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.