2014 ANNUAL REPORT
A GLOBAL LEADER
IN CONNECTIVITY AND
SENSOR SOLUTIONS
SERVING ATTRACTIVE
MARKETS WITH STRONG
GROWTH DRIVERS
Today’s products are SAFER, GREENER, SMARTER AND MORE CONNECTED.
These megatrends are driving the demand for increased electronics and more
TE Connectivity products.
$180 BILLION
Sensor Market
Connectivity and
About TE Connectivity
(NYSE: TEL)
TE is a global technology leader. Our
connectivity and sensor solutions
are essential in today ’s increas-
in gly co n n e c te d wo rld . If d ata ,
signal or power moves through
i t , T E c o n n e c t s a n d s e n s e s i t .
EVERY CONNECTION COUNTS.
Learn more at www.TE.com
THE WORLD LEADER
IN CONNECTIVITY
FY 14 IN REVIEW
70%
Sales in
HARSH ENVIRONMENT
CONNECTIVITY
Established TE as a
LEADER IN SENSORS
$13.9B
OF NET
SALES
UP
5% VERSUS THE
PRIOR YEAR
$3.79
OF ADJUSTED
EPS*
UP
17 %
VERSUS THE
PRIOR YEAR
$1.7B
FREE CASH
FLOW*
$1.0B
RETURNED TO
SHAREHOLDERS
*See Non-GAAP Measures
All figures from FY 14 unless otherwise noted.
Expanded TE’s existing sensor business with the aquisitions of Measurement Specialties, Inc. (closed October 9, 2014) and American Sensor Technologies, Inc. TOM LYNCH
CHAIRMAN & CEO
MESSAGE TO OUR
STAKEHOLDERS
Fiscal Year 2014 was a very good year for TE
Connectivity. We delivered strong financial
performance and continued to strengthen our
position as a world leader enabling connectivity.
These are very exciting times for our company.
The market for connectivity and sensor solutions
represents a $180 billion opportunity for TE, with
a long-term growth rate of five to six percent.
The markets we serve are large with strong
underlying growth drivers. The megatrends of
safer, greener, smarter and more connected
products are driving the demand for increased
electronic content and, as a result, the demand
for increased connectivity.
In Fiscal Year (FY) 2014, we continued to lead
the industry with annual revenues of $13.9
billion. We also made several key acquisitions
that significantly expanded our opportunity
in the very attractive sensor and oil and gas
markets, and strengthened our position in harsh
environment applications.
Establishing TE as a
Leader in Sensors
In FY 2014, we strengthened our position in
the $80 billion high-growth sensor market with
the acquisitions of Measurement Specialties
(closed October 9, 2014) and American Sensor
Technologies. These acquisitions expanded
our existing sensor business and established
TE as one of the largest sensor companies in
the world.
The combination of sensors and our leading
connectivity solutions provides customers
with the broadest range of connectivity and
sensor solutions available on the market. This
powerful combination increases our content
per application significantly and positions TE
to grow faster than the markets we serve. In our
Automotive business, for example, we doubled
our content opportunity from an average of
$200 per vehicle to $400 per vehicle.
Leading in Harsh Environments
We are the leading provider of connectivity
solutions for harsh environment applications.
Strengthening our leadership position is a key
element of our strategy. Harsh environment
applications demand TE products that flawlessly
perform in tough conditions including extreme
vibration, temperature, humidity, pressure and
more.
In FY 2014, we acquired the SEACON Group,
extending our market position and solidifying
TE as a leader in the of f shore oil and gas
connectivity market.
Revenues from harsh environment applications
now account for approximately 70 percent of
our revenue, up from 50 percent five years ago.
FY 2014 was an excellent year for our busi-
nesses focused on harsh environment solutions
including automotive, industrial transportation,
aerospace and defense, oil and gas, industrial
equipment and appliances. Revenue in these
businesses grew 10 percent, to a record $9.2
billion, with adjusted operating margins above
our company average.
Delivering Extraordinary
Customer Experiences
Our mission is to deliver extraordinary customer
experiences. We made significant progress
i n a d v a n c i n g o u r m i s s i o n , a n d t h i s ye a r,
continued to improve our performance in key
areas: innovation, quality, delivery, service and
support. FY 2014 was our fourth consecutive
year of significant improvement in customer
satisfaction as reported by our customers.
Our companywide TE Operating Advantage
(TEOA) program is a key driver of our improve-
m e n t i n c u s to m e r s a ti s f a c ti o n . S i n ce we
launched TEOA in 2008 , we improved our
supply chain, product development processes,
manufacturing operations, delivery and service.
Our businesses and functions measure their
progress against TEOA performance metrics
and improving customer satisfaction is a key
factor in determining our employees’ incentive
compensation. It is very gratifying to see the
consistent improvement and yet we realize this
is an ongoing journey.
Innovating for Customers
Our 7,500 engineers are located close to our
customers around the world. We brought
several industry leading innovations and
products to market in FY 2014 including:
• Greener cars with LITEALUM – Every
ounce in an automobile matters when
fuel ef ficiency is the goal. Changing
c o p p e r to a l u m i n u m w i r e i n m o to r
vehicles ef fec tively reduces vehicle
weight for greater fuel efficiency and
lower CO2 emissions. TE’s breakthrough
L IT E A LU M te c h n o l o g y re d u ce s th e
wiring harness weight, one of a vehicle’s
heaviest components, by up to 15 percent.
• TE Sensors – The future of automated
f a r m i n g r e l i e s o n s e n s o r s . O u r
I n d u s t r i a l Tr a n s p o r t a ti o n b u s i n e s s
developed sensors that monitor crops
flowing through the harvester helping
optimize grain yield and productivity.
• Coolbit – TE’s Coolbit optical engine
product is the next generation of faster,
25 Gigabits per second, fiber connectivity.
Coolbit satisfies high-density and high-
bandwidth requirements in networks and
data centers while using two-thirds the
power of conventional solutions.
• A R I S O C o n t a c t l e s s C o n n e c t i v i t y –
Vibration, temperature, voltage and dirt
stand in the way of seamless physical
c o n n e c t i o n s . A R I S O C o n t a c t l e s s
Connectors allow for the transmission
of data, signal and power through mere
proximity, even in tough conditions. This
breakthrough technology eliminates the
need for a direct physical connection and
allows for entirely new innovations to be
developed.
Financial Performance
The company delivered very strong financial
performance in F Y 2014. Our sales grew
five percent to $13.9 billion in an uncertain
economy. Adjusted operating margins reached
15 .4 percent, the highest in our histor y,
and reflect our strong execution. Adjusted
earnings per share and free cash flow were
up over the prior year and records for the
company. Adjusted earnings per share were
$3.79, up 17.3 percent over last fiscal year,
and free cash flow was $1.7 billion.
Our capital deployment strategy continues
to reflect a balance between strategic acqui-
sitions and consistent return of capital to
shareholders. In FY 2014, our strong perfor-
mance and financial position enabled us to
make strategic acquisitions, return $1 billion
to shareholders and increase the annual
dividend by 16 percent to $1.16 per share.
Looking Forward
The company is very well positioned to capi-
talize on the opportunities presented by an
increasingly connected world. Fuel-efficient
cars and trucks, newer commercial airplane
fleets, smarter appliances, intelligent buildings,
faster and energy-efficient data centers, and
smart factories all require more electronics,
and more TE content.
I want to thank our employees for their dedi-
cation to creating a stronger company, and
their ongoing commitment to our customers
and communities. I believe our future is very
promising and look forward to your continued
support.
Tom Lynch
Chairman and Chief Executive Officer
January 14, 2015
See Non-GAAP Measures for adjusted earnings per share, free
cash flow, and adjusted operating margin descriptions and
reconciliations.
TE Leadership Team
(seated l to r)
Bob Hau, Jane Leipold, James O’Toole, Tom Lynch, Steve Merkt, Rob Shaddock
(standing l to r)
Joe Donahue, Amy Shah, Brad Gambill, Terrence Curtin, Joe Eckroth, John Jenkins, Joan Wainwright
Not present: Minoru Okamoto
Executive titles can be found under Leadership Team and Officers.
STRONG FINANCIAL
PERFORMANCE
NET SALES
IN US$ BILLIONS
$13.9
ADJUSTED OPERATING
MARGIN*
$13.3
$13.3
15.4%
14.2%
13.2%
FY 12 FY 13 FY 14
FY 12 FY 13 FY 14
*See Non-GAAP Measures
TE SALES BY SEGMENT IN US$ BILLIONS
TE operates through four reporting segments.
FY 14 SALES
FY 14 SALES
FY 14 SALES
FY 14 SALES
$6.1B$3.3B$2.9B$1.6B FREE CASH FLOW*
IN US$ BILLIONS
$1.7
$1.5
$1.4
FY 12 FY 13 FY 14
*See Non-GAAP Measures
ADJUSTED EARNINGS
PER SHARE*
$3.79
17 %
VS. FY 13
$3.23
$2.86
DEPLOYMENT OF CASH**
FY 08 THROUGH FY 14
IN US$ BILLIONS
$4.4B
SHARE
REPURCHASES
$3.9B
ACQUISITIONS
$2.3B
DIVIDENDS
**Select uses of cash. Represents capital returned to
shareholders and acquisition activity.
DIVIDENDS PAID PER SHARE***
$1.08
17 %
VS. FY 13
$0.92
$0.78
FY 12 FY 13 FY 14
*See Non-GAAP Measures
FY 12 FY 13 FY 14
***On March 4, 2014 TE shareholders increased the
annual dividend to $1.16 per share.
TE CONNECTIVITY SHARE PERFORMANCE
OVER 5 YEARS
MORE
THAN
150%
DRIVING THE CONNECTED FUTURE
TE’s connectivity and sensor solutions are
critical building blocks of our increasingly
connected world.
As more devices, machines and people
become connected, TE technology will be
essential in sensing, connecting and trans-
mitting the vast amounts of data generated.
• Our connectors and sensors are helping
build the next generation of vehicles and
trucks. The increase in demand for more
electronic content in cars has helped grow
our Automotive business from $3 billion in
FY 2009 to over $6 billion in FY 2014.
•
In industrial settings, our solutions are
enabling smarter factories that are more
connected and automated, increasing
productivity and efficiency.
• Our products are inside devices that
consum e rs rely on eve r y day, f rom
washing machines and refrigerators, to
smartphones, tablets and wearables.
• We help deliver mission-critical data
quickly and reliably within data centers,
across networks, over the air and under
the ocean.
PROJECTED GROWTH
in 2011
9 BILLION
total connected devices
by 2020
24 BILLION
total connected devices
Source: GSMA & Machine Research
TE OFFERS THE BROADEST RANGE
OF CONNECTIVITY AND SENSOR
TECHNOLOGIES:
• connectors
• sensors
• fiber optics
• circuit protection
• sealing and protection
• antennas
• relays
• precision wire and cables
• wireless
INNOVATION LEADERSHIP
18,000+
PATENTS
granted or pending
7,500
ENGINEERS
globally
$675M
invested in R&D
and Engineering
FY 14
25%
of sales from new products
introduced over the last
three fiscal years
Our industry-leading engineering depth
and strong customer relationships
enable the next wave of smart products
and technologies to be created—
which are redrawing industry bound-
aries, opening up new categories and
unleashing opportunities for competi-
tive advantage.
TE’s commitment to innovation extends
beyond the products we design to the
way in which they are made. Our global
manufacturing operations apply the
most advanced approaches in manu-
facturing, factory automation and lean
processes to deliver exceptional results
for our customers.
We are proud to be recognized by
Thomson Reuters for the fourth
consecutive year as a Top 100
Global Innovator.
GLOBAL INNOVATORS
2014 THOMPSON REUTERS CLEAR LEADER IN HARSH
ENVIRONMENT CONNECTIVITY
70%
REVENUE
from harsh environment
applications
We create solutions designed to withstand
harsh environments where failure is not an
option. Our products can be found in nearly
every environment, from factories operating
at full capacity to the crushing pressure of the
deep sea.
Our customers rely on TE to make their
products work every minute of every day.
• Our components can be counted on to
withstand constant vibration, temperature
fluctuations and years of wear and tear
inside automobiles, providing day in and
day out reliability.
• Our products endure extreme tempera-
tures and m e et th e rigorous usage
d e m a n d s o f h e av y- d u t y i n d u s t r i a l
commercial equipment.
• We develop durable components that
offer the highest level of anti-corrosion,
vibration, dust and waterproof capabilities
for passenger trains.
Electric Vehicle motors rely on
our sensors to monitor drive shaft
position and withstand speeds
above 20k RPM and temperatures
from –40°C to 130°C.
DEDICATED TO
OUR CUSTOMERS
Deliver an extraordinar y customer
experience. That ’s our mission. It is
a p e rsonal com mitm e nt sha re d by TE
employees. An extraordinary customer expe-
rience is built on key areas customers have
come to expect from us — innovation, quality,
delivery, service and support. These areas are
fundamental to how we work, are built into
our TE Operating Advantage (TEOA) and are
tied to our employee incentive plans.
DELIVER SOLUTIONS.
EXCEED EXPECTATIONS.
EVERY TIME.
4
CONSECUTIVE
YEARS
of significant improvement in
CUSTOMER
SATISFACTION
as measured by our customers
SUPPORTING OUR COMMUNITIES
1,500
CHARITABLE
ORGANIZATIONS
supported in FY 14
by TE and the TE Connectivity Foundation
TE is committed to building
s tro ng e r co m m u nities a n d
being a responsible steward of
the environment. We support
our communities through global
giving progra ms a n d lo c al
volunteer efforts supported
by T E ’s l o c a l l e a d e r s a n d
employees.
GREENHOUSE
GAS
EMISSIONS*
2014 vs 2010
25%
WATER
USAGE*
2014 vs 2010
17 %
CARBON DISCLOSURE
PROJECT (CDP)
PARTICIPANT
since 2008
LISTED ON
DOW JONES
SUSTAINABILITY INDEX
THIRD CONSECUTIVE YEAR
PARTNER IN
US DEPT. OF ENERGY
BETTER PLANTS PROGRAM
EXCELLENCE IN
SUSTAINABILITY AWARD
PRESENTED BY CISCO
*Data reported on an absolute basis, and as reported to the CDP.
UNMATCHED RESOURCES
CLOSE TO OUR CUSTOMERS
TE designs, manufactures and delivers connectivity and sensor
solutions to customers in over 150 countries. Our global reach
enables us to work closely with our customers, identify and meet
their local needs, and advance our mission to deliver extraordi-
nary customer experiences.
$4.4B
AMERICAS
AMERICAS
10
38
2,570
CHINA
3
15
2,100
DESIGN CENTERS
MANUFACTURING SITES
ENGINEERS
DESIGN CENTERS
MANUFACTURING SITES
ENGINEERS
ASIA* (EXCLUDING CHINA)
3
8
810
DESIGN CENTERS
MANUFACTURING SITES
ENGINEERS
EUROPE, MIDDLE EAST,
AFRICA (EMEA)
5
29
2,020
DESIGN CENTERS
MANUFACTURING SITES
ENGINEERS
*Including India
$4.4B $2.4B
CHINA
ASIA*
(EXCLUDING CHINA)
$2.3B
EMEA
$4.8B
$13.9B
FY 14 SALES WORLDWIDE
OUR CORE VALUES
At TE, we believe that it takes more than strong performance to build a great company.
It also requires an unwavering commitment to our core values and the highest
standards of ethics and integrity.
INTEGRITY
We must demand of ourselves and of each other the highest standards of indi-
vidual and corporate integrity. We safeguard company assets. We comply with
all laws and company policies. We are dedicated to diversity, fair treatment,
mutual respect and trust.
ACCOUNTABILITY
We honor the commitments we make and take personal responsibility for all
actions and results. We create an operating discipline of continuous improve-
ment that is an integral part of our culture.
TEAMWORK
We foster an environment that encourages innovation, creativity, excellence
and results through teamwork. We practice leadership that teaches, inspires
and promotes full participation and career development. We encourage open
and effective communication and interaction.
INNOVATION
We recognize that innovation is the foundation of our business. We challenge
ourselves to develop new and improved ideas for all that we do. We encourage,
expect and value creativity, openness to change and fresh approaches.
BOARD OF DIRECTORS
Thomas J. Lynch
Chairman &
Chief Executive Officer,
TE Connectivity Ltd.
Dr. Pierre R. Brondeau
President, Chairman &
Chief Executive Officer,
FMC Corporation
Dr. Juergen W. Gromer
Retired President,
Tyco Electronics
Yong Nam
Advisor to the CEO,
Daelim Industrial Co. Ltd.
Paula A. Sneed
Chair & Chief Executive Officer,
Phelps Prescott Group, LLC
Daniel J. Phelan
Retired Chief of Staff,
GlaxoSmithKline plc
Frederic M. Poses*
Chief Executive Officer & Partner,
Ascend Performance Materials
David P. Steiner
President, Chief Executive Officer
& Director,
Waste Management, Inc.
John C. Van Scoter
President, Chief Executive Officer
& Director,
eSolar, Inc.
Dr. William A. Jeffrey
Chief Executive Officer
& President,
SRI International
Lawrence S. Smith
Retired Executive
Vice President & Co-CFO,
Comcast Corporation
Laura H. Wright
Founder
GSB Advisors
* Lead Independant Director of the TE Connectivity Ltd. Board of Directors
LEADERSHIP TEAM AND OFFICERS
Thomas J. Lynch
Chairman &
Chief Executive Officer
Mario Calastri
Senior Vice President,
Treasurer
Terrence R. Curtin
President,
Industrial Solutions
Joseph B. Donahue
Executive Vice President,
Chief Operating Officer &
President, Network Solutions
Joseph F. Eckroth, Jr.
Senior Vice President,
Chief Information Officer
Robert W. Hau
Executive Vice President,
Chief Financial Officer
John S. Jenkins, Jr.
Executive Vice President,
General Counsel
Jane A. Leipold
Senior Vice President,
Global Human Resources
Steven T. Merkt
President,
Transportation Solutions
Robert J. Ott
Senior Vice President,
Corporate Controller
Eric J. Resch
Senior Vice President,
Chief Tax Officer
Robert N. Shaddock
Executive Vice President,
Chief Technology Officer
Amy B. Shah
Senior Vice President,
Chief Marketing Officer
Minoru Okamoto
Senior Advisor to the CEO
Joan E. Wainwright
President,
Channel & Customer Experience
Bradley A. Gambill
Senior Vice President,
Strategy & Business Development
James O’Toole
President,
Consumer Solutions
increase or decrease our reported results. This limitation is best
addressed by using Adjusted Earnings Per Share in combination
with diluted earnings per share from continuing operations
attributable to TE Connectivity Ltd. (the most comparable GAAP
measure) in order to better understand the amounts, character and
impact of any increase or decrease on reported results.
“Free Cash Flow” (FCF) is a useful measure of our ability to
generate cash. It also is a significant component in our incentive
compensation plans. The difference between net cash provided
by continuing operating activities (the most comparable GAAP
measure) and FCF (the non-GAAP measure) 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.
FCF 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. 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.
Voluntary pension contributions are excluded from the GAAP
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, also
are considered by management in evaluating free cash flow. We
believe investors should also consider these items in evaluating
our free cash flow.
FCF as presented herein may not be comparable to similarly-titled
measures reported by other companies. The primary limitation
of this measure is that it excludes items that have an impact on
our GAAP cash flow. Also, it subtracts 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
measure indicates. This limitation is best addressed by using FCF
in combination with the GAAP cash flow results. It should not be
inferred that the entire free cash flow amount is available for 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.
NON-GAAP MEASURES
“Adjusted Operating Margin,” “Adjusted Operating Income,”
“Adjusted Earnings Per Share,” and “Free Cash Flow” (FCF) are
non-GAAP measures and should not be considered replacements
for GAAP* results. (*U.S. Generally Accepted Accounting
Principles)
We present operating margin before special items including
charges or income related to legal settlements and reserves,
restructuring and other charges, acquisition related charges,
impairment charges and other income or charges, if any (“Adjusted
Operating Margin”). We present Adjusted Operating Margin before
special items to give investors a perspective on the underlying
business results. It also is a significant component in our incentive
compensation plans. This measure should be considered in
conjunction with operating margin calculated using our GAAP
results in order to understand the amounts, character and impact
of adjustments to operating margin.
We present operating income before special items including
charges or income related to legal settlements and reserves,
restructuring and other charges, acquisition related charges,
impairment charges and other income or charges, if any (“Adjusted
Operating Income”). We utilize Adjusted Operating Income to
assess segment-level core operating performance and to provide
insight to management in evaluating segment operating plan
execution and underlying market conditions. It also is a significant
component in our incentive compensation plans. Adjusted
Operating Income is a useful measure for investors because it
provides insight into our underlying operating results, trends
and the comparability of these results between periods. The
difference between Adjusted Operating Income and operating
income (the most comparable GAAP measure) consists of the
impact of charges or income related to legal settlements and
reserves, restructuring and other charges, acquisition related
charges, impairment charges and other income or charges, if any,
that may mask the underlying operating results and/or business
trends. The limitation of this measure is that it excludes the financial
impact of items that would otherwise either increase or decrease
our reported operating income. This limitation is best addressed by
using Adjusted Operating Income in combination with operating
income (the most comparable GAAP measure) in order to better
understand the amounts, character and impact of any increase or
decrease on reported results.
We present diluted earnings per share from continuing operations
attributable to TE Connectivity Ltd. before special items, including
charges or income related to legal settlements and reserves,
restructuring and other charges, acquisition related charges,
impairment charges, tax sharing income related to certain
proposed adjustments to prior period tax returns and other
tax items, certain significant special tax items, other income or
charges, if any, and if applicable, related tax effects (“Adjusted
Earnings Per Share”). We present Adjusted Earnings Per Share
because we believe that it is appropriate for investors to consider
results excluding these items in addition to results in accordance
with GAAP. We believe such a measure provides a picture of our
results that is more comparable among periods since it excludes
the impact of special items, which may recur, but tend to be
irregular as to timing, thereby making comparisons between
periods more difficult. It also is a significant component in our
incentive compensation plans. The limitation of this measure is that
it excludes the financial impact of items that would otherwise either
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
US$ IN MILLIONS, EXCEPT PER SHARE DATA
FISCAL YEAR 2014
ADJUSTMENTS
Operating Income
Operating Margin
U.S. GAAP
Acquisition
Related
Charges (1)
Restructuring
and Other
Charges, Net
Tax Items (2)
Adjusted
(Non-GAAP) (3)
$
2,045
$
35
$
59
$
-
$
2,139
14.7%
15.4%
D ilute d Ea rnin gs p e r S h a re f ro m C o ntin uin g
Operations Attributable to TE Connectivity Ltd.
$
4.29
$
0.08
$
0.09
$
(0.67)
$
3.79
(1) Includes $31 million of acquisition and integration costs and $4 million
of non-cash amortization associated with fair value adjustments primarily
related to aquired inventories and customer order backlog recorded in
cost of sales.
(2) Includes income tax benefits of $282 million recognized in connection
with a reduction in the valuation allowance associated with certain tax
loss carryforwards and income tax expense related to adjustments to
prior year income tax returns. In addition, includes other income related
to reimbursements by Tyco International and Covidien in connection with
pre-separation tax matters, including $18 million related to our share of
a settlement agreement entered into by Tyco International with a former
subsidiary.
(3) See description of non-GAAP measures contained in this report.
FISCAL YEAR 2013
ADJUSTMENTS
Operating Income
Operating Margin
U.S. GAAP
Acquisition
Related
Charges
Restructuring
and Other
Charges, Net
Tax Items (1)
Adjusted
(Non-GAAP) (2)
$
1,556
$
14
$
311
$
-
$
1,881
11.7%
14.2%
Diluted Earnings per Share from Continuing Operations
Attributable to TE Connectivity Ltd.
$
3.02
$
0.02
$
0.52
$
(0.33)
$
3.23
(1) Includes $331 million of income tax benefits associated with the
settlement of an audit of prior-year income tax returns as well as the
related impact of $231 million to other expense pursuant to the tax sharing
agreement with Tyco International and Covidien. Also includes income
tax expense related to adjustments to prior year income tax returns,
income tax benefits recognized in connection with a reduction in the
valuation allowance associated with certain tax loss carryforwards, and
income tax benefits recognized in connection with the lapse of statutes of
limitations for examinations of prior year income tax returns. In addition,
includes other income related to reimbursements by Tyco International
and Covidien in connection with pre-separation tax matters.
(2) See description of non-GAAP measures contained in this report.
FISCAL YEAR 2012
Operating Income
Operating Margin
U.S. GAAP
ADJUSTMENTS
Acquisition
Related
Charges (1)
Restructuring
and Other
Charges, Net
Tax Items (2)
Adjusted
(Non-GAAP) (3)
$
1,518
$
116
$
114
$
-
$
1,748
11.4%
13.2%
Diluted Earnings per Share from Continuing Operations
Attributable to TE Connectivity Ltd.
$
2.70
$
0.21
$
0.19
$
(0.25)
$
2.86
(1) Includes $75 million of non-cash amortization associated with fair value
adjustments primarily related to acquired inventories and customer order
backlog recorded in cost of sales, $27 million of acquisition and integration
costs, and $14 million of restructuring charges.
and Covidien in connection with pre-separation tax matters. Also includes
income tax benefits recognized in connection with a reduction in the
valuation allowance associated with certain tax loss carryforwards and
income tax expense associated with certain non-U.S. tax rate changes.
(2) Includes other income related to reimbursements by Tyco International
(3) See description of non-GAAP measures contained in this report.
RECONCILIATION OF FREE CASH FLOW
US$ IN MILLIONS
FISCAL YEAR
Net cash provided by continuing operating activities
Capital expenditures
Proceeds from sale of property, plant and equipment
Payments related to pre-separation tax matters, net
Payments related to accrued interest on debt assumed in the acquisition of Deutsch
Payments to settle acquisition-related foreign currency derivative contracts
2014
2013 2012
$
2,095
$
2,048
$
1,888
(673)
(615)
(533)
129
179
-
-
39
28
-
-
23
19
17
20
Free cash flow (1)
$
1,730
$
1,500
$
1,434
(1) See description of non-GAAP measures contained in this report.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This report contains certain “forward-looking statements”
within the meaning of the U.S. Private Securities Litigation
Reform Ac t of 1 9 9 5 . Th ese state m e nt s are base d 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 report 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 industry and the telecommunications networks and
consumer 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; the possible effects on us of changes in tax laws,
tax treaties and other legislation; the risk that the operations of
Measurement Specialties will not be successfully integrated into
ours; and the risk that revenue opportunities, cost savings and
other anticipated synergies from the Measurement Specialties
acquisition may not be fully realized or may take longer to realize
than expected. 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. 26, 2014 as well as in
our Current Reports on Form 8-K and other reports filed by us
with the U.S. Securities and Exchange Commission.
TE CONNECTIVITY LTD.
ANNUAL REPORT
TABLE OF CONTENTS
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss Statutory Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
11
14
15
45
47
47
49
125
i
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report, including in the sections entitled
‘‘Business,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations,’’ and ‘‘Quantitative and Qualitative Disclosures about Market Risk,’’ that 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, 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. You should not put 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 risk factors identified in this Annual Report and those discussed in our Annual Report on
Form 10-K for the fiscal year ended September 26, 2014 filed with the United States Securities and
Exchange Commission (the ‘‘SEC’’) could cause our results to differ materially from those expressed in
forward-looking statements. 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.
ii
General
BUSINESS
TE Connectivity Ltd. (‘‘TE Connectivity’’ or the ‘‘Company,’’ which may be referred to as ‘‘we,’’
‘‘us,’’ or ‘‘our’’) is a global technology leader. We design and manufacture connectivity and sensors
solutions essential in today’s increasingly connected world. We help our customers solve the need for
intelligent, efficient, and high-performing products and solutions.
During fiscal 2014, we realigned certain businesses within our segment reporting structure to better
align our product portfolio. We continue to operate through four reporting segments: Transportation
Solutions, Industrial Solutions, Network Solutions, and Consumer Solutions. Our reporting segments
manufacture and distribute our products and solutions to a number of end markets. The table below
provides a summary of our reporting segments, the fiscal 2014 net sales contribution of each segment,
and the key products and industry end markets that we serve:
Segment
Transportation
Solutions
% of Fiscal 2014 Net Sales
44%
Industrial
Solutions
24%
Network
Solutions
21%
Consumer
Solutions
11%
Key Products . . . . . . . . (cid:127) Terminals and
(cid:127) Terminals and
(cid:127) Terminals and
(cid:127) Terminals and
connector systems
(cid:127) Heat shrink tubing
(cid:127) Relays
(cid:127) Wire and cable
connector systems
(cid:127) Relays
(cid:127) Circuit protection
devices
(cid:127) Sensors
(cid:127) Application tooling
(cid:127) Wire and heat
shrink tubing
Key Markets . . . . . . . . (cid:127) Automotive
(cid:127) Industrial
equipment
(cid:127) Aerospace, defense,
oil, and gas
(cid:127) Energy
connector systems
(cid:127) Circuit protection
devices
(cid:127) Antennas
(cid:127) Relays
(cid:127) Heat shrink tubing
(cid:127) Consumer devices
(cid:127) Appliances
connector systems
(cid:127) Fiber optics
(cid:127) Wire and cable
(cid:127) Racks and panels
(cid:127) Wireless
(cid:127) Undersea
telecommunication
systems
(cid:127) Telecom networks
(cid:127) Data
communications
(cid:127) Enterprise networks
(cid:127) Subsea
communications
Our Competitive Strengths
We believe that we have the following competitive strengths:
(cid:127) Portfolio of market-leading connectivity and sensors businesses. We are a leader in many of the
markets we serve, and the opportunity for growth in those markets is significant. With our
recently completed acquisition of Measurement Specialties, Inc. (‘‘Measurement Specialties’’)
and related expansion into the sensor market, we believe our four segments serve a combined
market of approximately $180 billion that is expected to grow at an estimated annual growth
rate of approximately 5% over the next five years. See Note 24 to the Consolidated Financial
Statements for additional information regarding the Measurement Specialties acquisition.
(cid:127) Global leader in passive components. With net sales of $13.9 billion in fiscal 2014, we are
significantly larger than many of our competitors. In the fragmented connector industry, which
we estimated to be approximately $50 billion in fiscal 2014, our net sales were approximately
$9.0 billion. We have established a global leadership position in the connector industry.
Our scale provides us the opportunity to accelerate our sales growth by making larger
investments in existing and new technologies and businesses in our core markets, and to expand
our presence in emerging markets. Our leadership position also provides us the opportunity to
lower our purchasing costs by developing lower cost sources of supply and to maintain a flexible
manufacturing footprint worldwide that is close to our customers’ locations.
1
(cid:127) Strong customer relationships. As an industry leader, we have established close working
relationships with many of our customers. These relationships allow us to better anticipate and
respond to customer needs when designing new products and new technical solutions. By
working with our customers in developing new products and technologies, we believe we are able
to identify and act on trends and leverage knowledge about next-generation technology across
our products.
(cid:127) Process and product technology leadership. We employ approximately 7,500 engineers dedicated to
product research, development, and engineering. Our investment of $675 million in product and
process engineering and development and our capital spending of $673 million in fiscal 2014
enable us to consistently provide innovative, high-quality products with efficient manufacturing
methods. In fiscal 2014, we derived approximately 25% of our net sales from new products,
including product extensions, introduced within the previous three fiscal years.
(cid:127) Diverse product mix and customer base. We manufacture and sell a broad portfolio of products to
customers in various industries. Our customers include many of the leaders in their respective
industries, and our relationships with them typically date back many years. We believe that this
diversified customer base provides us an opportunity to leverage our skills and experience across
markets and reduce our exposure to individual end markets, thereby reducing the variability of
our financial performance. Additionally, we believe that the diversity of our customer base
reduces the level of cyclicality in our results and distinguishes us from our competitors.
(cid:127) Global presence. We have an established manufacturing presence in over 20 countries and global
sales distribution. Our global coverage positions us near our customers’ locations and allows us
to assist them in consolidating their supply base and lowering their production costs. We believe
our balanced sales distribution lowers our exposure to any particular geography and improves
our financial profile.
(cid:127) Strong management team and employee base. We believe our management team has the
experience necessary to effectively execute our strategy and advance our product and technology
leadership. Our Chief Executive Officer and segment leaders average approximately 25 years of
industry experience. They are supported by an experienced and talented management team who
is dedicated to maintaining and expanding our position as a global leader in the industry.
We have approximately 83,000 employees located throughout the world. We continue to
emphasize employee development and training, and we embrace diversity and inclusion. Our
strong employee base, along with their commitment to uncompromising values, provides the
foundation of our company’s success.
Segments
Below is a description of our reporting segments and the primary products sold by each segment.
See Notes 1 and 22 to the Consolidated Financial Statements for additional segment and geographic
financial information relating to our business. Prior period segment results have been revised to
conform to the current segment reporting structure.
Transportation Solutions
The Transportation Solutions segment is a leader in electronic components, including terminals and
connectors, relays, circuit protection devices, and sensors, as well as application tooling, wire and heat
shrink tubing, and other custom-engineered solutions for the automotive market including the industrial
2
and commercial vehicle and hybrid and electric vehicle markets. The following are the primary product
families sold by the segment:
(cid:127) Terminals and connector systems and components. We offer an extensive range of electrical and
electronic interconnection products. These connectors include a wide variety of pin and socket,
terminal, USB, coaxial, input/output, fiber optic, power, and circular connectors, as well as
ambient lighting assemblies, special purpose cable assemblies, sophisticated interconnection
products used in complex commercial equipment, and custom connectivity solutions for harsh
environment applications. This product family represents over 80% of the segment’s net sales.
(cid:127) Relays. Our relay products can be used in a wide range of applications in the automotive and
commercial vehicle industries, including electric sunroofs, anti-lock braking systems, and fuel
injection coils.
(cid:127) Circuit protection devices. We offer a diverse range of circuit protection devices, which limit the
flow of current during fault conditions and automatically reset after the fault is cleared and
power to the circuit is restored.
(cid:127) Sensors. We offer a customized engineered portfolio of non-contact position and speed sensor
technologies mainly for the automotive and commercial vehicle industries that include high
measurement standards, robust housing technologies, and temperature stable designs for a
variety of powertrain, safety, and chassis applications.
(cid:127) Application tooling. We offer a broad portfolio of hand tools, semi-automatic bench machines,
and fully-automatic machine systems for processing terminal products.
(cid:127) Wire and heat shrink tubing. We offer reliable, cost-effective products to seal, connect, insulate,
protect, hold, and bundle high-performance electrical harnesses. We also provide high
temperature wire for harsh environments on passenger and commercial vehicles.
Industrial Solutions
The Industrial Solutions segment is a leading supplier of products that connect and distribute
power and data, including connectors, heat shrink tubing, relays, and wire and cable, as well as custom-
engineered solutions. Our products are used primarily in the industrial equipment; aerospace, defense,
oil, and gas; and energy markets. The following are the primary product families sold by the segment:
(cid:127) Terminals and connector systems and components. We offer connector products including a wide
variety of pin and socket, terminal, USB, coaxial, input/output, fiber optic, and power
connectors, as well as sophisticated interconnection products used in equipment offered to the
aerospace, defense, oil, and gas; and medical industries. Additionally, we serve the aerospace,
defense, oil, and gas industries by offering custom connectivity solutions for harsh environment
applications.
(cid:127) Heat shrink tubing. We offer hundreds of reliable, cost-effective products to seal, connect,
insulate, protect, hold, and bundle high-performance electrical harnesses. We also provide
customized harnessing design, prototype, and build services.
(cid:127) Relays. Our relay products can be used in a variety of applications in the industrial and high
performance applications for the aerospace, defense, oil, and gas industries.
(cid:127) Wire and cable. We provide wire and cable for indoor and outdoor use in office, factory floor,
and extreme environment applications, including copper and fiber optic distribution cables,
shielded and unshielded twisted-pair cables, armored cable, and patch cords. Additionally, we
provide highly-engineered cable and wire products and a broad range of cables suitable for use
in rugged applications within the aerospace, defense, oil, and gas industries.
3
Network Solutions
The Network Solutions segment is one of the world’s largest suppliers of infrastructure
components and systems for the telecommunications market and electronic components for the data
communications market. Our products include connectors, fiber optics, wire and cable, racks and
panels, and wireless products. We also are a leader in developing, manufacturing, installing, and
maintaining some of the world’s most advanced subsea fiber optic communications systems. The
following are the primary product families sold by the segment:
(cid:127) Terminals and connector systems and components. We offer an extensive range of low, medium,
and high-voltage connectors and splices, cable assemblies, sealing systems, terminals, fittings, lugs
and clamps, transmission line fittings, splice closures, grounding hardware, and wall and floor
outlets for voice and data connection to local area networks.
(cid:127) Fiber optics. We provide fiber optic connectors, splices, splice closures, fiber management
systems, high density cable assemblies, couplers and splitters, and complete cabling systems.
These products find use in both local-area and wide-area networks and ‘‘last-mile’’ fiber-to-the-
home installations.
(cid:127) Wire and cable. We provide wire and cable for indoor and outdoor use in office, factory floor,
school, and residential voice, data, and video networks, including copper and fiber optic
distribution cables, shielded and unshielded twisted-pair cables, armored cable, and patch cords.
(cid:127) Racks and panels. We provide racks and panels that are used to integrate, organize, and manage
fiber and copper cables and splices, thereby simplifying installation, maintenance, and upgrades
for both exchange/head end and customer premise environments.
(cid:127) Wireless. We offer solutions for radio frequency distribution and distributed antenna systems.
These products provide wireless coverage and capacity, and operate as an extension of the
wireless network, expanding the reach of both in-building and outdoor signals.
(cid:127) Undersea telecommunication systems. We design, build, maintain, and test undersea fiber optic
networks for the telecommunication and oil and gas markets.
Consumer Solutions
The Consumer Solutions segment is a top supplier of electronic components, including connectors,
circuit protection devices, antennas, relays, and heat shrink tubing, for the consumer devices and
appliances markets. The following are the primary product families sold by the segment:
(cid:127) Terminals and connector systems and components. We provide connector products including a
broad range of electronic grounding, shielding, and contact; SIM memory card; terminal; USB;
input/output; and a variety of board level signal and power connectors as well as memory and
CPU sockets. Also, we design and manufacture power cables and cable assemblies for high data
rate transmission and sophisticated interconnection products used in smartphone, computing,
tablet computer, appliances, and consumer electronics OEM products.
(cid:127) Circuit protection devices. We offer a diverse range of circuit protection devices, which limit the
flow of current during fault conditions and automatically reset after the fault is cleared and
power to the circuit is restored. We also offer surface-mount chip fuses, gas discharge tubes for
overvoltage protection, electrostatic discharge protection devices, and hybrid protection devices.
(cid:127) Antennas. We offer application specific and standard antenna products in a variety of structures
to enable our customers to complete the transmission of wireless voice and data over a full
range of protocols.
4
(cid:127) Relays. We provide relay products for a wide range of applications in the consumer devices and
appliances markets.
(cid:127) Heat shrink tubing. We offer hundreds of reliable, cost-effective products to seal, connect,
insulate, protect, hold, and bundle high-performance electrical harnesses.
Markets
We sell our products to manufacturers and distributors in a number of major markets. The
approximate percentage of our total net sales by market in fiscal 2014 was as follows:
Markets
Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telecom Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerospace, Defense, Oil, and Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enterprise Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsea Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
44%
10
9
8
7
6
5
5
4
2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
Our major markets are as follows:
(cid:127) Automotive. The automotive and industrial transportation industry uses our products in
automotive technologies for body and chassis systems, convenience applications, driver
information, infotainment solutions, miniaturization solutions, motor and powertrain
applications, sensor technologies, and safety and security systems. Hybrid and electronic mobility
solutions include in-vehicle technologies, battery technologies, and charging solutions. Our
industrial and commercial transportation products are used in on- and off-highway vehicles and
recreational vehicles.
(cid:127) Industrial equipment. Our products are used in factory automation and process control systems
such as industrial controls, robotics, human machine interface, industrial communication, and
power distribution. Our intelligent building products are used to connect lighting, HVAC,
elevators/escalators, and security. Our rail products are used in high-speed trains, metros, light
rail vehicles, locomotives, and signaling switching equipment. The medical industry uses our
products in diagnostic, therapeutic, surgical, and interventional applications. Also, our products
are used by the solar and lighting industry.
(cid:127) Telecom networks. Our products are used by communication service providers to facilitate the
high-speed delivery of services from central offices to customer premises. We offer fiber and
copper infrastructure, power distribution, fiber-to-the-premises, and fiber-to-the-node
connectivity solutions for the central office and data center, to the outside plant, cell site, and
multi-dwelling unit buildings. We develop and manufacture telecommunication products which
are used to build out broadband communications infrastructure as well as upgrade networks.
Our networking products are used in routers, switches, optical transport, and access equipment
for converged voice and data transmission. We offer solutions for distributed antenna systems,
wireless infrastructure equipment, and high speed wireless indoor/outdoor base stations.
5
(cid:127) Aerospace, defense, oil, and gas. We provide components and solutions for the commercial
aerospace industry, from the initial stages of aircraft design to aftermarket support. Our defense
products include ruggedized electronic interconnects serving military aviation, marine, and
ground vehicles including electronic warfare and space systems. Our oil and gas products include
cables and electronics used for harsh subsea environments in the offshore oil and gas and civil
marine industries and in shipboard, subsea, and sonar applications.
(cid:127) Consumer devices. Our products and connectivity solutions are used in numerous consumer
devices, including smart phones, tablet computers, desktop computers, televisions, gaming
systems, digital and video cameras, printers and copiers, and business and retail equipment.
(cid:127) Energy. Our products are used in the electrical power industry and include a wide range of
solutions for the electrical power generation, transmission, distribution, smart grid, and industrial
markets.
(cid:127) Data communications. Our products and solutions are used in a variety of equipment
architectures within the networking equipment, data center equipment, and wireless
infrastructure industries.
