10-QPeriod: Q3 FY2013

TE Connectivity plc Quarterly Report for Q3 Ended Jun 28, 2013

Filed July 25, 2013For Securities:TEL

Summary

TE Connectivity Ltd. reported net sales of $3.45 billion for the third quarter of fiscal year 2013, a slight decrease of 1.4% compared to the same period in the prior year. This performance was influenced by a mixed economic environment, with declines in industrial and consumer-based markets partially offset by strength in the automotive sector. The company's operating income saw an increase to $439 million, driven by improved gross margins and productivity gains, despite higher restructuring and SG&A expenses. The company's strategic focus on operational efficiency and cost management continues, with ongoing restructuring efforts aimed at simplifying its manufacturing footprint and improving leverage. Financially, TE Connectivity maintained a solid liquidity position, with net cash provided by operating activities of $1.45 billion for the nine months ended June 28, 2013. The company also repurchased approximately $619 million of its common shares during this period, indicating a commitment to returning value to shareholders. A significant development mentioned is the ongoing resolution of tax matters related to its separation from Tyco International, which resulted in a notable tax benefit and expense in the current period, though potential future impacts remain uncertain. Investors should monitor the progress of these tax resolutions and the company's performance across its diverse segments.

Financial Highlights

55 data points
Beta

Revenue

$3.45B

32.8% Gross Margin

Net Income

$335.00M

9.7% Net Margin

EPS (Diluted)

$0.80

Total Assets

$18.09B

Cash & Equivalents

$1.26B

Free Cash Flow

$457.00M

Financial Statements
Beta
Revenue$3.45B
Cost of Revenue$2.32B
Gross Profit$1.13B
SG&A Expenses$456.00M
Operating Income$439.00M
Interest Expense$36.00M
Net Income$335.00M
EPS (Basic)$0.81
EPS (Diluted)$0.80
Shares Outstanding (Basic)415.00M
Shares Outstanding (Diluted)421.00M

Key Highlights

  • 1Net sales for Q3 FY13 were $3.45 billion, a 1.4% decrease year-over-year.
  • 2Operating income increased to $439 million in Q3 FY13, up from $371 million in Q3 FY12.
  • 3The company initiated a significant restructuring program in FY13, expecting total charges of approximately $267 million.
  • 4Net cash provided by operating activities for the first nine months of FY13 was $1.45 billion.
  • 5Share repurchases totaled $619 million in the first nine months of FY13.
  • 6The company is actively managing significant tax matters stemming from its 2007 separation from Tyco International.
  • 7A strong performance was noted in the Transportation Solutions segment, while Network Solutions and Consumer Solutions experienced declines.

Frequently Asked Questions

Net sales decreased by 1.4% to $3.45 billion in the third quarter of fiscal 2013 compared to the same period in fiscal 2012. This decline was primarily driven by organic sales decreases in the Network Solutions and Consumer Solutions segments, partially offset by an increase in the Transportation Solutions segment. Weakness in industrial and consumer-based markets was noted, while the automotive sector showed strength.

TE Connectivity is undertaking a significant restructuring program initiated in fiscal 2013, involving headcount reductions and manufacturing site closures. This program is expected to incur approximately $267 million in charges and aims to simplify the global manufacturing footprint, improve operating leverage, and position the company for profitability growth. Annualized cost savings of about $100 million are anticipated by the end of fiscal 2015.

The company is involved in ongoing tax matters with the IRS related to its 2007 separation from Tyco International, specifically concerning the tax treatment of intercompany debt transactions. While a significant tax benefit was recognized in the first quarter of fiscal 2013 due to the settlement of undisputed tax matters, a disputed issue remains, potentially involving substantial tax adjustments, penalties, and interest. TE Connectivity, along with Tyco International and Covidien, would share in any ultimate payments. The company believes it is appropriately reserved, but the ultimate outcome remains uncertain and could materially impact financial results.

The company demonstrated a commitment to shareholder returns through share repurchases totaling $619 million in the first nine months of fiscal 2013. Additionally, a dividend of $0.25 per share was paid in the third quarter of fiscal 2013, with further quarterly payments planned. TE Connectivity also continues to manage its debt, with total debt decreasing to $3.02 billion at June 28, 2013. The company believes its liquidity and cash flow generation are sufficient to meet its foreseeable capital needs, including debt obligations and potential strategic acquisitions.