10-QPeriod: Q1 FY2009

TE Connectivity plc Quarterly Report for Q1 Ended Dec 26, 2008

Filed February 3, 2009For Securities:TEL

Summary

TE Connectivity plc (TEL) reported a net loss of $37 million, or $0.08 per diluted share, for the quarter ended December 26, 2008. This contrasts sharply with a net income of $949 million, or $1.90 per diluted share, in the same period of the prior year. The significant decline is primarily attributed to a substantial decrease in net sales, which fell by 21.1% to $2.81 billion, impacted by challenging global economic conditions and reduced demand, particularly in the Electronic Components segment. The company also incurred substantial charges, including a $111 million pre-tax charge related to the termination of its contract with the State of New York, which involved an impairment of network construction costs and a draw on a standby letter of credit. Additionally, the company recorded $77 million in restructuring and other charges, reflecting new cost-reduction initiatives. Despite these headwinds, the company continues to manage its liquidity, with net cash provided by continuing operating activities at $33 million, and maintains a significant backlog of unfilled orders.

Financial Highlights

29 data points
Beta

Revenue

$2.71B

26.7% Gross Margin

Net Income

-$39.00M

-1.4% Net Margin

EPS (Diluted)

$-0.08

Cash & Equivalents

$549.00M

Free Cash Flow

-$82.00M

Financial Statements
Beta
Revenue$2.71B
Cost of Revenue$1.99B
Gross Profit$724.00M
SG&A Expenses$411.00M
Operating Income$83.00M
Interest Expense$42.00M
Net Income-$39.00M
EPS (Basic)$-0.08
EPS (Diluted)$-0.08
Shares Outstanding (Basic)459.00M
Shares Outstanding (Diluted)461.00M

Key Highlights

  • 1Net sales declined significantly by 21.1% to $2.81 billion compared to the prior year quarter, reflecting challenging global economic conditions and reduced demand.
  • 2The company reported a net loss of $37 million ($0.08 per diluted share) for the quarter, a sharp reversal from a net income of $949 million ($1.90 per diluted share) in the prior year quarter.
  • 3A significant $111 million pre-tax charge was recognized due to the termination of the State of New York wireless communications network contract, impacting cost of sales and SG&A.
  • 4Restructuring and other charges amounted to $77 million, up from $21 million in the prior year, driven by new cost-reduction initiatives in response to market conditions.
  • 5The Electronic Components segment, representing 71% of net sales, experienced a substantial 24.5% decline in sales, primarily impacting overall company performance.
  • 6Despite the net loss, the company generated $33 million in net cash from continuing operating activities, demonstrating continued operational cash flow generation.
  • 7TE Connectivity is proposing to change its place of incorporation from Bermuda to Switzerland, subject to shareholder approval.

Frequently Asked Questions

The primary reason for the significant drop in net income is a substantial decrease in net sales, which fell by 21.1% year-over-year to $2.81 billion. This decline is attributed to challenging global economic conditions and reduced demand, particularly impacting the Electronic Components segment. Additionally, the company incurred substantial charges, including $111 million related to the State of New York contract termination and $77 million in restructuring charges, which further impacted profitability.

The $111 million pre-tax charge is associated with the termination of the company's wireless communications network contract with the State of New York. It includes a $61 million impairment charge to write off costs incurred in constructing the network and a $50 million charge for a draw against a standby letter of credit by the State. This charge was split between cost of sales and selling, general, and administrative expenses.

Despite the net loss and reduced sales, TE Connectivity generated $33 million in net cash from continuing operating activities during the quarter. The company also ended the quarter with $545 million in cash and cash equivalents. Management is actively monitoring costs and capital resources and believes existing liquidity and cash generated from operations are sufficient to meet anticipated capital needs for the foreseeable future.

The company is involved in legal proceedings, most notably the termination of the State of New York contract, which resulted in the significant charge mentioned. Additionally, legacy securities litigation, with the company responsible for 31% of potential liabilities, continues, though a major class action settlement's contingencies have expired. There are also ongoing investigations into Tyco International's past practices, some of which could allocate costs to TE Connectivity.