(cid:127) Enterprise networks. We provide cable, connectivity, and cable management solutions for
networks that enable high-bandwidth voice and data communications throughout facilities
including data centers, commercial buildings, and office campuses. Our products support
networks in a variety of industries, including healthcare, government, gaming and hospitality,
financial services, education, and transportation.
(cid:127) Appliances. Our products are used in many household appliances, including washers and dryers,
refrigerators, air conditioners, dishwashers, cooking appliances, water heaters, and microwaves.
(cid:127) Subsea communications. Our products are used in undersea fiber optic telecommunication
systems. With vertically integrated undersea communications systems and services, we support
the telecommunications and oil and gas industries, and other customers seeking marine services.
Customers
We collaborate closely with our customers to meet their product needs. Our approach to our
customers is driven by our dedication to further develop our product families and ensure that we are
globally positioned to best provide our customers with sales and engineering support. We believe that
as electronic component technologies continue to proliferate, our broad product portfolio and
engineering capability give us a potential competitive advantage when addressing the needs of our
global customers.
We maintain a strong local presence in each of the geographic regions in which we operate. Our
net sales by geographic region(1) as a percentage of our total net sales were as follows:
Fiscal
2014
2013
2012
Europe/Middle East/Africa (‘‘EMEA’’) . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35% 34% 34%
33
33
33
32
34
32
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
(1) Net sales to external customers are attributed to individual countries based on the legal entity that records the
sale.
(2) The Americas includes our subsea communications business.
6
There is no single customer that accounted for a significant amount of our net sales in fiscal 2014,
2013, or 2012.
Sales, Marketing, and Distribution
We sell our products into more than 150 countries primarily through direct selling efforts to
manufacturers. We also sell some of our products indirectly via third-party distributors. In fiscal 2014,
our direct sales represented 75% of net sales.
We maintain distribution centers around the world. Products are generally delivered to these
distribution centers by our manufacturing facilities and then subsequently delivered to the customer. In
some instances, product is delivered directly from our manufacturing facility to the customer. We
contract with a wide range of transport providers to deliver our products via road, rail, sea, and air.
Seasonality and Backlog
Customer orders typically fluctuate from quarter to quarter based upon business conditions and
cancellation of unfilled orders prior to shipment of goods. We experience a slight seasonal pattern to
our business. Overall, the third fiscal quarter is typically the strongest quarter of our fiscal year,
whereas the first and fourth fiscal quarters are negatively affected by winter holidays and European
holidays, respectively. The second fiscal quarter may also be affected by adverse winter weather
conditions in some of our markets.
Certain of our end markets experience some seasonality. Our sales into the automotive market are
dependent upon global automotive production, and seasonal declines in European production may
negatively impact net sales in the fourth fiscal quarter. Also, our sales into the telecom networks and
energy markets typically increase in the third and fourth fiscal quarters as customer activity related to
outdoor networks increases.
Backlog by reportable segment was as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Network Solutions(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 989
850
1,088
244
$ 996
825
475
273
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,171
$2,569
Fiscal Year End
2014
2013
(in millions)
(1)
Includes our subsea communications business’s backlog of $774 million and $138 million at fiscal year end 2014
and 2013, respectively.
We expect that the majority of our backlog at September 26, 2014 will be filled during fiscal 2015.
Competition
The industries in which we operate are highly competitive, and we compete with thousands of
companies that range from large multinational corporations to local manufacturers. Competition is
generally on the basis of breadth of product offering, product innovation, price, quality, delivery, and
service. Our markets have generally been growing but with downward pressure on prices. The following
is a listing of our major competitors by segment:
(cid:127) Transportation Solutions. This segment competes primarily against Yazaki, Delphi, Sumitomo,
Sensata, Continental AG, Molex, and Amphenol.
7
(cid:127) Industrial Solutions. This segment competes primarily against Amphenol, Esterline, Molex,
Phoenix Contact, Hubbell, and 3M.
(cid:127) Network Solutions. This segment’s major competitors include CommScope, Corning, Huawei
Technologies, Amphenol, and Molex. Also, the subsea communications business competes
against Alcatel-Lucent.
(cid:127) Consumer Solutions. This segment’s major competitors include Molex, JST Connectors, Japan
Aviation Electronics, Amphenol, and Foxconn Technology Group.
Raw Materials
We use a wide variety of raw materials in the manufacture of our products. The principal raw
materials that we use include plastic resins for molding, precious metals such as gold and silver for
plating, and other metals such as copper, aluminum, brass, and steel for manufacturing cable, contacts,
and other parts that are used for cable and component bodies and inserts. Many of these raw materials
are produced in a limited number of countries around the world or are only available from a limited
number of suppliers. The prices of these materials are driven by global supply and demand.
Research and Development
We are engaged in both internal and external research and development in an effort to introduce
new products to enhance the effectiveness, ease of use, safety, and reliability of our existing products,
and to expand the applications for which the uses of our products are appropriate. We continually
evaluate developing technologies in areas where we may have technological or marketing expertise for
possible investment or acquisition.
Our research and development expense was as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2013
2014
(in millions)
$193
122
197
64
$193
127
191
61
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$572
$576
2012
$181
137
200
77
$595
Intellectual Property
Patents and other proprietary rights are important to our business. We also rely upon trade secrets,
manufacturing know-how, continuing technological innovations, and licensing opportunities to maintain
and improve our competitive position. We review third-party proprietary rights, including patents and
patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid
infringement of third-party proprietary rights, identify licensing opportunities, and monitor the
intellectual property claims of others.
We own a large portfolio of patents that relate principally to electrical, optical, and electronic
products. We also own a portfolio of trademarks and are a licensee of various patents and trademarks.
Patents for individual products extend for varying periods according to the date of patent filing or grant
and the legal term of patents in the various countries where patent protection is obtained. Trademark
rights may potentially extend for longer periods of time and are dependent upon national laws and use
of the trademarks.
8
While we consider our patents and trademarks to be valued assets, we do not believe that our
competitive position or our operations are dependent upon or would be materially impacted by any
single patent or group of related patents.
Employees
As of September 26, 2014, we employed approximately 83,000 people worldwide, of whom 28,000
were in the EMEA region, 28,000 were in the Asia–Pacific region, and 27,000 were in the Americas
region. Of our total employees, approximately 53,000 were employed in manufacturing.
Government Regulation and Supervision
The import and export of products are subject to regulation by the United States (‘‘U.S.’’) and
other countries. A small portion of our products, including defense-related products, may require
governmental import and export licenses, whose issuance may be influenced by geopolitical and other
events. We have a trade compliance organization and other systems in place to apply for licenses and
otherwise comply with such regulations. Any failure to maintain compliance with domestic and foreign
trade regulation could limit our ability to import and export raw materials and finished goods into or
from the relevant jurisdiction.
Environmental
Our operations are subject to numerous environmental, health, and safety laws and regulations,
including those regulating the discharge of materials into the environment, greenhouse gas emissions,
hazardous materials in products, chemical usage, and others. We are committed to complying with
these laws and to the protection of our employees and the environment. We maintain a global
environmental, health, and safety program that includes appropriate policies and standards; staff
dedicated to environmental, health, and safety issues; periodic compliance auditing; training; and other
measures. We have a program for compliance with the European Union (‘‘EU’’) Restriction of
Hazardous Substances and Waste Electrical and Electronics Equipment Directives, the China
Restriction of Hazardous Substances law, the EU REACH (chemical registration and evaluation)
Regulation, and similar laws.
Compliance with these laws has increased our costs of doing business in a variety of ways and may
continue to do so in the future. For example, laws regarding product content and chemical registration
require extensive and costly data collection, management, and reporting, and laws regulating
greenhouse gas emissions are likely to increase our costs for energy and certain materials and products.
We also have projects underway at a number of current and former manufacturing facilities to
investigate and remediate environmental contamination resulting from past operations. Based upon our
experience, current information, and applicable laws, we believe that it is probable that we will incur
remedial costs in the range of approximately $18 million to $40 million. As of September 26, 2014, we
believe that the best estimate within this range is approximately $21 million. We do not anticipate any
material capital expenditures during fiscal 2015 for environmental control facilities or other costs of
compliance with laws or regulations relating to greenhouse gas emissions.
Corporate History
We are organized under the laws of Switzerland. The rights of holders of our shares are governed
by Swiss law, our Swiss articles of association, and our Swiss organizational regulations.
Our business was formed principally through a series of acquisitions, from fiscal 1999 through
fiscal 2002, of established electronics companies and divisions, including AMP Incorporated, Raychem
Corporation, the Electromechanical Components Division of Siemens, and the OEM Division of
Thomas & Betts. These companies each had more than 50 years of history in engineering and
innovation excellence. We operated as a segment of Tyco International Ltd. (‘‘Tyco International’’)
prior to our separation.
9
Tyco Electronics Ltd. was incorporated in fiscal 2000 as a wholly-owned subsidiary of Tyco
International. Effective June 29, 2007, Tyco International distributed all of our shares, as well as its
shares of its former healthcare businesses (‘‘Covidien’’), to its common shareholders (referred to in this
report as the ‘‘separation’’). We became an independent, publicly traded company owning the former
electronics businesses of Tyco International.
In March 2011, our shareholders approved an amendment to our articles of association to change
our name from ‘‘Tyco Electronics Ltd.’’ to ‘‘TE Connectivity Ltd.’’ The name change was effective
March 10, 2011. Our ticker symbol ‘‘TEL’’ on the New York Stock Exchange remained unchanged.
We acquired Deutsch Group SAS (‘‘Deutsch’’) and ADC Telecommunications, Inc. (‘‘ADC’’) in
fiscal 2012 and 2011, respectively. See Note 5 to the Consolidated Financial Statements for additional
information regarding acquisitions.
Available Information
All periodic and current reports, registration filings, and other filings that we are required to file
with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) are available free of charge through
our internet website at www.te.com. Such documents are available as soon as reasonably practicable
after electronic filing or furnishing of the material with the SEC.
The public may also read and copy any document that we file, including this Annual Report, at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Investors may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC, from which
investors can electronically access our SEC filings.
TE Connectivity and TE Connectivity (logo) are trademarks. (cid:1) 2014 TE Connectivity Ltd. All
Rights Reserved.
10
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common shares are listed and traded on the New York Stock Exchange (‘‘NYSE’’) under the
symbol ‘‘TEL.’’ The following table sets forth the high and low closing sales prices of our common
shares as reported by the NYSE for the quarterly periods during the fiscal years ended September 26,
2014 and September 27, 2013.
Market Price Range
Fiscal
2014
2013
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$54.58
60.16
62.24
64.97
$49.91
54.45
56.66
58.47
$37.95
42.54
46.87
53.54
$32.03
36.88
39.11
46.20
The number of registered holders of our common shares at November 7, 2014 was 27,211.
Dividends and Cash Distributions to Shareholders
The following table sets forth the dividends and cash distributions to shareholders paid on our
common shares during the quarterly periods presented below(1).
Fiscal
2014
2013
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.25 (CHF 0.24)
$ 0.25 (CHF 0.24)
$ 0.29 (CHF 0.26)
$ 0.29 (CHF 0.26)
$ 0.21 (CHF 0.20)(2)
$ 0.21 (CHF 0.20)(2)
$ 0.25 (CHF 0.24)
$ 0.25 (CHF 0.24)
(1)
Payments were declared in Swiss francs (‘‘CHF’’) and paid in U.S. dollars based on a U.S. dollar/Swiss franc exchange rate
shortly before shareholder approval.
(2)
Paid in the form of a reduction of registered share capital.
Future dividends on our common shares or reductions of registered share capital for distribution to
shareholders, if any, must be approved by our shareholders. In exercising their discretion to recommend
to the shareholders that such dividends or distributions be approved, our board of directors will
consider our results of operations, cash requirements and surplus, financial condition, statutory
requirements of applicable law, contractual restrictions, and other factors that they may deem relevant.
We may from time to time enter into financing agreements that contain financial covenants and
restrictions, some of which may limit our ability to pay dividends or to distribute capital reductions.
11
Performance Graph
Set forth below is a graph comparing the cumulative total shareholder return on our common
shares against the cumulative return on the S&P 500 Index and the Dow Jones Electrical Components
and Equipment Index. The graph assumes the investment of $100 in our common shares and in each
index on September 25, 2009 and assumes the reinvestment of all dividends and distributions. The
graph shows the cumulative total return as of the fiscal years ended September 24, 2010, September 30,
2011, September 28, 2012, September 27, 2013, and September 26, 2014. The comparisons in the graph
below are based upon historical data and are not indicative of, nor intended to forecast, future
performance of our common shares.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG TE CONNECTIVITY LTD., S&P 500 INDEX, AND
DOW JONES ELECTRICAL COMPONENTS AND EQUIPMENT INDEX
300
250
S
R
A
L
L
O
D
200
150
100
50
Fiscal 2009
Fiscal 2010
Fiscal 2011
Fiscal 2012
Fiscal 2013
Fiscal 2014
TE Connectivity Ltd.
S&P 500 Index
Dow Jones Electrical Components and Equipment Index
18DEC201400530261
TE Connectivity Ltd. . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . .
Dow Jones Electrical Components and
Fiscal
2009*
2010
2011
2012
2013
2014
$100.00
100.00
$131.25
112.23
$128.75
112.81
$159.28
146.88
$248.74
176.35
$286.80
210.98
Equipment Index . . . . . . . . . . . . . . . . .
100.00
116.27
111.24
147.37
202.45
225.86
*
$100 invested on September 25, 2009 in TE Connectivity’s common shares and in indexes. Indexes calculated on month-end
basis.
12
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the
quarter ended September 26, 2014:
Period
Total Number
of Shares
Purchased(1)
Average Price
Paid Per
Share(1)
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or
Programs(2)
June 28–July 25, 2014 . . . . . . . . . . . . .
July 26–August 29, 2014 . . . . . . . . . . .
August 30–September 26, 2014 . . . . . .
643,104
1,034,186
965,447
Total
. . . . . . . . . . . . . . . . . . . . . . . . .
2,642,737
$63.25
62.13
61.54
$62.19
640,700
1,030,600
959,700
2,631,000
Maximum
Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)
$997,118,807
933,084,934
874,026,621
(1) These columns include the following transactions which occurred during the quarter ended September 26, 2014:
(i) the acquisition of 11,737 common shares from individuals in order to satisfy tax withholding requirements in
connection with the vesting of restricted share awards issued under equity compensation plans; and
(ii) open market purchases totaling 2,631,000 common shares, summarized on a trade-date basis, in conjunction with the
share repurchase program announced in September 2007.
(2) On October 29, 2013, our board of directors authorized a $1 billion increase in the share repurchase program. Our share
repurchase program authorizes us to purchase a portion of our outstanding common shares from time to time through open
market or private transactions, depending on business and market conditions. The share repurchase program does not have
an expiration date.
13
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data. The data presented below should
be read in conjunction with our Consolidated Financial Statements and accompanying notes and
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ included
elsewhere in this Annual Report. Our consolidated financial information may not be indicative of our
future performance.
2014(1)
As of or for Fiscal
2012(3)
(in millions, except per share data)
2013(2)
2011(4)
2010(5)
Statement of Operations Data
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . .
Restructuring and other charges, net . . . . . . . . . . . .
Amounts attributable to TE Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . .
Income (loss) from discontinued operations, net of
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data
Basic earnings per share attributable to TE
Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share attributable to TE
Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and cash distributions paid per common
$13,912
31
59
$13,280
14
311
$13,282
27
128
$13,778
19
136
$11,681
8
137
1,789
1,276
1,163
1,223
1,012
(8)
$ 1,781
—
$ 1,276
(51)
$ 1,112
22
$ 1,245
91
$ 1,103
$
$
4.36
4.34
4.29
4.27
$
$
3.05
3.05
3.02
3.02
$
$
2.73
2.61
2.70
2.59
$
$
2.79
2.84
2.76
2.81
$
$
2.23
2.43
2.21
2.41
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.08
$
0.92
$
0.78
$
0.68
$
0.64
Balance Sheet Data
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,152
7,185
9,013
18,461
6,151
8,386
19,306
7,325
7,977
17,723
6,829
7,484
16,992
6,468
7,056
(1) Fiscal 2014 results include $282 million of income tax benefits recognized in connection with a reduction in the valuation
allowance associated with certain ADC tax loss carryforwards. (See Note 16 to the Consolidated Financial Statements.)
(2) Fiscal 2013 results include $331 million of income tax benefits associated with the effective settlement of an audit of prior
year tax returns as well as the related impact of $231 million to other expense pursuant to the tax sharing agreement with
Tyco International and Covidien. (See Notes 13, 16, and 17 to the Consolidated Financial Statements.)
(3) Fiscal 2012 results include $75 million of charges associated with the amortization of acquisition-related fair value
adjustments related primarily to acquired inventories and customer order backlog associated with Deutsch and $107 million
of income tax benefits recognized in connection with a reduction in the valuation allowance associated with tax loss
carryforwards in certain non-U.S. locations. (See Notes 5 and 16 to the Consolidated Financial Statements.)
(4) Fiscal 2011 results include $39 million of charges associated with the amortization of acquisition-related fair value
adjustments related primarily to acquired inventories and customer order backlog associated with ADC.
(5) Fiscal 2010 results include $178 million of other income pursuant to the Tax Sharing Agreement with Tyco International
and Covidien, $307 million of income tax charges associated primarily with certain proposed adjustments to prior year
income tax returns and related accrued interest, $101 million of income tax benefits related to the completion of certain
non-U.S. audits of prior year income tax returns, and $72 million of income tax benefits recognized in connection with a
reduction in the valuation allowance associated with tax loss carry forwards in certain non-U.S. locations.
14
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 Consolidated Financial Statements and the accompanying notes included
elsewhere in this Annual Report. The following discussion may contain forward-looking statements that
reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed
in these forward-looking statements. Factors that could cause or contribute to these differences include
those factors discussed below and elsewhere in this Annual Report, particularly in ‘‘Forward-Looking
Information’’ and in ‘‘Part I. Item 1A. Risk Factors’’ as set forth in our Annual Report on Form 10-K
for the fiscal year ended September 26, 2014 as filed with the SEC.
Our Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with
accounting principles generally accepted in the U.S. (‘‘GAAP’’).
The following discussion includes organic net sales growth and free cash flow which are non-GAAP
financial measures. We believe these non-GAAP financial measures, together with GAAP financial
measures, provide useful information to investors because they reflect the financial measures that
management uses in evaluating the underlying results of our operations. See ‘‘Non-GAAP Financial
Measures’’ for more information about these non-GAAP financial measures, including our reasons for
including the measures and material limitations with respect to the usefulness of the measures.
Overview
We are a global technology leader. We design and manufacture connectivity and sensors solutions
essential in today’s increasingly connected world. We help our customers solve the need for intelligent,
efficient, and high-performing products and solutions.
During fiscal 2014, we realigned certain businesses within our segment reporting structure to better
align our product portfolio. We continue to operate through four reporting segments: Transportation
Solutions, Industrial Solutions, Network Solutions, and Consumer Solutions. See Notes 1 and 22 to the
Consolidated Financial Statements for additional information regarding our segments. Prior period
segment results have been restated to conform to the current segment reporting structure.
Our business and operating results have been and will continue to be affected by worldwide
economic conditions. Our sales are dependent on certain industry end markets that are impacted by
consumer as well as industrial and infrastructure spending, and our operating results can be affected by
changes in demand in those markets.
Overall, our fiscal 2014 net sales increased 4.8% as compared to fiscal 2013. Increased net sales in
the Transportation Solutions segment and, to a lesser degree, the Industrial Solutions segment were
partially offset by declines in the Network Solutions segment and, to a lesser degree, the Consumer
Solutions segment. On an organic basis, net sales increased 4.6% during fiscal 2014 as compared to
fiscal 2013. In the Transportation Solutions segment, our net sales in the automotive end market
increased 10.4% on an organic basis during fiscal 2014, with sales increases in all regions. In the
Industrial Solutions segment, our organic net sales increased 5.2% in fiscal 2014, due primarily to
growth in the industrial equipment and aerospace, defense, oil, and gas end markets, driven by the
Asia–Pacific region. In the Network Solutions segment, on an organic basis, our net sales decreased
3.2% in fiscal 2014, due primarily to declines in the subsea communications and data communications
end markets. In the Consumer Solutions segment, our organic net sales decreased 1.0% in fiscal 2014
as compared to fiscal 2013 as declines in the consumer devices end market were partially offset by
increases in the appliances end market.
Overall, our fiscal 2013 net sales were consistent with fiscal 2012 levels. Increased net sales in the
Transportation Solutions segment were offset by declines in the Network Solutions and Consumer
15
Solutions segments. On an organic basis, our net sales decreased 1.3% during fiscal 2013 as compared
to fiscal 2012. In the Transportation Solutions segment, our organic net sales in the automotive end
market increased 4.9% during fiscal 2013, with sales increases in the Americas and, to a lesser degree,
the Asia–Pacific and EMEA regions. In the Network Solutions segment, our organic net sales
decreased 5.8% in fiscal 2013, due primarily to weakness in the subsea communications and data
communications end markets. In the Industrial Solutions segment, on an organic basis, our net sales
decreased 4.6% in fiscal 2013, primarily as a result of declines in the industrial equipment end market.
In the Consumer Solutions segment, our organic net sales decreased 5.1% in fiscal 2013, due primarily
to declines in the consumer devices end market.
The acquisition of Deutsch in April 2012 benefited our sales in the automotive and aerospace,
defense, oil, and gas end markets in the Transportation Solutions and Industrial Solutions segments,
respectively, and contributed net sales of $327 million in fiscal 2012. Also, Deutsch contributed
incremental net sales of $320 million in the first six months of fiscal 2013 over the same period of fiscal
2012.
Outlook
In the first quarter of fiscal 2015, we expect net sales to be between $3.46 billion and $3.56 billion,
primarily reflecting sales increases of approximately 10% in the Transportation Solutions segment and, to
a lesser degree, in the Industrial Solutions segment, partially offset by a decrease in the Consumer
Solutions segment relative to the first quarter of fiscal 2014. In the Transportation Solutions segment, we
expect our sales growth to outpace an anticipated 1% to 2% growth in global automotive production in
the first quarter of fiscal 2015 as compared to the same period of fiscal 2014. In addition, the
Transportation Solutions segment will benefit from the recently completed acquisition of Measurement
Specialties. In the Industrial Solutions segment, we expect our sales to increase in the first quarter of
fiscal 2015 as compared to the first quarter of fiscal 2014, due primarily to increased sales in the
aerospace, defense, oil, and gas end market. Our sales in the aerospace, defense, oil, and gas end market
will benefit from the acquisition of the SEACON Group (‘‘SEACON’’). In the Network Solutions
segment, we expect a modest sales increase in the first quarter of fiscal 2015, due primarily to increased
sales in the subsea communications end market. We expect our net sales in the subsea communications
end market to be approximately $115 million in the first quarter of fiscal 2015. In the Consumer
Solutions segment, we expect our sales decrease in the consumer devices end market to be partially offset
by a sales increase in the appliances end market in the first quarter of fiscal 2015 as compared to the
first quarter of fiscal 2014. We expect diluted earnings per share to be in the range of $0.95 to $0.99 per
share in the first quarter of fiscal 2015. This outlook reflects the negative impact of foreign currency
exchange rates on net sales and earnings per share of approximately $100 million and $0.03 per share,
respectively, in the first quarter of fiscal 2015 as compared to the first quarter of fiscal 2014.
For fiscal 2015, we expect net sales to be between $14.7 billion and $15.3 billion. This primarily
reflects sales increases in the Transportation Solutions and Network Solutions segments and, to a lesser
degree, the Industrial Solutions segment from fiscal 2014 levels. In the Transportation Solutions segment,
we expect our sales growth to outpace an anticipated 2.5% to 3% growth in global automotive
production from fiscal 2014 levels. We expect Measurement Specialties to contribute approximately
$600 million in sales to the Transportation Solutions segment in fiscal 2015. In the Network Solutions
segment, we expect our sales to increase approximately 10% in fiscal 2015 as compared to fiscal 2014,
with growth driven by a sales increase of approximately $300 million in the subsea communications end
market. In the Industrial Solutions segment, we expect our sales to increase in fiscal 2015 over fiscal
2014, due primarily to increased sales in the aerospace, defense, oil, and gas end market. In the
Consumer Solutions segment, we expect our sales decrease in the consumer devices end market to be
offset by a sales increase in the appliances end market in fiscal 2015 as compared to fiscal 2014. We
expect diluted earnings per share to be in the range of $3.99 to $4.29 per share in fiscal 2015. This
16
outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per
share of approximately $400 million and $0.15 per share, respectively, in fiscal 2015 as compared to fiscal
2014.
The above outlook is based on foreign 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. Additionally, we continue to closely manage our costs in line
with economic conditions. We also 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.’’
Acquisitions
On October 9, 2014, we acquired 100% of the outstanding shares of Measurement Specialties, a
leading global designer and manufacturer of sensors and sensor-based systems, for $86 in cash per
share. The total value paid, which included the repayment of debt, was approximately $1.7 billion, net
of cash acquired. Measurement Specialties offers a broad portfolio of technologies including pressure,
vibration, force, temperature, humidity, ultrasonics, position, and fluid sensors, for a wide range of
applications and industries. This business will be reported as part of our Transportation Solutions
segment. See additional information regarding the acquisition of Measurement Specialties in Note 24 to
the Consolidated Financial Statements.
During fiscal 2014, we acquired six companies, including SEACON, a leading provider of
underwater connector technology and systems, for $528 million in cash, net of cash acquired.
On April 3, 2012, we acquired 100% of the outstanding shares of Deutsch for a total value paid of
A1.55 billion (approximately $2.05 billion using an exchange rate of $1.33 per A1.00), net of cash
acquired. The total value paid included $659 million related to the repayment of Deutsch’s financial
debt and accrued interest. The acquired Deutsch businesses have been reported in the Transportation
Solutions and Industrial Solutions segments from the date of acquisition. During fiscal 2012, Deutsch
contributed net sales of $327 million and an operating loss of $54 million to our Consolidated
Statement of Operations. The operating loss included charges of $75 million associated with the
amortization of acquisition-related fair value adjustments related primarily to acquired inventories and
customer order backlog, acquisition costs of $21 million, restructuring charges of $14 million, and
integration costs of $6 million. See Note 5 to the Consolidated Financial Statements for additional
information regarding the Deutsch acquisition.
Restructuring
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. In
connection with these initiatives and in response to market conditions, we incurred net restructuring
charges of $63 million during fiscal 2014 and expect to incur net restructuring charges of approximately
$65 million during fiscal 2015, including $15 million associated with the integration of Measurement
Specialties. Cash spending related to restructuring was $160 million during fiscal 2014, and we expect
total spending, which will be funded with cash from operations, to be approximately $105 million in
fiscal 2015. Annualized cost savings related to actions commenced in fiscal 2014 are estimated to be
approximately $30 million and are expected to be realized by the end of fiscal 2016. Annualized cost
savings related to actions commenced in fiscal 2013 are estimated to be approximately $115 million and
are expected to be realized by the end of fiscal 2015. Cost savings will be reflected primarily in cost of
sales and selling, general, and administrative expenses.
17
Discontinued Operations
During fiscal 2012, we sold our Touch Solutions and TE Professional Services businesses. See
Note 4 to the Consolidated Financial Statements for additional information regarding discontinued
operations.
Results of Operations
Key business factors that influenced our results of operations for the periods discussed in this
report include:
(cid:127) Raw material prices. We purchased approximately 173 million pounds of copper, 127,000 troy
ounces of gold, and 2.6 million troy ounces of silver in fiscal 2014. Prices continue to fluctuate.
The following table sets forth the average prices incurred related to copper, gold, and silver.
Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lb.
Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
$ 3.29
$1,405
$23.43
Measure
2014
Fiscal
2013
$ 3.51
$1,613
$29.18
2012
$ 3.90
$1,599
$34.30
In fiscal 2015, we expect to purchase copper, gold, and silver in quantities similar to fiscal 2014
levels.
(cid:127) Foreign exchange. Approximately 55% of our net sales are invoiced in currencies other than the
U.S. dollar. 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. The percentage of net sales in fiscal 2014 by major currencies invoiced was
as follows:
Currencies
U.S. dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chinese renminbi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
45%
30
8
6
11
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
Consolidated Operations
Net Sales. Net sales increased $632 million, or 4.8%, to $13,912 million in fiscal 2014 from
$13,280 million in fiscal 2013. On an organic basis, net sales increased $617 million, or 4.6%, during
fiscal 2014 as compared to fiscal 2013 as increased net sales in the Transportation Solutions segment
and, to a lesser degree, the Industrial Solutions segment were partially offset by decreases in the
Network Solutions and Consumer Solutions segments. Price erosion adversely affected organic sales by
$257 million in fiscal 2014. Foreign currency exchange rates positively impacted net sales by
$21 million, or 0.2%, in fiscal 2014.
Net sales were $13,280 million and $13,282 million in fiscal 2013 and 2012, respectively. On an
organic basis, net sales decreased $171 million, or 1.3%, in fiscal 2013 from fiscal 2012 as increased net
sales in the Transportation Solutions segment were more than offset by decreases in the Network
Solutions, Industrial Solutions, and Consumer Solutions segments. Price erosion adversely affected
18
organic sales by $207 million in fiscal 2013. Foreign currency exchange rates negatively impacted net
sales by $115 million, or 0.9%, in fiscal 2013. Deutsch, which was acquired on April 3, 2012,
contributed incremental net sales of $320 million during the first six months of fiscal 2013 over the
same period of fiscal 2012.
See further discussion of organic net sales below under ‘‘Results of Operations by Segment.’’
The following table sets forth the percentage of our total net sales by geographic region:
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35% 34% 34%
33
33
33
32
34
32
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Fiscal
2014
2013
2012
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by geographic region:
2014
2013
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Organic(1)
Translation(2)
Acquisitions
(Divestitures)
Total
Organic(1)
Translation(2)
Acquisition
(Divestiture)
Total
($ in millions)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$219
337
61
$617
4.8%
7.8
1.4
4.6%
$149
(76)
(52)
$ 21
$ (6)
(34)
34
$ (6)
$362
227
43
7.9% $(114) (2.5)% $ 28
(113)
5.2
(30)
1.0
(31) (0.7)
(26) (0.6)
$632
4.8% $(171) (1.3)% $(115)
$146
(7)
145
$284
$ 60
(151)
89
1.3%
(3.4)
2.1
$
(2) —%
.
EMEA .
.
Asia–Pacific .
.
Americas
.
Total .
.
.
.
.
(1) Represents the change in net sales resulting from volume and price changes, before consideration of acquisitions,
divestitures, and the impact of changes in foreign currency exchange rates.
(2) Represents the change in net sales resulting from changes in foreign currency exchange rates.
The following table sets forth the percentage of our total net sales by segment:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44% 41% 39%
23
24
23
21
13
11
23
25
13
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Fiscal
2014
2013
2012
19
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by segment:
2014
2013
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Organic(1)
Translation(2)
Acquisitions
(Divestitures)
Total
Organic(1)
Translation(2)
Acquisition
(Divestiture)
Total
Transportation Solutions
.
.
Industrial Solutions
.
Network Solutions .
.
.
Consumer Solutions .
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$570
161
(98)
(16)
10.4%
5.2
(3.2)
(1.0)
$617
4.6%
$ 33
11
(11)
(12)
$ 21
$ 2
31
(39)
—
$ (6)
($ in millions)
11.0% $ 251
4.9%
6.6
(4.8)
(1.7)
(142) (4.6)
(192) (5.8)
(88) (5.1)
$ 605
203
(148)
(28)
$ (54)
(20)
(16)
(25)
$ 632
4.8% $(171) (1.3)% $(115)
$160
160
(36)
—
$284
$ 357
(2)
(244)
(113)
7.0%
(0.1)
(7.4)
(6.5)
$
(2) —%
(1) Represents the change in net sales resulting from volume and price changes, before consideration of acquisitions,
divestitures, and the impact of changes in foreign currency exchange rates.
(2) Represents the change in net sales resulting from changes in foreign currency exchange rates.
Gross Margin. Gross margin increased $363 million to $4,692 million in fiscal 2014 from gross
margin of $4,329 million in fiscal 2013. The increase in gross margin resulted primarily from improved
manufacturing productivity and, to a lesser degree, higher volume, partially offset by price erosion.
Gross margin as a percentage of net sales increased to 33.7% during fiscal 2014 as compared to 32.6%
in fiscal 2013.
In fiscal 2013, gross margin was $4,329 million, reflecting a $283 million increase from gross
margin of $4,046 million in fiscal 2012. In fiscal 2012, gross margin included charges of $75 million
associated with the amortization of acquisition-related fair value adjustments related primarily to
acquired inventories and customer order backlog associated with Deutsch. Excluding this item, gross
margin increased in fiscal 2013 as compared to fiscal 2012 due primarily to improved manufacturing
productivity and, to a lesser degree, lower material costs, partially offset by price erosion. Gross margin
as a percentage of net sales increased to 32.6% in fiscal 2013 from 30.5% in fiscal 2012.
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses
increased $109 million to $1,882 million during fiscal 2014 as compared to $1,773 million in fiscal 2013.
The increase resulted primarily from increased selling expenses to support higher sales levels, partially
offset by savings attributable to restructuring actions and a gain on the sale of real estate. Selling,
general, and administrative expenses as a percentage of net sales increased to 13.5% in fiscal 2014 from
13.4% in fiscal 2013.
Selling, general, and administrative expenses increased $88 million to $1,773 million in fiscal 2013
from $1,685 million in fiscal 2012. The increase resulted primarily from additional selling, general, and
administrative expenses of Deutsch, increased incentive compensation costs, and impairment charges on
certain assets held for sale, partially offset by savings attributable to restructuring actions. Selling,
general, and administrative expenses as a percentage of net sales increased to 13.4% in fiscal 2013 from
12.7% in fiscal 2012.
Acquisition and Integration Costs.
In fiscal 2014, we incurred acquisition and integration costs of
$31 million, primarily in connection with the acquisition of SEACON. In connection with the
acquisition of Deutsch, we incurred acquisition and integration costs of $14 million and $27 million
during fiscal 2013 and 2012, respectively.
Restructuring and Other Charges, Net. Net restructuring and other charges were $59 million,
$311 million, and $128 million in fiscal 2014, 2013, and 2012, respectively. During fiscal 2014, we
initiated a restructuring program associated primarily with headcount reductions and manufacturing site
and product line closures in the Network Solutions and Consumer Solutions segments. During fiscal
20
2013, we initiated a restructuring program associated with headcount reductions and manufacturing site
closures impacting all segments. During fiscal 2012, we initiated a restructuring program to reduce
headcount across all segments. Also, we initiated a restructuring program in the Transportation
Solutions and Industrial Solutions segments associated with the acquisition of Deutsch. See Note 3 to
the Consolidated Financial Statements for additional information regarding net restructuring and other
charges.
Operating Income. Operating income was $2,045 million, $1,556 million, and $1,518 million in
fiscal 2014, 2013, and 2012, respectively. Results for fiscal 2014 included $59 million of net restructuring
and other charges, $31 million of acquisition and integration charges, and $4 million of charges
associated with the amortization of acquisition-related fair value adjustments. Results for fiscal 2013
included $311 million of net restructuring and other charges and $14 million of acquisition and
integration costs. Results for fiscal 2012 included $116 million of charges related to the acquisition of
Deutsch, including $75 million of charges associated with the amortization of acquisition-related fair
value adjustments related primarily to acquired inventories and customer order backlog, $27 million of
acquisition and integration costs, and $14 million of net restructuring and other charges. Results for
fiscal 2012 also included $114 million of additional net restructuring and other charges.
Non-Operating Items
Interest Expense.
Interest expense was $131 million, $142 million, and $176 million in fiscal 2014,
2013, and 2012, respectively. The decrease of $11 million in fiscal 2014 from fiscal 2013 was due to a
lower average cost of debt. The decrease of $34 million in fiscal 2013 from fiscal 2012 resulted from
lower average debt levels.
Other Income (Expense), Net.
In fiscal 2014, 2013, and 2012, we recorded net other income of
$63 million, net other expense of $183 million, and net other income of $50 million, respectively,
primarily pursuant to the Tax Sharing Agreement with Tyco International and Covidien. See Note 12 to
the Consolidated Financial Statements for further information regarding the Tax Sharing Agreement.
The net other income in fiscal 2014 included $18 million of income related to our share of a settlement
agreement entered into by Tyco International with a former subsidiary, CIT Group Inc., which arose
from a pre-separation claim for which we were entitled to 31% once resolved. The net other expense in
fiscal 2013 included $231 million related to the effective settlement of all undisputed tax matters for
the period 1997 through 2000. See Note 13 to the Consolidated Financial Statements for additional
information.
Income Taxes. Our operations are conducted through our various subsidiaries in a number of
countries throughout the world. We have provided for income taxes based upon the tax laws and rates
in the countries in which our operations are conducted and income and loss from operations is subject
to taxation. We recorded income tax expense of $207 million, benefit of $29 million, and expense of
$249 million in fiscal 2014, 2013, and 2012, respectively.
The tax provision for fiscal 2014 reflects income tax benefits of $282 million recognized in
connection with a reduction in the valuation allowance associated with certain ADC tax loss
carryforwards, partially offset by an income tax charge related to adjustments to prior year income tax
returns.
In fiscal 2014, we acquired SEACON, and its U.S. operations were combined with our ADC U.S.
federal consolidated tax group. In addition, the ADC U.S. tax group was combined with other U.S.
legal entities and assets. We reassessed the realization of the revised ADC U.S. tax group’s tax loss and
credit carryforwards. Based upon management’s review of forecasted future taxable income of the
reorganized combined tax group, we believe it is more likely than not that a tax benefit will be realized
on additional U.S. federal and state net operating losses. Accordingly, we reduced the valuation
21
allowance and recorded a tax benefit of $282 million. As of fiscal year end 2014, we continue to
maintain a valuation allowance of $75 million related to U.S. federal and state tax attributes of the
ADC U.S. tax group due to uncertainty of their realization in the future.
The tax benefit for fiscal 2013 reflects an income tax benefit of $331 million related to the
effective settlement of all undisputed tax matters for the period 1997 through 2000. In addition, the tax
benefit for fiscal 2013 reflects $23 million of net tax benefits consisting primarily of income tax benefits
recognized in connection with a reduction in the valuation allowance associated with certain ADC tax
loss carryforwards and income tax benefits recognized in connection with the lapse of statutes of
limitations for examinations of prior year income tax returns, partially offset by income tax expense
related to adjustments to prior year income tax returns.
The tax provision for fiscal 2012 reflects an income tax benefit of $107 million recognized in
connection with a reduction in the valuation allowance associated with tax loss carryforwards in certain
non-U.S. locations. In addition, the tax provision for fiscal 2012 reflects $17 million of income tax
expense associated with certain non-U.S. tax rate changes enacted in the quarter ended December 30,
2011.
The valuation allowance for deferred tax assets of $1,721 million and $1,816 million at fiscal year
end 2014 and 2013, respectively, relates principally to the uncertainty of the utilization of certain
deferred tax assets, primarily tax loss, capital loss, and credit carryforwards in various jurisdictions. We
believe that we will generate sufficient future taxable income to realize the income tax benefits related
to the remaining net deferred tax assets on our Consolidated Balance Sheet. The valuation allowance
was calculated in accordance with the provisions of ASC 740, which require that a valuation allowance
be established or maintained when it is more likely than not that all or a portion of deferred tax assets
will not be realized.
The calculation of our tax liabilities includes estimates for uncertainties in the application of
complex tax regulations across multiple global jurisdictions where we conduct our operations. Under
the uncertain tax position provisions of ASC 740, we recognize liabilities for tax and related interest for
issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which,
additional taxes and related interest will be due. These tax liabilities and related interest are reflected
net of the impact of related tax loss carryforwards, as such tax loss carryforwards will be applied against
these tax liabilities and will reduce the amount of cash tax payments due upon the eventual settlement
with the tax authorities. These estimates may change due to changing facts and circumstances. Due to
the complexity of these uncertainties, the ultimate resolution may result in a settlement that differs
from our current estimate of the tax liabilities and related interest. Furthermore, management has
reviewed with tax counsel the issues raised by certain taxing authorities and the adequacy of these
recorded amounts. If our current estimate of tax and interest liabilities is less than the ultimate
settlement, an additional charge to income tax expense may result. If our current estimate of tax and
interest liabilities is more than the ultimate settlement, income tax benefits may be recognized.
We have provided income taxes for earnings that are currently distributed as well as the taxes
associated with several subsidiaries’ earnings that are expected to be distributed in the future. No
additional provision has been made for Swiss or non-Swiss income taxes on the undistributed earnings
of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis
differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested,
the investments are essentially permanent in duration, or we have concluded that no additional tax
liability will arise as a result of the distribution of such earnings. As of September 26, 2014, certain
subsidiaries had approximately $18 billion of cumulative undistributed earnings that have been retained
indefinitely and reinvested in our global manufacturing operations, including working capital; property,
plant, and equipment; intangible assets; and research and development activities. A liability could arise
if our intention to permanently reinvest such earnings were to change and amounts are distributed by
22
such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the
additional income taxes related to permanently reinvested earnings or the basis differences related to
investments in subsidiaries. As of September 26, 2014, we had approximately $5.5 billion of cash, cash
equivalents, and intercompany deposits, principally in our subsidiaries, that we have the ability to
distribute to Tyco Electronics Group S.A. (‘‘TEGSA’’), our Luxembourg subsidiary, which is the obligor
of substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company, but we
consider to be permanently reinvested. We estimate that up to approximately $1.7 billion of tax expense
would be recognized on our Consolidated Financial Statements if our intention to permanently reinvest
these amounts were to change. Our current plans do not demonstrate a need to repatriate cash, cash
equivalents, and intercompany deposits that are designated as permanently reinvested in order to fund
our operations, including investing and financing activities.
