8-KOther Events

TE Connectivity plc 8-K Report, Corporate Update (May 31, 2016)

Filed May 31, 2016For Securities:TEL

Summary

This 8-K filing from TE Connectivity Ltd. (TEL) announces the final resolution of a significant U.S. federal income tax dispute concerning intercompany debt for audit cycles spanning from 1997 to 2007. The company, along with former related entities Tyco International and Covidien, has reached a settlement with the Internal Revenue Service (IRS) and had the matters dismissed by the U.S. Tax Court. This resolution is expected to result in a substantial non-cash benefit to net income in the third quarter of fiscal year 2016, ranging from $525 million to $550 million. Investors should note that while this settlement will positively impact GAAP net income and GAAP Earnings Per Share, the company anticipates no effect on its non-GAAP Adjusted Earnings Per Share. This distinction highlights the company's practice of excluding special items, such as this tax settlement, from its operational performance metrics to provide a clearer view of underlying business trends. The net cash outflow related to the settlement during the second quarter of fiscal 2016 was $140 million, after reimbursements from Tyco International and Covidien.

Key Highlights

  • 1TE Connectivity has finalized a U.S. federal income tax dispute related to intercompany debt for audit years 1997-2007.
  • 2The settlement was reached with the IRS and approved by the U.S. Tax Court, resolving all outstanding matters.
  • 3A significant non-cash benefit of $525 million to $550 million is expected to be recognized in net income for the third quarter of fiscal year 2016.
  • 4The resolution will impact GAAP net income and GAAP Earnings Per Share.
  • 5The company expects no impact on its non-GAAP Adjusted Earnings Per Share for the third quarter of fiscal year 2016.
  • 6TE Connectivity made a net cash payment of $140 million in Q2 FY16 related to this settlement, after reimbursements.
  • 7The IRS is expected to apply the same resolution terms to U.S. income tax returns filed after fiscal 2007.

Frequently Asked Questions

The dispute involved intercompany debt matters for TE Connectivity and former related entities (Tyco International and Covidien) for U.S. federal income tax audit cycles from 1997 to 2007. These issues were brought before the U.S. Tax Court and the IRS Appeals Division.

TE Connectivity expects to recognize a net benefit in net income between $525 million and $550 million in the third quarter of fiscal year 2016. This is a non-cash benefit that will impact GAAP Earnings Per Share but not Adjusted Earnings Per Share.

Yes, during the second quarter of fiscal 2016, TE Connectivity made a net cash payment of $140 million. This amount reflects its share of the total payable to the IRS after accounting for reimbursements from Tyco International and Covidien and payments made to Covidien.

The company defines Adjusted Earnings Per Share to exclude special items, such as this tax settlement, which are irregular in timing and can distort the view of ongoing operational performance. The settlement is considered a 'special item' and is thus excluded from the calculation of Adjusted EPS.