TE CONNECTIVITY LTD., 10-Q filed on 7/26/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
9 Months Ended
Jun. 28, 2019
Jul. 19, 2019
Entity Registrant Name TE CONNECTIVITY LTD.  
Entity Central Index Key 0001385157  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 28, 2019  
Document Transition Report false  
Entity File Number 001-33260  
Entity Incorporation, Sate or Country Code V8  
Entity Tax Identification Number 980518048  
Entity Address, Address Line One Rheinstrasse 20  
Entity Address, City or Town Schaffhausen  
Entity Address, Country CH  
Entity Address, Postal Zip Code CH-8200  
Country Region +41  
City Area Code (0)52  
Local Phone Number 633 66 61  
Title of 12(b) Security Common Shares, Par Value CHF 0.57  
Trading Symbol TEL  
Security Exchange Name NYSE  
Amendment Flag false  
Current Fiscal Year End Date --09-27  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Shell Company false  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   335,935,258
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Jun. 28, 2019
Jun. 29, 2018
Jun. 28, 2019
Jun. 29, 2018
Net sales $ 3,389 $ 3,581 $ 10,148 $ 10,479
Cost of sales 2,279 2,394 6,806 6,916
Gross margin 1,110 1,187 3,342 3,563
Selling, general, and administrative expenses 356 394 1,118 1,180
Research, development, and engineering expenses 158 171 485 509
Acquisition and integration costs 9 4 21 9
Restructuring and other charges, net 67 64 184 104
Operating income 520 554 1,534 1,761
Interest income 4 3 13 11
Interest expense (13) (26) (55) (80)
Other income (expense), net 2 (1) 2 2
Income from continuing operations before income taxes 513 530 1,494 1,694
Income tax (expense) benefit 245 (77) 76 (784)
Income from continuing operations 758 453 1,570 910
Income (loss) from discontinued operations, net of income taxes (1) 1 (98) (6)
Net income $ 757 $ 454 $ 1,472 $ 904
Basic earnings per share:        
Income from continuing operations (in dollars per share) $ 2.25 $ 1.30 $ 4.63 $ 2.59
Income (loss) from discontinued operations (in dollars per share)     (0.29) (0.02)
Net income (in dollars per share) 2.25 1.30 4.34 2.58
Diluted earnings per share:        
Income from continuing operations (in dollars per share) 2.24 1.29 4.60 2.57
Income (loss) from discontinued operations (in dollars per share)     (0.29) (0.02)
Net income (in dollars per share) $ 2.23 $ 1.29 $ 4.32 $ 2.55
Weighted-average number of shares outstanding:        
Basic (in shares) 337 349 339 351
Diluted (in shares) 339 352 341 354
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Jun. 28, 2019
Jun. 29, 2018
Jun. 28, 2019
Jun. 29, 2018
Net income $ 757 $ 454 $ 1,472 $ 904
Other comprehensive income (loss):        
Currency translation (48) (244) 35 (63)
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes 7 8 19 23
Gains (losses) on cash flow hedges, net of income taxes   (14) 51 (61)
Other comprehensive income (loss) (41) (250) 105 (101)
Comprehensive income $ 716 $ 204 $ 1,577 $ 803
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Jun. 28, 2019
Sep. 28, 2018
Current assets:    
Cash and cash equivalents $ 546 $ 848
Accounts receivable, net of allowance for doubtful accounts of $25 and $22, respectively 2,463 2,361
Inventories 1,961 1,857
Prepaid expenses and other current assets 452 661
Assets held for sale   472
Total current assets 5,422 6,199
Property, plant, and equipment, net 3,636 3,497
Goodwill 5,800 5,684
Intangible assets, net 1,664 1,704
Deferred income taxes 2,845 2,144
Other assets 381 1,158
Total assets 19,748 20,386
Current liabilities:    
Short-term debt 602 963
Accounts payable 1,438 1,548
Accrued and other current liabilities 1,654 1,711
Liabilities held for sale   188
Total current liabilities 3,694 4,410
Long-term debt 3,434 3,037
Long-term pension and postretirement liabilities 1,094 1,102
Deferred income taxes 203 207
Income taxes 240 312
Other liabilities 461 487
Total liabilities 9,126 9,555
Commitments and contingencies (Note 9)
Shareholders' equity:    
Common shares, CHF 0.57 par value, 350,951,381 shares authorized and issued, and 357,069,981 shares authorized and issued, respectively 154 157
Accumulated earnings 11,893 12,114
Treasury shares, at cost, 14,541,059 and 12,279,603 shares, respectively (1,224) (1,134)
Accumulated other comprehensive loss (201) (306)
Total shareholders' equity 10,622 10,831
Total liabilities and shareholders' equity $ 19,748 $ 20,386
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical)
$ in Millions
Jun. 28, 2019
USD ($)
shares
Jun. 28, 2019
SFr / shares
Sep. 28, 2018
USD ($)
shares
Sep. 28, 2018
SFr / shares
Accounts receivable, allowance for doubtful accounts (in dollars) | $ $ 25   $ 22  
Common shares, par value (in currency per share) | SFr / shares   SFr 0.57   SFr 0.57
Common shares, shares authorized 350,951,381   357,069,981  
Common shares, shares issued 350,951,381   357,069,981  
Treasury shares 14,541,059   12,279,603  
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY - USD ($)
shares in Millions, $ in Millions
Common Shares
Treasury Shares
Contributed Surplus
Accumulated Earnings (Deficit)
Accumulated Other Comprehensive Income
Total
Balance at Sep. 29, 2017 $ 157 $ (421)   $ 10,175 $ (160) $ 9,751
Balance (in shares) at Sep. 29, 2017 357 (5)        
Increase (Decrease) in Equity:            
Adoption of ASU No. 2018-02 | ASU 2018-02       38 (38)  
