Table of Contents
UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 29, 2018
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-33260(Commission File Number)
TE CONNECTIVITY LTD. (Exact name of registrant as specified in its charter)
Rheinstrasse 20CH-8200 Schaffhausen, Switzerland(Address of principal executive offices)
+41 (0)52 633 66 61(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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 financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The number of common shares outstanding as of July 20, 2018 was 348,458,740.
TE CONNECTIVITY LTD. INDEX TO FORM 10-Q
Part I.
Financial Information
Item 1.
Financial Statements
Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)
Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)
Condensed Consolidated Balance Sheets as of June 29, 2018 and September 29, 2017 (unaudited)
Condensed Consolidated Statements of Shareholders' Equity for the Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
Part II.
Other Information
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
Signatures
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TE CONNECTIVITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Net sales
Cost of sales
Gross margin
Selling, general, and administrative expenses
Research, development, and engineering expenses
Acquisition and integration costs
Restructuring and other charges, net
Operating income
Interest income
Interest expense
Other income (expense), net
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income
Basic earnings per share:
Income (loss) from discontinued operations
Diluted earnings per share:
Dividends paid per common share
Weighted-average number of shares outstanding:
Basic
Diluted
See Notes to Condensed Consolidated Financial Statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income.
Other comprehensive income (loss):
Currency translation
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes
Gains (losses) on cash flow hedges, net of income taxes
Other comprehensive income (loss)
Comprehensive income.
2
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $21
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Other assets
Total Assets
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt
Accounts payable
Accrued and other current liabilities
Deferred revenue
Total current liabilities
Long-term debt
Long-term pension and postretirement liabilities
Income taxes
Other liabilities
Total Liabilities
Commitments and contingencies (Note 7)
Shareholders' equity:
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued
Accumulated earnings
Treasury shares, at cost, 8,658,869 and 5,356,369 shares, respectively
Accumulated other comprehensive loss
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
3
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Balance at September 29, 2017
Adoption of ASU No. 2018-02
Other comprehensive loss
Share-based compensation expense
Dividends approved
Exercise of share options
Restricted share award vestings and other activity
Repurchase of common shares
Balance at June 29, 2018
Balance at September 30, 2016
Adoption of ASU No. 2016-09
Other comprehensive income
Cancellation of treasury shares
Balance at June 30, 2017
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
(Income) loss from discontinued operations, net of income taxes
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization
Provision for losses on accounts receivable and inventories
Other
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net
Net cash provided by continuing operating activities
Net cash used in discontinued operating activities
Net cash provided by operating activities
Cash Flows From Investing Activities:
Capital expenditures
Proceeds from sale of property, plant, and equipment
Acquisition of business, net of cash acquired
Net cash used in investing activities
Cash Flows From Financing Activities:
Net increase (decrease) in commercial paper
Proceeds from issuance of debt
Repayment of debt
Proceeds from exercise of share options
Payment of common share dividends to shareholders
Net cash used in continuing financing activities
Net cash provided by discontinued financing activities
Net cash used in financing activities
Effect of currency translation on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Accounting Pronouncements
Basis of Presentation
The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") have been prepared in United States ("U.S.") dollars, in accordance with accounting principles generally accepted in the U.S. ("GAAP") and the instructions to Form 10-Q under the Securities Exchange Act of 1934. In management's opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.
The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017.
Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2018 and fiscal 2017 are to our fiscal years ending September 28, 2018 and ended September 29, 2017, respectively.
Recently Issued Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 which codified Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. ASC 606, as amended, is effective for us beginning in fiscal 2019. Significantly all our revenues are generated from the sale of products and construction related projects. Our review of these existing contracts, which is substantially complete, affirms that product revenue will continue to be recognized at a point in time in a manner consistent with current practice. In addition, construction related projects, which are accounted for primarily using the percentage-of-completion method, will continue to qualify for revenue recognition over time. In the quarter ended June 29, 2018, we continued the process of updating policies, internal controls, financial statement disclosures, and systems to incorporate the impact of the new standard in our financial reporting processes. We intend to adopt the new standard using the modified retrospective approach and have begun quantifying the impact of the cumulative effect of applying this new standard on existing, uncompleted contracts at the adoption date, which will result in an adjustment to the opening balance of accumulated earnings as of September 29, 2018. We do not expect that the cumulative impact of adoption will be material to our results of operations or financial position.
Recently Adopted Accounting Pronouncement
In February 2018, the FASB issued ASU No. 2018-02, an update to ASC 220, Income Statement–Reporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive income (loss) for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act"). See Note 10 for additional information regarding the Act. We elected to early adopt this update in the quarter ended March 30, 2018 and reclassify the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate. This change in accounting principle resulted in a
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
1. Basis of Presentation and Accounting Pronouncements (Continued)
reclassification of $38 million, primarily associated with our pension plans, during the period of adoption. The reclassification increased both accumulated other comprehensive loss and accumulated earnings with no impact to total shareholders' equity.