Loss from Discontinued Operations, Net of Income Taxes. During fiscal 2012, we sold our Touch
Solutions business for net cash proceeds of $380 million and recognized an insignificant pre-tax gain on
the transaction. The agreement includes contingent earn-out provisions through 2015 based on business
performance. In connection with the divestiture, we incurred an income tax charge of $65 million,
which is included in loss from discontinued operations, net of income taxes on the Consolidated
Statement of Operations for fiscal 2012. This charge was driven primarily by the inability to fully realize
a tax benefit associated with the write-off of goodwill at the time of the sale.
During fiscal 2012, we sold our TE Professional Services business for net cash proceeds of
$28 million and recognized an insignificant pre-tax gain on the transaction. Additionally, during fiscal
2012, we recorded a pre-tax impairment charge of $28 million, which is included in loss from
discontinued operations, net of income taxes on the Consolidated Statement of Operations, to write the
carrying value of this business down to its estimated fair value less costs to sell.
In December 2011, the New York Court of Claims entered judgment in our favor in the amount of
$25 million, payment of which was received in fiscal 2012, in connection with our former Wireless
Systems business’s State of New York contract. This judgment resolved all outstanding issues between
the parties in this matter. This partial recovery of a previously recognized loss, net of legal fees, is
reflected in loss from discontinued operations, net of income taxes on the Consolidated Statement of
Operations for fiscal 2012.
The Touch Solutions, TE Professional Services, and Wireless Systems businesses met the
discontinued operations criteria and have been included as such in all periods presented on our
Consolidated Financial Statements. Prior to reclassification to discontinued operations, the Touch
Solutions and TE Professional Services businesses were included in the former Communications and
Industrial Solutions segment and the Network Solutions segment, respectively. The Wireless Systems
business was a component of the former Wireless Systems segment.
See Note 4 to the Consolidated Financial Statements for additional information regarding
discontinued operations.
Results of Operations by Segment
Transportation Solutions
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
Fiscal
2013
2012
($ in millions)
$5,485
$ 972
$6,090
$1,283
$5,128
$ 754
21.1% 17.7% 14.7%
23
Fiscal 2014 Compared to Fiscal 2013
In fiscal 2014, net sales in the Transportation Solutions segment increased $605 million, or 11.0%,
to $6,090 million from $5,485 million in fiscal 2013. The strengthening of certain foreign currencies
positively impacted net sales by $33 million, or 0.6%, in fiscal 2014 as compared to fiscal 2013. Organic
net sales increased by $570 million, or 10.4%, in fiscal 2014 from fiscal 2013.
In the automotive end market, which is the Transportation Solutions segment’s primary industry
end market, our organic net sales increased 10.4% in fiscal 2014 as compared to fiscal 2013. The
increase was due primarily to growth of 13.5% in the Asia–Pacific region, 8.9% in the Americas region,
and 8.6% in the EMEA region. In the Asia–Pacific region, growth was driven by increased demand in
China and, to a lesser degree, Japan, partially offset by declines in certain southeastern Asia–Pacific
areas. Growth in the Americas region was driven by strong consumer demand in North America,
partially offset by weaker economic conditions in South America. In the EMEA region, growth resulted
primarily from increased demand for exports to other regions and, to a lesser degree, increased local
demand. In the commercial vehicle market, our organic net sales increase was due to stronger market
conditions, strength in the North America truck market, and the acceleration of purchases related to
emission standard changes in China and the EMEA region.
Operating income in the Transportation Solutions segment increased $311 million to $1,283 million
in fiscal 2014 from $972 million in fiscal 2013. Segment results for fiscal 2014 included $4 million of net
restructuring and other charges and $4 million of acquisition and integration costs. Segment results for
fiscal 2013 included $38 million of net restructuring and other charges and $7 million of acquisition and
integration costs. Excluding these items, operating income increased in fiscal 2014 as compared to fiscal
2013, primarily as a result of higher volume and improved manufacturing productivity, partially offset
by price erosion.
Fiscal 2013 Compared to Fiscal 2012
Net sales in the Transportation Solutions segment increased $357 million, or 7.0%, to $5,485
million in fiscal 2013 from $5,128 million in fiscal 2012. The weakening of certain foreign currencies
negatively affected net sales by $54 million, or 1.1%, in fiscal 2013 as compared to fiscal 2012. Deutsch
contributed incremental net sales of $160 million during the first six months of fiscal 2013 over the
same period of fiscal 2012. Organic net sales increased by $251 million, or 4.9%, in fiscal 2013 as
compared to fiscal 2012.
In the automotive end market, our organic net sales increased 4.9% in fiscal 2013 as compared to
fiscal 2012. The increase was due primarily to growth of 9.9% in the Americas region, 5.1% in the
Asia–Pacific region, and 2.2% in the EMEA region. Growth in the Americas region was driven by
strong consumer demand resulting in increased vehicle production. In the Asia–Pacific region, growth
was driven by increasing demand in China, partially offset by declines in Japan. In the EMEA region,
growth resulted primarily from increased exports to other regions.
In fiscal 2013, operating income in the Transportation Solutions segment increased $218 million to
$972 million from $754 million in fiscal 2012. Segment results for fiscal 2013 included $38 million of
net restructuring and other charges and $7 million of acquisition and integration costs related to the
acquisition of Deutsch. Segment results for fiscal 2012 included $67 million of charges related to the
acquisition of Deutsch, including $42 million of charges associated with the amortization of acquisition-
related fair value adjustments related primarily to acquired inventories and customer order backlog,
$16 million of acquisition and integration costs, and $9 million of net restructuring and other charges.
Segment results also included $9 million of additional net restructuring and other charges in fiscal 2012.
Excluding these items, operating income increased in fiscal 2013 as compared to fiscal 2012. The
increase resulted primarily from higher volume, improved manufacturing productivity, and lower
material costs, partially offset by price erosion.
24
Industrial Solutions
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
Fiscal
2013
2012
($ in millions)
$3,099
$ 362
$3,302
$ 446
$3,101
$ 394
13.5% 11.7% 12.7%
The following table sets forth the Industrial Solutions segment’s percentage of total net sales by
primary industry end market(1):
Industrial Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerospace, Defense, Oil, and Gas . . . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41%
35
24
41%
33
26
45%
28
27
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
2014
Fiscal
2013
2012
(1)
Industry end market information is presented consistently with our internal management reporting and may be
revised periodically as management deems necessary.
The following table provides an analysis of the change in the Industrial Solutions segment’s net
sales compared to the prior fiscal year by primary industry end market:
2014
2013
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Organic(1)
Acquisitions
Translation(2) (Divestiture)
Total
Organic(1)
Translation(2) Acquisition
Total
Industrial Equipment .
Aerospace, Defense, Oil, and
.
.
.
.
.
.
Gas .
.
Energy .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. $ 77
6.0%
$ 4
$ —
$ 81
($ in millions)
6.3% $ (90)
(6.5)%
$(25)
$ —
$(115)
(8.2)%
67
17
6.5
2.1
8
(1)
46
(15)
121 11.9
0.1
1
(16)
(36)
(1.8)
(4.3)
7
(2)
160
—
151
(38)
17.4
(4.6)
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
. $161
5.2%
$11
$ 31
$203
6.6% $(142)
(4.6)%
$(20)
$160
$
(2)
(0.1)%
(1)
Represents the change in net sales resulting from volume and price changes, before consideration of acquisitions, divestitures, and the impact
of changes in foreign currency exchange rates.
(2)
Represents the change in net sales resulting from changes in foreign currency exchange rates.
Fiscal 2014 Compared to Fiscal 2013
Net sales in the Industrial Solutions segment increased $203 million, or 6.6%, to $3,302 million in
fiscal 2014 from $3,099 million in fiscal 2013. The strengthening of certain foreign currencies positively
impacted net sales by $11 million, or 0.4%, in fiscal 2014 as compared to fiscal 2013. Organic net sales
increased $161 million, or 5.2%, in fiscal 2014 from fiscal 2013.
In the industrial equipment end market, our organic net sales increased 6.0% in fiscal 2014 as
compared to fiscal 2013 as a result of market recovery, particularly in the Asia–Pacific region and, to a
lesser degree, the EMEA region. In the aerospace, defense, oil, and gas end market, our organic net
sales increased 6.5% in fiscal 2014 as compared to fiscal 2013. The increase was attributable to
continued strength in commercial aviation and growth in oil and gas, partially offset by continued
weakness in the defense market. In the energy end market, our organic net sales increased 2.1% in
25
fiscal 2014 from fiscal 2013 primarily as a result of growth in the Asia–Pacific and Americas regions,
partially offset by a decline in the EMEA region.
Operating income in the Industrial Solutions segment increased $84 million to $446 million in
fiscal 2014 from $362 million in fiscal 2013. Segment results for fiscal 2014 included $27 million of
acquisition and integration costs, $7 million of net restructuring and other charges, and $4 million of
charges associated with the amortization of acquisition-related fair value adjustments. Segment results
for fiscal 2013 included $62 million of net restructuring and other charges and $7 million of acquisition
and integration costs. Excluding these items, operating income increased in fiscal 2014 as compared to
fiscal 2013. The increase was due to higher volume and improved manufacturing productivity, partially
offset by price erosion.
Fiscal 2013 Compared to Fiscal 2012
In the Industrial Solutions segment, net sales of $3,099 million in fiscal 2013 were flat as compared
to fiscal 2012. The weakening of certain foreign currencies negatively affected net sales by $20 million,
or 0.6%, in fiscal 2013 as compared to fiscal 2012. Deutsch contributed incremental net sales of
$160 million in the first six months of fiscal 2013 over the same period of fiscal 2012. Organic net sales
decreased $142 million, or 4.6%, during fiscal 2013 as compared to fiscal 2012.
In the industrial equipment end market, our organic net sales decreased 6.5% in fiscal 2013 as
compared to fiscal 2012 due primarily to declines in the industrial equipment, solar, and medical
markets. In the aerospace, defense, oil, and gas end market, our organic net sales decreased 1.8% in
fiscal 2013 as compared to fiscal 2012 as a slowdown in defense spending was partially offset by
increased production in the commercial aviation market and growth resulting from increased oil and
gas exploration. In the energy end market, our organic net sales decreased 4.3% in fiscal 2013 from
fiscal 2012 as a result of continued market declines, primarily in the EMEA and Asia–Pacific regions.
In fiscal 2013, operating income in the Industrial Solutions segment decreased $32 million to
$362 million from $394 million in fiscal 2012. Segment results for fiscal 2013 included $62 million of
net restructuring and other charges and $7 million of acquisition and integration costs related to the
acquisition of Deutsch. Segment results for fiscal 2012 included $49 million of charges related to the
acquisition of Deutsch, including $33 million of charges associated with the amortization of acquisition-
related fair value adjustments related primarily to acquired inventories and customer order backlog,
$11 million of acquisition and integration costs, and $5 million of net restructuring and other charges.
Segment results also included $23 million of additional net restructuring and other charges in fiscal
2012. Excluding these items, operating income decreased in fiscal 2013 as compared to fiscal 2012. The
decrease was due to lower volume and, to a lesser degree, price erosion, partially offset by improved
manufacturing productivity and benefits attributable to Deutsch.
Network Solutions
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
Fiscal
2013
2012
($ in millions)
$3,066
$ 136
$2,918
$ 163
$3,310
$ 247
5.6% 4.4% 7.5%
26
The following table sets forth the Network Solutions segment’s percentage of total net sales by
primary industry end market(1):
2014
Fiscal
2013
2012
Telecom Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Communications . . . . . . . . . . . . . . . . . . . . . . . . . .
Enterprise Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsea Communications . . . . . . . . . . . . . . . . . . . . . . . . .
45%
24
21
10
42%
25
20
13
40%
26
20
14
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
(1)
Industry end market information is presented consistently with our internal management reporting and may be
revised periodically as management deems necessary.
The following table provides an analysis of the change in the Network Solutions segment’s net
sales compared to the prior fiscal year by primary industry end market:
2014
2013
Fiscal
Change in Net Sales versus Prior Fiscal Year
Organic(1)
Translation(2) Divestiture
Total
Change in Net Sales versus Prior Fiscal Year
Translation(2) Divestiture
Total
Organic(1)
.
.
. $ 33
.
Telecom Networks
(43)
.
Data Communications .
26
Enterprise Networks .
.
.
(114)
Subsea Communications .
2.6%
(5.5)
4.2
(28.7)
Total
.
.
.
.
.
.
.
. .
.
.
. $ (98)
(3.2)%
$ 4
(1)
(14)
—
$(11)
$ —
(39)
—
—
$(39)
$ 37
($ in millions)
2.9% $ (29)
(55)
(25)
(83)
(83) (10.7)
2.0
12
(114) (28.7)
(2.2)%
(6.3)
(3.9)
(17.3)
$(148)
(4.8)% $(192)
(5.8)%
$ (4)
(3)
(9)
—
$(16)
$ —
(36)
—
—
$(36)
$ (33)
(94)
(34)
(83)
(2.5)%
(10.8)
(5.2)
(17.3)
$(244)
(7.4)%
(1)
Represents the change in net sales resulting from volume and price changes, before consideration of acquisitions, divestitures, and the impact
of changes in foreign currency exchange rates.
(2)
Represents the change in net sales resulting from changes in foreign currency exchange rates.
Fiscal 2014 Compared to Fiscal 2013
Net sales in the Network Solutions segment decreased $148 million, or 4.8%, to $2,918 million in
fiscal 2014 from $3,066 million in fiscal 2013. The weakening of certain foreign currencies negatively
affected net sales by $11 million, or 0.4%, in fiscal 2014 from fiscal 2013. In fiscal 2014, organic net
sales decreased $98 million, or 3.2%, as compared to fiscal 2013.
In the telecom networks end market, our organic net sales increased 2.6% in fiscal 2014 from fiscal
2013 due primarily to growth in the fiber business in the EMEA region, partially offset by declines in
the Asia–Pacific region and, to a lesser degree, the Americas region. In the data communications end
market, our organic net sales decreased 5.5% in fiscal 2014 as compared to fiscal 2013 due to the exit
of certain product lines and weak demand. In the enterprise networks end market, our organic net
sales increased 4.2% in fiscal 2014 from fiscal 2013 as a result of datacenter growth in India and North
America. In the subsea communications end market, our organic net sales decreased 28.7% in fiscal
2014 as compared to fiscal 2013 due to lower project volume.
In the Network Solutions segment, operating income increased $27 million to $163 million in fiscal
2014 as compared to $136 million in fiscal 2013. Segment results included $35 million and $125 million
of net restructuring and other charges in fiscal 2014 and 2013, respectively. Excluding these items,
operating income decreased in fiscal 2014 as compared to fiscal 2013, due primarily to price erosion
and lower volume, partially offset by improved manufacturing productivity.
27
Fiscal 2013 Compared to Fiscal 2012
In fiscal 2013, net sales in the Network Solutions segment decreased $244 million, or 7.4%, to
$3,066 million from $3,310 million in fiscal 2012. The weakening of certain foreign currencies negatively
affected net sales by $16 million, or 0.5%, in fiscal 2013 as compared to fiscal 2012. Organic net sales
decreased $192 million, or 5.8%, in fiscal 2013 from fiscal 2012.
In the telecom networks end market, our organic net sales decreased 2.2% in fiscal 2013 as
compared to fiscal 2012 as a result of market weakness and decreased capital investments by customers,
particularly in the Asia–Pacific region and, to a lesser degree, the EMEA region. In the data
communications end market, our organic net sales decreased 6.3% in fiscal 2013 from fiscal 2012 as a
result of weakness in demand, particularly in the datacenter market. In the enterprise networks end
market, our organic net sales decreased 3.9% in fiscal 2013 as compared to fiscal 2012 with declines
resulting primarily from continued market slowdowns in the EMEA region and North America. In the
subsea communications end market, our organic net sales decreased 17.3% in fiscal 2013 as compared
to fiscal 2012 as a result of lower levels of project activity resulting from customer funding delays.
Operating income in the Network Solutions segment decreased $111 million to $136 million in
fiscal 2013 from $247 million in fiscal 2012. Segment results included $125 million and $59 million of
net restructuring and other charges in fiscal 2013 and 2012, respectively. Excluding these items,
operating income decreased in fiscal 2013 as compared to fiscal 2012. The decrease resulted from price
erosion, lower volume and, to a lesser degree, unfavorable material costs, partially offset by improved
manufacturing productivity.
Consumer Solutions
2014
Fiscal
2013
2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,602
$ 153
($ in millions)
$1,630
86
$
9.6% 5.3% 7.1%
$1,743
$ 123
The following table sets forth the Consumer Solutions segment’s percentage of total net sales by
primary industry end market(1):
2014
Fiscal
2013
2012
Consumer Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59%
41
62%
38
64%
36
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
(1)
Industry end market information is presented consistently with our internal management reporting and may be
revised periodically as management deems necessary.
28
The following table provides an analysis of the change in the Consumer Solutions segment’s net
sales compared to the prior fiscal year by primary industry end market:
2014
2013
Fiscal
Change in Net Sales versus Prior Fiscal Year
Translation(2)
Organic(1)
Total
Change in Net Sales versus Prior Fiscal Year
Translation(2)
Organic(1)
Total
Consumer Devices
Appliances
. . . . . .
. . . . . . . . . . .
Total
. . . . . . . . . . . . . . .
$(55)
39
$(16)
(5.4)%
6.3
(1.0)%
$(12)
—
$(12)
($ in millions)
(6.6)% $(86)
(2)
6.3
(7.6)%
(0.4)
(1.7)% $(88)
(5.1)%
$(67)
39
$(28)
$(22)
(3)
$(25)
$(108)
(5)
(9.7)%
(0.8)
$(113)
(6.5)%
(1) Represents the change in net sales resulting from volume and price changes, before consideration of acquisitions,
divestitures, and the impact of changes in foreign currency exchange rates.
(2) Represents the change in net sales resulting from changes in foreign currency exchange rates.
Fiscal 2014 Compared to Fiscal 2013
In the Consumer Solutions segment, net sales decreased $28 million, or 1.7%, to $1,602 million in
fiscal 2014 as compared to $1,630 million in fiscal 2013. The weakening of certain foreign currencies
negatively affected net sales by $12 million, or 0.7%, in fiscal 2014 from fiscal 2013. Organic net sales
decreased $16 million, or 1.0%, during fiscal 2014 as compared to fiscal 2013.
In the consumer devices end market, our organic net sales decreased 5.4% in fiscal 2014 as
compared to fiscal 2013 due to declines in our sales into the mobile phone and personal computer
markets, partially offset by increased demand and new product launches in the tablet computer market.
In the appliances end market, our organic net sales increased 6.3% in fiscal 2014 from fiscal 2013 due
primarily to increased demand and share gains in the Asia–Pacific region and, to a lesser degree, the
Americas region.
In the Consumer Solutions segment, operating income increased $67 million to $153 million in
fiscal 2014 as compared to $86 million in fiscal 2013. Segment results included net restructuring and
other charges of $13 million and $86 million in fiscal 2014 and 2013, respectively. Excluding these
items, operating income decreased in fiscal 2014 from fiscal 2013, due primarily to price erosion and, to
a lesser degree, lower volume, partially offset by improved manufacturing productivity.
Fiscal 2013 Compared to Fiscal 2012
Net sales in the Consumer Solutions segment decreased $113 million, or 6.5%, to $1,630 million in
fiscal 2013 from $1,743 million in fiscal 2012. The weakening of certain foreign currencies negatively
affected net sales by $25 million, or 1.4%, in fiscal 2013 as compared to fiscal 2012. Organic net sales
decreased $88 million, or 5.1%, during fiscal 2013 as compared to fiscal 2012.
In the consumer devices end market, our organic net sales decreased 7.6% in fiscal 2013 from
fiscal 2012 due to continuing weakness in the personal computer market, partially offset by increased
demand in the mobile phone and tablet computer markets. In the appliances end market, our organic
net sales were flat in fiscal 2013 as compared to fiscal 2012 as declines in the EMEA region were offset
by increased demand in the Asia–Pacific region.
In fiscal 2013, operating income in the Consumer Solutions segment decreased $37 million to
$86 million from $123 million in fiscal 2012. Segment results included net restructuring and other
charges of $86 million and $23 million in fiscal 2013 and 2012, respectively. Excluding these items,
operating income increased in fiscal 2013 as compared to fiscal 2012. The increase resulted from
improved manufacturing productivity, partially offset by price erosion.
29
The following table summarizes our cash flow from operating, investing, and financing activities, as
reflected on the Consolidated Statements of Cash Flows:
Liquidity and Capital Resources
Net cash provided by operating activities . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . .
Effect of currency translation on cash . . . . . . . . . . . . .
2014
Fiscal
2013
$ 2,083
(1,075)
65
(19)
(in millions)
$ 2,046
(545)
(1,678)
(9)
2012
$ 1,947
(1,510)
(65)
(1)
Net increase (decrease) in cash and cash equivalents . .
$ 1,054
$ (186) $
371
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 $250 million of 1.60% senior notes due in February 2015. We may use excess
cash to reduce our outstanding debt, including through the possible repurchase of our debt in
accordance with applicable law, to purchase a portion of our common shares pursuant to our
authorized share repurchase program, to pay distributions or dividends on our common shares, or to
acquire strategic businesses or product lines. On October 9, 2014, we acquired Measurement
Specialties. The total value paid, which included the repayment of debt, was approximately $1.7 billion,
net of cash acquired. In anticipation of the acquisition, we had previously raised funds through the
issuance of $1 billion of senior notes. See additional information regarding debt and the acquisition of
Measurement Specialties in Notes 11 and 24, respectively, to the Consolidated Financial Statements.
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.
As of September 26, 2014, our cash and cash equivalents were held in subsidiaries which are
located in various countries throughout the world. Under current applicable laws, substantially all of
these amounts can be repatriated to TEGSA, our Luxembourg subsidiary, which is the obligor of
substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company; however, the
repatriation of these amounts could subject us to additional tax costs. We provide for tax liabilities on
our Consolidated Financial Statements with respect to amounts that we expect to repatriate; however,
no tax liabilities are recorded for amounts that we consider to be retained indefinitely and reinvested in
our global manufacturing operations. As of September 26, 2014, we had approximately $5.5 billion of
cash, cash equivalents, and intercompany deposits, principally in our subsidiaries, that we have the
ability to distribute to TEGSA, our Luxembourg subsidiary, and TE Connectivity Ltd., our Swiss parent
company, but we consider to be permanently reinvested. We estimate that up to approximately
$1.7 billion of tax expense would be recognized on our Consolidated Financial Statements if our
intention to permanently reinvest these amounts were to change. Our current plans do not demonstrate
a need to repatriate cash, cash equivalents, and intercompany deposits that are designated as
permanently reinvested in order to fund our operations, including investing and financing activities.
30
Cash Flows from Operating Activities
Net cash provided by continuing operating activities increased $47 million to $2,095 million in
fiscal 2014 as compared to $2,048 million in fiscal 2013. The increase resulted from higher income
levels, partially offset by higher accounts receivable levels and net payments made in relation to
pre-separation tax matters.
Net cash provided by continuing operating activities was $2,048 million in fiscal 2013 as compared
to $1,888 million in fiscal 2012. The increase of $160 million in fiscal 2013 over fiscal 2012 resulted
primarily from higher income levels.
Pension and postretirement benefit contributions in fiscal 2014, 2013, and 2012 were $93 million,
$98 million, and $98 million, respectively. We expect pension and postretirement benefit contributions
to be $84 million in fiscal 2015, before consideration of any voluntary contributions. There were no
voluntary pension contributions in fiscal 2014, 2013, and 2012.
The amount of income taxes paid, net of refunds, during fiscal 2014, 2013, and 2012 was
$283 million, $312 million, and $290 million, respectively. In fiscal 2013 and 2012, these payments
included $67 million and $70 million, respectively, for tax deficiencies related to pre-separation tax
matters. Also during fiscal 2014, 2013, and 2012, we made net payments of $179 million and received
net reimbursements of $39 million and $51 million, respectively, from Tyco International and Covidien
pursuant to their indemnifications for pre-separation U.S. tax matters. We expect to make net cash
payments related to pre-separation U.S. tax matters of approximately $31 million over the next twelve
months. These amounts include payments in which we are the primary obligor to the taxing authorities
and for which we expect a portion to be reimbursed by Tyco International and Covidien under the Tax
Sharing Agreement as well as indemnification payments to Tyco International and Covidien under the
Tax Sharing Agreement for tax matters where they are the primary obligor to the taxing authorities.
See Note 13 to the Consolidated Financial Statements for additional information related to
pre-separation tax matters.
In addition to net cash provided by operating activities, we use free cash flow, a non-GAAP
financial measure, as a useful measure of our ability to generate cash. Free cash flow was
$1,730 million in fiscal 2014 as compared to $1,500 million in fiscal 2013 and $1,434 million in fiscal
2012. The increase in free cash flow in fiscal 2014 as compared to fiscal 2013 was driven primarily by
higher income levels and increased proceeds from the sale of property, plant, and equipment, partially
offset by higher accounts receivable levels. The increase in free cash flow in fiscal 2013 as compared to
fiscal 2012 was driven primarily by higher income levels, partially offset by higher capital expenditures
as reduced by proceeds from the sale of property, plant, and equipment.
The following table sets forth a reconciliation of net cash provided by continuing operating
activities, the most comparable GAAP financial measure, to free cash flow.
Net cash provided by continuing operating activities . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and equipment . . . . . . . . . . . . . . .
Payments related to pre-separation U.S. tax matters, net
. . . . . . . . . . . . .
Payments related to accrued interest on debt assumed in the acquisition of
Deutsch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to settle acquisition-related foreign currency derivative contracts
2014
Fiscal
2013
2012
(in millions)
$2,048
(615)
39
28
$2,095
(673)
129
179
$1,888
(533)
23
19
—
—
—
—
17
20
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,730
$1,500
$1,434
31
Cash Flows from Investing Activities
Capital expenditures were $673 million, $615 million, and $533 million in fiscal 2014, 2013, and
2012, respectively. We expect fiscal 2015 capital spending levels to be approximately 5% 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.
Proceeds from the sale of property, plant, and equipment for fiscal 2014 included approximately
$100 million related to the sale of real estate.
During fiscal 2014, we acquired six companies for $528 million in cash, net of cash acquired.
During fiscal 2012, we acquired Deutsch. The total value paid for the transaction amounted to
A1.55 billion (approximately $2.05 billion using an exchange rate of $1.33 per A1.00), net of cash
acquired of $152 million. The total value paid included $659 million of debt assumed, including accrued
interest, which we paid off in its entirety shortly after the completion of the acquisition. See additional
information in Note 5 to the Consolidated Financial Statements.
During fiscal 2012, we received net cash proceeds of $370 million related to the sale of our Touch
Solutions business and $24 million related to the sale of our TE Professional Services business. An
additional $14 million of cash proceeds was received during fiscal 2013. See additional information in
Note 4 to the Consolidated Financial Statements.
Cash Flows from Financing Activities and Capitalization
Total debt at fiscal year end 2014 and 2013 was $3,948 million and $3,014 million, respectively. See
Note 11 to the Consolidated Financial Statements for additional information regarding debt.
In July 2014, TEGSA, our 100%-owned subsidiary, issued $500 million aggregate principal amount
of senior floating rate notes due January 29, 2016, $250 million aggregate principal amount of 2.35%
senior notes due August 1, 2019, and $250 million aggregate principal amount of 3.45% senior notes
due August 1, 2024. The senior floating rate notes due 2016 bear interest at a rate of three-month
London interbank offered rate (‘‘LIBOR’’) plus 0.20% per year. In connection with the issuance of the
senior notes in July 2014, the commitments of the lenders under a $1 billion 364-day credit agreement,
dated as of June 27, 2014, automatically terminated.
During November 2013, TEGSA redeemed all of its outstanding 5.95% senior notes due 2014,
representing $300 million principal amount. We paid an immaterial premium in connection with the
early redemption. In addition, during November 2013, TEGSA issued $325 million aggregate principal
amount of 2.375% senior notes due December 17, 2018.
The notes issued in July 2014 and November 2013 are TEGSA’s unsecured senior obligations and
rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and
senior to any subordinated indebtedness that TEGSA may incur. The notes are fully and
unconditionally guaranteed as to payment on an unsecured senior basis by TE Connectivity Ltd.
TEGSA has a five-year unsecured senior revolving credit facility (‘‘Credit Facility’’) with total
commitments of $1,500 million. The Credit Facility was amended in August 2013 primarily to extend
the maturity date from June 2016 to August 2018 and reduce borrowing costs. TEGSA had no
borrowings under the Credit Facility at September 26, 2014 and September 27, 2013.
Borrowings under the Credit Facility bear interest at a rate per annum equal to, at the option of
TEGSA, (1) LIBOR plus an applicable margin based upon the senior, unsecured, long-term debt rating
of TEGSA, or (2) an alternate base rate equal to the highest of (i) Deutsche Bank AG New York
branch’s base rate, (ii) the federal funds effective rate plus 1⁄2 of 1%, and (iii) one-month LIBOR plus
1%, plus, in each case, an applicable margin based upon the senior, unsecured, long-term debt rating of
32
TEGSA. TEGSA is required to pay an annual facility fee ranging from 7.5 to 25.0 basis points based
upon the amount of the lenders’ commitments under the Credit Facility and the applicable credit
ratings of TEGSA.
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 (as defined in the Credit Facility) 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 September 26, 2014, 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.
Periodically, TEGSA issues commercial paper to U.S. institutional accredited investors and
qualified institutional buyers in accordance with available exemptions from the registration
requirements of the Securities Act of 1933 as part of our ongoing effort to maintain financial flexibility
and to potentially decrease the cost of borrowings. Borrowings under the commercial paper program
are backed by the Credit Facility.
TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are
fully and unconditionally guaranteed by its parent, TE Connectivity Ltd. Neither TE Connectivity Ltd.
nor any of its subsidiaries provides a guarantee as to payment obligations under the 3.50% convertible
subordinated notes due 2015 issued by ADC prior to its acquisition in December 2010.
Payments of common share dividends and cash distributions to shareholders were $443 million,
$384 million, and $332 million in fiscal 2014, 2013, and 2012, respectively.
In March 2011, our shareholders approved a dividend payment to shareholders of CHF 0.68
(equivalent to $0.72) per share out of contributed surplus, payable in four equal quarterly installments
beginning in the third quarter of fiscal 2011 through the second quarter of fiscal 2012. We paid the
third and fourth installments of the dividend at a rate of $0.18 per share during the quarters ended
December 30, 2011 and March 30, 2012, respectively.
In March 2012, our shareholders approved a cash distribution to shareholders in the form of a
capital reduction to the par value of our common shares of CHF 0.80 (equivalent to $0.84) per share,
payable in four equal quarterly installments beginning in the third quarter of fiscal 2012 through the
second quarter of fiscal 2013. We paid the installments of the distribution at a rate of $0.21 per share
during each of the quarters ended June 29, 2012, September 28, 2012, December 28, 2012 and
March 29, 2013. These capital reductions reduced the par value of our common shares from CHF 1.37
(equivalent to $1.28) to CHF 0.57 (equivalent to $0.44).
In March 2013, our shareholders approved a dividend payment to shareholders of CHF 0.96
(equivalent to $1.00) per share out of contributed surplus, payable in four equal quarterly installments
beginning in the third quarter of fiscal 2013 through the second quarter of fiscal 2014. We paid the
installments of the dividend at a rate of $0.25 per share during each of the quarters ended June 28,
2013, September 27, 2013, December 27, 2013, and March 28, 2014.
In March 2014, our shareholders approved a dividend payment to shareholders of CHF 1.04
(equivalent to $1.16) per share out of contributed surplus, payable in four equal quarterly installments
beginning in the third quarter of fiscal 2014 through the second quarter of fiscal 2015. We paid the first
and second installments of the dividend at a rate of $0.29 per share during the quarters ended June 27,
2014 and September 26, 2014, respectively.
Future dividends on our common shares or reductions of registered share capital for distribution to
shareholders, if any, must be approved by our shareholders. In exercising their discretion to recommend
to the shareholders that such dividends or distributions be approved, our board of directors will
consider our results of operations, cash requirements and surplus, financial condition, statutory
requirements of applicable law, contractual restrictions, and other factors that they may deem relevant.
33
During fiscal 2014, our board of directors authorized an increase of $1 billion in the share
repurchase program. We repurchased approximately 11 million of our common shares for $604 million,
approximately 20 million of our common shares for $829 million, and approximately 6 million of our
common shares for $194 million during fiscal 2014, 2013, and 2012, respectively. At September 26,
2014, we had $874 million of availability remaining under our share repurchase authorization.
Commitments and Contingencies
The following table provides a summary of our contractual obligations and commitments for debt,
minimum lease payment obligations under non-cancelable leases, and other obligations at fiscal year
end 2014:
Payments Due by Fiscal Year
Total
2015
2016
2017
2018
2019 Thereafter
(in millions)
Long-term debt, including current maturities . . . . . . . . $3,948 $ 667 $500 $ — $723 $574
Interest on long-term debt(1) . . . . . . . . . . . . . . . . . . . .
82
109
132
32
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
56
Purchase obligations(2) . . . . . . . . . . . . . . . . . . . . . . . .
13 — —
Total contractual cash obligations(3)(4)(5) . . . . . . . . . . . . $5,982 $1,205 $742 $201 $872 $688
1,333
394
307
141
125
272
135
85
22
$1,484
734
56
—
$2,274
(1)
Interest payments exclude the impact of our interest rate swaps.
(2)
Purchase obligations consist primarily of commitments for purchases of goods and services.
(3) The table above does not reflect unrecognized income tax benefits of $1,597 million and related accrued interest and
penalties of $1,136 million, the timing of which is uncertain. See Note 16 to the Consolidated Financial Statements for
additional information regarding unrecognized income tax benefits, interest, and penalties.
(4) The table above does not reflect pension and postretirement benefit obligations to certain employees and former
employees. We are obligated to make contributions to our pension plans and postretirement benefit plans; however, we are
unable to determine the amount of plan contributions due to the inherent uncertainties of obligations of this type, including
timing, interest rate charges, investment performance, and amounts of benefit payments. We expect to contribute
$84 million to pension and postretirement benefit plans in fiscal 2015, before consideration of voluntary contributions.
These plans and our estimates of future contributions and benefit payments are more fully described in Note 15 to the
Consolidated Financial Statements.
(5) Other long-term liabilities of $332 million are excluded from the table above as we are unable to estimate the timing of
payment for these items.
Legal Proceedings
In the ordinary 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. Management believes that these legal proceedings and claims likely will be resolved over
an extended period of time. 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. However, the proceedings discussed below in ‘‘Income
Tax Matters’’ could have a material effect on our results of operations, financial position, or cash flows.
See ‘‘Part I. Item 3. Legal Proceedings’’ of our Annual Report on Form 10-K for the fiscal year ended
September 26, 2014 filed with the SEC and Note 13 to the Consolidated Financial Statements for
further information regarding legal proceedings.
34
At September 26, 2014, we had a contingent purchase price commitment of $80 million related to
our fiscal 2001 acquisition of Com-Net. This represents the maximum amount payable to the former
shareholders of Com-Net only after the construction and installation of a communications system was
completed for and approved by the State of Florida in accordance with guidelines set forth in the
contract. Under the terms of the purchase and sale agreement, we do not believe we have any
obligation to the sellers. However, the sellers have contested our position and initiated a lawsuit in
June 2006 in the Court of Common Pleas in Allegheny County, Pennsylvania. A liability for this
contingency has not been recorded on the Consolidated Financial Statements as we do not believe that
any payment is probable or reasonably estimable at this time.
Income Tax Matters
In connection with the separation from Tyco International in 2007, we entered into a Tax Sharing
Agreement that generally governs our, Tyco International’s, and Covidien’s respective rights,
responsibilities, and obligations after the distribution with respect to taxes, including ordinary course of
business taxes and taxes, if any, incurred as a result of any failure of the distribution of all of our
shares or the shares of Covidien to qualify as a tax-free distribution for U.S. federal income tax
purposes within the meaning of Section 355 of the Code or certain internal transactions undertaken in
anticipation of the spin-offs to qualify for tax-favored treatment under the Code.
Pursuant to the Tax Sharing Agreement, upon separation, we entered into certain guarantee
commitments and indemnifications with Tyco International and Covidien. Under the Tax Sharing
Agreement, we, Tyco International, and Covidien share 31%, 27%, and 42%, respectively, of certain
contingent liabilities relating to unresolved pre-separation tax matters of Tyco International. The effect
of the Tax Sharing Agreement is to indemnify us for 69% of certain liabilities settled in cash by us with
respect to unresolved pre-separation tax matters. Pursuant to that indemnification, we have made
similar indemnifications to Tyco International and Covidien with respect to 31% of certain liabilities
settled in cash by the companies relating to unresolved pre-separation tax matters. If any of the
companies responsible for all or a portion of such liabilities were to default in its payment of costs or
expenses related to any such liability, we would be responsible for a portion of the defaulting party or
parties’ obligation. We are responsible for all of our own taxes that are not shared pursuant to the Tax
Sharing Agreement’s sharing formula. In addition, Tyco International and Covidien are responsible for
their tax liabilities that are not subject to the Tax Sharing Agreement’s sharing formula.
Prior to separation, certain of our subsidiaries filed combined income tax returns with Tyco
International. Those and other of our subsidiaries’ income tax returns are examined periodically by
various tax authorities. In connection with these examinations, tax authorities, including the IRS, have
raised issues and proposed tax adjustments. Tyco International, as the U.S. income tax audit controlling
party under the Tax Sharing Agreement, is reviewing and contesting certain of the proposed tax
adjustments. Amounts related to these tax adjustments and other tax contingencies and related interest
that management has assessed under the uncertain tax position provisions of ASC 740, which relate
specifically to our entities have been recorded on the Consolidated Financial Statements. In addition,
we may be required to fund portions of Tyco International’s and Covidien’s tax obligations. Estimates
about these guarantees also have been recognized on the Consolidated Financial Statements. See
Note 12 to the Consolidated Financial Statements for additional information.
During fiscal 2007, the IRS concluded its field examination of certain of Tyco International’s U.S.
federal income tax returns for the years 1997 through 2000 and issued Revenue Agent Reports that
reflected the IRS’ determination of proposed tax adjustments for the 1997 through 2000 period.
Additionally, the IRS proposed civil fraud penalties against Tyco International arising from alleged
actions of former executives in connection with certain intercompany transfers of stock in 1998 and
1999. The penalties were asserted against a prior subsidiary of Tyco International that was distributed
to us in connection with the separation. Tyco International appealed certain of the proposed
35
adjustments for the years 1997 through 2000, and Tyco International resolved all but one of the matters
associated with the proposed tax adjustments, including reaching an agreement with the IRS on the
penalty adjustment in the amount of $21 million. In October 2012, the IRS issued special agreement
Forms 870-AD, effectively settling its audit of all tax matters for the period 1997 through 2000,
excluding one issue that remains in dispute as described below. As a result of these developments, in
fiscal 2013, we recognized an income tax benefit of $331 million, representing a reduction in tax
reserves for the matters that were effectively settled, and other expense of $231 million, representing a
reduction of associated indemnification receivables, pursuant to the Tax Sharing Agreement with Tyco
International and Covidien.
The disputed issue involves the tax treatment of certain intercompany debt transactions. The IRS
field examination asserted that certain intercompany loans originating during the period 1997 through
2000 did not constitute debt for U.S. federal income tax purposes and disallowed approximately
$2.7 billion of related interest deductions recognized during the period on Tyco International’s U.S.
income tax returns. In addition, if the IRS is ultimately successful in asserting its claim, it is likely to
disallow an additional $6.6 billion of interest deductions reflected on U.S. income tax returns in years
subsequent to fiscal 2000. Tyco International contends that the intercompany financing qualified as debt
for U.S. tax purposes and that the interest deductions reflected on the income tax returns are
appropriate. The IRS and Tyco International were unable to resolve this matter through the IRS
appeals process. On June 20, 2013, Tyco International advised us that it had received Notices of
Deficiency from the IRS for certain former U.S. subsidiaries of Tyco International increasing taxable
income by approximately $2.9 billion in connection with the audit of Tyco International’s fiscal years
1997 through 2000. The Notices of Deficiency assert that Tyco International owes additional taxes
totaling $778 million, associated penalties of $154 million, and withholding taxes of $105 million. In
addition, Tyco International received Final Partnership Administrative Adjustments for certain U.S.
partnerships owned by former U.S. subsidiaries with respect to which Tyco International estimates an
additional tax deficiency of approximately $30 million will be asserted. The amounts asserted by the
IRS exclude any applicable deficiency interest, and do not reflect any impact to subsequent period tax
liabilities in the event that the IRS were to prevail on some or all of its assertions. We understand that
Tyco International strongly disagrees with the IRS position and has filed petitions in the U.S. Tax Court
contesting the IRS’ proposed adjustments. Tyco International has advised us that it believes there are
meritorious defenses for the tax filings in question and that the IRS positions with regard to these
matters are inconsistent with the applicable tax laws and existing U.S. Treasury regulations.
A U.S. Tax Court trial date of February 29, 2016 has been set and the parties are engaged in
discovery. TE does not expect any payments to the IRS with respect to these matters until they are
fully and finally resolved. In accordance with the Tax Sharing Agreement, we, Tyco International, and
Covidien would share 31%, 27%, and 42%, respectively, of any payments made in connection with
these matters.
If the IRS were to prevail on its assertions, our share of the assessed tax, deficiency interest, and
applicable withholding taxes and penalties could have a material adverse impact on our results of
operations, financial position, and cash flows. We have reviewed the Notices of Deficiency, the relevant
facts surrounding the intercompany debt transactions, relevant tax regulations, and applicable case law,
and we continue to believe that we are appropriately reserved for this matter.
During fiscal 2014, we made net payments of $179 million related to pre-separation tax matters,
including $198 million of indemnification payments made to Tyco International and Covidien in
connection with their advanced payments for expected deficiencies made to the IRS for the 2005
through 2007 audit cycle. We made net payments of $28 million and $19 million related to
pre-separation tax matters during fiscal 2013 and 2012, respectively.
