 |
|
| — |
|
| 327 |
|
Acquisition and integration costs |
|
| — |
|
| — |
|
| 12 |
|
| — |
|
| 12 |
|
Restructuring and other charges, net |
|
| — |
|
| — |
|
| 117 |
|
| — |
|
| 117 |
|
Operating income (loss) |
|
| (63) |
|
| 98 |
|
| 979 |
|
| — |
|
| 1,014 |
|
Interest income |
|
| — |
|
| 1 |
|
| 8 |
|
| — |
|
| 9 |
|
Interest expense |
|
| — |
|
| (41) |
|
| (1) |
|
| — |
|
| (42) |
|
Other income (expense), net |
|
| — |
|
| 1 |
|
| (1) |
|
| — |
|
| — |
|
Equity in net income of subsidiaries |
|
| 930 |
|
| 949 |
|
| — |
|
| (1,879) |
|
| — |
|
Equity in net loss of subsidiaries of discontinued operations |
|
| (97) |
|
| (46) |
|
| — |
|
| 143 |
|
| — |
|
Intercompany interest income (expense), net |
|
| (55) |
|
| (78) |
|
| 133 |
|
| — |
|
| — |
|
Income from continuing operations before income taxes |
|
| 715 |
|
| 884 |
|
| 1,118 |
|
| (1,736) |
|
| 981 |
|
Income tax expense |
|
| — |
|
| — |
|
| (169) |
|
| — |
|
| (169) |
|
Income from continuing operations |
|
| 715 |
|
| 884 |
|
| 949 |
|
| (1,736) |
|
| 812 |
|
Loss from discontinued operations, net of income taxes |
|
| — |
|
| (51) |
|
| (46) |
|
| — |
|
| (97) |
|
Net income |
|
| 715 |
|
| 833 |
|
| 903 |
|
| (1,736) |
|
| 715 |
|
Other comprehensive income |
|
| 146 |
|
| 146 |
|
| 82 |
|
| (228) |
|
| 146 |
|
Comprehensive income |
| $ | 861 |
| $ | 979 |
| $ | 985 |
| $ | (1,964) |
| $ | 861 |
|
23
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Balance Sheet (unaudited)
As of September 27, 2019
| | | | | | | | | | | | | | | | |
| | TE | | | | | | | | | | | | | | |
| | Connectivity | | | | | Other | | Consolidating | | | | | |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
| | (in millions) | | |||||||||||||
Assets | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | — | | $ | 927 | | $ | — | | $ | 927 | |
Accounts receivable, net | |
| — | |
| — | |
| 2,320 | |
| — | |
| 2,320 | |
Inventories | |
| — | |
| — | |
| 1,836 | |
| — | |
| 1,836 | |
Intercompany receivables | |
| 49 | |
| 2,959 | |
| 60 | |
| (3,068) | |
| — | |
Prepaid expenses and other current assets | |
| 4 | |
| 36 | |
| 431 | |
| — | |
| 471 | |
Total current assets | |
| 53 | |
| 2,995 | |
| 5,574 | |
| (3,068) | |
| 5,554 | |
Property, plant, and equipment, net | |
| — | |
| — | |
| 3,574 | |
| — | |
| 3,574 | |
Goodwill | |
| — | |
| — | |
| 5,740 | |
| — | |
| 5,740 | |
Intangible assets, net | |
| — | |
| — | |
| 1,596 | |
| — | |
| 1,596 | |
Deferred income taxes | |
| — | |
| — | |
| 2,776 | |
| — | |
| 2,776 | |
Investment in subsidiaries | |
| 13,865 | |
| 28,336 | |
| — | |
| (42,201) | |
| — | |
Intercompany loans receivable | | | — | |
| 2,562 | |
| 16,033 | |
| (18,595) | |
| — | |
Other assets | |
| — | |
| 72 | |
| 382 | |
| — | |
| 454 | |
Total assets | | $ | 13,918 | | $ | 33,965 | | $ | 35,675 | | $ | (63,864) | | $ | 19,694 | |
Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Short-term debt | | $ | — | | $ | 568 | | $ | 2 | | $ | — | | $ | 570 | |
Accounts payable | |
| 1 | |
| — | |
| 1,356 | |
| — | |
| 1,357 | |
Accrued and other current liabilities | |
| 328 | |
| 57 | |
| 1,228 | |
| — | |
| 1,613 | |
Intercompany payables | |
| 3,019 | |
| — | |
| 49 | |
| (3,068) | |
| — | |
Total current liabilities | |
| 3,348 | |
| 625 | |
| 2,635 | |
| (3,068) | |
| 3,540 | |
Long-term debt | |
| — | |
| 3,395 | |
| — | |
| — | |
| 3,395 | |
Intercompany loans payable | |
| — | |
| 16,033 | |
| 2,562 | |
| (18,595) | |
| — | |
Long-term pension and postretirement liabilities | |
| — | |
| — | |
| 1,367 | |
| — | |
| 1,367 | |
Deferred income taxes | |
| — | |
| — | |
| 156 | |
| — | |
| 156 | |
Income taxes | |
| — | |
| — | |
| 239 | |
| — | |
| 239 | |
Other liabilities | |
| — | |
| 47 | |
| 380 | |
| — | |
| 427 | |
Total liabilities | |
| 3,348 | |
| 20,100 | |
| 7,339 | |
| (21,663) | |
| 9,124 | |
Total shareholders’ equity | |
| 10,570 | | | 13,865 | | | 28,336 | | | (42,201) | | | 10,570 | |
Total liabilities and shareholders’ equity | | $ | 13,918 | | $ | 33,965 | | $ | 35,675 | | $ | (63,864) | | $ | 19,694 | |
23
Condensed Consolidating Statement of Operations (unaudited)
For the Six Months Ended March 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Net sales |
| $ | — |
| $ | — |
| $ | 6,898 |
| $ | — |
| $ | 6,898 |
|
Cost of sales |
|
| — |
|
| — |
|
| 4,522 |
|
| — |
|
| 4,522 |
|
Gross margin |
|
| — |
|
| — |
|
| 2,376 |
|
| — |
|
| 2,376 |
|
Selling, general, and administrative expenses, net |
|
| 88 |
|
| 6 |
|
| 692 |
|
| — |
|
| 786 |
|
Research, development, and engineering expenses |
|
| — |
|
| — |
|
| 338 |
|
| — |
|
| 338 |
|
Acquisition and integration costs |
|
| — |
|
| — |
|
| 5 |
|
| — |
|
| 5 |
|
Restructuring and other charges, net |
|
| — |
|
| — |
|
| 40 |
|
| — |
|
| 40 |
|
Operating income (loss) |
|
| (88) |
|
| (6) |
|
| 1,301 |
|
| — |
|
| 1,207 |
|
Interest income |
|
| — |
|
| 1 |
|
| 7 |
|
| — |
|
| 8 |
|
Interest expense |
|
| — |
|
| (55) |
|
| 1 |
|
| — |
|
| (54) |
|
Other income, net |
|
| — |
|
| — |
|
| 3 |
|
| — |
|
| 3 |
|
Equity in net income of subsidiaries |
|
| 575 |
|
| 577 |
|
| — |
|
| (1,152) |
|
| — |
|
Equity in net loss of subsidiaries of discontinued operations |
|
| (7) |
|
| (7) |
|
| — |
|
| 14 |
|
| — |
|
Intercompany interest income (expense), net |
|
| (30) |
|
| 58 |
|
| (28) |
|
| — |
|
| — |
|
Income from continuing operations before income taxes |
|
| 450 |
|
| 568 |
|
| 1,284 |
|
| (1,138) |
|
| 1,164 |
|
Income tax expense |
|
| — |
|
| — |
|
| (707) |
|
| — |
|
| (707) |
|
Income from continuing operations |
|
| 450 |
|
| 568 |
|
| 577 |
|
| (1,138) |
|
| 457 |
|
Loss from discontinued operations, net of income taxes |
|
| — |
|
| — |
|
| (7) |
|
| — |
|
| (7) |
|
Net income |
|
| 450 |
|
| 568 |
|
| 570 |
|
| (1,138) |
|
| 450 |
|
Other comprehensive income |
|
| 149 |
|
| 149 |
|
| 181 |
|
| (330) |
|
| 149 |
|
Comprehensive income |
| $ | 599 |
| $ | 717 |
| $ | 751 |
| $ | (1,468) |
| $ | 599 |
|
24
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Balance Sheet (unaudited)
As of March 29, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | — |
| $ | 565 |
| $ | — |
| $ | 565 |
|
Accounts receivable, net |
|
| — |
|
| — |
|
| 2,463 |
|
| — |
|
| 2,463 |
|
Inventories |
|
| — |
|
| — |
|
| 1,970 |
|
| — |
|
| 1,970 |
|
Intercompany receivables |
|
| 43 |
|
| 3,493 |
|
| 64 |
|
| (3,600) |
|
| — |
|
Prepaid expenses and other current assets |
|
| 3 |
|
| 52 |
|
| 393 |
|
| — |
|
| 448 |
|
Total current assets |
|
| 46 |
|
| 3,545 |
|
| 5,455 |
|
| (3,600) |
|
| 5,446 |
|
Property, plant, and equipment, net |
|
| — |
|
| — |
|
| 3,596 |
|
| — |
|
| 3,596 |
|
Goodwill |
|
| — |
|
| — |
|
| 5,626 |
|
| — |
|
| 5,626 |
|
Intangible assets, net |
|
| — |
|
| — |
|
| 1,596 |
|
| — |
|
| 1,596 |
|
Deferred income taxes |
|
| — |
|
| — |
|
| 2,607 |
|
| — |
|
| 2,607 |
|
Investment in subsidiaries |
|
| 14,169 |
|
| 32,623 |
|
| — |
|
| (46,792) |
|
| — |
|
Intercompany loans receivable |
|
| — |
|
| 1,565 |
|
| 19,531 |
|
| (21,096) |
|
| — |
|
Other assets |
|
| — |
|
| 30 |
|
| 361 |
|
| — |
|
| 391 |
|
Total assets |
| $ | 14,215 |
| $ | 37,763 |
| $ | 38,772 |
| $ | (71,488) |
| $ | 19,262 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
| $ | — |
| $ | 610 |
| $ | 2 |
| $ | — |
| $ | 612 |
|
Accounts payable |
|
| 3 |
|
| — |
|
| 1,482 |
|
| — |
|
| 1,485 |
|
Accrued and other current liabilities |
|
| 662 |
|
| 36 |
|
| 1,072 |
|
| — |
|
| 1,770 |
|
Intercompany payables |
|
| 3,556 |
|
| 2 |
|
| 42 |
|
| (3,600) |
|
| — |
|
Total current liabilities |
|
| 4,221 |
|
| 648 |
|
| 2,598 |
|
| (3,600) |
|
| 3,867 |
|
Long-term debt |
|
| — |
|
| 3,368 |
|
| 2 |
|
| — |
|
| 3,370 |
|
Intercompany loans payable |
|
| — |
|
| 19,531 |
|
| 1,565 |
|
| (21,096) |
|
| — |
|
Long-term pension and postretirement liabilities |
|
| — |
|
| — |
|
| 1,081 |
|
| — |
|
| 1,081 |
|
Deferred income taxes |
|
| — |
|
| — |
|
| 196 |
|
| — |
|
| 196 |
|
Income taxes |
|
| — |
|
| — |
|
| 333 |
|
| — |
|
| 333 |
|
Other liabilities |
|
| — |
|
| 47 |
|
| 374 |
|
| — |
|
| 421 |
|
Total liabilities |
|
| 4,221 |
|
| 23,594 |
|
| 6,149 |
|
| (24,696) |
|
| 9,268 |
|
Total shareholders' equity |
|
| 9,994 |
|
| 14,169 |
|
| 32,623 |
|
| (46,792) |
|
| 9,994 |
|
Total liabilities and shareholders' equity |
| $ | 14,215 |
| $ | 37,763 |
| $ | 38,772 |
| $ | (71,488) |
| $ | 19,262 |
|
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Balance Sheet (unaudited)
As of September 28, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | — |
| $ | 848 |
| $ | — |
| $ | 848 |
|
Accounts receivable, net |
|
| — |
|
| — |
|
| 2,361 |
|
| — |
|
| 2,361 |
|
Inventories |
|
| — |
|
| — |
|
| 1,857 |
|
| — |
|
| 1,857 |
|
Intercompany receivables |
|
| 37 |
|
| 2,391 |
|
| 48 |
|
| (2,476) |
|
| — |
|
Prepaid expenses and other current assets |
|
| 5 |
|
| 112 |
|
| 544 |
|
| — |
|
| 661 |
|
Assets held for sale |
|
| — |
|
| — |
|
| 472 |
|
| — |
|
| 472 |
|
Total current assets |
|
| 42 |
|
