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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORTPursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 23, 2019
TE CONNECTIVITY LTD.(Exact Name of Registrant as Specified in its Charter)
Switzerland
98-0518048(Jurisdiction of Incorporation)
(IRS Employer Identification Number)
001-33260
(Commission File Number)
Rheinstrasse 20CH-8200 Schaffhausen
Switzerland(Address of Principal Executive Offices, including Zip Code)
+41 (0)52 633 66 61
(Registrant’s Telephone Number, including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 ofthe Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition
On January 23, 2019 , TE Connectivity Ltd. (the “Company”) issued a press release reporting the Company’s first quarter results for fiscal 2019. A copy of the pressrelease is furnished as Exhibit 99.1 to this report and incorporated by reference in this Item 2.02. Item 7.01. Regulation FD Disclosure
The Company will hold a conference call and webcast on January 23, 2019 (see information in the press release attached hereto as Exhibit 99.1 under “Conference Call andWebcast”). A copy of the slide materials to be discussed at the conference call and webcast is being furnished pursuant to Regulation FD as Exhibit 99.2 and is incorporatedherein by reference, and the slide materials also can be accessed at the “Investors” section of the Company’s website (www.te.com).
Item 9.01. Financial Statements and Exhibits
(d) Exhibits Exhibit No.
Description 99.1
Press release issued January 23, 2019 99.2
Presentation - TE Connectivity Q1 2019 Earnings Call (January 23, 2019) 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized. TE CONNECTIVITY LTD.(Registrant)
By: /s/ Heath A. Mitts
Heath A. Mitts
Executive Vice President and Chief Financial Officer Date: January 23, 2019
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Exhibit 99.1
TE Connectivity announces results for first quarter of fiscal year 2019
Sales and earnings for the quarter were in line with the company’s guidance
SCHAFFHAUSEN, Switzerland — January 23, 2019 — TE Connectivity Ltd. (NYSE: TEL) today reported results for the fiscal first quarter, which endedDecember 28, 2018. First Quarter Highlights
· Net sales were $3.35 billion, flat as reported, and up 2 percent organically from the first quarter of 2018 · Diluted earnings per share (EPS) from continuing operations were $1.11, and adjusted EPS were $1.29· Cash flow from continuing operating activities was $328 million and free cash flow was $69 million, with $645 million returned to shareholders,
including proceeds from the sale of the company’s Subsea Communications business· Orders were $3.3 billion in the quarter, down 6% year-over-year and 4% lower than the prior quarter
First Quarter Results For the first quarter, the company reported net sales of $3.35 billion, with diluted EPS from continuing operations of $1.11, and adjusted EPS were $1.29, in linewith the company’s guidance. Cash flow from continuing operating activities was $328 million and free cash flow was $69 million. Total orders were $3.3 billion,below the company’s expectations, and the book-to-bill ratio was 0.99. “First quarter results were in line with our guidance and demonstrated resiliency in what turned out to be a slower demand environment than we expected, dueprimarily to weakness in China markets. Our Industrial and Communications segments showed solid sales growth, while our Transportation segment outperformeda weak global auto production environment through strong content growth,” said Terrence Curtin, Chief Executive Officer of TE Connectivity. “Due to a slowermarket environment, we are updating our guidance for the remainder of the fiscal year, accelerating several levers in our business model to sustain resilience, andinvesting for long-term growth in alignment with our strategy.”
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2019 Outlook For the fiscal second quarter of 2019, the company expects net sales of $3.3 billion to $3.4 billion. Diluted EPS from continuing operations are expected to be $1.13to $1.17, including net restructuring, acquisition-related and other charges of $0.12. The company expects adjusted EPS of $1.25 to $1.29. For the full year, the company expects net sales of $13.45 billion to $13.85 billion. Diluted EPS from continuing operations are expected to be $4.94 to $5.14,including net restructuring, acquisition-related and other charges of $0.41. The company expects adjusted EPS of $5.35 to $5.55. Information about TE Connectivity’s use of non-GAAP financial measures is provided below. For reconciliations of these non-GAAP financial measures, see theattached tables. Conference Call and Webcast The company will hold a conference call today beginning at 8:30 a.m. ET. The dial-in information is provided here:
· At TE Connectivity’s website: investors.te.com.· By telephone: For both “listen-only” participants and those participants who wish to take part in the question-and-answer portion of the call, the dial-in
number in the United States is (800) 230-1059, and for international callers, the dial-in number is (612) 234-9960.· An audio replay of the conference call will be available beginning at 10:30 a.m. ET on January 23, 2019 and ending at 11:59 p.m. ET on January 30,
2019. The dial-in number for participants in the United States is (800) 475-6701. For participants outside the United States, the dial-in number is (320)365-3844. The replay access code for all callers is 458594.
ABOUT TE CONNECTIVITY TE Connectivity Ltd. is a $14 billion global technology and manufacturing leader creating a safer, sustainable, productive, and connected future. For more than 75years, our connectivity and sensor solutions, proven in the harshest environments, have enabled advancements in transportation, industrial applications, medicaltechnology, energy, data communications, and the home. With 80,000 employees, including more than 8,000 engineers, working alongside customers inapproximately 140 countries, TE ensures that EVERY CONNECTION COUNTS. Learn more at www.te.com and on LinkedIn, Facebook, WeChat and Twitter.
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Non-GAAP Financial Measures We present non-GAAP performance and liquidity measures as we believe it is appropriate for investors to consider adjusted financial measures in addition toresults in accordance with accounting principles generally accepted in the U.S. (“GAAP”). These non-GAAP financial measures provide supplemental informationand should not be considered replacements for results in accordance with GAAP. Management uses non-GAAP financial measures internally for planning andforecasting purposes and in its decision-making processes related to the operations of our company. We believe these measures provide meaningful information tous and investors because they enhance the understanding of our operating performance, ability to generate cash, and the trends of our business. Additionally, webelieve that investors benefit from having access to the same financial measures that management uses in evaluating our operations. The primary limitation of thesemeasures is that they exclude the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed byusing these non-GAAP financial measures in combination with the most directly comparable GAAP financial measures in order to better understand the amounts,character, and impact of any increase or decrease in reported amounts. These non-GAAP financial measures may not be comparable to similarly-titled measuresreported by other companies. The following provides additional information regarding our non-GAAP financial measures:
· Organic Net Sales Growth — represents net sales growth (the most comparable GAAP financial measure) excluding the impact of foreign currencyexchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic Net Sales Growth is a useful measure ofour performance because it excludes items that are not completely under management’s control, such as the impact of changes in foreign currencyexchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity. This measure is asignificant component in our incentive compensation plans.
· Adjusted Operating Income and Adjusted Operating Margin — represent operating income and operating margin, respectively, (the most comparable
GAAP financial measures) before special items including restructuring and other charges, acquisition related charges, and other income or charges, if any.We utilize these adjusted measures in combination with operating income and operating margin to assess segment level operating performance and toprovide insight to management in evaluating segment operating plan execution and market conditions. Adjusted Operating Income is a significantcomponent in our incentive compensation plans.
