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2016 ANNUAL REPORT
ADVANCING CONNECTIVITY FOR
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
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 that ended
September 30, 2016 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.
www.te.com
© 2017 TE Connectivity Ltd. All Rights Reserved.
001-AR-FY2016
TE Connectivity, TE, TE connectivity (logo) are trademarks of the TE Connectivity family of companies.
Other logos, product, and/or company names may be trademarks of their respective owners.
Our commitment to innovation enables
advancements in transportation, industrial
applications, medical technology, energy,
data communications, and the home.
TE’s unmatched breadth of connectivity and
sensor solutions, proven in the harshest of
environments, helps build a safer, greener,
smarter, and more connected world.
Terrence Curtin, President and Tom Lynch, Chairman and CEO
MESSAGE TO OUR STAKEHOLDERS
Connectivity is all around us—channeling essential power and data for everything from cloud computing
and transportation, to precision medicine and the Internet of Things in homes and on factory floors. In 2016,
TE Connectivity celebrated 75 years as a leader in enabling that connectivity, and as we move into 2017 and
beyond, we’re redefining what’s possible using TE’s connector and sensor technologies to meet the safety,
efficiency and connected trends that are so important for our customers’ success in the markets they serve.
2016: SOLID PERFORMANCE AND CONTINUED EXECUTION
OF OUR HARSH ENVIRONMENT STRATEGY
Our business performed well in a challenging economic environment. Sales for the year were $12.2 billion and
adjusted earnings per share (EPS) were $4.08—up 13 percent versus the prior year. Our adjusted operating
margin was nearly 16 percent, and the company generated $2 billion of cash flow from continuing operating
activities.
Our results were driven by strong performance in our Transportation Solutions segment and our SubCom
business within our Communications Solutions segment. This more than offset a relatively flat year in our
Industrial Solutions segment due to weak overall industrial markets. Transportation Solutions delivered 5 percent
organic sales growth driven by strong growth in Europe and Asia, a result of our leadership in those markets. Our
SubCom business, which installs and maintains the subsea cables that make up the backbone of the global cloud
network, grew 25 percent, and with $1 billion in backlog, we expect continued growth from that business in 2017.
W ith o u r s o l i d c a s h f l ow g e n e r a ti o n a n d th e
proceeds from the sale of our Broadband Network
Solutions business at the end of 2015, we continued
our disciplined capital allocation strategy in 2016,
returning $3.1 billion to shareholders. We remain
committed to our capital strategy of a balanced
return of free cash flow to shareholders through
dividends and share repurchases while continuing to
strengthen our harsh environment product portfolio
via acquisitions.
Strengthening our Harsh
Environment Portfolio
O u r c u s to m e r s t u r n to T E , a l e a d e r i n h a r s h
environment connectivity and sensing applications,
for solutions that must be reliable under the most
extreme conditions. Today, approximately 90 percent
of our revenue is focused on connectivity and sensing,
and 80 percent of our revenue is derived from harsh
environment applications. These applications are
highly engineered and designed into the architecture
of the customer’s solution, positioning TE as uniquely
qualified to meet many customers’ demands. Over
the last five years, we have generated mid-single digit
growth and above company average margins with our
harsh business.
During 2016, we strengthened our harsh environment
portfolio with several key acquisitions and the
divestiture of our Circuit Protection business. These
acquisitions included: Creganna, which established us
as a leader in the market for minimally invasive medical
solutions; Jaquet, which expanded our sensors
position in the transportation market; and Intercontec,
which added to the range of connectivity products in
our Industrial Solutions product portfolio that serve
the trend of increasingly connected factories.
Extraordinary Customer Experience
Our mission to deliver an Extraordinary Customer
Experience (ECE) is expanding our competitive
advantage. In 2016, we improved our Net Promoter
Score (NPS) by 11 points over 2015, as customers
b e g a n to re co g nize o u r im p rove m e nt s in th e
dimensions that matter most to them: innovation,
qualit y, deliver y, and ser vice and suppor t. By
continuing to drive improvements in the customer
experience, TE is ensuring that we can more effectively
serve both the technology and service needs of our
customers in the future.
TEOA Progress
We co nti n u e to i m p l e m e nt o u r T E O p e rati n g
Advantage (TEOA) lean business system, a key aspect
of our margin improvement over the past five years,
across the enterprise. In 2016, we were very proud
to report two more sites have reached “Star Level
5,” the highest TEOA rating. These sites—Steinach in
Switzerland and Norwood in Massachusetts, United
States—are prime examples of the creativity and
commitment to a continuous improvement culture
we strive for at TE.
Unleashing Our People
Our customers demand both innovation and execution
from our company, and excellence in those areas is
only possible through people with diverse experiences
and perspectives collaborating to meet and exceed
customers’ needs . Recruiting, developing and
unleashing this talent within a diverse and inclusive
workplace is a key part of our overall business strategy,
and in 2016 we brought this to life, in part, by:
•
•
•
Engaging more than 20,000 employees in our
annual Inclusion & Diversity Month
Significantly increasing our recruiting and
outreach at global technology events, including
both the Society of Women Engineers (SWE) 2016
International Conference and the National Society
of Black Engineers Annual Conference
Expanding our employee resource groups globally,
including ALIGN (LGBT), African Heritage, Young
Professionals and Women in Networking
CEO Succession
In March 2016, Terrence was nominated to our board
of directors and in October we announced that he
would succeed Tom as chief executive officer, effective
March 9, 2017. Upon completion of the transition in
March 2017, Tom will remain on the board and continue
in the role of executive chairman.
China, rapid advances in interventional and minimally
invasive medicine, and the need for increased capacity
and greater security in global data networks.
STRONG POSITION IN
GROWING MARKETS
For over 75 years, we’ve helped our customers create
exciting new innovations using our connectivity
solutions. Today, we are a world leader in connectivity
and sensor solutions, with capabilities that are
unmatched in our industry. Our global presence,
more than 7,000 engineers and broad portfolio of
connectivity and sensor solutions are integral to our
customers’ product roadmaps.
The markets TE serves are driven by the positive
macro-trends toward building a safer, greener and
more connected world. Using our automotive business
as an example, more sensors and connectors are
needed in vehicles to support increased safety
features, autonomous driving systems, higher emission
standards, improved fuel efficiency and infotainment.
Additional trends point to further potential for our
business: the growing demand for electric vehicles in
These macro-trends combined with our leadership
position give us confidence in our strategy, business
model and growth prospects even as markets fluctuate.
Entering 2017, we look back with pride at all we’ve
accomplished, thanks to our phenomenal employees
and shareholders, and ahead with optimism for all we’ll
continue to do together. We are excited about how we
have strategically positioned TE and how our teams
and engineers co-create with customers wherever
they exist in the world to advance solutions that move
the world forward.
Tom Lynch
Chairman and
Chief Executive Officer
Terrence Curtin
President
See non-GAAP measures for descriptions and reconciliations of Organic Sales Growth, Adjusted Operating Margin, Adjusted
Earnings Per Share, and Free Cash Flow.
INNOVATION LEADERSHIP
14,000
PATENTS
$644M
INVESTED
granted or pending
in R&D and Engineering
FY 16
7,000+
ENGINEERS
globally
CNBC IQ100 INDEX
TE CONNECTIVITY RECOGNIZED AS 2016 INNOVATION LEADER
35%
Year-over-year increase in TE revenue
from EV solutions within Asia-Pacific
2x
TE content per electric vehicle versus
standard vehicle, globally
ELECTRIC VEHICLES
HELPING CHINA BECOME A
SUSTAINABILITY LEADER
Today’s electric vehicles (EVs) deliver what once-seemed impossible: A safe, green, high-performance
driving experience. This evolution is possible because of recent advancements in high-voltage physics,
materials science, and advanced circuitry. In China, the government is relying on EV as a way to accelerate
sustainability strategies. To spark demand for EVs, the government offers consumer incentives, with the
target of three million EV sales per year by 2025.*
At TE, our engineers are working side-by-side with automakers in China – and across the globe – to
develop the next generation of EV technology. For these customers, we offer more than a connector, or
a cable assembly. We help them define and develop their EVs technological architecture. This enables
us to integrate TE technology into EV primary systems – transmission, powertrain, antilock brakes – as
well as the subsystems, such as integrated sensor assemblies and transmission wiring harnesses. With
our integrated solutions and expert knowledge, automakers can make EVs responsive and reliable, with
the capacity for high acceleration over increasingly longer distances.
BATTERY TECHNOLOGIES
TE’s AMP+ HVA 280 High Voltage Connector System
improves EV power-to-weight-ratio, time-to-recharge,
and total range capabilities.
CHARGING STATION
TE’s AMP+ Charging Cable Assembly is engineered
to safely and reliably distribute electricity from the
charging station into an EV battery.
IN-VEHICLE TECHNOLOGIES
TE’s sealed and shielded products transmit high-voltage
electricity throughout the vehicle. Our touch-safe wire-
to-device connections include TE’s AMP+ Auxiliary
Power Terminal.
* Bloomberg News, “China Proposing California-Like Mandates for Electric Cars”
SUBSEA COMMUNICATIONS
BRINGING THE CLOUD TO
THE WORLD
Information delivered at the speed of light, deep beneath the oceans of the world: People everywhere
want – and expect – the capability to send high-megabyte data quickly without interference. As the
number of applications used and devices connected to the internet continues to multiply, hyper-scale
cloud companies increasingly need flexible subsea cable systems that they can quickly scale to meet
market demand, in a way that also aligns with long-term strategies to diversify and expand their networks.
For more than five decades, TE subsea-communications engineers have developed the technology
enabling our customers to operate high-bandwidth, high-capacity networks between and within
continents and countries. With nearly 400 engineers, two manufacturing facilities, and a fleet of eight
ships, we design, manufacture, install, and maintain the flexible end-to-end subsea solutions that form
the backbone of the international communications network.
Laptev
Laptev
Sea
Sea
Russia
Russia
Mongolia
Mongolia
S
S
C
C
S
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H
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China
China
TAICHUNG MARINE DEPOT
Taichung Port, Taiwan
North
North
Korea
Korea
R
R
J
J
C
C
N
N
Sea
Sea
of
of
Japan
Japan
South
South
Korea
Korea
North
North
China
China
Sea
Sea
J a p a n
J a p a n
A - U S
A - U S
C P
C P
T P E
T P E
HIN
HIN
N
N
C
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A
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C S
C S
A
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N
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T
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P
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5
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N
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Bhutan
Bhutan
COAM
COAM
SEAMEWE-5
SEAMEWE-5
AAE-1
AAE-1
B
B
B
B
G
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Myanmar
Myanmar
Laos
Laos
Thailand
Thailand
South
South
China
China
Sea
Sea
APG
APG
A
A
A
A
E
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-1
-1
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hilip
hilip
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Cambodia
Cambodia
Vietnam
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M
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A
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T
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P
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N
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N -IA
N -IA
C 2 C
C 2 C
T G
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B B G
B B G
AAE-1
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PACIFIC CROSSING 1
TGN PACIFIC
TGN PACIFIC
CHINA-US
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TGN PACIFIC
TGN PACIFIC
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SOUTHERN CROSS
TPC-5
TPC-5
FASTER
FASTER
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PACIFIC CROSSING 1
PACIFIC CROSSING 1
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TPC-5
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SOUTHERN CROSS
HONOLULU MARINE DEPOT
Sand Island, Hawaii
AII
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PACIFIC CROSSING 1
TGN PACIFIC
TGN PACIFIC
TPE
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CHINA-US
TGN PACIFIC
TGN PACIFIC
TPC-5
TPC-5
FASTER
FASTER
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JAPAN-US
PACIFIC CROSSING 1
PACIFIC CROSSING 1
CHINA-US
CHINA-US
UNITY
UNITY
PLCN
PLCN
JAPAN-US
JAPAN-US
PACIFIC
PACIFIC
OCEAN
OCEAN
T P C - 5
T P C - 5
A A G
A A G
HANTRU1
HANTRU1
Marshall Is.
Marshall Is.
Micronesia
Micronesia
Malaysia
Malaysia
Malaysia
Malaysia
Indonesia
Indonesia
M
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X
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J-S
J-S
JAKASUSI
JAKASUSI
P A C K E T 2
P A C K E T 2
GUAM MARINE DEPOT
Piti, Guam
Papua
Papua
New Guinea
New Guinea
Timor-leste
Timor-leste
Arafura
Arafura
Sea
Sea
INDIAN
INDIAN
OCEAN
OCEAN
D
D
N
N
A
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L
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-
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Solomon Is.
Solomon Is.
Coral
Coral
Sea
Sea
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Fiji
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OPTICAL COMPONENTS
Eveleigh, Australia
Australia
Australia
A-1
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N
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W A
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Tasman
Tasman
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East Siberian Sea
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ARCTIC
ARCTIC
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Greenland
Greenland
Greenland
Greenland
Sea
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PRECISION ENGINEERING
Leicester, UK
D
D
R
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A
A
B
B
L
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S
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Norwegian
Norwegian
Sea
Sea
Barents
Barents
Sea
Sea
Kara
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Sea
Sea
United States
United States
Gulf Of Alaska
Gulf Of Alaska
Canada
Canada
O R K
O R K
IV A L U K N E T W
IV A L U K N E T W
Hudson
Hudson
Bay
Bay
G R E E N L A N D C O N N E C T
G R E E N L A N D C O N N E C T
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Labrador
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Sea
Iceland
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FAR ICE
FAR ICE
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DA N IC E
Faroe Is.
Faroe Is.