| 2,503 |
|
| 6,130 |
|
| (2,476) |
|
| 6,199 |
|
Property, plant, and equipment, net |
|
| — |
|
| — |
|
| 3,497 |
|
| — |
|
| 3,497 |
|
Goodwill |
|
| — |
|
| — |
|
| 5,684 |
|
| — |
|
| 5,684 |
|
Intangible assets, net |
|
| — |
|
| — |
|
| 1,704 |
|
| — |
|
| 1,704 |
|
Deferred income taxes |
|
| — |
|
| — |
|
| 2,144 |
|
| — |
|
| 2,144 |
|
Investment in subsidiaries |
|
| 13,626 |
|
| 26,613 |
|
| — |
|
| (40,239) |
|
| — |
|
Intercompany loans receivable |
|
| 2 |
|
| 6,535 |
|
| 17,887 |
|
| (24,424) |
|
| — |
|
Other assets |
|
| — |
|
| — |
|
| 1,158 |
|
| — |
|
| 1,158 |
|
Total assets |
| $ | 13,670 |
| $ | 35,651 |
| $ | 38,204 |
| $ | (67,139) |
| $ | 20,386 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
| $ | — |
| $ | 961 |
| $ | 2 |
| $ | — |
| $ | 963 |
|
Accounts payable |
|
| 2 |
|
| — |
|
| 1,546 |
|
| — |
|
| 1,548 |
|
Accrued and other current liabilities |
|
| 400 |
|
| 36 |
|
| 1,275 |
|
| — |
|
| 1,711 |
|
Intercompany payables |
|
| 2,437 |
|
| — |
|
| 39 |
|
| (2,476) |
|
| — |
|
Liabilities held for sale |
|
| — |
|
| — |
|
| 188 |
|
| — |
|
| 188 |
|
Total current liabilities |
|
| 2,839 |
|
| 997 |
|
| 3,050 |
|
| (2,476) |
|
| 4,410 |
|
Long-term debt |
|
| — |
|
| 3,033 |
|
| 4 |
|
| — |
|
| 3,037 |
|
Intercompany loans payable |
|
| — |
|
| 17,888 |
|
| 6,536 |
|
| (24,424) |
|
| — |
|
Long-term pension and postretirement liabilities |
|
| — |
|
| — |
|
| 1,102 |
|
| — |
|
| 1,102 |
|
Deferred income taxes |
|
| — |
|
| — |
|
| 207 |
|
| — |
|
| 207 |
|
Income taxes |
|
| — |
|
| — |
|
| 312 |
|
| — |
|
| 312 |
|
Other liabilities |
|
| — |
|
| 107 |
|
| 380 |
|
| — |
|
| 487 |
|
Total liabilities |
|
| 2,839 |
|
| 22,025 |
|
| 11,591 |
|
| (26,900) |
|
| 9,555 |
|
Total shareholders' equity |
|
| 10,831 |
|
| 13,626 |
|
| 26,613 |
|
| (40,239) |
|
| 10,831 |
|
Total liabilities and shareholders' equity |
| $ | 13,670 |
| $ | 35,651 |
| $ | 38,204 |
| $ | (67,139) |
| $ | 20,386 |
|
26
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Cash Flows (unaudited)
For the Six MonthsQuarter Ended March 29,December 27, 2019
| | | | | | | | | | | | | | | | |
| | TE | | | | | | | | | | | | | | |
| | Connectivity | | | | | Other | | Consolidating | | | | | |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
| | (in millions) | | |||||||||||||
Cash flows from operating activities: | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities(1) | | $ | (69) | | $ | 462 | | $ | 476 | | $ | (458) | | $ | 411 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Capital expenditures | |
| — | |
| — | |
| (176) | |
| — | |
| (176) | |
Acquisition of businesses, net of cash acquired | | | — | | | — | | | (115) | | | — | | | (115) | |
Change in intercompany loans | |
| — | |
| (149) | |
| — | |
| 149 | |
| — | |
Other | |
| — | |
| — | |
| 2 | |
| — | |
| 2 | |
Net cash used in investing activities | | | — | | | (149) | | | (289) | | | 149 | | | (289) | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Changes in parent company equity(2) | |
| 46 | |
| (304) | |
| 258 | |
| — | |
| — | |
Net decrease in commercial paper | |
| — | |
| (9) | |
| — | |
| — | |
| (9) | |
Proceeds from exercise of share options | |
| — | |
| — | |
| 14 | |
| — | |
| 14 | |
Repurchase of common shares | |
| (119) | |
| — | |
| (20) | |
| — | |
| (139) | |
Payment of common share dividends to shareholders | |
| (154) | |
| — | |
| — | |
| — | |
| (154) | |
Intercompany distributions(1) | |
| — | |
| — | |
| (458) | |
| 458 | |
| — | |
Loan activity with parent | |
| 296 | |
| — | |
| (147) | |
| (149) | |
| — | |
Other | |
| — | |
| — | |
| (26) | |
| — | |
| (26) | |
Net cash provided by (used in) financing activities | | | 69 | | | (313) | | | (379) | | | 309 | | | (314) | |
Effect of currency translation on cash | |
| — | |
| — | |
| 7 | |
| — | |
| 7 | |
Net decrease in cash, cash equivalents, and restricted cash | |
| — | |
| — | |
| (185) | |
| — | |
| (185) | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| — | |
| — | |
| 927 | |
| — | |
| 927 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | — | | $ | — | | $ | 742 | | $ | — | | $ | 742 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operating activities |
| $ | (121) |
| $ | (79) |
| $ | 1,083 |
| $ | — |
| $ | 883 |
|
Net cash used in discontinued operating activities |
|
| — |
|
| — |
|
| (30) |
|
| — |
|
| (30) |
|
Net cash provided by (used in) operating activities |
|
| (121) |
|
| (79) |
|
| 1,053 |
|
| — |
|
| 853 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| — |
|
| (401) |
|
| — |
|
| (401) |
|
Proceeds from sale of property, plant, and equipment |
|
| — |
|
| — |
|
| 13 |
|
| — |
|
| 13 |
|
Proceeds from divestiture of discontinued operation, net of cash retained by sold operation |
|
| — |
|
| 312 |
|
| (15) |
|
| — |
|
| 297 |
|
Change in intercompany loans |
|
| — |
|
| 5,475 |
|
| — |
|
| (5,475) |
|
| — |
|
Other |
|
| — |
|
| — |
|
| 8 |
|
| — |
|
| 8 |
|
Net cash provided by (used in) continuing investing activities |
|
| — |
|
| 5,787 |
|
| (395) |
|
| (5,475) |
|
| (83) |
|
Net cash used in discontinued investing activities |
|
| — |
|
| — |
|
| (2) |
|
| — |
|
| (2) |
|
Net cash provided by (used in) investing activities |
|
| — |
|
| 5,787 |
|
| (397) |
|
| (5,475) |
|
| (85) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in parent company equity(1) |
|
| 38 |
|
| (5,704) |
|
| 5,666 |
|
| — |
|
| — |
|
Net increase in commercial paper |
|
| — |
|
| 90 |
|
| — |
|
| — |
|
| 90 |
|
Proceeds from issuance of debt |
|
| — |
|
| 350 |
|
| — |
|
| — |
|
| 350 |
|
Repayment of debt |
|
| — |
|
| (441) |
|
| — |
|
| — |
|
| (441) |
|
Proceeds from exercise of share options |
|
| — |
|
| — |
|
| 17 |
|
| — |
|
| 17 |
|
Repurchase of common shares |
|
| (739) |
|
| — |
|
| — |
|
| — |
|
| (739) |
|
Payment of common share dividends to shareholders |
|
| (299) |
|
| — |
|
| — |
|
| — |
|
| (299) |
|
Loan activity with parent |
|
| 1,121 |
|
| — |
|
| (6,596) |
|
| 5,475 |
|
| — |
|
Transfers to discontinued operations |
|
| — |
|
| — |
|
| (32) |
|
| — |
|
| (32) |
|
Other |
|
| — |
|
| (3) |
|
| (27) |
|
| — |
|
| (30) |
|
Net cash provided by (used in) continuing financing activities |
|
| 121 |
|
| (5,708) |
|
| (972) |
|
| 5,475 |
|
| (1,084) |
|
Net cash provided by discontinued financing activities |
|
| — |
|
| — |
|
| 32 |
|
| — |
|
| 32 |
|
Net cash provided by (used in) financing activities |
|
| 121 |
|
| (5,708) |
|
| (940) |
|
| 5,475 |
|
| (1,052) |
|
Effect of currency translation on cash |
|
| — |
|
| — |
|
| 1 |
|
| — |
|
| 1 |
|
Net decrease in cash, cash equivalents, and restricted cash |
|
| — |
|
| — |
|
| (283) |
|
| — |
|
| (283) |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| — |
|
| — |
|
| 848 |
|
| — |
|
| 848 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | — |
| $ | — |
| $ | 565 |
| $ | — |
| $ | 565 |
|
(1) |
|
(2) | Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and other intercompany activity. |
2724
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Cash Flows (unaudited)
For the Six MonthsQuarter Ended March 30,December 28, 2018
| | | | | | | | | | | | | | | | |
| | TE | | | | | | | | | | | | | | |
| | Connectivity | | | | | Other | | Consolidating | | | | | |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
| | (in millions) | | |||||||||||||
Cash flows from operating activities: | | | | | | | | | | | | | | | | |
Net cash provided by (used in) continuing operating activities | | $ | (73) | | $ | (9) | | $ | 410 | | $ | — | | $ | 328 | |
Net cash used in discontinued operating activities | |
| — | |
| — | |
| (31) | |
| — | |
| (31) | |
Net cash provided by (used in) operating activities | |
| (73) | |
| (9) | |
| 379 | |
| — | |
| 297 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Capital expenditures | |
| — | |
| — | |
| (210) | |
| — | |
| (210) | |
Proceeds from divestiture of business, net of cash retained by sold business | | | — | | | 303 | | | (15) | | | — | | | 288 | |
Change in intercompany loans | |
| — | |
| (25) | |
| — | |
| 25 | |
| — | |
Other | |
| — | |
| — | |
| 4 | |
| — | |
| 4 | |
Net cash provided by (used in) continuing investing activities | | | — | | | 278 | | | (221) | | | 25 | | | 82 | |
Net cash used in discontinued investing activities | | | — | | | — | | | (2) | | | — | | | (2) | |
Net cash provided by (used in) investing activities | | | — | | | 278 | | | (223) | | | 25 | | | 80 | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Changes in parent company equity(1) | |
| 23 | |
| (240) | |
| 217 | |
| — | |
| — | |
Net increase in commercial paper | |
| — | |
| 63 | |
| — | |
| — | |
| 63 | |
Proceeds from issuance of debt | | | — | | | 350 | | | — | | | — | | | 350 | |
Repayment of debt | | | — | | | (441) | | | — | | | — | | | (441) | |
Proceeds from exercise of share options | |
| — | |
| — | |
| 7 | |
| — | |
| 7 | |
Repurchase of common shares | |
| (519) | |
| — | |
| — | |
| — | |
| (519) | |
Payment of common share dividends to shareholders | |