· Adjusted Other Income (Expense), Net — represents net other income (expense) (the most comparable GAAP financial measure) before special items
including tax sharing income related to adjustments to prior period tax returns and other items, if any. · Adjusted Income Tax Expense and Adjusted Effective Tax Rate — represent income tax expense and effective tax rate, respectively (the most
comparable GAAP financial measures) after adjusting for the tax effect of special items including restructuring and other charges, acquisition relatedcharges, other income or charges, and certain significant tax items, if any.
· Adjusted Income from Continuing Operations — represents income from continuing operations (the most comparable GAAP financial measure) before
special items including restructuring and other charges, acquisition related charges, tax sharing income related to adjustments to prior period tax returnsand other tax items, other income or charges, and certain significant tax items, if any, and, if applicable, the related tax effects.
· Adjusted Earnings Per Share — represents diluted earnings per share from continuing operations (the most comparable GAAP financial measure) before
special items including restructuring and other charges, acquisition related charges, tax sharing income related to adjustments to prior period tax returnsand other tax items, other income or charges, and certain significant tax items, if any, and, if applicable, the related tax effects. This measure is asignificant component in our incentive compensation plans.
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· Free Cash Flow (FCF) — is a useful measure of our ability to generate cash. The difference between net cash provided by continuing operating activities
(the most comparable GAAP financial measure) and Free Cash Flow consists mainly of significant cash outflows and inflows that we believe are useful toidentify. We believe Free Cash Flow provides useful information to investors as it provides insight into the primary cash flow metric used by managementto monitor and evaluate cash flows generated from our operations. Free Cash Flow is defined as net cash provided by continuing operating activities excluding voluntary pension contributions and the cash impact of specialitems, if any, minus net capital expenditures. Voluntary pension contributions are excluded from the GAAP financial measure because this activity isdriven by economic financing decisions rather than operating activity. Certain special items, including net payments related to pre-separation tax mattersand cash paid (collected) pursuant to collateral requirements related to cross-currency swap contracts, are also excluded by management in evaluating FreeCash Flow. Net capital expenditures consist of capital expenditures less proceeds from the sale of property, plant, and equipment. These items aresubtracted because they represent long-term commitments. In the calculation of Free Cash Flow, we subtract certain cash items that are ultimately within management’s and the Board of Directors’ discretion todirect and may imply that there is less or more cash available for our programs than the most comparable GAAP financial measure indicates. It should notbe inferred that the entire Free Cash Flow amount is available for future discretionary expenditures, as our definition of Free Cash Flow does not considercertain non-discretionary expenditures, such as debt payments. In addition, we may have other discretionary expenditures, such as discretionary dividends,share repurchases, and business acquisitions, that are not considered in the calculation of Free Cash Flow.
Forward-Looking Statements This release contains certain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements arebased on management’s current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance,financial condition or achievements to differ materially from anticipated results, performance, financial condition or achievements. All statements contained hereinthat are not clearly historical in nature are forward-looking and the words “anticipate,” “believe,” “expect,” “estimate,” “plan,” and similar expressions aregenerally intended to identify forward-looking statements. We have no intention and are under no obligation to update or alter (and expressly disclaim any suchintention or obligation to do so) our forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required bylaw. The forward-looking statements in this release include statements addressing our future financial condition and operating results. Examples of factors thatcould cause actual results to differ materially from those described in the forward-looking statements include, among others, business, economic, competitive andregulatory risks, such as conditions affecting demand for products, particularly in the automotive and data and devices industries; competition and pricing pressure;fluctuations in foreign currency exchange rates and commodity prices; natural disasters and political, economic and military instability in countries in which weoperate; developments in the credit markets; future goodwill impairment; compliance with current and future environmental and other laws and regulations; and thepossible effects on us of changes in tax laws, tax treaties and other legislation. More detailed information about these and other factors is set forth in TEConnectivity Ltd.’s Annual Report on Form 10-K for the fiscal year ended Sept. 28, 2018 as well as in our Quarterly Reports on Form 10-Q, Current Reports onForm 8-K and other reports filed by us with the U.S. Securities and Exchange Commission.
# # # 4
Contacts: Media Relations : Investor Relations :
B.J. Talley Sujal Shah
TE Connectivity TE Connectivity
610-893-9553 610-893-9790
[email protected] [email protected]
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TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Quarters Ended
December 28,
December 29,
2018
2017
(in millions, except per share data)
Net sales
$ 3,347
$ 3,336
Cost of sales
2,233
2,172
Gross margin
1,114
1,164
Selling, general, and administrative expenses
389
377
Research, development, and engineering expenses
161
165
Acquisition and integration costs
5
2
Restructuring and other charges, net
75
34
Operating income
484
586
Interest income
5
4
Interest expense
(27) (26)Other income (expense), net
(1) 2
Income from continuing operations before income taxes
461
566
Income tax expense
(78) (599)Income (loss) from continuing operations
383
(33)Loss from discontinued operations, net of income taxes
(107) (7)Net income (loss)
$ 276
$ (40) Basic earnings (loss) per share:
Income (loss) from continuing operations
$ 1.12
$ (0.09)Loss from discontinued operations
(0.31) (0.02)Net income (loss)
0.81
(0.11) Diluted earnings (loss) per share:
Income (loss) from continuing operations
$ 1.11
$ (0.09)Loss from discontinued operations
(0.31) (0.02)Net income (loss)
0.80
(0.11) Weighted-average number of shares outstanding:
Basic
342
352
Diluted
344
352
TE CONNECTIVITY LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 28,
September 28,
2018
2018
(in millions, except share data)
Assets
Current assets:
Cash and cash equivalents
$ 505
$ 848
Accounts receivable, net of allowance for doubtful accounts of $26 and $22, respectively
2,380
2,361
Inventories
1,986
1,857
Prepaid expenses and other current assets
507
661
Current assets held for sale
—
472
Total current assets
5,378
6,199
Property, plant, and equipment, net
3,550
3,497
Goodwill
5,648
5,684
Intangible assets, net
1,648
1,704
Deferred income taxes
2,580
2,144
Other assets
384
1,158
Total Assets
$ 19,188
$ 20,386
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt
$ 585
$ 963
Accounts payable
1,538
1,548
Accrued and other current liabilities
1,348
1,711
Current liabilities held for sale
—
188
Total current liabilities
3,471
4,410
Long-term debt
3,382
3,037
Long-term pension and postretirement liabilities
1,101
1,102
Deferred income taxes
207
207
Income taxes
335
312
Other liabilities
456
487
Total Liabilities
8,952
9,555
Commitments and contingencies
Shareholders’ equity:
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued
157
157
Accumulated earnings
11,886
12,114
Treasury shares, at cost, 17,727,608 and 12,279,603 shares, respectively
(1,550) (1,134)Accumulated other comprehensive loss
(257) (306)Total Shareholders’ Equity
10,236
10,831
Total Liabilities and Shareholders’ Equity
$ 19,188
$ 20,386
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Quarters Ended
December 28,
December 29,
2018
2017
(in millions)
Cash Flows From Operating Activities:
Net income (loss)
$ 276
$ (40)Loss from discontinued operations, net of income taxes
107
7
Income (loss) from continuing operations
383
(33)Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization
168
162
Deferred income taxes
(11) 510
Provision for losses on accounts receivable and inventories
23
17
Share-based compensation expense
23
28
Other
18
(6)Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net
(26) (139)Inventories
(119) (177)Prepaid expenses and other current assets
67
(45)Accounts payable
(9) 161
Accrued and other current liabilities
(190) (239)Income taxes
15
7
Other
(14) 37
Net cash provided by continuing operating activities
328
283
Net cash provided by (used in) discontinued operating activities
(31) 67
Net cash provided by operating activities
297
350
Cash Flows From Investing Activities:
Capital expenditures
(210) (237)Proceeds from sale of property, plant, and equipment
1
—
Proceeds from divestiture of discontinued operation, net of cash retained by sold operation
288
—
Other
3
—
Net cash provided by (used in) continuing investing activities
82
(237)Net cash used in discontinued investing activities
(2) (4)Net cash provided by (used in) investing activities
80
(241)Cash Flows From Financing Activities:
Net increase in commercial paper
63
241
Proceeds from issuance of debt
350
119
Repayment of debt
(441) (708)Proceeds from exercise of share options
7
54
Repurchase of common shares
(519) (167)Payment of common share dividends to shareholders
(150) (141)Transfers (to) from discontinued operations
(33) 63
Other
(29) (32)Net cash used in continuing financing activities
(752) (571)Net cash provided by (used in) discontinued financing activities
33
(63)Net cash used in financing activities
(719) (634)Effect of currency translation on cash
(1) 11
Net decrease in cash, cash equivalents, and restricted cash
(343) (514)Cash, cash equivalents, and restricted cash at beginning of period
848
1,218
Cash, cash equivalents, and restricted cash at end of period
$ 505
$ 704
Supplemental Cash Flow Information:
Interest paid
$ 19
$ 41
Income taxes paid, net of refunds
75
82
TE CONNECTIVITY LTD.
