TE CONNECTIVITY LTD., 10-Q filed on 1/24/2019
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
3 Months Ended
Dec. 28, 2018
Jan. 18, 2019
Document and Entity Information    
Entity Registrant Name TE Connectivity Ltd.  
Entity Central Index Key 0001385157  
Document Type 10-Q  
Document Period End Date Dec. 28, 2018  
Amendment Flag false  
Current Fiscal Year End Date --09-27  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   338,854,434
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Dec. 28, 2018
Dec. 29, 2017
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
Net sales $ 3,347 $ 3,336
Cost of sales 2,233 2,172
Gross margin 1,114 1,164
Selling, general, and administrative expenses 389 377
Research, development, and engineering expenses 161 165
Acquisition and integration costs 5 2
Restructuring and other charges, net 75 34
Operating income 484 586
Interest income 5 4
Interest expense (27) (26)
Other income (expense), net (1) 2
Income from continuing operations before income taxes 461 566
Income tax expense (78) (599)
Income (loss) from continuing operations 383 (33)
Loss from discontinued operations, net of income taxes (107) (7)
Net income (loss) $ 276 $ (40)
Basic earnings (loss) per share:    
Income (loss) from continuing operations (in dollars per share) $ 1.12 $ (0.09)
Loss from discontinued operations (in dollars per share) (0.31) (0.02)
Net income (loss) (in dollars per share) 0.81 (0.11)
Diluted earnings (loss) per share:    
Income (loss) from continuing operations (in dollars per share) 1.11 (0.09)
Loss from discontinued operations (in dollars per share) (0.31) (0.02)
Net income (loss) (in dollars per share) $ 0.80 $ (0.11)
Weighted-average number of shares outstanding:    
Basic (in shares) 342 352
Diluted (in shares) 344 352
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended
Dec. 28, 2018
Dec. 29, 2017
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME    
Net income (loss) $ 276 $ (40)
Other comprehensive income:    
Currency translation 19 67
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes 6 7
Gains on cash flow hedges, net of income taxes 24 2
Other comprehensive income 49 76
Comprehensive income $ 325 $ 36
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 28, 2018
Sep. 28, 2018
Current assets:    
Cash and cash equivalents $ 505 $ 848
Accounts receivable, net of allowance for doubtful accounts of $26 and $22, respectively 2,380 2,361
Inventories 1,986 1,857
Prepaid expenses and other current assets 507 661
Current assets held for sale   472
Total current assets 5,378 6,199
Property, plant, and equipment, net 3,550 3,497
Goodwill 5,648 5,684
Intangible assets, net 1,648 1,704
Deferred income taxes 2,580 2,144
Other assets 384 1,158
Total Assets 19,188 20,386
Current liabilities:    
Short-term debt 585 963
Accounts payable 1,538 1,548
Accrued and other current liabilities 1,348 1,711
Current liabilities held for sale   188
Total current liabilities 3,471 4,410
Long-term debt 3,382 3,037
Long-term pension and postretirement liabilities 1,101 1,102
Deferred income taxes 207 207
Income taxes 335 312
Other liabilities 456 487
Total Liabilities 8,952 9,555
Commitments and contingencies (Note 8)
Shareholders' equity:    
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued 157 157
Accumulated earnings 11,886 12,114
Treasury shares, at cost, 17,727,608 and 12,279,603 shares, respectively (1,550) (1,134)
Accumulated other comprehensive loss (257) (306)
Total Shareholders' Equity 10,236 10,831
Total Liabilities and Shareholders' Equity $ 19,188 $ 20,386
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical)
$ in Millions
Dec. 28, 2018
SFr / shares
Dec. 28, 2018
USD ($)
shares
Sep. 28, 2018
SFr / shares
Sep. 28, 2018
USD ($)
shares
CONDENSED CONSOLIDATED BALANCE SHEETS        
Accounts receivable, allowance for doubtful accounts (in dollars) | $   $ 26   $ 22
Common shares, par value (in currency per share) | SFr / shares SFr 0.57   SFr 0.57  