| (150) | |
| — | |
| — | |
| — | |
| (150) | |
Loan activity with parent | |
| 719 | |
| — | |
| (694) | |
| (25) | |
| — | |
Transfers to discontinued operations | | | — | | | — | | | (33) | | | — | | | (33) | |
Other | |
| — | |
| (1) | |
| (28) | |
| — | |
| (29) | |
Net cash provided by (used in) continuing financing activities | |
| 73 | |
| (269) | |
| (531) | |
| (25) | |
| (752) | |
Net cash provided by discontinued financing activities | |
| — | |
| — | |
| 33 | |
| — | |
| 33 | |
Net cash provided by (used in) financing activities | |
| 73 | |
| (269) | |
| (498) | |
| (25) | |
| (719) | |
Effect of currency translation on cash | |
| — | |
| — | |
| (1) | |
| — | |
| (1) | |
Net decrease in cash, cash equivalents, and restricted cash | |
| — | |
| — | |
| (343) | |
| — | |
| (343) | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| — | |
| — | |
| 848 | |
| — | |
| 848 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | — | | $ | — | | $ | 505 | | $ | — | | $ | 505 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TE |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Connectivity |
|
|
|
| Other |
| Consolidating |
|
|
|
| |||
|
| Ltd. |
| TEGSA |
| Subsidiaries |
| Adjustments |
| Total |
| |||||
|
| (in millions) |
| |||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operating activities (1) |
| $ | (116) |
| $ | (67) |
| $ | 835 |
| $ | (7) |
| $ | 645 |
|
Net cash provided by discontinued operating activities |
|
| — |
|
| — |
|
| 82 |
|
| — |
|
| 82 |
|
Net cash provided by (used in) operating activities |
|
| (116) |
|
| (67) |
|
| 917 |
|
| (7) |
|
| 727 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| — |
|
| (439) |
|
| — |
|
| (439) |
|
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) continuing investing activities |
|
| — |
|
| 399 |
|
| (434) |
|
| (399) |
|
| (434) |
|
Net cash used in discontinued investing activities |
|
| — |
|
| — |
|
| (8) |
|
| — |
|
| (8) |
|
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 |
|
| — |
|
Transfers from discontinued operations |
|
| — |
|
| — |
|
| 74 |
|
| — |
|
| 74 |
|
Other |
|
| — |
|
| — |
|
| (32) |
|
| — |
|
| (32) |
|
Net cash provided by (used in) continuing financing activities |
|
| 116 |
|
| (332) |
|
| (1,080) |
|
| 406 |
|
| (890) |
|
Net cash used in discontinued financing activities |
|
| — |
|
| — |
|
| (74) |
|
| — |
|
| (74) |
|
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, cash equivalents, and restricted cash |
|
| — |
|
| — |
|
| (659) |
|
| — |
|
| (659) |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| — |
|
| — |
|
| 1,218 |
|
| — |
|
| 1,218 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | — |
| $ | — |
| $ | 559 |
| $ | — |
| $ | 559 |
|
(1) |
|
|
| Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and other intercompany activity. |
2825
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.10-Q. The following discussion may contain forward‑lookingforward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward‑lookingforward-looking statements as a result of many factors, including but not limited to those under the heading “Forward‑Looking“Forward-Looking Information” and “Part II. Item 1A. Risk Factors.”
Our Condensed Consolidated Financial Statements have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).
The following discussion includes organic net sales growth (decline) which is a non‑GAAPnon-GAAP financial measure. See “Non‑GAAP“Non-GAAP Financial Measure” for additional information regarding this measure.
OverviewOverview
TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) is a global industrial technology and manufacturing leader creating a safer, sustainable, productive, and connected future. For more than 75 years, ourOur broad range of connectivity and sensor solutions, proven in the harshest environments, have enabledenable advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.
Highlights for the secondThe first quarter and first six months of fiscal 2019 include2020 included the following:
| Our net sales decreased |
| Our net sales by segment were as follows: |
| Transportation Solutions—Our net sales decreased |
| Industrial Solutions—Our net sales |
| Communications Solutions—Our net sales decreased |
| Net cash provided by continuing operating activities was |
2926
Outlook
In the thirdsecond quarter of fiscal 2019,2020, we expect our net sales to be between $3.4$3.1 billion and $3.5$3.3 billion as compared to $3.6$3.4 billion in the thirdsecond quarter of fiscal 2018. This decrease reflects2019, with sales declines in the Transportation Solutions and Communications Solutions segments relative to the third quarter of fiscal 2018.all segments. Additional information regarding expectations for our reportable segments for the thirdsecond quarter of fiscal 20192020 as compared to the same period of fiscal 20182019 is as follows:
| Transportation Solutions—We expect our net sales to decrease in the automotive end market due primarily to |
| Industrial Solutions |
|
|
● | Communications Solutions—We expect our net sales to decline in both the data and devices and the appliances end markets |
We expect diluted earnings per share from continuing operations to be in the range of $1.13$1.05 to $1.17$1.11 per share in the thirdsecond quarter of fiscal 2019.2020. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $120$77 million and $0.06$0.04 per share, respectively, in the thirdsecond quarter of fiscal 20192020 as compared to the thirdsecond quarter of fiscal 2018.2019.
For fiscal 2019,2020, we expect our net sales to be between $13.55$12.85 billion and $13.75$13.25 billion as compared to $14.0$13.4 billion in fiscal 2018.2019. This decrease is driven primarily by sales declines in the Transportation Solutions and Communications Solutions segments relative to fiscal 2018.2019. Additional information regarding expectations for our reportable segments for fiscal 20192020 compared to fiscal 20182019 is as follows:
| Transportation Solutions—We expect our net sales to decrease in the automotive end market as a result of declines in global automotive production. However, we expect our content gains to partially offset the impact of the overall market decline. We expect our net sales to decrease in the commercial transportation end market due |
| Industrial Solutions—We expect our net sales |
| Communications Solutions—We expect our net sales to decline in the data and devices and the appliances end markets due |
WeIn fiscal 2020, we expect diluted earnings per share from continuing operations to be in the range of $4.88$3.23 to $4.98$3.53 per share in fiscal 2019.share. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $400$209 million and $0.16$0.11 per share, respectively, in fiscal 20192020 as compared to fiscal 2018.2019.
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.”
3027
In September 2018, Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”), subject to a referendum and a public vote in May 2019. Swiss Tax Reform will change income taxation at both the federal and cantonal levels. Prior to approval in the referendum and its subsequent cantonal implementation, the proposed Swiss Tax Reform is not enacted and therefore we have not reflected any of the potential impacts on our Condensed Consolidated Financial Statements or in the above outlook. We are currently assessing the impacts of the proposed Swiss Tax Reform. If enacted, the federal provisions and subsequent cantonal implementation of Swiss Tax Reform may have a material impact on our Condensed Consolidated Financial Statements.
Discontinued OperationsAcquisitions
During the first six monthsquarter of fiscal 2020, we acquired two businesses for a combined cash purchase price of $112 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.
Pending Acquisition
During fiscal 2019, we sold our Subsea Communicationsentered into a business combination agreement and commenced a voluntary public tender offer for all outstanding shares of First Sensor AG (“SubCom”First Sensor”) business, a provider of sensing solutions based in Germany. The offer was accepted for approximately 72% of First Sensor’s shares. The transaction, including the assumption of First Sensor’s outstanding net cash proceeds of $297debt, is valued at approximately €330 million, and incurred a pre‑tax loss on sale of $86 million. The SubCom business met the held for sale and discontinued operations criteria and was reported as such in all periods presentedbased on the Condensed Consolidated Financial Statements. Priortendered shares and an estimated premium for untendered shares. Completion of the offer will be subject to reclassificationcustomary closing conditions, including receipt of any outstanding regulatory approvals. We expect to discontinued operations,complete the SubCom business was includedtransaction in the Communications Solutions segment. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.fiscal 2020.