Net income       904   904
Other comprehensive income (loss)         (101) (101)
Share-based compensation expense     $ 74     74
Dividends       (613)   (613)
Exercise of share options   $ 96       96
Exercise of share options (in shares)   2        
Restricted share award vestings and other activity   $ 139 (74) (72)   (7)
Repurchase of common shares   $ (612)       $ (612)
Repurchase of common shares (in shares)   (6)       (6)
Balance at Jun. 29, 2018 $ 157 $ (798)   10,432 (299) $ 9,492
Balance (in shares) at Jun. 29, 2018 357 (9)        
Balance at Mar. 30, 2018 $ 157 $ (585)   9,957 (49) 9,480
Balance (in shares) at Mar. 30, 2018 357 (6)        
Increase (Decrease) in Equity:            
Net income       454   454
Other comprehensive income (loss)         (250) (250)
Share-based compensation expense     22     22
Dividends       4   4
Exercise of share options   $ 2       2
Restricted share award vestings and other activity   $ 14 (22) 17   9
Restricted share award vestings and other activity (in shares)   (1)        
Repurchase of common shares   $ (229)       (229)
Repurchase of common shares (in shares)   (2)        
Balance at Jun. 29, 2018 $ 157 $ (798)   10,432 (299) 9,492
Balance (in shares) at Jun. 29, 2018 357 (9)        
Balance at Sep. 28, 2018 $ 157 $ (1,134)   12,114 (306) 10,831
Balance (in shares) at Sep. 28, 2018 357 (12)        
Increase (Decrease) in Equity:            
Adoption of ASU No. 2016-16 | ASU 2016-16       (443)   (443)
Net income       1,472   1,472
Other comprehensive income (loss)         105 105
Share-based compensation expense     57     57
Dividends       (615)   (615)
Exercise of share options   $ 55       55
Restricted share award vestings and other activity   $ 118 (57) (65)   (4)
Restricted share award vestings and other activity (in shares)   1        
Repurchase of common shares   $ (836)       $ (836)
Repurchase of common shares (in shares)   (10)       (10)
Cancellation of treasury shares $ (3) $ 573   (570)    
Cancellation of treasury shares (in shares) (6) 6        
Balance at Jun. 28, 2019 $ 154 $ (1,224)   11,893 (201) $ 10,622
Balance (in shares) at Jun. 28, 2019 351 (15)        
Balance at Mar. 29, 2019 $ 157 $ (1,713)   11,710 (160) 9,994
Balance (in shares) at Mar. 29, 2019 357 (20)        
Increase (Decrease) in Equity:            
Net income       757   757
Other comprehensive income (loss)         (41) (41)
Share-based compensation expense     18     18
Dividends       1   1
Exercise of share options   $ 38       38
Restricted share award vestings and other activity   30 $ (18) (5)   7
Repurchase of common shares   $ (152)       (152)
Repurchase of common shares (in shares)   (1)        
Cancellation of treasury shares $ (3) $ 573   (570)    
Cancellation of treasury shares (in shares) (6) 6        
Balance at Jun. 28, 2019 $ 154 $ (1,224)   $ 11,893 $ (201) $ 10,622
Balance (in shares) at Jun. 28, 2019 351 (15)        
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
9 Months Ended
Jun. 28, 2019
Jun. 29, 2018
Cash flows from operating activities:    
Net income $ 1,472 $ 904
Loss from discontinued operations, net of income taxes 98 6
Income from continuing operations 1,570 910
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:    
Depreciation and amortization 515 496
Deferred income taxes (290) 442
Provision for losses on accounts receivable and inventories 36 29
Share-based compensation expense 56 71
Other 26 (12)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:    
Accounts receivable, net (105) (379)
Inventories (59) (217)
Prepaid expenses and other current assets 109 (50)
Accounts payable (86) 177
Accrued and other current liabilities (147) (143)
Income taxes (63) 24
Other 13 31
Net cash provided by continuing operating activities 1,575 1,379
Net cash provided by (used in) discontinued operating activities (31) 148
Net cash provided by operating activities 1,544 1,527
Cash flows from investing activities:    
Capital expenditures (570) (673)
Proceeds from sale of property, plant, and equipment 16 19
Acquisition of businesses, net of cash acquired (283)  
Proceeds from divestiture of discontinued operation, net of cash retained by sold operation 297  
Other 3 (8)
Net cash used in continuing investing activities (537) (662)
Net cash used in discontinued investing activities (2) (13)
Net cash used in investing activities (539) (675)
Cash flows from financing activities:    
Net increase (decrease) in commercial paper (270) 271
Proceeds from issuance of debt 746 119
Repayment of debt (441) (708)
Proceeds from exercise of share options 55 96
Repurchase of common shares (913) (611)
Payment of common share dividends to shareholders (454) (435)
Transfers (to) from discontinued operations (33) 135
Other (32) (34)
Net cash used in continuing financing activities (1,342) (1,167)
Net cash provided by (used in) discontinued financing activities 33 (135)
Net cash used in financing activities (1,309) (1,302)
Effect of currency translation on cash 2 2
Net decrease in cash, cash equivalents, and restricted cash (302) (448)
Cash, cash equivalents, and restricted cash at beginning of period 848 1,218
Cash, cash equivalents, and restricted cash at end of period $ 546 $ 770
v3.19.2
Basis of Presentation and Accounting Policies
9 Months Ended
Jun. 28, 2019
Basis of Presentation and Accounting Policies