North
North
Sea
Sea
T A M P N E T T
T A M P N E T T
Sweden
Sweden
B
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N
N
I
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A
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Finland
Finland
Norway
Norway
Baltic
Baltic
Sea
Sea
Estonia
Estonia
Latvia
Latvia
Denmark
Denmark
S E A L I O N
S E A L I O N
Lithuania
Lithuania
PORTLAND MARINE DEPOT
Portland, OR
HEADQUARTERS and R&D
Eatontown, NJ
WET & DRY PLANT MANUFACTURING
Newington, NH
Ireland
Ireland
ESAT 1
ESAT 1
ESAT 2
ESAT 2
UK
UK
Netherlands
Netherlands
Poland
Poland
Belarus
Belarus
AVONMOUTH MARINE DEPOT
Avonmouth, UK
N
N
E
E
P
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T
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N
N
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1
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FLEET OPERATIONS CENTER
Baltimore, MD
RSN
RSN
T
T
P
P
C
C
-
-
5
5
C
C
H
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N
N
A
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United States
United States
P
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A
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C
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Mexico
Mexico
BP GOM
BP GOM
CHEVRON
CHEVRON
Gulf
Gulf
Of
Of
Mexico
Mexico
ARCOS-1
ARCOS-1
AMX-1
AMX-1
SAM-1
SAM-1
MAYA
MAYA
A C
A C
M
M
Cuba
Cuba
C
C
O
O
GIM
GIM
R I S
R I S
A
A
L
L
O
O
P
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BERMUDATOR
BERMUDATOR
H I B E R N I A
H I B E R N I A
A T L A N T I C
A T L A N T I C
GLOBENET
GLOBENET
GEMINI
GEMINI
GLOBENET
GLOBENET
CANUS-1
CANUS-1
CB-1
CB-1
MAC
MAC
F
F
L
L
O
O
F
F
L
L
RIC
RIC
P
P
R
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S
S
A
A
M
M
A
A
C
C
S
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T T
T T
m
m
-1
-1
P
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C
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F
F
L
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C
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S
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S
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T
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H
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O
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O
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-2
-2
A
A
A
A
M
M
M
M
E
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R
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I
C
C
R
R
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C
C
A
A
A
A
S II
S II
S I
S I
M
M
A
A
S-3
S-3
A
A
R
R
C
C
O
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S-1
S-1
B
B
D
D
S
S
N
N
Caribbean
Caribbean
Sea
Sea
Jamaica
Jamaica
Haiti
Haiti
CSRD
CSRD
Belize
Belize
ARCOS-1
ARCOS-1
Guatemala
Guatemala
Honduras
Honduras
El Salvador
El Salvador
Nicaragua
Nicaragua
C
C
F
F
X
X
-
-
1
1
1
1
S A m -
S A m -
P C C S
P C C S
P
P
A
A
C
C
S
S
A
A
m-1
m-1
Costa
Costa
Rica
Rica
MAYA
MAYA
Panama
Panama
TRINIDAD -
CURACAO
Trinidad
Trinidad
& Tobago
& Tobago
Venezuela
Venezuela
Colombia
Colombia
N
N
A
A
L
L
/
/
C
C
A
A
S
S
M
M
A
A
N
N
A
A
P
P
S
S
C
C
C
C
P
P
PACIFIC
PACIFIC
OCEAN
OCEAN
Ecuador
Ecuador
C
C
/
/
L
L
A
A
N
N
G
G
L
L
O
O
B
B
E
E
A
A
M
M
E
E
N
N
E
E
T
T
R
R
I
I
C
C
A
A
A
A
M
M
E
E
S I
S I
R
R
I
I
C
C
A
A
S II
S II
Guyana
Guyana
Suriname
Suriname
French
French
Guiana
Guiana
ST. CROIX MARINE DEPOT
St. Croix, U.S.V.I.
1
1
1 4
1 4
H I B E R N I A E X P R E S S
H I B E R N I A E X P R E S S
H I B E R N I A A T L A N T I C
H I B E R N I A A T L A N T I C
H I B E R N I A A T L A N T I C
H I B E R N I A A T L A N T I C
A T L A N T I C C R O S S I N G
A T L A N T I C C R O S S I N G
T A T -
T A T -
A E C o n n e c t
A E C o n n e c t
T G N N O R T H
T G N N O R T H
T G N S O U T H
T G N S O U T H
A T L A N T I C C R O S S I N G 1
A T L A N T I C C R O S S I N G 1
Y E L L O W
Y E L L O W
A P O L L O
A P O L L O
M A R E A
M A R E A
F L A G A T L A N T I C 1
F L A G A T L A N T I C 1
A P O L L O
A P O L L O
F L A G A T L A N T I C 1
F L A G A T L A N T I C 1
T A T - 1 4
T A T - 1 4
C O LU M B U S I I I
C O LU M B U S I I I
C O L U M B U S
C O L U M B U S
I
I
I
I
ATLANTIC
ATLANTIC
OCEAN
OCEAN
M
M
O
O
N
N
E
E
T
T
A
A
M
M
X
X
-1
-1
G
G
L
L
O
O
B
B
E
E
S
S
A
A
N
N
E
E
T
T
m
m
-1
-1
S
S
A
A
A
A
Z
Z
O
O
R
R
E
E
S
S
E
E
W
W
N
N
G
G
T
T
1
1
-
-
O
O
L
L
G
G
Spain
Spain
Portugal
Portugal
Belgium
Belgium
Germany
Germany
Slovenia
Slovenia
Austria
Austria
Ukraine
Ukraine
France
France
Switzerland
Switzerland
Hungary
Hungary
Moldova
Moldova
Slovenia
Slovenia
Croatia
Croatia
Romania
Romania
Italy
Italy
Montenegro
Montenegro
Serbia
Serbia
JONAH -
JONAH -
JONAH -
JONAH -
MEDNAUTILUS
MEDNAUTILUS
MEDNAUTILUS
MEDNAUTILUS
Macedonia
Macedonia
Albania
Albania
Greece
Greece
ITUR
ITUR
Bulgaria
Bulgaria
Black Sea
Black Sea
ALEXANDRO
MINERVA
PALMYRA
APOLLON
Tunisia
Tunisia
Mediterranean
Mediterranean
Sea
Sea
Morocco
Morocco
BUSINESS OFFICE
Madrid, Spain
IMEWE
FEA
SEAMEWE-3
TRIBEN
FLON
Algeria
Algeria
Libya
Libya
Egypt
Egypt
ALGECIRAS MARINE DEPOT
Los Barrios (Cadiz), Spain
Mauritania
Mauritania
Cape Verde
Cape Verde
Senegal
Senegal
A
A
C
C
E
E
G
G
L
L
O
O
-
-
1
1
I
I
M
M
A
A
N
N
O
O
N
N
E
E
Guinea-Bissau
Guinea-Bissau
Burkina Faso
Burkina Faso
Chad
Chad
Sudan
Sudan
Guinea
Guinea
Sierra
Sierra
Leone
Leone
Liberia
Liberia
D
D
A
A
K
K
A
A
R
R
-
-
A
A
B
B
I
I
D
D
J
J
A
A
N
N
SAT-3
SAT-3
WACS
WACS
A TL A N TIS-2
A TL A N TIS-2
Benin
Benin
Nigeria
Nigeria
Cote
Cote
D'ivoire
D'ivoire
Togo
Togo
Ghana
Ghana
Central
Central
African Republic
African Republic
NCSCS
NCSCS
Cameroon
Cameroon
Equatorial
Equatorial
Guinea
Guinea
Gabon
Gabon
Congo
Congo
Russia
Russia
Kazakhstan
Kazakhstan
BSFOCS
BSFOCS
ITUR
ITUR
CAUCASUS
CAUCASUS
Turkey
Turkey
URARIT
IMEWE
EGYPLI
POSEIDON
CSNET
Georgia
Georgia
Caspian
Caspian
Sea
Sea
Azerbaijan
Azerbaijan
Armenia
Armenia
Uzbekistan
Uzbekistan
Kyrgyzstan
Kyrgyzstan
Turkmenistan
Turkmenistan
Tajikistan
Tajikistan
China
China
Iraq
Iran
Iran
Afghanistan
Afghanistan
Kuwait
Kuwait
TGN GULF
GBICS
KUWAIT-IRAN
FOG
FALCON
GBICS
Qatar
Qatar
QATAR-UAE
UAE
UAE
Saudi
Saudi
Arabia
Arabia
FEA
EIG
SEAMEWE-4
FALCON
SEAMEWE-3
SEACOM
IMEWE
MENA
SEAMEWE-5
AAE-1
SAS-1
FEA
EIG
Pakistan
Pakistan
Nepal
Nepal
T W A - 1
T W A - 1
Arabian
Arabian
Sea
Sea
IMEWE
SEAMEWE-4
FALCON
EIG
GBI
India
India
AAE-1
BBG
Oman
Oman
MENA
IMEWE
EIG
SEAMEWE-4
FALCON
A
A
T
T
A
A
T
T
SEAMEWE-3
SEAMEWE-4
FEA
SEAMEWE-5
FEA
FEA
SEAMEWE-3
SEAMEWE-3
SEACOM
SEACOM
AAE-1
AAE-1
EASSY
MENA
Eritrea
Eritrea
SEAMEWE-4
SEAMEWE-3
FALCON
SEACOM
IMEWE
Yemen
Yemen
Djibouti
Djibouti
ADENJI
Ethiopia
Ethiopia
Somalia
Somalia
Bay
Bay
Of
Of
Bengal
Bengal
S
S
E
E
A
A
M
M
E
E
W
W
E
E
-
-
4
4
Sri
Sri
Lanka
Lanka
F E A
F E A
S E A M E W E - 3
S E A M E W E - 3
S A F E
S A F E
S E A M E W E - 5
S E A M E W E - 5
A A E - 1
A A E - 1
B B G
B B G
M
M
E A S S Y
E A S S Y
S E A C O
S E A C O
T E A M S
T E A M S
SEAS
SEAS
LION 2
LION 2
Seychelles
Seychelles
S A F E
S A F E
INDIAN
INDIAN
OCEAN
OCEAN
Uganda
Uganda
Kenya
Kenya
Gulf Of Guinea
Gulf Of Guinea
Congo
Congo
DRC
DRC
Rwanda
Rwanda
Burundi
Burundi
W
W
A
A
C
C
S
S
S
S
A
A
T
T
-
-
3
3
Angola
Angola
Tanzania
Tanzania
E
E
A
A
S
S
S
S
Y
Y
S
S
E
E
A
A
C
C
O
O
M
M
Zambia
Zambia
Malawi
Malawi
Mozambique
Mozambique
Namibia
Namibia
Zimbabwe
Zimbabwe
Botswana
Botswana
Madagascar
Madagascar
LIO
LIO
N
N
Mauritius
Mauritius
Reunion
Reunion
Swaziland
Swaziland
Lesotho
Lesotho
South
South
Africa
Africa
SAFE
SAFE
H
H
O
O
N
N
O
O
T
T
U
U
A
A
French Polynesia
French Polynesia
S
S
A
A
m
m
-
-
1
1
BUSINESS OFFICE
Singapore
BASS
BASS
STRAIT 2
STRAIT 2
BASS
BASS
STRAIT 1
STRAIT 1
AUSTRALIA-NEW ZEALAND
AUSTRALIA-NEW ZEALAND
SOUTHERN CROSS
SOUTHERN CROSS
TGA
TGA
COOK
COOK
STRAIT
STRAIT
New
New
Zealand
Zealand
SUBSEA CABLE DEPLOYMENT
Subsea Cable Systems
Constructed by TE SubCom
TE SubCom Depot
TE SubCom Office
Other Subsea Cable Systems
Oil Platform
The information contained herein has been obtained from sources
believed to be reliable | V.16.04.MP
P
P
A
A
N
N
A
A
M
M
S
S
A
A
C
C
/
/
L
L
A
A
N
N
Peru
Peru
CURACAO MARINE DEPOT
Curacao, NV
Brazil
Brazil
TIC
TIC
S
S
E
E
M
M
O
O
ZIL D
ZIL D
-2
-2
TIS
TIS
N
N
A
A
L
L
T
T
A
A
N
N
A
A
L
L
/
/
C
C
A
A
S
S
A
A
R
R
B
B
1
1
-
-
m
m
A
A
S
S
S
S
A
A
RIC
RIC
E
E
M
M
0 A
0 A
T
T
E
E
N
N
E
E
B
B
O
O
L
L
G
G
6
6
3
3
X-1
X-1
M
M
A
A
T
T
E
E
N
N
O
O
M
M
St. Helena
St. Helena
m -1
m -1
S A
S A
C
C
S A
S A
ATLANTIC
ATLANTIC
OCEAN
OCEAN
R
R
U
U
N IS U
N IS U
N TIS-2
N TIS-2
A T L A
A T L A
C / L A
C / L A
S A
S A
m -1
m -1
N
N
S A
S A
Bolivia
Bolivia
Chile
Chile
Paraguay
Paraguay
Uruguay
Uruguay
Argentina
Argentina
S
S
A
A
m
m
-
-
1
1
P
P
A
A
N
N
A
A
M
M
S
S
A
A
C
C
/
/
L
L
A
A
N
N
S
S
A
A
m
m
-
-
1
1
S
S
A
A
C
C
/
/
L
L
A
A
N
N
SEGUNDA FOS
SEGUNDA FOS
CANAL DE CHACAO
CANAL DE CHACAO
FOS QUELLON
FOS QUELLON
- CHACABUCO
- CHACABUCO
Falkland Is.
Falkland Is.
Scotia
Scotia
Sea
Sea
Weddell Sea
Weddell Sea
TE SubCom | 250 Industrial Way West | Eatontown, NJ 07724 USA | +1.866.892.6611 | info@subcom.com | www.subcom.com
EVERY CONNECTION COUNTS
SUBSEA COMMUNICATIONS NETWORKS
TE designs the subsea system, engineers the route,
manufactures the infrastructure, and installs and
tests the network – in marine, terrestrial, and station
environments.
REPEATERS
Engineered with optical amplifiers, TE’s hermetically
sealed copper-beryllium capsules enable high-clarity
transmissions across long-haul, low-latency, and
extremely high-capacity networks.
FIBER OPTIC SUBSEA CABLE
Engineered to withstand extreme temperatures and
pressures, TE subsea cable is manufactured to reliably
transmit large-bandwidth, high-clarity communications
across undersea routes running up to 13,000 kilometers
– at 8,000 meters below the surface.
Forecasted growth in spending worldwide on
public cloud infrastructure*
$38B $173B
2016
2026
MORE
THAN
15x
TE has deployed enough subsea cable to
circle more than 15 times around the Equator
71M
Number of simultaneous HD videos which can
be streamed on a TE cable system
*Statista, “Public cloud Infrastructure as a Service (IaaS) hardware and software
spending from 2015 to 2026, by segment (in billion U.S. dollars)”
7%
Expected annual growth of
interventional market
90%
Amount of TE content available for
a typical interventional catheter
120+
Patients per minute benefit from a
minimally invasive device containing
a TE technology
MEDICAL DEVICES
TRANSFORMING
HEALTHCARE
Transformative technology in minimally invasive devices is advancing traditional surgery, resulting in
less time in the operating room, faster recovery for patients, and more cost effective healthcare delivery.
Because of strong underlying trends – including an aging global population and expanded use of minimally
invasive procedures – medical device manufacturers need a partner which offers component and finished
device design, volume manufacturing, and significant scale in major end markets and medical device hubs.
By partnering with medical device manufacturers, TE plays a vital role in delivering integrated solutions
for addressing cardiovascular, peripheral vascular, and neurovascular diseases. Our technology is enabling
our customers to create devices for new types of minimally invasive procedures: These include structural
heart repairs such as aortic valve replacements, as well as endoscopic and laparoscopic surgeries,
including robotic surgery. With TE solutions, our customers are enabling physicians to help patients enjoy
a healthier tomorrow.