Results of Operations
Net Sales
The following table presents our net sales and the percentage of total net sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
|
| For the |
|
| ||||||||||||||||||
|
| Quarters Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
| March 29, |
|
| March 30, |
|
| ||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| ||||||||||||
|
| ($ in millions) |
|
| |||||||||||||||||||||
Transportation Solutions |
| $ | 1,971 |
| 58 | % |
| $ | 2,134 |
| 60 | % |
| $ | 3,957 |
| 58 | % |
| $ | 4,166 |
| 60 | % |
|
Industrial Solutions |
|
| 1,007 |
| 29 |
|
|
| 972 |
| 27 |
|
|
| 1,935 |
| 29 |
|
|
| 1,854 |
| 27 |
|
|
Communications Solutions |
|
| 434 |
| 13 |
|
|
| 456 |
| 13 |
|
|
| 867 |
| 13 |
|
|
| 878 |
| 13 |
|
|
Total |
| $ | 3,412 |
| 100 | % |
| $ | 3,562 |
| 100 | % |
| $ | 6,759 |
| 100 | % |
| $ | 6,898 |
| 100 | % |
|
| | | | | | | | | | | | | |
| | For the | | | |||||||||
| | Quarters Ended | | | |||||||||
| | December 27, | | | December 28, | | | ||||||
|
| 2019 |
|
| 2018 |
|
| ||||||
|
| ($ in millions) | |||||||||||
Transportation Solutions | | $ | 1,868 | | 59 | % | | $ | 1,986 | | 59 | % | |
Industrial Solutions | |
| 927 |
| 29 | | |
| 928 |
| 28 | | |
Communications Solutions | |
| 373 |
| 12 | | |
| 433 |
| 13 | | |
Total | | $ | 3,168 |
| 100 | % | | $ | 3,347 |
| 100 | % | |
The following table provides an analysis of the change in our net sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in Net Sales for the Quarter Ended March 29, 2019 |
| Changes in Net Sales for the Six Months Ended March 29, 2019 |
| ||||||||||||||||||||||||||||
|
| versus Net Sales for the Quarter Ended March 30, 2018 |
| versus Net Sales for the Six Months Ended March 30, 2018 |
| ||||||||||||||||||||||||||||
|
| Net |
| Organic Net |
|
|
|
|
|
|
| Net |
| Organic Net |
|
|
|
|
|
|
| ||||||||||||
|
| Sales Growth |
| Sales Growth |
| Translation |
| Acquisition |
| Sales Growth |
| Sales Growth |
| Translation |
| Acquisition |
| ||||||||||||||||
|
| ($ in millions) |
| ||||||||||||||||||||||||||||||
Transportation Solutions |
| $ | (163) |
| (7.6) | % | $ | (62) |
| (2.9) | % | $ | (101) |
| $ | — |
| $ | (209) |
| (5.0) | % | $ | (58) |
| (1.4) | % | $ | (151) |
| $ | — |
|
Industrial Solutions |
|
| 35 |
| 3.6 |
|
| 53 |
| 5.4 |
|
| (39) |
|
| 21 |
|
| 81 |
| 4.4 |
|
| 93 |
| 5.0 |
|
| (54) |
|
| 42 |
|
Communications Solutions |
|
| (22) |
| (4.8) |
|
| (8) |
| (1.8) |
|
| (14) |
|
| — |
|
| (11) |
| (1.3) |
|
| 11 |
| 1.3 |
|
| (22) |
|
| — |
|
Total |
| $ | (150) |
| (4.2) | % | $ | (17) |
| (0.5) | % | $ | (154) |
| $ | 21 |
| $ | (139) |
| (2.0) | % | $ | 46 |
| 0.7 | % | $ | (227) |
| $ | 42 |
|
| | | | | | | | | | | | | | | | | |
| | Changes in Net Sales for the Quarter Ended December 27, 2019 | | ||||||||||||||
| | versus Net Sales for the Quarter Ended December 28, 2018 | | ||||||||||||||
| | Net Sales | | Organic Net Sales | | | | | | | | ||||||
|
| Growth (Decline) | | Growth (Decline) | | Translation | | Acquisitions |
| ||||||||
| | ($ in millions) |
| ||||||||||||||
Transportation Solutions | | $ | (118) |
| (5.9) | % | $ | (113) |
| (5.6) | % | $ | (30) | | $ | 25 | |
Industrial Solutions | |
| (1) |
| (0.1) | |
| 11 |
| 1.2 | |
| (12) | |
| — | |
Communications Solutions | |
| (60) |
| (13.9) | |
| (59) |
| (13.7) | |
| (1) | |
| — | |
Total | | $ | (179) |
| (5.3) | % | $ | (161) |
| (4.8) | % | $ | (43) | | $ | 25 | |
Net sales decreased $150$179 million, or 4.2%5.3%, in the secondfirst quarter of fiscal 20192020 as compared to the secondfirst quarter of fiscal 2018 primarily as a result2019. The decrease in net sales resulted from organic net sales declines of 4.8% and the negative impact of foreign currency translation of 4.3% due to the weakening of certain foreign currencies. Price erosion adversely affected organic net sales by $27 million in the second quarter of fiscal 2019.
In the first six months of fiscal 2019, net sales decreased $139 million, or 2.0%, as compared to the first six months of fiscal 2018. The decrease resulted from the negative impact of foreign currency translation of 3.3%1.2% due to the weakening of certain foreign currencies, partially offset by organic sales growth of 0.7% and sales contributions from an acquisitionacquisitions of 0.6%0.7%. Price erosion adversely affected organic net sales by $55$41 million in the first six monthsquarter of fiscal 2019.2020.
See further discussion of net sales below under “Segment Results.”
31
Net Sales by Geographic Region. Our business operates in three geographic regions—EMEA,Europe/Middle East/Africa (“EMEA”), Asia–Pacific and the Americas—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.
28
Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first six monthsquarter of fiscal 2019.2020.
The following table presents our net sales and the percentage of total net sales by geographic region
| | | | | | | | | | | | | |
| | For the | | | |||||||||
| | Quarters Ended | | | |||||||||
| | December 27, | | | December 28, | | | ||||||
|
| 2019 |
|
| 2018 |
|
| ||||||
| | ($ in millions) | |||||||||||
EMEA | | $ | 1,097 | | 35 | % | | $ | 1,171 | | 35 | % | |
Asia–Pacific | |
| 1,113 |
| 35 | | |
| 1,173 |
| 35 | | |
Americas | |
| 958 |
| 30 | | |
| 1,003 |
| 30 | | |
Total | | $ | 3,168 |
| 100 | % | | $ | 3,347 |
| 100 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
|
| For the |
|
| ||||||||||||||||||
|
| Quarters Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
| March 29, |
|
| March 30, |
|
| ||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| ||||||||||||
|
| ($ in millions) |
|
| |||||||||||||||||||||
EMEA |
| $ | 1,276 |
| 38 | % |
| $ | 1,425 |
| 40 | % |
| $ | 2,447 |
| 36 | % |
| $ | 2,643 |
| 38 | % |
|
Asia–Pacific |
|
| 1,070 |
| 31 |
|
|
| 1,182 |
| 33 |
|
|
| 2,243 |
| 33 |
|
|
| 2,402 |
| 35 |
|
|
Americas |
|
| 1,066 |
| 31 |
|
|
| 955 |
| 27 |
|
|
| 2,069 |
| 31 |
|
|
| 1,853 |
| 27 |
|
|
Total |
| $ | 3,412 |
| 100 | % |
| $ | 3,562 |
| 100 | % |
| $ | 6,759 |
| 100 | % |
| $ | 6,898 |
| 100 | % |
|
(1) |
| Net sales to external customers are attributed to individual countries based on the legal entity that records the sale. |
The following table provides an analysis of the change in our net sales by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Change in Net Sales for the Quarter Ended March 29, 2019 |
| Change in Net Sales for the Six Months Ended March 29, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| versus Net Sales for the Quarter Ended March 30, 2018 |
| versus Net Sales for the Six Months Ended March 30, 2018 |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| Net |
| Organic Net |
|
|
|
|
|
|
| Net |
| Organic Net |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Sales Growth |
| Sales Growth |
| Translation |
| Acquisition |
| Sales Growth |
| Sales Growth |
| Translation |
| Acquisition |
| |||||||||||||||||||||||||||||||||
|
| ($ in millions) |
| |||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
| | Change in Net Sales for the Quarter Ended December 27, 2019 | | |||||||||||||||||||||||||||||||||||||||||||||||
| | versus Net Sales for the Quarter Ended December 28, 2018 | | |||||||||||||||||||||||||||||||||||||||||||||||
| | Net Sales | | Organic Net Sales | | | | | | | | |||||||||||||||||||||||||||||||||||||||
|
| Growth (Decline) |
| Growth (Decline) |
| Translation |
| Acquisitions |
| |||||||||||||||||||||||||||||||||||||||||
| | ($ in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
EMEA |
| $ | (149) |
| (10.5) | % | $ | (57) |
| (4.2) | % | $ | (105) |
| $ | 13 |
| $ | (196) |
| (7.4) | % | $ | (79) |
| (3.0) | % | $ | (143) |
| $ | 26 |
| | $ | (74) | | (6.3) | % | $ | (54) | | (4.5) | % | $ | (31) | | $ | 11 | |
Asia–Pacific |
|
| (112) |
| (9.5) |
|
| (74) |
| (6.4) |
|
| (40) |
|
| 2 |
|
| (159) |
| (6.6) |
|
| (96) |
| (4.0) |
|
| (67) |
|
| 4 |
| |
| (60) |
| (5.1) | |
| (53) |
| (4.5) | |
| (7) | |
| — | |
Americas |
|
| 111 |
| 11.6 |
|
| 114 |
| 12.0 |
|
| (9) |
|
| 6 |
|
| 216 |
| 11.7 |
|
| 221 |
| 11.9 |
|
| (17) |
|
| 12 |
| |
| (45) |
| (4.5) | |
| (54) |
| (5.4) | |
| (5) | |
| 14 | |
Total |
| $ | (150) |
| (4.2) | % | $ | (17) |
| (0.5) | % | $ | (154) |
| $ | 21 |
| $ | (139) |
| (2.0) | % | $ | 46 |
| 0.7 | % | $ | (227) |
| $ | 42 |
| | $ | (179) |
| (5.3) | % | $ | (161) |
| (4.8) | % | $ | (43) | | $ | 25 | |
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
|
|
| March 29, |
|
| March 30, |
|
|
|
| ||||||
|
| 2019 |
|
| 2018 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
|
| ($ in millions) |
| ||||||||||||||||||||
Cost of sales |
| $ | 2,294 |
|
| $ | 2,350 |
|
| $ | (56) |
| $ | 4,527 |
|
| $ | 4,522 |
|
| $ | 5 |
|
As a percentage of net sales |
|
| 67.2 | % |
|
| 66.0 | % |
|
|
|
|
| 67.0 | % |
|
| 65.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
| $ | 1,118 |
|
| $ | 1,212 |
|
| $ | (94) |
| $ | 2,232 |
|
| $ | 2,376 |
|
| $ | (144) |
|
As a percentage of net sales |
|
| 32.8 | % |
|
| 34.0 | % |
|
|
|
|
| 33.0 | % |
|
| 34.4 | % |
|
|
|
|
| | | | | | | | | | |
| | For the | | | | | ||||
| | Quarters Ended | | | | | ||||
| | December 27, | | December 28, | | | | |||
|
| 2019 |
| 2018 |
| Change |
| |||
| | ($ in millions) | ||||||||
Cost of sales | | $ | 2,138 | | $ | 2,233 | | $ | (95) | |
As a percentage of net sales | |
| 67.5 | % |
| 66.7 | % |
|
| |
| | | | | | | | | | |
Gross margin | | $ | 1,030 | | $ | 1,114 | | $ | (84) | |
As a percentage of net sales | |
| 32.5 | % |
| 33.3 | % |
|
| |
Gross margin decreased $94 million and $144$84 million in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 primarily as compared to the same periodsa result of fiscal 2018. The decreases were due primarily to the unfavorable impact of product mixlower volume and the negative impact of foreign currency translation,price erosion, partially offset by lower material costs. Gross margin as a percentage of net sales decreased to 32.8%32.5% in the secondfirst quarter of fiscal 20192020 from 34.0%33.3% in the secondfirst quarter of fiscal 2018 and decreased to 33.0%2019.