36
Tyco International’s income tax returns for the years 2001 through 2004 remain subject to
adjustment by the IRS upon ultimate resolution of the disputed issue involving certain intercompany
loans originated during the period 1997 through 2000. For the undisputed issues for years 2001 through
2004, it is our understanding that Tyco International expects to receive and accept general agreement
Forms 870 from the IRS during the first quarter of fiscal 2015. The IRS commenced its audit of certain
Tyco International income tax returns for the years 2005 through 2007 in fiscal 2011, and it is our
understanding that Tyco International expects the IRS to issue general agreement Forms 870 during the
first half of fiscal 2015. Over the next twelve months, we expect to make net cash payments of
approximately $31 million in connection with pre-separation U.S. tax matters.
During fiscal 2012, the IRS commenced its audit of our income tax returns for the years 2008
through 2010. We expect fieldwork for the 2008 through 2010 audit to conclude in fiscal 2015.
At September 26, 2014 and September 27, 2013, we have reflected $51 million and $15 million,
respectively, of income tax liabilities related to the audits of Tyco International’s and our income tax
returns in accrued and other current liabilities as certain of these matters could be resolved within the
next twelve months.
We believe that the amounts recorded on our Consolidated Financial Statements relating to the
matters discussed above are appropriate. However, the ultimate resolution is uncertain and could result
in a material impact to our results of operations, financial position, or cash flows.
Off-Balance Sheet Arrangements
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 2015 through the completion of such transactions. The guarantees would
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.
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 September 26, 2014, we had outstanding letters of credit, letters of guarantee, and surety bonds
in the amount of $408 million.
We have recorded liabilities for known indemnifications included as part of environmental
liabilities. See Note 13 to the Consolidated Financial Statements for a discussion of these liabilities.
In the normal course of business, we are liable for contract completion and product performance.
In the opinion of management, such obligations will not significantly affect our results of operations,
financial position, or cash flows.
Pursuant to the Tax Sharing Agreement, upon separation, we entered into certain guarantee
commitments and indemnifications with Tyco International and Covidien. Under the Tax Sharing
Agreement, we, Tyco International, and Covidien share 31%, 27%, and 42%, respectively, of certain
contingent liabilities relating to unresolved pre-separation tax matters of Tyco International. The effect
of the Tax Sharing Agreement is to indemnify us for 69% of certain liabilities settled in cash by us with
respect to unresolved pre-separation tax matters. Pursuant to that indemnification, we have made
similar indemnifications to Tyco International and Covidien with respect to 31% of certain liabilities
37
settled in cash by the companies relating to unresolved pre-separation tax matters. If any of the
companies responsible for all or a portion of such liabilities were to default in its payment of costs or
expenses related to any such liability, we would be responsible for a portion of the defaulting party or
parties’ obligation. These arrangements were valued upon our separation from Tyco International in
accordance with ASC 460, Guarantees. At September 26, 2014, we had a liability representing the
indemnifications made to Tyco International and Covidien pursuant to the Tax Sharing Agreement of
$21 million recorded on the Consolidated Balance Sheet. See Notes 12 and 13 to the Consolidated
Financial Statements for additional information.
Critical Accounting Policies and Estimates
The preparation of the 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 significant accounting policies are summarized in Note 2 to the Consolidated Financial
Statements. The following accounting policies are considered to be the most critical as they require
significant judgments and assumptions that involve inherent risks and uncertainties. Management’s
estimates are based on the relevant information available at the end of each period.
Revenue Recognition
Our revenue recognition policies are in accordance with ASC 605, Revenue Recognition. Our
revenues are generated principally from the sale of our products. Revenue from the sale of products is
recognized at the time title and the risks and rewards of ownership pass to the customer. This generally
occurs when the products reach the shipping point, the sales price is fixed and determinable, and
collection is reasonably assured. For those items where title has not yet transferred, we have deferred
the recognition of revenue. A reserve for estimated returns is established at the time of sale based on
historical return experience and is recorded as a reduction of sales. Other allowances include customer
quantity and price discrepancies. A reserve for other allowances is generally established at the time of
sale based on historical experience and also is recorded as a reduction of sales.
Contract revenues for construction related projects, which are generated in the Network Solutions
segment, are recorded primarily using the percentage-of-completion method. Profits recognized on
contracts in process are based upon estimated contract revenue and related cost to complete.
Percentage-of-completion is measured based on the ratio of actual costs incurred to total estimated
costs. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing
profits in the current period. Provisions for anticipated losses are made in the period in which they first
become determinable. In addition, provisions for credit losses related to construction related projects
are recorded as reductions of revenue in the period in which they first become determinable.
Goodwill and Other Intangible Assets
Acquired intangible assets include both indeterminable-lived residual goodwill and determinable-
lived identifiable intangible assets. Intangible assets with a determinable life include primarily
intellectual property, consisting of patents, trademarks, and unpatented technology, as well as customer
relationships. Recoverability estimates range from 1 to 50 years and costs are generally amortized on a
straight-line basis. An evaluation of the remaining useful life of determinable-lived intangible assets is
performed on a periodic basis and when events and circumstances warrant an evaluation. We assess
determinable-lived intangible assets for impairment consistent with our policy for assessing other
long-lived assets for impairment. Goodwill is assessed for impairment separately from determinable-
lived intangible assets by comparing the carrying value of each reporting unit to its fair value on the
first day of the fourth fiscal quarter of each year or whenever we believe a triggering event requiring a
more frequent assessment has occurred. In assessing the existence of a triggering event, management
38
relies on a number of reporting-unit-specific factors including operating results, business plans,
economic projections, anticipated future cash flows, transactions, and market place data. There are
inherent uncertainties related to these factors and management’s judgment in applying these factors to
the goodwill impairment analysis.
A reporting unit is generally an operating segment or one level below an operating segment that
constitutes a business for which discrete financial information is available and regularly reviewed by
segment management. At fiscal year end 2014, we had seven reporting units, six of which contained
goodwill. There is one reporting unit in the Transportation Solutions segment and two reporting units
in each of the Industrial Solutions, Network Solutions, and Consumer Solutions segments. We review
our reporting unit structure each year as part of our annual goodwill impairment test, or more
frequently based on changes in our structure.
When testing for goodwill impairment, we follow the guidance prescribed in ASC 350,
Intangibles—Goodwill and Other. First, we perform a step I goodwill impairment test to identify
potential impairment. In doing so, we compare the fair value of a reporting unit with its carrying
amount. If the carrying amount of a reporting unit exceeds its fair value, goodwill may be impaired and
a step II goodwill impairment test is performed to measure the amount of impairment, if any. In the
step II goodwill impairment test, we compare the implied fair value of reporting unit goodwill with the
carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The
implied fair value of goodwill is determined in a manner consistent with how goodwill is recognized in
a business combination. We allocate the fair value of a reporting unit to all of the assets and liabilities
of that unit, including intangible assets, as if the reporting unit had been acquired in a business
combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets
and liabilities is the implied fair value of goodwill.
Fair value estimates used in the step I goodwill impairment tests are calculated using an income
approach based on the present value of future cash flows of each reporting unit. The income approach
generally has been supported by guideline analyses (a market approach). These approaches incorporate
a number of assumptions including future growth rates, discount rates, income tax rates, and market
activity in assessing fair value and are reporting unit specific. Changes in economic and operating
conditions impacting these assumptions could result in goodwill impairments in future periods.
We completed our annual goodwill impairment test in the fourth quarter of fiscal 2014 and
determined that no impairment existed.
Income Taxes
In determining income for financial statement purposes, we must make certain estimates and
judgments. These estimates and judgments affect the calculation of certain tax liabilities and the
determination of the recoverability of certain deferred tax assets, which arise from temporary
differences between the income tax return and financial statement recognition of revenue and expense.
In evaluating our ability to recover our deferred tax assets, we consider all available positive and
negative evidence including our past operating results, the existence of cumulative losses in the most
recent years, and our forecast of future taxable income. In estimating future taxable income, we
develop assumptions including the amount of future state, federal, and non-U.S. pre-tax operating
income, the reversal of temporary differences, and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant judgment about the forecasts of future
taxable income and are consistent with the plans and estimates we are using to manage the underlying
businesses.
39
We currently have recorded significant valuation allowances that we intend to maintain until it is
more likely than not the deferred tax assets will be realized. Our income tax expense recorded in the
future will be reduced to the extent of decreases in our valuation allowances. The realization of our
remaining deferred tax assets is dependent primarily on future taxable income in the appropriate
jurisdictions. Any reduction in future taxable income including any future restructuring activities may
require that we record an additional valuation allowance against our deferred tax assets. An increase in
the valuation allowance would result in additional income tax expense in such period and could have a
significant impact on our future earnings. Any changes in a valuation allowance that was established in
connection with an acquisition will be reflected in the income tax provision.
Changes in tax laws and rates also could affect recorded deferred tax assets and liabilities in the
future. Management is not aware of any such changes that would have a material effect on our results
of operations, financial position, or cash flows.
In addition, the calculation of our tax liabilities includes estimates for uncertainties in the
application of complex tax regulations across multiple global jurisdictions where we conduct our
operations. Under the uncertain tax position provisions of ASC 740, we recognize liabilities for tax and
related interest for issues in the U.S. and other tax jurisdictions based on our estimate of whether, and
the extent to which, additional taxes and related interest will be due. These tax liabilities and related
interest are reflected net of the impact of related tax loss carryforwards, as such tax loss carryforwards
will be applied against these tax liabilities and will reduce the amount of cash tax payments due upon
the eventual settlement with the tax authorities. These estimates may change due to changing facts and
circumstances. Due to the complexity of these uncertainties, the ultimate resolution may result in a
settlement that differs from our current estimate of the tax liabilities and related interest. Furthermore,
management has reviewed with tax counsel the issues raised by certain taxing authorities and the
adequacy of these recorded amounts. If our current estimate of tax and interest liabilities is less than
the ultimate settlement, an additional charge to income tax expense may result. If our current estimate
of tax and interest liabilities is more than the ultimate settlement, income tax benefits may be
recognized. These tax liabilities and related interest are recorded in income taxes and accrued and
other current liabilities on the Consolidated Balance Sheets.
Pension and Postretirement Benefits
Our pension expense and obligations are developed from actuarial assumptions. The funded status
of our defined benefit pension and postretirement benefit plans is recognized on the Consolidated
Balance Sheets and is measured as the difference between the fair value of plan assets and the benefit
obligation at the measurement date. For defined benefit pension plans, the benefit obligation is the
projected benefit obligation, which represents the actuarial present value of benefits expected to be
paid upon retirement factoring in estimated future compensation levels. For the postretirement benefit
plans, the benefit obligation is the accumulated postretirement benefit obligation, which represents the
actuarial present value of postretirement benefits attributed to employee services already rendered. The
fair value of plan assets represents the current market value of cumulative company and participant
contributions made to irrevocable trust funds, held for the sole benefit of participants, which are
invested by the trustee of the funds. The benefits under pension and postretirement plans are based on
various factors, such as years of service and compensation.
Net periodic pension benefit cost is based on the utilization of the projected unit credit method of
calculation and is charged to earnings on a systematic basis over the expected average remaining
service lives of current participants.
Two critical assumptions in determining pension expense and obligations are the discount rate and
expected long-term return on plan assets. We evaluate these assumptions at least annually. Other
assumptions reflect demographic factors such as retirement, mortality, and employee turnover. These
40
assumptions are evaluated periodically and updated to reflect our actual experience. Actual results may
differ from actuarial assumptions. The discount rate represents the market rate for high-quality fixed
income investments and is used to calculate the present value of the expected future cash flows for
benefit obligations to be paid under our pension plans. A decrease in the discount rate increases the
present value of pension benefit obligations. At fiscal year end 2014, a 25 basis point decrease in the
discount rate would have increased the present value of our pension obligations by $140 million; a
25 basis point increase would have decreased the present value of our pension obligations by
$125 million. We consider the current and expected asset allocations of our pension plans, as well as
historical and expected long-term rates of return on those types of plan assets, in determining the
expected long-term rate of return on plan assets. A 50 basis point decrease or increase in the expected
long-term return on plan assets would have increased or decreased, respectively, our fiscal 2014 pension
expense by $10 million.
During fiscal 2012, our investment committee made the decision to change the target asset
allocation of the U.S. plans’ master trust from a previous target of 30% equity and 70% fixed income
to 10% equity and 90% fixed income in an effort to better protect the funded status of the U.S. plans’
master trust. Asset reallocation will continue over a multi-year period based on the funded status, as
defined by the Pension Protection Act of 2006 (‘‘the Pension Act Funded Status’’), of the U.S. plans’
master trust and market conditions. We expect to reach our target allocation when the Pension Act
Funded Status exceeds 100%. Based on the Pension Act Funded Status as of September 26, 2014, our
target asset allocation is 44% equity and 56% fixed income.
Acquisitions
We account for acquired businesses using the acquisition method of accounting. This method
requires, among other things, that most assets acquired and liabilities assumed be recognized at fair
value as of the acquisition date. We allocate the purchase price of acquired businesses to the tangible
and intangible assets acquired and liabilities assumed based on estimated fair values, or as required by
ASC 805, Business Combinations. The excess of the purchase price over the identifiable assets acquired
and liabilities assumed is recorded as goodwill. We may engage independent third-party appraisal firms
to assist us in determining the fair values of assets acquired and liabilities assumed. Such valuations
require management to make significant estimates and assumptions, especially with respect to
intangible assets.
Critical estimates in valuing certain intangible assets include but are not limited to: future expected
cash flows from customer and distributor relationships, acquired developed technologies, and patents;
expected costs to develop in-process research and development into commercially viable products and
estimated cash flows from projects when completed; brand awareness and market position, as well as
assumptions about the period of time the brand will continue to be used in our product portfolio;
customer and distributor attrition rates; royalty rates; and discount rates. Management’s estimates of
fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain
and unpredictable. As a result, actual results may differ from estimates.
Contingent Liabilities
We record a loss contingency when the available information indicates it is probable that we have
incurred a liability and the amount of the loss is reasonably estimable. When a range of possible losses
with equal likelihood exists, we record the low end of the range. The likelihood of a loss with respect
to a particular contingency is often difficult to predict, and determining a meaningful estimate of the
loss or a range of loss may not be practicable based on information available. In addition, it is not
uncommon for such matters to be resolved over many years, during which time relevant developments
and new information must continuously be evaluated to determine whether a loss is probable and a
reasonable estimate of that loss can be made. When a loss is probable but a reasonable estimate cannot
be made, or when a loss is at least reasonably possible, disclosure is provided.
41
Recently Issued Accounting Pronouncements
Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for information regarding recently issued
accounting pronouncements.
Organic Net Sales Growth
Non-GAAP Financial Measures
Organic net sales growth is a non-GAAP financial measure. The difference between reported net
sales growth (the most comparable GAAP measure) and organic net sales growth (the non-GAAP
measure) consists of the impact from foreign currency exchange rates, acquisitions, and divestitures.
Organic net sales growth is a useful measure of the underlying results and trends in our business. 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.
We believe organic net sales growth provides useful information to investors because it reflects the
underlying growth from the ongoing activities of our business. Furthermore, it provides investors with a
view of our operations from management’s perspective. We use organic net sales growth to monitor
and evaluate performance, as it is an important measure of the underlying results of our operations.
Management uses organic net sales growth together with GAAP measures such as net sales growth and
operating income in its decision making processes related to the operations of our reporting segments
and our overall company. We believe that investors benefit from having access to the same financial
measures that management uses in evaluating operations. The discussion and analysis of organic net
sales growth in ‘‘Results of Operations’’ above utilizes organic net sales growth as management does
internally. Because organic net sales growth calculations may vary among other companies, organic net
sales growth amounts presented above may not be comparable with similarly titled measures of other
companies. Organic net sales growth is a non-GAAP financial measure that is not meant to be
considered in isolation or as a substitute for GAAP measures. The primary limitation of this measure is
that it excludes items that have an impact on our net sales. This limitation is best addressed by
evaluating organic net sales growth in combination with our GAAP net sales. The tables presented in
‘‘Results of Operations’’ above provide reconciliations of organic net sales growth to net sales growth
calculated under GAAP.
Free Cash Flow
Free cash flow is a non-GAAP financial measure. The difference between net cash provided by
continuing operating activities (the most comparable GAAP measure) and free cash flow (the
non-GAAP measure) consists mainly of significant cash outflows and inflows that we believe are useful
to identify. Free cash flow is a useful measure of our ability to generate cash. It also is a significant
component in our incentive compensation plans. 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, minus net capital expenditures.
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. Voluntary
pension contributions are excluded from the GAAP measure because this activity is driven by economic
financing decisions rather than operating activity. Certain special items, including net payments related
42
to pre-separation tax matters, also are considered by management in evaluating free cash flow. We
believe investors also should consider these items in evaluating our free cash flow.
Free cash flow as presented herein may not be comparable to similarly-titled measures reported by
other companies. The primary limitation of this measure is that it excludes items that have an impact
on our GAAP cash flow. Also, it subtracts 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 measure indicates. This limitation is best addressed
by using free cash flow in combination with the GAAP cash flow results. It should not be inferred that
the entire free cash flow amount is available for 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.
The tables presented in ‘‘Liquidity and Capital Resources’’ above provide reconciliations of free
cash flow to cash flows from continuing operating activities calculated under GAAP.
Forward-Looking Information
Certain statements in this report 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, 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. You should not put 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’’ of our Annual Report on Form 10-K for the fiscal year ended September 26, 2014 filed with
the SEC, as well as other risks described in this Annual Report, also could cause our results to differ
materially from those expressed in forward-looking statements:
(cid:127) conditions in the global or regional economies and global capital markets, and cyclical industry
conditions;
(cid:127) conditions affecting demand for products in the industries we serve, particularly the automotive
industry;
(cid:127) competition and pricing pressure;
(cid:127) market acceptance of new product introductions and product innovations and product life cycles;
(cid:127) raw material availability, quality, and cost;
(cid:127) fluctuations in foreign currency exchange rates;
(cid:127) financial condition and consolidation of customers and vendors;
(cid:127) reliance on third-party suppliers;
43
(cid:127) risks associated with current and future acquisitions and divestitures;
(cid:127) global risks of business interruptions such as natural disasters and political, economic, and
military instability;
(cid:127) risks associated with security breaches and other disruptions to our information technology
infrastructure;
(cid:127) risks related to compliance with current and future environmental and other laws and
regulations;
(cid:127) our ability to protect our intellectual property rights;
(cid:127) risks of litigation;
(cid:127) our ability to operate within the limitations imposed by our debt instruments;
(cid:127) risks relating to our separation on June 29, 2007 from Tyco International;
(cid:127) the possible effects on us of various U.S. and non-U.S. legislative proposals and other initiatives
that, if adopted, could materially increase our worldwide corporate effective tax rate and
negatively impact our U.S. government contracts business;
(cid:127) various risks associated with being a Swiss corporation;
(cid:127) the impact of fluctuations in the market price of our shares; and
(cid:127) the impact of certain provisions of our articles of association on unsolicited takeover proposals.
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.
44
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our financial position is routinely subject to a variety of risks,
including market risks associated with interest rate and currency movements on outstanding debt and
non-U.S. dollar denominated assets and liabilities and commodity price movements. We utilize
established risk management policies and procedures in executing derivative financial instrument
transactions to manage a portion of these risks.
We do not execute transactions or hold derivative financial instruments for trading or speculative
purposes. Substantially all counterparties to derivative financial instruments are limited to major
financial institutions with at least an A/A2 credit rating. There is no significant concentration of
exposures with any one counterparty.
Foreign Currency Exposures
As part of managing the exposure to changes in foreign currency exchange rates, we utilize foreign
currency forward and swap contracts, a portion of which are designated as cash flow hedges. The
objective of these contracts is to minimize impacts to cash flows and profitability due to changes in
foreign currency exchange rates on intercompany and other cash transactions. A 10% appreciation or
depreciation of the underlying currency in our foreign currency forward or swap contracts from the
September 26, 2014 market rates would have changed the unrealized value of our forward and swap
contracts by $16 million. A 10% appreciation or depreciation of the underlying currency in our foreign
currency forward or swap contracts from the September 27, 2013 market rates would have changed the
unrealized value of our forward and swap contracts by $27 million. Such gains or losses on these
contracts would be generally offset by the gains or losses on the revaluation or settlement of the
underlying transactions.
Interest Rate and Investment Exposures
We issue debt, as needed, to fund our operations and capital requirements. Such borrowings can
result in interest rate exposure. To manage the interest rate exposure, we use interest rate swaps to
convert a portion of fixed-rate debt into variable-rate debt. We use forward starting interest rate swaps
and options to enter into interest rate swaps to manage interest rate exposure in periods prior to the
anticipated issuance of fixed-rate debt. We also utilize investment swaps to manage earnings exposure
on certain nonqualified deferred compensation liabilities.
During fiscal 2014, we entered into interest rate swaps designated as fair value hedges on
$300 million principal amount of our 3.50% senior notes due 2022. The maturity dates of the interest
rate swaps coincide with the maturity date of the notes. Under these contracts, we receive fixed
amounts of interest applicable to the underlying notes and pay floating amounts based upon the three-
month LIBOR.
Based on our floating rate debt balances of approximately $950 million at September 26, 2014 and
$150 million at September 27, 2013, an increase in the levels of the U.S. dollar interest rates by 0.5%,
with all other variables held constant, would have resulted in an increase of annual interest expense of
approximately $5 million and $1 million in fiscal 2014 and 2013, respectively.
Commodity Exposures
Our worldwide operations and product lines may expose us to risks from fluctuations in commodity
prices. To limit the effects of fluctuations in the future market price paid and related volatility in cash
flows, we utilize commodity swap contracts designated as cash flow hedges. We continually evaluate the
commodity market with respect to our forecasted usage requirements over the next eighteen months
and periodically enter into commodity swap contracts in order to hedge a portion of usage
45
requirements over that period. At September 26, 2014, our commodity hedges, which related to
expected purchases of gold, silver, and copper, were in a net loss position of $21 million and had a
notional value of $307 million. At September 27, 2013, our commodity hedges, which related to
expected purchases of gold, silver, and copper, were in a net loss position of $27 million and had a
notional value of $278 million. A 10% appreciation or depreciation of the price of a troy ounce of gold,
a troy ounce of silver, and a pound of copper, from the September 26, 2014 prices would have changed
the unrealized value of our forward contracts by $29 million. A 10% appreciation or depreciation of
the price of a troy ounce of gold, a troy ounce of silver, and a pound of copper, from the
September 27, 2013 prices would have changed the unrealized value of our forward contracts by
$25 million.
See Note 14 to the Consolidated Financial Statements for additional information on financial
instruments.
46
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Evaluation of Disclosure Controls and Procedures
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 Exchange Act) as of September 26, 2014. Based on that evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls and procedures were effective
as of September 26, 2014.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management, with the
participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our
internal control over financial reporting based on the framework in Internal Control—Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management has concluded our internal control over financial reporting was
effective as of September 26, 2014.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with policies and procedures may deteriorate.
Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation
report on our internal control over financial reporting as of September 26, 2014, which is included in
this Annual Report.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 26, 2014, 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.
47
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48
TE CONNECTIVITY LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
50
Consolidated Statements of Operations for the Fiscal Years Ended September 26, 2014,
September 27, 2013, and September 28, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended September 26,
2014, September 27, 2013, and September 28, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 26, 2014 and September 27, 2013 . . . . . . . . . . . . .
54
55
Consolidated Statements of Equity for the Fiscal Years Ended September 26, 2014,
September 27, 2013, and September 28, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 26, 2014,
September 27, 2013, and September 28, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
58
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
Report of the Statutory Auditor on the Consolidated Financial Statements of TE Connectivity
Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of TE Connectivity Ltd.:
We have audited the accompanying consolidated balance sheets of TE Connectivity Ltd. and
subsidiaries (the ‘‘Company’’) as of September 26, 2014 and September 27, 2013, and the related
consolidated statements of operations, comprehensive income, equity, and cash flows for each of the
three fiscal years in the period ended September 26, 2014. Our audits also included the financial
statement schedule listed in the Index. These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of September 26, 2014 and September 27, 2013, and the results of
its operations and its cash flows for each of the three fiscal years in the period ended September 26,
2014, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial reporting as of
September 26, 2014, based on the criteria established in Internal Control—Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated November 12, 2014 expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 12, 2014
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of TE Connectivity Ltd.:
We have audited the internal control over financial reporting of TE Connectivity Ltd. and
subsidiaries (the ‘‘Company’’) as of September 26, 2014, based on criteria established in Internal
Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons performing
similar functions, and effected by the company’s board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation
of the effectiveness of the internal control over financial reporting to future periods are subject to the
risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of September 26, 2014, based on the criteria established in Internal Control—
Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial statement schedule
of the Company as of and for the fiscal year ended September 26, 2014, and our report dated
51
November 12, 2014 expressed an unqualified opinion on those consolidated financial statements and
financial statement schedule.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 12, 2014
52
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 26, 2014, September 27, 2013, and September 28, 2012
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) benefit
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of income taxes . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling interests . . . . . . . . . . .
2014
Fiscal
2013
2012
(in millions, except per share data)
$13,282
$13,280
$13,912
9,236
8,951
9,220
4,692
1,882
675
31
59
2,045
19
(131)
63
1,996
(207)
1,789
(8)
1,781
—
4,329
1,773
675
14
311
1,556
17
(142)
(183)
1,248
29
1,277
—
1,277
(1)
4,046
1,685
688
27
128
1,518
23
(176)
50
1,415
(249)
1,166
(51)
1,115
(3)
Net income attributable to TE Connectivity Ltd.
. . . . . . . . . . . . . .
$ 1,781
$ 1,276
$ 1,112
Amounts attributable to TE Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,789
(8)
$ 1,276
—
$ 1,163
(51)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,781
$ 1,276
$ 1,112
Basic earnings per share attributable to TE Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share attributable to TE Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
4.36
(0.02)
4.34
4.29
(0.02)
4.27
$
$
3.05
—
3.05
3.02
—
3.02
$
$
2.73
(0.12)
2.61
2.70
(0.11)
2.59
Dividends and cash distributions paid per common share . . . . . . . . .
$
1.08
$
0.92
$
0.78
Weighted-average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
410
417
418
423
426
430
See Notes to Consolidated Financial Statements.
53
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years Ended September 26, 2014, September 27, 2013, and September 28, 2012
2014
Fiscal
2013
2012
(in millions)
$1,277
$1,781
$1,115
(211)
(28)
(131)
(123)
14
(320)
131
(29)
74
(88)
20
(199)
916
(3)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: comprehensive income attributable to noncontrolling interests . . . . . . .
1,461
—
1,351
(1)
Comprehensive income attributable to TE Connectivity Ltd.
. . . . . . . . . . . .
$1,461
$1,350
$ 913
See Notes to Consolidated Financial Statements.
54
TE CONNECTIVITY LTD.
CONSOLIDATED BALANCE SHEETS
As of September 26, 2014 and September 27, 2013
Fiscal Year End
2014
2013
(in millions, except
share data)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $35 and $48, respectively . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,457
2,439
1,745
567
336
$ 1,403
2,323
1,762
487
334
Total current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from Tyco International Ltd. and Covidien plc . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,544
3,126
4,595
1,329
2,058
1,037
463
6,309
3,166
4,326
1,244
2,146
1,002
268
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,152
$18,461
Liabilities and Equity
Current liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
667
1,391
1,717
179
3,954
3,281
1,287
240
2,045
332
$
711
1,383
1,762
68
3,924
2,303
1,155
321
1,979
393
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,139
10,075
Commitments and contingencies (Note 13)
Equity:
TE Connectivity Ltd. shareholders’ equity:
Common shares, 419,070,781 shares authorized and issued, CHF 0.57 par value, and
428,527,307 shares authorized and issued, CHF 0.57 par value, respectively . . . . . . . . .
Contributed surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost, 11,383,631 and 17,020,636 shares, respectively . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total TE Connectivity Ltd. shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
184
5,231
4,253
(644)
(17)
9,007
6
9,013
189
6,136
2,472
(720)
303
8,380
6
8,386
Total Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,152
$18,461
See Notes to Consolidated Financial Statements.
55
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF EQUITY
Fiscal Years Ended September 26, 2014, September 27, 2013, and September 28, 2012
Common
Shares
Treasury
Shares
Shares Amount Shares Amount
Accumulated Connectivity
TE
Contributed Accumulated Comprehensive Shareholders’ controlling Total
Interests Equity
Income (Loss)
Earnings
Surplus
Equity
Other
Ltd.
Non-
Balance at September 30, 2011 .
463
Net income . . . . . . . . . . . . . —
Other comprehensive loss . . . . —
Share-based compensation
expense . . . . . . . . . . . . . . —
Distributions approved . . . . . . —
Exercise of share options . . . . . —
Restricted share award vestings
and other activity . . . . . . . . —
. —
(24)
Repurchase of common shares
Cancellation of treasury shares .
Dividends to noncontrolling
$ 593
—
—
(39) $(1,235)
—
—
—
—
$7,604
—
—
(in millions)
84
$
1,112
—
$ 428
—
(199)
—
—
(389) —
2
—
—
—
(11)
3
(6)
24
—
33
60
51
(194)
801
70
—
—
(47)
—
(790)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
interests
. . . . . . . . . . . . . —
—
—
—
—
Balance at September 28, 2012 .
439
$ 193
(16) $ (484)
$6,837
$1,196
$ 229
Net income . . . . . . . . . . . . . —
Other comprehensive income . . —
Share-based compensation
expense . . . . . . . . . . . . . . —
Dividends approved . . . . . . . . —
Exercise of share options . . . . . —
Restricted share award vestings
and other activity . . . . . . . . —
. —
(10)
Repurchase of common shares
Cancellation of treasury shares .
Dividends to noncontrolling
—
—
—
—
—
—
—
—
—
6
—
—
—
1
214
—
3
— (20)
10
(4)
11
(829)
367
—
—
78
(413)
—
(3)
—
(363)
interests
. . . . . . . . . . . . . —
—
—
—
—
1,276
—
—
—
—
—
—
—
—
Balance at September 27, 2013 .
429
$ 189
(17) $ (720)
$6,136
$2,472
Net income . . . . . . . . . . . . . —
Other comprehensive loss . . . . —
Share-based compensation
expense . . . . . . . . . . . . . . —
Dividends approved . . . . . . . . —
Exercise of share options . . . . . —
Restricted share award vestings
and other activity . . . . . . . . —
. —
(10)
Repurchase of common shares
Cancellation of treasury shares .
—
—
—
—
—
—
—
—
—
5
—
—
—
—
156
—
2
— (11)
10
(5)
125
(604)
399
—
—
84
(473)
—
(122)
—
(394)
1,781
—
—
—
—
—
—
—
—
74
—
—
—
—
—
—
—
$ 303
—
(320)
—
—
—
—
—
—
$7,474
1,112
(199)
70
(356)
60
4
(194)
—
—
$7,971
1,276
74
78
(412)
214
8
(829)
—
$10
3
—
—
—
—
—
—
—
$7,484
1,115
(199)
70
(356)
60
4
(194)
—
(7)
(7)
$ 6
$7,977
1
—
—
—
—
—
—
—
1,277
74
78
(412)
214
8
(829)
—
—
(1)
(1)
$8,380
$ 6
$8,386
1,781
(320)
84
(473)
156
3
(604)
—
—
—
—
—
—
—
—
—
1,781
(320)
84
(473)
156
3
(604)
—
Balance at September 26, 2014 .
419
$ 184
(11) $ (644)
$5,231
$4,253
$ (17)
$9,007
$ 6
$9,013
See Notes to Consolidated Financial Statements.
56
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 26, 2014, September 27, 2013, and September 28, 2012
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable and inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax sharing (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories
Inventoried costs on long-term contracts
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by continuing operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (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 businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from divestiture of discontinued operations, net of cash retained by sold operations . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Net cash used in continuing investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in discontinued investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Financing Activities:
Net increase (decrease) in commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of share options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of common share dividends and cash distributions to shareholders . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Net cash provided by (used in) continuing financing activities
. . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) discontinued financing activities . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (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 fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2013
2012
2014
(in millions)
$ 1,781
8
$ 1,277
—
$ 1,115
51
1,789
1,277
1,166
617
20
(234)
50
(65)
84
50
(205)
(76)
14
(14)
52
(282)
112
158
25
2,095
(12)
2,083
(673)
129
(528)
—
(3)
(1,075)
—
(1,075)
(23)
1,322
(360)
156
(578)
(443)
(21)
53
12
65
(19)
1,054
1,403
607
84
30
59
181
78
56
(81)
(61)
18
11
167
(13)
(54)
(371)
60
2,048
(2)
2,046
(615)
39
(6)
14
23
(545)
—
(545)
50
—
(715)
214
(844)
(384)
(1)
(1,680)
2
(1,678)
(9)
(186)
1,589
609
1
(48)
58
(52)
68
63
17
116
7
103
(189)
(92)
(31)
7
85
1,888
59
1,947
(533)
23
(1,384)
394
(9)
(1,509)
(1)
(1,510)
300
748
(642)
60
(185)
(332)
44
(7)
(58)
(65)
(1)
371
1,218
Cash and cash equivalents at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,457
$ 1,403
$ 1,589
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid, net of refunds
$
121
283
$
155
312
$
181
290
See Notes to Consolidated Financial Statements.
57
TE CONNECTIVITY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Financial Statements reflect the consolidated operations of TE Connectivity Ltd.
and its subsidiaries and have been prepared in United States (‘‘U.S.’’) dollars in accordance with
accounting principles generally accepted in the U.S. (‘‘GAAP’’).
Description of the Business
TE Connectivity Ltd. (‘‘TE Connectivity’’ or the ‘‘Company,’’ which may be referred to as ‘‘we,’’
‘‘us,’’ or ‘‘our’’) is a global technology leader. We design and manufacture connectivity and sensors
solutions essential in today’s increasingly connected world. We help our customers solve the need for
intelligent, efficient, and high-performing products and solutions.
We consist of four reportable segments:
(cid:127) Transportation Solutions. The Transportation Solutions segment is a leader in electronic
components, including terminals and connectors, relays, circuit protection devices, and sensors,
as well as application tooling, wire and heat shrink tubing, and other custom-engineered
solutions for the automotive market including the industrial and commercial vehicle and hybrid
and electric vehicle markets.
(cid:127) Industrial Solutions. The Industrial Solutions segment is a leading supplier of products that
connect and distribute power and data, including connectors, heat shrink tubing, relays, and wire
and cable, as well as custom-engineered solutions. Our products are used primarily in the
industrial equipment; aerospace, defense, oil, and gas; and energy markets.
(cid:127) Network Solutions. The Network Solutions segment is one of the world’s largest suppliers of
infrastructure components and systems for the telecommunications market and electronic
components for the data communications market. Our products include connectors, fiber optics,
wire and cable, racks and panels, and wireless products. We also are a leader in developing,
manufacturing, installing, and maintaining some of the world’s most advanced subsea fiber optic
communications systems.
(cid:127) Consumer Solutions. The Consumer Solutions segment is a top supplier of electronic
components, including connectors, circuit protection devices, antennas, relays, and heat shrink
tubing, for the consumer devices and appliances markets.
Use of Estimates
The preparation of the 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 revenues and
expenses. Significant estimates in these Consolidated Financial Statements include restructuring and
other charges, assets acquired and liabilities assumed in acquisitions, allowances for doubtful accounts
receivable, estimates of future cash flows and discount rates associated with asset impairments, useful
lives for depreciation and amortization, loss contingencies, net realizable value of inventories, estimated
contract revenue and related costs, legal contingencies, tax reserves and deferred tax asset valuation
allowances, and the determination of discount and other rate assumptions for pension and
postretirement employee benefit expenses. Actual results could differ materially from these estimates.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
1. Basis of Presentation (Continued)
Fiscal Year
Unless otherwise indicated, references in the Consolidated Financial Statements to fiscal 2014,
fiscal 2013, and fiscal 2012 are to our fiscal years ended September 26, 2014, September 27, 2013, and
September 28, 2012, respectively. Our fiscal year is a ‘‘52-53 week’’ year ending on the last Friday of
September, such that each quarterly period is 13 weeks in length. For fiscal years in which there are
53 weeks, the fourth quarter reporting period will include 14 weeks. Fiscal 2014, 2013, and 2012 were
each 52 weeks in length.
2. Summary of Significant Accounting Policies
Principles of Consolidation
We consolidate entities in which we own or control more than fifty percent of the voting shares or
otherwise have the ability to control through similar rights. All intercompany transactions have been
eliminated. The results of companies acquired or disposed of are included on the Consolidated
Financial Statements from the effective date of acquisition or up to the date of disposal.
Revenue Recognition
Our revenues are generated principally from the sale of our products. Revenue from the sale of
products is recognized at the time title and the risks and rewards of ownership pass to the customer.
This generally occurs when the products reach the shipping point, the sales price is fixed and
determinable, and collection is reasonably assured. For those items where title has not yet transferred,
we have deferred the recognition of revenue.
Contract revenues for construction related projects, which are generated in the Network Solutions
segment, are recorded primarily using the percentage-of-completion method. Profits recognized on
contracts in process are based upon estimated contract revenue and related cost to complete.
Percentage-of-completion is measured based on the ratio of actual costs incurred to total estimated
costs. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing
profits in the current period. Provisions for anticipated losses are made in the period in which they first
become determinable. In addition, provisions for credit losses related to construction related projects
are recorded as reductions of revenue in the period in which they first become determinable.
We generally warrant that our products will conform to our or mutually agreed to specifications
and that our products will be free from material defects in materials and workmanship for a limited
time. We limit our warranty to the replacement or repair of defective parts or a refund or credit of the
price of the defective product. We accept returned goods only when the customer makes a verified
claim and we have authorized the return. Returns result primarily from defective products or shipping
discrepancies. A reserve for estimated returns is established at the time of sale based on historical
return experience and is recorded as a reduction of sales.
Additionally, certain of our long-term contracts in the Network Solutions segment have warranty
obligations. Estimated warranty costs for each contract are determined based on the contract terms and
technology-specific considerations. These costs are included in total estimated contract costs and are
accrued over the construction period of the respective contracts under percentage-of-completion
accounting.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
We provide certain distributors with an inventory allowance for returns or scrap equal to a
percentage of qualified purchases. A reserve for estimated returns and scrap allowances is established
at the time of the sale, based on a fixed percentage of sales to distributors authorized and agreed to by
us, and is recorded as a reduction of sales.
Other allowances include customer quantity and price discrepancies. A reserve for other
allowances is generally established at the time of sale based on historical experience and is recorded as
a reduction of sales. We believe we can reasonably and reliably estimate the amounts of future
allowances.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less from the time of purchase are
considered to be cash equivalents.
Allowance for Doubtful Accounts
The allowance for doubtful accounts receivable reflects the best estimate of probable losses
inherent in our outstanding receivables after consideration of aging, known troubled accounts, and
other currently available information.
Inventories
Inventories are recorded at the lower of cost or market value using the first-in, first-out cost
method, except for inventoried costs incurred in the performance of long-term contracts primarily by
the Network Solutions segment.
Property, Plant, and Equipment, Net and Long-Lived Assets
Property, plant, and equipment is recorded at cost less accumulated depreciation. Maintenance and
repair expenditures are charged to expense when incurred. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, which are 10 to 20 years for land
improvements, 5 to 40 years for buildings and improvements, and 1 to 15 years for machinery and
equipment.
We periodically evaluate, when events and circumstances warrant, the net realizable value of
long-lived assets, including property, plant, and equipment and amortizable intangible assets, relying on
a number of factors including operating results, business plans, economic projections, and anticipated
future cash flows. When indicators of potential impairment are present, the carrying values of the asset
group are evaluated in relation to the operating performance and estimated future undiscounted cash
flows of the underlying asset group. Impairment of the carrying value of an asset group is recognized
whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than
its carrying value. The amount of impairment recognized is the difference between the carrying value of
the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount
and timing of estimated future cash flows and discount rates, reflecting varying degrees of perceived
risk.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
Goodwill and Other Intangible Assets
Acquired intangible assets include both indeterminable-lived residual goodwill and determinable-
lived identifiable intangible assets. Intangible assets with a determinable life include primarily
intellectual property, consisting of patents, trademarks, and unpatented technology, as well as customer
relationships. Recoverability estimates range from 1 to 50 years and costs are generally amortized on a
straight-line basis. An evaluation of the remaining useful life of determinable-lived intangible assets is
performed on a periodic basis and when events and circumstances warrant an evaluation. We assess
determinable-lived intangible assets for impairment consistent with our policy for assessing other
long-lived assets for impairment. Goodwill is assessed for impairment separately from determinable-
lived intangible assets by comparing the carrying value of each reporting unit to its fair value on the
first day of the fourth fiscal quarter of each year or whenever we believe a triggering event requiring a
more frequent assessment has occurred. In assessing the existence of a triggering event, management
relies on a number of reporting-unit-specific factors including operating results, business plans,
economic projections, anticipated future cash flows, transactions, and market place data. There are
inherent uncertainties related to these factors and management’s judgment in applying these factors to
the goodwill impairment analysis.
At fiscal year end 2014, we had seven reporting units, six of which contained goodwill. There is
one reporting unit in the Transportation Solutions segment and two reporting units in each of the
Industrial Solutions, Network Solutions, and Consumer Solutions segments. When changes occur in the
composition of one or more reporting units, goodwill is reassigned to the reporting units affected based
on their relative fair values.
When testing for goodwill impairment, we perform a step I goodwill impairment test to identify
potential impairment. In doing so, we compare the fair value of a reporting unit with its carrying
amount. If the carrying amount of a reporting unit exceeds its fair value, goodwill may be impaired and
a step II goodwill impairment test is performed to measure the amount of impairment, if any. In the
step II goodwill impairment test, we compare the implied fair value of reporting unit goodwill with the
carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The
implied fair value of goodwill is determined in a manner consistent with how goodwill is recognized in
a business combination. We allocate the fair value of a reporting unit to all of the assets and liabilities
of that unit, including intangible assets, as if the reporting unit had been acquired in a business
combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets
and liabilities is the implied fair value of goodwill.
