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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
ý |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended December 29, 2017 |
||
Or |
||
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
001-33260
(Commission File Number)
TE CONNECTIVITY LTD.
(Exact name of registrant as specified in its charter)
Switzerland
(Jurisdiction of Incorporation) |
98-0518048
(I.R.S. Employer Identification No.) |
Rheinstrasse 20
CH-8200 Schaffhausen, Switzerland
(Address of principal executive offices)
+41 (0)52 633 66 61
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ý |
Accelerated filer o |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting
company o |
Emerging growth
company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The number of common shares outstanding as of January 19, 2018 was 351,206,368.
TE CONNECTIVITY LTD.
INDEX TO FORM 10-Q
i
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
See Notes to Condensed Consolidated Financial Statements.
1
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Net income (loss) . |
$ | (40 | ) | $ | 409 | ||
Other comprehensive income (loss): |
|||||||
Currency translation |
67 | (185 | ) | ||||
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes |
7 | 13 | |||||
Gains on cash flow hedges, net of income taxes |
2 | 16 | |||||
| | | | | | | |
Other comprehensive income (loss) |
76 | (156 | ) | ||||
| | | | | | | |
Comprehensive income . |
$ | 36 | $ | 253 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
2
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
December 29,
2017 |
September 29,
2017 |
|||||
---|---|---|---|---|---|---|---|
|
(in millions, except share
data) |
||||||
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 704 | $ | 1,218 | |||
Accounts receivable, net of allowance for doubtful accounts of $21 |
2,378 | 2,290 | |||||
Inventories |
1,984 | 1,813 | |||||
Prepaid expenses and other current assets |
667 | 605 | |||||
| | | | | | | |
Total current assets |
5,733 | 5,926 | |||||
Property, plant, and equipment, net |
3,527 | 3,400 | |||||
Goodwill |
5,672 | 5,651 | |||||
Intangible assets, net |
1,806 | 1,841 | |||||
Deferred income taxes |
1,615 | 2,141 | |||||
Other assets |
458 | 444 | |||||
| | | | | | | |
Total Assets |
$ | 18,811 | $ | 19,403 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities and Shareholders' Equity |
|||||||
Current liabilities: |
|||||||
Short-term debt |
$ | 688 | $ | 710 | |||
Accounts payable |
1,556 | 1,436 | |||||
Accrued and other current liabilities |
1,264 | 1,626 | |||||
Deferred revenue |
127 | 75 | |||||
| | | | | | | |
Total current liabilities |
3,635 | 3,847 | |||||
Long-term debt |
3,317 | 3,634 | |||||
Long-term pension and postretirement liabilities |
1,150 | 1,160 | |||||
Deferred income taxes |
238 | 236 | |||||
Income taxes |
303 | 293 | |||||
Other liabilities |
537 | 482 | |||||
| | | | | | | |
Total Liabilities |
9,180 | 9,652 | |||||
| | | | | | | |
Commitments and contingencies (Note 7) |
|||||||
Shareholders' equity: |
|||||||
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued |
157 | 157 | |||||
Accumulated earnings |
10,047 | 10,175 | |||||
Treasury shares, at cost, 5,679,926 and 5,356,369 shares, respectively |
(489 | ) | (421 | ) | |||
Accumulated other comprehensive loss |
(84 | ) | (160 | ) | |||
| | | | | | | |
Total Shareholders' Equity |
9,631 | 9,751 | |||||
| | | | | | | |
Total Liabilities and Shareholders' Equity |
$ | 18,811 | $ | 19,403 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
3
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
|
Common Shares | Treasury Shares |
|
|
Accumulated
Other Comprehensive Loss |
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Contributed
Surplus |
Accumulated
Earnings |
Total
Sharedholders' Equity |
||||||||||||||||||||||
|
Shares | Amount | Shares | Amount | |||||||||||||||||||||
|
(in millions)
|
||||||||||||||||||||||||
Balance at September 29, 2017 |
357 | $ | 157 | (5 | ) | $ | (421 | ) | $ | | $ | 10,175 | $ | (160 | ) | $ | 9,751 | ||||||||
Net loss |
| | | | | (40 | ) | | (40 | ) | |||||||||||||||
Other comprehensive income |
| | | | | | 76 | 76 | |||||||||||||||||
Share-based compensation expense |
| | | | 29 | | | 29 | |||||||||||||||||
Exercise of share options |
| | 1 | 54 | | | | 54 | |||||||||||||||||
Restricted share award vestings and other activity |
| | | 92 | (29 | ) | (88 | ) | | (25 | ) | ||||||||||||||
Repurchase of common shares |
| | (2 | ) | (214 | ) | | | | (214 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 29, 2017 |
357 | $ | 157 | (6 | ) | $ | (489 | ) | $ | | $ | 10,047 | $ | (84 | ) | $ | 9,631 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2016 |
383 |
$ |
168 |
(28 |
) |
$ |
(1,624 |
) |
$ |
1,801 |
$ |
8,682 |
$ |
(542 |
) |
$ |
8,485 |
||||||||
Adoption of ASU No. 2016-09 |
| | | | | 165 | | 165 | |||||||||||||||||
Net income |
| | | | | 409 | | 409 | |||||||||||||||||
Other comprehensive loss |
| | | | | | (156 | ) | (156 | ) | |||||||||||||||
Share-based compensation expense |
| | | | 24 | | | 24 | |||||||||||||||||
Exercise of share options |
| | 1 | 26 | | | | 26 | |||||||||||||||||
Restricted share award vestings and other activity |
| | 2 | 82 | (96 | ) | | | (14 | ) | |||||||||||||||
Repurchase of common shares |
| | (2 | ) | (102 | ) | | | | (102 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 30, 2016 |
383 | $ | 168 | (27 | ) | $ | (1,618 | ) | $ | 1,729 | $ | 9,256 | $ | (698 | ) | $ | 8,837 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
4
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Cash Flows From Operating Activities: |
|||||||
Net income (loss) |
$ | (40 | ) | $ | 409 | ||
(Income) loss from discontinued operations, net of income taxes |
1 | (3 | ) | ||||
| | | | | | | |
Income (loss) from continuing operations |
(39 | ) | 406 | ||||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
168 | 160 | |||||
Deferred income taxes |
511 | (69 | ) | ||||
Provision for losses on accounts receivable and inventories |
15 | 4 | |||||
Share-based compensation expense |
29 | 24 | |||||
Other |
(6 | ) | 4 | ||||
Changes in assets and liabilities, net of the effects of acquisitions and divestitures: |
|||||||
Accounts receivable, net |
(89 | ) | (30 | ) | |||
Inventories |
(185 | ) | (59 | ) | |||
Prepaid expenses and other current assets |
(43 | ) | 31 | ||||
Accounts payable |
149 | 64 | |||||
Accrued and other current liabilities |
(250 | ) | (70 | ) | |||
Deferred revenue |
52 | (59 | ) | ||||
Income taxes |
7 | 28 | |||||
Other |
31 | (30 | ) | ||||
| | | | | | | |
Net cash provided by operating activities |
350 | 404 | |||||
| | | | | | | |
Cash Flows From Investing Activities: |
|||||||
Capital expenditures |
(241 | ) | (130 | ) | |||
Other |
| (24 | ) | ||||
| | | | | | | |
Net cash used in investing activities |
(241 | ) | (154 | ) | |||
| | | | | | | |
Cash Flows From Financing Activities: |
|||||||
Net increase in commercial paper |
241 | 10 | |||||
Proceeds from issuance of debt |
119 | | |||||
Repayment of debt |
(708 | ) | | ||||
Proceeds from exercise of share options |
54 | 25 | |||||
Repurchase of common shares |
(167 | ) | (93 | ) | |||
Payment of common share dividends to shareholders |
(141 | ) | (132 | ) | |||
Other |
(32 | ) | (19 | ) | |||
| | | | | | | |
Net cash used in financing activities |
(634 | ) | (209 | ) | |||
| | | | | | | |
Effect of currency translation on cash |
11 | (23 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
(514 | ) | 18 | ||||
Cash and cash equivalents at beginning of period |
1,218 | 647 | |||||
| | | | | | | |
Cash and cash equivalents at end of period |
$ | 704 | $ | 665 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
5
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Accounting Pronouncements
Basis of Presentation
The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") have been prepared in United States ("U.S.") dollars, in accordance with accounting principles generally accepted in the U.S. ("GAAP") and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. In management's opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.
The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017.
Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2018 and fiscal 2017 are to our fiscal years ending September 28, 2018 and ended September 29, 2017, respectively.
Recently Issued Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 which codified Accounting Standards Codification ("ASC") topic 606, Revenue from Contracts with Customers . This guidance supersedes ASC 605, Revenue Recognition , and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. ASC 606, as amended, is effective for us beginning in fiscal 2019, and we intend to adopt the new standard using the modified retrospective approach applied to contracts that are not completed as of that date. We are continuing to assess the impact of adopting ASC 606. Based on the ongoing evaluation of our current contracts and revenue streams, we do not expect that adoption will have a material impact on our results of operations or financial position. We are in the process of identifying necessary changes to accounting policies, processes, financial statement disclosures, internal controls, and systems to enable compliance with this new standard. We believe we are following an appropriate timeline to allow for the proper recognition, reporting, and disclosure of revenue upon adoption of ASC 606 at the beginning of fiscal 2019.
Recently Adopted Accounting Pronouncement
In March 2017, the FASB issued ASU No. 2017-07, an update to ASC 715, CompensationRetirement Benefits, which changes the income statement presentation of net periodic pension benefit cost and net periodic postretirement benefit cost. The ASU requires that service costs be presented with other employee compensation costs within operating income and that other cost components be presented outside of operating income. We elected to early adopt this update in the quarter ended December 29, 2017. The update was applied retrospectively and did not have a material impact on our Condensed Consolidated Statements of Operations.
6
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
2. Restructuring and Other Charges, Net
Net restructuring and other charges consisted of the following:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Restructuring charges, net |
$ | 35 | $ | 46 | |||
Other charges |
| 1 | |||||
| | | | | | | |
|
$ | 35 | $ | 47 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net restructuring charges by segment were as follows:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Transportation Solutions |
$ | 4 | $ | 24 | |||
Industrial Solutions |
23 | 20 | |||||
Communications Solutions |
8 | 2 | |||||
| | | | | | | |
Restructuring charges, net |
$ | 35 | $ | 46 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Activity in our restructuring reserves was as follows:
|
Balance at
September 29, 2017 |
Charges |
Changes
in Estimates |
Cash
Payments |
Non-Cash
Items |
Currency
Translation |
Balance at
December 29, 2017 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
|||||||||||||||||||||
Fiscal 2018 Actions: |
||||||||||||||||||||||
Employee severance |
$ | | $ | 18 | $ | | $ | (4 | ) | $ | | $ | 1 | $ | 15 | |||||||
Facility and other exit costs |
| 4 | | | | | 4 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
| 22 | | (4 | ) | | 1 | 19 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Fiscal 2017 Actions: |
||||||||||||||||||||||
Employee severance |
103 | 4 | | (19 | ) | | | 88 | ||||||||||||||
Facility and other exit costs |
1 | 1 | | (1 | ) | | | 1 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
104 | 5 | | (20 | ) | | | 89 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Pre-Fiscal 2017 Actions: |
||||||||||||||||||||||
Employee severance |
36 | 6 | (1 | ) | (7 | ) | | 1 | 35 | |||||||||||||
Facility and other exit costs |
9 | 2 | | (2 | ) | | | 9 | ||||||||||||||
Property, plant, and equipment |
| 1 | | | (1 | ) | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
45 | 9 | (1 | ) | (9 | ) | (1 | ) | 1 | 44 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total Activity |
$ | 149 | $ | 36 | $ | (1 | ) | $ | (33 | ) | $ | (1 | ) | $ | 2 | $ | 152 | |||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
7
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
2. Restructuring and Other Charges, Net (Continued)
Fiscal 2018 Actions
During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions segment. In connection with this program, during the quarter ended December 29, 2017, we recorded restructuring charges of $22 million. We expect to complete significantly all restructuring actions commenced during the quarter ended December 29, 2017 by the end of fiscal 2019 and to incur total charges of approximately $30 million with the remaining charges primarily in the Industrial Solutions segment.