In March 2017, the FASB issued ASU No. 2017-07, an update to ASC 715, Compensation–Retirement Benefits, which changes the income statement presentation of net periodic pension and postretirement benefit costs. The ASU requires that service costs be presented with other employee compensation costs within operating income and that other cost components be presented outside of operating income. We elected to early adopt this update in the quarter ended December 29, 2017. The update was applied retrospectively and did not have a material impact on our Condensed Consolidated Statements of Operations.
2. Restructuring and Other Charges, Net
Net restructuring and other charges consisted of the following:
Restructuring charges, net
Other charges (credits), net
Net restructuring charges by segment were as follows:
Transportation Solutions
Industrial Solutions
Communications Solutions
7
2. Restructuring and Other Charges, Net (Continued)
Activity in our restructuring reserves was as follows:
Fiscal 2018 Actions:
Employee severance
Facility and other exit costs
Property, plant, and equipment
Total
Fiscal 2017 Actions:
Pre-Fiscal 2017 Actions:
Total Activity
Fiscal 2018 Actions
During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions segment. In connection with this program, during the nine months ended June 29, 2018, we recorded restructuring charges of $111 million. We expect to complete significantly all restructuring actions commenced during the nine months ended June 29, 2018 by the end of fiscal 2020 and to incur total charges of approximately $130 million. Remaining charges primarily relate to employee severance.
Fiscal 2017 Actions
During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. In connection with this program, during the nine months ended June 29, 2018 and June 30, 2017, we recorded net restructuring charges of $4 million and $119 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2017 by the end of fiscal 2019 and anticipate that any additional charges will be insignificant.
Pre-Fiscal 2017 Actions
Prior to fiscal 2017, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. During
8
each of the nine months ended June 29, 2018 and June 30, 2017, we recorded net restructuring charges of $5 million related to pre-fiscal 2017 actions. We expect to incur additional charges of approximately $15 million related to pre-fiscal 2017 actions with the remaining charges related to employee severance primarily in the Communications Solutions segment.
Total Restructuring Reserves
Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:
Restructuring reserves
3. Inventories
Inventories consisted of the following:
Raw materials
Work in progress
Finished goods
Inventoried costs on long-term contracts
4. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
September 29, 2017(1)
Currency translation and other
June 29, 2018(1)
9
5. Intangible Assets, Net
Intangible assets consisted of the following:
Customer relationships
Intellectual property
Intangible asset amortization expense was $45 million and $43 million for the quarters ended June 29, 2018 and June 30, 2017, respectively, and $135 million and $126 million for the nine months ended June 29, 2018 and June 30, 2017, respectively.
The aggregate amortization expense on intangible assets is expected to be as follows:
Remainder of fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Thereafter
6. Debt
During the nine months ended June 29, 2018, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, repaid, at maturity, $708 million of 6.55% senior notes due October 2017.
We reclassified $325 million of 2.375% senior notes due December 2018 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet during the nine months ended June 29, 2018.
During the nine months ended June 29, 2018, TEGSA entered into an uncommitted revolving credit facility under which it borrowed €100 million at a 0% interest rate with repayment due at maturity in December 2018.
As of June 29, 2018, TEGSA had $271 million of commercial paper outstanding at a weighted-average interest rate of 2.33%. TEGSA had no commercial paper outstanding at September 29, 2017.
The fair value of our debt, based on indicative valuations, was approximately $4,188 million and $4,622 million at June 29, 2018 and September 29, 2017, respectively.
10
7. Commitments and Contingencies
In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.
Environmental Matters
We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of June 29, 2018, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $15 million to $43 million, and we accrued $18 million as the probable loss, which was the best estimate within this range. We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.
Guarantees
In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.
At June 29, 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds of $283 million.
We generally record estimated product warranty costs when contract revenues are recognized under the percentage-of-completion method for construction related contracts; other warranty reserves are not significant. The estimation is based primarily on historical experience and actual warranty claims. Amounts accrued for warranty claims were $46 million and $50 million at June 29, 2018 and September 29, 2017, respectively.
Tax Sharing Agreement
Under a Tax Sharing Agreement, we, Tyco International plc ("Tyco International"), and Covidien plc ("Covidien") share 31%, 27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to the collective income tax returns for certain of our, Tyco International's, and Covidien's income tax liabilities for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and
11
7. Commitments and Contingencies (Continued)
indemnifications with Tyco International and Covidien. As a result of subsequent transactions, Tyco International and Covidien now operate as part of Johnson Controls International plc and Medtronic plc, respectively. We have substantially settled all U.S. federal income tax matters with the Internal Revenue Service ("IRS") for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will have a material effect on our results of operations, financial position, or cash flows.