We use a wide variety of raw materials in the first six monthsmanufacture of fiscal 2019 from 34.4% in the same period of fiscal 2018.
our products. 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 use, including copper, gold, and silver. We expect to purchase approximately 175 million pounds of
32
copper, 130,000125,000 troy ounces of gold,
29
and 2.72.4 million troy ounces of silver in fiscal 2019.2020. The following table presents the average prices incurred related to copper, gold, and silver:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
| For the |
| For the |
| |||||||||||||||||
|
|
|
| Quarters Ended |
| Six Months Ended |
| |||||||||||||||||
|
|
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| |||||||||||||
|
| Measure |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||
| | | | | | | | | | |||||||||||||||
| | | | For the | | |||||||||||||||||||
| | | | Quarters Ended | | |||||||||||||||||||
| | | | December 27, | | December 28, | | |||||||||||||||||
|
| Measure |
| 2019 |
| 2018 |
| |||||||||||||||||
Copper |
| Lb. |
| $ | 3.01 |
| $ | 2.76 |
| $ | 2.92 |
| $ | 2.78 |
|
| Lb. | | $ | 2.84 | | $ | 2.88 |
|
Gold |
| Troy oz. |
|
| 1,312 |
|
| 1,293 |
|
| 1,303 |
|
| 1,279 |
|
| Troy oz. | |
| 1,354 | |
| 1,293 |
|
Silver |
| Troy oz. |
|
| 16.60 |
|
| 17.51 |
|
| 16.60 |
|
| 17.30 |
|
| Troy oz. | |
| 16.26 | |
| 16.60 |
|
Operating Expenses
The following table presents operating expense information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| For the |
| For the |
| ||||||||||||||||||||||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
|
|
| March 29, |
|
| March 30, |
|
|
|
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||||||||||||||
|
| ($ in millions) |
| ||||||||||||||||||||||||||||||||
| | | | | | | | | | | |||||||||||||||||||||||||
| | For the | | | | | | ||||||||||||||||||||||||||||
| | Quarters Ended | | | | | | ||||||||||||||||||||||||||||
| | December 27, | | | December 28, | | | | | ||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| Change |
| ||||||||||||||||||||||||||
| | ($ in millions) | |||||||||||||||||||||||||||||||||
Selling, general, and administrative expenses |
| $ | 373 |
|
| $ | 409 |
|
| $ | (36) |
| $ | 762 |
|
| $ | 786 |
|
| $ | (24) |
| | $ | 367 | | | $ | 389 | | | $ | (22) | |
As a percentage of net sales |
|
| 10.9 | % |
|
| 11.5 | % |
|
|
|
|
| 11.3 | % |
|
| 11.4 | % |
|
|
|
| |
| 11.6 | % | |
| 11.6 | % | |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | |||||||||||||||||||||||||
Restructuring and other charges, net |
| $ | 42 |
|
| $ | 6 |
|
| $ | 36 |
| $ | 117 |
|
| $ | 40 |
|
| $ | 77 |
| | $ | 24 | | | $ | 75 | | | $ | (51) | |
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased $36$22 million in the secondfirst quarter of fiscal 20192020 from the secondfirst quarter of fiscal 20182019 due primarily to cost control measures and savings attributable to restructuring actions as well as reduced selling expenses and lower incentive compensation costs. Selling, general, and administrative expenses decreased $24 million in the first six months of fiscal 2019 from the same period of fiscal 2018 due primarily to cost control measures and savings attributable to restructuring actions as well as lower incentive compensation costs.expenses. Selling, general, and administrative expenses as a percentage of net sales decreased to 10.9%was 11.6% in both the second quarterfirst quarters of fiscal 2019 from 11.5% in the second quarter of fiscal 20182020 and decreased to 11.3% in the first six months of fiscal 2019 from 11.4% in the same period of fiscal 2018.2019.
Restructuring and Other Charges, Net. We are committed to continuous productivity improvements, and consistentlywe evaluate opportunities to simplify our global manufacturing footprint, migrate facilities to lower‑costlower-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 2020 and 2019, we initiated a restructuring programprograms associated with footprint consolidation and structural improvements impactingacross all segments. During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments. In connection with these initiatives, we incurred net restructuring charges of $117$24 million during the first six monthsquarter of fiscal 2019,2020, of which $107$15 million related to the fiscal 20192020 restructuring program. Annualized cost savings related to the fiscal 20192020 actions commenced during the first six monthsquarter of fiscal 20192020 are expected to be approximately $100$20 million and are expected to be realized by the end of fiscal 2021.2022. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses.
In response to market weakness, we are initiating incremental restructuring actions, primarily in our Transportation Solutions segment, to broaden the scope of our cost reduction initiatives and accelerate cost reduction and factory footprint consolidation activities. These incremental actions, which are primarily comprised of employee severance, are expected to result in incremental restructuring charges of approximately $100 million during For fiscal 2019.
In fiscal 2019,2020, we expect total restructuring charges to be approximately $200 million to $250 million and we expect total spending, which will be funded with cash from operations, to be approximately $140$220 million.
33
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
Operating Income
The following table presents operating income and operating margin information:
| | | | | | | | | | | | |
| | For the | | | | | | |||||
| | Quarters Ended | | | | | | |||||
| | December 27, | | | December 28, | | | | | |||
|
| 2019 |
|
| 2018 |
|
| Change |
| |||
| | ($ in millions) | ||||||||||
Operating income | | $ | 471 | | | $ | 484 | | | $ | (13) | |
Operating margin | |
| 14.9 | % | |
| 14.5 | % | |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
|
|
| March 29, |
|
| March 30, |
|
|
|
| ||||||
|
| 2019 |
|
| 2018 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
|
| ($ in millions) |
| ||||||||||||||||||||
Operating income |
| $ | 530 |
|
| $ | 621 |
|
| $ | (91) |
| $ | 1,014 |
|
| $ | 1,207 |
|
| $ | (193) |
|
Operating margin |
|
| 15.5 | % |
|
| 17.4 | % |
|
|
|
|
| 15.0 | % |
|
| 17.5 | % |
|
|
|
|
30
Operating income included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Acquisition related charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration costs |
| $ | 7 |
| $ | 3 |
| $ | 12 |
| $ | 5 |
|
Charges associated with the amortization of acquisition-related fair value adjustments |
|
| 2 |
|
| 2 |
|
| 3 |
|
| 7 |
|
|
|
| 9 |
|
| 5 |
|
| 15 |
|
| 12 |
|
Restructuring and other charges, net |
|
| 42 |
|
| 6 |
|
| 117 |
|
| 40 |
|
Total |
| $ | 51 |
| $ | 11 |
| $ | 132 |
| $ | 52 |
|
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | |||||
Acquisition-related charges: |
| |
|
| |
|
|
Acquisition and integration costs | | $ | 7 | | $ | 5 | |
Charges associated with the amortization of acquisition-related fair value adjustments | |
| — | |
| 1 | |
| |
| 7 | |
| 6 | |
Restructuring and other charges, net | |
| 24 | |
| 75 | |
Total | | $ | 31 | | $ | 81 | |
See discussion of operating income below under “Segment Results.”
Non‑OperatingNon-Operating Items
The following table presents select non‑operatingnon-operating information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
|
|
| March 29, |
|
| March 30, |
|
|
|
| ||||||
|
| 2019 |
|
| 2018 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
|
| ($ in millions) |
| ||||||||||||||||||||
Interest expense |
| $ | 15 |
|
| $ | 28 |
|
| $ | (13) |
| $ | 42 |
|
| $ | 54 |
|
| $ | (12) |
|
Income tax expense |
|
| 91 |
|
|
| 108 |
|
|
| (17) |
|
| 169 |
|
|
| 707 |
|
|
| (538) |
|
Effective tax rate |
|
| 17.5 | % |
|
| 18.1 | % |
|
|
|
|
| 17.2 | % |
|
| 60.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income taxes |
| $ | 10 |
|
| $ | — |
|
| $ | 10 |
| $ | (97) |
|
| $ | (7) |
|
| $ | (90) |
|
| | | | | | | | | | | | |
| | For the | | | | | | |||||
| | Quarters Ended | | | | | | |||||
| | December 27, | | | December 28, | | | | | |||
|
| 2019 |
|
| 2018 |
|
| Change |
| |||
| | ($ in millions) | ||||||||||
Interest expense | | $ | 12 | | | $ | 27 | | | $ | (15) | |
| | | | | | | | | | | | |
Income tax expense | | $ | 447 | | | $ | 78 | | | $ | 369 | |
Effective tax rate | |
| 95.1 | % | |
| 16.9 | % | |
|
| |
| | | | | | | | | | | | |
Income (loss) from discontinued operations, net of income taxes | | $ | 3 | | | $ | (107) | | | $ | 110 | |
Interest Expense. Interest expense decreased $13$15 million and $12 million duringin the secondfirst quarter and first six months of fiscal 2020 as compared to the first quarter of fiscal 2019 respectively, due primarily to the expansion of our cross-currency swap program that hedges our net investment in fiscal 2019.certain foreign operations. Under the terms of the fiscal 2019these contracts, we receive interest in U.S. dollars at a weighted-average rate of 3.00%2.76% per annum and pay no interest. See Note 911 to the Condensed Consolidated Financial Statements for additional information regarding our cross-currency swap program.
Income Taxes. See Note 1113 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense and the effective tax rate for the secondfirst quarters and first six months of fiscal 2020 and 2019, including the Switzerland Federal Act on Tax Reform and 2018.AHV Financing.
34
Income (Loss) from Discontinued Operations, Net of Income Taxes. During the first six monthsquarter of fiscal 2019, we sold our SubComSubsea Communications (“SubCom”) business for net cash proceeds of $297$288 million and incurred a pre‑taxpre-tax loss on sale of $86$96 million. The SubCom business met the held for sale and discontinued operations criteria and was reported as such in all periods presented on the Condensed Consolidated Financial Statements. Prior to reclassification to discontinued operations, the SubCom business was included in the Communications Solutions segment. The net sales of the business were $41 million and $326 million in the first six monthsquarter of fiscal 2019 and 2018, respectively. The results for the first six months of fiscal 2019 representwhich represented one month of activity. In the first six months of fiscal 2018, net sales and operating income were negatively impacted by production delays on a program. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding discontinued operations.