Common shares, shares authorized   357,069,981   357,069,981
Common shares, shares issued   357,069,981   357,069,981
Treasury shares   17,727,608   12,279,603
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
shares in Millions, $ in Millions
Common Shares
Treasury Shares
Contributed Surplus
Accumulated Earnings
Accumulated Other Comprehensive Loss
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:            
Net income (loss)       (40)   (40)
Other comprehensive income         76 76
Share-based compensation expense     $ 29     29
Exercise of share options   $ 54       54
Exercise of share options (in shares)   1        
Restricted share award vestings and other activity   $ 92 (29) (88)   (25)
Repurchase of common shares   $ (214)       $ (214)
Repurchase of common shares (in shares)   (2)       (2)
Balance at Dec. 29, 2017 $ 157 $ (489)   10,047 (84) $ 9,631
Balance (in shares) at Dec. 29, 2017 357 (6)        
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 (loss)       276   276
Other comprehensive income         49 49
Share-based compensation expense     23     23
Exercise of share options   $ 7       7
Restricted share award vestings and other activity   72 $ (23) (61)   (12)
Repurchase of common shares   $ (495)       $ (495)
Repurchase of common shares (in shares)   (6)       (6)
Balance at Dec. 28, 2018 $ 157 $ (1,550)   $ 11,886 $ (257) $ 10,236
Balance (in shares) at Dec. 28, 2018 357 (18)        
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Dec. 28, 2018
Dec. 29, 2017
Cash Flows From Operating Activities:    
Net income (loss) $ 276 $ (40)
Loss from discontinued operations, net of income taxes 107 7
Income (loss) from continuing operations 383 (33)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:    
Depreciation and amortization 168 162
Deferred income taxes (11) 510
Provision for losses on accounts receivable and inventories 23 17
Share-based compensation expense 23 28
Other 18 (6)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:    
Accounts receivable, net (26) (139)
Inventories (119) (177)
Prepaid expenses and other current assets 67 (45)
Accounts payable (9) 161
Accrued and other current liabilities (190) (239)
Income taxes 15 7
Other (14) 37
Net cash provided by continuing operating activities 328 283
Net cash provided by (used in) discontinued operating activities (31) 67
Net cash provided by operating activities 297 350
Cash Flows From Investing Activities:    
Capital expenditures (210) (237)
Proceeds from divestiture of discontinued operation, net of cash retained by sold operation 288  
Other 4  
Net cash provided by (used in) continued investing activities 82 (237)
Net cash used in discontinued investing activities (2) (4)
Net cash provided by (used in) investing activities 80 (241)
Cash Flows From Financing Activities:    
Net increase in commercial paper 63 241
Proceeds from issuance of debt 350 119
Repayment of debt (441) (708)
Proceeds from exercise of share options 7 54
Repurchase of common shares (519) (167)
Payment of common share dividends to shareholders (150) (141)
Transfers (to) from discontinued operations (33) 63
Other (29) (32)
Net cash used in continuing financing activities (752) (571)
Net cash provided by (used in) discontinued financing activities 33 (63)
Net cash used in financing activities (719) (634)
Effect of currency translation on cash (1) 11
Net decrease in cash, cash equivalents, and restricted cash (343) (514)
Cash, cash equivalents, and restricted cash at beginning of period 848 1,218
Cash, cash equivalents, and restricted cash at end of period $ 505 $ 704
v3.10.0.1
Basis of Presentation and Accounting Policies
3 Months Ended
Dec. 28, 2018
Basis of Presentation and Accounting Policies  
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 December 28, 2018. See Note 15 for net sales disaggregated by industry end market and geographic region which is summarized by segment and that we consider meaningful to depict the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.