Fiscal 2017 Actions
During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. In connection with this program, during the quarters ended December 29, 2017 and December 30, 2016, we recorded restructuring charges of $5 million and $46 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2017 by the end of fiscal 2019 and to incur total charges of approximately $160 million with the remaining charges primarily in the Communications Solutions segment.
Pre-Fiscal 2017 Actions
Prior to fiscal 2017, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. During the quarter ended December 29, 2017, we recorded net restructuring charges of $8 million related to pre-fiscal 2017 actions. We expect to incur additional charges of approximately $15 million related to pre-fiscal 2017 actions with the remaining charges primarily in the Communications Solutions segment.
Total Restructuring Reserves
Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:
|
December 29,
2017 |
September 29,
2017 |
|||||
---|---|---|---|---|---|---|---|
|
(in millions)
|
||||||
Accrued and other current liabilities |
$ | 139 | $ | 130 | |||
Other liabilities |
13 | 19 | |||||
| | | | | | | |
Restructuring reserves |
$ | 152 | $ | 149 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
8
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
3. Inventories
Inventories consisted of the following:
|
December 29,
2017 |
September 29,
2017 |
|||||
---|---|---|---|---|---|---|---|
|
(in millions)
|
||||||
Raw materials |
$ | 345 | $ | 306 | |||
Work in progress |
637 | 580 | |||||
Finished goods |
882 | 810 | |||||
Inventoried costs on long-term contracts |
120 | 117 | |||||
| | | | | | | |
Inventories |
$ | 1,984 | $ | 1,813 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
4. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
|
Transportation
Solutions |
Industrial
Solutions |
Communications
Solutions |
Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
||||||||||||
September 29, 2017 (1) |
$ | 2,011 | $ | 3,047 | $ | 593 | $ | 5,651 | |||||
Currency translation and other |
4 | 15 | 2 | 21 | |||||||||
| | | | | | | | | | | | | |
December 29, 2017 (1) |
$ | 2,015 | $ | 3,062 | $ | 595 | $ | 5,672 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
5. Intangible Assets, Net
Intangible assets consisted of the following:
|
December 29, 2017 | September 29, 2017 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
|||||||||||||
|
(in millions)
|
||||||||||||||||||
Customer relationships |
$ | 1,441 | $ | (325 | ) | $ | 1,116 | $ | 1,433 | $ | (300 | ) | $ | 1,133 | |||||
Intellectual property |
1,266 | (597 | ) | 669 | 1,263 | (575 | ) | 688 | |||||||||||
Other |
37 | (16 | ) | 21 | 36 | (16 | ) | 20 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 2,744 | $ | (938 | ) | $ | 1,806 | $ | 2,732 | $ | (891 | ) | $ | 1,841 | |||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Intangible asset amortization expense was $45 million and $42 million for the quarters ended December 29, 2017 and December 30, 2016, respectively.
9
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
5. Intangible Assets, Net (Continued)
The aggregate amortization expense on intangible assets is expected to be as follows:
|
(in millions) | |||
---|---|---|---|---|
Remainder of fiscal 2018 |
$ | 139 | ||
Fiscal 2019 |
182 | |||
Fiscal 2020 |
175 | |||
Fiscal 2021 |
172 | |||
Fiscal 2022 |
171 | |||
Fiscal 2023 |
170 | |||
Thereafter |
797 | |||
| | | | |
Total |
$ | 1,806 | ||
| | | | |
| | | | |
| | | | |
6. Debt
During October 2017, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, repaid, at maturity, $708 million 6.55% senior notes due 2017.
During the quarter ended December 29, 2017, we reclassified $325 million of 2.375% senior notes due 2018 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet.
During December 2017, TEGSA entered into an uncommitted revolving credit facility under which it borrowed €100 million, at a 0% interest rate with repayment due at maturity in December 2018.
As of December 29, 2017, TEGSA had $241 million of commercial paper outstanding at a weighted-average interest rate of 1.96%. TEGSA had no commercial paper outstanding at September 29, 2017.
The fair value of our debt, based on indicative valuations, was approximately $4,298 million and $4,622 million at December 29, 2017 and September 29, 2017, respectively.
7. Commitments and Contingencies
Legal Proceedings
In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.
Environmental Matters
We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given
10
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
7. Commitments and Contingencies (Continued)
the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of December 29, 2017, we concluded that it was probable that we would incur investigation and remediation costs at these sites in the range of $15 million to $44 million, and that the best estimate within this range was $19 million. We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.
Guarantees
In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.
At December 29, 2017, we had outstanding letters of credit, letters of guarantee, and surety bonds of $291 million.
We generally record estimated product warranty costs when contract revenues are recognized under the percentage-of-completion method for construction related contracts; other warranty reserves are not significant. The estimation is based primarily on historical experience and actual warranty claims. Amounts accrued for warranty claims were $49 million and $50 million at December 29, 2017 and September 29, 2017, respectively.
Tax Sharing Agreement
As previously reported, under a Tax Sharing Agreement, we, Tyco International plc ("Tyco International"), and Covidien plc ("Covidien") share 31%, 27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to the collective income tax returns for certain of our, Tyco International's, and Covidien's income tax liabilities for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications with Tyco International and Covidien. 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 do not expect these matters will have a material effect on our results of operations, financial position, or cash flows.
11
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
8. Financial Instruments
We hedge our net investment in certain foreign operations using intercompany non-derivative financial instruments denominated in the same currencies. The aggregate notional value of these hedges was $3,343 million and $3,110 million at December 29, 2017 and September 29, 2017, respectively. The impacts of our hedging program were as follows:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Foreign exchange gains (losses) |
$ | (66 | ) | $ | 222 |
These foreign exchange gains and losses were recorded as currency translation, a component of accumulated other comprehensive loss, offsetting changes attributable to the translation of the net investment.
9. Retirement Plans
The net periodic pension benefit cost for all U.S. and non-U.S. defined benefit pension plans was as follows:
|
U.S. Plans | Non-U.S. Plans | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the
Quarters Ended |
For the
Quarters Ended |
|||||||||||
|
December 29,
2017 |
December 30,
2016 |
December 29,
2017 |
December 30,
2016 |
|||||||||
|
(in millions)
|
||||||||||||
Service cost |
$ | 3 | $ | 3 | $ | 12 | $ | 13 | |||||
Interest cost |
11 | 11 | 10 | 9 | |||||||||
Expected return on plan assets |
(15 | ) | (13 | ) | (17 | ) | (18 | ) | |||||
Amortization of net actuarial loss |
6 | 10 | 6 | 11 | |||||||||
Amortization of prior service credit |
| | (2 | ) | (2 | ) | |||||||
| | | | | | | | | | | | | |
Net periodic pension benefit cost |
$ | 5 | $ | 11 | $ | 9 | $ | 13 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The components of net periodic pension benefit cost other than service cost are included in other income (expense), net on the Condensed Consolidated Statements of Operations.
During the quarter ended December 29, 2017, we contributed $13 million to our non-U.S. pension plans.
12
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
10. Income Taxes
We recorded income tax expense of $600 million and $54 million for the quarters ended December 29, 2017 and December 30, 2016, respectively. The income tax expense for the quarter ended December 29, 2017 included $567 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. See "Tax Cuts and Jobs Act" below for additional information. The income tax expense for the quarter ended December 30, 2016 included a $30 million income tax benefit associated with the tax impacts of certain intercompany restructurings and the corresponding reduction in the valuation allowance for U.S. tax loss carryforwards.
We record accrued interest and penalties related to uncertain tax positions as part of income tax expense. As of December 29, 2017 and September 29, 2017, we had $62 million and $60 million, respectively, of accrued interest and penalties related to uncertain tax positions on the Condensed Consolidated Balance Sheets, recorded primarily in income taxes. During the quarter ended December 29, 2017, we recognized $2 million of income tax expense related to interest and penalties on the Condensed Consolidated Statement of Operations.
Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that up to approximately $40 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 December 29, 2017.
Tax Cuts and Jobs Act
On December 22, 2017, the President of the U.S. signed the Act into law. The Act includes numerous significant changes to existing tax law, including a permanent reduction in the U.S. federal statutory income tax rate from 35% to 21%, further limitations on the deductibility of interest expense and certain executive compensation, repeal of the corporate Alternative Minimum Tax, and imposition of a territorial tax system with a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. While some of the new provisions of the Act will impact us in fiscal 2019 and beyond, the change in the corporate income tax rate was effective January 1, 2018. During the quarter ended December 29, 2017, we were required to revalue our U.S. federal deferred tax assets and liabilities at the new federal corporate income tax rate in the period of enactment; accordingly, we recorded additional income tax expense of $567 million primarily to write-down our net U.S. federal deferred tax asset to the lower statutory tax rate. Most of this charge related to the revaluation of our U.S. federal net operating loss and interest carryforwards to the lower tax rate. Included in the $567 million charge was a $34 million benefit related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards. The limitations on interest expense deductions contained in the Act are expected to increase prospective taxable income and thereby allow the utilization of more tax credits in future years. As a Swiss corporation, the one-time repatriation tax imposed by the Act will not be significant to us. Also, we do not expect a change in our fiscal 2018 cash taxes because of the new law.
The Act makes broad and complex changes to the U.S. tax code, and in certain instances, lacks clarity and is subject to interpretation until additional Internal Revenue Service guidance is issued. The
13
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
10. Income Taxes (Continued)
ultimate impact of the Act may differ from our estimates due to changes in the interpretations and assumptions we made as well as any forthcoming regulatory guidance. One area requiring guidance is a transition rule regarding limitations on interest expense deductions. The Act does not address the treatment of the carryforward of disallowed interest expense generated under the prior law. Our interpretation is that the carryforward of interest should survive and is deductible in future periods subject to the new interest limitations. Accordingly, during the quarter ended December 29, 2017, we revalued our beginning deferred tax asset related to our interest carryforwards to $223 million to reflect the lower statutory rate. It is possible additional regulatory guidance could be issued contrary to this interpretation at which point we may be required to record a charge to income tax expense to revalue or eliminate the related deferred tax asset.
11. Earnings (Loss) Per Share
The weighted-average number of shares outstanding used in the computations of basic and diluted earnings (loss) per share were as follows:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Basic |
352 | 356 | |||||
Dilutive impact of share-based compensation arrangements |
| 3 | |||||
| | | | | | | |
Diluted |
352 | 359 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
There were one million and two million share options that were not included in the computation of diluted earnings (loss) per share for the quarters ended December 29, 2017 and December 30, 2016, respectively, because the instruments' underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive.
For the quarter ended December 29, 2017, there were three million nonvested share awards and options outstanding with underlying exercise prices less than the average market prices of our common shares; however, these were excluded from the calculation of diluted loss per share as inclusion would be antidilutive as a result of our loss during the period.
12. Shareholders' Equity
Dividends
We paid a cash dividend of $0.40 per share during the quarter ended December 29, 2017.
Upon shareholders' approval of a dividend payment, we record a liability with a corresponding charge to shareholders' equity. At December 29, 2017 and September 29, 2017, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $140 million and $281 million, respectively.
14
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
12. Shareholders' Equity (Continued)
Share Repurchase Program
During the quarter ended December 29, 2017, 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
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Number of common shares repurchased |
2 | 2 | |||||
Repurchase value |
$ | 214 | $ | 102 |
At December 29, 2017, we had $1,766 million of availability remaining under our share repurchase authorization.