31
Segment Results
Net Sales. The following table presents the Transportation Solutions segment’s net sales and the percentage of total net sales by industry end market(1):
| | | | | | | | | | | | | |
| | For the | | | |||||||||
| | Quarters Ended | | | |||||||||
| | December 27, | | | December 28, | | | ||||||
|
| 2019 |
|
| 2018 |
|
| ||||||
| | ($ in millions) | |||||||||||
Automotive | | $ | 1,405 | | 75 | % | | $ | 1,469 | | 74 | % | |
Commercial transportation | |
| 258 |
| 14 | | |
| 297 |
| 15 | | |
Sensors | |
| 205 |
| 11 | | |
| 220 |
| 11 | | |
Total | | $ | 1,868 |
| 100 | % | | $ | 1,986 |
| 100 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
|
| For the |
|
| ||||||||||||||||||
|
| Quarters Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
| March 29, |
|
| March 30, |
|
| ||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| ||||||||||||
|
| ($ in millions) |
|
| |||||||||||||||||||||
Automotive |
| $ | 1,425 |
| 72 | % |
| $ | 1,571 |
| 74 | % |
| $ | 2,894 |
| 73 | % |
| $ | 3,088 |
| 74 | % |
|
Commercial transportation |
|
| 324 |
| 17 |
|
|
| 333 |
| 15 |
|
|
| 621 |
| 16 |
|
|
| 633 |
| 15 |
|
|
Sensors |
|
| 222 |
| 11 |
|
|
| 230 |
| 11 |
|
|
| 442 |
| 11 |
|
|
| 445 |
| 11 |
|
|
Total |
| $ | 1,971 |
| 100 | % |
| $ | 2,134 |
| 100 | % |
| $ | 3,957 |
| 100 | % |
| $ | 4,166 |
| 100 | % |
|
(1) |
| Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary. |
The following table provides an analysis of the change in the Transportation Solutions segment’s net sales by industry end market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in Net Sales for the Quarter Ended March 29, 2019 |
| Change in Net Sales for the Six Months Ended March 29, 2019 |
| ||||||||||||||||||||||
|
| versus Net Sales for the Quarter Ended March 30, 2018 |
| versus Net Sales for the Six Months Ended March 30, 2018 |
| ||||||||||||||||||||||
|
| Net |
| Organic Net |
|
|
|
| Net |
| Organic Net |
|
|
|
| ||||||||||||
|
| Sales Growth |
| Sales Growth |
| Translation |
| Sales Growth |
| Sales Growth |
| Translation |
| ||||||||||||||
|
| ($ in millions) |
| ||||||||||||||||||||||||
Automotive |
| $ | (146) |
| (9.3) | % | $ | (70) |
| (4.6) | % | $ | (76) |
| $ | (194) |
| (6.3) | % | $ | (79) |
| (2.6) | % | $ | (115) |
|
Commercial transportation |
|
| (9) |
| (2.7) |
|
| 6 |
| 1.6 |
|
| (15) |
|
| (12) |
| (1.9) |
|
| 11 |
| 1.6 |
|
| (23) |
|
Sensors |
|
| (8) |
| (3.5) |
|
| 2 |
| 1.0 |
|
| (10) |
|
| (3) |
| (0.7) |
|
| 10 |
| 2.3 |
|
| (13) |
|
Total |
| $ | (163) |
| (7.6) | % | $ | (62) |
| (2.9) | % | $ | (101) |
| $ | (209) |
| (5.0) | % | $ | (58) |
| (1.4) | % | $ | (151) |
|
| | | | | | | | | | | | | | | | | |
| | Change in Net Sales for the Quarter Ended December 27, 2019 | | ||||||||||||||
| | versus Net Sales for the Quarter Ended December 28, 2018 | | ||||||||||||||
|
| Net Sales |
| Organic Net Sales |
| | |
| | |
| ||||||
| | Growth (Decline) | | Growth (Decline) | | Translation | | Acquisitions | | ||||||||
| | ($ in millions) | |||||||||||||||
Automotive | | $ | (64) | | (4.4) | % | $ | (43) | | (2.9) | % | $ | (21) |
| $ | — | |
Commercial transportation | |
| (39) |
| (13.1) | |
| (45) |
| (15.6) | |
| (7) | |
| 13 | |
Sensors | |
| (15) |
| (6.8) | |
| (25) |
| (11.3) | |
| (2) | |
| 12 | |
Total | | $ | (118) |
| (5.9) | % | $ | (113) |
| (5.6) | % | $ | (30) | | $ | 25 | |
Net sales in the Transportation Solutions segment decreased $163$118 million, or 7.6%5.9%, in the secondfirst quarter of fiscal 2020 from the first quarter of fiscal 2019 from the second quarterdue to organic net sales declines of fiscal 2018 due to5.6% and the negative impact of foreign currency translation of 4.7% and organic net1.5%, partially offset by sales declinescontributions from acquisitions of 2.9%1.2%. Our organic net sales by industry end market were as follows:
| Automotive—Our organic net sales decreased |
35
In the first six months of fiscal 2019, net sales in the Transportation Solutions segment decreased $209 million, or 5.0%, as compared to the first six months of fiscal 2018 as a result of the negative impact of foreign currency translation of 3.6% and organic net sales declines of 1.4%. Our organic net sales by industry end market were as follows:
|
|
|
|
32
|
|
Operating Income. The following table presents the Transportation Solutions segment’s operating income and operating margin information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
|
|
|
| March 29, |
|
| March 30, |
|
|
|
|
| ||||
|
| 2019 |
|
| 2018 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
|
| ($ in millions) |
| ||||||||||||||||||||
Operating income |
| $ | 316 |
|
| $ | 427 |
|
| $ | (111) |
| $ | 648 |
|
| $ | 844 |
|
| $ | (196) |
|
Operating margin |
|
| 16.0 | % |
|
| 20.0 | % |
|
|
|
|
| 16.4 | % |
|
| 20.3 | % |
|
|
|
|
| | | | | | | | | | | | |
| | For the | | | | | | |||||
| | Quarters Ended | | | | | | |||||
| | December 27, | | | December 28, | | | | | | ||
|
| 2019 |
|
| 2018 |
|
| Change |
| |||
| | ($ in millions) | ||||||||||
Operating income | | $ | 316 | | | $ | 332 | | | $ | (16) | |
Operating margin | |
| 16.9 | % | |
| 16.7 | % | |
| | |
Operating income in the Transportation Solutions segment decreased $111 million and $196$16 million in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 as compared to the same periodsfirst quarter of fiscal 2018.2019. The Transportation Solutions segment’s operating income included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Acquisition related charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration costs |
| $ | 4 |
| $ | 2 |
| $ | 7 |
| $ | 3 |
|
Charges associated with the amortization of acquisition-related fair value adjustments |
|
| — |
|
| — |
|
| — |
|
| 4 |
|
|
|
| 4 |
|
| 2 |
|
| 7 |
|
| 7 |
|
Restructuring and other charges, net |
|
| 24 |
|
| (2) |
|
| 45 |
|
| 2 |
|
Total |
| $ | 28 |
| $ | — |
| $ | 52 |
| $ | 9 |
|
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | |||||
Acquisition and integration costs | | $ | 5 | | $ | 3 | |
Restructuring and other charges, net | | | 4 | | | 21 | |
Total | | $ | 9 | | $ | 24 | |
Excluding these items, operating income decreased in the secondfirst quarter and first six months of fiscal 2019 due2020 primarily to the unfavorable impactas a result of product mixlower volume and price erosion.erosion, partially offset by lower material costs.
36
Industrial Solutions
Net Sales. The following table presents the Industrial Solutions segment’s net sales and the percentage of total net sales by industry end market(1):
| | | | | | | | | | | | | |
| | For the | | | |||||||||
| | Quarters Ended | | | |||||||||
| | December 27, | | | December 28, | | | ||||||
|
| 2019 |
|
| 2018 |
|
| ||||||
| | ($ in millions) | |||||||||||
Aerospace, defense, oil, and gas | | $ | 309 | | 33 | % | | $ | 285 | | 31 | % | |
Industrial equipment | |
| 263 |
| 28 | | |
| 315 |
| 34 | | |
Medical | | | 179 |
| 20 | | | | 168 | | 18 | | |
Energy | |
| 176 |
| 19 | | |
| 160 |
| 17 | | |
Total | | $ | 927 |
| 100 | % | | $ | 928 |
| 100 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
|
| For the |
|
| ||||||||||||||||||
|
| Quarters Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
| March 29, |
|
| March 30, |
|
| ||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| ||||||||||||
|
| ($ in millions) |
|
| |||||||||||||||||||||
Industrial equipment |
| $ | 502 |
| 50 | % |
| $ | 496 |
| 51 | % |
| $ | 985 |
| 51 | % |
| $ | 967 |
| 52 | % |
|
Aerospace, defense, oil, and gas |
|
| 331 |
| 33 |
|
|
| 298 |
| 31 |
|
|
| 616 |
| 32 |
|
|
| 552 |
| 30 |
|
|
Energy |
|
| 174 |
| 17 |
|
|
| 178 |
| 18 |
|
|
| 334 |
| 17 |
|
|
| 335 |
| 18 |
|
|
Total |
| $ | 1,007 |
| 100 | % |
| $ | 972 |
| 100 | % |
| $ | 1,935 |
| 100 | % |
| $ | 1,854 |
| 100 | % |
|
(1) |
| Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary. |
33
The following table provides an analysis of the change in the Industrial Solutions segment’s net sales by industry end market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in Net Sales for the Quarter Ended March 29, 2019 |
| Change in Net Sales for the Six Months Ended March 29, 2019 |
| ||||||||||||||||||||||||||||
|
| versus Net Sales for the Quarter Ended March 30, 2018 |
| versus Net Sales for the Six Months Ended March 30, 2018 |
| ||||||||||||||||||||||||||||
|
| Net |
| Organic Net |
|
|
|
|
|
|
| Net |
| Organic Net |
|
|
|
|
|
|
| ||||||||||||
|
| Sales Growth |
| Sales Growth |
| Translation |
| Acquisition |
| Sales Growth |
| Sales Growth |
| Translation |
| Acquisition |
| ||||||||||||||||
|
| ($ in millions) |
| ||||||||||||||||||||||||||||||
Industrial equipment |
| $ | 6 |
| 1.2 | % | $ | 5 |
| 0.8 | % | $ | (20) |
| $ | 21 |
| $ | 18 |
| 1.9 | % | $ | 3 |
| 0.2 | % | $ | (27) |
| $ | 42 |
|
Aerospace, defense, oil, and gas |
|
| 33 |
| 11.1 |
|
| 39 |
| 13.3 |
|
| (6) |
|
| — |
|
| 64 |
| 11.6 |
|
| 72 |
| 13.1 |
|
| (8) |
|
| — |
|
Energy |
|
| (4) |
| (2.2) |
|
| 9 |
| 4.2 |
|
| (13) |
|
| — |
|
| (1) |
| (0.3) |
|
| 18 |
| 5.0 |
|
| (19) |
|
| — |
|
Total |
| $ | 35 |
| 3.6 | % | $ | 53 |
| 5.4 | % | $ | (39) |
| $ | 21 |
| $ | 81 |
| 4.4 | % | $ | 93 |
| 5.0 | % | $ | (54) |
| $ | 42 |
|
| | | | | | | | | | | | | | |
| | Change in Net Sales for the Quarter Ended December 27, 2019 | | |||||||||||
| | versus Net Sales for the Quarter Ended December 28, 2018 | | |||||||||||
| | Net Sales | | Organic Net Sales | | | | | ||||||
|
| Growth (Decline) |
| Growth (Decline) |
| Translation |
| |||||||
| | ($ in millions) | ||||||||||||
Aerospace, defense, oil, and gas | | $ | 24 | | 8.4 | % | $ | 27 | | 9.4 | % | $ | (3) | |
Industrial equipment | |
| (52) |
| (16.5) | |
| (47) |
| (15.0) | |
| (5) | |
Medical | | | 11 |
| 6.5 | |
| 12 |
| 6.9 | |
| (1) | |
Energy | |
| 16 |
| 10.0 | |
| 19 |
| 12.1 | |
| (3) | |
Total | | $ | (1) |
| (0.1) | % | $ | 11 |
| 1.2 | % | $ | (12) | |
Net sales inIn the Industrial Solutions segment, increased $35 million, or 3.6%,net sales were flat in the secondfirst quarter of fiscal 2019 from2020 as compared to the second quartersame period of fiscal 2018 as a result of organic net sales growth of 5.4% and sales contributions from an acquisition of 2.2%, partially offset by2019 with the negative impact of foreign currency translation of 4.0%1.3% largely offset by organic net sales growth of 1.2%. Our organic net sales by industry end market were as follows:
|
|
|
|
| Industrial equipment—Our organic net sales decreased 15.0% in the first quarter of fiscal 2020 due to market weakness across all regions and reduced demand resulting from high inventory levels at distributors. |
| Medical—Our organic net sales increased |
In the first six months of fiscal 2019, net sales in the Industrial Solutions segment increased $81 million, or 4.4%, from the first six months of fiscal 2018 due primarily to organic net sales growth of 5.0% and sales contributions from an acquisition of 2.3%, partially offset by the negative impact of foreign currency translation of 2.9%. Our organic net sales by industry end market were as follows:
|
|
|
|
37
|
|
Operating Income. The following table presents the Industrial Solutions segment’s operating income and operating margin information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
|
|
|
| March 29, |
|
| March 30, |
|
|
|
|
| ||||
|
| 2019 |
|
| 2018 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
|
| ($ in millions) |
| ||||||||||||||||||||
Operating income |
| $ | 137 |
|
| $ | 125 |
|
| $ | 12 |
| $ | 237 |
|
| $ | 227 |
|
| $ | 10 |
|
Operating margin |
|
| 13.6 | % |
|
| 12.9 | % |
|
|
|
|
| 12.2 | % |
|
| 12.2 | % |
|
|
|
|
| | | | | | | | | | | | |
| | For the | | | | | | |||||
| | Quarters Ended | | | | | | |||||
| | December 27, | | | December 28, | | | | | | ||
|
| 2019 |
|
| 2018 |
|
| Change |
| |||
| | ($ in millions) | ||||||||||
Operating income | | $ | 115 | | | $ | 100 | | | $ | 15 | |
Operating margin | |
| 12.4 | % | |
| 10.8 | % | |
|
| |
Operating income in the Industrial Solutions segment increased $12 million and $10$15 million in the secondfirst quarter and first six months of fiscal 2019, respectively,2020 as compared to the same periodsfirst quarter of fiscal 2018.2019. The Industrial Solutions segment’s operating income included the following:
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
| | (in millions) | |||||
Acquisition-related charges: |
| |
|
| |
|
|
Acquisition and integration costs | | $ | 2 | | $ | 2 | |
Charges associated with the amortization of acquisition-related fair value adjustments | |
| — | |
| 1 | |
| |
| 2 | |
| 3 | |
Restructuring and other charges, net | |
| 15 | |
| 35 | |
Total | | $ | 17 | | $ | 38 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Acquisition related charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration costs |
| $ | 3 |
| $ | 1 |
| $ | 5 |
| $ | 2 |
|
Charges associated with the amortization of acquisition-related fair value adjustments |
|
| 2 |
|
| 2 |
|
| 3 |
|
| 3 |
|
|
|
| 5 |
|
| 3 |
|
| 8 |
|
| 5 |
|
Restructuring and other charges, net |
|
| 17 |
|
| 7 |
|
| 52 |
|
| 29 |
|
Total |
| $ | 22 |
| $ | 10 |
| $ | 60 |
| $ | 34 |
|
34
Excluding these items, operating income increaseddecreased slightly in the secondfirst quarter and first six months of fiscal 2019 primarily2020 as a resultcompared to the first quarter of higher volume.fiscal 2019.
Net Sales. The following table presents the Communications Solutions segment’s net sales and the percentage of total net sales by industry end market(1):
| | | | | | | | | | | | �� | |
| | For the | | | |||||||||
| | Quarters Ended | | | |||||||||
| | December 27, | | | December 28, | | | ||||||
|
| 2019 |
|
| 2018 |
|
| ||||||
| | ($ in millions) | |||||||||||
Data and devices | | $ | 219 | | 59 | % | | $ | 257 | | 59 | % | |
Appliances | |
| 154 |
| 41 | | |
| 176 |
| 41 | | |
Total | | $ | 373 |
| 100 | % | | $ | 433 |
| 100 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
|
| For the |
|
| ||||||||||||||||||
|
| Quarters Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
| March 29, |
|
| March 30, |
|
| ||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| ||||||||||||
|
| ($ in millions) |
|
| |||||||||||||||||||||
Data and devices |
| $ | 251 |
| 58 | % |
| $ | 258 |
| 57 | % |
| $ | 508 |
| 59 | % |
| $ | 496 |
| 56 | % |
|
Appliances |
|
| 183 |
| 42 |
|
|
| 198 |
| 43 |
|
|
| 359 |
| 41 |
|
|
| 382 |
| 44 |
|
|
Total |
| $ | 434 |
| 100 | % |
| $ | 456 |
| 100 | % |
| $ | 867 |
| 100 | % |
| $ | 878 |
| 100 | % |
|
(1) |
| Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary. |
38
The following table provides an analysis of the change in the Communications Solutions segment’s net sales by industry end market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in Net Sales for the Quarter Ended March 29, 2019 |
| Change in Net Sales for the Six Months Ended March 29, 2019 |
| ||||||||||||||||||||||
|
| versus Net Sales for the Quarter Ended March 30, 2018 |
| versus Net Sales for the Six Months Ended March 30, 2018 |
| ||||||||||||||||||||||
|
| Net |
| Organic Net |
|
|
|
| Net |
| Organic Net |
|
|
|
| ||||||||||||
|
| Sales Growth |
| Sales Growth |
| Translation |
| Sales Growth |
| Sales Growth |
| Translation |
| ||||||||||||||
|
| ($ in millions) |
| ||||||||||||||||||||||||
Data and devices |
| $ | (7) |
| (2.7) | % | $ | — |
| (0.1) | % | $ | (7) |
| $ | 12 |
| 2.4 | % | $ | 22 |
| 4.5 | % | $ | (10) |
|
Appliances |
|
| (15) |
| (7.6) |
|
| (8) |
| (4.1) |
|
| (7) |
|
| (23) |
| (6.0) |
|
| (11) |
| (2.9) |
|
| (12) |
|
Total |
| $ | (22) |
| (4.8) | % | $ | (8) |
| (1.8) | % | $ | (14) |
| $ | (11) |
| (1.3) | % | $ | 11 |
| 1.3 | % | $ | (22) |
|
| | | | | | | | | | | | | | |
| | Change in Net Sales for the Quarter Ended December 27, 2019 | | |||||||||||
| | versus Net Sales for the Quarter Ended December 28, 2018 | | |||||||||||
|
| Net Sales |
| Organic Net Sales |
| | |
| ||||||
| | Growth (Decline) | | Growth (Decline) | | Translation | | |||||||
| | ($ in millions) | ||||||||||||
Data and devices | | $ | (38) | | (14.8) | % | $ | (38) | | (14.8) | % | $ | — | |
Appliances | |
| (22) |
| (12.5) | |
| (21) |
| (11.4) | |
| (1) | |
Total | | $ | (60) |
| (13.9) | % | $ | (59) |
| (13.7) | % | $ | (1) | |
Net sales in the Communications Solutions segment decreased $22$60 million, or 4.8%13.9%, in the secondfirst quarter of fiscal 2020 as compared to the first quarter of fiscal 2019 as compareddue primarily to the second quarter of fiscal 2018 due to the negative impact of foreign currency translation of 3.0% and organic net sales declines of 1.8%13.7%. Our organic net sales by industry end market were as follows:
|
|
In the first six months of fiscal 2019, net sales in the Communications Solutions segment decreased $11 million, or 1.3%, as compared to the same period of fiscal 2018 due to the negative impact of foreign currency translation of 2.6%, partially offset by organic net sales growth of 1.3%. Our organic net sales by industry end market were as follows:
|
|
● | Appliances—Our organic net sales decreased 11.4% in the |
Operating Income. The following table presents the Communications Solutions segment’s operating income and operating margin information:
| | | | | | | | | | | | |
| | For the | | | | | | |||||
| | Quarters Ended | | | | | | |||||
| | December 27, | | | December 28, | | | | | | ||
|
| 2019 |
|
| 2018 |
|
| Change |
| |||
| | ($ in millions) | ||||||||||
Operating income | | $ | 40 | | | $ | 52 | | | $ | (12) | |
Operating margin | |
| 10.7 | % | |
| 12.0 | % | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||
|
| March 29, |
|
| March 30, |
|
|
|
|
| March 29, |
|
| March 30, |
|
|
|
|
| ||||
|
| 2019 |
|
| 2018 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
|
| ($ in millions) |
| ||||||||||||||||||||
Operating income |
| $ | 77 |
|
| $ | 69 |
|
| $ | 8 |
| $ | 129 |
|
| $ | 136 |
|
| $ | (7) |
|
Operating margin |
|
| 17.7 | % |
|
| 15.1 | % |
|
|
|
|
| 14.9 | % |
|
| 15.5 | % |
|
|
|
|
35
Operating income in the Communications Solutions segment increased $8 million in the second quarter of fiscal 2019 and decreased $7$12 million in the first six monthsquarter of fiscal 20192020 as compared to the same periodsfirst quarter of fiscal 2018.2019. The Communications Solutions segment’s operating income included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
| For the |
| ||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| March 29, |
| March 30, |
| March 29, |
| March 30, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| (in millions) |
| ||||||||||
Restructuring and other charges, net |
| $ | 1 |
| $ | 1 |
| $ | 20 |
| $ | 9 |
|
| | | | | | | |
| | For the | | ||||
| | Quarters Ended | | ||||
| | December 27, | | December 28, | | ||
|
| 2019 |
| 2018 |
| ||
Restructuring and other charges, net | | $ | 5 | | $ | 19 | |
Excluding these items, operating income increased slightlydecreased in the secondfirst quarter and first six months of fiscal 2019 as compared2020 due primarily to the same periods of fiscal 2018.lower volume and price erosion.
39
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 $250$350 million of 2.35%floating rate senior notes due in 2019.fiscal 2020, the pending acquisition of First Sensor, and cash spending related to restructuring initiatives. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions.
Cash Flows from Operating Activities
In the first six monthsquarter of fiscal 2019,2020, net cash provided by continuing operating activities increased $238$83 million to $883$411 million from $645$328 million in the first six monthsquarter of fiscal 2018.2019. The increase resulted primarily from higher collections of accounts receivablea reduction in income tax payments and fluctuations in cash collateral requirements under our cross-currency swap contracts.
lower incentive compensation payments. The amount of income taxes paid, net of refunds, during the first six monthsquarters of fiscal 2020 and 2019 and 2018 was $177$43 million and $208$75 million, respectively.
Cash Flows from Investing Activities
Capital expenditures were $401$176 million and $439$210 million in the first six monthsquarters of fiscal 20192020 and 2018,2019, respectively. We expect fiscal 20192020 capital spending levels to be approximately 5‑6%5-6% 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.
During the first six monthsquarter of fiscal 2020, we acquired two businesses for a combined cash purchase price of $112 million, net of cash acquired. See Note 4 to the Condensed Consolidated Financial Statements for additional information.