Fair value estimates used in the step I goodwill impairment tests are calculated using an income
approach based on the present value of future cash flows of each reporting unit. The income approach
generally has been supported by guideline analyses (a market approach). These approaches incorporate
a number of assumptions including future growth rates, discount rates, income tax rates, and market
activity in assessing fair value and are reporting unit specific. Changes in economic and operating
conditions impacting these assumptions could result in goodwill impairments in future periods.
Research and Development
Research and development expenditures are expensed when incurred and are included in research,
development, and engineering expenses in our Consolidated Statements of Operations. Research and
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
development expenses include salaries, direct costs incurred, and building and overhead expenses. The
amounts expensed in fiscal 2014, 2013, and 2012 were $572 million, $576 million, and $595 million,
respectively.
Income Taxes
Income taxes are computed in accordance with the provisions of Accounting Standards
Codification (‘‘ASC’’) 740, Income Taxes. Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been reflected on the Consolidated Financial
Statements. Deferred tax liabilities and assets are determined based on the differences between the
book and tax bases of particular assets and liabilities and operating loss carryforwards using tax rates in
effect for the years in which the differences are expected to reverse. A valuation allowance is provided
to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, accounts receivable,
accounts payable, debt, and derivative financial instruments.
We account for derivative financial instrument contracts on our Consolidated Balance Sheets at
fair value. For instruments not designated as hedges under ASC 815, Derivatives and Hedging, the
changes in the instruments’ fair value are recognized currently in earnings. For instruments designated
as cash flow hedges, the effective portion of changes in the fair value of a derivative is recorded in
other comprehensive income (loss) and reclassified into earnings in the same period or periods during
which the underlying hedged item affects earnings. Ineffective portions of a cash flow hedge, including
amounts excluded from the hedging relationship, are recognized currently in earnings. Changes in the
fair value of instruments designated as fair value hedges affect the carrying value of the asset or
liability hedged, with changes in both the derivative instrument and the hedged asset or liability being
recognized currently in earnings.
We determine the fair value of our financial instruments by using methods and assumptions that
are based on market conditions and risks existing at each balance sheet date. Standard market
conventions are used to determine the fair value of financial instruments, including derivatives.
The cash flows related to derivative financial instruments are reported in the operating activities
section of the Consolidated Statements of Cash Flows.
Our derivative financial instruments present certain market and counterparty risks. Concentration
of counterparty risk is mitigated, however, by our use of financial institutions worldwide, substantially
all of which have long-term Standard & Poor’s, Moody’s, and/or Fitch credit ratings of A/A2 or higher.
In addition, we utilize only conventional derivative financial instruments. We are exposed to potential
losses if a counterparty fails to perform according to the terms of its agreement. With respect to
counterparty net asset positions recognized at September 26, 2014, we have assessed the likelihood of
counterparty default as remote. We currently provide guarantees from a wholly-owned subsidiary to the
counterparties to our commodity swap derivatives. The likelihood of performance on those guarantees
has been assessed as remote. For all other derivative financial instruments, we are not required to
provide, nor do we require counterparties to provide, collateral or other security.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, specifies a fair value hierarchy based upon the
observable inputs utilized in valuation of certain assets and liabilities. Observable inputs (highest level)
reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect
internally developed market assumptions. Fair value measurements are classified under the following
hierarchy:
(cid:127) Level 1. Quoted prices in active markets for identical assets and liabilities.
(cid:127) Level 2. Quoted prices in active markets for similar assets and liabilities, or other inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of
the asset or liability.
(cid:127) Level 3. Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets and liabilities. This includes certain pricing models,
discounted cash flows methodologies, and similar techniques that use significant unobservable
inputs.
The valuation methodologies used for financial assets and liabilities measured at fair value on a
recurring basis are as follows:
(cid:127) Derivative financial instruments. Fair value of these assets and liabilities is generally determined
using observable inputs such as spot and forward rates for commodities, foreign currencies, and
interest rates (level 2).
(cid:127) Rabbi trust assets. Rabbi trust assets are composed principally of equity funds that are marked to
fair value based on unadjusted quoted prices in active markets (level 1) and fixed income
securities that are marked to fair value based on quoted market prices or other pricing
determinations based on the results of market approach valuation models using observable
market data such as recently reported trades, bid and offer information, and benchmark
securities (level 2).
Financial instruments other than derivative instruments include cash and cash equivalents, accounts
receivable, accounts payable, and long-term debt. These instruments are recorded on our Consolidated
Balance Sheets at book value. For cash and cash equivalents, accounts receivable, and accounts
payable, we believe book value approximates fair value due to the short-term nature of these
instruments. See Note 11 for disclosure of the fair value of debt. The following is a description of the
valuation methodologies used for the respective financial instruments:
(cid:127) Cash and cash equivalents. Cash and cash equivalents are valued at book value, which we
consider to be equivalent to unadjusted quoted prices (level 1).
(cid:127) Accounts receivable. Accounts receivable are valued based on the net value expected to be
realized. The net realizable value generally represents an observable contractual agreement
(level 2).
(cid:127) Accounts payable. Accounts payable are valued based on the net value expected to be paid,
generally supported by an observable contractual agreement (level 2).
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
(cid:127) Long-term debt. The fair value of long-term debt, including both current and non-current
maturities, is derived from quoted market prices or other pricing determinations based on the
results of market approach valuation models using observable market data such as recently
reported trades, bid and offer information, and benchmark securities (level 2).
Pension and Postretirement Benefits
The funded status of our defined benefit pension and postretirement benefit plans is recognized on
the Consolidated Balance Sheets and is measured as the difference between the fair value of plan
assets and the benefit obligation at the measurement date. For defined benefit pension plans, the
benefit obligation is the projected benefit obligation, which represents the actuarial present value of
benefits expected to be paid upon retirement factoring in estimated future compensation levels. For the
postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit
obligation, which represents the actuarial present value of postretirement benefits attributed to
employee services already rendered. The fair value of plan assets represents the current market value
of cumulative company and participant contributions made to irrevocable trust funds, held for the sole
benefit of participants, which are invested by the trustee of the funds. The benefits under pension and
postretirement plans are based on various factors, such as years of service and compensation.
Net periodic pension benefit cost is based on the utilization of the projected unit credit method of
calculation and is charged to earnings on a systematic basis over the expected average remaining
service lives of current participants.
The measurement of benefit obligations and net periodic benefit cost is based on estimates and
assumptions determined by our management. These valuations reflect the terms of the plans and use
participant-specific information such as compensation, age, and years of service, as well as certain
assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation
increases, interest crediting rates, and mortality rates.
Share-Based Compensation
We determine the fair value of share awards on the date of grant. Share options are valued using
the Black-Scholes-Merton valuation model; restricted share awards and performance awards are valued
using our end-of-day share price on the date of grant. The fair value is expensed ratably over the
expected service period, with an allowance made for estimated forfeitures based on historical employee
activity. Estimates regarding the attainment of performance criteria are reviewed periodically; the
cumulative impact of a change in estimate regarding the attainment of performance criteria is recorded
in the period in which that change is made.
Earnings Per Share
Basic earnings per share attributable to TE Connectivity Ltd. is computed by dividing net income
attributable to TE Connectivity Ltd. by the basic weighted-average number of common shares
outstanding. Diluted earnings per share attributable to TE Connectivity Ltd. is computed by dividing
net income attributable to TE Connectivity Ltd. by the weighted-average number of common shares
outstanding adjusted for the potentially dilutive impact of share-based compensation arrangements.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
Currency Translation
For our non-U.S. dollar functional currency subsidiaries, assets and liabilities are translated into
U.S. dollars using fiscal year end exchange rates. Sales and expenses are translated at average monthly
exchange rates. Foreign currency translation gains and losses are included as a component of
accumulated other comprehensive income (loss) within equity.
Gains and losses resulting from foreign currency transactions, which are included in earnings, were
immaterial in fiscal 2014, 2013, and 2012.
Restructuring Charges
Restructuring activities involve employee-related termination costs, facility exit costs, and asset
impairments resulting from reductions-in-force, migration of facilities or product lines from higher-cost
to lower-cost countries, or consolidation of facilities within countries. We recognize termination costs
based on requirements established by severance policy, government law, or previous actions. Facility
exit costs generally reflect the cost to terminate a facility lease before the end of its term (measured at
fair value at the time we cease using the facility) or costs that will continue to be incurred under the
facility lease without future economic benefit to us. Restructuring activities often result in the disposal
or abandonment of assets that require an acceleration of depreciation or impairment reflecting the
excess of the assets’ carrying values over fair value.
The recognition of restructuring costs require that we make certain judgments and estimates
regarding the nature, timing, and amount of costs associated with the planned exit activity. To the
extent our actual results differ from our estimates and assumptions, we may be required to revise the
estimated liabilities, requiring the recognition of additional restructuring costs or the reduction of
liabilities already recognized. At the end of each reporting period, we evaluate the remaining accrued
balances to ensure these balances are properly stated and the utilization of the reserves are for their
intended purpose in accordance with developed exit plans.
Acquisitions
We account for acquired businesses using the acquisition method of accounting. This method
requires, among other things, that most assets acquired and liabilities assumed be recognized at fair
value as of the acquisition date. We allocate the purchase price of acquired businesses to the tangible
and intangible assets acquired and liabilities assumed based on estimated fair values, or as required by
ASC 805, Business Combinations. The excess of the purchase price over the identifiable assets acquired
and liabilities assumed is recorded as goodwill. We may engage independent third-party appraisal firms
to assist us in determining the fair values of assets acquired and liabilities assumed. Such valuations
require management to make significant estimates and assumptions, especially with respect to
intangible assets.
Contingent Liabilities
We record a loss contingency when the available information indicates it is probable that we have
incurred a liability and the amount of the loss is reasonably estimable. When a range of possible losses
with equal likelihood exists, we record the low end of the range. The likelihood of a loss with respect
to a particular contingency is often difficult to predict, and determining a meaningful estimate of the
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
loss or a range of loss may not be practicable based on information available. In addition, it is not
uncommon for such matters to be resolved over many years, during which time relevant developments
and new information must continuously be evaluated to determine whether a loss is probable and a
reasonable estimate of that loss can be made. When a loss is probable but a reasonable estimate cannot
be made, or when a loss is at least reasonably possible, disclosure is provided.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued 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 will be effective for us in the first quarter of fiscal 2018 and allows for
either a full retrospective or a modified retrospective approach at adoption. We are continuing to assess
the impact of adopting ASC 606, but do not expect adoption to have a material impact on our results
of operations or financial position.
3. Restructuring and Other Charges, Net
Restructuring and other charges consisted of the following:
Fiscal
2014
2013
2012
(in millions)
$314
$128
(3) —
$63
(4)
$59
$311
$128
Fiscal
2014
2013
2012
(in millions)
$ 38
61
129
86
$ 18
28
59
23
$314
$128
$ 7
7
36
13
$63
Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other credits, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Charges, Net
Net restructuring charges by segment were as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges, Net (Continued)
Activity in our restructuring reserves is summarized as follows:
Balance at
Beginning
of Fiscal
Year
Changes in
Charges Estimate
Cash
Payments
Non-Cash Currency
Translation
Items
(in millions)
Balance at
End
of Fiscal
Year
Fiscal 2014 Activity:
Fiscal 2014 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2013 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2012 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2012 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
$ —
—
—
—
168
1
—
169
35
—
35
16
26
42
$ 31
1
9
41
23
5
11
39
3
1
4
1
2
3
$ (1)
—
—
(1)
(12)
—
—
(12)
(8)
1
(7)
(4)
—
(4)
$ (13)
—
—
(13)
(105)
(5)
—
(110)
(23)
(1)
(24)
(6)
(7)
(13)
$ —
—
(9)
(9)
—
—
(11)
(11)
—
—
—
—
—
—
$ (1)
—
—
(1)
(4)
—
—
(4)
—
—
—
—
(1)
(1)
$ 16
1
—
17
70
1
—
71
7
1
8
7
20
27
Total fiscal 2014 activity . . . . . . . . . . .
$246
$ 87
$(24)
$(160)
$(20)
$ (6)
$123
Fiscal 2013 Activity:
Fiscal 2013 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
$ —
—
—
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2012 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2012 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
—
79
2
—
81
51
29
80
$253
5
58
316
7
1
26
34
—
3
3
$ (8)
—
—
(8)
(10)
—
—
(10)
(21)
—
(21)
$ (79)
(4)
—
(83)
(43)
(3)
—
(46)
(15)
(7)
(22)
$ —
—
(58)
(58)
—
—
(26)
(26)
—
—
—
$ 2
—
—
2
2
—
—
2
1
1
2
$168
1
—
169
35
—
—
35
16
26
42
Total fiscal 2013 activity . . . . . . . . . . .
$161
$353
$(39)
$(151)
$(84)
$ 6
$246
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges, Net (Continued)
Balance at
Beginning
of Fiscal
Year
Changes in
Charges Estimate
Cash
Payments
Non-Cash Currency
Translation
Items
(in millions)
Balance at
End
of Fiscal
Year
Fiscal 2012 Activity:
Fiscal 2012 Actions:
Employee severance . . . . . . . . .
Facility and other exit costs . . . .
Property, plant, and equipment .
$ — $128
3
1
—
—
Total . . . . . . . . . . . . . . . . . . .
—
132
Pre-Fiscal 2012 Actions:
Employee severance . . . . . . . . .
Facility and other exit costs . . . .
Total . . . . . . . . . . . . . . . . . . .
137
38
175
9
7
16
$ (3)
—
—
(3)
(15)
(2)
(17)
$ (46)
(1)
—
(47)
(76)
(14)
(90)
$—
—
(1)
(1)
—
—
—
$—
—
—
—
(4)
—
(4)
$ 79
2
—
81
51
29
80
Total fiscal 2012 activity . . . . . . . .
$175
$148
$(20)
$(137)
$ (1)
$ (4)
$161
Fiscal 2014 Actions
During fiscal 2014, we initiated a restructuring program associated primarily with headcount
reductions and manufacturing site and product line closures in the Network Solutions and Consumer
Solutions segments. In connection with this program, we recorded net restructuring charges of
$40 million in fiscal 2014. We do not expect to incur significant additional expense related to
restructuring programs commenced in fiscal 2014.
The following table summarizes expected and incurred charges for the fiscal 2014 program by type:
Total
Expected Charges
Charges Incurred
Fiscal 2014
(in millions)
Employee severance . . . . . . . . . . . . . . . . . . . . . . .
Facility and other exit costs . . . . . . . . . . . . . . . . . .
Property, plant, and equipment . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30
1
10
$41
$30
1
9
$40
The following table summarizes expected and incurred charges for the fiscal 2014 program by
segment:
Total
Expected Charges
Charges Incurred
Fiscal 2014
(in millions)
Transportation Solutions . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4
3
25
9
$41
$ 3
3
25
9
$40
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges, Net (Continued)
Fiscal 2013 Actions
During fiscal 2013, we initiated a restructuring program associated with headcount reductions and
manufacturing site closures impacting all segments. In connection with this program, during fiscal 2014
and 2013, we recorded net restructuring charges of $27 million and $308 million, respectively. We do
not expect to incur significant additional expense related to restructuring programs commenced in fiscal
2013.
The following table summarizes expected and incurred charges for the fiscal 2013 program by type:
Total
Expected Charges
Charges Incurred
Fiscal
2014
2013
(in millions)
Employee severance . . . . . . . . . . . . . . . . . . . . .
Facility and other exit costs . . . . . . . . . . . . . . .
Property, plant, and equipment . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$257
12
71
$340
$11
5
11
$27
$245
5
58
$308
The following table summarizes expected and incurred charges for the fiscal 2013 program by
segment:
Total
Expected Charges
Charges Incurred
Fiscal
2014
2013
(in millions)
Transportation Solutions . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39
74
127
100
$340
$ 1
6
15
5
$27
$ 37
66
111
94
$308
Fiscal 2012 Actions
During fiscal 2012, we initiated a restructuring program to reduce headcount across all segments.
Also, we initiated a restructuring program in the Transportation Solutions and Industrial Solutions
segments associated with the acquisition of Deutsch Group SAS (‘‘Deutsch’’). In connection with these
actions we recorded net restructuring credits of $3 million, charges of $24 million, and charges of
$129 million in fiscal 2014, 2013, and 2012, respectively. We do not expect to incur any additional
expense related to restructuring programs commenced in fiscal 2012.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges, Net (Continued)
The following table summarizes expected and incurred charges for the fiscal 2012 programs by
type:
Total
Expected Charges
Charges Incurred
Fiscal
2014
2013
2012
(in millions)
Employee severance . . . . . . . . . . . . . . . . . . . . .
Facility and other exit costs . . . . . . . . . . . . . . .
Property, plant, and equipment . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$117
6
27
$150
$(5) $ (3) $125
3
2
1
1
— 26
$(3) $24
$129
The following table summarizes expected and incurred charges for the fiscal 2012 programs by
segment:
Total
Expected Charges
Charges Incurred
Fiscal
2014
2013
2012
(in millions)
Transportation Solutions . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34
28
74
14
$150
$ 4
(1)
(2)
(4)
$ 3
3
20
(2)
$(3) $24
$ 27
26
56
20
$129
Pre-Fiscal 2012 Actions
Prior to fiscal 2012, we initiated several restructuring programs, primarily related to
reductions-in-force associated with the acquisition of ADC Telecommunications, Inc. (‘‘ADC’’) and in
response to economic conditions. In connection with these actions, during fiscal 2014, 2013, and 2012,
we recorded net restructuring credits of $1 million, $18 million, and $1 million, respectively.
Total Restructuring Reserves
Restructuring reserves included on our Consolidated Balance Sheets were as follows:
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2014
2013
(in millions)
$ 92
31
$123
$168
78
$246
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Discontinued Operations
During fiscal 2012, we sold our Touch Solutions business for net cash proceeds of $380 million and
recognized an insignificant pre-tax gain on the transaction. The agreement includes contingent earn-out
provisions through 2015 based on business performance. In connection with the divestiture, we incurred
an income tax charge of $65 million, which is included in loss from discontinued operations, net of
income taxes on the Consolidated Statement of Operations for fiscal 2012. This charge was driven
primarily by the inability to fully realize a tax benefit associated with the write-off of goodwill at the
time of the sale.
During fiscal 2012, we sold our TE Professional Services business for net cash proceeds of
$28 million and recognized an insignificant pre-tax gain on the transaction. Additionally, during fiscal
2012, we recorded a pre-tax impairment charge of $28 million, which is included in loss from
discontinued operations, net of income taxes on the Consolidated Statement of Operations, to write the
carrying value of this business down to its estimated fair value less costs to sell.
In December 2011, the New York Court of Claims entered judgment in our favor in the amount of
$25 million, payment of which was received in fiscal 2012, in connection with our former Wireless
Systems business’s State of New York contract. This judgment resolved all outstanding issues between
the parties in this matter. This partial recovery of a previously recognized loss, net of legal fees, is
reflected in loss from discontinued operations, net of income taxes on the Consolidated Statement of
Operations for fiscal 2012.
The following table presents net sales, pre-tax income (loss), pre-tax gain (loss) on sale, and
income tax (expense) benefit from discontinued operations:
Net sales from discontinued operations . . . . . . . . . . . . . . . . . . .
Fiscal
2014
2013
2012
(in millions)
$ — $— $355
Pre-tax income (loss) from discontinued operations . . . . . . . . . .
Pre-tax gain (loss) on sale of discontinued operations . . . . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
$(12) $ (1) $ 19
7
(77)
— (4)
5
4
Loss from discontinued operations, net of income taxes . . . . . . .
$ (8) $— $ (51)
The Touch Solutions, TE Professional Services, and Wireless Systems businesses met the
discontinued operations criteria and have been included as such in all periods presented on our
Consolidated Financial Statements. Prior to reclassification to discontinued operations, the Touch
Solutions and TE Professional Services businesses were included in the former Communications and
Industrial Solutions segment and the Network Solutions segment, respectively. The Wireless Systems
business was a component of the former Wireless Systems segment.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions
Fiscal 2014 Acquisitions
During fiscal 2014, we acquired six companies, including the SEACON Group (‘‘SEACON’’), a
leading provider of underwater connector technology and systems, for $528 million in cash, net of cash
acquired.
Fiscal 2012 Acquisition
On April 3, 2012, we acquired 100% of the outstanding shares of Deutsch Group SAS (‘‘Deutsch’’)
for a total value paid of A1.55 billion (approximately $2.05 billion using an exchange rate of $1.33 per
A1.00), net of cash acquired. The total value paid included $659 million related to the repayment of
Deutsch’s financial debt and accrued interest. Deutsch is a global leader in high-performance
connectors for harsh environments, and significantly expands our product portfolio and enables us to
better serve customers in the industrial and commercial transportation; aerospace, defense, oil, and gas;
and rail markets. We realized cost savings and other synergies through operational efficiencies. The
acquired Deutsch businesses have been reported in the Transportation Solutions and Industrial
Solutions segments from the date of acquisition.
During fiscal 2012, we finalized the valuation of the identifiable assets acquired and liabilities
assumed. The following table summarizes the allocation of the purchase price to the fair value of
identifiable assets acquired and liabilities assumed at the date of acquisition, in accordance with the
acquisition method of accounting:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 152
330
131
1,042
827
11
2,493
642
143
148
24
957
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,536
(152)
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,384
Other current assets consisted primarily of inventories of $189 million and trade accounts
receivable of $121 million. Other current liabilities consisted primarily of accrued and other current
liabilities of $76 million and trade accounts payable of $56 million.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
The fair values assigned to intangible assets were determined through the use of the income
approach, specifically the relief from royalty and the multi-period excess earnings methods. Both
valuation methods rely on management judgment, including expected future cash flows resulting from
existing customer relationships, customer attrition rates, contributory effects of other assets utilized in
the business, peer group cost of capital and royalty rates, and other factors. The valuation of tangible
assets was derived using a combination of the income, market, and cost approaches. Significant
judgments used in valuing tangible assets include estimated reproduction or replacement cost, useful
lives of assets, estimated selling prices, costs to complete, and reasonable profit. Useful lives for
intangible assets were determined based upon the remaining useful economic lives of the intangible
assets that are expected to contribute directly or indirectly to future cash flows.
Intangible assets acquired consisted of the following:
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names and trademarks . . . . . . . . . . . . . . . . . . . .
Customer order backlog . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in millions)
$490
165
150
22
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$827
Weighted-Average
Amortization
Period
(in years)
15
12
20
< 1
15
The acquired intangible assets are being amortized on a straight-line basis over their expected
lives.
Goodwill of $1,042 million was recognized in the transaction, representing the excess of the
purchase price over the fair value of the tangible and intangible assets acquired and liabilities assumed.
This goodwill is attributable primarily to cost savings and other synergies related to operational
efficiencies including the consolidation of manufacturing, marketing, and general and administrative
functions. The goodwill has been allocated to the Transportation Solutions and Industrial Solutions
segments and is not deductible for tax purposes. However, prior to its merger with us, Deutsch
completed certain acquisitions that resulted in approximately $215 million of goodwill that is deductible
primarily for U.S. tax purposes, which we will deduct through 2025.
During fiscal 2012, Deutsch contributed net sales of $327 million and an operating loss of
$54 million to our Consolidated Statement of Operations. The operating loss included charges of
$75 million associated with the amortization of acquisition-related fair value adjustments related
primarily to acquired inventories and customer order backlog, acquisition costs of $21 million,
restructuring charges of $14 million, and integration costs of $6 million.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
Pro Forma Financial Information
The following unaudited pro forma financial information reflects our consolidated results of
operations had the Deutsch acquisition occurred at the beginning of fiscal 2011:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to TE Connectivity Ltd. . . . . . . . . . . . . . .
Diluted earnings per share attributable to TE Connectivity Ltd. . . .
Fiscal 2012
(in millions, except
per share data)
$13,625
1,194
2.78
$
The pro forma financial information is based on our final allocation of the purchase price of the
acquisition. The significant pro forma adjustments, which are described below, are net of income tax
expense (benefit) at the statutory rate.
Pro forma results for fiscal 2012 were adjusted to exclude $30 million of charges related to the fair
value adjustment to acquisition-date inventories, $29 million of interest expense based on pro forma
changes in our capital structure, $20 million of income tax expense based on the estimated impact of
combining Deutsch into our global tax position, $14 million of charges related to acquired customer
order backlog, $13 million of acquisition costs, $4 million of charges related to other acquisition-related
adjustments, $2 million of share-based compensation expense incurred by Deutsch as a result of the
change in control of Deutsch, and $2 million of charges related to depreciation expense. In addition,
pro forma results for fiscal 2012 were adjusted to include $10 million of charges related to the
amortization of the fair value of acquired intangible assets.
Pro forma results do not include any synergies. Accordingly, the unaudited pro forma financial
information is not necessarily indicative of either future results of operations or results that might have
been achieved had the Deutsch acquisition occurred at the beginning of fiscal 2011.
6. Inventories
Inventories consisted of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventoried costs on long-term contracts . . . . . . . . . . . . . . . . . . .
$
Fiscal Year End
2014
2013
$
(in millions)
257
596
868
24
258
597
870
37
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,745
$ 1,762
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
7. Property, Plant, and Equipment, Net
Net property, plant, and equipment consisted of the following:
Fiscal Year End
2014
2013
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(in millions)
202
1,380
7,126
577
251
1,503
7,280
485
Gross property, plant, and equipment . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,285
(6,159)
9,519
(6,353)
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . .
$ 3,126
$ 3,166
Depreciation expense was $502 million, $496 million, and $502 million in fiscal 2014, 2013, and
2012, respectively.
8. Goodwill
The changes in the carrying amount of goodwill by segment were as follows(1):
September 28, 2012(2) . . . . . . . . . . . . . . . . . . . .
Currency translation and other . . . . . . . . . . .
September 27, 2013(2) . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation and other . . . . . . . . . . .
September 26, 2014(2) . . . . . . . . . . . . . . . . . . . .
Transportation
Solutions
Industrial
Solutions
Network
Solutions
Consumer
Solutions
Total
$793
4
797
46
(9)
(in millions)
$981
(4)
$1,906
13
1,919
265
(19)
977
2
(9)
$628
5
633
—
(7)
$4,308
18
4,326
313
(44)
$834
$2,165
$970
$626
$4,595
(1)
In connection with the realignment of certain businesses during fiscal 2014, goodwill was re-allocated to reporting units
using a relative fair value approach. See Note 22 for additional information regarding our current segment structure.
(2) At fiscal year end 2014, 2013, and 2012, accumulated impairment losses for the Transportation Solutions, Industrial
Solutions, Network Solutions, and Consumer Solutions segments were $2,191 million, $669 million, $1,236 million, and
$579 million, respectively.
During fiscal 2014, we completed the acquisition of six companies and recognized goodwill of
$313 million, which primarily related to the acquisition of SEACON and benefited the Industrial
Solutions segment. See Note 5 for additional information regarding acquisitions.
We completed our annual goodwill impairment test in the fourth quarter of fiscal 2014 and
determined that no impairment existed.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
9. Intangible Assets, Net
Intangible assets consisted of the following:
2014
Gross
Carrying
Amount
Accumulated
Amortization
Intellectual property . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
$1,216
784
44
Total
. . . . . . . . . . . . . . . . . . . . . . . .
$2,044
$(559)
(142)
(14)
$(715)
Fiscal Year End
Net
Carrying
Amount
Gross
Carrying
Amount
(in millions)
$ 657
642
30
$1,144
658
46
$1,329
$1,848
2013
Accumulated
Amortization
$(499)
(92)
(13)
$(604)
Net
Carrying
Amount
$ 645
566
33
$1,244
Intangible asset amortization expense was $115 million, $111 million, and $107 million for fiscal
2014, 2013, and 2012, respectively.
The aggregate amortization expense on intangible assets is expected to be as follows:
Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 129
127
124
123
121
705
$1,329
10. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
Fiscal Year End
2014
2013
(in millions)
Accrued payroll and employee benefits . . . . . . . . . . . . . . . . . . . . .
Dividends and cash distributions payable to shareholders . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Sharing Agreement guarantee liabilities pursuant to ASC 460 . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 539
236
160
92
51
28
19
8
584
$ 498
206
112
168
51
54
21
185
467
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . .
$1,717
$1,762
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Debt
Debt was as follows:
Current maturities of long-term debt:
5.95% senior notes due 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.60% senior notes due 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.50% convertible subordinated notes due 2015 . . . . . . . . . . . . .
Commercial paper, at a weighted-average interest rate of 0.30%
and 0.28%, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt:
1.60% senior notes due 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior floating rate notes due 2016 . . . . . . . . . . . . . . . . . . . . . .
6.55% senior notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.375% senior notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
2.35% senior notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.875% senior notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .
3.50% senior notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.45% senior notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.125% senior notes due 2037 . . . . . . . . . . . . . . . . . . . . . . . . . .
3.50% convertible subordinated notes due 2015 . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2014
2013
(in millions)
$ — $ 300
—
—
250
89
327
1
667
—
500
723
324
250
261
499
249
475
—
—
350
61
711
250
—
727
—
—
263
498
—
475
89
1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,281
2,303
$3,948
$3,014
(1)
Senior notes are presented at face amount and, if applicable, are net of unamortized discount and the effects of
interest rate swaps designated as fair value hedges.
In July 2014, Tyco Electronics Group S.A. (‘‘TEGSA’’), our 100%-owned subsidiary, issued
$500 million aggregate principal amount of senior floating rate notes due January 29, 2016,
$250 million aggregate principal amount of 2.35% senior notes due August 1, 2019, and $250 million
aggregate principal amount of 3.45% senior notes due August 1, 2024. The senior floating rate notes
due 2016 bear interest at a rate of three-month London interbank offered rate (‘‘LIBOR’’) plus 0.20%
per year. In connection with the issuance of the senior notes in July 2014, the commitments of the
lenders under a $1 billion 364-day credit agreement, dated as of June 27, 2014, automatically
terminated.
During November 2013, TEGSA redeemed all of its outstanding 5.95% senior notes due 2014,
representing $300 million principal amount. We paid an immaterial premium in connection with the
early redemption. In addition, during November 2013, TEGSA issued $325 million aggregate principal
amount of 2.375% senior notes due December 17, 2018.
The notes issued in July 2014 and November 2013 are TEGSA’s unsecured senior obligations and
rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Debt (Continued)
senior to any subordinated indebtedness that TEGSA may incur. The notes are fully and
unconditionally guaranteed as to payment on an unsecured senior basis by TE Connectivity Ltd.
TEGSA has a five-year unsecured senior revolving credit facility (‘‘Credit Facility’’) with total
commitments of $1,500 million. The Credit Facility was amended in August 2013 primarily to extend
the maturity date from June 2016 to August 2018 and reduce borrowing costs. TEGSA had no
borrowings under the Credit Facility at September 26, 2014 and September 27, 2013.
Borrowings under the Credit Facility bear interest at a rate per annum equal to, at the option of
TEGSA, (1) LIBOR plus an applicable margin based upon the senior, unsecured, long-term debt rating
of TEGSA, or (2) an alternate base rate equal to the highest of (i) Deutsche Bank AG New York
branch’s base rate, (ii) the federal funds effective rate plus 1⁄2 of 1%, and (iii) one-month LIBOR plus
1%, plus, in each case, an applicable margin based upon the senior, unsecured, long-term debt rating of
TEGSA. TEGSA is required to pay an annual facility fee ranging from 7.5 to 25.0 basis points based
upon the amount of the lenders’ commitments under the Credit Facility and the applicable credit
ratings of TEGSA.
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 (as defined in the Credit Facility) 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.
Periodically, TEGSA issues commercial paper to U.S. institutional accredited investors and
qualified institutional buyers in accordance with available exemptions from the registration
requirements of the Securities Act of 1933 as part of our ongoing effort to maintain financial flexibility
and to potentially decrease the cost of borrowings. Borrowings under the commercial paper program
are backed by the Credit Facility.
TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are
fully and unconditionally guaranteed by its parent, TE Connectivity Ltd. Neither TE Connectivity Ltd.
nor any of its subsidiaries provides a guarantee as to payment obligations under the 3.50% convertible
subordinated notes due 2015 issued by ADC prior to its acquisition in December 2010.
The aggregate amounts of total debt maturing are as follows:
Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 667
500
—
723
574
1,484
$3,948
The fair value of our debt, based on indicative valuations, was approximately $4,214 million and
$3,180 at fiscal year end 2014 and 2013, respectively.
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
12. Guarantees
Tax Sharing Agreement
Effective June 29, 2007, we became the parent company of the former electronics businesses of
Tyco International Ltd. (‘‘Tyco International’’). On June 29, 2007, Tyco International distributed all of
our shares, as well as its shares of its former healthcare businesses (‘‘Covidien’’), to its common
shareholders (the ‘‘separation’’).
Upon separation, we entered into a Tax Sharing Agreement, under which we share responsibility
for certain of our, Tyco International’s, and Covidien’s income tax liabilities based on a sharing formula
for periods prior to and including June 29, 2007. We, Tyco International, and Covidien share 31%,
27%, and 42%, respectively, of U.S. income tax liabilities that arise from adjustments made by tax
authorities to our, Tyco International’s, and Covidien’s U.S. income tax returns. The effect of the Tax
Sharing Agreement is to indemnify us for 69% of certain liabilities settled in cash by us with respect to
unresolved pre-separation tax matters. Pursuant to that indemnification, we have made similar
indemnifications to Tyco International and Covidien with respect to 31% of certain liabilities settled in
cash by the companies relating to unresolved pre-separation tax matters. All costs and expenses
associated with the management of these shared tax liabilities are shared equally among the parties. We
are responsible for all of our own taxes that are not shared pursuant to the Tax Sharing Agreement’s
sharing formula. In addition, Tyco International and Covidien are responsible for their tax liabilities
that are not subject to the Tax Sharing Agreement’s sharing formula.
All of the tax liabilities that are associated with our businesses, including liabilities that arose prior
to our separation from Tyco International, became our tax liabilities. Although we have agreed to share
certain of these tax liabilities with Tyco International and Covidien pursuant to the Tax Sharing
Agreement, we remain primarily liable for all of these liabilities. If Tyco International and Covidien
default on their obligations to us under the Tax Sharing Agreement, we would be liable for the entire
amount of these liabilities.
If any party to the Tax Sharing Agreement were to default in its obligation to another party to pay
its share of the distribution taxes that arise as a result of no party’s fault, each non-defaulting party
would be required to pay, equally with any other non-defaulting party, the amounts in default. In
addition, if another party to the Tax Sharing Agreement that is responsible for all or a portion of an
income tax liability were to default in its payment of such liability to a taxing authority, we could be
legally liable under applicable tax law for such liabilities and required to make additional tax payments.
Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our
agreed-upon share of our, Tyco International’s, and Covidien’s tax liabilities.
Indemnification
Our indemnification created under the Tax Sharing Agreement qualifies as a guarantee of a third
party entity’s debt under ASC 460, Guarantees. ASC 460 addresses the measurement and disclosure of
a guarantor’s obligation to pay a debt incurred by a third party. To value the initial guarantee
obligation, we considered a range of probability-weighted future cash flows that represented the
likelihood of payment of each class of liability by each of the three post-separation companies. The
expected cash flows incorporated interest and penalties that the companies believed would be incurred
on each class of liabilities and were discounted to the present value to reflect the value associated with
each at separation. The calculation of the guarantee liability also included a premium that reflected the
cost for an insurance carrier to stand in and assume the payment obligation at the separation date.
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
12. Guarantees (Continued)
At inception of the guarantee, based on the probability-weighted future cash flows related to
unresolved tax matters, we, under the Tax Sharing Agreement, faced a maximum potential liability of
$3 billion, based on undiscounted estimates and interest and penalties used to determine the fair value
of the guarantee and an assumption of 100% default on the parts of Tyco International and Covidien, a
likelihood that management believes to be remote. In the event that we are required, due to
bankruptcy or other business interruption on the part of Tyco International or Covidien, to pay more
than the contractually determined 31%, we retain the right to seek payment from the effected entity.
At September 26, 2014, we had a liability representing the indemnifications made to Tyco
International and Covidien pursuant to the Tax Sharing Agreement of $21 million. At September 27,
2013, the liability was $223 million, of which $185 million was reflected in accrued and other current
liabilities and $38 million was reflected in other liabilities on the Consolidated Balance Sheet. The
decrease in the liability from fiscal year end 2013 reflects cash payments made to Tyco International
and Covidien during fiscal 2014 related to our indemnifications under the Tax Sharing Agreement. See
additional information in Note 13.
We have assessed the probable future cash payments to Tyco International and Covidien for
pre-separation income tax matters pursuant to the terms of the Tax Sharing Agreement and determined
that $21 million is sufficient to satisfy these expected obligations.
Other Matters
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 September 26, 2014, we had outstanding letters of credit, letters of guarantee, and surety bonds
in the amount of $408 million.
In the normal course of business, we are liable for contract completion and product performance.
In the opinion of management, such obligations will not significantly affect our results of operations,
financial position, or cash flows.
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 primarily based on historical experience and actual warranty
claims. Amounts accrued for warranty claims at fiscal year end 2014 and 2013 were $31 million and
$38 million, respectively.
13. Commitments and Contingencies
General Matters
We have facility, land, vehicle, and equipment leases that expire at various dates. Rental expense
under these leases was $153 million, $154 million, and $160 million for fiscal 2014, 2013, and 2012,
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Commitments and Contingencies (Continued)
respectively. At fiscal year end 2014, the minimum lease payment obligations under non-cancelable
lease obligations were as follows:
Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$125
85
56
40
32
56
$394
(in millions)
Legal Proceedings
In the ordinary 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. However, the proceedings discussed below in ‘‘Income Tax
Matters’’ could have a material effect on our results of operations, financial position, or cash flows.
At September 26, 2014, we had a contingent purchase price commitment of $80 million related to
our fiscal 2001 acquisition of Com-Net. This represents the maximum amount payable to the former
shareholders of Com-Net only after the construction and installation of a communications system was
completed for and approved by the State of Florida in accordance with guidelines set forth in the
contract. Under the terms of the purchase and sale agreement, we do not believe we have any
obligation to the sellers. However, the sellers have contested our position and initiated a lawsuit in
June 2006 in the Court of Common Pleas in Allegheny County, Pennsylvania. A liability for this
contingency has not been recorded on the Consolidated Financial Statements as we do not believe that
any payment is probable or reasonably estimable at this time.
Income Tax Matters
In connection with the separation, we entered into a Tax Sharing Agreement that generally governs
our, Tyco International’s, and Covidien’s respective rights, responsibilities, and obligations after the
distribution with respect to taxes, including ordinary course of business taxes and taxes, if any, incurred
as a result of any failure of the distribution of all of our shares or the shares of Covidien to qualify as
a tax-free distribution for U.S. federal income tax purposes within the meaning of Section 355 of the
Internal Revenue Code (the ‘‘Code’’) or certain internal transactions undertaken in anticipation of the
spin-offs to qualify for tax-favored treatment under the Code.
Pursuant to the Tax Sharing Agreement, upon separation, we entered into certain guarantee
commitments and indemnifications with Tyco International and Covidien. Under the Tax Sharing
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Commitments and Contingencies (Continued)
Agreement, we, Tyco International, and Covidien share 31%, 27%, and 42%, respectively, of certain
contingent liabilities relating to unresolved pre-separation tax matters of Tyco International. See
Note 12 for additional information regarding the Tax Sharing Agreement.
Prior to separation, certain of our subsidiaries filed combined income tax returns with Tyco
International. Those and other of our subsidiaries’ income tax returns are examined periodically by
various tax authorities. In connection with these examinations, tax authorities, including the Internal
Revenue Service (‘‘IRS’’), have raised issues and proposed tax adjustments. Tyco International, as the
U.S. income tax audit controlling party under the Tax Sharing Agreement, is reviewing and contesting
certain of the proposed tax adjustments. Amounts related to these tax adjustments and other tax
contingencies and related interest that management has assessed under the uncertain tax position
provisions of ASC 740, which relate specifically to our entities have been recorded on the Consolidated
Financial Statements. In addition, we may be required to fund portions of Tyco International’s and
Covidien’s tax obligations. Estimates about these guarantees also have been recognized on the
Consolidated Financial Statements. See Note 12 for additional information.
During fiscal 2007, the IRS concluded its field examination of certain of Tyco International’s U.S.
federal income tax returns for the years 1997 through 2000 and issued Revenue Agent Reports that
reflected the IRS’ determination of proposed tax adjustments for the 1997 through 2000 period.
Additionally, the IRS proposed civil fraud penalties against Tyco International arising from alleged
actions of former executives in connection with certain intercompany transfers of stock in 1998 and
1999. The penalties were asserted against a prior subsidiary of Tyco International that was distributed
to us in connection with the separation. Tyco International appealed certain of the proposed
adjustments for the years 1997 through 2000, and Tyco International resolved all but one of the matters
associated with the proposed tax adjustments, including reaching an agreement with the IRS on the
penalty adjustment in the amount of $21 million. In October 2012, the IRS issued special agreement
Forms 870-AD, effectively settling its audit of all tax matters for the period 1997 through 2000,
excluding one issue that remains in dispute as described below. As a result of these developments, in
fiscal 2013, we recognized an income tax benefit of $331 million, representing a reduction in tax
reserves for the matters that were effectively settled, and other expense of $231 million, representing a
reduction of associated indemnification receivables, pursuant to the Tax Sharing Agreement with Tyco
International and Covidien.