13. Share Plans
Share-based compensation expense, which was included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Share-based compensation expense |
$ | 29 | $ | 24 |
As of December 29, 2017, there was $204 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 2.3 years.
During the quarter ended December 29, 2017, we granted the following share-based awards as part of our annual incentive plan grant:
|
Shares |
Weighted-Average
Grant-Date Fair Value |
|||||
---|---|---|---|---|---|---|---|
|
(in millions)
|
|
|||||
Share options |
1.4 | $ | 16.47 | ||||
Restricted share awards |
0.5 | 93.36 | |||||
Performance share awards |
0.2 | 93.36 |
As of December 29, 2017, we had 20 million shares available for issuance under our stock and incentive plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of March 8, 2017, was the primary plan.
15
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
13. Share Plans (Continued)
Share-Based Compensation Assumptions
The weighted-average assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:
Expected share price volatility |
20 | % | ||
Risk free interest rate |
2.2 | % | ||
Expected annual dividend per share |
$ | 1.60 | ||
Expected life of options (in years) |
5.3 |
14. Segment Data
Net sales and operating income by segment were as follows:
|
Net Sales (1) | Operating Income | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the
Quarters Ended |
For the
Quarters Ended |
|||||||||||
|
December 29,
2017 |
December 30,
2016 |
December 29,
2017 |
December 30,
2016 |
|||||||||
|
(in millions)
|
||||||||||||
Transportation Solutions |
$ | 2,032 | $ | 1,675 | $ | 420 | $ | 348 | |||||
Industrial Solutions |
882 | 795 | 102 | 70 | |||||||||
Communications Solutions |
566 | 593 | 59 | 77 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 3,480 | $ | 3,063 | $ | 581 | $ | 495 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
16
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A.
Tyco Electronics Group S.A. ("TEGSA"), a Luxembourg company and our 100%-owned subsidiary, is a holding company that owns, directly or indirectly, all of our operating subsidiaries. TEGSA is the obligor under our senior notes, commercial paper, and five-year unsecured senior revolving credit facility, which are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd. The following tables present condensed consolidating financial information for TE Connectivity Ltd., TEGSA, and all other subsidiaries that are not providing a guarantee of debt but which represent assets of TEGSA, using the equity method of accounting.
Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended December 29, 2017
|
TE
Connectivity Ltd. |
TEGSA |
Other
Subsidiaries |
Consolidating
Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
|||||||||||||||
Net sales |
$ | | $ | | $ | 3,480 | $ | | $ | 3,480 | ||||||
Cost of sales |
| | 2,303 | | 2,303 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross margin |
| | 1,177 | | 1,177 | |||||||||||
Selling, general, and administrative expenses, net |
47 | (3 | ) | 339 | | 383 | ||||||||||
Research, development, and engineering expenses |
| | 176 | | 176 | |||||||||||
Acquisition and integration costs |
| | 2 | | 2 | |||||||||||
Restructuring and other charges, net |
| | 35 | | 35 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(47 | ) | 3 | 625 | | 581 | ||||||||||
Interest income |
| | 4 | | 4 | |||||||||||
Interest expense |
| (26 | ) | | | (26 | ) | |||||||||
Other income, net |
| | 2 | | 2 | |||||||||||
Equity in net income of subsidiaries |
21 | 16 | | (37 | ) | | ||||||||||
Equity in net loss of subsidiaries of discontinued operations |
(1 | ) | (1 | ) | | 2 | | |||||||||
Intercompany interest income (expense), net |
(13 | ) | 28 | (15 | ) | | | |||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes |
(40 | ) | 20 | 616 | (35 | ) | 561 | |||||||||
Income tax expense |
| | (600 | ) | | (600 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuing operations |
(40 | ) | 20 | 16 | (35 | ) | (39 | ) | ||||||||
Loss from discontinued operations, net of income taxes |
| | (1 | ) | | (1 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net income (loss) |
(40 | ) | 20 | 15 | (35 | ) | (40 | ) | ||||||||
Other comprehensive income |
76 | 76 | 87 | (163 | ) | 76 | ||||||||||
| | | | | | | | | | | | | | | | |
Comprehensive income |
$ | 36 | $ | 96 | $ | 102 | $ | (198 | ) | $ | 36 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
17
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended December 30, 2016
|
TE
Connectivity Ltd. |
TEGSA |
Other
Subsidiaries |
Consolidating
Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
|||||||||||||||
Net sales |
$ | | $ | | $ | 3,063 | $ | | $ | 3,063 | ||||||
Cost of sales |
| | 1,996 | | 1,996 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross margin |
| | 1,067 | | 1,067 | |||||||||||
Selling, general, and administrative expenses, net |
28 | (88 | ) | 427 | | 367 | ||||||||||
Research, development, and engineering expenses |
| | 156 | | 156 | |||||||||||
Acquisition and integration costs |
| | 2 | | 2 | |||||||||||
Restructuring and other charges, net |
| | 47 | | 47 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(28 | ) | 88 | 435 | | 495 | ||||||||||
Interest income |
| | 5 | | 5 | |||||||||||
Interest expense |
| (31 | ) | | | (31 | ) | |||||||||
Other expense, net |
| | (9 | ) | | (9 | ) | |||||||||
Equity in net income of subsidiaries |
440 | 356 | | (796 | ) | | ||||||||||
Equity in net income of subsidiaries of discontinued operations |
3 | 4 | | (7 | ) | | ||||||||||
Intercompany interest income (expense), net |
(6 | ) | 27 | (21 | ) | | | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes |
409 | 444 | 410 | (803 | ) | 460 | ||||||||||
Income tax expense |
| | (54 | ) | | (54 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Income from continuing operations |
409 | 444 | 356 | (803 | ) | 406 | ||||||||||
Income (loss) from discontinued operations, net of income taxes |
| (1 | ) | 4 | | 3 | ||||||||||
| | | | | | | | | | | | | | | | |
Net income |
409 | 443 | 360 | (803 | ) | 409 | ||||||||||
Other comprehensive loss |
(156 | ) | (156 | ) | (175 | ) | 331 | (156 | ) | |||||||
| | | | | | | | | | | | | | | | |
Comprehensive income |
$ | 253 | $ | 287 | $ | 185 | $ | (472 | ) | $ | 253 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
18
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet (UNAUDITED)
As of December 29, 2017
|
TE
Connectivity Ltd. |
TEGSA |
Other
Subsidiaries |
Consolidating
Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
|||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 704 | $ | | $ | 704 | ||||||
Accounts receivable, net |
| | 2,378 | | 2,378 | |||||||||||
Inventories |
| | 1,984 | | 1,984 | |||||||||||
Intercompany receivables |
35 | 2,188 | 52 | (2,275 | ) | | ||||||||||
Prepaid expenses and other current assets |
2 | 117 | 548 | | 667 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current assets |
37 | 2,305 | 5,666 | (2,275 | ) | 5,733 | ||||||||||
Property, plant, and equipment, net |
| | 3,527 | | 3,527 | |||||||||||
Goodwill |
| | 5,672 | | 5,672 | |||||||||||
Intangible assets, net |
| | 1,806 | | 1,806 | |||||||||||
Deferred income taxes |
| | 1,615 | | 1,615 | |||||||||||
Investment in subsidiaries |
12,033 | 20,157 | | (32,190 | ) | | ||||||||||
Intercompany loans receivable |
2 | 4,050 | 10,312 | (14,364 | ) | | ||||||||||
Other assets |
| 2 | 456 | | 458 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Assets |
$ | 12,072 | $ | 26,514 | $ | 29,054 | $ | (48,829 | ) | $ | 18,811 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity |
|
|
|
|
|
|||||||||||
Current liabilities: |
||||||||||||||||
Short-term debt |
$ | | $ | 686 | $ | 2 | $ | | $ | 688 | ||||||
Accounts payable |
3 | | 1,553 | | 1,556 | |||||||||||
Accrued and other current liabilities |
199 | 45 | 1,020 | | 1,264 | |||||||||||
Deferred revenue |
| | 127 | | 127 | |||||||||||
Intercompany payables |
2,239 | | 36 | (2,275 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Total current liabilities |
2,441 | 731 | 2,738 | (2,275 | ) | 3,635 | ||||||||||
Long-term debt |
| 3,312 | 5 | | 3,317 | |||||||||||
Intercompany loans payable |
| 10,313 | 4,051 | (14,364 | ) | | ||||||||||
Long-term pension and postretirement liabilities |
| | 1,150 | | 1,150 | |||||||||||
Deferred income taxes |
| | 238 | | 238 | |||||||||||
Income taxes |
| | 303 | | 303 | |||||||||||
Other liabilities |
| 125 | 412 | | 537 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities |
2,441 | 14,481 | 8,897 | (16,639 | ) | 9,180 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Shareholders' Equity |
9,631 | 12,033 | 20,157 | (32,190 | ) | 9,631 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities and Shareholders' Equity |
$ | 12,072 | $ | 26,514 | $ | 29,054 | $ | (48,829 | ) | $ | 18,811 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
19
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet (UNAUDITED)
As of September 29, 2017
|
TE
Connectivity Ltd. |
TEGSA |
Other
Subsidiaries |
Consolidating
Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
|||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 1,218 | $ | | $ | 1,218 | ||||||
Accounts receivable, net |
| | 2,290 | | 2,290 | |||||||||||
Inventories |
| | 1,813 | | 1,813 | |||||||||||
Intercompany receivables |
49 | 1,914 | 60 | (2,023 | ) | | ||||||||||
Prepaid expenses and other current assets |
4 | 96 | 505 | | 605 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current assets |
53 | 2,010 | 5,886 | (2,023 | ) | 5,926 | ||||||||||
Property, plant, and equipment, net |
| | 3,400 | | 3,400 | |||||||||||
Goodwill |
| | 5,651 | | 5,651 | |||||||||||
Intangible assets, net |
| | 1,841 | | 1,841 | |||||||||||
Deferred income taxes |
| | 2,141 | | 2,141 | |||||||||||
Investment in subsidiaries |
11,960 | 20,109 | | (32,069 | ) | | ||||||||||
Intercompany loans receivable |
| 4,027 | 9,700 | (13,727 | ) | | ||||||||||
Other assets |
| 6 | 438 | | 444 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Assets |
$ | 12,013 | $ | 26,152 | $ | 29,057 | $ | (47,819 | ) | $ | 19,403 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity |
|
|
|
|
|
|||||||||||
Current liabilities: |
||||||||||||||||
Short-term debt |
$ | | $ | 708 | $ | 2 | $ | | $ | 710 | ||||||
Accounts payable |
2 | | 1,434 | | 1,436 | |||||||||||
Accrued and other current liabilities |
286 | 59 | 1,281 | | 1,626 | |||||||||||
Deferred revenue |
| | 75 | | 75 | |||||||||||
Intercompany payables |
1,974 | | 49 | (2,023 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Total current liabilities |
2,262 | 767 | 2,841 | (2,023 | ) | 3,847 | ||||||||||
Long-term debt |
| 3,629 | 5 | | 3,634 | |||||||||||
Intercompany loans payable |
| 9,700 | 4,027 | (13,727 | ) | | ||||||||||
Long-term pension and postretirement liabilities |
| | 1,160 | | 1,160 | |||||||||||
Deferred income taxes |
| | 236 | | 236 | |||||||||||
Income taxes |
| | 293 | | 293 | |||||||||||
Other liabilities |
| 96 | 386 | | 482 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities |
2,262 | 14,192 | 8,948 | (15,750 | ) | 9,652 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Shareholders' Equity |
9,751 | 11,960 | 20,109 | (32,069 | ) | 9,751 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities and Shareholders' Equity |
$ | 12,013 | $ | 26,152 | $ | 29,057 | $ | (47,819 | ) | $ | 19,403 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
20
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows (UNAUDITED)
For the Quarter Ended December 29, 2017
|
TE
Connectivity Ltd. |
TEGSA |
Other
Subsidiaries |
Consolidating
Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
|||||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||
Net cash provided by (used in) operating activities (1) |
$ | (51 | ) | $ | (10 | ) | $ | 418 | $ | (7 | ) | $ | 350 | |||
| | | | | | | | | | | | | | | | |
Cash Flows From Investing Activities: |
||||||||||||||||
Capital expenditures |
| | (241 | ) | | (241 | ) | |||||||||
Change in intercompany loans |
| 335 | | (335 | ) | | ||||||||||
Intercompany distribution receipts (1) |
| 23 | | (23 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
| 358 | (241 | ) | (358 | ) | (241 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Cash Flows From Financing Activities: |
||||||||||||||||
Changes in parent company equity (2) |