RECONCILIATION OF FREE CASH FLOW (UNAUDITED)
For the Quarters Ended
December 28,
December 29,
2018
2017
(in millions)
Net cash provided by continuing operating activities
$ 328
$ 283
Excluding:
Cash (collected) paid pursuant to collateral requirements related to cross-currency swap contracts
(50) 18
Capital expenditures, net
(209) (237)Free cash flow (1)
$ 69
$ 64
(1) Free cash flow is a non-GAAP financial measure. See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
CONSOLIDATED SEGMENT DATA (UNAUDITED)
For the Quarters Ended
December 28,
December 29,
2018
2017
($ in millions)
Net Sales
Net Sales
Transportation Solutions
$ 1,986
$ 2,032
Industrial Solutions
928
882
Communications Solutions
433
422
Total
$ 3,347
$ 3,336
Operating
Operating
Operating
Operating
Income
Margin
Income
Margin
Transportation Solutions
$ 332
16.7% $ 417
20.5%Industrial Solutions
100
10.8
102
11.6
Communications Solutions
52
12.0
67
15.9
Total
$ 484
14.5% $ 586
17.6%
Adjusted
Adjusted
Adjusted
Adjusted
Operating
Operating
Operating
Operating
Income (1)
Margin (1)
Income (1)
Margin (1)
Transportation Solutions
$ 356
17.9% $ 426
21.0%Industrial Solutions
138
14.9
126
14.3
Communications Solutions
71
16.4
75
17.8
Total
$ 565
16.9% $ 627
18.8%
(1) Adjusted operating income and adjusted operating margin are non-GAAP financial measures. See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF NET SALES GROWTH (UNAUDITED)
Change in Net Sales for the Quarter Ended December 28, 2018
versus Net Sales for the Quarter Ended December 29, 2017
Net
Organic Net
Sales Growth
Sales Growth (1)
Translation (2)
Acquisition
($ in millions)
Transportation Solutions (3):
Automotive
$ (48) (3.2)% $ (9) (0.6)% $ (39) $ —
Commercial transportation
(3) (1.0) 5
1.7
(8) —
Sensors
5
2.3
8
3.8
(3) —
Total
(46) (2.3) 4
0.2
(50) —
Industrial Solutions (3):
Industrial equipment
12
2.5
(2) (0.5) (7) 21
Aerospace, defense, oil, and gas
31
12.2
33
12.7
(2) —
Energy
3
1.9
9
5.8
(6) —
Total
46
5.2
40
4.5
(15) 21
Communications Solutions (3):
Data and devices
19
8.0
22
9.3
(3) —
Appliances
(8) (4.3) (3) (1.7) (5) —
Total
11
2.6
19
4.6
(8) —
Total
$ 11
0.3% $ 63
1.9% $ (73) $ 21
(1) Organic net sales growth is a non-GAAP financial measure. See description of non-GAAP financial measures.(2) Represents the change in net sales resulting from changes in foreign currency exchange rates.(3) Industry end market information is presented consistently with our internal management reporting and may be periodically revised as management deemsnecessary.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURESFor the Quarter Ended December 28, 2018
(UNAUDITED)
Adjustments
Acquisition
Restructuring
Related
and Other
Adjusted
U.S. GAAP
Charges (1)
Charges, Net (1)
(Non-GAAP) (2)
($ in millions, except per share data)
Operating Income:
Transportation Solutions
$ 332
$ 3
$ 21
$ 356
Industrial Solutions
100
3
35
138
Communications Solutions
52
—
19
71
Total
$ 484
$ 6
$ 75
$ 565
Operating Margin
14.5%
16.9% Other Expense, Net
$ (1) $ —
$ —
$ (1) Income Tax Expense
$ (78) $ (1) $ (19) $ (98) Effective Tax Rate
16.9%
18.1% Income from Continuing Operations
$ 383
$ 5
$ 56
$ 444
Diluted Earnings per Share from
Continuing Operations
$ 1.11
$ 0.01
$ 0.16
$ 1.29
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect foreach such jurisdiction.(2) See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURESFor the Quarter Ended December 29, 2017
(UNAUDITED)
Adjustments
Acquisition
Restructuring
Related
and Other
Tax
Adjusted
U.S. GAAP
Charges (1)
Charges, Net (1)
Items (2)
(Non-GAAP) (3)
($ in millions, except per share data)
Operating Income:
Transportation Solutions
$
417
$
5
$
4
$
—
$
426
Industrial Solutions
102
2
22
—
126
Communications Solutions
67
—
8
—
75
Total
$
586
$
7
$
34
$
—
$
627
Operating Margin
17.6%
18.8% Other Income, Net
$
2
$
—
$
—
$
(1) $
1
Income Tax Expense
$
(599) $
(2) $
(8) $
506
$
(103) Effective Tax Rate
105.8%
17.0% Income (Loss) from Continuing Operations
$
(33) $
5
$
26
$
505
$
503
Diluted Earnings (Loss) per Share from
Continuing Operations (4)
$
(0.09) $
0.01
$
0.07
$
1.42
$
1.42
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect foreach such jurisdiction.(2) Includes $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act and a $61 million income tax benefit related to certainlegal entity restructurings.(3) See description of non-GAAP financial measures.(4) U.S. GAAP diluted shares excludes 3 million of nonvested restricted share awards and nonvested options as the inclusion of these securities would have beenantidilutive because of our loss during the period. Such amounts are included in adjusted (non-GAAP) diluted shares.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURESFor the Quarter Ended March 30, 2018
(UNAUDITED)
Adjustments
Restructuring
Acquisition
and Other
Related
Charges
Adjusted
U.S. GAAP
Charges (1)
(Credits), Net (1)
(Non-GAAP) (2)
($ in millions, except per share data)
Operating Income:
Transportation Solutions
$ 427
$ 2
$ (2) $ 427
Industrial Solutions
125
3
7
135
Communications Solutions
69
—
1
70
Total
$ 621
$ 5
$ 6
$ 632
Operating Margin
17.4%
17.7% Other Income, Net
$ 1
$ —
$ —
$ 1
Income Tax Expense
$ (108) $ —
$ 1
$ (107) Effective Tax Rate
18.1%
17.6% Income from Continuing Operations
$ 490
$ 5
$ 7
$ 502
Diluted Earnings per Share from
Continuing Operations
$ 1.38
$ 0.01
$ 0.02
$ 1.42