The disputed issue involves the tax treatment of certain intercompany debt transactions. The IRS
field examination asserted that certain intercompany loans originating during the period 1997 through
2000 did not constitute debt for U.S. federal income tax purposes and disallowed approximately
$2.7 billion of related interest deductions recognized during the period on Tyco International’s U.S.
income tax returns. In addition, if the IRS is ultimately successful in asserting its claim, it is likely to
disallow an additional $6.6 billion of interest deductions reflected on U.S. income tax returns in years
subsequent to fiscal 2000. Tyco International contends that the intercompany financing qualified as debt
for U.S. tax purposes and that the interest deductions reflected on the income tax returns are
appropriate. The IRS and Tyco International were unable to resolve this matter through the IRS
appeals process. On June 20, 2013, Tyco International advised us that it had received Notices of
Deficiency from the IRS for certain former U.S. subsidiaries of Tyco International increasing taxable
income by approximately $2.9 billion in connection with the audit of Tyco International’s fiscal years
1997 through 2000. The Notices of Deficiency assert that Tyco International owes additional taxes
totaling $778 million, associated penalties of $154 million, and withholding taxes of $105 million. In
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Commitments and Contingencies (Continued)
addition, Tyco International received Final Partnership Administrative Adjustments for certain U.S.
partnerships owned by former U.S. subsidiaries with respect to which Tyco International estimates an
additional tax deficiency of approximately $30 million will be asserted. The amounts asserted by the
IRS exclude any applicable deficiency interest, and do not reflect any impact to subsequent period tax
liabilities in the event that the IRS were to prevail on some or all of its assertions. We understand that
Tyco International strongly disagrees with the IRS position and has filed petitions in the U.S. Tax Court
contesting the IRS’ proposed adjustments. Tyco International has advised us that it believes there are
meritorious defenses for the tax filings in question and that the IRS positions with regard to these
matters are inconsistent with the applicable tax laws and existing U.S. Treasury regulations.
A U.S. Tax Court trial date of February 29, 2016 has been set and the parties are engaged in
discovery. TE does not expect any payments to the IRS with respect to these matters until they are
fully and finally resolved. In accordance with the Tax Sharing Agreement, we, Tyco International, and
Covidien would share 31%, 27%, and 42%, respectively, of any payments made in connection with
these matters.
If the IRS were to prevail on its assertions, our share of the assessed tax, deficiency interest, and
applicable withholding taxes and penalties could have a material adverse impact on our results of
operations, financial position, and cash flows. We have reviewed the Notices of Deficiency, the relevant
facts surrounding the intercompany debt transactions, relevant tax regulations, and applicable case law,
and we continue to believe that we are appropriately reserved for this matter.
During fiscal 2014, we made net payments of $179 million related to pre-separation tax matters,
including $198 million of indemnification payments made to Tyco International and Covidien in
connection with their advanced payments for expected deficiencies made to the IRS for the 2005
through 2007 audit cycle. We made net payments of $28 million and $19 million related to
pre-separation tax matters during fiscal 2013 and 2012, respectively.
Tyco International’s income tax returns for the years 2001 through 2004 remain subject to
adjustment by the IRS upon ultimate resolution of the disputed issue involving certain intercompany
loans originated during the period 1997 through 2000. For the undisputed issues for years 2001 through
2004, it is our understanding that Tyco International expects to receive and accept general agreement
Forms 870 from the IRS during the first quarter of fiscal 2015. The IRS commenced its audit of certain
Tyco International income tax returns for the years 2005 through 2007 in fiscal 2011, and it is our
understanding that Tyco International expects the IRS to issue general agreement Forms 870 during the
first half of fiscal 2015. Over the next twelve months, we expect to make net cash payments of
approximately $31 million in connection with pre-separation U.S. tax matters.
During fiscal 2012, the IRS commenced its audit of our income tax returns for the years 2008
through 2010. We expect fieldwork for the 2008 through 2010 audit to conclude in fiscal 2015.
At September 26, 2014 and September 27, 2013, we have reflected $51 million and $15 million,
respectively, of income tax liabilities related to the audits of Tyco International’s and our income tax
returns in accrued and other current liabilities as certain of these matters could be resolved within the
next twelve months.
We believe that the amounts recorded on our Consolidated Financial Statements relating to the
matters discussed above are appropriate. However, the ultimate resolution is uncertain and could result
in a material impact to our results of operations, financial position, or cash flows.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Commitments and Contingencies (Continued)
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 fiscal year end 2014, we concluded that it was
probable that we would incur remedial costs in the range of $18 million to $40 million. As of fiscal year
end 2014, we concluded that the best estimate within this range is $21 million, of which $5 million is
included in accrued and other current liabilities and $16 million is included in other liabilities on the
Consolidated Balance Sheet. 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.
14. Financial Instruments and Fair Value Measurements
We use derivative and non-derivative financial instruments to manage certain exposures to foreign
currency, interest rate, investment, and commodity risks.
The effects of derivative instruments on the Consolidated Statements of Operations were
immaterial for fiscal 2014, 2013, and 2012.
Foreign Exchange Risks
As part of managing the exposure to changes in foreign currency exchange rates, we utilize foreign
currency forward and swap contracts, a portion of which are designated as cash flow hedges. The
objective of these contracts is to minimize impacts to cash flows and profitability due to changes in
foreign currency exchange rates on intercompany and other cash transactions.
We expect that significantly all of the balance in accumulated other comprehensive income (loss)
associated with the cash flow hedge-designated instruments addressing foreign exchange risks will be
reclassified into the Consolidated Statements of Operations within the next twelve months.
Interest Rate and Investment Risk Management
We issue debt, as needed, to fund our operations and capital requirements. Such borrowings can
result in interest rate exposure. To manage the interest rate exposure, we use interest rate swaps to
convert a portion of fixed-rate debt into variable-rate debt. We use forward starting interest rate swaps
and options to enter into interest rate swaps to manage interest rate exposure in periods prior to the
anticipated issuance of fixed-rate debt. We also utilize investment swaps to manage earnings exposure
on certain nonqualified deferred compensation liabilities.
During fiscal 2014, we entered into interest rate swaps designated as fair value hedges on
$300 million principal amount of our 3.50% senior notes due 2022. The maturity dates of the interest
rate swaps coincide with the maturity date of the notes. Under these contracts, we receive fixed
amounts of interest applicable to the underlying notes and pay floating amounts based upon the three-
month LIBOR.
During fiscal 2012, in conjunction with the issuance of the 1.60% senior notes due 2015 and 3.50%
senior notes due 2022, we terminated forward starting interest rate swaps and options to enter into
interest rate swaps designated as cash flow hedges on notional amounts of $400 million originated in
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Financial Instruments and Fair Value Measurements (Continued)
fiscal 2010, for a cash payment of $24 million. Also during fiscal 2012 and in conjunction with the
issuance of the 3.50% senior notes due 2022, we entered into, and subsequently terminated, an interest
rate swap designated as a cash flow hedge on a notional amount of $300 million for an immaterial cash
payment.
We utilize swaps to manage exposure related to certain of our nonqualified deferred compensation
liabilities. The notional amount of the swaps was $51 million and $38 million at September 26, 2014
and September 27, 2013, respectively. The swaps act as economic hedges of changes in a portion of the
liabilities. The change in value of both the swap contracts and the nonqualified deferred compensation
liabilities are recorded in selling, general, and administrative expenses on the Consolidated Statements
of Operations.
Hedges of Net Investment
We hedge our net investment in certain foreign operations using intercompany non-derivative
financial instruments denominated in the same currencies. The aggregate notional value of these
hedges was $2,893 million and $2,374 million at September 26, 2014 and September 27, 2013,
respectively. Foreign exchange gains of $156 million in fiscal 2014 were recorded as currency
translation, a component of accumulated other comprehensive income (loss), offsetting foreign
exchange gains or losses attributable to the translation of the net investment. Foreign exchange gains
and losses recorded as currency translation in fiscal 2013 and 2012 were immaterial. See Note 20 for
additional information.
Commodity Hedges
As part of managing the exposure to certain commodity price fluctuations, we utilize commodity
swap contracts designated as cash flow hedges. The objective of these contracts is to minimize impacts
to cash flows and profitability due to changes in prices of commodities used in production.
At September 26, 2014 and September 27, 2013, our commodity hedges had notional values of
$307 million and $278 million, respectively. We expect that significantly all of the balance in
accumulated other comprehensive income (loss) associated with the commodity hedges will be
reclassified into the Consolidated Statements of Operations within the next twelve months.
Fair Value Measurements
Financial instruments recorded at fair value on a recurring basis, which consist of derivative
instruments and marketable securities, were immaterial at September 26, 2014 and September 27, 2013.
As of September 26, 2014 and September 27, 2013, we did not have significant financial assets or
liabilities that were measured at fair value on a non-recurring basis. We also did not have significant
non-financial assets or liabilities that were measured at fair value as of September 26, 2014 and
September 27, 2013.
Other financial instruments include cash and cash equivalents, accounts receivable, accounts
payable, and long-term debt. These instruments are recorded on our Consolidated Balance Sheets at
book value. For cash and cash equivalents, accounts receivable, and accounts payable, we believe book
value approximates fair value due to the short-term nature of these instruments. See Note 11 for
information regarding the fair value of debt.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans
Defined Benefit Pension Plans
We have a number of contributory and noncontributory defined benefit retirement plans covering
certain of our U.S. and non-U.S. employees, designed in accordance with local customs and practice.
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 . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Plans
Fiscal
2013
$
6
46
(60)
36
—
2014
$
7
50
(63)
25
—
Non-U.S. Plans
2012
2014
($ in millions)
$
7
51
(58)
42
(1)
$ 50
73
(71)
24
(3)
Fiscal
2013
$ 55
70
(69)
33
(18)
2012
$ 51
76
(54)
29
(5)
Net periodic pension benefit cost . . . . . . . . . . . . .
$ 19
$ 28
$ 41
$ 73
$ 71
$ 97
Weighted-average assumptions used to determine net
pension benefit cost during the fiscal year:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . .
4.84% 3.98% 4.71% 3.38% 3.27% 4.12%
7.16% 6.65% 7.10% 5.99% 6.31% 5.43%
—% —% 4.00% 2.86% 2.88% 3.01%
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
The following table represents the changes in benefit obligation and plan assets and the net
amount recognized on the Consolidated Balance Sheets for all U.S. and non-U.S. defined benefit
pension plans:
Change in benefit obligation:
Benefit obligation at beginning of fiscal year . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits and administrative expenses paid . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Plans
Fiscal
Non-U.S. Plans
Fiscal
2014
2013
2014
2013
($ in millions)
$1,074
7
50
90
(77)
—
(1)
$1,177
6
46
(84)
(69)
—
(2)
$ 2,181
50
73
261
(80)
(98)
(31)
$2,206
55
70
48
(98)
(74)
(26)
Benefit obligation at end of fiscal year . . . . . . . . . . . . . . . . . .
1,143
1,074
2,356
2,181
Change in plan assets:
Fair value of plan assets at beginning of fiscal year . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits and administrative expenses paid . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of fiscal year . . . . . . . . . . . . . .
931
123
2
(77)
—
(1)
978
941
58
2
(69)
—
(1)
931
1,185
106
89
(80)
(37)
(11)
1,252
1,118
131
94
(98)
(62)
2
1,185
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (165)
$ (143)
$(1,104)
$ (996)
Amounts recognized on the Consolidated Balance Sheets:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . . . . . . . . . .
$ — $ — $
(4)
(161)
(3)
(140)
2
(21)
(1,085)
$
3
(20)
(979)
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (165)
$ (143)
$(1,104)
$ (996)
Weighted-average assumptions used to determine pension benefit
obligation at fiscal year end:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . .
4.34% 4.84%
—%
—%
2.76% 3.38%
2.87% 2.86%
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
The pre-tax amounts recognized in accumulated other comprehensive income (loss) for all U.S.
and non-U.S. defined benefit pension plans were as follows:
Change in net loss:
Unrecognized net loss at beginning of fiscal year . . . . . . . . . . . . . . . . . .
Current year change recorded in accumulated other comprehensive
U.S. Plans
Non-U.S. Plans
Fiscal
Fiscal
2014
2013
2014
2013
(in millions)
$320
$438
$592
$ 705
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
(25)
(82)
(36)
180
(24)
(80)
(33)
Unrecognized net loss at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . .
$325
$320
$748
$ 592
Change in prior service credit:
Unrecognized prior service credit at beginning of fiscal year . . . . . . . . . .
Current year change recorded in accumulated other comprehensive
$ — $ — $ (68) $(112)
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
(4)
5
37
7
Unrecognized prior service credit at end of fiscal year . . . . . . . . . . . . . .
$ — $ — $ (67) $ (68)
Unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) for U.S.
defined benefit pension plans in fiscal 2014 are principally the result of change in mortality assumptions
and decreasing discount rates. Unrecognized actuarial losses recorded in accumulated other
comprehensive income (loss) for non-U.S. defined benefit pension plans in fiscal 2014 are principally
the result of decreasing discount rates. Unrecognized actuarial gains recorded in accumulated other
comprehensive income (loss) for U.S. defined benefit pension plans in fiscal 2013 are principally the
result of improved discount rates. Unrecognized actuarial gains recorded in accumulated other
comprehensive income (loss) for non-U.S. defined benefit pension plans in fiscal 2013 are principally
the result of improved asset performance and the effects of currency translation. Amortization of prior
service credit is included in other in the above table summarizing the components of net periodic
pension benefit cost.
The estimated amortization of actuarial losses from accumulated other comprehensive income
(loss) into net periodic pension benefit cost for U.S. and non-U.S. defined benefit pension plans in
fiscal 2015 is expected to be $25 million and $37 million, respectively. The estimated amortization of
prior service credit from accumulated other comprehensive income (loss) into net periodic pension
benefit cost for non-U.S. defined benefit pension plans in fiscal 2015 is expected to be $5 million.
In determining the expected return on plan assets, we consider the relative weighting of plan assets
by class and individual asset class performance expectations.
The investment strategy for the U.S. pension plans is governed by our investment committee;
investment strategies for non-U.S. pension plans are governed locally. Our investment strategy for our
pension plans is to manage the plans on a going concern basis. Current investment policy is to achieve
a reasonable return on assets, subject to a prudent level of portfolio risk, for the purpose of enhancing
the security of benefits for participants. Projected returns are based primarily on pro forma asset
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
allocation, expected long-term returns, and forward-looking estimates of active portfolio and investment
management.
During fiscal 2012, our investment committee made the decision to change the target asset
allocation of the U.S. plans’ master trust from a previous target of 30% equity and 70% fixed income
to 10% equity and 90% fixed income in an effort to better protect the funded status of the U.S. plans’
master trust. Asset reallocation will continue over a multi-year period based on the funded status, as
defined by the Pension Protection Act of 2006 (the ‘‘Pension Act Funded Status’’), of the U.S. plans’
master trust and market conditions. We expect to reach our target allocation when the Pension Act
Funded Status exceeds 100%. Based on the Pension Act Funded Status as of September 26, 2014, our
target asset allocation is 44% equity and 56% fixed income.
Target weighted-average asset allocation and weighted-average asset allocation for U.S. and
non-U.S. pension plans were as follows:
U.S. Plans
Fiscal
Year End
2014(1)
Target(1)
Non-U.S. Plans
Fiscal
Year End
2013
Target
Fiscal
Year End
2014
Fiscal
Year End
2013
Asset Category:
Equity securities . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts and other investments . . .
Real estate investments . . . . . . . . . . . . . . . . .
44%
56
—
—
45%
55
—
—
45%
55
—
—
47%
28
23
2
48%
28
22
2
43%
35
20
2
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100%
100% 100% 100%
100%
(1) Based on our Pension Act Funded Status as of September 26, 2014, equity securities of the U.S. plans’ master trust cannot
exceed 45%.
Our common shares are not a direct investment of our pension funds; however, the pension funds
may indirectly include our shares. The aggregate amount of our common shares would not be
considered material relative to the total pension fund assets.
Our funding policy is to make contributions in accordance with the laws and customs of the
various countries in which we operate as well as to make discretionary voluntary contributions from
time to time. We anticipate that, at a minimum, we will make the minimum required contributions to
our pension plans in fiscal 2015 of $4 million to U.S. plans and $77 million to non-U.S. plans.
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
Benefit payments, which reflect future expected service, as appropriate, are expected to be paid as
follows:
U.S. Plans
Non-U.S. Plans
(in millions)
Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020-2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 69
68
68
69
70
367
$ 76
81
81
83
89
517
Set forth below is the accumulated benefit obligation for all U.S. and non-U.S. pension plans as
well as additional information related to plans with an accumulated benefit obligation in excess of plan
assets and plans with a projected benefit obligation in excess of plan assets.
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plans with accumulated benefit obligations in excess of
plan assets:
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plans with projected benefit obligations in excess of plan
assets:
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Plans
Non-U.S. Plans
Fiscal Year End
Fiscal Year End
2014
2013
2014
2013
(in millions)
$1,143
$1,074
$2,181
$2,021
1,143
978
1,074
931
2,125
1,176
1,930
1,072
1,143
978
1,074
931
2,291
1,185
2,120
1,122
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
We value our pension assets based on the fair value hierarchy of ASC 820. Details of the fair value
hierarchy are described in Note 2. The following table presents our defined benefit pension plans’ asset
categories and their associated fair value within the fair value hierarchy:
U.S. Plans
Non-U.S. Plans
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Total
(in millions)
September 26, 2014:
Equity:
Equity securities:
U.S. equity securities(1)
Non-U.S. equity securities(1)
Commingled equity funds(2)
. . . . . . . . . . . . . $210
209
. . . . . . . . .
. . . . . . . . . . . —
$ — $— $210 $ 67
104
— — 209
— —
$ — $— $
— —
— — 444 —
Fixed income:
Government bonds(3)
Corporate bonds(4) . . . . . . . . . . . . . . . . . . — 445 — 445 —
Commingled bond funds(5)
. . . . . . . . . . . . —
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
87 — 211 —
19 —
— — 203 —
78
13 —
. . . . . . . . . . . . . . . . —
— —
13 —
87 —
96
67
104
444
211
19
203
174
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . $419
$545
$— 964 $171
$973
$78
1,222
Items to reconcile to fair value of plan
assets(7)
. . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . .
14
$978
30
$1,252
September 27, 2013:
Equity:
Equity securities:
U.S. equity securities(1)
Non-U.S. equity securities(1)
Commingled equity funds(2)
. . . . . . . . . . . . . $237
179
. . . . . . . . .
. . . . . . . . . . . —
$ — $— $237 $ 57
95
— — 179
— —
$ — $— $
— —
— — 362 —
Fixed income:
Government bonds(3)
77 — 143 —
Corporate bonds(4) . . . . . . . . . . . . . . . . . . — 413 — 413 — 119 —
Commingled bond funds(5)
— — 217 —
72
14
. . . . . . . . . . . . —
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . —
— —
14 —
77 —
90
1
57
95
362
143
119
217
163
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . $416
$504
$— 920 $153
$931
$72
1,156
Items to reconcile to fair value of plan
assets(7)
. . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . .
11
$931
29
$1,185
(1) U.S. and non-U.S. equity securities are valued at the closing price reported on the stock exchange on which the individual
securities are traded.
(2) Commingled equity funds are pooled investments in multiple equity-type securities. Fair value is calculated as the closing
price of the underlying investments, an observable market condition, divided by the number of shares of the fund
outstanding.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
(3) Government bonds are marked to fair value based on quoted market prices or market approach valuation models using
observable market data such as quotes, spreads, and data points for yield curves.
(4) Corporate bonds are marked to fair value based on quoted market prices or market approach valuation models using
observable market data such as quotes, spreads, and data points for yield curves.
(5) Commingled bond funds are pooled investments in multiple debt-type securities. Fair value is calculated as the closing price
of the underlying investments, an observable market condition, divided by the number of shares of the fund outstanding.
(6) Other investments are composed of insurance contracts, derivatives, short-term investments, structured products such as
collateralized obligations and mortgage- and asset-backed securities, real estate investments, and hedge funds. Insurance
contracts are valued using cash surrender value, or face value of the contract if a cash surrender value is unavailable
(level 2). These values represent the amount that the plan would receive on termination of the underlying contract.
Derivatives, short-term investments, and structured products are marked to fair value using models that are supported by
observable market based data (level 2). Real estate investments include investments in commingled real estate funds. The
investments are valued at their net asset value which is calculated using unobservable inputs that are supported by little or
no market activity (level 3). Hedge funds are valued at their net asset value which is calculated using unobservable inputs
that are supported by little or no market activity (level 3).
(7)
Items to reconcile to fair value of plan assets include amounts receivable for securities sold, amounts payable for securities
purchased, and any cash balances, considered to be carried at book value, that are held in the plans.
The following table sets forth a summary of changes in the fair value of Level 3 assets contained
in the non-U.S. plans:
Real Estate Hedge Funds
(in millions)
Balance at September 28, 2012 . . . . . . . . . . . . . . . . . . . . . .
Return on assets held at end of fiscal year . . . . . . . . . . . . .
Purchases, sales, and settlements, net . . . . . . . . . . . . . . . . .
Balance at September 27, 2013 . . . . . . . . . . . . . . . . . . . . . .
Return on assets held at end of fiscal year . . . . . . . . . . . . .
Balance at September 26, 2014 . . . . . . . . . . . . . . . . . . . . . .
$19
(2)
3
20
1
$21
$48
4
—
52
5
$57
Defined Contribution Retirement Plans
We maintain several defined contribution retirement plans, the most significant of which is located
in the U.S. These plans include 401(k) matching programs, as well as qualified and nonqualified profit
sharing and share bonus retirement plans. Expense for the defined contribution plans is computed as a
percentage of participants’ compensation and was $61 million for each of fiscal 2014, 2013, and 2012.
Deferred Compensation Plans and Rabbi Trusts
We maintain nonqualified deferred compensation plans, which permit eligible employees to defer a
portion of their compensation. A record keeping account is set up for each participant and the
participant chooses from a variety of measurement funds for the deemed investment of their accounts.
The measurement funds correspond to a number of funds in our 401(k) plans and the account balance
fluctuates with the investment returns on those funds. Total deferred compensation liabilities were
$116 million and $99 million at fiscal year end 2014 and 2013, respectively. See Note 14 for additional
information regarding our risk management strategy related to deferred compensation liabilities.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
Additionally, we have established rabbi trusts, related to certain acquired companies, through
which the assets may be used to pay nonqualified plan benefits. The trusts hold primarily bonds and
equities. The rabbi trust assets are subject to the claims of our creditors in the event of our insolvency;
plan participants are general creditors of ours with respect to these benefits. The value of the assets
held by these trusts, included in other assets on the Consolidated Balance Sheets, was $83 million at
fiscal year end 2014 and 2013. Total liabilities related to the assets held by the rabbi trust and reflected
on the Consolidated Balance Sheets were $12 million and $13 million at fiscal year end 2014 and 2013,
respectively, and include certain deferred compensation liabilities (referred to above), split dollar life
insurance policy liabilities, and an unfunded U.S. pension plan. Plan participants are general creditors
of ours with respect to these benefits.
Postretirement Benefit Plans
In addition to providing pension and 401(k) benefits, we also provide certain health care coverage
continuation for qualifying retirees from the date of retirement to age 65.
Net periodic postretirement benefit cost was $2 million, $4 million, and $3 million for fiscal 2014,
2013, and 2012, respectively, and consisted primarily of service and interest cost. The weighted-average
assumptions used to determine net postretirement benefit cost were as follows:
Fiscal
2013
2012
2014
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . .
4.85% 3.85% 5.00%
4.00% 3.35% 4.00%
The accrued postretirement benefit obligation was $44 million and $39 million at fiscal year end
2014 and 2013, respectively. The fair value of plan assets was $3 million at fiscal year end 2014 and
2013. The underfunded status of the postretirement benefit plans was included primarily in long-term
pension and postretirement liabilities on the Consolidated Balance Sheets. The weighted-average
assumptions used to determine the postretirement benefit obligation were as follows:
Fiscal Year End
2014
2013
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.13% 4.85%
3.65% 4.00%
Unrecognized postretirement benefit credits of $1 million and $6 million at fiscal year end 2014
and 2013, respectively, were recorded in accumulated other comprehensive income (loss). Amortization
of these balances into net periodic postretirement benefit cost is expected to be insignificant in fiscal
2015.
Our investment strategy for our postretirement benefit plans is to achieve a reasonable return on
assets, subject to a prudent level of portfolio risk. The plan is invested in debt securities, which are
considered level 2 in the fair value hierarchy, and equity securities, which are considered level 1 in the
fair value hierarchy, and targets an allocation of 50% in each category.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Retirement Plans (Continued)
We anticipate that we will make insignificant contributions to our postretirement benefit plans in
fiscal 2015.
Benefit payments, which reflect future expected service, as appropriate, are expected to be
approximately $3 million annually from fiscal 2015 through fiscal 2019 and $13 million in total from
fiscal 2020 through fiscal 2024. Health care cost trend assumptions used to determine the
postretirement benefit obligation were as follows:
Health care cost trend rate assumed for next fiscal year . . . . . . . . . .
Rate to which the cost trend rate is assumed to decline . . . . . . . . . .
Fiscal year the ultimate trend rate is achieved . . . . . . . . . . . . . . . . .
7.01% 7.33%
4.50% 4.50%
2029
2029
A one-percentage point change in assumed healthcare cost trend rates would have the following
effects:
Fiscal Year End
2014
2013
Effect on total of service and interest cost . . . . . . . . . . . . . . . . . . . . . . .
Effect on postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . .
$—
4
$—
(4)
One Percentage One Percentage
Point Decrease
Point Increase
(in millions)
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
16. Income Taxes
Our operations are conducted through our various subsidiaries in a number of countries
throughout the world. We have provided for income taxes based upon the tax laws and rates in the
countries in which our operations are conducted and income and loss from operations is subject to
taxation.
Significant components of the income tax provision (benefit) were as follows:
2014
Fiscal
2013
2012
(in millions)
Current:
U.S.:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
$ 137
(3)
307
$ (295) $
(85)
321
Current income tax provision (benefit) . . . . . . . . . . . . .
441
(59)
Deferred:
U.S.:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
Deferred income tax provision (benefit) . . . . . . . . . . . .
(269)
1
34
(234)
71
(1)
(40)
30
92
11
194
297
(50)
4
(2)
(48)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . .
$ 207
$ (29) $ 249
The U.S. and non-U.S. components of income from continuing operations before income taxes
were as follows:
U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
Fiscal
2013
2012
(in millions)
$ (25) $ (238) $ (96)
1,511
1,486
2,021
Income from continuing operations before income taxes . .
$1,996
$1,248
$1,415
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
16. Income Taxes (Continued)
The reconciliation between U.S. federal income taxes at the statutory rate and provision (benefit)
for income taxes on continuing operations was as follows:
Notional U.S. federal income tax provision at the statutory rate . . . . . . . . . . . .
Adjustments to reconcile to the income tax provision (benefit):
U.S. state income tax provision (benefit), net
. . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense—Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . .
Tax law changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits
Non-U.S. net earnings(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in accrued income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2013
2012
2014
(in millions)
$ 437
$ 699
$ 495
(1)
(23)
(1)
(9)
(315)
7
113
(244)
(19)
(56)
64
—
(11)
(277)
3
(162)
(31)
4
10
(18)
21
(9)
(225)
3
95
(107)
(16)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 207
$ (29) $ 249
(1) Excludes nondeductible charges and other items which are broken out separately in the table.
The tax provision for fiscal 2014 reflects income tax benefits of $282 million recognized in
connection with a reduction in the valuation allowance associated with certain ADC tax loss
carryforwards, partially offset by an income tax charge related to adjustments to prior year income tax
returns.
In fiscal 2014, we acquired SEACON, and its U.S. operations were combined with our ADC U.S.
federal consolidated tax group. In addition, the ADC U.S. tax group was combined with other U.S.
legal entities and assets. We reassessed the realization of the revised ADC U.S. tax group’s tax loss and
credit carryforwards. Based upon management’s review of forecasted future taxable income of the
reorganized combined tax group, we believe it is more likely than not that a tax benefit will be realized
on additional U.S. federal and state net operating losses. Accordingly, we reduced the valuation
allowance and recorded a tax benefit of $282 million. As of fiscal year end 2014, we continue to
maintain a valuation allowance of $75 million related to U.S. federal and state tax attributes of the
ADC U.S. tax group due to uncertainty of their realization in the future.
The tax benefit for fiscal 2013 reflects an income tax benefit of $331 million related to the
effective settlement of all undisputed tax matters for the period 1997 through 2000. In addition, the tax
benefit for fiscal 2013 reflects $23 million of net tax benefits consisting primarily of income tax benefits
recognized in connection with a reduction in the valuation allowance associated with certain ADC tax
loss carryforwards and income tax benefits recognized in connection with the lapse of statutes of
limitations for examinations of prior year income tax returns, partially offset by income tax expense
related to adjustments to prior year income tax returns.
The tax provision for fiscal 2012 reflects an income tax benefit of $107 million recognized in
connection with a reduction in the valuation allowance associated with tax loss carryforwards in certain
non-U.S. locations. In addition, the tax provision for fiscal 2012 reflects $17 million of income tax
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
16. Income Taxes (Continued)
expense associated with certain non-U.S. tax rate changes enacted in the quarter ended December 30,
2011.
Deferred income taxes result from temporary differences between the amount of assets and
liabilities recognized for financial reporting and tax purposes. The components of the net deferred
income tax asset were as follows:
Deferred tax assets:
Accrued liabilities and reserves . . . . . . . . . . . . . . . . . . . . . . . .
Tax loss and credit carryforwards . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized income tax benefits . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2014
2013
(in millions)
$
275
3,374
57
276
12
358
391
29
4,772
$
320
3,431
55
235
5
372
364
19
4,801
(828)
(25)
(72)
(925)
(778)
(64)
(38)
(880)
Net deferred tax asset before valuation allowance . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,847
(1,721)
3,921
(1,816)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,126
$ 2,105
At fiscal year end 2014, we had approximately $1,413 million of U.S. federal and $116 million of
U.S. state net operating loss carryforwards (tax effected) which will expire in future years through 2034.
In addition, at fiscal year end 2014, we had approximately $179 million of U.S. federal tax credit
carryforwards, of which $55 million have no expiration and $124 million will expire in future years
through 2034, and $38 million of U.S. state tax credits carryforwards which will expire in future years
through 2029.
At fiscal year end 2014, we had approximately $1,586 million of net operating loss carryforwards
(tax effected) in certain non-U.S. jurisdictions, of which $1,416 million have no expiration and
$170 million will expire in future years through 2034. Also, at fiscal year end 2014, there were
$1 million of non-U.S. tax credit carryforwards which have no expiration. In addition, $41 million of
non-U.S. capital loss carryforwards (tax effected) have no expiration.
The valuation allowance for deferred tax assets of $1,721 million and $1,816 million at fiscal year
end 2014 and 2013, respectively, relates principally to the uncertainty of the utilization of certain
deferred tax assets, primarily tax loss, capital loss, and credit carryforwards in various jurisdictions. We
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
16. Income Taxes (Continued)
believe that we will generate sufficient future taxable income to realize the income tax benefits related
to the remaining net deferred tax assets on our Consolidated Balance Sheet. The valuation allowance
was calculated in accordance with the provisions of ASC 740, which require that a valuation allowance
be established or maintained when it is more likely than not that all or a portion of deferred tax assets
will not be realized. At fiscal year end 2014, approximately $118 million of the valuation allowance
relates to share-based compensation and will be recorded to equity if certain net operating losses and
tax credit carryforwards are utilized.
The calculation of our tax liabilities includes estimates for uncertainties in the application of
complex tax regulations across multiple global jurisdictions where we conduct our operations. Under
the uncertain tax position provisions of ASC 740, we recognize liabilities for tax and related interest for
issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which,
additional taxes and related interest will be due. These tax liabilities and related interest are reflected
net of the impact of related tax loss carryforwards, as such tax loss carryforwards will be applied against
these tax liabilities and will reduce the amount of cash tax payments due upon the eventual settlement
with the tax authorities. These estimates may change due to changing facts and circumstances. Due to
the complexity of these uncertainties, the ultimate resolution may result in a settlement that differs
from our current estimate of the tax liabilities and related interest. Furthermore, management has
reviewed with tax counsel the issues raised by certain taxing authorities and the adequacy of these
recorded amounts. If our current estimate of tax and interest liabilities is less than the ultimate
settlement, an additional charge to income tax expense may result. If our current estimate of tax and
interest liabilities is more than the ultimate settlement, income tax benefits may be recognized.
We have provided income taxes for earnings that are currently distributed as well as the taxes
associated with several subsidiaries’ earnings that are expected to be distributed in the future. No
additional provision has been made for Swiss or non-Swiss income taxes on the undistributed earnings
of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis
differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested,
the investments are essentially permanent in duration, or we have concluded that no additional tax
liability will arise as a result of the distribution of such earnings. As of September 26, 2014, certain
subsidiaries had approximately $18 billion of cumulative undistributed earnings that have been retained
indefinitely and reinvested in our global manufacturing operations, including working capital; property,
plant, and equipment; intangible assets; and research and development activities. A liability could arise
if our intention to permanently reinvest such earnings were to change and amounts are distributed by
such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the
additional income taxes related to permanently reinvested earnings or the basis differences related to
investments in subsidiaries. As of September 26, 2014, we had approximately $5.5 billion of cash, cash
equivalents, and intercompany deposits, principally in our subsidiaries, that we have the ability to
distribute to TEGSA, our Luxembourg subsidiary, which is the obligor of substantially all of our debt,
and to TE Connectivity Ltd., our Swiss parent company, but we consider to be permanently reinvested.
We estimate that up to approximately $1.7 billion of tax expense would be recognized on our
Consolidated Financial Statements if our intention to permanently reinvest these amounts were to
change. Our current plans do not demonstrate a need to repatriate cash, cash equivalents, and
intercompany deposits that are designated as permanently reinvested in order to fund our operations,
including investing and financing activities.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
16. Income Taxes (Continued)
Uncertain Tax Position Provisions of ASC 740
As of September 26, 2014, we had total unrecognized income tax benefits of $1,597 million. If
recognized in future periods, $1,452 million of these currently unrecognized income tax benefits would
impact the income tax provision and effective tax rate. As of September 27, 2013, we had total
unrecognized income tax benefits of $1,620 million. If recognized in future periods, $1,471 million of
these unrecognized income tax benefits would impact the income tax provision and effective tax rate.
The following table summarizes the activity related to unrecognized income tax benefits:
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . .
Additions related to prior periods tax positions . . . . . . . .
Reductions related to prior periods tax positions . . . . . . .
Additions related to current period tax positions . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to lapse of applicable statute of
2014
Fiscal
2013
(in millions)
$1,795
90
(271)
88
—
(8)
$1,620
22
(57)
32
7
(14)
2012
$1,783
41
(36)
31
7
(12)
limitations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13)
(74)
(19)
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . .
$1,597
$1,620
$1,795
We record accrued interest as well as penalties related to uncertain tax positions as part of the
provision for income taxes. As of September 26, 2014, we had recorded $1,136 million of accrued
interest and penalties related to uncertain tax positions on the Consolidated Balance Sheet, of which
$1,115 million was recorded in income taxes and $21 million was recorded in accrued and other current
liabilities. As of September 27, 2013, the balance of accrued interest and penalties was $1,018 million,
of which $1,015 million was recorded in income taxes and $3 million was recorded in accrued and other
current liabilities. During fiscal 2014, 2013, and 2012, we recognized expense of $99 million, benefits of
$247 million, and expense of $95 million, respectively, related to interest and penalties on the
Consolidated Statements of Operations.
For tax years 1997 through 2000, Tyco International has resolved all matters, excluding one
disputed issue related to the tax treatment of certain intercompany debt transactions. Tyco
International’s income tax returns for the years 2001 through 2004 remain subject to adjustment by the
IRS upon ultimate resolution of the disputed issue involving certain intercompany loans originated
during the period 1997 through 2000. For the undisputed issues for years 2001 through 2004, it is our
understanding that Tyco International expects to receive and accept general agreement Forms 870 from
the IRS during the first quarter of fiscal 2015. The IRS commenced its audit of certain Tyco
International income tax returns for the years 2005 through 2007 in fiscal 2011, and it is our
understanding that Tyco International expects the IRS to issue general agreement Forms 870 during the
first half of fiscal 2015. Also, during fiscal 2012, the IRS commenced its audit of our income tax returns
for the years 2008 through 2010. We expect fieldwork for the 2008 through 2010 audit to conclude in
fiscal 2015. See Note 13 for additional information regarding the status of IRS examinations.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
16. Income Taxes (Continued)
We file income tax returns on a unitary, consolidated, or stand-alone basis in multiple state and
local jurisdictions, which generally have statutes of limitations ranging from 3 to 4 years. Various state
and local income tax returns are currently in the process of examination or administrative appeal.
Our non-U.S. subsidiaries file income tax returns in the countries in which they have operations.
Generally, these countries have statutes of limitations ranging from 3 to 10 years. Various non-U.S.
subsidiary income tax returns are currently in the process of examination by taxing authorities.
As of September 26, 2014, under applicable statutes, the following tax years remained subject to
examination in the major tax jurisdictions indicated:
Jurisdiction
Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Luxembourg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.—federal and state and local . . . . . . . . . . . . . . . .
Open Years
2012 through 2014
2009 through 2014
2002 and 2005 through 2014
2004 through 2014
2010 through 2014
2011 through 2014
2008 through 2014
2008 through 2014
2007 through 2014
2009 through 2014
2008 through 2014
2007 through 2014
2009 through 2014
2011 through 2014
2011 through 2014
2009 through 2014
2010 through 2014
2012 through 2014
2012 through 2014
1997 through 2014
In most jurisdictions, taxing authorities retain the ability to review prior tax years and to adjust any
net operating loss and tax credit carryforwards from these years that are utilized in a subsequent
period.
Although it is difficult to predict the timing or results of our worldwide examinations, we estimate
that up to approximately $220 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 Consolidated Balance Sheet as of September 26,
2014.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
17. Other Income (Expense), Net
In fiscal 2014, 2013, and 2012, we recorded net other income of $63 million, net other expense of
$183 million, and net other income of $50 million, respectively, primarily pursuant to the Tax Sharing
Agreement with Tyco International and Covidien. See Note 12 for further information regarding the
Tax Sharing Agreement. The net other income in fiscal 2014 included $18 million of income related to
our share of a settlement agreement entered into by Tyco International with a former subsidiary, CIT
Group Inc., which arose from a pre-separation claim for which we were entitled to 31% once resolved.
The net other expense in fiscal 2013 included $231 million related to the effective settlement of all
undisputed tax matters for the period 1997 through 2000. See Note 13 for additional information.
18. Earnings Per Share
The weighted-average number of shares outstanding used in the computation of basic and diluted
earnings per share was as follows:
Fiscal
2014
2013
2012
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive impact of share-based compensation arrangements . . . . .
(in millions)
418
5
426
4
410
7
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
417
423
430
The computation of diluted earnings per share for fiscal 2013 and 2012 excludes 3 million and
12 million, respectively, of share options because the instruments’ underlying exercise prices were
greater than the average market prices of our common shares and inclusion would be antidilutive.
There were no antidilutive share options for fiscal 2014.
19. Equity
Common Shares
We are organized under the laws of Switzerland. The rights of holders of our shares are governed
by Swiss law, our Swiss articles of association, and our Swiss organizational regulations. Accordingly,
the par value of our common shares is stated in Swiss francs (‘‘CHF’’). We continue to use the U.S.
dollar, however, as our reporting currency on our Consolidated Financial Statements.
Subject to certain conditions specified in our articles of association, we are authorized to increase
our share capital by issuing new shares in aggregate not exceeding 50% of our authorized shares. In
March 2013, our shareholders reapproved and extended through March 6, 2015 our board of directors’
authorization to issue additional new shares, subject to certain conditions specified in the articles, in
aggregate not exceeding 50% of the amount of our authorized shares.
Common Shares Held in Treasury
At September 26, 2014, approximately 11 million common shares were held in treasury, of which
9 million were owned by one of our subsidiaries. At September 27, 2013, approximately 17 million
common shares were held in treasury, of which 8 million were owned by one of our subsidiaries. Shares
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
19. Equity (Continued)
held both directly by us and by our subsidiary are presented as treasury shares on the Consolidated
Balance Sheets.
In March 2014, our shareholders approved the cancellation of 10 million shares purchased under
our share repurchase program during the period from December 29, 2012 to December 27, 2013. The
capital reduction by cancellation of shares was subject to a notice period and filing with the commercial
register in Switzerland and became effective in May 2014.
In March 2013, our shareholders approved the cancellation of 10 million shares purchased under
our share repurchase program during the period from December 31, 2011 to December 28, 2012. The
capital reduction by cancellation of shares was subject to a notice period and filing with the commercial
register in Switzerland and became effective in May 2013.
In March 2012, our shareholders approved the cancellation of 24 million shares purchased under
our share repurchase program during the period from December 25, 2010 to December 30, 2011. The
capital reduction by cancellation of shares was subject to a notice period and filing with the commercial
register in Switzerland and became effective in May 2012.
Contributed Surplus
Contributed surplus established for Swiss tax and statutory purposes (‘‘Swiss Contributed Surplus’’),
subject to certain conditions, is a freely distributable reserve. Distributions to shareholders from Swiss
Contributed Surplus are free from withholding tax. As of September 26, 2014 and September 27, 2013,
Swiss Contributed Surplus was CHF 8,862 million and CHF 9,342 million, respectively (equivalent to
$7,985 million and $8,520 million, respectively).
Dividends and Distributions to Shareholders
Under Swiss law, subject to certain conditions, distributions to shareholders made in the form of a
reduction of registered share capital or from reserves from capital contributions (equivalent to Swiss
Contributed Surplus) are exempt from Swiss withholding tax. See ‘‘Contributed Surplus’’ for additional
information regarding our ability to make distributions free from withholding tax from contributed
surplus. Distributions or dividends on our shares must be approved by our shareholders.
In March 2011, our shareholders approved a dividend payment to shareholders of CHF 0.68
(equivalent to $0.72) per share out of contributed surplus, payable in four equal quarterly installments
beginning in the third quarter of fiscal 2011 through the second quarter of fiscal 2012. We paid the
third and fourth installments of the dividend at a rate of $0.18 per share during the quarters ended
December 30, 2011 and March 30, 2012, respectively.