30 | | (30 | ) | | | ||||||||||
Net increase in commercial paper |
| 241 | | | 241 | |||||||||||
Proceeds from issuance of debt |
| 119 | | | 119 | |||||||||||
Repayment of debt |
| (708 | ) | | | (708 | ) | |||||||||
Proceeds from exercise of share options |
| | 54 | | 54 | |||||||||||
Repurchase of common shares |
(108 | ) | | (59 | ) | | (167 | ) | ||||||||
Payment of common share dividends to shareholders |
(143 | ) | | 2 | | (141 | ) | |||||||||
Intercompany distribution payments (1) |
| | (30 | ) | 30 | | ||||||||||
Loan activity with parent |
272 | | (607 | ) | 335 | | ||||||||||
Other |
| | (32 | ) | | (32 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
51 | (348 | ) | (702 | ) | 365 | (634 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Effect of currency translation on cash |
| | 11 | | 11 | |||||||||||
Net decrease in cash and cash equivalents |
| | (514 | ) | | (514 | ) | |||||||||
Cash and cash equivalents at beginning of period |
| | 1,218 | | 1,218 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | | $ | | $ | 704 | $ | | $ | 704 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
21
TE CONNECTIVITY LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows (UNAUDITED)
For the Quarter Ended December 30, 2016
|
TE
Connectivity Ltd. |
TEGSA |
Other
Subsidiaries |
Consolidating
Adjustments |
Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in millions)
|
|||||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||
Net cash provided by (used in) operating activities |
$ | (30 | ) | $ | 22 | $ | 412 | $ | | $ | 404 | |||||
| | | | | | | | | | | | | | | | |
Cash Flows From Investing Activities: |
||||||||||||||||
Capital expenditures |
| | (130 | ) | | (130 | ) | |||||||||
Change in intercompany loans |
| (141 | ) | | 141 | | ||||||||||
Other |
| 4 | (28 | ) | | (24 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash used in investing activities |
| (137 | ) | (158 | ) | 141 | (154 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Cash Flows From Financing Activities: |
||||||||||||||||
Changes in parent company equity (1) |
22 | 105 | (127 | ) | | | ||||||||||
Net increase in commercial paper |
| 10 | | | 10 | |||||||||||
Proceeds from exercise of share options |
| | 25 | | 25 | |||||||||||
Repurchase of common shares |
| | (93 | ) | | (93 | ) | |||||||||
Payment of common share dividends to shareholders |
(132 | ) | | | | (132 | ) | |||||||||
Loan activity with parent |
140 | | 1 | (141 | ) | | ||||||||||
Other |
| | (19 | ) | | (19 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
30 | 115 | (213 | ) | (141 | ) | (209 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Effect of currency translation on cash |
| | (23 | ) | | (23 | ) | |||||||||
Net increase in cash and cash equivalents |
| | 18 | | 18 | |||||||||||
Cash and cash equivalents at beginning of period |
| | 647 | | 647 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | | $ | | $ | 665 | $ | | $ | 665 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including but not limited to those under the heading "Forward-Looking Information" and "Part II. Item 1A. Risk Factors."
Our Condensed Consolidated Financial Statements have been prepared in United States ("U.S.") dollars, in accordance with accounting principles generally accepted in the U.S. ("GAAP").
The following discussion includes organic net sales growth which is a non-GAAP financial measure. We believe this non-GAAP financial measure, together with GAAP financial measures, provides useful information to investors because it is one of the financial measures that management uses in evaluating the underlying results of our operations. See "Non-GAAP Financial Measure" for more information about this non-GAAP financial measure, including our reasons for including the measure and material limitations with respect to the usefulness of the measure.
TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") is a global technology and manufacturing leader creating a safer, sustainable, productive, and connected future. For more than 75 years, our connectivity and sensor solutions, proven in the harshest environments, have enabled advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.
Highlights for the first quarter of fiscal 2018 include the following:
Outlook
In the second quarter of fiscal 2018, we expect our net sales to be between $3.55 billion and $3.65 billion as compared to $3.2 billion in the second quarter of fiscal 2017. This increase reflects sales growth in the Transportation Solutions and Industrial Solutions segments, and to a lesser degree, the
23
Communications Solutions segment relative to the second quarter of fiscal 2017. Additional information regarding expectations for our reportable segments for the second quarter of fiscal 2018 as compared to the same period of fiscal 2017 is as follows:
We expect diluted earnings per share from continuing operations to be in the range of $1.18 to $1.22 per share in the second quarter of fiscal 2018. This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $123 million and $0.06 per share, respectively, in the second quarter of fiscal 2018 as compared to the second quarter of fiscal 2017.
For fiscal 2018, we expect our net sales to be between $14.1 billion and $14.3 billion as compared to $13.1 billion in fiscal 2017. This increase reflects sales growth in the Transportation Solutions and Industrial Solutions segments relative to fiscal 2017. Additional information regarding expectations for our reportable segments for fiscal 2018 compared to fiscal 2017 is as follows:
We expect diluted earnings per share from continuing operations to be in the range of $3.61 to $3.71 per share in fiscal 2018. This outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $228 million and $0.11 per share, respectively, in fiscal 2018 as compared to fiscal 2017.
The above outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.
We are monitoring the current macroeconomic environment and its potential effects on our customers and the end markets we serve. We continue to closely manage our costs in line with economic conditions. Additionally, we are managing our capital resources and monitoring capital
24
availability to ensure that we have sufficient resources to fund future capital needs. See further discussion in "Liquidity and Capital Resources."
Net Sales
The following table presents our net sales and the percentage of total net sales by segment:
|
For the
Quarters Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||||||||
|
($ in millions)
|
||||||||||||
Transportation Solutions |
$ | 2,032 | 59 | % | $ | 1,675 | 55 | % | |||||
Industrial Solutions |
882 | 25 | 795 | 26 | |||||||||
Communications Solutions |
566 | 16 | 593 | 19 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 3,480 | 100 | % | $ | 3,063 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table provides an analysis of the change in our net sales by segment:
|
Change in Net Sales for the Quarter Ended December 29, 2017
versus Net Sales for the Quarter Ended December 30, 2016 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net
Sales Growth |
Organic Net
Sales Growth |
Translation | Acquisitions | |||||||||||||||
|
($ in millions)
|
||||||||||||||||||
Transportation Solutions |
$ | 357 | 21.3 | % | $ | 224 | 13.4 | % | $ | 79 | $ | 54 | |||||||
Industrial Solutions |
87 | 10.9 | 50 | 6.3 | 29 | 8 | |||||||||||||
Communications Solutions |
(27 | ) | (4.6 | ) | (34 | ) | (5.7 | ) | 7 | | |||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 417 | 13.6 | % | $ | 240 | 7.9 | % | $ | 115 | $ | 62 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net sales increased $417 million, or 13.6%, in the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017. The increase in net sales resulted from organic net sales growth of 7.9%, the positive impact of foreign currency translation of 3.7% due to the strengthening of certain foreign currencies, and sales contributions from acquisitions of 2.0%. Price erosion adversely affected organic net sales by $44 million in the first quarter of fiscal 2018.
See further discussion of net sales below under "Segment Results."
Net Sales by Geographic Region. Our business operates in three geographic regionsthe Americas, Europe/Middle East/Africa ("EMEA"), and AsiaPacificand our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.
Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first quarter of fiscal 2018.
25
The following table presents our net sales and the percentage of total net sales by geographic region (1) :
|
For the
Quarters Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||||||||
|
($ in millions)
|
||||||||||||
Americas |
$ | 1,041 | 30 | % | $ | 1,005 | 33 | % | |||||
EMEA |
1,219 | 35 | 971 | 32 | |||||||||
AsiaPacific |
1,220 | 35 | 1,087 | 35 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 3,480 | 100 | % | $ | 3,063 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table provides an analysis of the change in our net sales by geographic region:
|
Change in Net Sales for the Quarter Ended December 29, 2017
versus Net Sales for the Quarter Ended December 30, 2016 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net
Sales Growth |
Organic Net
Sales Growth |
Translation | Acquisitions | |||||||||||||||
|
($ in millions)
|
||||||||||||||||||
Americas |
$ | 36 | 3.6 | % | $ | 19 | 1.9 | % | $ | 5 | $ | 12 | |||||||
EMEA |
248 | 25.5 | 112 | 11.6 | 89 | 47 | |||||||||||||
AsiaPacific |
133 | 12.2 | 109 | 10.0 | 21 | 3 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 417 | 13.6 | % | $ | 240 | 7.9 | % | $ | 115 | $ | 62 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
|
For the
Quarters Ended |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
Increase
(Decrease) |
|||||||
|
($ in millions)
|
|||||||||
Cost of sales |
$ | 2,303 | $ | 1,996 | $ | 307 | ||||
As a percentage of net sales |
66.2 | % | 65.2 | % | 1.0 | % | ||||
Gross margin |
$ |
1,177 |
$ |
1,067 |
$ |
110 |
||||
As a percentage of net sales |
33.8 | % | 34.8 | % | (1.0 | )% |
Gross margin increased $110 million in the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017. The increase in gross margin was due primarily to higher volume and improved manufacturing productivity, partially offset by the negative impact of price erosion. Gross margin as a percentage of net sales decreased to 33.8% in the first quarter of 2018 from 34.8% in the first quarter of fiscal 2017.
Cost of sales and gross margin are subject to variability in raw material prices which continue to fluctuate for many of the raw materials used in the manufacture of our products. We expect to purchase approximately 200 million pounds of copper, 140,000 troy ounces of gold, and 2.7 million troy
26
ounces of silver in fiscal 2018. The following table presents the average prices incurred related to copper, gold, and silver:
|
|
For the
Quarters Ended |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
Measure |
December 29,
2017 |
December 30,
2016 |
||||||
Copper |
Lb. | $ | 2.80 | $ | 2.35 | ||||
Gold |
Troy oz. | 1,265 | 1,206 | ||||||
Silver |
Troy oz. | 17.09 | 16.33 |
Operating Expenses
The following table presents operating expense information:
|
For the
Quarters Ended |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
Increase
(Decrease) |
|||||||
|
($ in millions)
|
|||||||||
Selling, general, and administrative expenses |
$ | 383 | $ | 367 | $ | 16 | ||||
As a percentage of net sales |
11.0 | % | 12.0 | % | (1.0 | )% | ||||
Research, development, and engineering expenses |
$ |
176 |
$ |
156 |
$ |
20 |
||||
Acquisition and integration costs |
2 | 2 | | |||||||
Restructuring and other charges, net |
35 | 47 | (12 | ) |
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $16 million in the first quarter of fiscal 2018 from the first quarter of fiscal 2017. The increase resulted primarily from increased selling expenses to support higher sales levels. Selling, general, and administrative expenses as a percentage of net sales decreased to 11.0% in the first quarter of 2018 from 12.0% in the first quarter of fiscal 2017.
Research, Development, and Engineering Expenses. In the first quarter of fiscal 2018, research, development, and engineering expenses increased $20 million as compared to the same period of fiscal 2017 due to costs related to growth initiatives, primarily in the Transportation Solutions segment.