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

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

        In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.

v3.10.0.1
Restructuring and Other Charges, Net
3 Months Ended
Dec. 28, 2018
Restructuring and Other Charges, Net  
Restructuring and Other Charges, Net

2. Restructuring and Other Charges, Net

        Net restructuring charges by segment were as follows:

                                                                                                                                                                                    

 

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Transportation Solutions

 

$

21

 

$

4

 

Industrial Solutions

 

 

35

 

 

22

 

Communications Solutions

 

 

19

 

 

8

 

​  

​  

​  

​  

Restructuring charges, net

 

$

75

 

$

34

 

​  

​  

​  

​  

​  

​  

​  

​  

        Activity in our restructuring reserves was as follows:

                                                                                                                                                                                    

 

 

Balance at
September 28,
2018

 

Charges

 

Changes
in
Estimate

 

Cash
Payments

 

Non-Cash
Items

 

Currency
Translation

 

Balance at
December 28,
2018

 

 

 

(in millions)

 

Fiscal 2019 Actions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

$

 

$

67

 

$

 

$

(4

)

$

 

$

 

$

63

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Fiscal 2018 Actions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

 

114

 

 

1

 

 

 

 

(16

)

 

 

 

(2

)

 

97

 

Facility and other exit costs

 

 

4

 

 

1

 

 

 

 

(1

)

 

 

 

 

 

4

 

Property, plant and equipment

 

 

 

 

1

 

 

 

 

 

 

(1

)

 

 

 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Total

 

 

118

 

 

3

 

 

 

 

(17

)

 

(1

)

 

(2

)

 

101

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Pre-Fiscal 2018 Actions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

 

49

 

 

4

 

 

(1

)

 

(8

)

 

 

 

(1

)

 

43

 

Facility and other exit costs

 

 

 

 

1

 

 

 

 

(1

)

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

1

 

 

 

 

 

 

(1

)

 

 

 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Total

 

 

49

 

 

6

 

 

(1

)

 

(9

)

 

(1

)

 

(1

)

 

43

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Total Activity

 

$

167

 

$

76

 

$

(1

)

$

(30

)

$

(2

)

$

(3

)

$

207

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

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 quarter ended December 28, 2018, we recorded restructuring charges of $67 million. We expect to complete all restructuring actions commenced during the quarter ended December 28, 2018 by the end of fiscal 2020 and to incur additional charges of approximately $10 million primarily in the Industrial Solutions segment.

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 quarters ended December 28, 2018 and December 29, 2017, we recorded restructuring charges of $3 million and $22 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2018 by the end of fiscal 2020 and to incur additional charges of approximately $10 million primarily in the Industrial Solutions segment.

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 quarters ended December 28, 2018 and December 29, 2017, we recorded net restructuring charges of $5 million and $12 million, respectively, 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:

                                                                                                                                                                                    

 

 

December 28,
2018

 

September 28,
2018

 

 

 

(in millions)

 

Accrued and other current liabilities

 

$

183

 

$

141

 

Other liabilities

 

 

24

 

 

26

 

​  

​  

​  

​  

Restructuring reserves

 

$

207

 

$

167

 

​  

​  

​  

​  

​  

​  

​  

​  

 

v3.10.0.1
Discontinued Operations
3 Months Ended
Dec. 28, 2018
Discontinued Operations  
Discontinued Operations

3. Discontinued Operations

        During the quarter ended December 28, 2018, we sold our Subsea Communications ("SubCom") business for net cash proceeds of $288 million and incurred a pre-tax loss on sale of $96 million, related primarily to the recognition of cumulative translation adjustment losses of $67 million. The transaction is subject to a final working capital adjustment. 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 have a combined value of approximately $1.7 billion 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. During the quarter ended December 28, 2018, we issued a guarantee of $70 million for a new project. 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 loss from discontinued operations, net of income taxes, for the SubCom business and prior divestitures:

                                                                                                                                                                                    

 

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Net sales

 

$

41

 

$

143

 

Cost of sales

 

 

(50

)

 

(132

)

Selling, general, and administrative expenses

 

 

(4

)

 

(7

)

Research, development, and engineering expenses

 

 

(3

)

 

(10

)

Restructuring and other charges, net

 

 