1. Basis of Presentation and Accounting Policies

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. (“TE Connectivity” or the “Company,” which may be referred to as “we,” “us,” or “our”) have been prepared in United States (“U.S.”) dollars, in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and the instructions to Form 10-Q under the Securities Exchange Act of 1934. In management’s opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.

The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 28, 2018.

Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2019 and fiscal 2018 are to our fiscal years ending September 27, 2019 and ended September 28, 2018, respectively.

Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which introduced a single, comprehensive, five-step revenue recognition model. Our revenues are generated principally from the sale of our products. Revenue is recognized as performance obligations under the terms of a contract, such as a purchase order with a customer, are satisfied; generally this occurs with the transfer of control. We transfer control and recognize revenue when we ship product to our customers, the customers accept and have legal title for the product, and we have a right to payment for such product. Revenue is measured as the amount of consideration that we expect to receive in exchange for those products and excludes taxes assessed by governmental authorities and collected from customers concurrent with the sale of products. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales. Since we typically invoice our customers when we satisfy our performance obligations, we do not have material contract assets or contract liabilities. Our credit terms are customary and do not contain significant financing components that extend beyond one year of fulfillment of performance obligations. We apply the practical expedient of ASC 606 with respect to financing components and do not evaluate contracts in which payment is due within one year of satisfaction of the related performance obligation. Since our performance obligations to deliver products are part of contracts that generally have original durations of one year or less, we have elected to use the optional exemption to not disclose the aggregate amount of transaction prices associated with unsatisfied or partially satisfied performance obligations as of June 28, 2019. See Note 16 for net sales disaggregated by industry end market and geographic region which is summarized by segment and that we consider meaningful to depict the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.

We generally warrant that our products will conform to our, or mutually agreed to, specifications and that our products will be free from material defects in materials and workmanship for a limited time. We limit our warranty to the replacement or repair of defective parts, or a refund or credit of the price of the defective product. We do not account for these warranties as separate performance obligations.