Restructuring and Other Charges, Net. We are committed to continuous productivity improvements and consistently evaluate opportunities to simplify our global manufacturing footprint, migrate facilities to lower-cost regions, reduce fixed costs, and eliminate excess capacity. These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for future growth.
During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions segment. During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments.
In connection with these initiatives, we incurred net restructuring charges of $35 million during the first quarter of fiscal 2018, of which $22 million related to the fiscal 2018 restructuring program. Annualized cost savings related to fiscal 2018 actions commenced during the first quarter of fiscal 2018 are expected to be approximately $20 million and are expected to be realized by the end of fiscal 2019. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses. During fiscal 2018, we expect to incur net restructuring charges of approximately $150 million. We
27
expect total spending, which will be funded with cash from operations, to be approximately $130 million in fiscal 2018.
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
Operating Income
The following table presents operating income and operating margin information:
|
For the
Quarters Ended |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
Increase
(Decrease) |
|||||||
|
($ in millions)
|
|||||||||
Operating income |
$ | 581 | $ | 495 | $ | 86 | ||||
Operating margin |
16.7 | % | 16.2 | % | 0.5 | % |
Operating income included the following:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Acquisition related charges: |
|||||||
Acquisition and integration costs |
$ | 2 | $ | 2 | |||
Charges associated with the amortization of acquisition related fair value adjustments |
5 | 1 | |||||
| | | | | | | |
|
7 | 3 | |||||
Restructuring and other charges, net |
35 | 47 | |||||
| | | | | | | |
Total |
$ | 42 | $ | 50 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See discussion of operating income below under "Segment Results."
Non-Operating Items
The following table presents select non-operating information:
|
For the
Quarters Ended |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
Increase
(Decrease) |
|||||||
|
($ in millions)
|
|||||||||
Interest expense |
$ | 26 | $ | 31 | $ | (5 | ) | |||
Other (income) expense, net |
$ | (2 | ) | $ | 9 | $ | (11 | ) | ||
Income tax expense |
$ |
600 |
$ |
54 |
$ |
546 |
||||
Effective tax rate |
107.0 | % | 11.7 | % | 95.3 | % | ||||
Income (loss) from discontinued operations, net of income taxes |
$ |
(1 |
) |
$ |
3 |
$ |
(4 |
) |
Income Taxes. See Note 10 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense for the first quarters of fiscal 2018 and 2017 and information regarding the Tax Cuts and Jobs Act.
28
Transportation Solutions
Net Sales. The following table presents the Transportation Solutions segment's net sales and the percentage of total net sales by primary industry end market (1) :
|
For the
Quarters Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||||||||
|
($ in millions)
|
||||||||||||
Automotive |
$ | 1,517 | 74 | % | $ | 1,275 | 76 | % | |||||
Commercial transportation |
300 | 15 | 213 | 13 | |||||||||
Sensors |
215 | 11 | 187 | 11 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 2,032 | 100 | % | $ | 1,675 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table provides an analysis of the change in the Transportation Solutions segment's net sales by primary industry end market:
|
Change in Net Sales for the Quarter Ended December 29, 2017
versus Net Sales for the Quarter Ended December 30, 2016 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net
Sales Growth |
Organic Net
Sales Growth |
Translation | Acquisition | |||||||||||||||
|
($ in millions)
|
||||||||||||||||||
Automotive |
$ | 242 | 19.0 | % | $ | 131 | 10.2 | % | $ | 57 | $ | 54 | |||||||
Commercial transportation |
87 | 40.8 | 73 | 34.2 | 14 | | |||||||||||||
Sensors |
28 | 15.0 | 20 | 10.6 | 8 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 357 | 21.3 | % | $ | 224 | 13.4 | % | $ | 79 | $ | 54 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net sales in the Transportation Solutions segment increased $357 million, or 21.3%, in the first quarter of fiscal 2018 from the first quarter of fiscal 2017 due to organic net sales growth of 13.4%, the positive impact of foreign currency translation of 4.7%, and sales contributions from an acquisition of 3.2%. Our organic net sales by primary industry end market were as follows:
29
Operating Income. The following table presents the Transportation Solutions segment's operating income and operating margin information:
|
For the
Quarters Ended |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
Increase
(Decrease) |
|||||||
|
($ in millions)
|
|||||||||
Operating income |
$ | 420 | $ | 348 | $ | 72 | ||||
Operating margin |
20.7 | % | 20.8 | % | (0.1 | )% |
In the first quarter of fiscal 2018, operating income in the Transportation Solutions segment increased $72 million as compared to the first quarter of fiscal 2017. The Transportation Solutions segment's operating income included the following:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
($ in millions)
|
||||||
Acquisition related charges: |
|||||||
Acquisition and integration costs |
$ | 1 | $ | 1 | |||
Charges associated with the amortization of acquisition related fair value adjustments |
4 | | |||||
| | | | | | | |
|
5 | 1 | |||||
Restructuring and other charges, net |
4 | 24 | |||||
| | | | | | | |
Total |
$ | 9 | $ | 25 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Excluding these items, operating income increased in the first quarter of fiscal 2018 due primarily to higher volume, partially offset by the negative impact of price erosion.
Industrial Solutions
Net Sales. The following table presents the Industrial Solutions segment's net sales and the percentage of total net sales by primary industry end market (1) :
|
For the
Quarters Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||||||||
|
($ in millions)
|
||||||||||||
Industrial equipment |
$ | 471 | 53 | % | $ | 383 | 48 | % | |||||
Aerospace, defense, oil, and gas |
254 | 29 | 252 | 32 | |||||||||
Energy |
157 | 18 | 160 | 20 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 882 | 100 | % | $ | 795 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30
The following table provides an analysis of the change in the Industrial Solutions segment's net sales by primary industry end market:
|
Change in Net Sales for the Quarter Ended December 29, 2017
versus Net Sales for the Quarter Ended December 30, 2016 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net
Sales Growth |
Organic Net
Sales Growth |
Translation | Acquisition | |||||||||||||||
|
($ in millions)
|
||||||||||||||||||
Industrial equipment |
$ | 88 | 23.0 | % | $ | 66 | 16.9 | % | $ | 14 | $ | 8 | |||||||
Aerospace, defense, oil, and gas |
2 | 0.8 | (6 | ) | (2.2 | ) | 8 | | |||||||||||
Energy |
(3 | ) | (1.9 | ) | (10 | ) | (6.1 | ) | 7 | | |||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 87 | 10.9 | % | $ | 50 | 6.3 | % | $ | 29 | $ | 8 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
In the first quarter of fiscal 2018, net sales in the Industrial Solutions segment increased $87 million, or 10.9%, from the first quarter of fiscal 2017 primarily as a result of organic net sales growth of 6.3% and the positive impact of foreign currency translation of 3.6%. Our organic net sales by primary industry end market were as follows:
Operating Income. The following table presents the Industrial Solutions segment's operating income and operating margin information:
|
For the
Quarters Ended |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
Increase
(Decrease) |
|||||||
|
($ in millions)
|
|||||||||
Operating income |
$ | 102 | $ | 70 | $ | 32 | ||||
Operating margin |
11.6 | % | 8.8 | % | 2.8 | % |
Operating income in the Industrial Solutions segment increased $32 million in the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017. The Industrial Solutions segment's operating income included the following:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Acquisition related charges: |
|||||||
Acquisition and integration costs |
$ | 1 | $ | 1 | |||
Charges associated with the amortization of acquisition related fair value adjustments |
1 | 1 | |||||
| | | | | | | |
|
2 | 2 | |||||
Restructuring and other charges, net |
23 | 21 | |||||
| | | | | | | |
Total |
$ | 25 | $ | 23 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31
Excluding these items, operating income increased in the first quarter of fiscal 2018 primarily as a result of higher volume and improved manufacturing productivity, partially offset by the negative impact of price erosion.
Communications Solutions
Net Sales. The following table presents the Communications Solutions segment's net sales and the percentage of total net sales by primary industry end market (1) :
|
For the
Quarters Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||||||||
|
($ in millions)
|
||||||||||||
Data and devices |
$ | 239 | 42 | % | $ | 231 | 39 | % | |||||
Subsea communications |
143 | 25 | 214 | 36 | |||||||||
Appliances |
184 | 33 | 148 | 25 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 566 | 100 | % | $ | 593 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table provides an analysis of the change in the Communications Solutions segment's net sales by primary industry end market:
|
Change in Net Sales for the Quarter Ended December 29, 2017
versus Net Sales for the Quarter Ended December 30, 2016 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net
Sales Growth |
Organic Net
Sales Growth |
Translation | |||||||||||||
|
($ in millions)
|
|||||||||||||||
Data and devices |
$ | 8 | 3.5 | % | $ | 4 | 1.9 | % | $ | 4 | ||||||
Subsea communications |
(71 | ) | (33.2 | ) | (71 | ) | (33.2 | ) | | |||||||
Appliances |
36 | 24.3 | 33 | 21.7 | 3 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
$ | (27 | ) | (4.6 | )% | $ | (34 | ) | (5.7 | )% | $ | 7 | ||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net sales in the Communications Solutions segment decreased $27 million, or 4.6%, from the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017 due primarily to organic net sales declines of 5.7%. Our organic net sales by primary industry end market were as follows:
32
Operating Income. The following table presents the Communications Solutions segment's operating income and operating margin information:
|
For the
Quarters Ended |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
Increase
(Decrease) |
|||||||
|
($ in millions)
|
|||||||||
Operating income |
$ | 59 | $ | 77 | $ | (18 | ) | |||
Operating margin |
10.4 | % | 13.0 | % | (2.6 | )% |
Operating income in the Communications Solutions segment decreased $18 million in the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017. The Communications Solutions segment's operating income included the following:
|
For the
Quarters Ended |
||||||
---|---|---|---|---|---|---|---|
|
December 29,
2017 |
December 30,
2016 |
|||||
|
(in millions)
|
||||||
Restructuring and other charges, net |
$ | 8 | $ | 2 |
Excluding these items, operating income decreased in the first quarter of fiscal 2018 due primarily to declines in our Subsea Communications business related to production delays.
Liquidity and Capital Resources
Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements. We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payment of $325 million of 2.375% senior notes due in 2018. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt, including through the possible repurchase of our debt in accordance with applicable law. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions.
Cash Flows from Operating Activities
In the first quarter of fiscal 2018, net cash provided by operating activities decreased $54 million to $350 million from $404 million in the first quarter of fiscal 2017. The decrease resulted primarily from an increase in employee-compensation related payments, partially offset by higher pre-tax income levels.
The amount of income taxes paid, net of refunds, during the first quarters of fiscal 2018 and 2017 was $82 million and $96 million, respectively.
Cash Flows from Investing Activities
Capital expenditures were $241 million and $130 million in the first quarters of fiscal 2018 and 2017, respectively. We expect fiscal 2018 capital spending levels to be approximately 5% of net sales. We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.
33
Cash Flows from Financing Activities and Capitalization
Total debt at December 29, 2017 and September 29, 2017 was $4,005 million and $4,344 million, respectively. See Note 6 to the Condensed Consolidated Financial Statements for additional information regarding debt.
During October 2017, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, repaid, at maturity, $708 million 6.55% senior notes due 2017.
During December 2017, TEGSA entered into an uncommitted revolving credit facility under which it borrowed €100 million, at a 0% interest rate with repayment due at maturity in December 2018.
TEGSA has a five-year unsecured senior revolving credit facility ("Credit Facility") with a maturity date of December 2020 and total commitments of $1,500 million. TEGSA had no borrowings under the Credit Facility at December 29, 2017 or September 29, 2017. Borrowings under our commercial paper program are backed by the Credit Facility and reduce the availability of funds from the Credit Facility.
The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our other debt agreements contain other customary covenants. None of our covenants are presently considered restrictive to our operations. As of December 29, 2017, 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 $141 million and $132 million in the first quarters of fiscal 2018 and 2017, respectively.