During the first quarter of fiscal 2019, we received net cash proceeds of $297$288 million related to the sale of our SubCom business. See additional information in Note 3 to the Condensed Consolidated Financial Statements.
Cash Flows from Financing Activities and Capitalization
Total debt at March 29,December 27, 2019 and September 28, 201827, 2019 was $3,982$3,973 million and $4,000$3,965 million, respectively. See Note 78 to the Condensed Consolidated Financial Statements for additional information regarding debt.
During the first six months of fiscal 2019, Tyco Electronics Group S.A. (“TEGSA”), our 100%‑owned subsidiary, issued $350 million aggregate principal amount of senior floating rate notes due June 2020. The notes bear interest at a rate of three‑month London Interbank Offered Rate (“LIBOR”) plus 0.45% per year. The notes are TEGSA’s unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.
During the first six months of fiscal 2019, TEGSA repaid, at maturity, $325 million 2.375% senior notes due 2018.
TEGSA has a five‑yearfive-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of November 2023 and total commitments of $1,500 million. The Credit Facility was amended in November 2018 primarily to extend the maturity date from December 2020 to November 2023. The amended Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies.$1.5 billion. TEGSA had no borrowings under the Credit Facility at March 29,December 27, 2019 or September 28, 2018.27, 2019.
36
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
40
covenants are presently considered restrictive to our operations. As of March 29,December 27, 2019, 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 $299$154 million and $281$150 million in the first six monthsquarters of fiscal 2020 and 2019, and 2018, respectively.
In March 2019, our shareholders approved a dividend payment to shareholders of $1.84 per share, payable in four equal quarterly installments of $0.46 per share beginning in the third quarter of fiscal 2019 and ending in the second quarter of fiscal 2020.
We repurchased approximately During the first six months of fiscal 2019, our board of directors authorized an increase of $1.5 billion in the share repurchase program. 92 million of our common shares for $684$143 million and approximately 46 million of our common shares for $383$495 million under ourthe share repurchase program during the first six monthsquarters of fiscal 20192020 and 2018,2019, respectively. At March 29,December 27, 2019, we had $1.8$1.4 billion of availability remaining under our share repurchase authorization.
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‑incomenon-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 20192020 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 29,December 27, 2019, we had outstanding letters of credit, letters of guarantee, and surety bonds of $307$279 million.
As discussed above, in the first six monthsquarter of fiscal 2019, we sold our SubCom business. In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These guarantees had a combined value of approximately $1.7$1.2 billion as of March 29,December 27, 2019 and are expected to expire at various dates through fiscal 2025; however, the majority are expected to expire within two years.2025. Also, under the terms of the definitive agreement, we are required to issue up to $300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years. During the first six monthsAs of fiscalDecember 27, 2019, we issued a guarantee of $70 million for athere were no such new project.performance guarantees outstanding. We have contractual recourse against the SubCom business if we are required to perform on any SubCom
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guarantees; however, based on historical experience, we do not anticipate having
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to perform. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding the divestiture of the SubCom business.
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‑K10-K for the fiscal year ended September 28, 2018. Except as set forth below, there27, 2019.There were no significant changes to this information during the first six months of fiscal 2019.
Revenue Recognition
We adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, in the first quarter of fiscal 2019. See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding our revenue recognition policy and the adoption of ASC 606.2020.
Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements for information regarding recently issued and adopted accounting pronouncements.pronouncements including adoption of ASU 2016-02 which codified Accounting Standards Codification (“ASC”) 842, Leases.
Non‑GAAPNon-GAAP Financial Measure
Organic Net Sales Growth (Decline)
We present organic net sales growth (decline) as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP. Organic net sales growth (decline) represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic net sales growth (decline) is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.
Organic net sales growth (decline) provides useful information about our results and the trends of our business. Management uses organic net sales growththis measure to monitor and evaluate performance. Also, management uses organic net sales growththis measure together with GAAP financial measures in its decision‑makingdecision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The tables presented in “Results of Operations” and “Segment Results” provide reconciliations of organic net sales growth (decline) to net sales growth (decline) calculated in accordance with GAAP.
Organic net sales growth (decline) is a non‑GAAPnon-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP. This non‑GAAPnon-GAAP financial measure may not be comparable to similarly‑titledsimilarly-titled measures reported by other companies. The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using organic net sales growth (decline) in combination with net sales growth in order(decline) to better understand the amounts, character, and impact of any increase or decrease in reported amounts.
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Forward‑LookingForward-Looking Information
Certain statements in this Quarterly Report on Form 10‑Q10-Q are “forward‑looking“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‑lookingForward-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,
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divestitures, the effects of competition, and the effects of future legislation or regulations. Forward‑lookingForward-looking statements include all statements that are not historical facts and can be identified by the use of forward‑lookingforward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” and “should,” or the negative of these terms or similar expressions.
Forward‑lookingForward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward‑lookingforward-looking statements. Investors should not place undue reliance on any forward‑lookingforward-looking statements. We do not have any intention or obligation to update forward‑lookingforward-looking statements after we file this report except as required by law.
The following and other risks, which are described in greater detail in “Part I. Item 1A. Risk Factors,” in our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018,27, 2019, could cause our results to differ materially from those expressed in forward‑lookingforward-looking statements:
| conditions in the global or regional economies and global capital markets, and cyclical industry conditions; |
| conditions affecting demand for products in the industries we serve, particularly the automotive industry; |
| competition and pricing pressure; |
| market acceptance of our new product introductions and product innovations and product life cycles; |
| raw material availability, quality, and cost; |
| fluctuations in foreign currency exchange rates and impacts of offsetting hedges; |
| financial condition and consolidation of customers and vendors; |
| reliance on |
| risks associated with current and future acquisitions and divestitures; |
| global risks of business interruptions such as natural |
● | global risks of political, economic, and military |
| risks associated with security breaches and other disruptions to our information technology infrastructure; |
| risks related to compliance with current and future environmental and other laws and regulations; |
| our ability to protect our intellectual property rights; |
| risks of litigation; |
| our ability to operate within the limitations imposed by our debt instruments; |
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| the possible effects on us of various |
| various risks associated with being a Swiss corporation; |
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| the impact of fluctuations in the market price of our shares; and |
| the impact of certain provisions of our articles of association on unsolicited takeover proposals. |
There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the first six months of fiscal 2019, we expanded our cross‑currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the fiscal 2019 contracts was $1,901 million at March 29, 2019. See Note 9 to the Condensed Consolidated Financial Statements for further information regarding our exposures to market risk.
There have been no significant changes in our exposures to market risk during the first six monthsquarter of fiscal 2019, except for the item noted above.2020. 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‑K10-K for the fiscal year ended September 28, 2018.27, 2019.
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)13a-15(e) under the Securities Exchange Act of 1934), as of March 29,December 27, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 29,December 27, 2019.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 29,December 27, 2019, therewe adopted ASC 842, Leases. In connection with the adoption, we implemented changes to our accounting policies, internal controls, financial statement disclosures, and systems to enable compliance with this new standard. See Notes 1 and 9 to the Condensed Consolidated Financial Statements for additional information regarding adoption of the new standard. There were no other 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.
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PART II. OTHER INFORMATION
There have been no material developments in our legal proceedings since we filed our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018, except as set forth in “Part II. Item 1. Legal Proceedings” in our Quarterly Report on Form 10‑Q for the quarterly period ended December 28, 2018.27, 2019. Refer to “Part I. Item 3. Legal Proceedings” in our Annual Report on Form 10‑K10-K for the fiscal year ended September 28, 2018 and ‘‘Part II. Item 1. Legal Proceedings’’ in our Quarterly Report on Form 10‑Q for the quarterly period ended December 28, 201827, 2019 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‑K10-K for the fiscal year ended September 28, 2018.27, 2019. The risk factors described in our Annual Report on Form 10‑K,10-K, in addition to other information 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the quarter ended March 29,December 27, 2019:
| | | | | | | | | | | |
| | | | | | | | Maximum |
| ||
| | | | | | | Total Number of | | Approximate |
| |
| | | | | | | Shares Purchased | | Dollar Value |
| |
| | | | | | | as Part of | | of Shares that May |
| |
| | Total Number | | Average Price | | Publicly Announced | | Yet Be Purchased |
| ||
| | of Shares | | Paid Per | | Plans or | | Under the Plans |
| ||
Period |
| Purchased(1) |
| Share(1) |
| Programs(2) |
| or Programs(2) |
| ||
September 28–October 25, 2019 | | 493,376 | | $ | 91.23 | | 493,200 | | $ | 1,455,737,091 | |
October 26–November 29, 2019 |
| 715,037 | |
| 92.58 |
| 578,600 | |
| 1,402,285,398 | |
November 30–December 27, 2019 |
| 623,668 | |
| 92.65 |
| 476,700 | |
| 1,358,100,303 | |
Total |
| 1,832,081 | | $ | 92.24 |
| 1,548,500 | |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Maximum |
| ||
|
|
|
|
|
|
|
|
| Approximate |
| |
|
|
|
|
|
|
| Total Number of |
| Dollar Value of |
| |
|
|
|
|
|
|
| Shares Purchased |
| Shares that May |
| |
|
| Total Number |
| Average Price |
| as Part of Publicly |
| Yet Be Purchased |
| ||
|
| of Shares |
| Paid Per |
| Announced Plans |
| Under the Plans |
| ||
Period |
| Purchased(1) |
| Share(1) |
| or Programs(2) |
| or Programs(2) |
| ||
December 29, 2018–January 25, 2019 |
| 706,734 |
| $ | 77.15 |
| 705,300 |
| $ | 1,965,986,697 |
|
January 26–March 1, 2019 |
| 858,303 |
|
| 81.72 |
| 855,100 |
|
| 1,896,101,939 |
|
March 2–March 29, 2019 |
| 799,014 |
|
| 82.31 |
| 786,900 |
|
| 1,831,311,414 |
|
Total |
| 2,364,051 |
| $ | 80.56 |
| 2,347,300 |
|
|
|
|
(1) |
| These columns include the following transactions which occurred during the quarter ended |
(2) |
|
|
|
|
| Our share repurchase program authorizes us to purchase a portion of our outstanding common shares from time to time through open market or private transactions, depending on business and market conditions. The share repurchase program does not have an expiration date. |
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|
| ||
Exhibit | | Exhibit | |
10.1 | ‡* | TE Connectivity Ltd. Annual Incentive Plan (as amended and restated) | |
31.1 | * | ||
31.2 | * | ||
32.1 | ** | ||
|
| XBRL Instance Document(1)(2) | |
101.SCH | | XBRL Taxonomy Extension Schema Document(2) | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document(2) | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document(2) | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document(2) | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document(2) | |
104 | | Cover Page Interactive Data File(3) |
‡ | Management contract or compensatory plan or arrangement |
* | Filed herewith |
** | Furnished herewith |
(2) | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
(3) | Formatted in Inline XBRL and contained in exhibit 101 |
* Filed herewith
** Furnished herewith
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SIGNATURES
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 |
Date: April 26, 2019January 29, 2020
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