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect foreach such jurisdiction.(2) See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURESFor the Year Ended September 28, 2018
(UNAUDITED)
Adjustments
Acquisition
Restructuring
Related
and Other
Tax
Adjusted
U.S. GAAP
Charges (1)
Charges, Net (1)
Items (2)
(Non-GAAP) (3)
($ in millions, except per share data)
Operating Income:
Transportation Solutions
$ 1,578
$ 12
$ 33
$ —
$ 1,623
Industrial Solutions
465
10
80
—
555
Communications Solutions
288
—
13
—
301
Total
$ 2,331
$ 22
$ 126
$ —
$ 2,479
Operating Margin
16.7%
17.7% Other Income, Net
$ 1
$ —
$ —
$ (1) $ —
Income Tax (Expense) Benefit
$ 344
$ (5) $ (31) $ (716) $ (408) Effective Tax Rate
(15.4)%
17.1% Income from Continuing Operations
$ 2,584
$ 17
$ 95
$ (717) $ 1,979
Diluted Earnings per Share from Continuing
Operations
$ 7.32
$ 0.05
$ 0.27
$ (2.03) $ 5.61
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect foreach such jurisdiction.(2) Includes a $1,283 million net income tax benefit associated with the tax impacts of certain intercompany transactions and legal entity restructurings includingan increase to the valuation allowance. Also includes $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act.(3) See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF FORWARD-LOOKING NON-GAAP FINANCIAL MEASURESTO FORWARD-LOOKING GAAP FINANCIAL MEASURES
As of January 23, 2019(UNAUDITED)
Outlook for
Quarter Ending
March 29,
Outlook for
2019
Fiscal 2019
Diluted earnings per share from continuing operations (GAAP)
$1.13 - $1.17
$4.94 - $5.14
Restructuring and other charges, net
0.10
0.33
Acquisition related charges
0.02
0.08
Adjusted diluted earnings per share from continuing operations (non-GAAP) (1)
$1.25 - $1.29
$5.35 - $5.55
Net sales growth (GAAP)
(7)% - (5)%
(4)% - (1)%
Translation
5
3
(Acquisitions) divestitures, net
(1)
(1)
Organic net sales growth (non-GAAP) (1)
(3)% - (1)%
(2)% - 1%
(1) See description of non-GAAP financial measures.
Exhibit 99.2Q1 2019 Earnings January 23, 2019
Forward-Looking Statements and Non-GAAP Financial Measures 2 Forward-Looking Statements This presentation contains certain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance, financial condition or achievements to differ materially from anticipated results, performance, financial condition or achievements. All statements contained herein that are not clearly historical in nature are forward-looking and the words “anticipate,” “believe,” “expect,” “estimate,” “plan,” and similar expressions are generally intended to identify forward-looking statements. We have no intention and are under no obligation to update or alter (and expressly disclaim any such intention or obligation to do so) our forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by law. The forward-looking statements in this presentation include statements addressing our future financial condition and operating results. Examples of factors that could cause actual results to differ materially from those described in the forward-looking statements include, among others, business, economic, competitive and regulatory risks, such as conditions affecting demand for products, particularly in the automotive and data and devices industries; competition and pricing pressure; fluctuations in foreign currency exchange rates and commodity prices; natural disasters and political, economic and military instability in countries in which we operate; developments in the credit markets; future goodwill impairment; compliance with current and future environmental and other laws and regulations; and the possible effects on us of changes in tax laws, tax treaties and other legislation. More detailed information about these and other factors is set forth in TE Connectivity Ltd.’s Annual Report on Form 10-K for the fiscal year ended Sept. 28, 2018 as well as in our Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K and other reports filed by us with the U.S. Securities and Exchange Commission. Non-GAAP Financial Measures Where we have used non-GAAP financial measures, reconciliations to the most comparable GAAP measure are provided, along with a disclosure on the usefulness of the non-GAAP financial measure, in this presentation.
Delivered revenue and EPS in line with guidance in a softening market environment Sales of $3.35B, flat Y/Y on a reported basis and up 2% organically Transportation flat organically with Auto outperforming declining production, reflecting global content growth Industrial grew 5% organically driven by AD&M and Medical Communications grew 5% organically with strong growth in Data and Devices Adjusted EPS of $1.29, at the high end of guidance Adjusted operating margins of 16.9% Adjusted EPS of $1.29, down 9% Y/Y with headwinds from tax and currency exchange rates Free Cash Flow of $69M, in line with expectations, with $645M returned to shareholders Full year guidance updated to reflect end market weakness primarily in China FY19 Guidance reflecting flat organic sales Y/Y Q1 orders down 4% organically Y/Y with Book to Bill of 0.99 Revenue of $13.65B which includes ~$375M headwind Y/Y from foreign currency exchange rates Adjusted EPS of $5.45, which includes a $0.25 headwind Y/Y from currency and tax impacts Accelerating cost reduction and footprint consolidation plans to help mitigate lower sales Q1 Highlights 3 Organic Net Sales Growth, Adjusted Operating Margin, Adjusted EPS, and Free Cash Flow are non-GAAP financial measures; see Appendix for descriptions and reconciliations.