During the first quarter of fiscal 2018, our board of directors authorized an increase of $1.5 billion in the share repurchase program. We repurchased approximately 2 million of our common shares for $214 million and approximately 2 million of our common shares for $102 million under our share repurchase program during the first quarters of fiscal 2018 and 2017, respectively. At December 29, 2017, we had $1,766 million of availability remaining under our share repurchase authorization.
Legal Proceedings
In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.
Guarantees
In certain instances, we have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with
34
end dates ranging from fiscal 2018 through the completion of such transactions. The guarantees would be triggered in the event of nonperformance, and the potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows.
In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.
At December 29, 2017, we had outstanding letters of credit, letters of guarantee, and surety bonds of $291 million.
Tax Sharing Agreement
As previously reported, we are a party to a Tax Sharing Agreement that generally governs our, Tyco International plc's, and Covidien plc's respective rights, responsibilities, and obligations with respect to taxes for periods prior to and including June 29, 2007. See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding the Tax Sharing Agreement.
Critical Accounting Policies and Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses.
Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension liabilities are based on, among other things, judgments and assumptions made by management. For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017. There were no significant changes to this information during the first quarter of fiscal 2018.
See Note 1 to the Condensed Consolidated Financial Statements for information regarding recently issued and adopted accounting pronouncements.
Organic Net Sales Growth
We present organic net sales growth as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP. Organic net sales growth represents net sales growth (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic net sales growth is a useful measure of our performance because it excludes items that are not completely under management's control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.
35
Organic net sales growth provides useful information about our results and the trends of our business. Management uses organic net sales growth to monitor and evaluate performance. Also, management uses organic net sales growth together with GAAP financial measures in its decision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The tables presented in "Results of Operations" and "Segment Results" provide reconciliations of organic net sales growth to net sales growth calculated in accordance with GAAP.
Organic net sales growth is a non-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP. This non-GAAP financial measure may not be comparable to similarly-titled measures reported by other companies. The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using organic net sales growth in combination with net sales growth in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts.
Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on our management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among others, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, acquisitions, divestitures, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "continue," "may," "should," or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements after we file this report except as required by law.
The following and other risks, which are described in greater detail in "Part I. Item 1A. Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017, could cause our results to differ materially from those expressed in forward-looking statements:
36
There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our exposures to market risk during the first quarter of fiscal 2018. For further discussion of our exposures to market risk, refer to "Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of December 29, 2017. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 29, 2017.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 29, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
There have been no material developments in our legal proceedings since we filed our Annual Report on Form 10-K for the fiscal year ended September 29, 2017. Refer to "Part I. Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017 for additional information regarding legal proceedings.
There have been no material changes in our risk factors from those disclosed in "Part I. Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017. The risk factors described in our Annual Report on Form 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
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the quarter ended December 29, 2017:
Period
|
Total Number
of Shares Purchased (1) |
Average
Price Paid Per Share (1) |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
Maximum
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30October 27, 2017 |
506,437 | $ | 87.38 | 506,433 | $ | 436,225,272 | |||||||
October 28December 1, 2017 |
1,022,087 | 93.82 | 837,800 | 357,513,984 | |||||||||
December 2December 29, 2017 |
1,110,784 | 95.20 | 958,800 | 1,766,284,720 | |||||||||
| | | | | | | | | | | | | |
Total |
2,639,308 | $ | 93.16 | 2,303,033 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
38
Exhibit
Number |
|
Exhibit | ||
---|---|---|---|---|
10.1 | * | Employment Agreement between John S. Jenkins and Tyco Electronics Corporation dated December 15, 2015 | ||
10.2 | * | Letter Agreement between Joseph B. Donahue and TE Connectivity dated January 18, 2018 | ||
31.1 | * | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | * | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32.1 | ** | Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
101 | * | Financial statements from the Quarterly Report on Form 10-Q of TE Connectivity Ltd. for the quarterly period ended December 29, 2017, filed on January 24, 2018, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Shareholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements |
39
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TE CONNECTIVITY LTD. | ||||
|
|
By: |
|
/s/ HEATH A. MITTS Heath A. Mitts Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: January 24, 2018
40
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of December 15, 2015, by and between Tyco Electronics Corporation, a Pennsylvania corporation (the Company ), and John S. Jenkins (the Executive ).
W I T N E S S E T H :
WHEREAS, the Executive currently serves as Executive Vice President, General Counsel of the Company under the terms and conditions of an employment agreement with the Company dated December 20, 2013 (the 2013 Agreement); and
WHEREAS, the Executive and the Company mutually desire to amend and restate the terms of the 2013 Agreement, upon the terms and conditions hereinafter set forth in this amended and restated employment agreement (the 2015 Agreement).
NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, each intending to be legally bound hereby, agree as follows:
1. Employment . On the terms and subject to the conditions set forth herein, the Company hereby agrees to continue the employment of the Executive, and the Executive hereby agrees to continue his employment with the Company, for the Employment Term (as defined below). During the Employment Term, the Executive shall serve as the Executive Vice President, General Counsel of the Company and shall report to the Chief Executive Officer or such person or persons as from time to time may be designated by the Company (the Reporting Officer ), performing such duties and responsibilities as are customarily attendant to such position with respect to the business of the Company and such other duties and responsibilities as may from time to time be assigned to the Executive by the Reporting Officer consistent with such position. Upon notice from the Company, the Executives title, Reporting Officer and duties and responsibilities may be changed as is deemed necessary and appropriate by the Company.
2. Performance . The Executive shall serve the Company and its subsidiaries and affiliates faithfully and to the best of Executives ability and shall devote full business time, energy, experience and talents to the business of the Company and its subsidiaries and affiliates, as applicable, and will not engage in any other employment activities for any direct or indirect remuneration without the written approval of the Board; provided , however , that it shall not be a violation of this Agreement for the Executive to (i) continue to serve as a non-employee director of the business entities set forth on Exhibit A attached hereto on which Executive currently serves, if any, or (ii) manage personal investments or to engage in or serve such civic, community, charitable, educational, or religious organizations as Executive may select, so long as such service described in clauses (i) and (ii) of this sentence does not create a conflict of interest with, or interfere with the performance of, the Executives duties hereunder or conflict with the Executives covenants under Section 6 of this Agreement, or result in a violation of any applicable laws, regulations or articles of association (including the articles of association of TE Connectivity Ltd.), in each case as determined in the sole judgment of the Board.
3. Employment Term . This Agreement shall be effective commencing on the date hereof (the Commencement Date ) until terminated by either party providing appropriate notice to the other party (such period, the Employment Term ). The Executives employment with the Company shall be on an at-will basis, which means that the Executives employment is terminable by either the Company or the Executive at any time for any reason or no reason, with or without cause or notice (other than any notice required under Section 7 hereof).
4. Principal Location . The Executives principal place of employment shall be the Companys offices located in Berwyn, Pennsylvania or such other location as is mutually agreed between the parties, subject to required travel.
5. Compensation and Benefits .
(a) Base Salary . As compensation for the Executives services hereunder and in consideration of the Executives other agreements hereunder, during the Employment Term, the Company shall pay the Executive a base salary, payable in equal installments in accordance with Company payroll procedures, in an amount equal to Executives current base salary , subject to annual review by the Management Development and Compensation Committee (the MDCC) of the Companys Board of Directors.
(b) Annual Cash Bonus . During the Employment Term, the Executive shall be entitled to participate in the Companys Annual Incentive Plan or Annual Performance Bonus Plan, as applicable (the Bonus Plan), with a bonus target equal to Executives current bonus target, subject to annual review by the MDCC.
(c) Annual Equity Incentive Awards . During the Employment Term, the Executive shall be entitled to participate in the Companys 2007 Stock and Incentive Plan (the SIP), or such other equity incentive plan as is deemed appropriate by the MDCC, and to receive annual long-term equity incentive awards in a form and amount determined by the MDCC. The Companys award cycle under the SIP currently takes place in the November timeframe each year.
(d) Benefits . During the Employment Term, the Executive shall, subject to and in accordance with the terms and conditions of the applicable plan documents and all applicable laws, be entitled to participate in all of the employee benefit, fringe and perquisite plans, practices, policies and arrangements that the Company makes available from time to time to its employees generally, under terms consistent with other similarly-situated executives. Such employee benefit plans and programs currently include, but are not limited to, the Tyco Electronics Retirement Savings and Investment Plan, the Tyco Electronics Supplemental Savings and Retirement Plan, the TE Connectivity Health and Welfare Plan (including medical, dental, vision, flexible spending accounts for healthcare and dependent care, life insurance, accidental death and dismemberment insurance, long-term disability and short term disability), Business Travel Medical Insurance, Business Travel Accident Insurance, and the TE Employee Stock Purchase Plan. The Company may amend or terminate the employee benefit plans and programs at any time.
(e) Severance Benefits . During the Employment Term, the Executive shall not be entitled to participate in the Companys Severance Plan for U.S. Officers and Executives or any other severance pay plan, program, or policy of the Company or its subsidiaries.
(f) Change in Control Severance Plan . During the Employment Term, the Executive shall not be entitled to participate in the Companys Change in Control Severance Plan for Certain U.S. Officers and Executives or any other change of control plan, program, or policy of the Company or its subsidiaries.
(g) Vacation and Paid Time Off . The Executive shall be entitled to vacation and paid time off in accordance with the standard policies of the Company for executives as in effect from time to time.
(h) Business Expenses . The Executive shall be reimbursed by the Company for all reasonable and necessary business expenses actually incurred by the Executive in performing his duties hereunder. All payments under this paragraph (h) of this Section 5 will be made in accordance with policies established by the Company from time to time and subject to receipt by the Company of appropriate documentation.
(i) Required Stock Ownership . The Executive acknowledges and agrees to adhere to the Companys executive stock ownership guidelines as set forth in the Companys Stock Ownership Policy, as may be amended from time to time in the Companys sole discretion, which currently requires, among other things, that the Executive shall acquire and hold three times his annual base salary in Company stock.
6. Covenants of the Executive . The Executive is party to a TE Connectivity Confidentiality and Invention Assignment Agreement (executed upon Executives employment with the Company) and a Limited Non-Competition Agreement (executed upon Executives initial acceptance of the terms and conditions of the Annual Incentive Plan). Executive acknowledges that the terms and conditions of those agreements remain in full force and effect as described in the agreements.
7. Termination .
(a) Termination of Employment . The employment of the Executive hereunder and the Employment Term may be terminated at any time (i) by the Company without Cause (as defined herein) on twelve months written notice to the Executive, (ii) by the Company with Cause or due to the Executives Disability (as defined herein) on written notice to the Executive, (iii) by the Executive for any reason upon thirty (30) days written notice (which notice period may be waived by the Company in its discretion, in which case, such termination shall be effective on any date prior to the end of such thirty (30) day period as selected by the Company), (iv) by the Executive with Good Reason following a Change in Control (as defined in the Companys Change in Control Severance Plan for Certain U.S. Officers and Executives (CIC Plan)) on twelve months written notice to the Company, provided that such termination occurs during the period beginning 60 days prior to the date of a Change in Control and ending two years after the date of such Change in Control, or (v) without action by the Company, the Executive or any other person or entity, immediately upon the Executives death. If the Executives employment is terminated for any reason under this Section 7(a), the Company shall be obligated to pay or provide to the Executive (or his estate, as applicable): (A) any base salary payable to the Executive pursuant to this Agreement, accrued up to and including the date on which the Executives employment terminates, (B) any employee benefits to which the Executive is entitled upon termination of his employment with the Company in accordance with the terms and conditions of the applicable plans of the Company, (C) reimbursement for any unreimbursed business expenses incurred by the
Executive prior to his date of termination pursuant to Section 5(f), and (D) payment for accrued but unused vacation and/or paid time off as of the date of his termination, in accordance with Company policy ((A)-(D) collectively, the Accrued Amounts ).