STRUCTURAL HEART REPAIR
Engineered for flexibility, kink resistance, torque, and
tracking, TE’s composite braided shafts are designed
for intricate steering in Transcatheter Aortic Valve
Replacement (TAVR) catheters of 0.18" diameter. These
enable precision navigation and access in complex
anatomical structures, allowing heart valves to be
repaired without opening the body.
CARDIAC IMAGING AND ABLATION CATHETERS
We use metal and polymer materials, conductive
fine -wire (50% thinner than a human hair), and
connectors for the critical components used to treat
irregular heart rhythms. Our assembly services integrate
mechanical, electrical, and radio-frequency technologies
to address pulmonary and cardiac diseases.
MINIMALLY INVASIVE AND ROBOTIC SURGERY
Our reusable cables for endoscopic surgery support
4K video performance and can withstand hundreds of
sterilization cycles. Our connector assemblies, cables,
sensors, precision-stamped metal components, and
medical-grade heat-shrink tubing are used in energy-
based laparoscopic devices, electrosurgical tissue
staplers, and robotic surgery.
COMMERCIAL AIRCRAFT
STAYING CONNECTED
IN THE AIR
Smarter, integrated connections, for safer, greener aircraft: Technology is transforming air travel. In the
cabin, travelers expect reliable high-speed internet access and in-flight entertainment systems – without
sacrificing comfort. In the cockpit, pilots need avionics and flight systems that can efficiently analyze data
and integrate navigation, landing, and communications functions. With integrated connectivity, airlines
can improve on-time performance, increase turn times, and reduce fuel use and downtimes.
At TE, our engineers design small, lightweight connection systems and high-density sensor technology
that enable aircraft manufacturers to integrate more connectivity throughout commercial airplanes.
We work closely with our customers to manufacture solutions for turn-key assemblies that meet their
technology challenge – higher speeds, greater bandwidths, higher currents, and higher voltages. With TE
products in the critical systems, aircraft manufacturers gain the assurance of using solutions engineered
to withstand the extreme exposure, temperatures, and vibrations that come with travelling 600 miles per
hour at 40,000 feet above the earth.
AVIONICS
TE’s Advanced Avionics Package puts high-bandwidth,
high-speed connectivity into communications and
navigation systems, in a composite package that is 40%
smaller than typical metal enclosures.
FLIGHT CONTROL AND LANDING GEAR
TE’s ruggedized fiber optic cables, connectors, and
cable assemblies handle next-generation high-speed
data and signal delivery without distance limitations.
IN-FLIGHT ENTERTAINMENT
Sealed for high -speed telemetr y, TE’s Mil Aero
con n e c tors a re ma n ufac ture d with com p osites
engineered to reduce weight and withstand extreme
temperature and vibration.
$2.3B*
Estimated 2016 connector market in
commercial aircraft
140 | 5K | 8K
miles of wiring/
aircraft
sensors/
aircraft
connectors/
aircraft
*Source: TE Connectivity
STRONG FINANCIAL
PERFORMANCE
NET SALES
IN US$ BILLIONS
$12.2B
$12.2B
$12.0B
ADJUSTED OPERATING
MARGIN*
16.3%
15.8%
15.5%
FY 14 FY 15 FY 16
FY 14 FY 15 FY 16
*See Non-GAAP Measures
TE SALES BY SEGMENT
FY 16 SALES
TRANSPORTATION
SOLUTIONS
INDUSTRIAL
SOLUTIONS
COMMUNICATIONS
SOLUTIONS
$6.5B $3.2B $2.5B
TE CONNECTIVITY
SHARE PERFORMANCE
OVER 5 YEARS (NYSE: TEL)
APPROX.
150%
As of September 30, 2016 and adjusted for dividends
DEPLOYMENT OF CASH**
FY 08 THROUGH FY 16
DIVIDENDS PAID PER SHARE
$1.40
$1.24
$7.2B
ACQUISITIONS
$1.08
$8.2B
SHARE
REPURCHASES
$3.3B
DIVIDENDS
**Select uses of cash. Represents capital returned
to shareholders and acquisition activity.
FY 14 FY 15 FY 16
ADJUSTED EARNINGS
PER SHARE*
$4.08
$3.60
$3.31
FREE CASH FLOW*
$1.5B
$1.6B
$1.1B
FY 14 FY 15 FY 16
FY 14 FY 15 FY 16
*See Non-GAAP Measures
*See Non-GAAP Measures
COMMUNITY
BUILDING INCLUSIVE AND
SUSTAINABLE COMMUNITIES
TE believes in the potential of all people, everywhere
in the world. We support and respect human rights
by conducting our business in responsible ways that
provide opportunities to our employees, customers,
and shareholders. We contribute to – and volunteer
in – the communities where we work. We unleash our
people’s potential through development opportunities,
safety and wellness programs, and inclusion and
diversity initiatives. These efforts are integral to
the success of our business and core to our values.
These also enable us to attract and retain a talented
and diversified workforce capable of accelerating
innovation and achieving long-term growth.
EMPLOYEE RESOURCE
GROUPS
WIN
WOMEN IN NETWORKING
TEYP
YOUNG PROFESSIONALS
ALIGN
LESBIAN, GAY, BISEXUAL,
AND TRANSGENDER
AHEN
AFRICAN HERITAGE
EMPLOYEE NETWORK
Scored 100 on the Human Rights Campaign Equality
Index, recognizing our commitment to inclusion and
diversity.
FOR THE THIRD YEAR, TE CELEBRATED
INCLUSION AND DIVERSITY MONTH.
TE operates with the highest standards
of et h i c s i n m a n a g i n g e nvi ro n m e n t a l
performance and supply chain relationships.
We demonstrate this commitment through
our company-wide sustainability efforts to
reduce our energy and water usage, waste,
and greenhouse gas emissions, and by
publicly reporting on our progress.
We source materials close to our facilities
and look to ensure compliance by partnering
with suppliers who adopt our Guide to
Supplier Social Responsibility.
WATER USAGE*
2016 VS 2010
32 %
GREENHOUSE
GAS EMISSIONS*
2016 VS 2010
21%
*FY2010-2016 represents absolute reductions, and does not include
sites related to our divested Broadband Network Solutions business
or sites related to our recent acquisition of Creganna Medical.
FOR THE FIFTH
CONSECUTIVE YEAR
UNMATCHED RESOURCES
CLOSE TO OUR CUSTOMERS
TE designs, manufactures, and delivers connectivity and sensor solutions
to customers in nearly 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.
AMERICAS
$4.2B
AMERICAS
44
MANUFACTURING SITES
23,000
EMPLOYEES
CHINA
15
MANUFACTURING SITES
20,000
EMPLOYEES
ASIA* (EXCLUDING CHINA)
10
MANUFACTURING SITES
9,000
EMPLOYEES
EUROPE, MIDDLE EAST,
AFRICA (EMEA)
35
MANUFACTURING SITES
23,000
EMPLOYEES
*Including India
$12.2B
FY 16 SALES WORLDWIDE
CHINA
ASIA*
(EXCLUDING CHINA)
$2.2B
$1.8B
$4.0B
EMEA
•
•
NON-GAAP MEASURES
“Organic Net Sales Growth,” “Adjusted Operating Income,”
“Adjusted Operating Margin,” “Adjusted Earnings Per Share,” and
“Free Cash Flow” are non-GAAP measures and should not be
considered replacements for results in accordance with accounting
principles generally accepted in the U.S. (“GAAP”). These
non-GAAP measures may not be comparable to similarly-titled
measures reported by other companies. The primary limitation of
these measures is that they exclude the financial impact of items
that would otherwise either increase or decrease our reported
results. This limitation is best addressed by using these non-GAAP
measures in combination with the most directly comparable GAAP
measures in order to better understand the amounts, character,
and impact of any increase or decrease in reported amounts.
The following provides additional information regarding these
non-GAAP measures:
•
•
•
Organic Net Sales Growth – is a useful measure of our
underlying results and trends in the business. It is also a
significant component in our incentive compensation plans.
The difference between reported net sales growth (the most
comparable GAAP measure) and Organic Net Sales Growth
consists of the impact from foreign currency exchange
rates and acquisitions and divestitures, if any. Organic
Net Sales Growth is a useful measure of our performance
because it excludes items that: i) are not completely under
management’s control, such as the impact of changes in
foreign currency exchange rates; or ii) do not reflect the
underlying growth of the company, such as acquisition and
divestiture activity.
Adjusted Operating Income – represents operating income
(the most comparable GAAP measure) before special items
including charges or income related to restructuring and other
charges, acquisition related charges, impairment charges, and
other income or charges, if any. 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 useful to investors
because it provides insight into our underlying operating
results, trends, and the comparability of these results between
periods.
Adjusted Operating Margin – represents operating margin
(the most comparable GAAP measure) before special items
including charges or income related to restructuring and other
charges, acquisition related charges, impairment charges,
and other income or charges, if any. We present Adjusted
Operating Margin before special items to give investors a
perspective on the underlying business results. 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.
Adjusted Earnings Per Share – represents diluted earnings
per share from continuing operations (the most comparable
GAAP measure) before special items, including charges or
income related to 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, the
related tax effects. 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
insight into our underlying operating results, trends, and
the comparability of these results between periods, since
it excludes the impact of special items, which may recur,
but tend to be irregular as to timing. It also is a significant
component in our incentive compensation plans.
Free Cash Flow (FCF) – is a useful measure of our ability to
generate cash. The difference between net cash provided
by continuing operating activities (the most comparable
GAAP measure) and Free Cash Flow consists mainly of
significant cash outflows and inflows that we believe are
useful to identify. We believe Free Cash Flow provides
useful information to investors as it provides insight into the
primary cash flow metric used by management to monitor
and evaluate cash flows generated from our operations.
Free Cash Flow is defined as net cash provided by continuing
operating activities excluding voluntary pension contributions
and the cash impact of special items, if any, minus net capital
expenditures. Voluntary pension contributions are excluded
from the GAAP 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, are also excluded by management
in evaluating Free Cash Flow. Net capital expenditures
consist of capital expenditures less proceeds from the
sale of property, plant, and equipment. These items are
subtracted because they represent long-term commitments.
In the calculation of Free Cash Flow, we subtract certain cash
items that are ultimately within management’s and the Board
of Directors’ discretion to direct and may imply that there is
less or more cash available for our programs than the most
comparable GAAP measure indicates. 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.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
IN US$ MILLIONS, EXCEPT PER SHARE DATA
FISCAL YEAR 2016
ADJUSTMENTS
Operating Income
Operating Margin
U.S. GAAP
Acquisition
Related
Charges (1) (2)
Restructuring
and Other
Charges, Net (2)
Tax Items (3)
Adjusted
(Non-GAAP) (4)
$
1,902
$
32
$
2
$
-
$
1,936
15.5%
15.8%
Diluted Earnings per Share from Continuing Operations
$
5.26
$
0.07
$
-
$
(1.25)
$
4.08
(1) Includes $22 million of acquisition and integration costs and $10 million
of non-cash amortization associated with fair value adjustments related to
acquired inventories and customer order backlog recorded in cost of sales.
(2) The tax effect of each non-GAAP adjustment is calculated based on the
jurisdictions in which the expense (income) is incurred and the tax laws in
effect for each such jurisdiction.
(3) Includes $1,135 million of income tax benefits associated with the
settlement of tax matters for the years 1997 through 2000 which resolved
all aspects of the disputed debt matter with the IRS through the year 2007,
as well as the related impact of $604 million to other expense pursuant
to the tax sharing agreement with Tyco International and Covidien. Also
includes income tax charges related to a $91 million increase in the valuation
allowance for certain U.S. deferred tax assets; and an $83 million net income
tax benefit related to tax settlements in certain other tax jurisdictions, as
well as the related impact of $46 million to other expense pursuant to the
tax sharing agreement with Tyco International and Covidien.
(4) See description of non-GAAP measures contained in this report.
FISCAL YEAR 2015
ADJUSTMENTS
Operating Income
Operating Margin
U.S. GAAP
Acquisition
Related
Charges (1) (2)
Restructuring
and Other
Charges, Net (2)
Tax Items (3)
Adjusted
(Non-GAAP) (4)
$
1,749
$
94
$
149
$
-
$
1,992
14.3%
16.3%
Diluted Earnings per Share from Continuing Operations
$
3.01
$
0.18
$
0.29
$
0.12
$
3.60
(1) Includes $55 million of acquisition and integration costs, $36 million of
non-cash amortization associated with fair value adjustments related to
acquired inventories and customer order backlog recorded in cost of sales,
and $3 million of restructuring costs.
(2) The tax effect of each non-GAAP adjustment is calculated based on the
jurisdictions in which the expense (income) is incurred and the tax laws in
effect for each such jurisdiction.
settlement of audits of prior year income tax returns as well as the related
impact of $84 million to other expense pursuant to the tax sharing
agreement with Tyco International and Covidien. Also includes $216
million of income tax charges associated with the tax impacts of certain
intercompany legal entity restructurings made in connection with our
integration of Measurement Specialties, Inc. and $29 million of income tax
charges for the tax impacts of certain intercompany dividends related to
the restructuring and sale of the Broadband Network Solutions business.
(3) Includes $264 million of income tax benefits associated with the
(4) See description of non-GAAP measures contained in this report.
FISCAL YEAR 2014
ADJUSTMENTS
Operating Income
Operating Margin
U.S. GAAP
Acquisition
Related
Charges (1) (2)
Restructuring
and Other
Charges, Net(2)
Tax Items (3)
Adjusted
(Non-GAAP) (4)
$
1,805
$
35
$
19
$
-
$
1,859
15.1%
15.5%
Diluted Earnings per Share from Continuing Operations
$
3.87
$
0.07
$
0.04
$
(0.67)
$
3.31
(1) Includes $31 million of acquisition and integration charges and $4 million
of non-cash amortization associated with fair value adjustments primarily
related to acquired inventories and customer order backlog recorded in
cost of sales.
(2) The tax effect of each non-GAAP adjustment is calculated based on the
jurisdictions in which the expense (income) is incurred and the tax laws in
effect for each such jurisdiction.
(3) 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 $18 million related to our share of a
settlement agreement entered into by Tyco International with a former
subsidiary.
(4) See description of non-GAAP measures contained in this report.