Reported FY18 FY18 FY19 Q1 Y/Y Growth Q1 Q4 Q1 Reported Organic Transportation 2,129 2,033 1,916 (10)% (8)% Industrial 942 980 1,001 6% 6% Communications 454 452 403 (11)% (10)% Total TE 3,525 3,465 3,320 (6)% (4)% Book to Bill 1.06 0.99 0.99 Segment Orders Summary ($ in millions) 4 Q1 orders decline driven primarily by weakness in China, partially offset by strength in North America Transportation declines in Automotive and Commercial Transportation, partially offset by orders growth in Sensors Industrial orders growing as expected driven by Aerospace, Defense and Oil & Gas Communications impacted by Asia weakness in both Data and Devices and Appliances Y/Y and sequential declines in orders driven by weakness in China
Y/Y Growth Rates Reported Organic Automotive $1,469 (3)% (1)% Commercial Transportation 297 (1)% 2% Sensors 220 2% 4% Transportation Solutions $1,986 (2)% 0% $ in Millions Q1 Sales Q1 Business Performance Reported Down 2% Organic Flat Y/Y Growth Rates Reported Organic Orders $1,916 (10)% (8)% Q1 Adjusted Operating Margin Transportation Solutions 5 Adjusted EBITDA Margin 25.9% 23.4% Automotive sales decline of 1% organically versus global auto production declines of 7%; market outperformance in each region driven by content growth Commercial Transportation organic growth of 2% vs market declines of 7%, reflecting content and share gains Sensors organic growth driven by industrial related applications Organic Net Sales Growth, Adjusted Operating Margin and Adjusted EBITDA margin are non-GAAP financial measures: see Appendix for descriptions and reconciliations. Adjusted Operating Margin flat sequentially as expected $2,032 $1,986 Q1 2018 Q1 2019 21.0% 17.9% Q1 2018 Q1 2019
Y/Y Growth Rates Reported Organic Aerospace, Defense and Marine $285 12% 13% Industrial Equipment 483 3% (1)% Energy 160 2% 6% Industrial Solutions $928 5% 5% $ in Millions Q1 Sales AD&M double digit organic growth across Commercial Aerospace, Defense, and Oil & Gas Industrial Equipment down slightly organically, with growth in medical applications more than offset by weakness in factory automation applications Energy organic growth driven by North America Q1 Business Performance Reported Up 5% Organic Up 5% Q1 Adjusted Operating Margin Industrial Solutions 6 Y/Y Growth Rates Reported Organic Orders $1,001 6% 6% Adjusted Operating Margin expansion of 60 basis points driven primarily by operating leverage Adjusted EBITDA Margin 19.0% 19.7% Organic Net Sales Growth, Adjusted Operating Margin and Adjusted EBITDA margin are non-GAAP financial measures: see Appendix for descriptions and reconciliations. $882 $928 Q1 2018 Q1 2019 14.3% 14.9% Q1 2018 Q1 2019
Y/Y Growth Rates Reported Organic Data & Devices $257 8% 9% Appliances 176 (4)% (2)% Communications Solutions $433 3% 5% $ in Millions Q1 Sales Data & Devices organic growth driven by high speed connectivity in the data center Appliances impacted by softness in the Asia market, partially offset by growth in North America Q1 Business Performance Reported Up 3% Organic Up 5% Y/Y Growth Rates Reported Organic Orders $403 (11)% (10)% Q1 Adjusted Operating Margin Adjusted Operating Margin in line with expectations 7 Communications Solutions Adjusted EBITDA Margin 22.3% 19.4% Organic Net Sales Growth, Adjusted Operating Margin and Adjusted EBITDA margin are non-GAAP financial measures: see Appendix for descriptions and reconciliations. 17.8% 16.4% Q1 2018 Q1 2019 $422 $433 Q1 2018 Q1 2019
*Represents Diluted Earnings (Loss) Per Share from Continuing Operations ** Q1 FY18 includes $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act and a $61 million income tax benefit related to certain legal entity restructurings Adjusted Operating Income, Adjusted Operating Margin and Adjusted EPS are non-GAAP financial measures; see Appendix for descriptions and reconciliations. ($ in Millions, except per share amounts) Q1 FY18 Q1 FY19 Net Sales $ 3,336 $ 3,347 Operating Income $ 586 $ 484 Operating Margin 17.6% 14.5% Acquisition Related Charges 7 6 Restructuring & Other Charges, net 34 75 Adjusted Operating Income $ 627 $ 565 Adjusted Operating Margin 18.8% 16.9% Earnings (Loss) Per Share* $ (0.09) $ 1.11 Acquisition Related Charges 0.01 0.01 Restructuring & Other Charges, net 0.07 0.16 Tax Items** 1.42 - Adjusted EPS $ 1.42 $ 1.29 Q1 Financial Summary 8
$ in Millions Sales Adjusted EPS Adjusted Operating Margin Organic Net Sales Growth, Free Cash Flow, Adjusted Operating Margin and Adjusted Earnings Per Share are non-GAAP financial measures; see Appendix for descriptions and reconciliations. Q1 Financial Performance 9 Free Cash Flow Q1 FY19 Sales up 2% organically Y/Y Q1 FY19 FX headwind of $73M Y/Y 18.8% 17.0% 16.9% Q1 2018 Q4 2018 Q1 2019 $3,336 $3,509 $3,347 Q1 2018 Q4 2018 Q1 2019 $64 $670 $69 Q1 2018 Q4 2018 Q1 2019 $1.42 $1.35 $1.29 Q1 2018 Q4 2018 Q1 2019
Guidance* Transportation Solutions Industrial Solutions Communications Solutions TE Connectivity Highlights Sales $3.3B to $3.4B Adjusted EPS $1.25 to $1.29 Sales down 6% reported and 2% organic Y/Y Adjusted EPS down 11% Y/Y at the midpoint FX headwind impacting sales by $155M Y/Y and Adjusted EPS by $0.05 Y/Y Down High Single Digits Down Low Single Digits Organic Down High Single Digits Down Mid Single Digits Organic Flat Up Low Single Digits Organic Q2 Outlook 10 Automotive expected to be down mid single digits organically Y/Y on 9% decline in global production, primarily driven by China. Expect growth in Sensors Industrial Solutions organic growth driven by AD&M and medical applications, offset by softness in factory automation applications Communications Solutions organic decline driven by Asia * Assumes foreign exchange rates and commodity prices that are consistent with current levels Organic Net Sales Growth and Adjusted EPS are non-GAAP financial measures; see Appendix for descriptions and reconciliations. Y/Y declines driven by market weakness in China
Demonstrating resiliency in weaker markets Sales of $13.45B to $13.85B Adjusted EPS of $5.35 to $5.55 Sales down 2% reported and flat organic Y/Y Adjusted EPS up low-single digits excluding headwinds from: FX impacting Sales by ~$375M and Adjusted EPS by $0.16 Tax impacting Adjusted EPS by $0.09 Down Low Single Digits Flat Organic Down Mid Single Digits Down Low Single Digits Organic Up Low Single Digits Up Low Single Digits Organic FY19 Outlook Guidance* Transportation Solutions Industrial Solutions TE Connectivity Highlights 11 Communications Solutions Content growth enables market outperformance, with flat Auto organic growth on 4-5% decline in global auto production. Expect continued growth in Sensors Industrial Solutions growth driven by AD&M and medical applications Communications decline driven by Asia markets in Data & Devices and Appliances * Assumes foreign exchange rates and commodity prices that are consistent with current levels Organic Net Sales Growth and Adjusted EPS are non-GAAP financial measures; see Appendix for descriptions and reconciliations.
Additional Information 12
Y/Y Q1 2019 13 Sales (in millions) Adjusted EPS Q1 2018 Results $3,336 $1.42 Operational Performance 84 (0.02) Non-operational Items - (0.06) FX Impact (73) (0.03) Tax Rate Impact - (0.02) Q1 2019 Results $3,347 $1.29 Adjusted EPS is a non-GAAP financial measure; See Appendix for description and reconciliation.
Y/Y Q2 2019 14 Sales (in millions) Adjusted EPS Q2 2018 Results $3,562 $1.42 Operational Performance (57) (0.11) FX Impact (155) (0.05) Tax Rate Impact - 0.01 Q2 2019 Guidance $3,350 $1.27 Guidance Range: Sales of $3.3B - $3.4B Adjusted EPS of $1.25 – $1.29 Adjusted EPS is a non-GAAP financial measure; See Appendix for description and reconciliation.