In March 2012, our shareholders approved a cash distribution to shareholders in the form of a
capital reduction to the par value of our common shares of CHF 0.80 (equivalent to $0.84) per share,
payable in four equal quarterly installments beginning in the third quarter of fiscal 2012 through the
second quarter of fiscal 2013. We paid the installments of the distribution at a rate of $0.21 per share
during each of the quarters ended June 29, 2012, September 28, 2012, December 28, 2012 and
March 29, 2013. These capital reductions reduced the par value of our common shares from CHF 1.37
(equivalent to $1.28) to CHF 0.57 (equivalent to $0.44).
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
19. Equity (Continued)
In March 2013, our shareholders approved a dividend payment to shareholders of CHF 0.96
(equivalent to $1.00) per share out of contributed surplus, payable in four equal quarterly installments
beginning in the third quarter of fiscal 2013 through the second quarter of fiscal 2014. We paid the
installments of the dividend at a rate of $0.25 per share during each of the quarters ended June 28,
2013, September 27, 2013, December 27, 2013, and March 28, 2014.
In March 2014, our shareholders approved a dividend payment to shareholders of CHF 1.04
(equivalent to $1.16) per share out of contributed surplus, payable in four equal quarterly installments
beginning in the third quarter of fiscal 2014 through the second quarter of fiscal 2015. We paid the first
and second installments of the dividend at a rate of $0.29 per share during the quarters ended June 27,
2014 and September 26, 2014, respectively.
Upon approval by the shareholders of a dividend payment or cash distribution in the form of a
capital reduction, we record a liability with a corresponding charge to contributed surplus or common
shares. At September 26, 2014 and September 27, 2013, the unpaid portion of the dividends and
distributions recorded in accrued and other current liabilities on the Consolidated Balance Sheets
totaled $236 million and $206 million, respectively.
Share Repurchase Program
During fiscal 2014, our board of directors authorized an increase of $1 billion in the share
repurchase program. We repurchased approximately 11 million of our common shares for $604 million,
approximately 20 million of our common shares for $829 million, and approximately 6 million of our
common shares for $194 million during fiscal 2014, 2013, and 2012, respectively. At September 26,
2014, we had $874 million of availability remaining under our share repurchase authorization.
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Accumulated Other Comprehensive Income (Loss)
The changes in each component of accumulated other comprehensive income (loss) were as
follows:
Currency
Translation(1)
Unrecognized
Pension and
Postretirement
Benefit Costs
Gains (Losses)
on Cash
Flow
Hedges
Accumulated
Other
Comprehensive
Income (Loss)
(in millions)
Balance at September 30, 2011 . . . . . . . . . . .
Net other comprehensive income (loss) . . . .
Income tax (expense) benefit . . . . . . . . . . .
$1,090
(131)
—
$(612)
(114)
26
Net other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . . . .
Balance at September 28, 2012 . . . . . . . . . . .
Net other comprehensive income (loss) . . . .
Income tax (expense) benefit . . . . . . . . . . .
Net other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . . . .
Balance at September 27, 2013 . . . . . . . . . . .
Other comprehensive loss before
(131)
959
(28)
—
(28)
931
reclassifications . . . . . . . . . . . . . . . . . . .
(216)
Amounts reclassified from accumulated
other comprehensive income (loss) . . . . .
Income tax (expense) benefit . . . . . . . . . . .
5
—
Net other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . . . .
(211)
Balance at September 26, 2014 . . . . . . . . . . .
$ 720
(88)
(700)
204
(73)
131
(569)
(211)
44
44
(123)
$(692)
$(50)
24
(4)
20
(30)
(36)
7
(29)
(59)
(35)
49
—
14
$(45)
$ 428
(221)
22
(199)
229
140
(66)
74
303
(462)
98
44
(320)
$ (17)
(1)
Includes hedges of net investment foreign exchange gains or losses which offset foreign exchange gains or losses attributable
to the translation of the net investments.
21. Share Plans
Equity awards (primarily restricted share awards, performance share awards, and share options)
granted by us are administered by the management development and compensation committee of our
board of directors, which consists exclusively of independent directors. Our plans, of which the
TE Connectivity Ltd. 2007 Stock and Incentive Plan, as amended and restated, is the primary plan,
provide for the award of annual performance bonuses and long-term performance awards, including
share options, restricted and performance units, deferred stock units, and other share-based awards
(collectively, ‘‘Awards’’) and allow for the use of unissued shares or treasury shares to be used to satisfy
such Awards. As of September 26, 2014, our plans provided for a maximum of 67 million shares to be
issued as Awards, subject to adjustment as provided under the terms of the plans. A total of 23 million
shares remained available for issuance under our plans as of September 26, 2014.
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
21. Share Plans (Continued)
Share-Based Compensation Expense
Total share-based compensation expense, which was included primarily in selling, general, and
administrative expenses on the Consolidated Statements of Operations, was $84 million, $78 million,
and $68 million during fiscal 2014, 2013, and 2012, respectively. We have recognized a related tax
benefit associated with our share-based compensation arrangements of $26 million, $24 million, and
$21 million in fiscal 2014, 2013, and 2012, respectively.
Restricted Share Awards
Restricted share awards, which are generally in the form of restricted share units, are granted
subject to certain restrictions. Conditions of vesting are determined at the time of grant. All restrictions
on an award will lapse upon death or disability of the employee. If the employee satisfies retirement
requirements, a portion of the award may vest, depending on the terms and conditions of the particular
grant. Recipients of restricted units have no voting rights, but do receive dividend equivalents. For
grants that vest through passage of time, the fair value of the award at the time of the grant is
amortized to expense over the period of vesting. The fair value of restricted share awards is determined
based on the closing value of our shares on the grant date. Restricted share awards generally vest in
increments over a period of four years as determined by the management development and
compensation committee.
A summary of restricted share award activity is presented below:
Nonvested at September 27, 2013 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
3,983,925
1,281,684
(1,615,343)
(252,438)
Nonvested at September 26, 2014 . . . . . . . . . . . . . . . .
3,397,828
Weighted-Average
Grant-Date
Fair Value
$33.50
52.21
31.93
40.45
$40.79
The weighted-average grant-date fair value of restricted share awards granted during fiscal 2014,
2013, and 2012 was $52.21, $34.69, and $34.63, respectively.
As of September 26, 2014, there was $83 million of unrecognized compensation cost related to
nonvested restricted share awards. The cost is expected to be recognized over a weighted-average
period of 1.6 years.
Performance Share Awards
Performance share awards, which are generally in the form of performance share units, are granted
with pay-out subject to vesting requirements and certain performance conditions that are determined at
the time of grant. Based on our performance, the pay-out of performance share units can range from
0% to 200% of the number of units originally granted. Certain employees who receive performance
share awards also are granted an opportunity to earn additional performance shares subject to the
attainment of additional performance criteria which are set at the time of grant. Attainment of the
performance criteria will result in an additional pay-out of performance share units equal to 100% of
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
21. Share Plans (Continued)
the performance share units paid out under the original performance share award. The grant-date fair
value of performance share awards is expensed over the period of performance once achievement of
the performance criteria is deemed probable. Recipients of performance share units have no voting
rights but do receive dividend equivalents. Performance share awards generally vest after a period of
three years as determined by the management development and compensation committee.
A summary of performance share award activity is presented below:
Outstanding at September 27, 2013 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
311,419
214,941
(15,872)
Outstanding at September 26, 2014 . . . . . . . . . . . . . . . . .
510,488
Weighted-Average
Grant-Date
Fair Value
$34.17
51.63
34.05
$41.53
The weighted-average grant-date fair value of performance share awards granted during fiscal 2014
and 2013 was $51.63 and $34.16, respectively. There were no performance share awards granted in
fiscal 2012.
As of September 26, 2014, there was $14 million of unrecognized compensation cost related to
nonvested performance share awards. The cost is expected to be recognized over a weighted-average
period of 1.5 years.
Share Options
Share options are granted to purchase our common shares at prices which are equal to or greater
than the market price of the common shares on the date the option is granted. Conditions of vesting
are determined at the time of grant. All restrictions on the award will lapse upon death or disability of
the employee. If the employee satisfies retirement requirements, a portion of the award may vest,
depending on the terms and conditions of the particular grant. Options generally vest and become
exercisable in equal annual installments over a period of four years and expire ten years after the date
of grant.
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
21. Share Plans (Continued)
A summary of share option award activity is presented below:
Weighted-Average
Exercise
Price
Shares
Weighted-Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in years)
(in millions)
Outstanding at September 27, 2013 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
15,831,864
1,617,900
(5,118,309)
(127,826)
(255,045)
Outstanding at September 26, 2014 . . . . . . .
11,948,584
Vested and expected to vest at
September 26, 2014 . . . . . . . . . . . . . . . . .
Exercisable at September 26, 2014 . . . . . . .
11,539,646
6,530,629
$32.18
51.78
30.14
49.97
36.91
$35.41
$35.21
$32.00
6.1
6.1
4.5
$280
$272
$175
The weighted-average exercise price of share option awards granted during fiscal 2014, 2013, and
2012 were $51.78, $34.27, and $34.49, respectively.
As of September 26, 2014, there was $38 million of unrecognized compensation cost related to
nonvested share options granted under our share option plans. The cost is expected to be recognized
over a weighted-average period of 1.5 years.
Share-Based Compensation Assumptions
The grant-date fair value of each share option grant was estimated using the Black-Scholes-Merton
option pricing model. Use of a valuation model requires management to make certain assumptions with
respect to selected model inputs. Prior to fiscal 2014, we calculated the grant-date fair value of our
share option awards utilizing the historical share volatility of a composite of our peers and implied
volatility derived from exchange-traded options on that same composite of peers. Effective for fiscal
2014, as a result of now having historical share price information for a period of time equal to our
expected option life assumption, we began to employ our historical share volatility when calculating the
grant-date fair value of our share option grants using the Black-Scholes-Merton option pricing model.
Currently, we do not have exchange-traded options of sufficient duration to employ an implied volatility
assumption in the calculation and therefore rely solely on the historical volatility calculation. The
change in methodology did not have a significant impact on share-based compensation expense during
fiscal 2014. The average expected life was based on the contractual term of the option and expected
employee exercise and post-vesting employment termination behavior. The risk-free interest rate was
based on U.S. Treasury zero-coupon issues with a remaining term that approximated the expected life
assumed at the date of grant. The expected annual dividend per share was based on our expected
dividend rate. The recognized share-based compensation expense was net of estimated forfeitures,
which are based on voluntary termination behavior as well as an analysis of actual option forfeitures.
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
21. Share Plans (Continued)
The weighted-average grant-date fair value of options granted and the weighted-average
assumptions we used in the Black-Scholes-Merton option pricing model were as follows:
Fiscal
2013
2014
2012
Weighted-average grant-date fair value . . . . . . . . . . . . . . . .
$16.81
$8.62
$9.49
Assumptions:
Expected share price volatility . . . . . . . . . . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected annual dividend per share . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Expected life of options (in years)
39% 34% 36%
1.8% 0.9% 1.3%
$ 1.00
6.0
$0.84
6.0
$0.84
6.0
The total intrinsic value of options exercised during fiscal 2014, 2013, and 2012 was $136 million,
$69 million, and $31 million, respectively. The total fair value of restricted share awards that vested
during fiscal 2014, 2013, and 2012 was $52 million, $51 million, and $42 million, respectively. We
received cash related to the exercise of options of $156 million, $214 million, and $60 million in fiscal
2014, 2013, and 2012, respectively. The related excess cash tax benefit classified as a financing cash
inflow on the Consolidated Statements of Cash Flows for fiscal 2014, 2013, and 2012 was not material.
22. Segment and Geographic Data
During fiscal 2014, we realigned certain businesses within our segment reporting structure to better
align our product portfolio. We continue to operate through four reporting segments: Transportation
Solutions, Industrial Solutions, Network Solutions, and Consumer Solutions. See Note 1 for a
description of the segments in which we operate. We aggregate our operating segments into reportable
segments based upon similar economic characteristics and business groupings of products, services, and
customers.
Segment performance is evaluated based on net sales and operating income. Generally, we
consider all expenses to be of an operating nature and, accordingly, allocate them to each reportable
segment. Costs specific to a segment are charged to the segment. Corporate expenses, such as
headquarters administrative costs, are allocated to the segments based on segment operating income.
Intersegment sales were not material and were recorded at selling prices that approximate market
prices. Corporate assets are allocated to the segments based on segment assets.
The following segment information reflects our current segment reporting structure. Prior period
segment results have been restated to conform to the current segment reporting structure.
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
22. Segment and Geographic Data (Continued)
Net sales and operating income by segment were as follows:
2014
Transportation Solutions . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . .
$ 6,090
3,302
2,918
1,602
Net Sales
Fiscal
2013
$ 5,485
3,099
3,066
1,630
Operating Income
2012
2014
(in millions)
$ 5,128
3,101
3,310
1,743
$1,283
446
163
153
Fiscal
2013
$ 972
362
136
86
2012
$ 754
394
247
123
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,912
$13,280
$13,282
$2,045
$1,556
$1,518
No single customer accounted for a significant amount of our net sales in fiscal 2014, 2013, and
2012.
As we are not organized by product or service, it is not practicable to disclose net sales by product
or service.
Depreciation and amortization and capital expenditures were as follows:
Depreciation and Amortization
Capital Expenditures
2014
Fiscal
2013
2012
2014
(in millions)
Transportation Solutions . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . .
$
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
291
103
100
123
617
$
$
296
97
122
92
607
$
$
264
99
143
103
609
$ 378
142
93
60
Fiscal
2013
$ 325
110
86
94
2012
$ 285
73
102
73
$ 673
$ 615
$ 533
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
22. Segment and Geographic Data (Continued)
Segment assets and a reconciliation of segment assets to total assets were as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . .
Network Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Solutions . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment assets(1)
. . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . .
Segment Assets
Fiscal Year End
2014
2013
2012
$ 3,052
1,734
1,666
858
7,310
3,360
9,482
(in millions)
$ 2,974
1,635
1,684
958
7,251
2,224
8,986
$ 2,869
1,596
1,853
1,046
7,364
2,352
9,590
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,152
$18,461
$19,306
(1)
Segment assets are composed of accounts receivable, inventories, and property, plant, and equipment.
Net sales and net property, plant, and equipment by geographic region were as follows:
Net Sales(1)
Fiscal
Property, Plant, and
Equipment, Net
Fiscal Year End
2014
2013
2012
2014
2013
2012
(in millions)
Europe/Middle East/Africa:
Switzerland . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe/Middle East/Africa . . . . . . . .
$ 4,006
126
792
$ 3,689
123
750
$ 3,719
120
663
$
54
330
697
$
54
356
702
$
52
339
692
Total Europe/Middle East/Africa . . . . . . . .
4,924
4,562
4,502
1,081
1,112
1,083
Asia–Pacific:
China . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia–Pacific . . . . . . . . . . . . . . . . . . .
Total Asia–Pacific . . . . . . . . . . . . . . . . . . .
Americas:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Americas . . . . . . . . . . . . . . . . . . . . .
Total Americas . . . . . . . . . . . . . . . . . . . . .
2,436
2,132
4,568
3,867
553
4,420
2,197
2,144
4,341
3,811
566
4,377
2,159
2,333
4,492
3,664
624
4,288
512
478
990
923
132
516
500
432
572
1,016
1,004
958
80
1,042
84
1,126
1,055
1,038
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,912
$13,280
$13,282
$3,126
$3,166
$3,213
(1) Net sales to external customers is attributed to individual countries based on the legal entity that records the sale.
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. Quarterly Financial Data (unaudited)
Summarized quarterly financial data was as follows:
2014
2013
Fiscal
First
Second
Third
Fourth
First
Second
Third
Fourth
Quarter Quarter Quarter Quarter(1) Quarter(2) Quarter Quarter Quarter(3)
(in millions, except per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . $3,326 $3,431 $3,580 $3,575
1,198
Gross margin . . . . . . . . . . . . . . . . .
29
Acquisition and integration costs . . .
Restructuring and other charges, net .
17
Amounts attributable to TE
1,117
—
7
1,173
1
21
1,204
1
14
$3,134 $3,265 $3,449 $3,432
1,156
3
71
1,052
3
81
1,132
3
67
989
5
92
Connectivity Ltd.:
Income from continuing operations
Income (loss) from discontinued
operations, net of income taxes .
Net income . . . . . . . . . . . . . . . . .
Basic earnings per share attributable
355
364
405
665
279
278
332
(2)
353
(2)
362
(2)
403
(2)
663
(2)
277
(1)
277
3
335
387
—
387
to TE Connectivity Ltd.:
Income from continuing operations $ 0.86 $ 0.89 $ 0.99 $ 1.63
Income (loss) from discontinued
$ 0.66 $ 0.66 $ 0.80 $ 0.94
operations, net of income taxes .
Net income . . . . . . . . . . . . . . . . .
—
0.86
—
0.88
—
0.99
—
1.62
—
0.66
— 0.01
0.81
0.66
—
0.94
Diluted earnings per share
attributable to TE
Connectivity Ltd.:
Income from continuing operations $ 0.85 $ 0.87 $ 0.97 $ 1.60
Income (loss) from discontinued
$ 0.65 $ 0.66 $ 0.79 $ 0.92
operations, net of income taxes .
Net income . . . . . . . . . . . . . . . . .
—
0.84
—
0.87
—
0.97
—
1.59
—
0.65
— 0.01
0.80
0.65
—
0.92
Weighted-average number of shares
outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .
411
418
410
417
409
416
409
416
422
426
420
424
415
421
413
420
(1) Results for the fourth quarter of fiscal 2014 include $282 million of income tax benefits recognized in connection with a
reduction in the valuation allowance associated with certain ADC tax loss carryforwards.
(2) Results for the first quarter of fiscal 2013 include $331 million of income tax benefits associated with the effective
settlement of an audit of prior year tax returns as well as the related impact of $231 million to other expense pursuant to
the tax sharing agreement with Tyco International and Covidien. Results for the first quarter of fiscal 2013 also include
$30 million of income tax expense related to adjustments to prior year income tax returns and the estimated impacts of
certain intercompany dividends.
(3) Results for the fourth quarter of fiscal 2013 include $63 million of income tax benefits recognized in connection with a
reduction in the valuation allowance associated with certain ADC tax loss carryforwards.
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. Subsequent Event
On October 9, 2014, we acquired 100% of the outstanding shares of Measurement Specialties, Inc.
(‘‘Measurement Specialties’’), a leading global designer and manufacturer of sensors and sensor-based
systems, for $86 in cash per share. The total value paid, which included the repayment of debt, was
approximately $1.7 billion, net of cash acquired. Measurement Specialties offers a broad portfolio of
technologies including pressure, vibration, force, temperature, humidity, ultrasonics, position, and fluid
sensors, for a wide range of applications and industries. This business will be reported as part of our
Transportation Solutions segment.
We have not yet completed the initial accounting for this business combination, including obtaining
all of the information required for the valuation of contingencies, intangible assets, and goodwill. Also,
because the initial accounting for the transaction is incomplete, we are unable to provide the
supplemental pro forma revenue and earnings of the combined entity. The amounts recognized for the
major classes of assets acquired and liabilities assumed as of the acquisition date and the pro forma
revenue and earnings of the combined entity will be included in our Form 10-Q for the quarter ending
December 26, 2014.
25. 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 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.
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended September 26, 2014
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses,
. . . . . . . . . . . . . . . . . . . . . . . . . . .
net(1)
Research, development, and engineering
expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . .
Restructuring and other charges, net . . . . . .
Operating income (loss) . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . .
Equity in net income of subsidiaries . . . . . . .
Equity in net loss of subsidiaries of
discontinued operations . . . . . . . . . . . . . .
Intercompany interest income (expense), net
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . .
Loss from discontinued operations, net of
$ — $ — $13,912
9,220
—
—
—
131
—
—
—
(131)
—
—
18
1,904
(8)
(2)
1,781
—
1,781
—
4,692
1,877
(126)
—
—
—
(1,877)
—
(126)
(3)
3,847
(8)
63
1,896
—
1,896
675
31
59
4,053
19
(5)
48
—
—
(61)
4,054
(207)
3,847
$ —
—
—
—
—
—
—
—
—
—
—
(5,751)
16
—
(5,735)
—
(5,735)
$13,912
9,220
4,692
1,882
675
31
59
2,045
19
(131)
63
—
—
—
1,996
(207)
1,789
income taxes . . . . . . . . . . . . . . . . . . . . . .
—
—
(8)
—
(8)
Net income attributable to TE
Connectivity Ltd., TEGSA, or Other
Subsidiaries . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . .
Comprehensive income attributable to TE
Connectivity Ltd., TEGSA, or Other
Subsidiaries . . . . . . . . . . . . . . . . . . . . .
1,781
(320)
1,896
(320)
3,839
(328)
(5,735)
648
1,781
(320)
$1,461
$ 1,576
$ 3,511
$(5,087)
$ 1,461
(1) TEGSA selling, general, and administrative expenses include losses of $1,874 million related to intercompany transactions.
These losses are offset by corresponding gains recorded by Other Subsidiaries.
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended September 27, 2013
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
—
$ —
—
(in millions)
$13,280
8,951
$ —
—
$13,280
8,951
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . .
Research, development, and engineering expenses . .
Acquisition and integration costs . . . . . . . . . . . . .
Restructuring and other charges, net . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . . . . . . . . . . .
Intercompany interest income (expense), net . . . . .
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling
—
156
—
—
—
(156)
—
—
—
1,445
(13)
1,276
—
1,276
—
3
—
—
—
(3)
—
(135)
—
1,533
54
1,449
(4)
1,445
4,329
1,614
675
14
311
1,715
17
(7)
(183)
—
(41)
1,501
33
1,534
—
—
—
—
—
—
—
—
—
(2,978)
—
(2,978)
—
(2,978)
4,329
1,773
675
14
311
1,556
17
(142)
(183)
—
—
1,248
29
1,277
interests
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(1)
—
(1)
Net income attributable to TE Connectivity Ltd.,
TEGSA, or Other Subsidiaries . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . .
1,276
74
1,445
74
1,533
64
(2,978)
(138)
1,276
74
Comprehensive income attributable to TE
Connectivity Ltd., TEGSA, or Other
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
$1,350
$1,519
$ 1,597
$(3,116)
$ 1,350
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended September 28, 2012
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
—
$ —
—
(in millions)
$13,282
9,236
$ —
—
$13,282
9,236
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses, net(1) .
Research, development, and engineering expenses . .
Acquisition and integration costs . . . . . . . . . . . . .
Restructuring and other charges, net . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . . . . . . . . . . .
Equity in net loss of subsidiaries of discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany interest income (expense), net . . . . .
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . .
Loss from discontinued operations, net of income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling
—
102
—
1
—
(103)
—
—
—
1,277
(51)
(11)
1,112
—
1,112
—
1,112
—
(122)
—
2
—
120
—
(168)
—
1,256
(51)
69
1,226
—
1,226
—
1,226
4,046
1,705
688
24
128
1,501
23
(8)
50
—
—
(58)
1,508
(249)
1,259
(51)
1,208
—
—
—
—
—
—
—
—
—
(2,533)
102
—
(2,431)
—
(2,431)
—
(2,431)
4,046
1,685
688
27
128
1,518
23
(176)
50
—
—
—
1,415
(249)
1,166
(51)
1,115
interests
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(3)
—
(3)
Net income attributable to TE Connectivity Ltd.,
TEGSA, or Other Subsidiaries . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . .
1,112
(199)
1,226
(199)
1,205
(203)
(2,431)
402
1,112
(199)
Comprehensive income attributable to TE
Connectivity Ltd., TEGSA, or Other
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
$ 913
$1,027
$ 1,002
$(2,029)
$
913
(1) TEGSA selling, general, and administrative expenses include gains of $125 million related to intercompany transactions.
These gains are offset by corresponding losses recorded by Other Subsidiaries.
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet
As of September 26, 2014
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Total current assets
. . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . .
Intercompany loans receivable . . . . . . . . . . . . . .
Receivable from Tyco International Ltd. and
Covidien plc . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$ —
—
—
932
6
—
938
—
—
—
—
8,602
20
—
—
$
1
—
—
230
3
—
234
—
—
—
—
19,966
2,160
—
30
$ 2,456
2,439
1,745
30
558
336
7,564
3,126
4,595
1,329
2,058
—
9,883
1,037
433
$
—
—
—
(1,192)
—
—
(1,192)
—
—
—
—
(28,568)
(12,063)
—
—
$ 2,457
2,439
1,745
—
567
336
7,544
3,126
4,595
1,329
2,058
—
—
1,037
463
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . .
$9,560
$22,390
$30,025
$(41,823)
$20,152
Liabilities and Equity
Current liabilities:
Current maturities of long-term debt
. . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . .
Intercompany payables . . . . . . . . . . . . . . . . . .
$ —
1
282
—
260
Total current liabilities . . . . . . . . . . . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . .
Intercompany loans payable . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Equity . . . . . . . . . . . . . . .
543
—
4
—
—
—
—
547
9,013
$9,560
$
577
—
50
—
—
627
3,281
9,880
—
—
—
—
$
90
1,390
1,385
179
932
3,976
—
2,179
1,287
240
2,045
332
$
—
—
—
—
(1,192)
(1,192)
—
(12,063)
—
—
—
—
$
667
1,391
1,717
179
—
3,954
3,281
—
1,287
240
2,045
332
13,788
8,602
10,059
19,966
(13,255)
11,139
(28,568)
9,013
$22,390
$30,025
$(41,823)
$20,152
116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet
As of September 27, 2013
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Total current assets
. . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . .
Intercompany loans receivable . . . . . . . . . . . . . .
Receivable from Tyco International Ltd. and
Covidien plc . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$ —
—
—
1,823
6
—
1,829
—
—
—
—
7,014
18
—
—
$ —
—
—
222
1
—
223
—
—
—
—
17,040
2,120
—
28
$ 1,403
2,323
1,762
255
480
334
6,557
3,166
4,326
1,244
2,146
—
9,489
1,002
240
$
—
—
—
(2,300)
—
—
(2,300)
—
—
—
—
(24,054)
(11,627)
—
—
$ 1,403
2,323
1,762
—
487
334
6,309
3,166
4,326
1,244
2,146
—
—
1,002
268
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . .
$8,861
$19,411
$28,170
$(37,981)
$18,461
Liabilities and Equity
Current liabilities:
Current maturities of long-term debt
. . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . .
Intercompany payables . . . . . . . . . . . . . . . . . .
$ —
1
213
—
256
Total current liabilities . . . . . . . . . . . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . .
Intercompany loans payable . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Equity . . . . . . . . . . . . . . .
470
—
5
—
—
—
—
475
8,386
$8,861
$
650
—
49
—
—
699
2,213
9,485
—
—
—
—
$
61
1,382
1,500
68
2,044
5,055
90
2,137
1,155
321
1,979
393
$
—
—
—
—
(2,300)
(2,300)
—
(11,627)
—
—
—
—
$
711
1,383
1,762
68
—
3,924
2,303
—
1,155
321
1,979
393
12,397
7,014
11,130
17,040
(13,927)
10,075
(24,054)
8,386
$19,411
$28,170
$(37,981)
$18,461
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended September 26, 2014
Cash Flows From Operating Activities:
Net cash provided by (used in) continuing
operating activities(1)
. . . . . . . . . . . . . . . . . .
Net cash used in discontinued operating activities
Net cash provided by (used in) operating
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$(296)
—
$ 1,829
—
$ 2,444
(12)
$(1,882)
—
$ 2,095
(12)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(296)
1,829
2,432
(1,882)
2,083
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . .
Intercompany distribution receipts(1) . . . . . . . . . . .
Change in intercompany loans . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities:
Changes in parent company equity(2) . . . . . . . . . . .
Net decrease in commercial paper . . . . . . . . . . . .
Proceeds from issuance of long-term debt . . . . . . .
. . . . . . . . . . . . . . .
Repayment of long-term debt
Proceeds from exercise of share options . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . .
Payment of common share dividends to
shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany distributions(1)
. . . . . . . . . . . . . . . .
Loan activity with parent
. . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) continuing
financing activities . . . . . . . . . . . . . . . . . . . .
Net cash provided by discontinued financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of currency translation on cash . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . .
Cash and cash equivalents at beginning of fiscal
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
67
—
—
—
—
(127)
(452)
—
808
—
296
—
296
—
—
—
Cash and cash equivalents at end of fiscal year . . .
$ —
$
—
—
—
99
347
—
446
(3,259)
(23)
1,322
(303)
—
—
—
—
—
(11)
(673)
129
(528)
—
—
(3)
(1,075)
3,192
—
—
(57)
156
(451)
9
(1,981)
(1,155)
(10)
(2,274)
(297)
—
12
(2,274)
—
1
—
1
(285)
(19)
1,053
1,403
$ 2,456
—
—
—
(99)
(347)
—
(446)
—
—
—
—
—
—
—
1,981
347
—
2,328
—
2,328
—
—
—
(673)
129
(528)
—
—
(3)
(1,075)
—
(23)
1,322
(360)
156
(578)
(443)
—
—
(21)
53
12
65
(19)
1,054
1,403
$ —
$ 2,457
(1) During fiscal 2014, other subsidiaries made distributions to TEGSA in the amount of $1,981 million. Cash flows are
presented based upon the nature of the distributions.
(2) Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and
other intercompany activity.
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended September 27, 2013
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$ 3,621
—
3,621
$ 1,972
—
1,972
$ 2,331
(2)
2,329
$(5,876)
—
(5,876)
$ 2,048
(2)
2,046
Cash Flows From Operating Activities:
Net cash provided by continuing operating
activities(1)
. . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . .
Proceeds from divestiture of discontinued
operations, net of cash retained by sold
operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany distribution receipts(1) . . . . . . . . . . .
Change in intercompany loans . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities:
Changes in parent company equity(2) . . . . . . . . . . .
. . . . . . . . . . . .
Net increase in commercial paper
Repayment of long-term debt
. . . . . . . . . . . . . . .
Proceeds from exercise of share options . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . .
Payment of common share dividends and cash
distributions to shareholders . . . . . . . . . . . . . . .
Intercompany distributions(1)
. . . . . . . . . . . . . . . .
Loan activity with parent
. . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in continuing financing activities . .
Net cash provided by discontinued financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1
—
—
—
—
(3)
(2)
(826)
—
—
—
(602)
(391)
—
(1,800)
—
(3,619)
—
—
—
—
1,100
1,566
—
2,666
(174)
50
(714)
—
—
—
(3,800)
—
—
(4,638)
(615)
38
(6)
14
—
—
26
(543)
1,000
—
(1)
214
(242)
7
(3,176)
234
(1)
(1,965)
—
—
2
—
—
—
—
(1,100)
(1,566)
—
(2,666)
—
—
—
—
—
—
6,976
1,566
—
8,542
—
8,542
—
—
—
(615)
39
(6)
14
—
—
23
(545)
—
50
(715)
214
(844)
(384)
—
—
(1)
(1,680)
2
(1,678)
(9)
(186)
1,589
Net cash used in financing activities
. . . . . . . . .
(3,619)
(4,638)
(1,963)
Effect of currency translation on cash . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . .
Cash and cash equivalents at beginning of fiscal
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
(9)
(186)
1,589
Cash and cash equivalents at end of fiscal year . . .
$ —
$ —
$ 1,403
$ —
$ 1,403
(1) During fiscal 2013, other subsidiaries made distributions to TEGSA in the amount of $3,176 million and TEGSA made
distributions to TE Connectivity Ltd. of $3,800 million. Cash flows are presented based upon the nature of the distributions.
(2) Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and
other intercompany activity.
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
25. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended September 28, 2012
Cash Flows From Operating Activities:
Net cash provided by (used in) continuing
operating activities . . . . . . . . . . . . . . . . . . . .
$ (97)
$
171
$ 2,098
$ (284)
$ 1,888
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
Net cash provided by discontinued operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net of cash acquired . . . .
Proceeds from divestiture of discontinued
operations, net of cash retained by sold
operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in intercompany loans . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) continuing
investing activities . . . . . . . . . . . . . . . . . . . .
Net cash used in discontinued investing activities .
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities:
Changes in parent company equity(1) . . . . . . . . . . .
Net increase in commercial paper
. . . . . . . . . . . .
Proceeds from long-term debt . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Repayment of long-term debt
Proceeds from exercise of share options . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . .
Payment of common share dividends and cash
distributions to shareholders . . . . . . . . . . . . . . .
Intercompany distributions . . . . . . . . . . . . . . . . .
Loan activity with parent
. . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) continuing
financing activities . . . . . . . . . . . . . . . . . . . .
Net cash used in discontinued financing activities
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of currency translation on cash . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . .
Cash and cash equivalents at beginning of fiscal
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(97)
—
7
—
—
(22)
—
(15)
—
(15)
639
—
—
—
—
(185)
(342)
—
—
—
112
—
112
—
—
—
—
171
—
—
—
—
2,160
—
2,160
—
2,160
(3,371)
300
748
—
—
—
—
—
—
(8)
(2,331)
—
(2,331)
—
—
—
59
—
59
2,157
(284)
1,947
(533)
16
(1,384)
394
—
(9)
(1,516)
(1)
(1,517)
2,732
—
—
(642)
60
—
10
(284)
(2,138)
52
(210)
(58)
(268)
(1)
371
1,218
—
—
—
—
(2,138)
—
(2,138)
—
(2,138)
—
—
—
—
—
—
—
284
2,138
—
2,422
—
2,422
—
—
—
(533)
23
(1,384)
394
—
(9)
(1,509)
(1)
(1,510)
—
300
748
(642)
60
(185)
(332)
—
—
44
(7)
(58)
(65)
(1)
371
1,218
$ 1,589
Cash and cash equivalents at end of fiscal year . . .
$ —
$ —
$ 1,589
$ —
(1) Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and
other intercompany activity.
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
26. Disclosures Required by Swiss Law
We are subject to statutory reporting requirements in Switzerland. The following disclosures are
presented in accordance with, and are based on definitions contained in, the Swiss Code of Obligations.
Personnel Expenses
Total personnel expenses were $3,849 million and $3,967 million in fiscal 2014 and 2013,
respectively.
Fire Insurance Value
The fire insurance values of property, plant, and equipment were $11,438 million and
$11,641 million at fiscal year end 2014 and 2013, respectively.
Risk Assessment
Our board of directors is responsible for appraising our major risks and overseeing that
appropriate risk management and control procedures are in place. The audit committee of the board of
directors meets to review and discuss, as determined to be appropriate, our major financial and
accounting risk exposures and related policies and practices with management, the internal auditor, and
the independent registered public accountants to assess and control such exposures, and assist the
board in fulfilling its oversight responsibilities regarding our policies and guidelines with respect to risk
assessment and risk management.
Our risk assessment process was in place during fiscal 2014 and 2013 and followed by the board of
directors.
121
TE CONNECTIVITY LTD.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended September 26, 2014, September 27, 2013, and September 28, 2012
Description
Fiscal 2014
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . .
Fiscal 2013
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . .
Fiscal 2012
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . .
Balance at
Beginning of Year
Additions
Charged to
Costs and
Expenses
Acquisitions,
Divestitures,
and Other
(in millions)
Deductions
Balance at
End of Year
$
48
1,816
$
41
1,719
$
38
1,921
$
6
285
$ 11
323
$
7
54
$—
—
$—
—
$ 2
31
$ (19)
$
35
(380)
1,721
$
(4)
$
48
(226)
1,816
$
(6)
$
41
(287)
1,719
122
REPORT OF THE STATUTORY AUDITOR ON THE CONSOLIDATED FINANCIAL STATEMENTS OF
TE CONNECTIVITY LTD.
To the General meeting of
TE CONNECTIVITY LTD., SCHAFFHAUSEN
Report of the Statutory Auditor on the consolidated financial statements
As Statutory Auditor, we have audited the accompanying consolidated financial statements of TE
Connectivity Ltd. (the ‘‘Company’’), which comprise the consolidated balance sheet as of September 26,
2014, and the consolidated statement of operations, statement of comprehensive income, statement of
shareholders’ equity, statement of cash flows and notes (pages 53-121) for the year then ended.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with accounting principles generally accepted in the United States of
America and the requirements of Swiss law. This responsibility includes designing, implementing and
maintaining an internal control system relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error. The
Board of Directors is further responsible for selecting and applying appropriate accounting policies and
making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with Swiss law, Swiss Auditing Standards and auditing
standards generally accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers the
internal control system relevant to the entity’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system.
An audit also includes evaluating the appropriateness of the accounting policies used and the
reasonableness of accounting estimates made, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements for the year ended September 26, 2014
present fairly, in all material respects, the financial position of the Company and the result of its
operations and its cash flows in accordance with accounting principles generally accepted in the United
States of America, and comply with Swiss law.
Report on Other Legal Requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight
Act (‘‘AOA’’) and independence (Article 728 CO and Article 11, AOA) and that there are no
circumstances incompatible with our independence.
123
In accordance with Article 728a, paragraph 1, item 3, CO, and Swiss Auditing Standard 890, we
confirm that an internal control system exists, which has been designed for the preparation of the
consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
Deloitte AG
/s/ Martin Welser
Licensed Audit Expert
Auditor in charge
Zurich, November 12, 2014
/s/ Matthias Gschwend
Licensed Audit Expert
124
TE CONNECTIVITY LTD.
INDEX TO SWISS STATUTORY FINANCIAL STATEMENTS
Statements of Operations for the fiscal years ended September 26, 2014 and September 27, 2013 .
Balance Sheets as of September 26, 2014 and September 27, 2013 . . . . . . . . . . . . . . . . . . . . . . .
Notes to Swiss Statutory Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposed Appropriation of Available Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of the Statutory Auditor on the Swiss Statutory Financial Statements of TE Connectivity
Page
126
127
128
142
Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143
125
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
For the fiscal years ended September 26, 2014 and September 27, 2013
Income
Income from distributions made by a subsidiary
(Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance premiums charged to subsidiaries . . . . . . .
Remeasurement gain on foreign currency transactions .
Intercompany interest income . . . . . . . . . . . . . . . . .
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses
Salary and social costs . . . . . . . . . . . . . . . . . . . . . . .
General and administrative costs . . . . . . . . . . . . . . .
Legal and consulting costs . . . . . . . . . . . . . . . . . . . .
Insurance premiums . . . . . . . . . . . . . . . . . . . . . . . .
Pre-separation tax settlement expense, net (Note 4) .
Expenses for services provided by subsidiaries . . . . . .
Remeasurement loss on foreign currency transactions . .
Intercompany interest expense . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 26, 2014
September 27, 2013
U.S. dollars
Swiss francs
U.S. dollars
Swiss francs
(in millions)
$ —
13
12
2
27
CHF — $3,800
14
—
—
12
11
1
CHF 3,518
13
—
—
24
3,814
3,531
6
4
8
17
186
44
—
4
269
5
4
7
15
167
40
—
4
242
10
4
8
17
(32)
38
21
13
79
9
4
7
16
(30)
36
19
13
74
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .
$(242)
CHF (218)
$3,735
CHF 3,457
See Notes to Swiss Statutory Financial Statements.
126
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
BALANCE SHEETS
As of September 26, 2014 and September 27, 2013
September 26, 2014
September 27, 2013
U.S. dollars
Swiss francs
U.S. dollars
Swiss francs
(in millions, except share data)
Assets
Current assets:
Accounts receivable from subsidiaries (Note 4) .
Prepaid expenses and other current assets . . . .
Shares held in treasury (Note 5) . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries (Note 3) . . . . . . . . . . .
$
942
7
164
1,113
9,621
CHF
895
7
150
1,052
10,416
$ 1,834
8
398
2,240
9,541
CHF 1,671
7
373
2,051
10,344
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . .
$10,734
CHF 11,468
$11,781
CHF 12,395
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable to subsidiaries (Note 4) . . . . .
Loans from subsidiaries (Note 4) . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . .
Approved but unpaid distributions to
shareholders (Note 5) . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . .
Unrealized translation gains (Note 3) . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .
Commitments, contingencies, and guarantees
(Note 4)
Shareholders’ equity (Note 5):
Share capital, 419,070,781 and 428,527,307
shares authorized and issued, CHF 0.57 par
value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal reserves:
General reserve . . . . . . . . . . . . . . . . . . . . . .
Reserve for treasury shares . . . . . . . . . . . . . .
Free reserves:
46
230
50
242
568
—
568
184
38
644
CHF
43
218
47
217
525
553
1,078
239
49
581
$
47
222
12
210
491
—
491
189
—
723
Reserves from capital contributions . . . . . . . .
Unappropriated accumulated earnings . . . . . . .
7,985
1,315
8,862
659
8,520
1,858
Total Shareholders’ Equity . . . . . . . . . . . . . .
10,166
10,390
11,290
CHF
43
202
11
201
457
574
1,031
244
—
684
9,342
1,094
11,364
Total Liabilities and Shareholders’ Equity . . .
$10,734
CHF 11,468
$11,781
CHF 12,395
See Notes to Swiss Statutory Financial Statements.
127
TE CONNECTIVITY LTD.
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS
1. Basis of Presentation
TE Connectivity Ltd. (‘‘TE Connectivity’’ or the ‘‘Company,’’ which may be referred to as ‘‘we,’’
‘‘us,’’ or ‘‘our’’) is the ultimate holding company of TE Connectivity Ltd. and its subsidiaries (the ‘‘TE
Group’’) with a listing on the New York Stock Exchange.
The accompanying statements of operations reflect the results of operations for the fiscal years
ended September 26, 2014 and September 27, 2013, and have been prepared in accordance with the
requirements of Swiss law for companies, the Swiss Code of Obligations. The financial statements
present the results of the holding company on a stand-alone basis and do not represent the
consolidated operations of the TE Group.
On January 1, 2013, changes in Swiss company law became effective and the requirements of the
law must be adopted by January 1, 2015. We intend to adopt the requirements effective with the start
of fiscal 2015. See Note 11 for additional information on the expected impact of adopting new Swiss
company law.