RECONCILIATION OF FREE CASH FLOW
IN US$ MILLIONS
FISCAL YEAR
2016
2015 2014
Net cash provided by continuing operating activities
Net cash provided by continuing operating activities
$
2,019
$
1,619
$
1,804
Net cash provided by (used in) discontinued operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Effect of currency translation on cash
Net increase (decrease) in cash and cash equivalents
Net cash provided by continuing operating activities
Excluding:
Payments related to pre-separation U.S. tax matters, net
Payments related to income taxes on the sale of the
Broadband Network Solutions business
Capital expenditures
Proceeds from sale of property, plant, and equipment
Free cash flow (1)
(1) See description of non-GAAP measures contained in this report.
RECONCILIATION OF NET SALES GROWTH
IN US$ MILLIONS
(97)
1,922
(1,581)
294
1,913
636
(3,030)
(1,606)
7
$
(2,682)
$
2,019
$
$
(71)
872
1,619
$
$
150
36
(628)
8
40
-
(600)
17
279
2,083
(1,075)
65
(19)
1,054
1,804
179
-
(635)
129
$
1,585
$
1,076
$
1,477
CHANGES TO NET SALES FOR FISCAL YEAR 2016 VERSUS NET SALES FOR FISCAL YEAR 2015
Total
Translation(1)
Acquisitions
(Divestitures), Net
Organic(2)
Transportation Solutions
$
Industrial Solutions
152
36
1.1
Communications Solutions
(183)
(6.8)
2.4
%
$
(174)
$
16
$
310
4.9
%
(63)
(17)
188
(123)
(89)
(2.8)
(43)
(1.6)
Net Sales
$
5
-
%
$
(254)
$
81
$
178
1.5
%
(1) Represents the change in net sales resulting from changes in foreign
currency exchange rates.
(2) 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. Organic net sales growth is a
non-GAAP measure. See description of non-GAAP measures 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
Act of 1995. These statements are based on management’s
current expectations and are subject to risks, uncertainty, and
changes in circumstances, which may cause actual results,
performance, financial condition, or achievements to differ
materially from anticipated results, performance, financial
condition, or achievements. All statements contained herein
that are not clearly historical in nature are forward-looking and
the words “anticipate,” “believe,” “expect,” “estimate,” “plan,”
and similar expressions are generally intended to identify
forward-looking statements. We have no intention and are
under no obligation to update or alter (and expressly disclaim
any such intention or obligation to do so) our forward-looking
statements whether as a result of new information, future events,
or otherwise, except to the extent required by law. The forward-
looking statements in this presentation include statements
addressing our future financial condition and operating results.
Examples of factors that could cause actual results to differ
materially from those described in the forward-looking statements
include, among others, business, economic, competitive, and
regulatory risks, such as conditions affecting demand for products,
particularly in the automotive and data and devices industries;
competition and pricing pressure; fluctuations in foreign currency
exchange rates and commodity prices; natural disasters and
political, economic and military instability in countries in which
we operate; developments in the credit markets; future good will
impairment; compliance with current and future environmental
and other laws and regulations; and the possible effects on us
of changes in tax laws, tax treaties, and other legislation. More
detailed information about these and other factors is set forth in
TE Connectivity Ltd.’s Annual Report on Form 10-K for the fiscal
year ended Sept. 30, 2016 as well as in our Quarterly Reports on
Form 10-Q, 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 Disclosure . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss Statutory Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss Statutory Compensation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
8
11
13
37
39
39
41
111
127
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, divestitures, the effects of
competition, and the effects of future legislation or regulations. Forward-looking statements include all
statements that are not historical facts and can be identified by the use of forward-looking terminology
such as the words ‘‘believe,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘intend,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘predict,’’ ‘‘potential,’’
‘‘continue,’’ ‘‘may,’’ ‘‘should,’’ or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ
materially from those expressed in these forward-looking statements. 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 30, 2016 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 sensor
solutions that are essential in today’s increasingly connected world. We help our customers solve the
need for intelligent, efficient, and high-performing products and solutions.
We became an independent, publicly traded company in 2007; however, through our predecessor
companies, we trace our foundations in the connectivity business back to 1941. 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.
We have a 52 or 53-week fiscal year that ends on the last Friday of September. Fiscal 2016 was a
53 week year and ended on September 30, 2016. Fiscal 2015 and 2014 were 52 weeks in length and
ended on September 25, 2015 and September 26, 2014, respectively.
Segments
We operate through the following reportable segments: Transportation Solutions, Industrial
Solutions, and Communications Solutions. We believe our three segments serve a combined market of
approximately $170 billion.
Our net sales by segment as a percentage of our total net sales were as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53% 52% 51%
26
26
22
21
28
21
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Fiscal
2016
2015
2014
Below is a description of our reportable segments and the primary products, markets, and
competitors of each segment. See Notes 1 and 21 to the Consolidated Financial Statements for
additional information regarding our segments.
Transportation Solutions
The Transportation Solutions segment is a leader in connectivity and sensor technologies. The
primary products sold by the Transportation Solutions segment include terminals and connector systems
and components; sensors; relays; application tooling; and wire and heat shrink tubing. The
Transportation Solutions segment’s products, which must withstand harsh conditions, are used in the
following end markets:
(cid:127) Automotive (75% of segment’s net sales). We are one of the leading providers of advanced
automobile connectivity solutions. The automotive industry uses our products in automotive
technologies for body and chassis systems, convenience applications, driver information,
infotainment solutions, miniaturization solutions, motor and powertrain applications, and safety
and security systems. Hybrid and electronic mobility solutions include in-vehicle technologies,
battery technologies, and charging solutions.
(cid:127) Commercial transportation (13% of segment’s net sales). We deliver reliable connectivity products
designed to withstand harsh environmental conditions for on- and off-highway vehicles and
recreational transportation, including construction, agriculture, buses, and other vehicles.
1
(cid:127) Sensors (12% of segment’s net sales). We offer a portfolio of intelligent, efficient, and
high-performing sensor solutions that are used by customers across multiple industries, including
automotive, industrial equipment, commercial transportation, medical solutions, aerospace and
defense, and consumer applications.
The Transportation Solutions segment’s major competitors include Yazaki, Delphi, Sumitomo,
Sensata, Honeywell, Molex, and Amphenol.
Industrial Solutions
The Industrial Solutions segment is a leading supplier of products that connect and distribute
power, data, and signals. The primary products sold by the Industrial Solutions segment include
terminals and connector systems and components; heat shrink tubing; relays; and wire and cable. The
Industrial Solutions segment’s products are used in the following markets:
(cid:127) Industrial equipment (44% of segment’s net sales). Our products are used in factory automation
and process control systems such as industrial controls, robotics, human machine interface,
industrial communication, and power distribution. The medical industry uses our products in
imaging, diagnostic, therapeutic, surgical, tubing, and minimally invasive interventional
applications. 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. Also, our products are used by the
solar and lighting industry.
(cid:127) Aerospace, defense, oil, and gas (34% of segment’s net sales). 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) Energy (22% of segment’s net sales). Our products are used by OEMs and utility companies in
the electrical power industry and include a wide range of solutions for the electrical power
generation, transmission, distribution, and industrial markets.
The Industrial Solutions segment competes primarily against Amphenol, Esterline, Molex, Belden,
Phoenix Contact, Hubbell, Carlisle Companies, and Integer Holdings.
Communications Solutions
The Communications Solutions segment is a leading supplier of electronic components for the data
and devices and appliances markets. We are also a leader in developing, manufacturing, installing, and
maintaining some of the world’s most advanced subsea fiber optic communications systems. The
primary products sold by the Communications Solutions segment include terminals and connector
systems and components; undersea telecommunication systems; relays; heat shrink tubing; and
antennas. The Communications Solutions segment’s products are used in the following markets:
(cid:127) Data and devices (40% of segment’s net sales). We deliver products and solutions that are used in
a variety of equipment architectures within the networking equipment, data center equipment,
and wireless infrastructure industries. Additionally, we deliver a range of connectivity solutions
for the Internet of Things, smart phones, tablet computers, notebooks, and virtual reality
applications to help our customers meet their current challenges and future innovations.
2
(cid:127) Subsea communications (35% of segment’s net sales). 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.
(cid:127) Appliances (25% of segment’s net sales). We provide solutions to meet the daily demands of
home appliances. Our products are used in many household appliances, including washers,
dryers, refrigerators, air conditioners, dishwashers, cooking appliances, water heaters, and
microwaves. Our expansive range of standard products is supplemented by an array of custom-
designed solutions.
The Communications Solutions segment’s major competitors include Amphenol, Molex, FCI
Electronics, JST, and Korea Electric Terminal (KET). Also, the subsea communications business
competes against Nokia (Alcatel-Lucent Submarine Networks) and NEC.
Customers
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.
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 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.
There is no single customer that accounted for a significant amount of our net sales in fiscal 2016,
2015, or 2014.
Sales and Distribution
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
2016
2015
2014
Americas(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe/Middle East/Africa (‘‘EMEA’’) . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34% 34% 30%
33
34
33
32
35
35
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 region includes our subsea communications business.
3
See Note 21 to the Consolidated Financial Statements for additional geographic information
relating to our business.
We sell our products into approximately 150 countries primarily through direct selling efforts to
manufacturers. We also sell some of our products indirectly via third-party distributors. In fiscal 2016,
our direct sales represented 80% of total net sales.
We maintain distribution centers around the world. 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.
Products are generally delivered to distribution centers by our manufacturing facilities and then
subsequently delivered to the customer. In some instances, however, 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
We experience a slight seasonal pattern to our business. Overall, the third and fourth fiscal
quarters are typically the strongest quarters of our fiscal year, whereas the first fiscal quarter is
negatively affected by winter holidays and the second fiscal quarter may 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 energy market typically
increase in the third and fourth fiscal quarters as customer activity increases.
Customer orders typically fluctuate from quarter to quarter based upon business conditions and
cancellation of unfilled orders prior to shipment of goods. Backlog by reportable segment was as
follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2016
2015
(in millions)
$1,343
875
1,387
$1,208
814
1,310
$3,605
$3,332
(1)
Includes our subsea communications business’ backlog of $1,047 million and $995 million at fiscal
year end 2016 and 2015, respectively.
We expect that the majority of our backlog at fiscal year end 2016 will be filled during fiscal 2017.
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.
4
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2015
(in millions)
$262
128
150
$540
2014
$196
128
160
$484
2016
$312
136
118
$566
Our capital spending and investment in product and process engineering and development enable
us to consistently provide innovative, high-quality products with efficient manufacturing methods. In
fiscal 2016, we derived approximately 20% of our net sales from new products, including product
extensions, introduced within the previous three fiscal years.
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.
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.
TE Connectivity and TE Connectivity (logo) are trademarks. (cid:1) 2016 TE Connectivity Ltd. All
Rights Reserved.
5
Management Team and Employees
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, president, and segment
leaders average over 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.
Our strong employee base, along with their commitment to uncompromising values, provides the
foundation of our company’s success. We continue to emphasize employee development and training,
and we embrace diversity and inclusion.
We have employees located throughout the world. As of fiscal year end 2016, we employed
approximately 75,000 people worldwide, of whom 23,000 were in the Americas region, 28,000 were in
the EMEA region, and 24,000 were in the Asia–Pacific region. Of our total employees, approximately
46,000 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, and chemical usage. 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 also have a program for compliance with the European Union (‘‘EU’’) Restriction of Hazardous
Substances and Waste Electrical and Electronic Equipment Directives, the China Restriction of
Hazardous Substances law, the EU Registration, Evaluation, Authorization, and Restriction of
Chemicals (‘‘REACH’’) 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 $17 million to $42 million, and that the best estimate within this range is
$20 million. We do not anticipate any material capital expenditures during fiscal 2017 for environmental
control facilities or other costs of compliance with laws or regulations relating to greenhouse gas
emissions.
6
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 information on our website is not
incorporated by reference in this Annual Report on Form 10-K.
7
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 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 of fiscal 2016 and 2015:
Market Price Range
Fiscal
2016
2015
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67.61
65.75
63.69
64.54
$56.85
52.27
57.32
54.83
$65.00
73.42
71.73
64.36
$51.47
61.19
66.12
55.53
The number of registered holders of our common shares at November 9, 2016 was 25,611.
Dividends and Cash Distributions to Shareholders
The following table sets forth the dividends paid on our common shares during the quarterly
periods of fiscal 2016 and 2015:
Fiscal
2016
2015
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.33 (CHF 0.32)(1) $ 0.29 (CHF 0.26)(2)
$ 0.33 (CHF 0.32)(1) $ 0.29 (CHF 0.26)(2)
$ 0.37 (CHF 0.37)(1) $ 0.33 (CHF 0.32)(1)
$ 0.37 (CHF 0.37)(1) $ 0.33 (CHF 0.32)(1)
(1) Payments were declared in U.S. dollars. The Swiss francs (‘‘CHF’’) equivalent is based on a U.S. dollar/CHF
exchange rate on the date of shareholder approval.
(2) Payments were declared in CHF and paid in U.S. dollars based on a U.S. dollar/CHF exchange rate shortly
before shareholder approval.
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.
8
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 at fiscal year end 2011 and assumes the reinvestment of all dividends and distributions. The
graph shows the cumulative total return for the last five fiscal years. 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
200
150
100
s
r
a
l
l
o
D
50
2011
2012
2013
2014
2015
2016
Fiscal Year End
TE Connectivity Ltd.
S&P 500 Index
Dow Jones Electrical Components and Equipment Index
18NOV201601181780
TE Connectivity Ltd. . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . .
Dow Jones Electrical Components and
Fiscal Year End
2011(1)
2012
2013
2014
2015
2016
$100.00
100.00
$123.71
130.20
$193.20
156.32
$222.75
187.02
$225.57
185.92
$254.30
213.44
Equipment Index . . . . . . . . . . . . . . . . .
100.00
132.48
181.99
203.03
186.47
221.36
(1) $100 invested on September 30, 2011 in TE Connectivity’s common shares and in indexes. Indexes calculated
on month-end basis.
9
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the
quarter ended September 30, 2016:
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 25–July 22, 2016 . . . . . . . . . . . . .
July 23–August 26, 2016 . . . . . . . . . . .
August 27–September 30, 2016 . . . . . .
1,237,100
395,461
1,030
Total . . . . . . . . . . . . . . . . . . . . . . . .
1,633,591
$58.07
60.44
63.07
$58.64
1,237,100
391,693
—
1,628,793
Maximum
Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)
$1,125,417,356
1,101,746,129
1,101,746,129
(1) These columns include the following transactions which occurred during the quarter ended September 30,
2016:
(i) the acquisition of 4,798 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 1,628,793 common shares, summarized on a trade-date basis, in
conjunction with the share repurchase program announced in September 2007.
(2)
In March 2016, our board of directors authorized a $1.0 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.
10
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.