Y/Y FY 2019 15 Sales (in millions) Adjusted EPS 2018 Results $13,988 $5.61 Operational Performance 37 0.09 FX Impact (375) (0.16) Tax Rate Impact - (0.09) 2019 Guidance $13,650 $5.45 Guidance Range Sales of $13.45B - $13.85B Adjusted EPS of $5.35 - $5.55 Adjusted EPS is a non-GAAP financial measure; See Appendix for description and reconciliation.
($ in Millions) Q1 2018 Q1 2019 Beginning Cash Balance $1,218 $848 Free Cash Flow 64 69 Dividends (141) (150) Share repurchases (167) (519) Proceeds from sale of discontinued operation, net - 288 Net decrease in debt (348) (28) Other 78 (3) Ending Cash Balance $704 $505 Total Debt $4,005 $3,967 ($ in Millions) Q1 2018 Q1 2019 Cash from Continuing Operations $283 $328 Capital expenditures, net Cash (collected) paid pursuant to collateral requirements related to cross currency swaps (237) 18 (209) (50) Free Cash Flow $64 $69 A/R $2,274 $2,380 Days Sales Outstanding* 61 64 Inventory $1,810 $1,986 Days on Hand* 75 80 Accounts Payable $1,519 $1,538 Days Outstanding* 63 62 Free Cash Flow is a non-GAAP financial measure, see Appendix for description and reconciliation * Adjusted to exclude the impact of acquisitions Free Cash Flow and Working Capital Liquidity, Cash & Debt Q1 Balance Sheet & Cash Flow Summary 16
Appendix 17
18 Non-GAAP Financial Measures We present non-GAAP performance and liquidity measures as we believe it is appropriate for investors to consider adjusted financial measures in addition to results in accordance with accounting principles generally accepted in the U.S. (“GAAP”). These non-GAAP financial measures provide supplemental information and should not be considered replacements for results in accordance with GAAP. Management uses non-GAAP financial measures internally for planning and forecasting purposes and in its decision-making processes related to the operations of our company. We believe these measures provide meaningful information to us and investors because they enhance the understanding of our operating performance, ability to generate cash, and the trends of our business. Additionally, we believe that investors benefit from having access to the same financial measures that management uses in evaluating our operations. The primary limitation of these measures is that they exclude the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using these non-GAAP financial measures in combination with the most directly comparable GAAP financial measures in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts. These non-GAAP financial measures may not be comparable to similarly-titled measures reported by other companies. The following provides additional information regarding our non-GAAP financial measures: Organic Net Sales Growth – represents net sales growth (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic Net Sales Growth is a useful measure of our performance because it excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity.This measure is a significant component in our incentive compensation plans. Adjusted Operating Income and Adjusted Operating Margin – represent operating income and operating margin, respectively, (the most comparable GAAP financial measures) before special items including restructuring and other charges, acquisition related charges, and other income or charges, if any. We utilize these adjusted measures in combination with operating income and operating margin to assess segment level operating performance and to provide insight to management in evaluating segment operating plan execution and market conditions. Adjusted Operating Income is a significant component in our incentive compensation plans. Adjusted Other Income (Expense), Net – represents net other income (expense) (the most comparable GAAP financial measure) before special items including tax sharing income related to adjustments to prior period tax returns and other items, if any. Adjusted Income Tax Expense and Adjusted Effective Tax Rate – represent income tax expense and effective tax rate, respectively, (the most comparable GAAP financial measures) after adjusting for the tax effect of special items including restructuring and other charges, acquisition related charges, other income or charges, and certain significant tax items, if any. Adjusted Income from Continuing Operations – represents income from continuing operations (the most comparable GAAP financial measure) before special items including restructuring and other charges, acquisition related charges, tax sharing income related to adjustments to prior period tax returns and other tax items, other income or charges, and certain significant tax items, if any, and, if applicable, the related tax effects. Adjusted Earnings Per Share – represents diluted earnings per share from continuing operations (the most comparable GAAP financial measure) before special items including restructuring and other charges, acquisition related charges, tax sharing income related to adjustments to prior period tax returns and other tax items, other income or charges, and certain significant tax items, if any, and, if applicable, the
related tax effects. This measure is a significant component in our incentive compensation plans.
19 Adjusted EBITDA and Adjusted EBITDA Margin - represent net income and net income as a percentage of net sales, respectively, (the most comparable GAAP financial measures) before interest expense, interest income, income taxes, depreciation, and amortization, as adjusted for net other income, income from discontinued operations, and special items including restructuring and other charges, acquisition related charges, and other income or charges, if any. Free Cash Flow (FCF) – is a useful measure of our ability to generate cash. The difference between net cash provided by continuing operating activities (the most comparable GAAP financial measure) and Free Cash Flow consists mainly of significant cash outflows and inflows that we believe are useful to identify. We believe Free Cash Flow provides useful information to investors as it provides insight into the primary cash flow metric used by management to monitor and evaluate cash flows generated from our operations. Free Cash Flow is defined as net cash provided by continuing operating activities excluding voluntary pension contributions and the cash impact of special items, if any, minus net capital expenditures. Voluntary pension contributions are excluded from the GAAP financial measure because this activity is driven by economic financing decisions rather than operating activity. Certain special items, including net payments related to pre-separation tax matters and cash paid (collected) pursuant to collateral requirements related to cross-currency swap contracts, are also excluded by management in evaluating Free Cash Flow. Net capital expenditures consist of capital expenditures less proceeds from the sale of property, plant, and equipment. These items are subtracted because they represent long-term commitments. In the calculation of Free Cash Flow, we subtract certain cash items that are ultimately within management’s and the Board of Directors’ discretion to direct and may imply that there is less or more cash available for our programs than the most comparable GAAP financial measure indicates. It should not be inferred that the entire Free Cash Flow amount is availablefor future discretionary expenditures, as our definition of Free Cash Flow does not consider certain non-discretionary expenditures, such as debt payments. In addition, we may have other discretionary expenditures, such as discretionary dividends, share repurchases, and business acquisitions, that are not considered in the calculation of Free Cash Flow. Adjusted Return on Invested Capital (ROIC) – represents adjusted net operating profit after tax divided by average invested capital. We use Adjusted Return on Invested Capital as an indicator of our capital efficiency. Adjusted Return on Invested Capital is not a measure defined by GAAP. It is calculated by us, in part, using non-GAAP financial measures. We are providing our calculation of Adjusted Return on Invested Capital as this measure may not be defined and calculated by other companies in the same manner. Non-GAAP Financial Measures (cont.)