8. Financial Instruments
During fiscal 2015, we entered into cross-currency swap contracts with an aggregate notional value of €1,000 million to reduce our exposure to foreign currency exchange risk associated with certain intercompany loans. Under the terms of these contracts, which have been designated as cash flow hedges, we make quarterly interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.33% per annum. Upon the maturities of these contracts in fiscal 2022, we will pay the notional value of the contracts in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, we are required to post cash collateral with our counterparties.
At June 29, 2018 and September 29, 2017, our cross-currency swap contracts were in a liability position of $107 million and $96 million, respectively, and were recorded in other liabilities on the Condensed Consolidated Balance Sheets. At June 29, 2018 and September 29, 2017, collateral paid to our counterparties approximated the derivative positions and was recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The impacts of our cross-currency swap contracts were as follows:
Gains (losses) recorded in other comprehensive income (loss)
Gains (losses) excluded from the hedging relationship(1)
12
8. Financial Instruments (Continued)
We hedge our net investment in certain foreign operations using intercompany loans denominated in the same currencies. The aggregate notional value of these hedges was $2,986 million and $3,110 million at June 29, 2018 and September 29, 2017, respectively. The impacts of our hedging program were as follows:
Foreign currency exchange gains (losses)(1)
9. Retirement Plans
The net periodic pension benefit cost for all U.S. and non-U.S. defined benefit pension plans was as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Amortization of prior service credit
Net periodic pension benefit cost
13
9. Retirement Plans (Continued)
The components of net periodic pension benefit cost other than service cost are included in net other income (expense) on the Condensed Consolidated Statements of Operations.
During the nine months ended June 29, 2018, we contributed $36 million to our non-U.S. pension plans.
10. Income Taxes
We recorded income tax expense of $81 million and $71 million for the quarters ended June 29, 2018 and June 30, 2017, respectively. The income tax expense for the quarter ended June 29, 2018 included a $17 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions. The income tax expense for the quarter ended June 30, 2017 included a $14 million income tax benefit associated with pre-separation tax matters.
We recorded income tax expense of $789 million and $164 million for the nine months ended June 29, 2018 and June 30, 2017, respectively. The tax expense for the nine months ended June 29, 2018 included $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act, a $61 million net income tax benefit related to certain legal entity restructurings, and a $34 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions. See "Tax Cuts and Jobs Act" below for additional information. The tax expense for the nine months ended June 30, 2017 included a $52 million income tax benefit associated with the tax impacts of certain intercompany transactions and the corresponding reduction in the valuation allowance for U.S. tax loss carryforwards, a $24 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions, and a $14 million income tax benefit associated with pre-separation tax matters.
We record accrued interest and penalties related to uncertain tax positions as part of income tax expense. As of June 29, 2018 and September 29, 2017, we had $60 million of accrued interest and penalties related to uncertain tax positions on the Condensed Consolidated Balance Sheets, recorded primarily in income taxes. During the nine months ended June 29, 2018, we recognized $2 million of income tax expense related to interest and penalties on the Condensed Consolidated Statement of Operations.
Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $30 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.
We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Condensed Consolidated Balance Sheet as of June 29, 2018.
Tax Cuts and Jobs Act
On December 22, 2017, the President of the U.S. signed the Tax Cuts and Jobs Act (the "Act") into law. The Act includes numerous significant changes to existing tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, further limitations on the deductibility of interest expense and certain executive compensation, repeal of the corporate Alternative Minimum Tax, and imposition of a territorial tax system with a one-time repatriation tax on
14
10. Income Taxes (Continued)
deemed repatriated earnings of foreign subsidiaries. While some of the new provisions of the Act will impact us in fiscal 2019 and beyond, the change in the tax rate was effective January 1, 2018. In the period of enactment, we were required to revalue our U.S. federal deferred tax assets and liabilities at the new tax rate. Accordingly, during the quarter ended December 29, 2017, we recorded income tax expense of $567 million primarily in connection with the write-down of our U.S. federal deferred tax asset for net operating loss and interest carryforwards to the lower tax rate. Included in the expense of $567 million was an income tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards. The limitations on interest expense deductions contained in the Act are expected to increase prospective taxable income and thereby allow the utilization of more tax credits in future years. As a Swiss corporation, the one-time repatriation tax imposed by the Act will not be significant to us.