Although products are generally sold at fixed prices, certain distributors and customers receive incentives or awards, such as sales rebates, return allowances, scrap allowances, and other rights, which are accounted for as variable consideration. We estimate these amounts in the same period revenue is recognized based on the expected value to be provided to customers and reduce revenue accordingly. Our estimates of variable consideration and ultimate determination of

the estimated amounts to include in the transaction price are based primarily on our assessment of anticipated performance and historical and forecasted information that is reasonably available to us.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 which codified ASC 842, Leases. This guidance, as subsequently amended, requires lessees to recognize a lease liability and a right-of-use asset for most leases and is effective for us in the first quarter of fiscal 2020. We are currently in the process of updating policies, internal controls, financial statement disclosures, and systems to incorporate the impact of the new standard in our financial reporting processes. We intend to adopt the standard using the optional transition method permitted by ASU No. 2018-11, which allows for application of the standard at the adoption date and no restatement of comparative periods. We expect that adoption will likely have a material impact on our Condensed Consolidated Balance Sheet; however, we currently do not expect adoption to have a material impact on our results of operations or cash flows. We believe that we are following an appropriate timeline to allow for the proper recognition, reporting, and disclosure of leases upon adoption of ASC 842 at the beginning of fiscal 2020.

Recently Adopted Accounting Pronouncements

In August 2017, the FASB issued ASU No. 2017-12, an update to ASC 815, Derivatives and Hedging. The update improves and simplifies hedge accounting and related disclosures. We elected to early adopt this update, which did not have a material impact on our Condensed Consolidated Financial Statements, in the quarter ended December 28, 2018.

In October 2016, the FASB issued ASU No. 2016-16, an update to ASC 740, Income Taxes. This guidance requires the recognition of the income tax consequences of intra-entity transfers of assets other than inventory in the period in which the transfer occurs. The update was adopted on a modified retrospective basis in the quarter ended December 28, 2018 and resulted in a $443 million cumulative-effect adjustment to beginning accumulated earnings, which represented the net reversal of all balances associated with deferred tax impacts of intra-entity transfers of assets other than inventory. This included a decrease in other assets of $798 million, an increase in deferred tax assets of $418 million, and a decrease in prepaid expenses and other current assets of $63 million on the Condensed Consolidated Balance Sheet.

In May 2014, the FASB issued ASU No. 2014-09 which codified ASC 606, Revenue from Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. We adopted ASC 606, as amended, in the quarter ended December 28, 2018 using a modified retrospective approach. Prior period amounts have not been adjusted and continue to be reported under the accounting standards in effect for those periods. Transition impacts, which relate primarily to incentive compensation arrangements, were not material to our results of operations or financial position. Because the impact of adoption was immaterial, we have not recorded a cumulative-effect adjustment to beginning accumulated earnings.

v3.19.2
Restructuring and Other Charges, Net
9 Months Ended
Jun. 28, 2019
Restructuring and Other Charges, Net

2. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Restructuring charges, net

$

67

$

74

$

184

$

118

Other charges (credits), net

 

 

(10)

 

 

(14)

Restructuring and other charges, net

$

67

$

64

$

184

$

104

Net restructuring charges by segment were as follows:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Transportation Solutions

$

53

$

18

$

98

$

23

Industrial Solutions

 

8

 

49

 

60

 

79

Communications Solutions

 

6

 

7

 

26

 

16

Restructuring charges, net

$

67

$

74

$

184

$

118

Activity in our restructuring reserves was as follows:

    

Balance at

    

    

    

    

    

    

Balance at

    

September 28,

Changes in

Cash

Non-Cash

Currency

June 28,

2018

Charges

Estimate

Payments

Items

Translation

2019

(in millions)

Fiscal 2019 Actions:

Employee severance

$

$

177

$

$

(33)

$

(2)

$

1

$

143

Facility and other exit costs

1

(1)

Property, plant, and equipment

1

(1)

Total

179

(34)

(3)

1

143

Fiscal 2018 Actions:

Employee severance

114

2

(45)

(2)

69

Facility and other exit costs

4

3

(3)

4

Property, plant, and equipment

2

(2)

Total

118

7

(2)

(48)

(2)

73

Pre-Fiscal 2018 Actions:

Employee severance

49

7

(7)

(20)

(2)

27

Facility and other exit costs

2

(2)

Property, plant, and equipment

1

(3)

2

Total

49

10

(10)

(22)

2

(2)

27

Total Activity

$

167

$

196

$

(12)

$

(104)

$

(1)

$

(3)

$

243

Fiscal 2019 Actions

During fiscal 2019, we initiated a restructuring program associated with footprint consolidation and structural improvements impacting all segments. In connection with this program, during the nine months ended June 28, 2019, we recorded restructuring charges of $179 million. We expect to complete all restructuring actions commenced during the nine months ended June 28, 2019 by the end of fiscal 2021 and to incur additional charges of approximately $25 million related primarily to employee severance in the Transportation Solutions and Industrial Solutions segments.

Fiscal 2018 Actions

During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments. In connection with this program, during the nine months ended June 28, 2019 and June 29, 2018, we recorded net restructuring charges of $5 million and $109 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2018 by the end of fiscal 2020 and anticipate that any additional charges will be insignificant.