20 Segment Summary Net Sales Net Sales Transportation Solutions 1,986 $ 2,032 $ Industrial Solutions 928 882 Communications Solutions 433 422 Total 3,347 $ 3,336 $ Operating Operating Operating Operating Income Margin Income Margin Transportation Solutions 332 $ 16.7% 417 $ 20.5% Industrial Solutions 100 10.8 102 11.6 Communications Solutions 52 12.0 67 15.9 Total 484 $ 14.5% 586 $ 17.6% Adjusted Adjusted Adjusted Adjusted Operating Operating Operating Operating Income (1) Margin (1) Income (1) Margin (1) Transportation Solutions 356 $ 17.9% 426 $ 21.0% Industrial Solutions 138 14.9 126 14.3 Communications Solutions 71 16.4 75 17.8 Total 565 $ 16.9% 627 $ 18.8% ($ in millions) (1) Adjusted operating income and adjusted operating margin are non-GAAP financial measures. See description of non-GAAP financial measures. For the Quarters Ended December 28, December 29, 2018 2017
Reconciliation of Net Sales Growth – Q1 19 vs. Q1 18 21 Translation (2) Acquisition Transportation Solutions (3) : Automotive (48) $ (3.2)% (9) $ (0.6)% (39) $ - $ Commercial transportation (3) (1.0) 5 1.7 (8) - Sensors 5 2.3 8 3.8 (3) - Total (46) (2.3) 4 0.2 (50) - Industrial Solutions (3) : Industrial equipment 12 2.5 (2) (0.5) (7) 21 Aerospace, defense, oil, and gas 31 12.2 33 12.7 (2) - Energy 3 1.9 9 5.8 (6) - Total 46 5.2 40 4.5 (15) 21 Communications Solutions (3) : Data and devices 19 8.0 22 9.3 (3) - Appliances (8) (4.3) (3) (1.7) (5) - Total 11 2.6 19 4.6 (8) - Total 11 $ 0.3% 63 $ 1.9% (73) $ 21 $ (1) Organic net sales growth is a non-GAAP financial measure. See description of non-GAAP financial measures. (2) Represents the change in net sales resulting from changes in foreign currency exchange rates. (3) Industry end market information is presented consistently with our internal management reporting and may be periodically revised as management deems necessary. Organic Net Change in Net Sales for the Quarter Ended December 28, 2018 Sales Growth (1) ($ in millions) Sales Growth Net versus Net Sales for the Quarter Ended December 29, 2017
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures for the Quarter Ended December 28, 2018 22 Acquisition Restructuring Related and Other Adjusted U.S. GAAP Charges (1) Charges, Net (1) (Non-GAAP) (2) Operating Income: Transportation Solutions 332 $ 3 $ 21 $ 356 $ Industrial Solutions 100 3 35 138 Communications Solutions 52 - 19 71 Total 484 $ 6 $ 75 $ 565 $ Operating Margin 14.5% 16.9% Other Expense, Net (1) $ - $ - $ (1) $ Income Tax Expense (78) $ (1) $ (19) $ (98) $ Effective Tax Rate 16.9% 18.1% Income from Continuing Operations 383 $ 5 $ 56 $ 444 $ Diluted Earnings per Share from Continuing Operations 1.11 $ 0.01 $ 0.16 $ 1.29 $ (2) See description of non-GAAP financial measures. (1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction. ($ in millions, except per share data) Adjustments
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures for the Quarter Ended December 29, 2017 23 Acquisition Restructuring Related and Other Tax Adjusted U.S. GAAP Charges (1) Charges, Net (1) Items (2) (Non-GAAP) (3) Operating Income: Transportation Solutions 417 $ 5 $ 4 $ - $ 426 $ Industrial Solutions 102 2 22 - 126 Communications Solutions 67 - 8 - 75 Total 586 $ 7 $ 34 $ - $ 627 $ Operating Margin 17.6% 18.8% Other Income, Net 2 $ - $ - $ (1) $ 1 $ Income Tax Expense (599) $ (2) $ (8) $ 506 $ (103) $ Effective Tax Rate 105.8% 17.0% Income (Loss) from Continuing Operations (33) $ 5 $ 26 $ 505 $ 503 $ Diluted Earnings (Loss) per Share from Continuing Operations (4) (0.09) $ 0.01 $ 0.07 $ 1.42 $ 1.42 $ (4) U.S. GAAP diluted shares excludes 3 million of nonvested restricted share awards and nonvested options as the inclusion of these securities would have been antidilutive because of our loss during the period. Such amounts are included in adjusted (non-GAAP) diluted shares. (1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction. (2) Includes $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act and a $61 million income tax benefit related to certain legal entity restructurings. (3) See description of non-GAAP financial measures. Adjustments ($ in millions, except per share data)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures for the Quarter Ended September 28, 2018 24 Acquisition Restructuring Related and Other Tax Adjusted U.S. GAAP Charges (1) Charges, Net (1) Items (2) (Non-GAAP) (3) Operating Income: Transportation Solutions 341 $ 3 $ 20 $ - $ 364 $ Industrial Solutions 146 2 4 - 152 Communications Solutions 83 - (2) - 81 Total 570 $ 5 $ 22 $ - $ 597 $ Operating Margin 16.2% 17.0% Other Expense, Net (1) $ - $ - $ - $ (1) $ Income Tax (Expense) Benefit 1,128 $ (1) $ (4) $ (1,222) $ (99) $ Effective Tax Rate (206.6)% 17.3% Income from Continuing Operations 1,674 $ 4 $ 18 $ (1,222) $ 474 $ Diluted Earnings per Share from Continuing Operations 4.78 $ 0.01 $ 0.05 $ (3.49) $ 1.35 $ (1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction. (2) Includes a $1,222 million net income tax benefit associated with the tax impacts of certain intercompany transactions including an increase to the valuation allowance. (3) See description of non-GAAP financial measures. Adjustments ($ in millions, except per share data)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures for the Quarter Ended March 30, 2018 25 Restructuring Acquisition and Other Related Charges Adjusted U.S. GAAP Charges (1) (Credits), Net (1) (Non-GAAP) (2) Operating Income: Transportation Solutions 427 $ 2 $ (2) $ 427 $ Industrial Solutions 125 3 7 135 Communications Solutions 69 - 1 70 Total 621 $ 5 $ 6 $ 632 $ Operating Margin 17.4% 17.7% Other Income, Net 1 $ - $ - $ 1 $ Income Tax Expense (108) $ - $ 1 $ (107) $ Effective Tax Rate 18.1% 17.6% Income from Continuing Operations 490 $ 5 $ 7 $ 502 $ Diluted Earnings per Share from Continuing Operations 1.38 $ 0.01 $ 0.02 $ 1.42 $ (1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction. (2) See description of non-GAAP financial measures. Adjustments ($ in millions, except per share data)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures for the Year Ended September 28, 2018 26 Acquisition Restructuring Related and Other Tax Adjusted U.S. GAAP Charges (1) Charges, Net (1) Items (2) (Non-GAAP) (3) Operating Income: Transportation Solutions 1,578 $ 12 $ 33 $ - $ 1,623 $ Industrial Solutions 465 10 80 - 555 Communications Solutions 288 - 13 - 301 Total 2,331 $ 22 $ 126 $ - $ 2,479 $ Operating Margin 16.7% 17.7% Other Income, Net 1 $ - $ - $ (1) $ - $ Income Tax (Expense) Benefit 344 $ (5) $ (31) $ (716) $ (408) $ Effective Tax Rate (15.4)% 17.1% Income from Continuing Operations 2,584 $ 17 $ 95 $ (717) $ 1,979 $ Diluted Earnings per Share from Continuing Operations 7.32 $ 0.05 $ 0.27 $ (2.03) $ 5.61 $ (3) See description of non-GAAP financial measures. ($ in millions, except per share data) (1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction. Adjustments (2) Includes a $1,283 million net income tax benefit associated with the tax impacts of certain intercompany transactions and legal entity restructurings including an increase to the valuation allowance. Also includes $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act.