The Act makes broad and complex changes to the U.S. Internal Revenue Code, and in certain instances, lacks clarity and is subject to interpretation until additional IRS guidance is issued. The ultimate impact of the Act may differ from our estimates due to changes in the interpretations and assumptions we made as well as any forthcoming regulatory guidance. One area requiring guidance is a transition rule regarding limitations on interest expense deductions. The Act does not address the treatment of the carryforward of disallowed interest expense generated under the prior law. Our interpretation is that the carryforward of interest should survive and will be deductible in future periods subject to the new interest limitations. Accordingly, during the quarter ended December 29, 2017, we revalued our beginning deferred tax asset related to our interest carryforwards to $223 million to reflect the lower tax rate. It is possible additional regulatory guidance could be issued contrary to this interpretation at which point we may be required to record a charge to income tax expense to revalue or eliminate the related deferred tax asset. On April 2, 2018, the Treasury Department and the IRS issued Notice 2018-28 stating their intention to issue regulations consistent with our position related to the carryforward of the disallowed interest expense.
11. Earnings Per Share
The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:
Dilutive impact of share-based compensation arrangements
There were one million share options that were not included in the computation of diluted earnings per share for the nine months ended June 30, 2017 because the instruments' underlying exercise price were greater than the average market prices of our common shares and inclusion would be antidilutive.
15
12. Shareholders' Equity
Common Shares
In March 2018, our shareholders reapproved and extended through March 14, 2020, our board of directors' authorization to issue additional new shares, subject to certain conditions specified in our articles of association, in aggregate not exceeding 50% of the amount of our authorized shares.
Dividends
We paid a cash dividend of $0.40 per share to shareholders in each of the quarters ended December 29, 2017 and March 30, 2018.
In March 2018, our shareholders approved a dividend payment to shareholders of $1.76 per share, payable in four equal quarterly installments beginning in the third quarter of fiscal 2018 and ending in the second quarter of fiscal 2019. We paid the first installment of the dividend at a rate of $0.44 per share in the quarter ended June 29, 2018.
Upon shareholders' approval of a dividend payment, we record a liability with a corresponding charge to shareholders' equity. At June 29, 2018 and September 29, 2017, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $459 million and $281 million, respectively.
Share Repurchase Program
During the nine months ended June 29, 2018, our board of directors authorized an increase of $1.5 billion in the share repurchase program. Common shares repurchased under the share repurchase program were as follows:
Number of common shares repurchased
Repurchase value
At June 29, 2018, we had $1.4 billion of availability remaining under our share repurchase authorization.
13. Share Plans
Share-based compensation expense, which was included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:
16
13. Share Plans (Continued)
As of June 29, 2018, there was $153 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 1.8 years.
During the quarter ended December 29, 2017, we granted the following share-based awards as part of our annual incentive plan grant:
Share options
Restricted share awards
Performance share awards
As of June 29, 2018, we had 20 million shares available for issuance under our stock and incentive plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of March 8, 2017, was the primary plan.
Share-Based Compensation Assumptions
The weighted-average assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:
Expected share price volatility
Risk free interest rate
Expected annual dividend per share
Expected life of options (in years)
14. Segment Data
Net sales by segment were as follows:
Total(1)
17
14. Segment Data (Continued)
Operating income by segment was as follows:
18
15. Tyco Electronics Group S.A.
Tyco Electronics Group S.A. ("TEGSA"), a Luxembourg company and our 100%-owned subsidiary, is a holding company that owns, directly or indirectly, all of our operating subsidiaries. TEGSA is the obligor under our senior notes, commercial paper, and five-year unsecured senior revolving credit facility, which are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd. The following tables present condensed consolidating financial information for TE Connectivity Ltd., TEGSA, and all other subsidiaries that are not providing a guarantee of debt but which represent assets of TEGSA, using the equity method of accounting.