2016(1)
As of or for Fiscal
2014(3)
(in millions, except per share data)
2015(2)
2013(4)
2012(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 from discontinued operations, net of
$12,238
22
2
$12,233
55
152
$11,973
31
19
$11,390
14
222
$11,325
27
104
1,941
1,238
1,614
1,154
1,003
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
$ 2,009
1,182
$ 2,420
167
$ 1,781
122
$ 1,276
109
$ 1,112
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
$
$
5.30
5.49
5.26
5.44
$
$
3.06
5.98
3.01
5.89
$
$
3.94
4.34
3.87
4.27
$
$
2.76
3.05
2.73
3.02
$
$
2.35
2.61
2.33
2.59
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.40
$
1.24
$
1.08
$
0.92
$
0.78
Balance Sheet Data
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,608
6,057
$ 8,485
$20,589
7,429
$ 9,585
$20,132
7,128
$ 9,013
$18,446
6,000
$ 8,386
$19,290
7,166
$ 7,977
(1) Fiscal 2016 results included a pre-tax gain of $144 million on the sale of our Circuit Protection Devices
(‘‘CPD’’) business; a $1,135 million income tax benefit associated with the effective settlement of tax matters
for the years 1997 through 2000 which resolved all aspects of the disputed debt matter with the Internal
Revenue Service through the year 2007 and the related impact of $604 million to other expense pursuant to
the Tax Sharing Agreement with Tyco International plc (‘‘Tyco International’’) and Covidien plc (‘‘Covidien’’);
a $91 million income tax charge related to an increase to the valuation allowance for certain U.S. deferred tax
assets; and an $83 million net income tax benefit related to tax settlements in certain other tax jurisdictions.
(See Notes 3, 12, 15, and 16 to the Consolidated Financial Statements.) Fiscal 2016 was a 53 week year.
(2) Fiscal 2015 results included a $216 million income tax charge associated with the tax impacts of certain
intercompany legal entity restructurings made in connection with our integration of Measurement
Specialties, Inc. (‘‘Measurement Specialties’’); a $201 million income tax benefit associated with the effective
settlement of all undisputed tax matters for the years 2001 through 2007 and the related impact of $84 million
to other expense pursuant to the Tax Sharing Agreement with Tyco International and Covidien; and a
$63 million income tax benefit associated with the effective settlement of all undisputed tax matters for the
years 2008 through 2010. In addition, in fiscal 2015, income from discontinued operations, net of income taxes
11
included the gain on the sale of our Broadband Network Solutions (‘‘BNS’’) business. (See Notes 4, 12, 15,
and 16 to the Consolidated Financial Statements.)
(3) Fiscal 2014 results included a $282 million income tax benefit recognized in connection with a reduction in
the valuation allowance associated with certain tax loss carryforwards relating to ADC
Telecommunications, Inc. (‘‘ADC’’). (See Note 15 to the Consolidated Financial Statements.)
(4) Fiscal 2013 results included a $331 million income tax benefit associated with the effective settlement of all
undisputed tax matters for the years 1997 through 2000 and the related impact of $231 million to other
expense pursuant to the Tax Sharing Agreement with Tyco International and Covidien.
(5) Fiscal 2012 results included $75 million of charges from the amortization of acquisition-related fair value
adjustments related primarily to acquired inventories and customer order backlog associated with Deutsch
Group SAS and a $107 million income tax benefit recognized in connection with a reduction in the valuation
allowance associated with tax loss carryforwards in certain non-U.S. locations.
12
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’’ of our Annual Report on Form 10-K for the fiscal
year ended September 30, 2016 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 sensor solutions
that are essential in today’s increasingly connected world. We help our customers solve the need for
intelligent, efficient, and high-performing products and solutions.
Fiscal 2016 highlights included the following:
(cid:127) Overall, our net sales were flat in fiscal 2016 as compared to fiscal 2015, as increased net sales
in the Transportation Solutions and Industrial Solutions segments were offset by declines in the
Communications Solutions segment. Foreign currency exchange rates negatively impacted net
sales by $254 million in fiscal 2016 as compared to fiscal 2015. On an organic basis, our net sales
increased 1.5% during fiscal 2016 as compared to fiscal 2015.
(cid:127) Our net sales by segment were as follows:
(cid:127) Transportation Solutions—Our net sales increased 2.4% due to increased sales in the
automotive end market and, to a lesser degree, the sensors and commercial transportation
end markets.
(cid:127) Industrial Solutions—Our net sales increased 1.1% due to increased sales in the industrial
equipment end market which benefitted from sales contributions from acquisitions, partially
offset by decreased sales in the aerospace, defense, oil, and gas and the energy end markets.
(cid:127) Communications Solutions—Our net sales decreased 6.8% due primarily to sales declines in
the data and devices end market, partially offset by sales increases in the subsea
communications end market.
(cid:127) Fiscal 2016 included an additional week which contributed $238 million in net sales and
$0.13 per share to diluted earnings per share.
(cid:127) During fiscal 2016, our shareholders approved a dividend payment to shareholders of $1.48 per
issued share payable in four quarterly installments of $0.37 beginning with the third fiscal
quarter of 2016 and ending in the second fiscal quarter of 2017.
13
(cid:127) Net cash provided by continuing operating activities was $2,019 million and free cash flow was
$1,585 million in fiscal 2016.
(cid:127) During fiscal 2016, we acquired the Creganna Medical group (‘‘Creganna’’), a global leader in
the design and manufacture of minimally invasive delivery and access medical devices. Also
during fiscal 2016, we completed the divestiture our CPD business.
Outlook
In the first quarter of fiscal 2017, we expect net sales to be between $2.95 billion and $3.05 billion.
This reflects sales growth in the Industrial Solutions and Transportation Solutions segments, partially
offset by sales declines in the Communications Solutions segment relative to the first quarter of fiscal
2016. Additional information regarding expectations for our reportable segments for the first quarter of
fiscal 2017 as compared to the same period of fiscal 2016 is as follows:
(cid:127) Transportation Solutions—We expect our net sales growth in the automotive end market to
exceed anticipated growth in global automotive production of approximately 2% due primarily to
growth in China and the EMEA region. We also expect our net sales to increase in the
commercial transportation and sensors end markets.
(cid:127) Industrial Solutions—We expect our net sales to increase in the industrial equipment end market
due primarily to recent acquisitions. We expect our net sales growth in the aerospace and
defense market to be partially offset by market weakness and sales declines in the oil and gas
market.
(cid:127) Communications Solutions—We expect our net sales to decline in the data and devices end
market primarily as a result of the divestiture of our CPD business. This decline is expected to
be partially offset by sales growth in the appliances and subsea communications end markets.
We expect diluted earnings per share from continuing operations to be in the range of $0.84 to
$0.88 per share in the first quarter of fiscal 2017.
For fiscal 2017, we expect net sales to be between $12.3 billion and $12.9 billion, an increase from
$12.2 billion in fiscal 2016 which included an additional week. This increase is attributable to sales
growth in the Industrial Solutions and Transportation Solutions segments, partially offset by sales
declines in the Communications Solutions segment. Additional information regarding expectations for
our reportable segments for fiscal 2017 compared to fiscal 2016 is as follows:
(cid:127) Transportation Solutions—We expect our net sales increase in the automotive end market to
outpace expected growth in global automotive production of approximately 1% as a result of
increased content per vehicle and market share gains. We also expect our net sales to increase in
the commercial transportation and sensors end markets.
(cid:127) Industrial Solutions—We expect our net sales to increase in the industrial equipment end market
due primarily to recent acquisitions. Also, we expect net sales growth in the aerospace and
defense market.
(cid:127) Communications Solutions—We expect our net sales growth in the subsea communications and
appliances end markets to be more than offset by sales declines in the data and devices end
market, due primarily to the divestiture of our CPD business.
We expect diluted earnings per share from continuing operations to be in the range of $3.84 to
$4.14 per share in fiscal 2017.
The above outlook is based on foreign exchange rates and commodity prices that are consistent
with current levels.
14
We are monitoring the current macroeconomic environment, including the proposed exit of the
United Kingdom from the EU, and its potential effects on our customers and the end markets we
serve. We continue to closely manage our costs in line with economic conditions. Additionally, we are
managing our capital resources and monitoring capital availability to ensure that we have sufficient
resources to fund future capital needs. See further discussion in ‘‘Liquidity and Capital Resources.’’
Acquisitions
During fiscal 2016, we acquired four businesses, including Creganna, for a combined cash purchase
price of $1.3 billion, net of cash acquired.
During fiscal 2015, we acquired Measurement Specialties, a leading global designer and
manufacturer of sensors and sensor-based systems. The total value paid was approximately $1.7 billion,
net of cash acquired, and included $225 million for the repayment of Measurement Specialties’ debt
and accrued interest. Also during fiscal 2015, we acquired three additional businesses for $241 million
in cash, net of cash acquired.
During fiscal 2014, we acquired five businesses, including the SEACON Group (‘‘SEACON’’), a
leading provider of underwater connector technology and systems, for $522 million in cash, net of cash
acquired.
See Note 5 to the Consolidated Financial Statements for additional information regarding
acquisitions.
Divestiture
During fiscal 2016, we sold our CPD business for net cash proceeds of $333 million. We
recognized a pre-tax gain of $144 million on the transaction. The CPD business was reported as part of
the Data and Devices business within our Communications Solutions segment.
Net Sales
Results of Operations
The following table presents our net sales and the percentage of total net sales by segment:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . .
$ 6,503
3,215
2,520
53% $ 6,351
3,179
26
2,703
21
52% $ 6,090
3,302
26
2,581
22
51%
28
21
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,238
100% $12,233
100% $11,973
100%
2016
Fiscal
2015
($ in millions)
2014
15
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by segment:
2016
2015
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Total
Acquisitions
Translation (Divestiture)
Organic
Total
Translation Acquisitions
Organic
($ in millions)
Transportation
Solutions
. . . .
Industrial
$ 152
2.4% $(174)
$ 16
$310
4.9% $ 261
4.3%
$(556)
Solutions
. . . .
36
1.1
Communications
Solutions
. . . .
(183)
(6.8)
(63)
(17)
Total . . . . . . .
$
5 —% $(254)
188
(89)
(2.8)
(123) (3.7)
(258)
(123)
$ 81
(43)
(1.6)
122
4.7
(95)
$178
1.5% $ 260
2.2%
$(909)
$567
142
—
$709
$250
4.1%
(7)
(0.2)
217
$460
8.4
3.8%
Net sales were flat in fiscal 2016 as compared to fiscal 2015. Organic net sales growth of 1.5% and
net sales contributions from acquisitions and a divestiture of 0.6% were offset by the negative impact of
foreign currency translation of 2.1% due to the weakening of certain foreign currencies. Organic net
sales were adversely affected by price erosion of $188 million in fiscal 2016. Fiscal 2016 included an
additional week which contributed $238 million in net sales. The impact of the additional week was
estimated using an average weekly sales figure for the last month of the fiscal year.
Net sales increased $260 million, or 2.2%, in fiscal 2015 as compared to fiscal 2014. The increase
in net sales resulted from sales contributions from acquisitions of 5.9% and organic net sales growth of
3.8%, partially offset by the negative impact of foreign currency translation of 7.5% due to the
weakening of certain foreign currencies. During fiscal 2015, Measurement Specialties contributed net
sales of $548 million. Organic net sales were adversely affected by price erosion of $208 million in fiscal
2015.
See further discussion of net sales below under ‘‘Segment Results.’’
Net Sales by Geographic Region. Our business operates in three geographic regions—the Americas,
EMEA, and Asia–Pacific—and our results of operations are influenced by changes in foreign currency
exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies,
will directly affect our reported results as we translate those currencies into U.S. dollars at the end of
each fiscal period. We sell our products into approximately 150 countries, and approximately 54% of
our net sales were invoiced in currencies other than the U.S. dollar in fiscal 2016. The percentage of
net sales in fiscal 2016 by major currencies invoiced was as follows:
Currencies
U.S. dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chinese renminbi
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
46%
28
11
6
9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
16
The following table presents our net sales and the percentage of total net sales by geographic
region:
2016
Fiscal
2015
($ in millions)
2014
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,199
4,116
3,923
34% $ 4,138
3,992
34
4,103
32
34% $ 3,515
4,224
33
4,234
33
30%
35
35
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,238
100% $12,233
100% $11,973
100%
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by geographic region:
2016
2015
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Total
Acquisitions
Translation (Divestiture)
Organic
Total
Translation Acquisitions
Organic
Americas . . . . . .
EMEA . . . . . . . .
Asia–Pacific . . . . .
1.5% $ (58)
$ 61
(141)
3.1
124
(55)
(180) (4.4)
Total
. . . . . . .
$
5 —% $(254)
$104
71
(94)
$ 81
($ in millions)
0.4% $ 623
(232)
4.9
(131)
(0.7)
$ 15
194
(31)
17.7%
(5.5)
(3.1)
$178
1.5% $ 260
2.2%
$ (72)
(649)
(188)
$(909)
$334
287
88
$709
$361
130
(31)
$460
10.3%
3.1
(0.7)
3.8%
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . .
$8,205
$8,146
$8,001
$ 59
$145
67.0% 66.6% 66.8% 0.4% (0.2)%
2016
Fiscal
2015
2014
($ in millions)
Fiscal
2016
versus
2015
Fiscal
2015
versus
2014
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . .
$4,033
$4,087
$3,972
33.0% 33.4% 33.2% (0.4)% 0.2%
$ (54)
$115
In fiscal 2016, gross margin decreased $54 million as compared to fiscal 2015. In fiscal 2016, gross
margin included charges of $10 million from the amortization of acquisition-related fair value
adjustments to acquired inventories and customer order backlog associated primarily with Creganna. In
fiscal 2015, gross margin included charges of $36 million from the amortization of acquisition-related
fair value adjustments to acquired inventories and customer order backlog associated primarily with
Measurement Specialties. Excluding these charges, the gross margin decreased in fiscal 2016 due
primarily to unfavorable product mix and price erosion, partially offset by lower material costs.
Gross margin increased $115 million in fiscal 2015 as compared to fiscal 2014. In fiscal 2015, gross
margin included charges of $36 million associated with the acquisition of Measurement Specialties.
Excluding these charges, gross margin increased in fiscal 2015 primarily as a result of higher volume
and improved manufacturing productivity, partially offset by the negative impact of changes in foreign
currency exchange rates and price erosion.
Cost of sales and gross margin are subject to variability in raw material prices, and the price of
many of our raw materials continues to fluctuate. In fiscal 2016, we purchased approximately
17
170 million pounds of copper, 115,000 troy ounces of gold, and 2.4 million troy ounces of silver. The
following table sets forth the average prices incurred related to copper, gold, and silver.
Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lb.
Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
$ 2.49
1,212
16.08
Measure
2016
Fiscal
2015
$ 3.06
1,267
18.51
2014
$ 3.33
1,405
23.43
In fiscal 2017, we expect to purchase approximately 177 million pounds of copper, 129,000 troy
ounces of gold, and 2.5 million troy ounces of silver.
Operating Expenses
The following table presents operating expense information:
Selling, general, and administrative expenses . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . .
2016
Fiscal
2015
$1,463
$1,504
2014
($ in millions)
$1,534
Fiscal
2016
versus
2015
Fiscal
2015
versus
2014
$ (41)
$ (30)
12.0% 12.3% 12.8% (0.3)% (0.5)%
Research, development, and engineering expenses . . .
Acquisition and integration costs . . . . . . . . . . . . . . . .
Restructuring and other charges, net . . . . . . . . . . . . .
$ 644
22
$
2
$
$ 627
$
55
$ 152
$ 583
31
$
19
$
$
17
$ (33)
$ (150)
$ 44
$ 24
$ 133
Selling, General, and Administrative Expenses.
In fiscal 2016, selling, general, and administrative
expenses decreased $41 million as compared to fiscal 2015 due primarily to cost control measures and
savings attributable to restructuring actions.
Selling, general, and administrative expenses decreased $30 million in fiscal 2015 as compared to
fiscal 2014. The decrease resulted primarily from cost control measures and savings attributable to
restructuring actions, partially offset by additional expenses associated with Measurement Specialties.
Research, Development, and Engineering Expenses. Research, development, and engineering
expenses increased $17 million in fiscal 2016 as compared to fiscal 2015 and $44 million in fiscal 2015
as compared to fiscal 2014. The increases resulted from additional expenses related to acquisitions and
growth initiatives, primarily in the Transportation Solutions segment.
Acquisition and Integration Costs.
In fiscal 2016, we incurred acquisition and integration costs of
$22 million related primarily to the acquisitions of Creganna and Measurement Specialties. In fiscal
2015, we incurred acquisition and integration costs of $55 million, related primarily to the acquisitions
of Measurement Specialties and SEACON. In fiscal 2014, we incurred acquisition and integration costs
of $31 million, primarily in connection with the acquisition of SEACON.
Restructuring and Other Charges, Net. We are committed to continuous productivity improvements
and consistently evaluate opportunities to simplify our global manufacturing footprint, migrate facilities
to lower-cost regions, reduce fixed costs, and eliminate excess capacity. These initiatives are designed to
help us maintain our competitiveness in the industry, improve our operating leverage, and position us
for future growth.
During fiscal 2016, we initiated a restructuring program associated with headcount reductions
impacting all segments and product line closures in the Communications Solutions segment. During
fiscal 2015, we initiated a restructuring program associated with headcount reductions and product line
18
closures, primarily impacting the Communications Solutions and Industrial Solutions segments. During
fiscal 2014, we initiated a restructuring program associated primarily with headcount reductions and
manufacturing site and product line closures in the Communications Solutions segment.
In connection with these initiatives, we recorded net restructuring charges of $125 million,
$93 million, and $23 million in fiscal 2016, 2015, and 2014, respectively. Annualized cost savings related
to actions initiated in fiscal 2016 are expected to be approximately $150 million and are expected to be
realized by the end of fiscal 2017. Cost savings will be reflected primarily in cost of sales and selling,
general, and administrative expenses. During fiscal 2017, we expect net restructuring charges to be
similar to fiscal 2016 levels. We expect total spending, which will be funded with cash from operations,
to be approximately $110 million in fiscal 2017.
During fiscal 2016, we recognized a pre-tax gain of $144 million on the sale of our CPD business.
During fiscal 2016 and 2015, we incurred net other charges of $21 million and $59 million,
respectively, primarily in connection with the divestiture of certain businesses.
See Note 3 to the Consolidated Financial Statements for additional information regarding net
restructuring and other charges.
Operating Income
The following table presents operating income and operating margin information:
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,902
$1,749
$1,805
$153
$ (56)
15.5% 14.3% 15.1% 1.2% (0.8)%
Operating income included the following:
2016
Fiscal
2015
2014
($ in millions)
Fiscal
2016
versus
2015
Fiscal
2015
versus
2014
Acquisition related charges:
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges associated with the amortization of acquisition-related fair value
Fiscal
2016
2015
2014
(in millions)
$22
$ 55
$31
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Restructuring charges related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . —
36
4
3 —
Restructuring and other charges, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
2
94
149
35
19
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34
$243
$54
See further discussion of operating income below under ‘‘Segment Results.’’
19
Non-Operating Items
The following table presents select non-operating information:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of income taxes . .
Fiscal
2015
2014
Fiscal
2016
versus
2015
Fiscal
2015
versus
2014
(in millions)
$127
$
63
146
167
$ 136
(55)
337
1,182
(9) $
(577)
(1,116)
(1,114)
9
(118)
191
1,015
2016
$ 127
(632)
(779)
68
Other Income (Expense), Net.
In fiscal 2016, 2015, and 2014, we recorded net other income
(expense) primarily pursuant to the Tax Sharing Agreement with Tyco International and Covidien. See
Note 16 to the Consolidated Financial Statements for further information regarding net other income
(expense) and Note 12 to the Consolidated Financial Statements for information regarding the
separation and related Tax Sharing Agreement.
Income Taxes. See Note 15 to the Consolidated Financial Statements for information regarding
items impacting income tax expense (benefit) for fiscal 2016, 2015, and 2014.
The valuation allowance for deferred tax assets was $3,096 million and $3,237 million at fiscal year
end 2016 and 2015, respectively. See Note 15 to the Consolidated Financial Statements for further
information regarding the valuation allowance for deferred tax assets.
As of fiscal year end 2016, certain subsidiaries had approximately $21 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. See Note 15 to the Consolidated Financial Statements for additional
information regarding undistributed earnings.
Income from Discontinued Operations, Net of Income Taxes. During fiscal 2015, we sold our BNS
business for $3.0 billion in cash and recognized a pre-tax gain of $1.1 billion on the transaction. During
fiscal 2016, we recognized an additional pre-tax gain of $29 million on the divestiture, related primarily
to pension and net working capital adjustments.
In fiscal 2006, the former shareholders of Com-Net initiated a lawsuit related to our fiscal 2001
acquisition of Com-Net. In connection with the Com-Net case, we recorded a reserve and pre-tax
charges of $127 million during fiscal 2015. During fiscal 2016, we recorded pre-tax credits of
$30 million, representing a release of excess reserves. These amounts are reflected in income from
discontinued operations on the Consolidated Statements of Operations as the Com-Net case was
associated with our former Wireless Systems business which was sold in 2009.
The BNS and Wireless Systems businesses met the discontinued operations criteria and were
reported as such in all periods presented on the Consolidated Financial Statements. Prior to
reclassification to discontinued operations, the BNS and Wireless Systems businesses were included in
the former Network Solutions and Wireless Systems segments, respectively. See Note 4 to the
Consolidated Financial Statements for additional information regarding discontinued operations.
20
Transportation Solutions
Segment Results
Net Sales. The following table presents the Transportation Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2016
Fiscal
2015
($ in millions)
2014
Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Transportation . . . . . . . . . . . . . . . . . . . . .
Sensors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,912
825
766
75% $4,780
820
13
751
12
75% $4,995
893
13
202
12
82%
15
3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,503
100% $6,351
100% $6,090
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 Transportation Solutions segment’s
net sales compared to the prior fiscal year by primary industry end market:
2016
2015
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Total
Translation Acquisition
Organic
Total
Translation Acquisitions
Organic
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$132
2.8% $(134)
5
15
0.6
2.0
(16)
(24)
$152
2.4% $(174)
$—
—
16
$16
($ in millions)
5.6% $(215)
$266
(4.3)% $(469)
21
23
2.6
3.1
(73)
549
(8.2)
271.8
(66)
(21)
$310
4.9% $ 261
4.3% $(556)
$ —
—
567
$567
$254
5.1%
(7)
3
(0.8)
1.9
$250
4.1%
Automotive .
Commercial
.
.
.
.
Transportation .
.
.
Sensors .
.
.
.
.
Total
.
.
.
.
.
.
.
In fiscal 2016, net sales in the Transportation Solutions segment increased $152 million, or 2.4%,
from fiscal 2015 due primarily to organic net sales growth of 4.9%, partially offset by the negative
impact of foreign currency translation of 2.7%. Fiscal 2016 included an additional week which
contributed $130 million in net sales. Our organic net sales by primary industry end market were as
follows:
(cid:127) Automotive—Our organic net sales increased 5.6% in fiscal 2016. The increase was due primarily
to growth of 8.4% in the Asia–Pacific region and 5.9% in the EMEA region, partially offset by a
decrease of 0.9% in the Americas region. In the Asia–Pacific region, our growth was driven by
increased electronification and market share gains in China. In the EMEA region, our organic
net sales increased due to electronification and new model launches. The Americas region was
adversely impacted by market weakness in North America and macroeconomic conditions in
South America.
(cid:127) Commercial transportation—Our organic net sales increased 2.6% in fiscal 2016 due primarily to
growth in the heavy truck market in the EMEA region and China.
(cid:127) Sensors—Our organic net sales increased 3.1% in fiscal 2016 due primarily to increased sales in
the automotive, aerospace and defense, and industrial equipment markets.
Net sales in the Transportation Solutions segment increased $261 million, or 4.3%, in fiscal 2015 as
compared to fiscal 2014 as a result of sales contributions from acquisitions of 9.3% and organic net
sales growth of 4.1%, partially offset by the negative impact of foreign currency translation of 9.1%.
21
Measurement Specialties contributed net sales of $548 million during fiscal 2015. Our organic net sales
by primary industry end market were as follows:
(cid:127) Automotive—Our organic net sales increased 5.1% in fiscal 2015 with growth of 8.2% in the
Asia–Pacific region, 4.4% in the EMEA region, and 0.8% in the Americas region. Growth in the
Asia–Pacific and EMEA regions and North America was driven primarily by increased content
per vehicle. This growth was partially offset by weakness in South America driven by lower
production volumes in Brazil.
(cid:127) Commercial transportation—Our organic net sales decreased 0.8% in fiscal 2015 due to lower
demand in the agriculture market across all regions, partially offset by growth in the heavy truck
market in developed countries.
(cid:127) Sensors—Our organic net sales increased 1.9% in fiscal 2015 due primarily to increased sales in
the automotive market resulting from new product launches in China and increased volume in
Japan, partially offset by market weakness in Korea and Eastern Europe.
Operating Income. The following table presents the Transportation Solutions segment’s operating
income and operating margin information:
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,191
$1,193
$1,245
$ (2) $ (52)
18.3% 18.8% 20.4% (0.5)% (1.6)%
The Transportation Solutions segment’s operating income included the following:
2016
Fiscal
2015
2014
($ in millions)
Fiscal
2016
versus
2015
Fiscal
2015
versus
2014
Acquisition related charges:
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges associated with the amortization of acquisition-related fair value
Fiscal
2016
2015
2014
(in millions)
$ 9
$ 28
$ 4
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Restructuring charges related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . —
30 —
3 —
Restructuring and other charges, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
46
61
39
4
4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$55
$100
$ 8
Operating income in the Transportation Solutions segment was flat in fiscal 2016 as compared to
fiscal 2015. Excluding the items presented in the table above, operating income decreased in fiscal 2016
primarily as a result of price erosion and the negative impact of changes in foreign currency exchange
rates, partially offset by lower material costs.
In fiscal 2015, operating income in the Transportation Solutions segment decreased $52 million as
compared to fiscal 2014. Excluding the items presented in the table above, operating income increased
in fiscal 2015 due primarily to higher volume and improved manufacturing productivity, partially offset
by the negative impact of changes in foreign currency exchange rates and price erosion.
22
Industrial Solutions
Net Sales. The following table presents the Industrial Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2016
Fiscal
2015
($ in millions)
2014
Industrial Equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Aerospace, Defense, Oil, and Gas . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,419
1,100
696
44% $1,323
1,151
34
705
22
42% $1,364
1,140
36
798
22
41%
35
24
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,215
100% $3,179
100% $3,302
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 Industrial Solutions segment’s net
sales compared to the prior fiscal year by primary industry end market:
2016
2015
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Total
Translation Acquisitions
Organic
Total
Translation Acquisitions
Organic
$ 96
7.3%
$(14)
$179
$(69)
($ in millions)
(5.2)% $ (41)
(3.0)% $ (96)
$ 43
$ 12
0.9%
(51)
(9)
(4.4)
(1.3)
(15)
(34)
9
—
(45)
25
(3.8)
3.6
11
1.0
(93) (11.7)
(71)
(91)
99
—
(17)
(2)
(1.5)
(0.3)
$ 36
1.1%
$(63)
$188
$(89)
(2.8)% $(123)
(3.7)% $(258)
$142
$ (7)
(0.2)%
.
.
.
.
.
.
.
.
.
Industrial Equipment
.
Aerospace, Defense, Oil,
.
.
.
.
and Gas .
.
Energy .
.
.
.
.
.
.
.
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
Net sales in the Industrial Solutions segment increased $36 million, or 1.1%, in fiscal 2016 as
compared to fiscal 2015 due to sales contributions from acquisitions of 5.9%, partially offset by organic
net sales declines of 2.8% and the negative impact of foreign currency translation of 2.0%. Fiscal 2016
included an additional week which contributed $65 million in net sales. Our organic net sales by
primary industry end market were as follows:
(cid:127) Industrial equipment—Our organic net sales decreased 5.2% in fiscal 2016 as a result of market
weakness in the Americas and Asia–Pacific regions.
(cid:127) Aerospace, defense, oil, and gas—Our organic net sales decreased 3.8% in fiscal 2016. The
decrease was attributable to declines in the oil and gas market, partially offset by growth in the
aerospace and defense market. In the oil and gas market, our organic net sales decrease was due
to continued market weakness resulting from declines in oil prices. In the aerospace and defense
market, our organic net sales increased due primarily to strength in our commercial aerospace
business resulting from customer growth and market share gains.
(cid:127) Energy—Our organic net sales increased 3.6% in fiscal 2016 primarily as a result of growth in
the Americas and EMEA regions.
In the Industrial Solutions segment, net sales decreased $123 million, or 3.7%, in fiscal 2015 from
fiscal 2014 due primarily to the negative impact of foreign currency translation of 7.8%, partially offset
by sales contributions from acquisitions of 4.3%. Our organic net sales by primary industry end market
were as follows:
(cid:127) Industrial equipment—Our organic net sales increased 0.9% in fiscal 2015 as growth in the
Asia–Pacific and EMEA regions was partially offset by lower demand in the Americas region.