Reconciliation of Free Cash Flow 27 December 28, December 29, September 28, 2018 2017 2018 Net cash provided by operating activities: Net cash provided by continuing operating activities 328 $ 283 $ 922 $ Net cash provided by (used in) discontinued operating activities (31) 67 2 297 350 924 Net cash provided by (used in) investing activities 80 (241) (419) Net cash used in financing activities (719) (634) (420) Effect of currency translation on cash (1) 11 (7) Net increase (decrease) in cash, cash equivalents, and restricted cash (343) $ (514) $ 78 $ Net cash provided by continuing operating activities 328 $ 283 $ 922 $ Excluding: Cash (collected) paid pursuant to collateral requirements related to cross-currency swap contracts (50) 18 6 Capital expenditures, net (209) (237) (258) Free cash flow (1) 69 $ 64 $ 670 $ (1) Free cash flow is a non-GAAP financial measure. See description of non-GAAP financial measures. For the Quarters Ended (in millions)
Reconciliation of Adjusted EBITDA Margin 28 December 28, December 29, 2018 2017 Net Income (Loss) 276 $ (40) $ Loss from discontinued operations 107 7 Income tax expense 78 599 Other (income) expense, net 1 (2) Interest expense 27 26 Interest income (5) (4) Operating Income 484 586 Acquisition related charges 6 7 Restructuring and other charges, net 75 34 Adjusted Operating Income (1) 565 627 Depreciation and amortization (2) 167 161 Adjusted EBITDA (1) 732 $ 788 $ Net Sales 3,347 $ 3,336 $ Net income (loss) as a percentage of net sales 8.2% (1.2)% Adjusted EBITDA margin (1) 21.9% 23.6% Transportation Industrial Communications Transportation Industrial Communications Solutions Solutions Solutions Total Solutions Solutions Solutions Total Operating Income 332 $ 100 $ 52 $ 484 $ 417 $ 102 $ 67 $ 586 $ Acquisition related charges 3 3 - 6 5 2 - 7 Restructuring and other charges, net 21 35 19 75 4 22 8 34 Adjusted Operating Income (1) 356 138 71 565 426 126 75 627 Depreciation and amortization (2) 109 45 13 167 100 42 19 161 Adjusted EBITDA (1) 465 $ 183 $ 84 $ 732 $ 526 $ 168 $ 94 $ 788 $ Net Sales 1,986 $ 928 $ 433 $ 3,347 $ $ 2,032 $ 882 $ 422 $ 3,336 Operating margin 16.7% 10.8% 12.0% 14.5% 20.5% 11.6% 15.9% 17.6% Adjusted operating margin (1) 17.9% 14.9% 16.4% 16.9% 21.0% 14.3% 17.8% 18.8% Adjusted EBITDA margin (1) 23.4% 19.7% 19.4% 21.9% 25.9% 19.0% 22.3% 23.6% (2) Excludes non-cash amortization associated with fair value adjustments related to acquired customer order backlog of $1 million for the quarters ended December 28, 2018 and December 29, 2017, as these charges are included in the acquisition related charges line. For the Quarters Ended (1) See description of non-GAAP financial measures. December 28, 2018 December 29, 2017 For the Quarters Ended ($ in millions) ($ in millions)
Adjusted Return on Invested Capital (ROIC) 29 December 28, September 28, June 29, March 30, December 29, September 29, June 30, March 31, 2018 2018 2018 2018 2017 2017 2017 2017 Operating income 484 $ 570 $ 554 $ 621 $ 586 $ 491 $ 486 $ 435 $ Acquisition related charges 6 5 5 5 7 1 4 3 Restructuring and other charges, net 75 22 64 6 34 22 20 59 Adjusted Operating Income (1) 565 $ 597 $ 623 $ 632 $ 627 $ 514 $ 510 $ 497 $ Amortization expense 45 $ 45 $ 45 $ 45 $ 45 $ 43 $ 43 $ 41 $ Adjustment (2) (1) - (1) (2) (1) - (3) (1) Adjusted amortization expense 44 $ 45 $ 44 $ 43 $ 44 $ 43 $ 40 $ 40 $ Adjusted operating income plus adjusted amortization expense 609 $ 642 $ 667 $ 675 $ 671 $ 557 $ 550 $ 537 $ Income from continuing operations before income taxes 461 $ 546 $ 530 $ 598 $ 566 $ 451 $ 445 $ 396 $ Acquisition related charges 6 5 5 5 7 1 4 3 Restructuring and other charges, net 75 22 64 6 34 22 20 59 Tax items - - - - (1) - 7 - Adjusted income from continuing operations before income taxes 542 $ 573 $ 599 $ 609 $ 606 $ 474 $ 476 $ 458 $ Income taxes paid, net of refunds 75 $ 76 $ 109 $ 126 $ 82 $ 67 $ 79 $ 81 $ Refunds for tax deficiencies related to pre-separation tax matters - - - - - - 15 3 Adjusted income taxes paid, net of refunds 75 $ 76 $ 109 $ 126 $ 82 $ 67 $ 94 $ 84 $ Adjusted cash tax rate 13.8% 13.3% 18.2% 20.7% 13.5% 14.1% 19.7% 18.3% Adjusted net operating profit after taxes 525 $ 557 $ 546 $ 535 $ 580 $ 478 $ 441 $ 439 $ Trailing four quarter adjusted net operating profit after taxes 2,163 $ 1,938 $ Total debt 3,967 $ 4,000 $ 4,008 $ 4,010 $ 4,005 $ 4,344 $ 3,991 $ 3,952 $ Total shareholders' equity 10,236 10,831 9,492 9,480 9,631 9,751 9,141 8,753 Invested capital 14,203 $ 14,831 $ 13,500 $ 13,490 $ 13,636 $ 14,095 $ 13,132 $ 12,705 $ Trailing four quarter average invested capital 14,006 $ 13,392 $ Adjusted ROIC (1) 15.4% 14.5% (1) See description of non-GAAP financial measures. (2) Adjustment for non-cash amortization associated with fair value adjustments related to acquired customer order backlog as these charges are included in the acquisition related chargesline. As of or for the Quarters Ended ($ in millions)
Reconciliation of Forward-Looking Non-GAAP Financial Measures to Forward-Looking GAAP Financial Measures 30 Outlook for Quarter Ending March 29, Outlook for 2019 (1) Fiscal 2019 (1) Diluted earnings per share from continuing operations (GAAP) $1.13 - $1.17 $4.94 - $5.14 Restructuring and other charges, net 0.10 0.33 Acquisition related charges 0.02 0.08 Adjusted diluted earnings per share from continuing operations (non-GAAP) (2) $1.25 - $1.29 $5.35 - $5.55 Net sales growth (GAAP) (7)% - (5)% (4)% - (1)% Translation 5 3 (Acquisitions) divestitures, net (1) (1) Organic net sales growth (non-GAAP) (2) (3)% - (1)% (2)% - 1% Effective tax rate (GAAP) 18.0% Effective tax rate adjustments (3) 0.5 Adjusted effective tax rate (non-GAAP) (2) 18.5% (3) Includes adjustments for special tax items and the tax effect of acquisition related charges and restructuring and other charges, calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction. (1) Outlook is as of January 23, 2019 (2) See description of non-GAAP financial measures.