Compensation and Benefits during the Notice Period . Except as otherwise provided in this Section 7, Executive shall continue to be paid his base salary and continue to participate in the Companys incentive compensation and benefit plans (in accordance with the applicable plan terms), as more fully described in Section 5, except that Executive will not be granted any additional long-term equity incentive awards) during the applicable notice period, if any, as described in Section 7 above (such notice period or any part thereof referred to herein as the Notice Period), through the Executives termination date. For avoidance of doubt, during the Notice Period, Executive will continue to participate in the Annual Incentive Plan or Annual Performance Bonus Plan, as applicable, at the same bonus target award level in effect prior to the Notice Period and under the applicable Plan terms and conditions through Executives date of termination.
Duties and Responsibilities during Notice Period. At any time after the Executive or the Company has given notice to the other party to terminate the Executives employment in accordance with the terms of this Section 7(a), provided that the Company continues to pay the Executives salary and to provide all benefits (or pay a sum in lieu of the value of one or more such benefits) to which the Executive is contractually entitled until the termination of the Executives employment, the Company shall be entitled in its discretion, during the Notice Period: (i) to require the Executive not to enter or attend his place of work or any other premises of the Company or any affiliates thereof; (ii) to require the Executive not to carry out his duties or responsibilities under this Agreement; (iii) to require the Executive to return to the Company all property belonging to the Company or any affiliates thereof or to its/their clients or customers (including summaries, extracts or copies); (iv) to require the Executive to undertake work from his home and/or to carry out exceptional duties or special projects outside the normal scope of his duties and responsibilities for the Company or any affiliates thereof; (v) to appoint one or more persons to undertake the Executives duties and/or responsibilities and/or assume his position; (vi) to instruct the Executive not to communicate with clients, customers, suppliers, investors, employees, directors, consultants, agents or representatives of the Company or any affiliates thereof; (vii) to require the Executive to keep the Company informed of his whereabouts so that the Executive can be contacted should the need arise for the Executive to perform any duties or responsibilities under this Agreement or exceptional duties or special projects outside of the normal scope of his duties; and/or (viii) to remove Executive as a Section 16 officer or member of executive management for purposes of Swiss law.
Paid Time Off. Any paid time off which has accrued to the Executive at the start of his Notice Period and any paid time off entitlement which continues to accrue during his Notice Period shall be deemed to be taken by the Executive during the Notice Period.
Employment Status during Notice Period/Prohibition against Work for a Third Party. For the avoidance of doubt, during any Notice Period, the Executive shall remain an employee of the Company and continue to receive his normal rate of pay and all contractual benefits in accordance with this Agreement and be bound by all his express and implied duties
save as varied in accordance with the provisions of this Section 7(a). During the Notice Period, the Executive shall not undertake any work for any third party (as an employee or otherwise) whether paid or unpaid without written permission from the Company. If the Company grants such permission, the Companys obligation to continue to treat the Executive as an employee of the Company and to continue to provide the normal rate of pay and all contractual benefits as an employee of the Company for the remainder of the Notice Period shall immediately cease, and the Company shall have the right to terminate the Notice Period as it deems appropriate in its discretion in light of the circumstances of third party work at issue. This paragraph shall not apply to any unpaid volunteer work performed by Executive for a civic, community, charitable, educational, or religious organization, provided that such work does not interfere with Executives ability to make himself available for full-time work with the Company as deemed necessary by the Company in its discretion during the Notice Period. In addition, Executive may accept a compensated role as a member of a board of directors of a for-profit entity, provided that the Executive provides written notice to the Company of the role and the Company consents to executives acceptance of the role. Such consent will not be unreasonably withheld as long as the Company determines, in its sole discretion, that the role will not interfere with Executives ability to make himself available for full-time work with the Company during the Notice Period.
(b) Payment in Consideration of Release and Restrictive Covenants . If the Executives employment is terminated for the reasons described in Sections 7(a)(i) or 7(a)(ii), the Company shall provide the Executive with cash consideration in exchange for the Executives execution, and compliance with the terms, of the restrictive covenants and release of claims set forth in the separation agreement described in Section 7(c). The amount of such cash consideration shall be equal to the sum of the Executives annual base salary (as described in Section 5(a)) and the current target annual bonus (as described in Section 5(b)), in each case, as in effect immediately prior to the date of the Executives termination of employment, and subject to a maximum aggregate amount not exceeding the total amount of compensation (including base salary, Bonus Plan awards and the value of annual equity incentive awards granted) of the Executive during the last full fiscal year when the Executive was employed. Such consideration shall be payable in equal installments over a twelve month period following the date of such termination in accordance with the Companys payroll practices, subject to reduction for any applicable tax withholding and/or pursuant to any terms of the separation agreement described in Section 7(c).
(c) Separation Agreement and Release of Claims . As a condition of receiving any consideration for which the Executive otherwise qualifies under Section 7(b), the Executive agrees (i) to execute, deliver and not revoke, within thirty (30) days following the date of the Executives termination of employment, a separation agreement containing restrictive covenants running in favor of the Company and its affiliates, and a general release of the Company and its subsidiaries and their respective affiliates and their respective employees, officers, directors, owners and members from any and all claims, obligations and liabilities of any kind whatsoever, including, without limitation, those arising from or in connection with the Executives employment or termination of employment with the Company or any of its subsidiaries or affiliates or this Agreement (including, without limitation, civil rights claims), in such form as is requested by the Company, such separation agreement and general release to be delivered, and to have become fully irrevocable, on or before the end of such thirty (30)-day period, and (ii) not to apply for unemployment compensation chargeable to the Company during the period with respect to which the Executive is receiving such consideration. If such a general release described in clause (i) of
the immediately preceding sentence has not been executed and delivered and become irrevocable on or before the end of such thirty (30)-day period, no amounts or benefits under Section 7(b) shall be or become payable. To the extent that any payments or benefits to the Executive under Section 7(b) are subject to Section 409A of the Code and the Executives employment is terminated within 60 days of the end of a calendar year, payments of such amounts shall not be made until the calendar year following the year in which the Executives employment is terminated (but with the first payment being a lump sum payment covering all payment periods from the date of termination through the date of such first payment).
(d) No Additional Rights . The Executive acknowledges and agrees that, except as specifically described in this Section 7, all of the Executives rights to any compensation, benefits, bonuses or other payments from the Company and its subsidiaries and affiliates after termination of the Employment Term shall cease upon such termination.
(e) Offset . To the extent permitted by Section 409A of the Internal Revenue Code of 1986, as amended (the Code ), any consideration to which the Executive is otherwise entitled pursuant to this Section 7 shall be (i) reduced by amounts outstanding under any indebtedness, obligations or liabilities owed by the Executive to the Company; (ii) reduced and offset by any severance pay or benefits, or similar amounts, payable to the Executive due to his termination of employment under any labor, social or other governmental plan, program, law or policy, and should such other payments or benefits described in this clause be payable, payments under this Agreement shall be reduced accordingly or, alternatively, payments previously paid or provided under this Agreement will be treated as having been paid or provided to satisfy such other obligations.
(f) Resignation as Officer or Director . Upon a termination of employment, unless requested otherwise by the Company, the Executive shall resign each position (if any) that the Executive then holds as a director or officer of the Company or of any affiliates of the Company. The Executives execution of this Agreement shall be deemed the grant by the Executive to the officers of the Company of a limited power of attorney to sign in the Executives name and on the Executives behalf any such documentation as may be required to be executed solely for the limited purposes of effectuating such resignations.
(g) Definitions of Certain Terms . For purposes of this Agreement:
(i) Cause shall have the meaning given that term in the Companys Severance Plan for U.S. Officers and Executives, as such plan may be amended from time to time.
(ii) Disability shall mean a Permanent Disability as that term is defined in the Companys Severance Plan for U.S. Officers and Executives, as such plan may be amended from time to time.
(iii) Good Reason shall have the meaning given that term in the CIC Plan, as such plan may be amended from time to time and will only apply after the occurrence of a Change in Control, as defined in the CIC Plan.
(h) Equity Awards . The treatment of Executives outstanding equity awards will be governed by the applicable equity award agreements and other governing award and plan documents.
8. Notices . All notices, requests, demands, claims, consents and other communications which are required, permitted or otherwise delivered hereunder shall in every case be in writing and shall be deemed properly served if: (a) delivered personally, (b) sent by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, or (c) delivered by a recognized overnight courier service, to the parties at the addresses as set forth below:
If to the Company: |
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Tyco Electronics Corporation |
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1050 Westlakes Drive |
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Berwyn, Pennsylvania 19312 |
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Attention: Senior Vice President, Global Human Resources |
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If to the Executive: |
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At the Executives residence address as maintained by the Company in the regular course of its business for payroll purposes. |
or to such other address as shall be furnished in writing by either party to the other party; provided that such notice or change in address shall be effective only when actually received by the other party. Date of service of any such notices or other communications shall be: (a) the date such notice is personally delivered, (b) three days after the date of mailing if sent by certified or registered mail, or (c) one business day after date of delivery to the overnight courier if sent by overnight courier.
9. Section 409A.
(a) The intent of the parties is that payments and benefits under this Agreement comply with or be exempt from Section 409A of the Code and the regulations and guidance promulgated thereunder (collectively Code Section 409A ), and the Company shall have complete discretion to interpret and construe this Agreement and any associated documents in any manner that establishes an exemption from (or compliance with) the requirements of Code Section 409A. If for any reason, such as imprecision in drafting, any provision of this Agreement (or of any award of compensation, including, without limitation, equity compensation or benefits) does not accurately reflect its intended establishment of an exemption from (or compliance with) Code Section 409A, as demonstrated by consistent interpretations or other evidence of intent, such provision shall be considered ambiguous as to its exemption from (or compliance with) Code Section 409A and shall be interpreted by the Company in a manner consistent with such intent, as determined in the discretion of the Company.
(b) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that are considered nonqualified deferred compensation under Code Section 409A upon or following a termination of employment unless such termination is also a separation from service within the meaning of Code Section 409A, and, for purposes of any such provision of this
Agreement, references to a termination, termination of employment or like terms shall mean such a separation from service. The determination of whether and when a separation from service has occurred for purposes of this Agreement shall be made in accordance with the presumptions set forth in Section 1.409A-1(h) of the Treasury Regulations.
(c) Any provision of this Agreement to the contrary notwithstanding, if at the time of the Executives separation from service, the Company determines that the Executive is a specified employee, within the meaning of Code Section 409A, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of such separation from service would be considered nonqualified deferred compensation under Code Section 409A, such payment or benefit shall be paid or provided at the date which is the earlier of (i) six (6) months and one day after such separation from service, and (ii) the date of the Executives death (the Delay Period ). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 9(c) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or provided to the Executive in a lump-sum with interest at the prime rate as published by The Wall Street Journal on the first business day of the Delay Period, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.
(d) Any reimbursements and in-kind benefits provided under this Agreement that constitute deferred compensation within the meaning of Code Section 409A shall be made or provided in accordance with the requirements of Code Section 409A, including, without limitation, that (i) in no event shall any fees, expenses or other amounts eligible to be reimbursed by the Company under this Agreement be paid later than the last day of the calendar year next following the calendar year in which the applicable fees, expenses or other amounts were incurred; (ii) the amount of expenses eligible for reimbursement, or in-kind benefits that the Company is obligated to pay or provide, in any given calendar year shall not affect the expenses that the Company is obligated to reimburse, or the in-kind benefits that the Company is obligated to pay or provide, in any other calendar year, provided that the foregoing clause (ii) shall not be violated with regard to expenses reimbursed under any arrangement covered by Code Section 105(b) solely because such expenses are subject to a limit related to the period the arrangement is in effect; (iii) the Executives right to have the Company pay or provide such reimbursements and in-kind benefits may not be liquidated or exchanged for any other benefit; and (iv) in no event shall the Companys obligations to make such reimbursements or to provide such in-kind benefits apply later than the Executives remaining lifetime (or if longer, through the sixth (6th) anniversary of the Commencement Date).
