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| TEL > SEC Filings for TEL > Form 10-Q on 25-Jan-2013 | All Recent SEC Filings |
25-Jan-2013
Quarterly Report
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including but not limited to those under the heading "Forward-Looking Information" and "Part II. Item 1A. Risk Factors."
Our Condensed Consolidated Financial Statements have been prepared in United States Dollars, in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Organic net sales growth and free cash flow are non-GAAP financial measures which are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations. We believe these non-GAAP financial measures, together with GAAP financial measures, provide useful information to investors because they reflect the financial measures that management uses in evaluating the underlying results of our operations. See "Non-GAAP Financial Measures" for more information about these non-GAAP financial measures, including our reasons for including the measures and material limitations with respect to the usefulness of the measures.
Overview
TE Connectivity Ltd. ("TE Connectivity" or the "Company", which may be referred to as "we," "us," or "our") is a world leader in connectivity. We design and manufacture products at the heart of electronic connections for a broad array of industries including automotive, energy and industrial, broadband communications, consumer devices, healthcare, and aerospace and defense. We help our customers solve the need for more energy efficiency, always-on communications, and ever-increasing productivity.
As discussed in Note 1 to the Condensed Consolidated Financial Statements, effective for the first quarter of fiscal 2013, we reorganized our management and segments to align the organization around our strategy. We now operate through four reportable segments: Transportation Solutions, Network Solutions, Industrial Solutions, and Consumer Solutions. Prior period segment results have been restated to conform to the new segment reporting structure.
Our business and operating results have been and will continue to be affected by global economic conditions. Our sales are dependent on certain industry end markets that are impacted by consumer as well as industrial and infrastructure spending, and our operating results can be affected by changes in demand in those markets. Our net sales declined 1.1% overall and 4.4% on an organic basis in the first quarter of fiscal 2013 as compared to the same period of fiscal 2012. On an organic basis, we experienced declines in our sales into industrial and infrastructure based markets, primarily as a result of weakness in the industrial and subsea communications end markets in our Industrial Solutions and Network Solutions segments, respectively. Also, on an organic basis, we experienced declines in our sales into consumer based markets, with decreases in both the Transportation Solutions and Consumer Solutions segments. The acquisition of Deutsch Group SAS ("Deutsch") in April 2012 benefited the automotive and aerospace, defense, and marine end markets in the Transportation Solutions and Industrial Solutions segments, respectively. Deutsch contributed net sales of $148 million in the first quarter of fiscal 2013.
Net sales in the second quarter of fiscal 2013 are expected to be between $3.2 billion and $3.3 billion. Net sales declines in our Network Solutions and Consumer Solutions segments are expected to be offset by growth in the Transportation Solutions and Industrial Solutions segments resulting from the Deutsch acquisition. Deutsch's sales are expected to be approximately $175 million in the second quarter of fiscal 2013. Global automotive production in the second quarter of fiscal 2013 is expected to decrease approximately 4% relative to the second quarter of fiscal 2012. During the second quarter of fiscal 2013, we expect continued weakness in the industrial, data communications, telecom networks, and enterprise networks end markets. Also, we expect lower levels of project activity in the subsea communications end market. In the second quarter of fiscal 2013, we expect diluted earnings per share to be in the range of $0.50 to $0.54 per share.
For fiscal 2013, we expect net sales to be between $13.3 billion and $13.7 billion, reflecting expected sales increases in the Transportation Solutions segment, and to a lesser degree, the Industrial Solutions and Consumer Solutions segments. The Transportation Solutions and Industrial Solutions segments will benefit from incremental Deutsch sales during the first half of fiscal 2013. We expect global automotive production in fiscal 2013 to be up slightly from fiscal 2012 levels. We expect continued weakness in the industrial, data communications, telecom networks, and enterprise networks end markets in fiscal 2013. For fiscal 2013, we expect diluted earnings per share to be in the range of $2.79 to $2.99 per share.
The above outlook is based on foreign exchange rates and commodity prices that are consistent with current levels.
We are monitoring the current economic environment and its potential effects on our customers and on the end markets we serve. Additionally, we continue to closely manage our costs in order to respond to changing conditions. We are also managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund our future capital needs. (See further discussion in "Liquidity and Capital Resources.")
We plan to continue to simplify our global manufacturing footprint by migrating facilities from higher-cost to lower-cost countries, consolidating within countries, and transferring product lines to lower-cost countries. These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for profitability growth in the years ahead. In connection with these initiatives and in response to market conditions, we incurred net restructuring charges of approximately $92 million during the first quarter of fiscal 2013 and expect to incur net restructuring charges of approximately $225 million during fiscal 2013. Cash spending related to restructuring was $23 million during the first quarter of fiscal 2013, and we expect total spending, which will be funded with cash from operations, to be approximately $180 million in fiscal 2013. Annualized cost savings related to these actions are expected to be approximately $85 million and are expected to be realized by the end of fiscal 2015. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses.
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