Condensed Consolidating Statement of Operations (UNAUDITED) For the Quarter Ended June 29, 2018
Selling, general, and administrative expenses, net
Operating income (loss)
Other expense, net
Equity in net income of subsidiaries
Intercompany interest income (expense), net
Comprehensive income
19
15. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations (UNAUDITED) For the Quarter Ended June 30, 2017
Equity in net income of subsidiaries of discontinued operations
20
Condensed Consolidating Statement of Operations (UNAUDITED) For the Nine Months Ended June 29, 2018
Other income, net
Equity in net loss of subsidiaries of discontinued operations
Loss from discontinued operations, net of income taxes
21
Condensed Consolidating Statement of Operations (UNAUDITED) For the Nine Months Ended June 30, 2017
Income (loss) from discontinued operations, net of income taxes(1)
22
Condensed Consolidating Balance Sheet (UNAUDITED) As of June 29, 2018
Intercompany receivables
Investment in subsidiaries
Intercompany loans receivable
Intercompany payables
Intercompany loans payable
23
Condensed Consolidating Balance Sheet (UNAUDITED) As of September 29, 2017
24
Condensed Consolidating Statement of Cash Flows (UNAUDITED) For the Nine Months Ended June 29, 2018
Net cash provided by (used in) operating activities(1)
Intercompany distribution receipts(1)
Change in intercompany loans
Net cash provided by (used in) investing activities
Changes in parent company equity(2)
Net increase in commercial paper
Intercompany distributions(1)
Loan activity with parent
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
25
Condensed Consolidating Statement of Cash Flows (UNAUDITED) For the Nine Months Ended June 30, 2017
Net cash provided by (used in) continuing operating activities
Net cash provided by (used in) operating activities
Changes in parent company equity(1)
Net decrease in commercial paper
Net cash provided by (used in) continuing financing activities
Net increase in cash and cash equivalents
26
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 on Form 10-Q. 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 ("U.S.") dollars, in accordance with accounting principles generally accepted in the U.S. ("GAAP").
The following discussion includes organic net sales growth which is a non-GAAP financial measure. See "Non-GAAP Financial Measure" for additional information regarding this measure.
Overview
TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") is a global technology and manufacturing leader creating a safer, sustainable, productive, and connected future. For more than 75 years, our connectivity and sensor solutions, proven in the harshest environments, have enabled advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.
Highlights for the third quarter and first nine months of fiscal 2018 include the following:
Outlook
In the fourth quarter of fiscal 2018, we expect our net sales to be between $3.59 billion and $3.69 billion as compared to $3.5 billion in the fourth quarter of fiscal 2017. We expect our net sales to be between $14.58 billion and $14.68 billion in fiscal 2018 as compared to $13.1 billion in fiscal 2017.
27
These increases are due to sales growth in the Transportation Solutions and, to a lesser extent, the Industrial Solutions segments, partially offset by sales declines in the Communications Solutions segment. Additional information regarding expectations for our reportable segments for the fourth quarter of fiscal 2018 as compared to the same period of fiscal 2017 and for fiscal 2018 compared to fiscal 2017 is as follows:
We expect diluted earnings per share from continuing operations to be in the range of $1.23 to $1.25 per share in the fourth quarter of fiscal 2018. For fiscal 2018, we expect diluted earnings per share from continuing operations to be in the range of $3.79 to $3.81 per share. The outlook for the fourth quarter of fiscal 2018 reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately $49 million and $0.02 per share, respectively, in the fourth quarter of fiscal 2018 as compared to the same period of fiscal 2017. The fiscal 2018 outlook reflects the positive impact of foreign currency exchange rates on net sales and earnings per share of approximately $423 million and $0.19 per share, respectively, as compared to fiscal 2017.
The above outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.
We are monitoring the current macroeconomic environment and its potential effects on our customers and the end markets we serve. We continue to closely manage our costs in line with economic conditions. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs. See further discussion in "Liquidity and Capital Resources."
Results of Operations
Net Sales
The following table presents our net sales and the percentage of total net sales by segment:
28
The following table provides an analysis of the change in our net sales by segment:
Net sales increased $397 million, or 11.8%, in the third quarter of fiscal 2018 as compared to the third quarter of fiscal 2017. The increase in net sales resulted from organic net sales growth of 6.2%, the positive impact of foreign currency translation of 3.9% due to the strengthening of certain foreign currencies, and sales contributions from acquisitions of 1.7%. Price erosion adversely affected organic net sales by $55 million in the third quarter of fiscal 2018.
In the first nine months of fiscal 2018, net sales increased $1,332 million, or 13.8%, as compared to the first nine months of fiscal 2017 as a result of organic net sales growth of 7.0%, the positive impact of foreign currency translation of 4.9% due to the strengthening of certain foreign currencies, and sales contributions from acquisitions of 1.9%. Price erosion adversely affected organic net sales by $148 million in the first nine months of fiscal 2018.
See further discussion of net sales below under "Segment Results."
Net Sales by Geographic Region. Our business operates in three geographic regions—the Americas, Europe/Middle East/Africa ("EMEA"), and Asia–Pacific—and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at the end of each fiscal period.
Approximately 60% of our net sales were invoiced in currencies other than the U.S. dollar in the first nine months of fiscal 2018.
