10-QPeriod: Q1 FY2013

TE Connectivity plc Quarterly Report for Q1 Ended Dec 28, 2012

Filed January 25, 2013For Securities:TEL

Summary

TE Connectivity Ltd. (TEL) reported its financial results for the first quarter of fiscal year 2013, ending December 28, 2012. Net sales slightly decreased by 1.1% to $3,134 million compared to the prior year's first quarter, driven by a 4.4% organic decline that was partially offset by a favorable acquisition and foreign currency translation impacts. The company experienced an increase in restructuring and other charges, which significantly impacted operating income. Despite the top-line decrease, gross margin improved due to manufacturing productivity gains. However, higher selling, general, and administrative expenses and substantial restructuring charges led to a decrease in operating income. A significant one-time income tax benefit related to the settlement of prior tax matters provided a substantial boost to net income, which rose to $277 million from $262 million in the comparable prior-year period. Diluted earnings per share also saw a slight increase, benefiting from this tax item.

Financial Highlights

55 data points
Beta

Revenue

$3.13B

31.6% Gross Margin

Net Income

$277.00M

8.8% Net Margin

EPS (Diluted)

$0.65

Total Assets

$18.14B

Cash & Equivalents

$972.00M

Free Cash Flow

$266.00M

Financial Statements
Beta
Revenue$3.13B
Cost of Revenue$2.15B
Gross Profit$989.00M
SG&A Expenses$428.00M
Operating Income$293.00M
Interest Expense$37.00M
Net Income$277.00M
EPS (Basic)$0.66
EPS (Diluted)$0.65
Shares Outstanding (Basic)422.00M
Shares Outstanding (Diluted)426.00M

Key Highlights

  • 1Net sales for the first quarter of fiscal 2013 were $3,134 million, a decrease of 1.1% from $3,170 million in the prior year's first quarter.
  • 2Organic net sales decreased by 4.4%, indicating a decline in sales volume and pricing before considering currency fluctuations and acquisitions.
  • 3Gross margin as a percentage of net sales improved to 31.6% from 29.7%, driven by manufacturing productivity gains.
  • 4Operating income decreased to $293 million from $361 million, largely due to a significant increase in restructuring and other charges ($92 million vs. $18 million).
  • 5Net income attributable to TE Connectivity Ltd. increased to $277 million from $260 million, primarily due to a large income tax benefit ($245 million) recognized in the current quarter related to tax settlements.
  • 6Diluted earnings per share increased to $0.65 from $0.61, bolstered by the tax benefit.
  • 7The company reported $4.324 billion in goodwill on its balance sheet as of December 28, 2012.

Frequently Asked Questions

The primary driver for the increase in net income was a substantial income tax benefit of $245 million recognized in the current quarter. This benefit arose from the effective settlement of undisputed tax matters for the period 1997 through 2000 with the IRS, significantly offsetting other tax-related expenses and charges.

Operating income decreased from $361 million to $293 million primarily due to a substantial increase in restructuring and other charges, which rose to $92 million from $18 million in the prior year's comparable quarter. These charges relate to headcount reductions and manufacturing site closures across various segments.

The acquisition of Deutsch Group SAS, completed in April 2012, contributed $148 million in net sales in the first quarter of fiscal 2013. It positively impacted the Transportation Solutions and Industrial Solutions segments, offsetting some of the organic sales declines in those areas. Acquisition and integration costs were $5 million in the quarter.

TE Connectivity expects net sales for the second quarter of fiscal 2013 to be between $3.2 billion and $3.3 billion. Diluted earnings per share are projected to be in the range of $0.50 to $0.54 per share.