Pre-Fiscal 2018 Actions

Prior to fiscal 2018, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. Also prior to fiscal 2018, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. During the nine months ended June 29, 2018, we recorded net restructuring charges of $9 million related to pre-fiscal 2018 actions. We expect additional charges related to pre-fiscal 2018 actions to be insignificant.

Total Restructuring Reserves

Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:

June 28,

September 28,

    

2019

    

2018

    

(in millions)

Accrued and other current liabilities

$

214

$

141

Other liabilities

 

29

 

26

Restructuring reserves

$

243

$

167

v3.19.2
Discontinued Operations
9 Months Ended
Jun. 28, 2019
Discontinued Operations

3. Discontinued Operations

During the nine months ended June 28, 2019, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $297 million and incurred a pre-tax loss on sale of $86 million, related primarily to the recognition of cumulative translation adjustment losses of $67 million and the guarantee liabilities discussed below. The SubCom business met the held for sale and discontinued operations criteria and was reported as such in all periods presented on the Condensed Consolidated Financial Statements. Prior to reclassification to discontinued operations, the SubCom business was included in the Communications Solutions segment.

In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These guarantees had a combined value of approximately $1.7 billion as of June 28, 2019 and are expected to expire at various dates through fiscal 2025; however, the majority are expected to expire within two years. At the time of sale, we determined that the fair value of these guarantees was $12 million, which we recognized by a charge to pre-tax loss on sale. Also, under the terms of the definitive agreement, we are required to issue up to $300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years. As of June 28, 2019, there were no such new performance guarantees outstanding. We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees; however, based on historical experience, we do not anticipate having to perform.

The following table presents the summarized components of income (loss) from discontinued operations, net of income taxes, for the SubCom business and prior divestitures:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Net sales

$

$

184

$

41

$

510

Cost of sales

 

 

(155)

 

(50)

 

(438)

Selling, general, and administrative expenses

 

(1)

 

(13)

 

(6)

 

(36)

Research, development, and engineering expenses

 

 

(10)

 

(3)

 

(30)

Restructuring and other charges, net

 

 

(1)

 

(3)

 

(5)

Pre-tax income (loss) from discontinued operations

 

(1)

 

5

 

(21)

 

1

Pre-tax loss on sale of discontinued operations

 

 

(1)

 

(86)

 

(2)

Income tax (expense) benefit

 

 

(3)

 

9

 

(5)

Income (loss) from discontinued operations, net of income taxes

$

(1)

$

1

$

(98)

$

(6)

The following table presents balance sheet information for assets and liabilities held for sale at September 28, 2018; there were no such balances at June 28, 2019:

September 28,

    

2018

    

(in millions)

Accounts receivable, net

$

72

Inventories

 

130

Other current assets

 

32

Property, plant, and equipment, net

 

221

Other assets

 

17

Total assets held for sale

$

472

Accounts payable

$

63

Accrued and other current liabilities

 

26

Deferred revenue

 

60

Other liabilities

 

39

Total liabilities held for sale

$

188

v3.19.2
Acquisitions
9 Months Ended
Jun. 28, 2019
Acquisitions

4. Acquisitions

During the nine months ended June 28, 2019, we acquired three businesses for a combined cash purchase price of $296 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions segment from the date of acquisition.

v3.19.2
Inventories
9 Months Ended
Jun. 28, 2019
Inventories

5. Inventories

Inventories consisted of the following:

June 28,

September 28,

    

2019

    

2018

    

(in millions)

Raw materials

$

285

$

276

Work in progress

 

785

 

656

Finished goods

 

891

 

925

Inventories

$

1,961

$

1,857

v3.19.2
Goodwill
9 Months Ended
Jun. 28, 2019
Goodwill

6. Goodwill

The changes in the carrying amount of goodwill by segment were as follows:

    

Transportation

    

Industrial

    

Communications

    

    

Solutions

Solutions

Solutions

Total

(in millions)

September 28, 2018(1)

$

1,993

$

3,104

$

587

$

5,684

Acquisitions

162

(13)

149

Currency translation

 

(12)

 

(18)

 

(3)

 

(33)

June 28, 2019(1)

$

2,143

$

3,073

$

584

$

5,800

(1)At June 28, 2019 and September 28, 2018, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and $489 million, respectively.