The following table presents our net sales and the percentage of total net sales by geographic region(1):
Americas
EMEA
Asia–Pacific
29
The following table provides an analysis of the change in our net sales by geographic region:
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
As a percentage of net sales
Gross margin increased $77 million and $320 million in the third quarter and first nine months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The increases were due primarily to higher volume and the positive impact of foreign currency translation, partially offset by the negative impact of price erosion. Gross margin as a percentage of net sales decreased to 32.3% in the third quarter of fiscal 2018 from 33.9% in the third quarter of fiscal 2017 and decreased to 33.1% in the first nine months of fiscal 2018 from 34.3% in the same period of fiscal 2017.
Cost of sales and gross margin are subject to variability in raw material prices which continue to fluctuate for many of the raw materials used in the manufacture of our products. We expect to purchase approximately 200 million pounds of copper, 140,000 troy ounces of gold, and 2.8 million troy ounces of silver in fiscal 2018. The following table presents the average prices incurred related to copper, gold, and silver:
Copper
Gold
Silver
30
Operating Expenses
The following table presents operating expense information:
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses were $409 million in the third quarter of fiscal 2018 as compared to $408 million in the same period of fiscal 2017. Increased selling expenses to support higher sales levels were offset by lower incentive compensation costs. In the first nine months of fiscal 2018, selling, general, and administrative expenses increased $38 million from the same period in fiscal 2017. The increase resulted primarily from increased selling expenses to support higher sales levels and incremental expenses attributable to recently acquired businesses, partially offset by lower incentive compensation costs and a gain on the sale of certain assets. Selling, general, and administrative expenses as a percentage of net sales decreased to 10.9% in the third quarter of fiscal 2018 from 12.1% in the third quarter of fiscal 2017 and decreased to 11.1% in the first nine months of fiscal 2018 from 12.2% in the same period of fiscal 2017.
Research, Development, and Engineering Expenses. In the third quarter and first nine months of fiscal 2018, research, development, and engineering expenses increased $13 million and $54 million, respectively, as compared to the same periods of fiscal 2017 due to costs related to growth initiatives, primarily in the Transportation Solutions segment.
Restructuring and Other Charges, Net. We are committed to continuous productivity improvements and consistently evaluate opportunities to simplify our global manufacturing footprint, migrate facilities to lower-cost regions, reduce fixed costs, and eliminate excess capacity. These initiatives are designed to help us maintain our competitiveness in the industry, improve our operating leverage, and position us for future growth.
During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions segment. During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments.
In connection with these initiatives, we incurred net restructuring charges of $120 million during the first nine months of fiscal 2018, of which $111 million related to the fiscal 2018 restructuring program. Annualized cost savings related to the fiscal 2018 actions commenced during the first nine months of fiscal 2018 are expected to be approximately $90 million and are expected to be realized by the end of fiscal 2020. Cost savings will be reflected primarily in cost of sales and selling, general, and administrative expenses. During fiscal 2018, we expect to incur net restructuring charges of approximately $150 million. We expect total spending, which will be funded with cash from operations, to be approximately $130 million in fiscal 2018.
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
31
Operating Income
The following table presents operating income and operating margin information:
Operating margin
Operating income included the following:
Acquisition related charges:
Charges associated with the amortization of acquisition related fair value adjustments
See discussion of operating income below under "Segment Results."
Non-Operating Items
The following table presents select non-operating information:
Other (income) expense, net
Effective tax rate
Income Taxes. See Note 10 to the Condensed Consolidated Financial Statements for discussion of items impacting income tax expense for the third quarters and first nine months of fiscal 2018 and 2017 and information regarding the Tax Cuts and Jobs Act (the "Act"). We do not expect a significant change in our effective tax rate on future results of operations as a result of the Act.
32
Segment Results
Net Sales. The following table presents the Transportation Solutions segment's net sales and the percentage of total net sales by primary industry end market(1):
Automotive
Commercial transportation
Sensors
The following table provides an analysis of the change in the Transportation Solutions segment's net sales by primary industry end market:
Net sales in the Transportation Solutions segment increased $347 million, or 19.7%, in the third quarter of fiscal 2018 from the third quarter of fiscal 2017 due to organic net sales growth of 11.6%, the positive impact of foreign currency translation of 5.0%, and sales contributions from an acquisition of 3.1%. Our organic net sales by primary industry end market were as follows:
33
In the first nine months of fiscal 2018, net sales in the Transportation Solutions segment increased $1,083 million, or 20.8%, as compared to the first nine months of fiscal 2017 as a result of organic net sales growth of 11.5%, the positive impact of foreign currency translation of 6.3%, and sales contributions from an acquisition of 3.0%. Our organic net sales by primary industry end market were as follows:
Operating Income. The following table presents the Transportation Solutions segment's operating income and operating margin information:
Operating income in the Transportation Solutions segment increased $61 million and $256 million in the third quarter and first nine months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The Transportation Solutions segment's operating income included the following:
Excluding these items, operating income increased in the third quarter and first nine months of fiscal 2018 due primarily to higher volume and lower material costs, partially offset by the negative impact of price erosion.
