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TEL > SEC Filings for TEL > Form 10-Q on 25-Jul-2013All Recent SEC Filings

Show all filings for TE CONNECTIVITY LTD.

Form 10-Q for TE CONNECTIVITY LTD.


25-Jul-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 current 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. Overall, our net sales decreased 1.4% and 0.7% in the third quarter and first nine months of fiscal 2013 as compared to the same periods of fiscal 2012. On an organic basis, net sales were flat in the third quarter of fiscal 2013 and decreased 2.7% in the first nine months of fiscal 2013, as compared to the same periods 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 end market in our Industrial Solutions segment and the subsea communications and data communications end markets in our Network Solutions segment. Also, on an organic basis, our sales into consumer-based markets increased with growth in the automotive end market in the Transportation Solutions segment, partially offset by declines in the consumer devices and appliance end markets in the Consumer Solutions segment. 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. In the first six months of fiscal 2013, Deutsch contributed incremental net sales of $320 million.


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Outlook

In the fourth quarter of fiscal 2013, we expect net sales to be between $3.35 billion and $3.45 billion. This reflects a net sales increase in the Transportation Solutions segment largely offset by net sales decreases in the Network Solutions and Consumer Solutions segments relative to the fourth quarter of fiscal 2012. We expect net sales in the Industrial Solutions segment to be consistent with fourth quarter fiscal 2012 levels. During the fourth quarter of fiscal 2013, we expect global automotive production to increase approximately 3% to 4% relative to the same period of fiscal 2012. Also, we expect continued weakness in the consumer devices and data communications end markets during the fourth quarter of fiscal 2013. We expect diluted earnings per share to be in the range of $0.82 to $0.86 per share in the fourth quarter of fiscal 2013.

For fiscal 2013, we expect net sales to be between $13.2 billion and $13.3 billion, reflecting a net sales increase in the Transportation Solutions segment offset by net sales decreases in all end markets in the Network Solutions and Consumer Solutions segments relative to fiscal 2012. Net sales in the Industrial Solutions segment are expected to be consistent with fiscal 2012 levels, with increased sales in the aerospace, defense, and marine end market offset by decreased sales in the industrial and energy end markets. We expect our sales in the automotive end market to benefit from an anticipated increase in global automotive production of approximately 2% from fiscal 2012 levels. We expect diluted earnings per share to be in the range of $2.92 to $2.96 per share in fiscal 2013.

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 also are 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.")

Restructuring

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 $244 million during the first nine months of fiscal 2013 and expect to incur net restructuring charges of approximately $275 million during fiscal 2013. Cash spending related to restructuring was $105 million during the first nine months 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 $100 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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Results of Operations

Consolidated Operations

Our results of operations were influenced by the following key business factors during the periods discussed in this report:


Raw material prices. We expect to purchase approximately 169 million pounds of copper, 131,000 troy ounces of gold, and 2.6 million troy ounces of silver in fiscal 2013. Prices continue to fluctuate. The following table sets forth the average prices incurred related to copper, gold, and silver during the periods presented:

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