During the nine months ended June 28, 2019, we recognized goodwill in the Transportation Solutions segment in connection with recent acquisitions. See Note 4 for additional information regarding acquisitions.

v3.19.2
Intangible Assets, Net
9 Months Ended
Jun. 28, 2019
Intangible Assets, Net

7. Intangible Assets, Net

Intangible assets consisted of the following:

June 28, 2019

September 28, 2018

    

Gross

    

    

Net

    

Gross

    

    

Net

    

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Amount

Amortization

Amount

Amount

Amortization

Amount

(in millions)

Customer relationships

$

1,536

$

(441)

$

1,095

$

1,468

$

(389)

$

1,079

Intellectual property

1,268

(715)

553

1,261

(653)

608

Other

 

34

 

(18)

 

16

 

33

 

(16)

 

17

Total

$

2,838

$

(1,174)

$

1,664

$

2,762

$

(1,058)

$

1,704

Intangible asset amortization expense was $45 million for the quarters ended June 28, 2019 and June 29, 2018 and $135 million for the nine months ended June 28, 2019 and June 29, 2018.

At June 28, 2019, the aggregate amortization expense on intangible assets is expected to be as follows:

    

(in millions)

    

Remainder of fiscal 2019

$

46

Fiscal 2020

181

Fiscal 2021

 

179

Fiscal 2022

 

178

Fiscal 2023

 

178

Fiscal 2024

 

147

Thereafter

 

755

Total

$

1,664

v3.19.2
Debt
9 Months Ended
Jun. 28, 2019
Debt

8. Debt

During the quarter ended June 28, 2019, Tyco Electronics Group S.A. (“TEGSA”), our 100%-owned subsidiary, issued €350 million aggregate principal amount of fixed-to-floating rate senior notes due June 2021. The fixed-to-floating rate senior notes bear interest at a rate of 0% until June 2020 and then at a rate of three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.30% per year until maturity. In June 2020, we may, at our option, redeem the fixed-to-floating rate senior notes, as a whole, at 100% of the principal amount. Also, during the nine months ended June 28, 2019, TEGSA issued $350 million aggregate principal amount of floating rate senior notes due June 2020. The floating rate senior notes bear interest at a rate of three-month London Interbank Offered Rate (“LIBOR”) plus 0.45% per year. The fixed-to-floating rate senior notes and floating rate senior notes are TEGSA’s unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.

During the nine months ended June 28, 2019, TEGSA repaid, at maturity, $325 million 2.375% senior notes due 2018.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with total commitments of $1,500 million. The Credit Facility was amended in November 2018 primarily to extend the maturity date from December 2020 to November 2023. The amended Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies. TEGSA had no borrowings under the Credit Facility at June 28, 2019 or September 28, 2018.

As of September 28, 2018, TEGSA had $270 million of commercial paper outstanding at a weighted-average interest rate of 2.35%. TEGSA had no commercial paper outstanding at June 28, 2019.

The fair value of our debt, based on indicative valuations, was approximately $4,295 million and $4,149 million at June 28, 2019 and September 28, 2018, respectively.

v3.19.2
Commitments and Contingencies
9 Months Ended
Jun. 28, 2019
Commitments and Contingencies

9. Commitments and Contingencies

Legal Proceedings

In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.

Environmental Matters

We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of June 28, 2019, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $15 million to $44 million, and we accrued $18 million as the probable loss, which was the best estimate within this range. We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.

Guarantees

In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for 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 June 28, 2019, we had outstanding letters of credit, letters of guarantee, and surety bonds of $316 million.

We sold our SubCom business during the nine months ended June 28, 2019. In connection with the sale, we contractually agreed to honor certain performance guarantees and letters of credit related to the SubCom business. See Note 3 for additional information regarding these guarantees and the divestiture of the SubCom business.

v3.19.2
Financial Instruments
9 Months Ended
Jun. 28, 2019
Financial Instruments

10. Financial Instruments

Foreign Currency Exchange Rate Risk

During fiscal 2015, we entered into cross-currency swap contracts with an aggregate notional value of €1,000 million to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans. Under the terms of these contracts, which have been designated as cash flow hedges, we make interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.33% per annum. Upon the maturity of these contracts in fiscal 2022, we will pay the notional value of the contracts in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, both counterparties to each contract are required to post cash collateral.

At June 28, 2019 and September 28, 2018, these cross-currency swap contracts were in liability positions of $36 million and $100 million, respectively, and were recorded in other liabilities on the Condensed Consolidated Balance Sheets. At June 28, 2019 and September 28, 2018, collateral paid to our counterparties approximated the derivative positions and was recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The impacts of these cross-currency swap contracts were as follows:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Gains (losses) recorded in other comprehensive income (loss)

$

10

$

7

$

42

    

$

(25)

Gains (losses) excluded from the hedging relationship(1)

 

(16)

 

64

 

22

 

14

(1)Gains and losses excluded from the hedging relationship are recognized prospectively in selling, general, and administrative expenses and are offset by losses and gains generated as a result of re-measuring certain intercompany loans to the U.S. dollar.

