Edgar Filing: TE Connectivity Ltd.

tel_Current Folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 29, 2019
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001‑33260

(Commission File Number)

TE CONNECTIVITY LTD.

(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)

98‑0518048
(I.R.S. Employer Identification No.)

Rheinstrasse 20

CH‑8200 Schaffhausen, Switzerland

(Address of principal executive offices)

+41 (0)52 633 66 61

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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‑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 ☐

Non‑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, 2019 was 336,866,119.

Table of Contents

TE CONNECTIVITY LTD.

INDEX TO FORM 10-Q


		Page
Part I.	Financial Information
Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Operations for the Quarters and Six Months Ended March 29, 2019 and March 30, 2018 (unaudited)	1
	Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended March 29, 2019 and March 30, 2018 (unaudited)	2
	Condensed Consolidated Balance Sheets as of March 29, 2019 and September 28, 2018 (unaudited)	3
	Condensed Consolidated Statements of Shareholders’ Equity for the Quarters and Six Months Ended March 29, 2019 and March 30, 2018 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 29, 2019 and March 30, 2018 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

Part II.	Other Information
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
Signatures		47

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	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

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	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

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(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

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(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

Table of Contents

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

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(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