Notes 6 through 9 are consistent with, and prepared on the substantially same basis as, similar
information publicly available via regulatory filings with the U.S. Securities and Exchange Commission
(the ‘‘SEC’’) and, consequently, are presented in U.S. dollars only.
Fiscal Year
Unless otherwise indicated, references in the financial statements to fiscal 2014, and fiscal 2013 are
to our fiscal years ended September 26, 2014 and September 27, 2013. Our fiscal year is a
‘‘52-53 week’’ year ending on the last Friday of September. Fiscal 2014 and 2013 are 52 week years.
2. Risk Assessment
Our board of directors is responsible for appraising the TE Group’s major risks and overseeing
that appropriate risk management and control procedures are in place. The audit committee of the
board meets to review and discuss, as determined to be appropriate, the TE Group’s major financial
and accounting risk exposures and related policies and practices with management, the internal auditor,
and the independent registered public accountants to assess and control such exposures, and assist the
board in fulfilling its oversight responsibilities regarding the TE Group’s policies and guidelines with
respect to risk assessment and risk management.
The TE Group’s risk assessment process was in place for the reporting periods presented and
followed by the board of directors. TE Connectivity Ltd., as the ultimate holding company of the TE
Group, is fully integrated into the TE Group-wide risk assessment process.
3. Summary of Significant Accounting Policies
Shares Held in Treasury and Reserve for Treasury Shares
Shares held in treasury that are held directly by us for the purpose of retirement are presented at
historical cost, and, because we expect to retire the shares within the next year, as current assets.
Our reserve for treasury shares represents all shares held in treasury, whether held by us or a
subsidiary, and is recorded at historical cost. We established the reserve for treasury shares during fiscal
2014 and 2013 by primarily charging accumulated earnings (deficit).
128
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Summary of Significant Accounting Policies (Continued)
Investment in Subsidiaries
Investments in subsidiaries are equity interests held on a long-term basis for the purpose of our
business activities. Investments in subsidiaries, on an aggregate basis, are carried at a value no higher
than cost less adjustments for impairment. No impairments were recorded during fiscal 2014 or
fiscal 2013.
During fiscal 2013, a subsidiary distributed $3,800 million (equivalent to CHF 3,518 million) to us.
The distributions are included in income from distributions made by a subsidiary in our statements of
operations.
Currency Translation
Our functional currency is the U.S. dollar. We present our financial statements in both U.S. dollars
and Swiss francs (‘‘CHF’’). Assets and liabilities in U.S. dollars are converted to Swiss francs for
presentation purposes using historical foreign exchange rates (investment in subsidiaries, shares held in
treasury, approved but unpaid distributions to shareholders payable, and equity accounts) and current
foreign exchange rates (all other assets and liabilities). Revenue and expenses, excluding income from
distributions made by a subsidiary, are translated using the average exchange rates in effect for the
period presented. Income from distributions made by a subsidiary is translated using the exchange rate
in effect on the date that each distribution was made to us. Net unrealized foreign currency translation
gains are deferred in the balance sheets, while unrealized translation losses and realized transactional
gains and losses are reflected in the statements of operations. We consider all foreign currency
transactional gains and losses associated with current assets and liabilities, excluding shares held in
treasury, to be realized.
Salaries and Social Charges
Salaries and social charges include cash and equity compensation paid to our directors. During
fiscal 2013, we determined that an accrual to reflect deferred stock units granted but not yet distributed
to our directors was necessary and accrued CHF 6 million via a charge to salaries and social charges.
Prior to fiscal 2013, we recorded such charges when a director left our board.
4. Commitments, Contingencies, and Guarantees
Affiliated Debt and Loans Receivable
We have three open lines of credit, the 2012 Line, the 2011 Line, and the Schaffhausen Line, with
wholly-owned subsidiaries. All lines bear interest at the 1-month London interbank offered rate
(‘‘LIBOR’’) plus 0.40% (0.55% and 0.58% at September 26, 2014 and September 27, 2013,
respectively). The 2012 Line has a $500 million limit (CHF 475 million) on the principal drawable and
matures in September 2017. The 2011 Line has a $200 million limit (CHF 190 million) on the principal
drawable and matures in September 2016. The Schaffhausen Line does not have a limit on the amount
drawable and matures in April 2017. At September 26, 2014 and September 27, 2013, there were no
outstanding borrowings under any of the open lines of credit.
We utilize a cash pooling relationship with a wholly-owned subsidiary (the ‘‘Cash Pool’’) to help
fund our operations. The Cash Pool does not have an expiration date and accrues interest based on
LIBOR. At September 26, 2014, our Cash Pool position was an asset of CHF 868 million included in
129
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Commitments, Contingencies, and Guarantees (Continued)
accounts receivable from subsidiaries. At September 27, 2013, our Cash Pool positions were an asset of
CHF 1,645 million included in accounts receivable from subsidiaries and a liability of CHF 9 million
included in accounts payable to subsidiaries.
In order to minimize currency exposure related to distributions to shareholders approved in Swiss
francs and paid in U.S. dollars, we enter into arrangements with a wholly-owned subsidiary in which we
borrow Swiss francs from, and simultaneously loan U.S. dollars to, the subsidiary. As distributions to
shareholders are paid, both the borrowing and the loan receivable are partially settled. As of
September 26, 2014 and September 27, 2013, the borrowing totaled CHF 218 million and
CHF 202 million, respectively. At both periods, the loan receivable was included in the Cash Pool asset.
We have fully and unconditionally guaranteed the debt of a subsidiary, Tyco Electronics
Group S.A., totaling approximately CHF 3,668 million and CHF 2,608 million at September 26, 2014
and September 27, 2013, respectively. As of September 26, 2014, we have not been required to perform
on our guarantee.
Tax Sharing Agreement
We are a party to the Tax Sharing Agreement (‘‘TSA’’) with Tyco International Ltd. (‘‘Tyco
International’’) and Covidien plc (‘‘Covidien’’), under which we share responsibility for certain of our,
Tyco International’s, and Covidien’s income tax liabilities based on a sharing formula for periods prior
to and including June 29, 2007. We, Tyco International, and Covidien share 31%, 27%, and 42%,
respectively, of U.S. income tax liabilities that arise from adjustments made by tax authorities to our,
Tyco International’s, and Covidien’s U.S. income tax returns. The effect of the TSA is to indemnify us
for 69% of certain liabilities settled in cash by us with respect to unresolved pre-separation tax matters.
Pursuant to that indemnification, we have made similar indemnifications to Tyco International and
Covidien with respect to 31% of certain liabilities settled in cash by the companies relating to
unresolved pre-separation tax matters. All costs and expenses associated with the management of these
shared tax liabilities are shared equally among the parties. We are responsible for all of our own taxes
that are not shared pursuant to the TSA’s sharing formula. In addition, Tyco International and Covidien
are responsible for their tax liabilities that are not subject to the TSA’s sharing formula.
During fiscal 2014 and 2013, we recorded net expense of CHF 167 million and net income of
CHF 30 million, respectively, related to the TSA and tax settlements involving Tyco International,
Covidien, and us. These amounts are presented in pre-separation tax settlement expense, net in our
statements of operations.
Performance Guarantees
From time to time, we provide performance guarantees and surety bonds in favor of our
subsidiaries. At September 26, 2014 and September 27, 2013, these performance guarantees totaled
CHF 497 million and CHF 469 million, respectively. In addition to these amounts, all of which are
quantifiable, we have issued a parent company guarantee in behalf of a U.S.-based aerospace customer
that does not have a limit. We do not anticipate having to perform under these guarantees.
We are the leader of a Swiss value-added tax (‘‘VAT’’) group (‘‘VAT Group’’). All companies in
the VAT Group maintain primary responsibility for their own VAT liabilities. However, in the event of
non-compliance by any company in the VAT Group, all companies within the VAT Group assume joint
and several responsibility for any VAT liabilities. As VAT Group leader, we have not had to assume
responsibility for any events of noncompliance by the other companies in the group.
130
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Equity
Changes in Equity Accounts
The following table presents activity related to our equity accounts during fiscal 2014 and 2013 in U.S. dollars.
Legal Reserves
Free Reserves
Approved but
Unpaid
Reserve
for
Reserves from Accumulated
Unappropriated
Share Distributions to General Treasury
Shareholders Reserve
Capital
Shares Contributions
Capital
September 28, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 378
—
(185)
(4)
—
—
Approved dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital reductions distributed . . . . . . . . . . . . . . . . . . . . . . .
Retirement of treasury shares . . . . . . . . . . . . . . . . . . . . . . .
Transfer of reserve for treasury shares . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(182)
—
182
—
—
—
September 27, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appropriation of general reserve . . . . . . . . . . . . . . . . . . . . .
Approved dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement of treasury shares . . . . . . . . . . . . . . . . . . . . . . .
Transfer of reserve for treasury shares . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
189
—
—
(5)
—
—
—
—
—
—
—
—
(USD millions)
$— $ 502
—
—
—
—
(367)
—
588
—
—
—
—
38
—
—
—
—
723
—
—
(398)
319
—
$8,940
(420)
—
—
—
—
8,520
—
(484)
—
(51)
—
Earnings
(Deficit)
$(1,293)
—
—
4
(588)
3,735
1,858
(38)
—
5
(268)
(242)
Total
Shareholders’
Equity
$ 8,345
(420)
(3)
(367)
—
3,735
11,290
—
(484)
(398)
—
(242)
September 26, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 184
$ —
$38
$ 644
$7,985
$ 1,315
$10,166
1
3
1
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Equity (Continued)
Authorized Share Capital
In March 2013, our shareholders reapproved and extended through March 6, 2015 our board of
directors’ authorization to issue additional new shares, subject to certain conditions specified in the
articles, in aggregate not exceeding 50% of the amount of our authorized shares. This authorization can
be renewed for additional two-year periods upon shareholder approval. As of September 26, 2014, no
authorized shares had been issued.
Conditional Share Capital
Subject to certain conditions specified in our articles of association, we are authorized to increase
our share capital by issuing new shares in aggregate not exceeding 50% of our authorized shares. As of
September 26, 2014, no conditional shares had been issued.
Common Shares Held in Treasury
During the fiscal years ended September 26, 2014 and September 27, 2013, activity related to
common shares held in treasury by us was as follows:
Common shares held as of September 28, 2012 . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder-approved retirements . . . . . . . . . . . . . . . . .
Common shares held as of September 27, 2013 . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder-approved retirements . . . . . . . . . . . . . . . . .
Common shares held as of September 26, 2014 . . . . . . . . .
Number of
Shares
(in millions)
Total Cost
(in millions
CHF)
6
13
(10)
9
3
(10)
2
CHF 186
539
(352)
373
150
(373)
CHF 150
In March 2014, our shareholders approved the cancellation of approximately 10 million shares
purchased under our share repurchase program during the period from December 29, 2012 to
December 27, 2013. The capital reduction by cancellation of shares was subject to a notice period and
filing with the commercial register and became effective in May 2014.
In March 2013, our shareholders approved the cancellation of approximately 10 million shares
purchased under our share repurchase program during the period from December 31, 2011 to
December 28, 2012. The capital reduction by cancellation of shares was subject to a notice period and
filing with the commercial register and became effective in May 2013.
We acquire treasury shares with the intent to retire using a virtual secondary trading line
(‘‘Secondary Line’’). Pursuant to this Secondary Line, we acquired 3 million shares at a historical cost
of CHF 150 million in fiscal 2014 and 13 million shares at a historical cost of CHF 539 million in fiscal
2013.
Treasury shares held by us and a subsidiary at September 26, 2014 totaled 2 million and 9 million,
respectively, with a combined historical cost of CHF 581 million. Treasury shares held by us and a
132
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Equity (Continued)
subsidiary at September 27, 2013 totaled 9 million and 8 million, respectively, with a combined
historical cost of CHF 684 million. Because we had freely distributable equity reserves when we
repurchased treasury shares during fiscal 2014 and 2013, significantly all of the reserve for treasury
shares was created out of accumulated earnings.
During fiscal 2014, our board of directors authorized an increase of $1 billion in the share
repurchase program. We and our subsidiary repurchased approximately 11 million of our common
shares for $604 million (equivalent to CHF 544 million) and approximately 20 million of our common
shares for $829 million (equivalent to CHF 775 million) during fiscal 2014 and 2013, respectively. At
September 26, 2014, we had $874 million of availability remaining under our share repurchase
authorization. Purchases made both pursuant to the Secondary Line and by a subsidiary are subject to
this authorization.
Reserves from Capital Contributions
Reserves from capital contributions, subject to certain conditions, are freely distributable reserves.
As of September 26, 2014 and September 27, 2013, reserves from capital contributions were
CHF 8,862 million (equivalent to $7,985 million) and CHF 9,342 million (equivalent to $8,520 million),
respectively.
General Reserve
To comply with the Swiss Code of Obligations, 5% of annual net income must be appropriated to
our general reserve until the general reserve, a non-distributable reserve, equals 20% of share capital.
In March 2014, our shareholders approved an appropriation for the general reserve in an amount of
CHF 49 million. This appropriation satisfies the requirements of the Swiss Code of Obligations with
respect to the general reserve.
Distributions to Shareholders
Under current Swiss law, subject to certain conditions, distributions to shareholders made in the
form of a reduction of registered share capital or from reserves from capital contributions are exempt
from Swiss withholding tax.
As of September 28, 2012, capital reductions previously approved by our shareholders and filed
with the commercial register had reduced the par value of our common shares from CHF 2.60
(equivalent to $2.40), our par value at our change of domicile in June 2009, to CHF 0.97 (equivalent to
$0.86).
During the quarters ended December 28, 2012, and March 29, 2013, we paid the third and fourth
installments of the capital reduction originally approved in March 2012 at a rate of $0.21 per
installment. These payments further reduced our par value to CHF 0.57 (equivalent to $0.44).
In March 2013, our shareholders approved a dividend payment to shareholders of CHF 0.96
(equivalent to $1.00) per share out of reserves from capital contributions, payable in four equal
quarterly installments beginning in the third quarter of fiscal 2013 through the second quarter of fiscal
2014. We paid the installments of the capital reduction at a rate of $0.25 per share during each of the
quarters ended June 28, 2013, September 27, 2013, December 27, 2013, and March 28, 2014.
133
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Equity (Continued)
In March 2014, our shareholders approved a dividend payment to shareholders of CHF 1.04
(equivalent to $1.16) per share out of reserves from capital contributions, payable in four equal
quarterly installments beginning in the third quarter of fiscal 2014 through the second quarter of fiscal
2015. We paid the installments of the dividend at a rate of $0.29 per share during each of the quarters
ended June 27, 2014 and September 26, 2014. We have reflected a liability related to the unpaid
distributions in approved but unpaid distributions to shareholders on our balance sheets.
6. Executive Compensation
The following table summarizes the compensation of our chief executive officer and the chief
financial officer and the three other most highly compensated executive officers as a group for fiscal
2014 and 2013 (the ‘‘named executive officers’’).
Name and Principal Position
Year
Salary(2)
($)
Bonus(3)
($)
Stock
Awards(4)
($)
Non-Equity
Incentive
Plan
Option
Awards(5) Compensation(6)
($)
($)
Change in
Pension
Value and
Nonqualified
Deferred
Compen-
sation
Earnings(7)
($)
All Other
Compen-
sation(8)
($)
Total
($)
Thomas Lynch,
.
Chief Executive Officer
.
.
.
.
.
.
.
.
.
. 2014 $1,172,308
2013 $1,074,615
— $3,685,986 $3,828,213
— $3,602,490 $3,358,155
Chief Financial Officer .
.
and three other most highly
compensated executive officers(1)
.
.
.
.
. 2014 $2,503,653
— $4,054,998 $4,210,950
2013 $2,392,906 $850,000 $4,065,912 $3,789,656
$2,512,800
$2,098,800
$2,800,980
$2,987,680
— $ 417,675 $11,616,982
— $ 338,968 $10,473,028
$100,610
$2,047,239 $15,718,430
— $2,977,120 $17,063,274
(1)
(2)
For fiscal 2014 and 2013, one executive was paid in part outside the U.S. in another currency, while all other executives were paid in U.S.
dollars. Due to the timing of payments the following range of exchange rates, primarily as determined by TE Connectivity finance, was used
to convert to U.S. dollars: $0.162—$0.163:CNY 1 in fiscal 2014 and $0.159—$0.163:CNY 1 in fiscal 2013.
Amounts shown are not reduced to reflect the named executive officers’ elections, if any, to defer receipt of salary into the Tyco Electronics
Corporation Supplemental Savings and Retirement Plan (‘‘SSRP’’).
(3) Our chief financial officer received a cash sign-on bonus to compensate for bonus and equity forfeited when he left his previous employer.
Half of the sign-on bonus was paid in the first quarter of fiscal 2013
This amount represents the grant date fair value of restricted stock units (‘‘RSUs’’) and performance stock units (‘‘PSUs’’) calculated using
the provisions of Accounting Standards Codification (‘‘ASC’’) 718, Compensation—Stock Compensation. The PSUs included in the grant date
fair value assume target performance. All dividend equivalent units earned on unvested RSUs and PSUs are reported in the All Other
Compensation table, shown below.
This amount represents the grant date fair value of stock options calculated using the provisions of ASC 718.
Represents amounts earned under the TE Connectivity Ltd. Annual Incentive Plan. Amounts shown are not reduced to reflect the named
executive officers’ elections, if any, to defer receipt of awards into the SSRP.
Represents the aggregate change in actuarial present value of the accumulated benefits for one executive in both fiscal 2014 and 2013. For
fiscal 2013, the change in pension value is a decrease from fiscal 2012. Rather than report a negative value, a change of $0 is reported.
See the All Other Compensation table below for a detailed breakdown of the amounts shown, which include perquisites and company match
on employee contributions to the TE Connectivity Ltd. Employee Stock Purchase Plan (the ‘‘ESPP’’), our qualified and nonqualified defined
contribution plans, dividend equivalent units, and other amounts. The amounts reflected in the table for perquisites are our incremental cost.
We also provide group life, health, hospitalization, and medical reimbursement plans which do not discriminate in scope, terms, or operation
in favor of officers and are available to all full-time employees; the value of these benefits is not shown in the table.
(4)
(5)
(6)
(7)
(7)
134
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
6. Executive Compensation (Continued)
All Other Compensation
Name and Principal Position
Thomas Lynch, . . . . . . . . . . . .
Chief Executive Officer
Chief Financial Officer . . . . . .
and three other most highly
compensated executive
officers
Year
2014
2013
2014
2013
Perquisites(a)
($)
$
$
17,353
37,289
$1,393,713
$2,493,548
Insurance
Premiums(b)
($)
—
—
$568
$532
Dollar
Value of
Dividends
not
factored
into Grant
Date Fair
Value(c)
($)
$236,767
$194,919
$290,439
$230,865
Company
Contributions
to DC
Plans(d)
($)
$163,555
$106,760
$362,519
$252,175
All Other
Compen-
sation
($)
$ 417,675
$ 338,968
$2,047,239
$2,977,120
(a) Amounts reflect a cash perquisite allowance paid for the first quarter of fiscal 2013 under the executive flexible perquisites
allowance program which provides a cash allowance of 10% of base salary for executives whose employment is based in the
United States. As of January 1, 2013, the chief executive officer and his direct reports, including the named executive
officers, were no longer eligible for the flexible perquisites allowance program. Amounts for fiscal 2014 and 2013 also
include, for our chief executive officer, amounts for non-business use of our aircraft. We own an aircraft that we use for
business purposes. Mr. Lynch uses the aircraft for business purposes, but occasionally he will make a non-business related
stop while on a business trip, provide travel to a family member while on a business trip, or travel on the aircraft to attend
meetings of the Thermo Fisher Scientific Inc. board of directors, of which he is a member. The amounts listed above
include the direct variable costs associated with travel to attend Thermo Fisher Scientific Inc. board meetings during fiscal
2014 and fiscal 2013. Amounts for fiscal 2014 and 2013 include various miscellaneous repatriation expenses, personal tax
preparation assistance, German tax payments, and U.S. tax gross-up payments pertaining to a 2011 expatriate assignment in
Germany for one executive, and cash allowances (goods, services and utilities), housing and management fees, repatriation
expenses, miscellaneous fees and expenses, China tax payments, U.S. tax gross-up payments, personal tax preparation
assistance, and car and driver expenses for another executive on expatriate assignment in China during fiscal 2013 and a
portion of fiscal 2014. Housing, utilities, car and driver expenses, and local tax payments were reported in local currency.
Due to the timing of payments the following range of exchange rates, primarily as determined by TE Connectivity finance,
were used to convert to U.S. dollars: $1.33—$1.38:EUR 1 and $0.162—$0.163: CNY 1 in fiscal 2014 and $1.28—$1.34:EUR
1 and $0.159—$0.163:CNY 1 in fiscal 2013. For our chief financial officer, amounts include a relocation benefit value in
fiscal 2014 and fiscal 2013. For our chief financial officer, fiscal 2013 amounts include relocation allowances and tax
gross-up payments for calendar year 2012 on relocation allowances paid in fiscal year 2012. Fiscal 2014 amounts include tax
gross-up payments for calendar year 2013 on relocation allowances paid in fiscal year 2013. Tax gross-up payments to our
chief financial officer made him whole for the additional taxes assessed on the value of the relocation benefits provided to
him in accordance with our relocation benefit policy.
(b) Represents the additional income reported for one executive for participation in a company paid life insurance program.
(c) Represents the value of dividend equivalent units credited in the fiscal year using the close price on the date of the
crediting.
135
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
6. Executive Compensation (Continued)
(d) Reflects contributions made on behalf of the named executive officers under our qualified defined contribution plan, and
accruals on behalf of the named executive officers under the SSRP (also a defined contribution plan), as follows:
Name
Thomas Lynch, . . . . . . . . . . . . . . . . . . . .
Chief Executive Officer
Chief Financial Officer . . . . . . . . . . . . . .
and three other most highly compensated
executive officers(*)
Year
2014
2013
2014
2013
Company Matching
Contribution
(Qualified Plan)
Company Contribution
(Non-Qualified Plan)
$13,000
$12,750
$68,724
$64,215
$150,555
$ 94,010
$293,795
$187,960
(*)
Included in the amount above is an additional matching contribution of $5,610 for fiscal 2014 and $5,500 for fiscal
2013 for one of the referenced executives as a result of a frozen defined benefit plan.
No loans or guarantees were granted to named executive officers in fiscal 2014.
7. Compensation of Non-Employee Directors
Fiscal 2014 compensation of each director who is not our salaried employee or an employee of our
subsidiaries was increased to $250,000 per annum, payable $90,000 in cash and $160,000 in equity value.
The chair of the audit committee received an additional $25,000 cash retainer and the chairs of the
management development and compensation committee and nominating, governance and compliance
committee each received an additional $15,000 cash retainer. The lead independent director received
an additional retainer fee of $160,000 ($100,000 in cash and $60,000 in equity value). Audit committee
members, including the chair, each received an additional $10,000 in cash compensation. Directors who
are employed by us or our subsidiaries, including our chairman of the board, do not receive any
compensation for their services as directors.
Each non-employee director received the equity component of their compensation in the form of a
grant of common shares of TE Connectivity Ltd., with the exception of Dr. Gromer, who received the
equity component of his compensation in the form of deferred stock units (‘‘DSUs’’). Under current
U.S. tax law, our U.S.-based non-employee directors cannot defer any portion of their compensation,
including DSUs, and therefore, they were issued common shares (which are immediately taxable) in
lieu of DSUs. Because Dr. Gromer is a German citizen, he receives his equity compensation in the
form of DSUs.
DSUs awarded to Dr. Gromer vested immediately upon grant, and will be paid in common shares
within 30 days following termination (subject to the previously-existing option of deferring the payout).
Dividend equivalent units or additional DSUs are credited to a non-employee director’s DSU account
when dividends or distributions are paid on our common shares.
136
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
Fiscal 2015 compensation for non-employee directors will be the same as fiscal 2014.
We reimburse our board members for expenses incurred in attending board and committee
meetings or performing other services for us in their capacities as directors. Such expenses include
food, lodging, and transportation.
The following table discloses the cash and equity awards paid to each of our non-employee
directors during fiscal 2014 and 2013.
Name
Pierre Brondeau . . . . . . . . . .
Juergen Gromer . . . . . . . . . .
William Jeffrey . . . . . . . . . . .
Yong Nam . . . . . . . . . . . . . .
Daniel Phelan . . . . . . . . . . .
Frederic Poses . . . . . . . . . . .
Lawrence Smith . . . . . . . . . .
Paula Sneed . . . . . . . . . . . . .
David Steiner . . . . . . . . . . . .
John Van Scoter . . . . . . . . . .
Laura Wright(4) . . . . . . . . . . .
Fiscal Year
Fees Earned or
Paid in Cash(1)
($)
Stock
Awards(2)
($)
Option
Awards
($)
All Other
Compensation(3)
($)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
$100,000
$ 90,000
$100,000
$ 90,000
$ 90,000
$ 80,000
$ 90,000
$ 80,000
$ 90,000
$ 80,000
$205,000
$195,000
$125,000
$115,000
$ 90,000
$ 80,000
$105,000
$ 95,000
$ 90,000
$ 80,000
$ 58,333
$157,256 —
$138,958 —
$157,256 —
$138,958 —
$157,256 —
$138,958 —
$157,256 —
$138,958 —
$157,256 —
$138,958 —
$216,246 —
$200,725 —
$157,256 —
$138,958 —
$157,256 —
$138,958 —
$157,256 —
$138,958 —
$157,256 —
$138,958 —
$ 96,089 —
$22,895
$30,782
$37,339
$28,434
$ 1,000
—
$ 3,450
—
$22,895
$21,242
$24,468
$22,092
$27,461
$22,969
$25,810
$23,240
$22,895
$20,782
$ 8,388
$ 5,787
$60,000
Total
($)
$280,151
$259,740
$294,595
$257,392
$248,256
$218,958
$250,706
$218,958
$270,151
$240,200
$445,714
$417,817
$309,717
$276,927
$273,066
$242,198
$285,151
$254,740
$255,644
$224,745
$214,422
(1) The amounts shown represent the amount of cash compensation earned for board and committee services. Effective for
fiscal 2014 cash compensation increased to $90,000 from the fiscal 2013 rate of $80,000. Mr. Poses received additional fees
for his work until January 7, 2013 as the board chair, and then as lead independent director for the remainder of fiscal
2013 and full fiscal 2014. For fiscal 2014 and 2013, Mr. Poses, Mr. Smith, and Mr. Steiner each received additional fees for
their roles as chair of the nominating, governance and compliance committee, the audit committee, and the management
development and compensation committee, respectively. For fiscal 2014 and fiscal 2013, Dr. Brondeau, Dr. Gromer, and
Mr. Smith each received for the full year the additional audit committee cash retainer for serving on the committee.
Ms. Wright received an additional audit committee cash retainer for serving on the audit committee for the last month of
the second quarter and the last two full quarters of fiscal year 2014.
(2) Effective for fiscal 2014 equity value included in non-employee director compensation was increased to $160,000 from the
fiscal 2013 equity value of $135,000. On November 14, 2013, Dr. Brondeau, Dr. Jeffrey, Mr. Nam, Mr. Phelan, Mr. Poses,
Mr. Smith, Ms. Sneed, Mr. Steiner, and Mr. Van Scoter each received a grant of 3,047 common shares. Dr. Gromer
received an award of 3,047 DSUs. Mr. Poses received an additional 1,143 shares in equity compensation for serving as lead
independent director. On November 12, 2012, each director then serving on our board of directors received a grant of 4,081
common shares, except for Dr. Gromer who received his award in the form of DSUs. Mr. Poses received an additional
1,814 shares in equity compensation as board chair until January 7, 2013, and then as lead independent director for the
remainder of fiscal 2013. In fiscal 2014, in determining the number of common shares and DSUs to be issued, we used the
137
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
average daily closing price for the 20 day period prior to the grant date ($52.51 per share), the same methodology used to
determine employee equity awards. The grant date fair value of these awards, as shown above for fiscal 2014, was
calculated by using the closing price of TE Connectivity Ltd. common shares on the date of grant ($51.61 per share). In
fiscal 2013, in determining the number of common shares and DSUs to be issued, we used the average daily closing price
for the 20 day period prior to the grant date ($33.08 per share), the same methodology used to determine employee equity
awards. The grant date fair value of these awards, as shown above for fiscal 2013, was calculated by using the closing price
of TE Connectivity Ltd. common shares on the date of grant ($34.05 per share). On March 5, 2014, Ms. Wright received a
grant of 1,630 common shares. In determining the number of common shares and DSUs to be issued, we used the average
daily closing price for the 20-day period prior to the grant date ($57.26 per share), the same methodology used to
determine employee equity awards. The grant date fair value of these awards, as shown above for fiscal 2014, was
calculated by using the closing price of TE Connectivity Ltd. common shares on the date of grant ($58.95 per share). The
common shares and DSUs vested immediately and non-employee directors receive dividend equivalents in connection with
any DSU award granted to them.
(3) Amounts shown represent the value of dividend equivalent units earned on current and prior DSU awards calculated using
the market value on the date of the dividend, company matching gift contributions made on behalf of certain directors
under TE Connectivity’s matching gift program, and amounts reimbursed to Mr. Smith in fiscal 2014 and to Mr. Phelan and
Mr. Smith in fiscal 2013 for expenses incurred when attending continuing education courses. Our board governance
principles encourage directors to attend certain continuing education courses that are related to their duties as directors,
and provide that we will reimburse the costs associated with attending one course every two years. The $37,339 amount
reported in fiscal 2014 and the $28,434 amount reported in fiscal 2013 for Dr. Gromer are the dividend equivalent unit
amounts earned on his DSU awards. The $60,000 amount reported for Ms. Wright in fiscal 2014 is for fees paid for
consulting services performed prior to her being elected to the board.
(4) On March 4, 2014, Ms. Wright was elected to our Board of Directors. Cash compensation for Ms. Wright was pro-rated for
her service during fiscal 2014.
No loans or guarantees were granted to members of the board of directors in fiscal 2014. During
fiscal 2014, the TE Group engaged in commercial transactions in the normal course of business with
companies where our directors were employed and served as officers. Purchases from such companies
aggregated less than one percent of our consolidated net sales during fiscal 2014.
138
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
8. Security Ownership of Board of Directors and Executive Officers
The following table sets forth the shares, options and stock units held as of September 26, 2014 by
each member of our board of directors, our chief executive officer and the other executive officers as a
group whose compensation is aggregated in the compensation table in Note 6 for fiscal 2014.
Shares
Held
Options
Held(1)
Options
Exercise Price
Fiscal Years
of Expiration
RSUs/PSUs/
DSUs Held(2)
Board of Directors:
Pierre Brondeau . . . . . . . . . . . . . .
Juergen Gromer . . . . . . . . . . . . . .
William Jeffrey . . . . . . . . . . . . . . .
Thomas Lynch(3)
. . . . . . . . . . . . . .
Yong Nam . . . . . . . . . . . . . . . . . .
Daniel Phelan . . . . . . . . . . . . . . . .
Frederic Poses . . . . . . . . . . . . . . . .
Lawrence Smith . . . . . . . . . . . . . .
Paula Sneed . . . . . . . . . . . . . . . . .
David Steiner . . . . . . . . . . . . . . . .
John Van Scoter . . . . . . . . . . . . . .
Laura Wright
. . . . . . . . . . . . . . . .
Executive Officers:
Thomas Lynch(3)
. . . . . . . . . . . . . .
Other executive officers . . . . . . . . .
17,539
77,477
6,999
339,421
6,999
16,044
184,752
26,979(4)
17,244
16,044
18,640
1,222
—
—
—
3,574,469
—
—
—
—
—
—
—
—
—
—
—
$14.56–$51.61
—
—
—
—
—
—
—
—
—
—
—
2017–2024
—
—
—
—
—
—
—
—
339,421
92,738
3,574,469
1,492,863
$14.56–$51.61
$14.11–$51.61
2017–2024
2018–2024
12,102
34,978
—
221,747
—
12,102
13,566
16,196
14,855
12,102
6,481
—
221,747
257,504
(1) Each option provides the right to purchase one share at the exercise price. Subject to acceleration upon certain events, the
stock options are exercisable in equal installments on anniversaries of the grant dates.
(2) Executive officers hold RSUs (Mr. Lynch—112,067; other executive officers—134,971) and PSUs (Mr. Lynch—109,680;
other executive officers—122,533) and directors hold DSUs. Subject to acceleration upon certain events, the RSUs vest over
time on anniversaries of the grant dates, are settled in shares upon vesting on a one-for-one basis, and receive dividend
equivalent units. The PSU amounts assume achievement of target level of performance including target dividend equivalent
units through fiscal 2014. Under the terms of the PSUs, shares of stock are reserved based on the company’s earnings per
share growth relative to the Standard & Poor’s 500 Non-Financial Companies Index each year over a three-year
performance cycle, subject to various conditions, and the PSUs earn dividend equivalent units. Subject to acceleration upon
certain events, vesting of reserved PSUs occurs when the management development and compensation committee certifies
year three results following the close of the three-year performance cycle. The DSUs are vested upon issuance, generally
will be settled in shares on a one-for-one basis within 30 days following the director’s termination, and receive dividend
equivalent units.
(3) Mr. Lynch is chairman of the board of directors and chief executive officer.
(4)
Includes 1,860 shares held in a trust and 3,000 shares held in a family limited partnership over which Mr. Smith has
dispositive power. Mr. Smith disclaims beneficial ownership of such shares.
139
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
9. Significant Shareholders
The following table sets forth the information indicated for persons or groups known to us to be
beneficial owners of more than 5% of our outstanding shares beneficially owned as of September 26,
2014.
Name and Address of Beneficial Owner
Number
of Shares
Percentage
of Class
Dodge & Cox(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,191,231
8.6%
555 California Street, 40th Floor
San Francisco, CA 94104
Harris Associates L.P.(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,155,660
6.7%
Two North LaSalle Street, Suite 500
Chicago, IL 60602
(1) This information is based on a Schedule 13G/A filed with the SEC on February 13, 2014 by Dodge & Cox, which reported
sole voting power and sole dispositive power as follows: sole voting power—33,831,130 and sole dispositive power—
35,191,231.
(2) This information is based on a Schedule 13G/A filed with the SEC on February 12, 2014 by Harris Associates L.P. and its
general partner, Harris Associates Inc., which reported sole voting power and sole dispositive power as follows: sole voting
power—25,545,302 and sole dispositive power—25,545,302. As a result of advisory and other relationships with persons who
own the shares, Harris Associates L.P. may be deemed to be the beneficial owner of the shares.
10. Subsidiaries of the Company
We are the ultimate holding company of all subsidiaries of the TE Group. Our direct subsidiaries
and significant subsidiaries of the TE Group, as determined based on net sales or total assets and all of
140
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
10. Subsidiaries of the Company (Continued)
which are wholly-owned indirectly by us, were as follows as of September 26, 2014 and September 27,
2013:
Entity Name
Tyco Electronics Group S.A.
. . . . . . .
Tyco Electronics Holdings (Bermuda)
No. 7 Limited . . . . . . . . . . . . . . . .
Tyco Electronics Verwaltungs GmbH .
. . . . .
ADC Telecommunications, Inc.
TE Connectivity HK Limited.
. . . . . .
TE Connectivity Holding
International II S.a r.l.
. . . . . . . . .
TE Connectivity Networks, Inc. . . . . .
TE Connectivity Solutions GmbH . . .
Tyco Electronics (Shanghai) Co., Ltd.
Tyco Electronics AMP GmbH . . . . . .
Tyco Electronics AMP Korea Limited
Tyco Electronics Brasil Ltda. . . . . . . .
Tyco Electronics Corporation . . . . . . .
. . . . . . .
Tyco Electronics Japan G.K.
. . . . . . .
Tyco Electronics Czech s.r.o.
Tyco Electronics Singapore Pte Ltd.
.
Tyco Electronics Subsea
Jurisdiction
Luxembourg
Bermuda
Germany
United States
Hong Kong
Luxembourg
United States
Switzerland
China
Germany
South Korea
Brazil
United States
Japan
Czech Republic
Singapore
Communications LLC . . . . . . . . . .
United States
Tyco Electronics UK Ltd.
. . . . . . . . . United Kingdom
Direct or Indirect
Holding
Nominal
Capital(1)
Purpose(2)
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
$1
$—
EUR—
$68
$380
$—
$—
CHF—
CNY 6
EUR 78
KRW 6,000
BRL 63
$625
JPY 21,776
CZK 268
$183
$—
GBP 245
F
F
F
M
S
F
S
S
M
M
M
M
M
M
M
M
M
M
(1) Nominal capital is presented in millions for the currencies noted as of September 26, 2014. Nominal capital denoted with a
‘‘—’’ is insignificant.
(2)
‘‘F’’ denotes the primary purpose as a holding or financing company; ‘‘M’’ denotes the primary purpose as manufacturing
and production; ‘‘S’’ denotes the primary purpose as sales and distribution.
141
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Expected Impact of Adopting New Swiss Company Law
Based on our current understanding of the changes in Swiss company law, which we intend to
adopt effective September 27, 2014, we believe that adoption will have the following impact to our
opening balance sheet as of September 27, 2014:
As reported at
September 26, 2014
Impact of adoption as
of September 27, 2014
Adjustment
(USD Millions)
Assets
Shares held in treasury(1) . . . . . . . . . . . . . . . . . . . . .
All other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
164
10,570
$10,734
$(164)
—
$(164)
$ —
10,570
$10,570
Liabilities and Shareholders’ Equity
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$
568
$ —
$
568
Shares held in treasury(1) . . . . . . . . . . . . . . . . . . . . .
Reserve for treasury shares(2) . . . . . . . . . . . . . . . . . .
Unappropriated accumulated earnings . . . . . . . . . . .
All other equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . .
—
644
1,315
8,207
10,166
$10,734
(164)
(164)
164
—
(164)
$(164)
(164)
480
1,479
8,207
10,002
$10,570
(1) On adoption, shares held in treasury of $164 million will be reduced to zero with a corresponding reduction in total
shareholders’ equity via the creation of shares held in treasury.
(2) Reserves for treasury shares will be reduced by $164 million associated with shares held directly by us via an increase in
unappropriated accumulated earnings, consistent with how we currently create reserves for treasury shares. This caption will
be renamed Reserve for treasury shares held by a subsidiary in the fiscal 2015 Swiss statutory financial statements.
Proposed Appropriation of Available Earnings
Our board of directors will propose, in conjunction with our annual general meeting, that we carry
forward unappropriated accumulated earnings of CHF 659 million as included in our balance sheet as
of September 26, 2014.
142
REPORT OF THE STATUTORY AUDITOR ON THE SWISS STATUTORY
FINANCIAL STATEMENTS OF TE CONNECTIVITY LTD.
To the General meeting of
TE CONNECTIVITY LTD., SCHAFFHAUSEN
Report of the Statutory Auditor on the financial statements
As Statutory Auditor, we have audited the accompanying financial statements of TE
Connectivity Ltd. (the ‘‘Company’’), which comprise the balance sheet as of September 26, 2014, and
the statement of operations and notes (pages 125-142) for the year then ended.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation of the financial statements in accordance
with the requirements of Swiss law and the Company’s articles of association. This responsibility
includes designing, implementing and maintaining an internal control system relevant to the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error. The Board of Directors is further responsible for selecting and applying appropriate accounting
policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers the internal control system
relevant to the entity’s preparation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control system. An audit also includes evaluating the
appropriateness of the accounting policies used and the reasonableness of accounting estimates made,
as well as evaluating the overall presentation of the financial statements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended September 26, 2014 comply with Swiss
law and the Company’s articles of association.
Report on Other Legal Requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight
Act (‘‘AOA’’) and independence (Article 728, CO, and Article 11, AOA) and that there are no
circumstances incompatible with our independence.
In accordance with Article 728a, paragraph 1, item 3, CO, and Swiss Auditing Standard 890, we
confirm that an internal control system exists, which has been designed for the preparation of financial
statements according to the instructions of the Board of Directors.
143
We further confirm that the proposed appropriation of accumulated earnings complies with Swiss
law and the Company’s articles of association. We recommend that the financial statements submitted
to you be approved.
Deloitte AG
/s/ Martin Welser
Licensed Audit Expert
Auditor in charge
Zurich, November 12, 2014
/s/ Matthias Gschwend
Licensed Audit Expert
144
EVERY CONNECTION COUNTS
CORPORATE DATA
REGISTERED & PRINCIPAL
EXECUTIVE OFFICE
TE Connectivity Ltd.
Rheinstrasse 20
CH-8200 Schaffhausen
Switzerland
+41.0.52.633.66.61
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1700 Market Street
Philadelphia, PA 19103
Deloitte AG
General Guisan-Quai 38
CH-8022 Zurich
Switzerland
www.te.com
STOCK EXCHANGE
The company’s common shares are traded on
the New York Stock Exchange (NYSE) under
the ticker symbol TEL.
FORM 10-K
Copies of the company’s Annual Report on
Form 10-K for the fiscal year ended September
26, 2014 may be obtained by shareholders
without charge upon written request to
TE Connectivity Ltd., Rheinstrasse 20,
CH-8200 Schaffhausen, Switzerland.
The Annual Report on Form 10-K is also
available on the company’s website at
www.te.com
SHAREHOLDER SERVICES
Registered shareholders (shares held in your
own name with our transfer agent) with
requests such as change of address or dividend
checks should contact TE Connectivity’s
transfer agent at:
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
866.258.4745
www.shareowneronline.com
Beneficial shareholders (shares held with
a bank or broker) should contact the bank
or brokerage holding their shares with their
requests.
Other shareholder inquiries may be directed
to TE Connectivity Shareholder Services at the
company’s registered and principal executive
office above.
This document was printed using soy–based inks and paper containing 30% postconsumer
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Custody supplier. Printing was done according to ISO workflow procedures.
© 2015 TE Connectivity Ltd. All Rights Reserved.
001-AR-2014
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