Hedge of Net Investment

We hedge our net investment in certain foreign operations using intercompany loans and external borrowings denominated in the same currencies. The aggregate notional value of these hedges was $3,202 million and $4,064 million at June 28, 2019 and September 28, 2018, respectively.

During fiscal 2019, we expanded our cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the fiscal 2019 contracts was $1,901 million at June 28, 2019. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.96% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2023, we will pay the notional value of the contracts in the designated foreign currencies and receive U.S. dollars from our counterparties.

The impacts of our hedge of net investment programs were as follows:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Foreign currency exchange gains (losses) on intercompany loans and external borrowings(1)

$

(58)

$

153

$

54

$

8

Gains (losses) on cross-currency swap contracts designated as hedges of net investment(2)

 

(20)

 

 

17

 

(1)Foreign currency exchange gains and losses on intercompany loans and external borrowings are recorded as currency translation, a component of accumulated other comprehensive income (loss), and are offset by changes attributable to the translation of the net investment.
(2)Gains and losses on cross-currency swap contracts designated as hedges of net investment are recorded as currency translation.
v3.19.2
Retirement Plans
9 Months Ended
Jun. 28, 2019
Retirement Plans

11. Retirement Plans

The net periodic pension benefit cost for all non-U.S. and U.S. defined benefit pension plans was as follows:

Non-U.S. Plans

U.S. Plans

For the

For the

Quarters Ended

Quarters Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Service cost

$

12

$

12

$

4

$

3

Interest cost

 

11

 

10

 

11

 

11

Expected return on plan assets

 

(16)

 

(18)

 

(14)

 

(15)

Amortization of net actuarial loss

 

6

 

7

 

4

 

6

Amortization of prior service credit

 

(2)

 

(2)

 

 

Net periodic pension benefit cost

$

11

$

9

$

5

$

5

Non-U.S. Plans

U.S. Plans

For the

For the

Nine Months Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Service cost

$

36

$

35

$

10

$

10

Interest cost

 

32

 

31

 

34

 

33

Expected return on plan assets

 

(48)

 

(52)

 

(43)

 

(45)

Amortization of net actuarial loss

 

18

 

18

 

13

 

17

Amortization of prior service credit

 

(6)

 

(5)

 

 

Net periodic pension benefit cost

$

32

$

27

$

14

$

15

The components of net periodic pension benefit cost other than service cost are included in net other income (expense) on the Condensed Consolidated Statements of Operations.

During the nine months ended June 28, 2019, we contributed $29 million to our non-U.S. pension plans.

v3.19.2
Income Taxes
9 Months Ended
Jun. 28, 2019
Income Taxes

12. Income Taxes

We recorded an income tax benefit of $245 million and income tax expense of $77 million for the quarters ended June 28, 2019 and June 29, 2018, respectively. The income tax benefit for the quarter ended June 28, 2019 included a $214 million income tax benefit related to the tax impacts of certain measures of the Switzerland Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”) and a $93 million income tax benefit related to the effective settlement of a tax audit in a non-U.S. jurisdiction. See “Swiss Tax Reform” below for additional information. The income tax expense for the quarter ended June 29, 2018 included a $17 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions.

We recorded an income tax benefit of $76 million and income tax expense of $784 million for the nine months ended June 28, 2019 and June 29, 2018, respectively. The income tax benefit for the nine months ended June 28, 2019 included a $214 million income tax benefit related to the tax impacts of certain measures of Swiss Tax Reform, a $93 million income tax benefit related to the effective settlement of a tax audit in a non-U.S. jurisdiction, and $15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions. The income tax expense for the nine months ended June 29, 2018 included $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act (the “Act”), a $61 million net income tax benefit related to certain legal entity restructurings, and a $34 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions. During the quarter ended December 29, 2017, the period of enactment of the Act, we were required to revalue our U.S. federal deferred tax assets and liabilities at a U.S. federal corporate income tax rate of 21% and we recorded income tax expense of $567 million primarily in connection with the write-down of our U.S. federal deferred tax asset for net operating loss and interest carryforwards. Included in the expense of $567 million was an income tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards.

We record accrued interest and penalties related to uncertain tax positions as part of income tax expense. As of June 28, 2019 and September 28, 2018, we had $40 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 nine months ended June 28, 2019, we recognized $17 million of income tax benefit related to interest and penalties on the Condensed Consolidated Statement of Operations.

Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $100 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.

We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Condensed Consolidated Balance Sheet as of June 28, 2019.

Swiss Tax Reform

Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing in September 2018, and it was approved by public vote on May 19, 2019. Swiss Tax Reform eliminates certain preferential tax items at both the federal and cantonal levels. In addition, the cantons will implement new tax rates. The federal provisions of Swiss Tax Reform are expected to be enacted into law in the quarter ending September 27, 2019 and the cantons will implement thereafter.

In reaction to the public approval of Swiss Tax Reform, on May 24, 2019 the federal tax authority issued guidance abolishing certain interest deductions effective January 1, 2020. As a result of this measure, during the quarter ended June 28, 2019, we recorded a $214 million income tax benefit related primarily to the reduction to the valuation allowance for deferred tax assets. Based on our forecast of taxable income, reflecting the abolishment of certain interest deductions, we believe it is more likely than not that additional deferred tax assets for tax loss carryforwards in Switzerland will be realized in the future.

We are currently assessing the impacts of the federal provisions and subsequent cantonal implementation, including reductions in tax rates. We will reflect the impacts of the remaining measures on our Condensed Consolidated Financial Statements when enacted. Upon enactment at the cantonal level, which is expected to occur in the quarter ending December 27, 2019, we expect to recognize approximately $300 million of income tax expense related to the write-down of certain deferred tax assets to the expected lower tax rates.

Tax Sharing Agreement

Under a Tax Sharing Agreement, we, Tyco International plc (“Tyco International”), and Covidien plc (“Covidien”) share 31%, 27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to the collective income tax returns for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications with Tyco International and Covidien. As a result of subsequent transactions, Tyco International and Covidien now operate as part of Johnson Controls International plc and Medtronic plc, respectively. We have substantially settled all U.S. federal income tax matters with the Internal Revenue Service for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will have a material effect on our results of operations, financial position, or cash flows.

v3.19.2
Earnings Per Share
9 Months Ended
Jun. 28, 2019
Earnings Per Share  
Earnings Per Share

13. Earnings Per Share

The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Basic

 

337

349

339

351

Dilutive impact of share-based compensation arrangements

 

2

3

2

3

Diluted

 

339

 

352

341

 

354

The following share options were not included in the computation of diluted earnings per share because the instruments’ underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Antidilutive share options

 

1

1

 

v3.19.2
Shareholders' Equity
9 Months Ended
Jun. 28, 2019
Shareholders' Equity

14. Shareholders’ Equity

Common Shares Held in Treasury

In March 2019, our shareholders approved the cancellation of 6 million shares purchased under our share repurchase program during the period beginning September 30, 2017 and ending September 28, 2018. The capital reduction by cancellation of these shares was subject to a notice period and filing with the commercial register in Switzerland and became effective in May 2019.

Dividends

We paid cash dividends to shareholders as follows:

For the

For the

 

Quarters Ended

Nine Months Ended

 

    

June 28,

    

June 29,

    

June 28,

    

June 29,

 

    

2019

    

2018

    

2019

    

2018

    

Dividends paid per common share

$

0.46

$

0.44

$

1.34

$

1.24

In March 2019, our shareholders approved a dividend payment to shareholders of $1.84 per share, payable in four equal quarterly installments of $0.46 per share beginning in the third quarter of fiscal 2019 and ending in the second quarter of fiscal 2020.

Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity. At June 28, 2019 and September 28, 2018, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $464 million and $303 million, respectively.

Share Repurchase Program

During the nine months ended June 28, 2019, our board of directors authorized an increase of $1.5 billion in our share repurchase program. Common shares repurchased under the share repurchase program were as follows:

For the

Nine Months Ended

June 28,

June 29,

    

2019

    

2018

    

(in millions)

Number of common shares repurchased

 

10

 

6

Repurchase value

 

$

836

 

$

612

At June 28, 2019, we had $1.7 billion of availability remaining under our share repurchase authorization.

v3.19.2
Share Plans
9 Months Ended
Jun. 28, 2019
Share Plans

15. Share Plans

Share-based compensation expense, which was included primarily in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:

For the

For the

Quarters Ended

Nine Months Ended

June 28,

June 29,

June 28,

June 29,

    

2019

    

2018

    

2019

    

2018

    

(in millions)

Share-based compensation expense

 

$

18

 

$

20

$

56

 

$

71

As of June 28, 2019, there was $128 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 1.9 years.

During the quarter ended December 28, 2018, we granted the following share-based awards as part of our annual incentive plan grant:

Grant-Date

    

Shares

    

Fair Value

    

(in millions)