(3

)

 

 

​  

​  

​  

​  

Pre-tax loss from discontinued operations

 

 

(19

)

 

(6

)

Pre-tax loss on sale of discontinued operations

 

 

(96

)

 

 

Income tax (expense) benefit

 

 

8

 

 

(1

)

​  

​  

​  

​  

Loss from discontinued operations, net of income taxes

 

$

(107

)

$

(7

)

​  

​  

​  

​  

​  

​  

​  

​  

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

                                                                                                                                                                                    

 

 

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

 

​  

​  

​  

​  

 

v3.10.0.1
Inventories
3 Months Ended
Dec. 28, 2018
Inventories  
Inventories

4. Inventories

        Inventories consisted of the following:

                                                                                                                                                                                                      

 

 

December 28,
2018

 

September 28,
2018

 

 

 

(in millions)

 

Raw materials

 

$

306

 

$

276

 

Work in progress

 

 

735

 

 

656

 

Finished goods

 

 

945

 

 

925

 

​  

​  

​  

​  

Inventories

 

$

1,986

 

$

1,857

 

​  

​  

​  

​  

​  

​  

​  

​  

 

v3.10.0.1
Goodwill
3 Months Ended
Dec. 28, 2018
Goodwill  
Goodwill

5. Goodwill

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

                                                                                                                                                                                    

 

 

Transportation
Solutions

 

Industrial
Solutions

 

Communications
Solutions

 

Total

 

 

 

(in millions)

 

September 28, 2018(1)

 

$

1,993

 

$

3,104

 

$

587

 

$

5,684

 

Currency translation and other

 

 

(13

)

 

(19

)

 

(4

)

 

(36

)

​  

​  

​  

​  

​  

​  

​  

​  

December 28, 2018(1)

 

$

1,980

 

$

3,085

 

$

583

 

$

5,648

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  


  

(1)          At December 28, 2018 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.

 

v3.10.0.1
Intangible Assets, Net
3 Months Ended
Dec. 28, 2018
Intangible Assets, Net  
Intangible Assets, Net

6. Intangible Assets, Net

        Intangible assets consisted of the following:

                                                                                                                                                                                                      

 

 

December 28, 2018

 

September 28, 2018

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

 

 

(in millions)

 

Customer relationships

 

$

1,457

 

$

(410

)

$

1,047

 

$

1,468

 

$

(389

)

$

1,079

 

Intellectual property

 

 

1,257

 

 

(673

)

 

584

 

 

1,261

 

 

(653

)

 

608

 

Other

 

 

34

 

 

(17

)

 

17

 

 

33

 

 

(16

)

 

17

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Total

 

$

2,748

 

$

(1,100

)

$

1,648

 

$

2,762

 

$

(1,058

)

$

1,704

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        Intangible asset amortization expense was $45 million for the quarters ended December 28, 2018 and December 29, 2017.

        At December 28, 2018, the aggregate amortization expense on intangible assets is expected to be as follows:

                                                                                                                                                                                                      

 

 

(in millions)

 

Remainder of fiscal 2019

 

$

136

 

Fiscal 2020

 

 

175

 

Fiscal 2021

 

 

172

 

Fiscal 2022

 

 

172

 

Fiscal 2023

 

 

171

 

Fiscal 2024

 

 

140

 

Thereafter

 

 

682

 

​  

​  

Total

 

$

1,648

 

​  

​  

​  

​  

 

v3.10.0.1
Debt
3 Months Ended
Dec. 28, 2018
Debt  
Debt

7. Debt

        During November 2018, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, issued $350 million aggregate principal amount of senior floating rate notes due June 2020. The notes bear interest at a rate of three-month London Interbank Offered Rate ("LIBOR") plus 0.45% per year. The notes are TEGSA's unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.

        During December 2018, 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 December 28, 2018 or September 28, 2018.

        As of December 28, 2018, TEGSA had $333 million of commercial paper outstanding at a weighted-average interest rate of 2.94%. TEGSA had $270 million of commercial paper outstanding at a weighted-average interest rate of 2.35% at September 28, 2018.