23
(cid:127) Aerospace, defense, oil, and gas—Our organic net sales decreased 1.5% in fiscal 2015 due
primarily to weakness in the oil and gas market resulting from oil price declines and market
uncertainty, partially offset by continued strength in our commercial aerospace business.
(cid:127) Energy—Our organic net sales were flat in fiscal 2015 as growth in the Americas region was
offset by declines in the Asia–Pacific region.
Operating Income. The following table presents the Industrial Solutions segment’s operating
income and operating margin information:
Fiscal
2015
2014
2016
Fiscal
2016
versus
2015
Fiscal
2015
versus
2014
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
($ in millions)
$ 431
$ 352
$ 343
10.7% 11.1% 13.1% (0.4)% (2.0)%
$ (9) $ (79)
The Industrial Solutions segment’s operating income included the following:
Acquisition related charges:
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges associated with the amortization of acquisition-related fair value
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2016
2015
2014
(in millions)
$13
$27
$27
10
23
31
6
33
44
4
31
7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$54
$77
$38
Operating income in the Industrial Solutions segment decreased $9 million in fiscal 2016 as
compared to fiscal 2015. Excluding the items presented in the table above, operating income decreased
in fiscal 2016 due primarily to unfavorable product mix and price erosion, partially offset by lower
material costs.
In fiscal 2015, operating income in the Industrial Solutions segment decreased $79 million as
compared to fiscal 2014. Excluding the items presented in the table above, operating income decreased
in fiscal 2015 primarily as a result of the negative impact of changes in foreign currency exchange rates
and price erosion.
24
Communications Solutions
Net Sales. The following table presents the Communications Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2016
Fiscal
2015
($ in millions)
2014
Data and Devices . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsea Communications . . . . . . . . . . . . . . . . . . . . . .
Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,020
885
615
40% $1,357
709
35
637
25
50% $1,641
283
26
657
24
64%
11
25
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,520
100% $2,703
100% $2,581
100%
(1)
Industry end market information is presented consistently with our internal management reporting and may
be revised periodically as management deems necessary.
The following table provides an analysis of the change in the Communications Solutions segment’s
net sales compared to the prior fiscal year by primary industry end market:
2016
2015
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Total
Translation Divestiture
Organic
Total
Translation
Organic
($ in millions)
Data and Devices
.
Subsea Communications .
.
.
Appliances
.
.
.
.
.
.
.
.
.
Total .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. $(337)
176
.
(22)
.
(24.8)%
24.8
(3.5)
. $(183)
(6.8)%
$ (6)
—
(11)
$(17)
$(123)
—
—
$(123)
$(208)
176
(11)
$ (43)
(17.8)% $(284) (17.3)%
24.8
(1.8)
150.5
(3.0)
426
(20)
(1.6)% $ 122
4.7%
$(60)
—
(35)
$(95)
$(224)
426
15
$ 217
(13.6)%
150.5
2.3
8.4%
In fiscal 2016, net sales in the Communications Solutions segment decreased $183 million, or 6.8%,
as compared to fiscal 2015 due to sales declines resulting from a divestiture of 4.6%, organic net sales
declines of 1.6%, and the negative impact of foreign currency translation of 0.6%. Fiscal 2016 included
an additional week which contributed $43 million in net sales. Our organic net sales by primary
industry end market were as follows:
(cid:127) Data and devices—Our organic net sales decreased 17.8% in fiscal 2016 as a result of strategic
exit of certain low margin product lines and market weakness in all regions.
(cid:127) Subsea communications—Our organic net sales increased 24.8% in fiscal 2016 due to increased
levels of project activity.
(cid:127) Appliances—Our organic net sales decreased 1.8% in fiscal 2016 due primarily to high inventory
levels at distributors in the first half of the year and lower demand in the Asia–Pacific and
Americas regions, partially offset by growth in the EMEA region.
Net sales in the Communications Solutions segment increased $122 million, or 4.7%, in fiscal 2015
as compared to fiscal 2014 as a result of organic net sales growth of 8.4%, partially offset by the
negative impact of foreign currency translation of 3.7%. Our organic net sales by primary industry end
market were as follows:
(cid:127) Data and devices—Our organic net sales decreased 13.6% in fiscal 2015 due to continued
declines in our sales in the feature phone and tablet computer markets, weak demand in the
smartphone business, and the exit of certain low margin product lines.
(cid:127) Subsea communications—Our organic net sales increased 150.5% in fiscal 2015 as a result of
increased levels of project activity.
25
(cid:127) Appliances—Our organic net sales increased 2.3% in fiscal 2015 with increased demand in the
EMEA region and a rebound in the U.S. market, partially offset by lower demand in the
Asia–Pacific region.
Operating Income. The following table presents the Communications Solutions segment’s
operating income and operating margin information:
Fiscal
2015
2016
2014
Fiscal
2016
versus
2015
Fiscal
2015
versus
2014
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
($ in millions)
$129
$204
$ 368
14.6% 7.5% 5.0% 7.1% 2.5%
$164
$ 75
The Communications Solutions segment’s operating income included the following:
Fiscal
2016
2015
2014
(in millions)
Restructuring and other charges (credits), net . . . . . . . . . . . . . . . . . . . . . . . . . .
$(75)(1)
$66
$8
(1)
Includes pre-tax gain of $144 million on the sale of our CPD business during fiscal 2016.
Operating income in the Communications Solutions segment increased $164 million in fiscal 2016
as compared to fiscal 2015, primarily as a result of the divestiture of the CPD business. Excluding the
items presented in the table above, operating income increased in fiscal 2016 as a result of lower
material costs and savings attributable to restructuring actions, partially offset by the impact of
unfavorable product mix, lower volume, and price erosion.
In fiscal 2015, operating income in the Communications Solutions segment increased $75 million as
compared to fiscal 2014. Excluding the items presented in the table above, operating income increased
in fiscal 2015, due primarily to improved manufacturing productivity, partially offset by price erosion.
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 provided by (used in) investing activities . . . . .
Net cash provided by (used in) financing activities . . . .
Effect of currency translation on cash . . . . . . . . . . . . .
2016
Fiscal
2015
$ 1,922
(1,581)
(3,030)
7
(in millions)
$ 1,913
636
(1,606)
(71)
2014
$ 2,083
(1,075)
65
(19)
Net increase (decrease) in cash and cash equivalents .
$(2,682) $
872
$ 1,054
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. We
may use excess cash to purchase a portion of our common shares pursuant to our authorized share
repurchase program; to acquire strategic businesses or product lines; to pay distributions or dividends
26
on our common shares; or to reduce our outstanding debt, including through the possible repurchase of
our debt in accordance with applicable law. The cost or availability of future funding may be impacted
by financial market conditions. We will continue to monitor financial markets and respond as necessary
to changing conditions.
As of fiscal year end 2016, 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 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; however, the repatriation of these amounts could subject us to additional tax expense.
We provide for tax liabilities on the 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 fiscal year end 2016,
we had approximately $6.9 billion of cash, cash equivalents, and intercompany deposits, principally in
our subsidiaries, that we have the ability to distribute to TEGSA and TE Connectivity Ltd. but we
consider to be permanently reinvested. We estimate that up to approximately $1.5 billion of tax expense
would be recognized on the 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.
Cash Flows from Operating Activities
Net cash provided by continuing operating activities was $2,019 million in fiscal 2016 as compared
to $1,619 million in fiscal 2015. The increase resulted primarily from favorable effects of changes in
accounts receivable and inventory levels, partially offset by an increase in net payments related to
pre-separation tax matters.
Net cash provided by continuing operating activities decreased $185 million to $1,619 million in
fiscal 2015 as compared to $1,804 million in fiscal 2014. The decrease resulted primarily from the
unfavorable effects of changes in working capital levels, partially offset by a decrease in net payments
related to pre-separation tax matters.
Pension contributions in fiscal 2016, 2015, and 2014 were $67 million, $66 million, and $87 million,
respectively. We expect pension contributions to be $54 million in fiscal 2017, before consideration of
any voluntary contributions. There were no voluntary pension contributions in fiscal 2016, 2015, and
2014.
The amount of income taxes paid, net of refunds, during fiscal 2016, 2015, and 2014 was
$806 million, $350 million, and $259 million, respectively. In fiscal 2016 and 2015, these payments
included $471 million and $47 million, respectively, for tax deficiencies related to pre-separation tax
matters. Also during fiscal 2016 and 2015, we received net reimbursements of $321 million and
$7 million, respectively, from Tyco International and Covidien pursuant to their indemnifications for
pre-separation tax matters. During fiscal 2014, we made net payments of $179 million to Tyco
International and Covidien pursuant to our indemnifications for pre-separation tax matters. See
Note 12 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
$1,585 million in fiscal 2016 as compared to $1,076 million in fiscal 2015 and $1,477 million in fiscal
2014. The increase in free cash flow in fiscal 2016 as compared to fiscal 2015 was driven primarily by
favorable effects of changes in accounts receivable and inventory levels. The decrease in free cash flow
in fiscal 2015 as compared to fiscal 2014 was driven primarily by the changes in net cash provided by
continuing operating activities discussed above and higher proceeds from the sale of property, plant,
and equipment in fiscal 2014.
27
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.
2016
Fiscal
2015
2014
Net cash provided by continuing operating activities . . . . .
$2,019
Excluding:
(in millions)
$1,619
$1,804
Payments related to pre-separation U.S. tax matters,
net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150
40
179
Payments related to income taxes on the sale of the
BNS business . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and equipment . . . .
36
(628)
8
—
(600)
17
—
(635)
129
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,585
$1,076
$1,477
Cash Flows from Investing Activities
Capital expenditures were $628 million, $600 million, and $635 million in fiscal 2016, 2015, and
2014, respectively. We expect fiscal 2017 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 2016, we acquired four businesses, including Creganna, for a combined cash purchase
price of $1.3 billion, net of cash acquired. During fiscal 2015, we acquired Measurement Specialties.
The total value paid for the transaction was approximately $1.7 billion, net of cash acquired, and
included $225 million for the repayment of Measurement Specialties’ debt and accrued interest. Also
during fiscal 2015, we acquired three additional businesses for $241 million in cash, net of cash
acquired. During fiscal 2014, we acquired five businesses for $522 million in cash, net of cash acquired.
See additional information in Note 5 to the Consolidated Financial Statements.
During fiscal 2016, we received net cash proceeds of $333 million related to the sale of our CPD
business. See additional information in Note 3 to the Consolidated Financial Statements.
During fiscal 2015, we received net cash proceeds of $3.0 billion related to the sale of our BNS
business. See additional information in Note 4 to the Consolidated Financial Statements.
Cash Flows from Financing Activities and Capitalization
Total debt at fiscal year end 2016 and 2015 was $4,070 million and $3,884 million, respectively. See
Note 11 to the Consolidated Financial Statements for additional information regarding debt.
During January 2016, TEGSA, our 100%-owned subsidiary, issued $350 million aggregate principal
amount of 3.700% senior notes due February 15, 2026. The notes 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.
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 December 2015 primarily to extend
the maturity date from August 2018 to December 2020. TEGSA had no borrowings under the Credit
Facility at fiscal year end 2016 and 2015.
28
The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each
fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit
Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to
1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our
other debt agreements contain other customary covenants. None of our covenants are presently
considered restrictive to our operations. As of fiscal year end 2016, 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.
Payments of common share dividends to shareholders were $509 million, $502 million, and
$443 million in fiscal 2016, 2015, and 2014, respectively. See Note 18 to the Consolidated Financial
Statements for additional information regarding dividends and cash distributions on our common
shares.
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.
During fiscal 2016, our board of directors authorized an increase of $1.0 billion in the share
repurchase program. We repurchased approximately 43 million of our common shares for
$2,610 million, 18 million of our common shares for $1,163 million, and 11 million of our common
shares for $604 million under the share repurchase program during fiscal 2016, 2015, and 2014,
respectively. At fiscal year end 2016, we had $1.1 billion 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 2016:
Payments Due by Fiscal Year
Total
2017
2018
2019
2020
2021 Thereafter
(in millions)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,061 $331 $708 $576 $
Debt(1)
Interest payments on debt(2) . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations(3)
. . . . . . . . . . . . . . . . . . . . . . . . .
1,228
444
324
152
106
309
129
86
8
102
66
2
1 $250
86
92
47
41
1 —
$2,195
667
98
4
Total contractual cash obligations(4)(5)(6)
. . . . . . . . . . . $6,057 $898 $931 $746 $141 $377
$2,964
(1) Debt represents principal payments. See Note 11 to the Consolidated Financial Statements for additional
information regarding debt.
29
(2)
Interest payments exclude the impact of our interest rate swaps.
(3) Purchase obligations consist primarily of commitments for purchases of goods and services.
(4) The table above does not reflect unrecognized income tax benefits of $490 million and related accrued
interest and penalties of $54 million, the timing of which is uncertain. See Note 15 to the Consolidated
Financial Statements for additional information regarding unrecognized income tax benefits, interest, and
penalties.
(5) The table above does not reflect pension obligations to certain employees and former employees. We are
obligated to make contributions to our pension 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 $54 million to
pension plans in fiscal 2017, before consideration of voluntary contributions. These plans and our estimates of
future contributions and benefit payments are more fully described in Note 14 to the Consolidated Financial
Statements.
(6) Other long-term liabilities of $362 million are excluded from the table above as we are unable to estimate the
timing of payment for these items.
Legal Proceedings
In the normal course of business, we are subject to various legal proceedings and claims, including
patent infringement claims, product liability matters, employment disputes, disputes on agreements,
other commercial disputes, environmental matters, antitrust claims, and tax matters, including
non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax.
Although it is not feasible to predict the outcome of these proceedings, based upon our experience,
current information, and applicable law, we do not expect that the outcome of these proceedings, either
individually or in the aggregate, will have a material effect on our results of operations, financial
position, or cash flows.
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 2017 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 fiscal year end 2016, we had outstanding letters of credit, letters of guarantee, and surety bonds
of $324 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.
30
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 Accounting Standards Codification
(‘‘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. 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 Communications
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
Intangible assets include both indeterminable-lived residual goodwill and determinable-lived
identifiable intangible assets. Intangible assets with a determinable life primarily include 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 test for goodwill impairment at the reporting unit level. 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 2016, we had six reporting units, five of which contained goodwill. There were two reporting
units in each of our three 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. 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.
Goodwill impairment is evaluated 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,
31
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 impairment analysis.
When testing for goodwill impairment, we perform a step I goodwill impairment test to identify
potential impairment by comparing 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 2016 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 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 taxable income and
are consistent with the plans and estimates we are using to manage the underlying businesses.
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.
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.