34
Net Sales. The following table presents the Industrial Solutions segment's net sales and the percentage of total net sales by primary industry end market(1):
Industrial equipment
Aerospace, defense, oil, and gas
Energy
The following table provides an analysis of the change in the Industrial Solutions segment's net sales by primary industry end market:
Net sales in the Industrial Solutions segment increased $83 million, or 9.2%, in the third quarter of fiscal 2018 as compared to the third quarter of fiscal 2017 primarily as a result of organic net sales growth of 5.3% and the positive impact of foreign currency translation of 3.4%. Our organic net sales by primary industry end market were as follows:
In the first nine months of fiscal 2018, net sales in the Industrial Solutions segment increased $289 million, or 11.3%, from the first nine months of fiscal 2017 due primarily to organic net sales growth of 5.8% and the positive impact of foreign currency translation of 4.7%. Our organic net sales by primary industry end market were as follows:
35
Operating Income. The following table presents the Industrial Solutions segment's operating income and operating margin information:
Operating income in the Industrial Solutions segment decreased $7 million and increased $63 million in the third quarter and first nine months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The Industrial Solutions segment's operating income included the following:
Excluding these items, operating income increased in the third quarter and first nine months of fiscal 2018 primarily as a result of higher volume.
Net Sales. The following table presents the Communications Solutions segment's net sales and the percentage of total net sales by primary industry end market(1):
Data and devices
Subsea communications
Appliances
36
The following table provides an analysis of the change in the Communications Solutions segment's net sales by primary industry end market:
In the third quarter of fiscal 2018, net sales in the Communications Solutions segment decreased $33 million, or 4.7%, from the third quarter of fiscal 2017 due to organic net sales declines of 6.3%, partially offset by the positive impact of foreign currency translation of 1.6%. Our organic net sales by primary industry end market were as follows:
Net sales in the Communications Solutions segment decreased $40 million, or 2.1%, in the first nine months of fiscal 2018 as compared to the same period of fiscal 2017 due to organic net sales declines of 3.9%, partially offset by the positive impact of foreign currency translation of 1.8%. Our organic net sales by primary industry end market were as follows:
Operating Income. The following table presents the Communications Solutions segment's operating income and operating margin information:
37
Operating income in the Communications Solutions segment decreased $40 million and $76 million in the third quarter and first nine months of fiscal 2018, respectively, as compared to the same periods of fiscal 2017. The Communications Solutions segment's operating income included the following:
Excluding these items, operating income decreased in the third quarter and first nine months of fiscal 2018 due primarily to declines in our Subsea Communications business related to production delays.
Liquidity and Capital Resources
Our ability to fund our future capital needs will be affected by our ability to continue to generate cash from operations and may be affected by our ability to access the capital markets, money markets, or other sources of funding, as well as the capacity and terms of our financing arrangements. We believe that cash generated from operations and, to the extent necessary, these other sources of potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future, including the payment of $325 million of 2.375% senior notes and €100 million borrowed under the uncommitted revolving credit facility, both of which are due in December 2018. We may use excess cash to purchase a portion of our common shares pursuant to our authorized share repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common shares, or to reduce our outstanding debt, including through the possible repurchase of our debt in accordance with applicable law. The cost or availability of future funding may be impacted by financial market conditions. We will continue to monitor financial markets and respond as necessary to changing conditions.
Cash Flows from Operating Activities
In the first nine months of fiscal 2018, net cash provided by continuing operating activities increased $78 million to $1,527 million from $1,449 million in the first nine months of fiscal 2017. The increase resulted primarily from higher pre-tax income levels, partially offset by an increase in employee-compensation related payments.
The amount of income taxes paid, net of refunds, during the first nine months of fiscal 2018 and 2017 was $317 million and $256 million, respectively. We do not expect a significant change in our income tax payments as a result of the Tax Cuts and Jobs Act.
Cash Flows from Investing Activities
Capital expenditures were $686 million and $452 million in the first nine months of fiscal 2018 and 2017, respectively. We expect fiscal 2018 capital spending levels to be approximately 6% of net sales. We believe our capital funding levels are adequate to support new programs, and we continue to invest in our manufacturing infrastructure to further enhance productivity and manufacturing capabilities.
Cash Flows from Financing Activities and Capitalization
Total debt at June 29, 2018 and September 29, 2017 was $4,008 million and $4,344 million, respectively. See Note 6 to the Condensed Consolidated Financial Statements for additional information regarding debt.