        The fair value of our debt, based on indicative valuations, was approximately $4,091 million and $4,149 million at December 28, 2018 and September 28, 2018, respectively.

v3.10.0.1
Commitments and Contingencies
3 Months Ended
Dec. 28, 2018
Commitments and Contingencies  
Commitments and Contingencies

8. 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 December 28, 2018, 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 $17 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 December 28, 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds of $286 million.

        We sold our SubCom business during the quarter ended December 28, 2018. 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.

v3.10.0.1
Financial Instruments
3 Months Ended
Dec. 28, 2018
Financial Instruments  
Financial Instruments

9. 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 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, we are required to post cash collateral with our counterparties.

        At December 28, 2018 and September 28, 2018, our cross-currency swap contracts were in liability positions of $64 million and $100 million, respectively, and were recorded in other liabilities on the Condensed Consolidated Balance Sheets. At December 28, 2018 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 our cross-currency swap contracts were as follows:

                                                                                                                                                                                    

 

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

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

 

$

19

 

$

(10

)

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

 

 

17

 

 

(19

)


  

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

Hedge of Net Investment

        During fiscal 2019, we expanded our cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of this program was $952 million at December 28, 2018. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 3.06% per annum and pay no interest. Upon maturity of these contracts at various dates through fiscal 2022, we will pay the notional value of the contracts in the designated foreign currency and receive U.S. dollars from our counterparties.

        In addition to the cross-currency swap program, 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 $3,189 million and $4,064 million at December 28, 2018 and September 28, 2018, respectively.

        The impacts of our hedging programs were as follows:

                                                                                                                                                                                    

 

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

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

 

$

76

 

$

(66

)

Losses on cross-currency swaps designated as hedge of net investment(2)

 

 

(5

)

 

 


  

(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 swaps designated as hedge of net investment are recorded as currency translation.

 

v3.10.0.1
Retirement Plans
3 Months Ended
Dec. 28, 2018
Retirement Plans  
Retirement Plans

10. 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
Quarters Ended

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Service cost

 

$

12

 

$

12

 

$

3

 

$

3

 

Interest cost

 

 

11

 

 

10

 

 

12

 

 

11

 

Expected return on plan assets

 

 

(16

)

 

(17

)

 

(14

)

 

(15

)

Amortization of net actuarial loss

 

 

6

 

 

6

 

 

4

 

 

6

 

Amortization of prior service credit

 

 

(2

)

 

(2

)

 

 

 

 

​  

​  

​  

​  

​  

​  

​  

​  

Net periodic pension benefit cost

 

$

11

 

$

9

 

$

5

 

$

5

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        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.

v3.10.0.1
Income Taxes
3 Months Ended
Dec. 28, 2018
Income Taxes  
Income Taxes

11. Income Taxes

        We recorded income tax expense of $78 million and $599 million for the quarters ended December 28, 2018 and December 29, 2017, 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. 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 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 December 28, 2018 and September 28, 2018, we had $63 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.

        Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that up to approximately $125 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 28, 2018.

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. We have substantially settled all U.S. federal income tax matters with the IRS for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will have a material effect on our results of operations, financial position, or cash flows. As a result of subsequent transactions, Tyco International and Covidien now operate as part of Johnson Controls International plc and Medtronic plc, respectively.

v3.10.0.1
Earnings (Loss) Per Share
3 Months Ended
Dec. 28, 2018
Earnings (Loss) Per Share  
Earnings (Loss) Per Share

12. 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 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Basic

 

 

342

 

 

352

 

Dilutive impact of share-based compensation arrangements

 

 

2

 

 

 

​  

​  

​  

​  

Diluted

 

 

344

 

 

352

 

​  

​  

​  

​  

​  

​  

​  

​  

        There were one million share options that were not included in the computation of diluted earnings (loss) per share for the quarters ended December 28, 2018 and December 29, 2017 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.

v3.10.0.1
Shareholders' Equity
3 Months Ended
Dec. 28, 2018
Shareholders' Equity  
Shareholders' Equity

13. Shareholders' Equity

Dividends

        We paid cash dividends to shareholders of $0.44 and $0.40 per share during the quarters ended December 28, 2018 and December 29, 2017, respectively.

