8-KFinancial Events

TE Connectivity plc 8-K Report, Material Impairment (Jan 30, 2009)

Filed January 30, 2009For Securities:TEL

Summary

This 8-K filing by TE Connectivity plc (formerly Tyco Electronics Ltd.) reports a significant event related to a statewide wireless communications network lease contract with the State of New York. The State has notified the Company of a default and intends to terminate the contract, leading the Company to recognize pre-tax charges totaling $111 million in its first fiscal quarter of 2009. These charges consist of a $61 million impairment charge to write off network construction costs, previously recorded primarily as inventory, and a $50 million charge related to the State drawing down on a standby letter of credit. The Company disputes the State's actions, asserting that it has remediated all technical deficiencies and is operating in accordance with the contract. TE Connectivity has initiated legal action by serving a Notice of Intention to File a Claim against the State for breach of contract. The State has the ability to draw an additional $50 million against the letter of credit, and the Company has not recognized any revenue from this contract. This situation represents a material impairment and a significant dispute that will impact the company's financial results.

Key Highlights

  • 1TE Connectivity plc (TEL) is recording $111 million in pre-tax charges in its first fiscal quarter of 2009 due to a contract dispute with the State of New York.
  • 2The charges include a $61 million impairment to write off network construction costs and a $50 million charge related to a State draw on a standby letter of credit.
  • 3The State of New York has notified the company of a default and its intention to terminate a twenty-year lease contract for a statewide wireless communications network.
  • 4TE Connectivity disputes the State's claims, stating all technical deficiencies have been remediated and the system is operating per contract.
  • 5The Company has initiated legal proceedings against the State of New York for breach of contract.
  • 6The State has already drawn $50 million from a $100 million standby letter of credit, with the potential to draw an additional $50 million.
  • 7No revenue has been recognized by TE Connectivity from this specific contract.

Frequently Asked Questions

The primary reason for the $111 million pre-tax charge is a dispute with the State of New York regarding a wireless communications network contract. The State has declared the contract in default and intends to terminate it, leading TE Connectivity to record an impairment of $61 million for network construction costs and a $50 million charge related to a letter of credit draw by the State.

No, TE Connectivity disputes the State's assessment. The company asserts that it has rectified all technical deficiencies and that the network is operating in accordance with the contract specifications. They have initiated legal action against the State for breach of contract.

The State of New York has drawn down $50 million against an irrevocable standby letter of credit provided by TE Connectivity. This draw has resulted in a $50 million charge against the company's selling, general, and administrative expenses. The State has the ability to draw an additional $50 million, which could lead to further charges.

No, TE Connectivity has not recognized any revenue related to this specific lease contract with the State of New York.