38
During the first nine months of fiscal 2018, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, repaid, at maturity, $708 million of 6.55% senior notes due October 2017.
During the first nine months of fiscal 2018, TEGSA entered into an uncommitted revolving credit facility under which it borrowed €100 million at a 0% interest rate with repayment due at maturity in December 2018.
TEGSA has a five-year unsecured senior revolving credit facility ("Credit Facility") with a maturity date of December 2020 and total commitments of $1,500 million. TEGSA had no borrowings under the Credit Facility at June 29, 2018 or September 29, 2017. Borrowings under our commercial paper program are backed by the Credit Facility and reduce the availability of funds from the Credit Facility.
The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our other debt agreements contain other customary covenants. None of our covenants are presently considered restrictive to our operations. As of June 29, 2018, we were in compliance with all of our debt covenants and believe that we will continue to be in compliance with our existing covenants for the foreseeable future.
In addition to the Credit Facility, TEGSA is the borrower under our senior notes and commercial paper. TEGSA's payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd.
In March 2018, our shareholders approved a dividend payment to shareholders of $1.76 per share, payable in four equal quarterly installments of $0.44 per share beginning in the third quarter of fiscal 2018 and ending in the second quarter of fiscal 2019.
Payments of common share dividends to shareholders were $435 million and $405 million in the first nine months of fiscal 2018 and 2017, respectively.
During the first nine months of fiscal 2018, our board of directors authorized an increase of $1.5 billion in the share repurchase program. We repurchased approximately 6 million of our common shares for $612 million and approximately 5 million of our common shares for $386 million under our share repurchase program during the first nine months of fiscal 2018 and 2017, respectively. At June 29, 2018, we had $1.4 billion of availability remaining under our share repurchase authorization.
Commitments and Contingencies
In certain instances, we have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from fiscal 2018 through the completion of such transactions. The guarantees would
39
be triggered in the event of nonperformance, and the potential exposure for nonperformance under the guarantees would not have a material effect on our results of operations, financial position, or cash flows.
We are a party to a Tax Sharing Agreement that generally governs our, Tyco International plc's, and Covidien plc's respective rights, responsibilities, and obligations with respect to taxes for periods prior to and including June 29, 2007. See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding the Tax Sharing Agreement.
Critical Accounting Policies and Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses.
Our accounting policies for revenue recognition, goodwill and other intangible assets, income taxes, and pension liabilities are based on, among other things, judgments and assumptions made by management. For additional information regarding these policies and the underlying accounting assumptions and estimates used in these policies, refer to the Consolidated Financial Statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017. There were no significant changes to this information during the first nine months of fiscal 2018.
Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements for information regarding recently issued and adopted accounting pronouncements.
Non-GAAP Financial Measure
Organic Net Sales Growth
We present organic net sales growth as we believe it is appropriate for investors to consider this adjusted financial measure in addition to results in accordance with GAAP. 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.
40
Organic net sales growth provides useful information about our results and the trends of our business. Management uses organic net sales growth to monitor and evaluate performance. Also, management uses organic net sales growth together with GAAP financial measures in its decision-making processes related to the operations of our reportable segments and our overall company. It is also a significant component in our incentive compensation plans. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The tables presented in "Results of Operations" and "Segment Results" provide reconciliations of organic net sales growth to net sales growth calculated in accordance with GAAP.
Organic net sales growth is a non-GAAP financial measure and should not be considered a replacement for results in accordance with GAAP. This non-GAAP financial measure may not be comparable to similarly-titled measures reported by other companies. The primary limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using organic net sales growth in combination with net sales growth in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts.
Forward-Looking Information
Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on our management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among others, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, acquisitions, divestitures, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "continue," "may," "should," or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements after we file this report except as required by law.
The following and other risks, which are described in greater detail in "Part I. Item 1A. Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017, could cause our results to differ materially from those expressed in forward-looking statements:
41
There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our exposures to market risk during the nine months ended June 29, 2018. For further discussion of our exposures to market risk, refer to "Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of June 29, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 29, 2018.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 29, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
42
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in our legal proceedings since we filed our Annual Report on Form 10-K for the fiscal year ended September 29, 2017. Refer to "Part I. Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017 for additional information regarding legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in "Part I. Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017, other than as set forth in "Part II. Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2018. The risk factors described in our Annual Report on Form 10-K and subsequent Quarterly Report on Form 10-Q, in addition to other information in this report, could materially affect our business operations, financial condition, or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impair our business operations, financial condition, and liquidity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the quarter ended June 29, 2018:
March 31–April 27, 2018
April 28–June 1, 2018
June 2–June 29, 2018
43
ITEM 6. EXHIBITS
44
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, thereunto duly authorized.
Date: July 26, 2018
45