        Upon shareholders' approval of a dividend payment, we record a liability with a corresponding charge to shareholders' equity. At December 28, 2018 and September 28, 2018, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $149 million and $303 million, respectively.

Share Repurchase Program

        During the quarter ended December 28, 2018, our board of directors authorized an increase of $1.5 billion in the share repurchase program. Common shares repurchased under the share repurchase program were as follows:

                                                                                                                                                                                    

 

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Number of common shares repurchased

 

 

6

 

 

2

 

Repurchase value

 

$

495

 

$

214

 

        At December 28, 2018, we had $2.0 billion of availability remaining under our share repurchase authorization.

v3.10.0.1
Share Plans
3 Months Ended
Dec. 28, 2018
Share Plans  
Share Plans

14. 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 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Share-based compensation expense

 

$

23

 

$

28

 

        As of December 28, 2018, there was $179 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 28, 2018, we granted the following share-based awards as part of our annual incentive plan grant:

                                                                                                                                                                                    

 

 

Shares

 

Grant-Date
Fair Value

 

 

 

(in millions)

 

 

 

Share options

 

 

1.6

 

$

13.36

 

Restricted share awards

 

 

0.6

 

 

76.66

 

Performance share awards

 

 

0.2

 

 

76.66

 

        As of December 28, 2018, we had 17 million shares available for issuance under our stock and incentive plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of March 8, 2017, was the primary plan.

Share-Based Compensation Assumptions

        The assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:

                                                                                                                                                                                    

Expected share price volatility

 

 

20

%

Risk free interest rate

 

 

3.0

%

Expected annual dividend per share

 

$

1.76

 

Expected life of options (in years)

 

 

5.2

 

 

v3.10.0.1
Segment and Geographic Data
3 Months Ended
Dec. 28, 2018
Segment and Geographic Data  
Segment and Geographic Data

15. Segment and Geographic Data

        Net sales by segment(1) and industry end market(2) were as follows:

                                                                                                                                                                                    

 

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Transportation Solutions:

 

 

 

 

 

 

 

Automotive

 

$

1,469

 

$

1,517

 

Commercial transportation

 

 

297

 

 

300

 

Sensors

 

 

220

 

 

215

 

​  

​  

​  

​  

Total Transportation Solutions

 

 

1,986

 

 

2,032

 

​  

​  

​  

​  

Industrial Solutions:

 

 

 

 

 

 

 

Industrial equipment

 

 

483

 

 

471

 

Aerospace, defense, oil, and gas

 

 

285

 

 

254

 

Energy

 

 

160

 

 

157

 

​  

​  

​  

​  

Total Industrial Solutions

 

 

928

 

 

882

 

​  

​  

​  

​  

Communications Solutions:

 

 

 

 

 

 

 

Data and devices

 

 

257

 

 

238

 

Appliances

 

 

176

 

 

184

 

​  

​  

​  

​  

Total Communications Solutions

 

 

433

 

 

422

 

​  

​  

​  

​  

Total

 

$

3,347

 

$

3,336

 

​  

​  

​  

​  

​  

​  

​  

​  


  

(1)          Intersegment sales were not material and were recorded at selling prices that approximated market prices.

(2)          Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.

        Net sales by geographic region(1) and segment were as follows:

                                                                                                                                                                                    

 

 

For the
Quarters Ended

 

 

 

December 28,
2018

 

December 29,
2017

 

 

 

(in millions)

 

Europe/Middle East/Africa ("EMEA"):

 

 

 

 

 

 

 

Transportation Solutions

 

$

756

 

$

808

 

Industrial Solutions

 

 

350

 

 

344

 

Communications Solutions

 

 

65

 

 

66