(e) For purposes of Code Section 409A, the Executives right to receive any installment payments shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days (for example, payment shall be made within thirty (30) days following the date of termination), the actual date of payment within the specified period shall be within the sole discretion of the Company. In no event may the Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement, to the extent such payment is subject to Code Section 409A.
(f) The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined
to constitute deferred compensation subject to Code Section 409A but do not satisfy an exemption from, or the conditions of, Code Section 409A.
10. Say on Pay Limitations.
(a) Say on Pay Requirements. Under Swiss say and pay law, the maximum aggregate amount of compensation of the executive management must be approved by the General Meeting of Shareholders of TE Connectivity Ltd. (the GM ) as a public Swiss company. At each GM, the Company presents to the Companys shareholders for approval the maximum aggregate amount of compensation that can be paid to the executive management in the next succeeding fiscal year. If the GM does not approve the maximum aggregate amount of compensation of the executive management, the Company will determine whether and to what extent the Executives compensation in that fiscal year will be affected. If the Executives compensation is affected, this 2015 Agreement continues to be effective subject to paragraph (b) below.
(b) Non-Approval by GM. If the GM refuses to approve the proposed maximum aggregate compensation of the executive management, and Executives compensation is subject to the approval of the GM, the Executive by signing this 2015 Agreement (i) agrees to accept a modification - as determined by the Company - of the compensation and benefits under this 2015 Agreement, and (ii) if the Company decides to pay compensation on a provisional basis in view of what a following GM may approve, the Executive will have to repay any amount of compensation received but subsequently not approved by any following GM.
11. General.
(a) Governing Law . This Agreement and the legal relations thus created between the parties hereto shall be governed by, and construed in accordance with, the internal laws of the Commonwealth of Pennsylvania, without giving effect to any choice of law or conflict of law provision or rule (whether of the Commonwealth of Pennsylvania or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the Commonwealth of Pennsylvania. The parties hereto acknowledge and agree that this Agreement was executed and delivered in the Commonwealth of Pennsylvania.
(b) Construction and Severability . Whenever possible, each provision of this Agreement shall be construed and interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by, or invalid, illegal or unenforceable in any respect under, any applicable law or rule in any jurisdiction, such prohibition, invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other jurisdiction, and the parties undertake to implement all efforts which are necessary, desirable and sufficient to amend, supplement or substitute all and any such prohibited, invalid, illegal or unenforceable provisions with enforceable and valid provisions in such jurisdiction which would produce as nearly as may be possible the result previously intended by the parties without renegotiation of any material terms and conditions stipulated herein.
(c) Cooperation . During the Employment Term and thereafter, the Executive shall cooperate with the Company and be reasonably available to the Company with respect to continuing and/or future matters related to the Executives employment period with the Company and/or its subsidiaries or affiliates, whether such matters are business-related, legal, regulatory or otherwise (including, without limitation, the Executive appearing at the Companys request to give testimony without requiring service of a subpoena or other legal process, volunteering to the
Company all pertinent information and turning over to the Company all relevant documents which are or may come into the Executives possession). Following the Employment Term, the Company shall reimburse the Executive for all reasonable out of pocket expenses incurred by the Executive in rendering such services that are approved by the Company. In addition, if more than an incidental cooperation is required at any time after the termination of the Executives employment, the Executive shall be paid (other than for the time of actual testimony) a per day fee based on his base salary described in Section 5(a) at the time of such termination divided by 225.
(d) Successors and Assigns . This Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Executive and the Executives heirs, executors, administrators, and successors; provided that the services provided by the Executive under this Agreement are of a personal nature, and rights and obligations of the Executive under this Agreement shall not be assignable or delegable, except for any death payments otherwise due the Executive, which shall be payable to the estate of the Executive; provided further the Company may assign this Agreement to, and all rights hereunder shall inure to the benefit of, any subsidiary or affiliate of the Company or any person, firm or corporation resulting from the reorganization of the Company or succeeding to the business or assets of the Company by purchase, merger, consolidation or otherwise; and provided further that in the event of the Executives death, any unpaid amount due to the Executive under this Agreement shall be paid to his estate.
(e) Executives Representations . The Executive hereby represents and warrants to the Company that: (i) the execution, delivery and performance of this Agreement by the Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which the Executive is bound; (ii) the Executive is not a party to or bound by any employment agreement, noncompetition or nonsolicitation agreement or confidentiality agreement with any other person or entity besides the Company and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms. THE EXECUTIVE HEREBY ACKNOWLEDGES AND REPRESENTS THAT THE EXECUTIVE HAS CONSULTED WITH INDEPENDENT LEGAL COUNSEL REGARDING THE EXECUTIVES RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT, TO THE EXTENT DETERMINED NECESSARY OR APPROPRIATE BY THE EXECUTIVE, AND THAT THE EXECUTIVE FULLY UNDERSTANDS THE TERMS AND CONDITIONS CONTAINED HEREIN.
(f) Compliance with Rules and Policies . The Executive shall perform all services in accordance with the policies, procedures and rules established by the Company and the Board, including, but not limited to, the Companys Guide to Ethical Conduct. In addition, the Executive shall comply with all laws, rules and regulations that are generally applicable to the Company or its subsidiaries or affiliates and their respective employees, directors and officers.
(g) Withholding Taxes . All amounts payable hereunder shall be subject to the withholding of all applicable taxes and deductions required by any applicable law.
(h) Entire Agreement . This Agreement constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and terminates
and supersedes any and all prior agreements, understandings and representations, whether written or oral, by or between the parties hereto or their affiliates which may have related to the subject matter hereof in any way, including, without limitation, and any other existing employment agreement or change of control agreement, which is hereby terminated and cancelled and of no further force or effect as of the Commencement Date, without the payment of any additional consideration by or to either of the parties hereto; provided, however, that the agreements referenced in Section 6, any agreement between the parties addressing the terms and conditions of Executives expatriate assignment or relocation, as applicable, and any agreement issued under the terms of any compensation or employee benefit plan described herein or in which the Executive is otherwise a participant shall not be affected by this Section 10(h). Notwithstanding any provision of this Agreement to the contrary, neither the assignment of the Executive to a different Reporting Officer due to a reorganization or an internal restructuring of the Company or its subsidiaries or affiliates nor a change in the Reporting Officers title shall constitute a modification or a breach of this Agreement.
(i) Duration . Notwithstanding the Employment Term hereunder, this Agreement shall continue for so long as any obligations remain under this Agreement.
(j) Survival . The covenants set forth in the agreements referenced in Section 6 and the covenants set forth in Section 10(c) of this Agreement shall survive and shall continue to be binding upon the Executive notwithstanding the termination of this Agreement for any reason whatsoever.
(k) Amendment and Waiver . The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and the Executive, and no course of conduct or course of dealing or failure or delay by any party hereto in enforcing or exercising any of the provisions of this Agreement (including, without limitation, the Companys right to terminate the Employment Term for Cause) shall affect the validity, binding effect or enforceability of this Agreement or be deemed to be an implied waiver of any similar or dissimilar requirement, provision or condition of this Agreement at the same or any prior or subsequent time. Pursuit by either party of any available remedy, either in law or equity, or any action of any kind, does not constitute waiver of any other remedy or action. Such remedies and actions are cumulative and not exclusive.
(l) Counterparts . This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument.
(m) Section References . Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. The words Section and paragraph herein shall refer to provisions of this Agreement unless expressly indicated otherwise.
(n) No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring either party hereto by virtue of the authorship of any of the provisions of this Agreement.
(o) Time of the Essence; Computation of Time . Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge or any duty hereunder shall fall upon a Saturday, Sunday, or any date on which banks in Berwyn, Pennsylvania are authorized to be closed, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular business day.
(p) No Third Party Beneficiaries . Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement and their respective heirs, executors, administrators, successors or permitted assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.
(q) Forfeiture and Clawback . The Executive acknowledges and agrees that, notwithstanding anything in this Agreement to the contrary, this Agreement and all amounts payable hereunder shall be subject to any applicable compensation, clawback and recoupment policies implemented by the Board, as may be in effect from time to time.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement as of the day and year first written above.
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TYCO ELECTRONICS CORPORATION |
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Date: December 15, 2015 |
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/s/ Harold G. Barksdale |
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Name: |
Harold G. Barksdale |
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Corporate Secretary |
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John S. Jenkins |
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Date: December 15, 2015 |
/s/ John S. Jenkins |
Exhibit 10.2
1050 Westlakes Drive Berwyn, PA 19312 Tel (+1) 610 893 9700 Fax (+1) 610 893 9702 timothy.murphy@te.com |
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January 18, 2018
Joe Donahue
Dear Joe,
Following your retirement from active employment and your role as Executive Vice President and Chief Operating Officer on December 31, 2017, you will continue your employment with TE in a part-time role as a special adviser to the Chief Executive Officer. The purpose of this letter agreement is to briefly summarize the terms and conditions of your part-time employment relationship with TE Connectivity for calendar year 2018. The terms of your part-time employment are as follows:
Title: Special Adviser to the Chief Executive Officer
Duties: Support special projects as requested by the Chief Executive Officer, provide mentoring to internal General and Operations Management talent, and deliver other, additional services as requested by the Chief Executive Officer.
Hours Worked: 20%-part time status (i.e. 8 to 10 hours per week on average)
Salary : $150,000 annual rate
AIP: You will not be eligible to receive AIP awards after FY 2017
LTI Awards: Unless otherwise approved by the Board Management Development & Compensation Committee, you will not be eligible to receive any further long-term incentive awards. You will continue to vest in your outstanding long-term incentive awards during your part-time employment with TE.
Employee Benefits:
· You will not be eligible to participate in the Companys employee benefit plans, such as the TE Health and Welfare Benefits Plans, TE RSIP and other broad-based employee plans. You and your eligible dependents will be eligible for COBRA.
· With regard to your pension plan, distribution does not commence as long as you are an active employee.
· The 20%-part time status is sufficient so as not to trigger SSRP distributions.
Effective Date : January 1, 2018.
Duration: As agreed between you and the Chief Executive Officer
Service for Other Companies: You will not be permitted to assume an employment or consulting position with any other company during the term of your part-time employment with TE. You continue to be subject to non-compete and non-solicitation obligations applicable to all TE employees.
As a result of your retirement from the role of EVP & Chief Operating Officer, you will no longer be a Section 16 officer of the Company under U.S. securities laws and no longer be a member of the Swiss executive management under the Swiss Code of Obligations. This letter agreement supersedes any and all prior employment agreements, including your Executive Employment Agreement dated December 15, 2015.
Please sign below to signify your agreement.
Sincerely, |
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/s/ Timothy Murphy |
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Timothy Murphy |
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SVP, Chief Human Resources Officer |
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ACCEPTED: |
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/s/ Joe Donahue |
January 18, 2018 |
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Joe Donahue |
Date |
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Terrence R. Curtin, certify that:
Date: January 24, 2018
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/s/ TERRENCE R. CURTIN
Terrence R. Curtin Chief Executive Officer |
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Heath A. Mitts, certify that:
Date: January 24, 2018
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/s/ HEATH A. MITTS
Heath A. Mitts Executive Vice President and Chief Financial Officer |
TE CONNECTIVITY LTD.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officers of TE Connectivity Ltd. (the "Company") hereby certify to their knowledge that the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 2017 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ TERRENCE R. CURTIN
Terrence R. Curtin Chief Executive Officer |
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January 24, 2018 |
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/s/ HEATH A. MITTS Heath A. Mitts Executive Vice President and Chief Financial Officer |
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January 24, 2018 |
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