32
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, Income Taxes, 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. These tax liabilities and related interest are recorded in income taxes and accrued
and other current liabilities on the Consolidated Balance Sheets.
Pension
Our defined benefit pension plan expense and obligations are developed from actuarial
assumptions. The funded status of our plans is recognized on the Consolidated Balance Sheets and is
measured as the difference between the fair value of plan assets and the projected benefit obligation at
the measurement date. The projected benefit obligation represents the actuarial present value of
benefits projected to be paid upon retirement factoring in estimated future compensation levels. 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 our defined benefit pension 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
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 2016, a 25 basis point decrease in the
discount rate would have increased the present value of our pension obligations by $127 million; a
25 basis point increase would have decreased the present value of our pension obligations by
$113 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 2016 pension
expense by $10 million.
The long-term target asset allocation in our U.S. plans’ master trust is 10% equity and 90% fixed
income. Asset re-allocation to meet that target is occurring 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 105%. Based on the Pension Act Funded Status as of fiscal year
end 2016, our target asset allocation is 45% equity and 55% fixed income.
33
Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for information regarding recently issued and
recently adopted accounting pronouncements.
Non-GAAP Financial Measures
Organic net sales growth and free cash flow are non-GAAP measures and should not be
considered replacements for results in accordance with GAAP. These non-GAAP measures may not be
comparable to similarly-titled measures reported by other companies. The primary limitation of these
measures is that they exclude the financial impact of items that would otherwise either increase or
decrease our reported results. This limitation is best addressed by using these non-GAAP measures in
combination with the most directly comparable GAAP measures in order to better understand the
amounts, character, and impact of any increase or decrease in reported amounts. The following
provides additional information regarding these non-GAAP measures.
Organic Net Sales Growth
Organic net sales growth is a useful measure of our underlying results and trends in the business.
It is also a significant component in our incentive compensation plans. The difference between reported
net sales growth (the most comparable GAAP measure) and organic net sales growth consists of the
impact from foreign currency exchange rates, and acquisitions and divestitures, if any. Organic net sales
growth is a useful measure of our performance because it excludes items that are not completely under
management’s control, such as the impact of changes in foreign currency exchange rates, and items that
do not reflect the underlying growth of the company, such as acquisition and divestiture activity.
Management uses organic net sales growth to monitor and evaluate performance. Also, 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 reportable 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 tables presented in ‘‘Results of Operations’’ and
‘‘Segment Results’’ above provide reconciliations of organic net sales growth to net sales growth
calculated under GAAP.
Free Cash Flow
Free cash flow is a useful measure of our ability to generate cash. The difference between net cash
provided by continuing operating activities (the most comparable GAAP measure) and free cash flow
consists mainly of significant cash outflows and inflows that we believe are useful to identify. We
believe free cash flow provides useful information to investors as it provides insight into the primary
cash flow metric used by management to monitor and evaluate cash flows generated from our
operations.
Free cash flow is defined as net cash provided by continuing operating activities excluding
voluntary pension contributions and the cash impact of special items, if any, minus net capital
expenditures. Voluntary pension contributions are excluded 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, are also excluded by management in evaluating free cash flow. Net
capital expenditures consist of capital expenditures less proceeds from the sale of property, plant, and
equipment. These items are subtracted because they represent long-term commitments.
In the calculation of free cash flow, we subtract certain cash items that are ultimately within
management’s and the board of directors’ discretion to direct and may imply that there is less or more
cash available for our programs than the most comparable GAAP measure indicates. It should not be
inferred that the entire free cash flow amount is available for future discretionary expenditures, as our
34
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 Annual 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, divestitures, the effects of
competition, and the effects of future legislation or regulations. Forward-looking statements include all
statements that are not historical facts and can be identified by the use of forward-looking terminology
such as the words ‘‘believe,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘intend,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘predict,’’ ‘‘potential,’’
‘‘continue,’’ ‘‘may,’’ ‘‘should,’’ or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ
materially from those expressed in these forward-looking statements. 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 30, 2016 filed with
the SEC as well as other risks described in this Annual Report, 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 (including as a result of the impact of the proposed exit of the United Kingdom from
the EU);
(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 our 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;
(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;
35
(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) 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.
36
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 cross-
currency swap contracts, foreign currency forward contracts, and foreign currency 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 cross-currency swap contracts, foreign currency forward contracts, or foreign currency
swap contracts from the fiscal year end 2016 market rates would have changed the unrealized value of
our contracts by $112 million. A 10% appreciation or depreciation of the underlying currency in our
cross-currency swap contracts, foreign currency forward contracts, or foreign currency swap contracts
from the fiscal year end 2015 market rates would have changed the unrealized value of our contracts by
$109 million. Such gains or losses on these contracts would generally be offset by the losses or gains 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.
Based on our floating rate debt balances of approximately $300 million at fiscal year end 2016 and
$800 million at fiscal year end 2015, 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 $2 million and $4 million in fiscal 2016 and 2015, 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
requirements over that period. At fiscal year end 2016, our commodity hedges, which related to
expected purchases of gold, silver, and copper, were in a net gain position of $11 million and had a
notional value of $232 million. At fiscal year end 2015, our commodity hedges, which related to
expected purchases of gold, silver, and copper, were in a net loss position of $33 million and had a
notional value of $260 million. A 10% appreciation or depreciation of the price of a troy ounce of gold,
37
a troy ounce of silver, and a pound of copper, from the fiscal year end 2016 prices would have changed
the unrealized value of our forward contracts by $24 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 fiscal year
end 2015 prices would have changed the unrealized value of our forward contracts by $23 million.
See Note 13 to the Consolidated Financial Statements for additional information regarding
financial instruments.
38
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 30, 2016. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of September 30, 2016.
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 (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management concluded our internal control over financial reporting was
effective as of September 30, 2016.
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 30, 2016, which is included in
this Annual Report.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2016, 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.
39
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40
TE CONNECTIVITY LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
42
Consolidated Statements of Operations for the Fiscal Years Ended September 30, 2016,
September 25, 2015, and September 26, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended September 30,
2016, September 25, 2015, and September 26, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 30, 2016 and September 25, 2015 . . . . . . . . . . . . .
46
47
Consolidated Statements of Equity for the Fiscal Years Ended September 30, 2016,
September 25, 2015, and September 26, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, 2016,
September 25, 2015, and September 26, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
50
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
Report of the Statutory Auditor on the Consolidated Financial Statements of
TE Connectivity Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108
41
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 30, 2016 and September 25, 2015, 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 30, 2016. 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 30, 2016 and September 25, 2015, and the results of
its operations and its cash flows for each of the three fiscal years in the period ended September 30,
2016, 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 30, 2016, based on the criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated November 15, 2016 expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 15, 2016
42
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 30, 2016, based on criteria established in Internal
Control—Integrated Framework (2013) 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 30, 2016, based on the criteria established in Internal Control—
Integrated Framework (2013) 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 30, 2016, and our report dated
43
November 15, 2016 expressed an unqualified opinion on those consolidated financial statements and
financial statement schedule.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 15, 2016
44
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 2016, September 25, 2015, and September 26, 2014
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 . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of income taxes . . . . . . . . .
2016
Fiscal
2015
2014
(in millions, except per share data)
$11,973
$12,233
$12,238
8,001
8,146
8,205
4,033
1,463
644
22
2
1,902
19
(127)
(632)
1,162
779
1,941
68
4,087
1,504
627
55
152
1,749
17
(136)
(55)
1,575
(337)
1,238
1,182
3,972
1,534
583
31
19
1,805
19
(127)
63
1,760
(146)
1,614
167
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,009
$ 2,420
$ 1,781
Basic earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
5.30
0.19
5.49
5.26
0.18
5.44
$
$
3.06
2.92
5.98
3.01
2.88
5.89
$
$
3.94
0.41
4.34
3.87
0.40
4.27
Dividends paid per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.40
$
1.24
$
1.08
Weighted-average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
366
369
405
411
410
417
See Notes to Consolidated Financial Statements.
45
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years Ended September 30, 2016, September 25, 2015, and September 26, 2014
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to unrecognized pension and postretirement benefit costs,
2016
Fiscal
2015
2014
(in millions)
$2,420
$2,009
$1,781
(92)
(312)
(211)
net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on cash flow hedges, net of income taxes . . . . . . . . . . . . . . . . . . . .
(88)
11
(46)
2
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(169)
(356)
(123)
14
(320)
Comprehensive income.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,840
$2,064
$1,461
See Notes to Consolidated Financial Statements.
46
TE CONNECTIVITY LTD.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2016 and September 25, 2015
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $17 and $18,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from Tyco International plc and Covidien plc . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2016
2015
(in millions, except
share data)
$
647
$ 3,329
2,046
1,596
486
—
4,775
3,052
5,492
1,879
2,111
12
287
2,120
1,615
476
345
7,885
2,920
4,824
1,555
2,144
964
297
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,608
$20,589
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
331
1,090
1,437
208
3,066
3,739
1,502
207
247
362
9,123
$
498
1,143
1,749
185
3,575
3,386
1,327
329
1,954
433
11,004
Commitments and contingencies (Note 12)
Shareholders’ Equity:
Common shares, CHF 0.57 par value, 382,835,381 shares authorized and issued,
and 414,064,381 shares authorized and issued, respectively . . . . . . . . . . . . . . .
Contributed surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost, 27,554,005 and 20,071,089 shares, respectively . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
168
1,801
8,682
(1,624)
(542)
182
4,359
6,673
(1,256)
(373)
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,485
9,585
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,608
$20,589
See Notes to Consolidated Financial Statements.
47
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF EQUITY
Fiscal Years Ended September 30, 2016, September 25, 2015, and September 26, 2014
Common
Shares
Treasury
Shares
Shares Amount Shares Amount
TE
Accumulated Connectivity
Other
Ltd.
Non-
Contributed Accumulated Comprehensive Shareholders’ controlling Total
Interests Equity
Income (Loss)
Earnings
Surplus
Equity
.
429
. —
. —
. —
. —
. —
. —
. —
(10)
.
$189
—
—
—
—
—
(17) $ (720)
—
—
—
—
—
—
—
—
156
5
$ 6,136
—
—
84
(473)
—
(in millions)
$2,472
1,781
—
—
—
—
—
2
— (11)
10
(5)
125
(604)
399
(122)
—
(394)
—
—
—
$ 303
—
(320)
—
—
—
—
—
—
$ 8,380
1,781
(320)
84
(473)
156
3
(604)
—
$ 6
—
—
—
—
—
—
—
—
$ 8,386
1,781
(320)
84
(473)
156
3
(604)
—
.
.
.
.
.
.
.
.
.
.
. .
.
Balance at September 27, 2013 .
.
.
Net income .
.
.
.
Other comprehensive loss .
.
.
Share-based compensation expense .
.
Dividends approved .
.
.
.
.
Exercise of share options
Restricted share award vestings and
.
.
.
.
.
Repurchase of common shares
.
Cancellation of treasury shares .
other activity .
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance at September 26, 2014 .
.
.
.
419
$184
(11) $ (644)
$ 5,231
$4,253
$ (17)
$ 9,007
$ 6
$ 9,013
.
.
.
.
.
.
.
.
.
.
.
.
.
. .
.
Net income .
.
Other comprehensive loss .
.
Share-based compensation expense .
.
.
Dividends approved .
.
Exercise of share options
.
.
Restricted share award vestings and
.
.
.
.
.
Repurchase of common shares
.
Cancellation of treasury shares .
other activity .
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. —
. —
. —
. —
. —
. —
. —
(5)
.
—
—
—
—
—
—
—
—
—
3
—
—
—
—
103
—
1
— (18)
5
(2)
143
(1,163)
305
—
—
95
(526)
—
(138)
—
(303)
2,420
—
—
—
—
—
—
—
—
(356)
—
—
—
—
—
—
2,420
(356)
95
(526)
103
5
(1,163)
—
—
—
—
—
—
(6)
—
—
2,420
(356)
95
(526)
103
(1)
(1,163)
—
Balance at September 25, 2015 .
.
.
.
414
$182
(20) $(1,256)
$ 4,359
$6,673
$(373)
$ 9,585
$—
$ 9,585
.
.
.
.
.
.
.
.
.
.
.
.
.
. .
.
.
Net income .
Other comprehensive loss .
.
Share-based compensation expense .
.
.
Dividends approved .
.
Exercise of share options
.
.
Restricted share award vestings and
.
.
.
.
.
.
Repurchase of common shares
Cancellation of treasury shares .
other activity .
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. —
. —
. —
. —
. —
. —
. —
(31)
.
—
—
—
—
—
—
—
—
—
2
—
—
—
—
90
—
—
91
(512)
—
—
2
— (43)
31
(14)
146
(2,610)
2,006
(145)
—
(1,992)
2,009
—
—
—
—
—
—
—
—
(169)
—
—
—
—
—
—
2,009
(169)
91
(512)
90
1
(2,610)
—
—
—
—
—
—
—
—
—
2,009
(169)
91
(512)
90
1
(2,610)
—
Balance at September 30, 2016 .
.
.
.
383
$168
(28) $(1,624)
$ 1,801
$8,682
$(542)
$ 8,485
$—
$ 8,485
See Notes to Consolidated Financial Statements.
48
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 30, 2016, September 25, 2015, and September 26, 2014
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
Inventories
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 business, net of cash retained by sold business . . . . . . . . . . . . . . . . . . .
Proceeds from divestiture of discontinued operations, net of cash retained by sold operations . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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:
Net increase (decrease) in commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of share options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of common share dividends to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers (to) from discontinued operations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) continuing financing activities
Net cash provided by (used in) discontinued financing activities . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2015
2014
2016
(in millions)
$ 2,009
(68)
$ 2,420
(1,182)
$ 1,781
(167)
1,941
1,238
1,614
585
41
178
17
632
91
(144)
61
116
16
282
(100)
(4)
26
(1,764)
45
2,019
(97)
1,922
(628)
8
(1,336)
333
(19)
61
(1,581)
—
(1,581)
330
352
(501)
90
(2,787)
(509)
(97)
(5)
(3,127)
97
616
21
40
36
52
89
—
105
(210)
(220)
36
(22)
(155)
12
(52)
33
1,619
294
1,913
(600)
17
(1,725)
—
2,957
12
661
(25)
636
(328)
617
(473)
103
(1,023)
(502)
269
—
(1,337)
(269)
551
16
(281)
34
(65)
77
—
50
(182)
(98)
(14)
71
(280)
113
167
31
1,804
279
2,083
(635)
129
(522)
3
—
(13)
(1,038)
(37)
(1,075)
(23)
1,322
(360)
156
(578)
(443)
242
(9)
307
(242)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,030)
(1,606)
65
Effect of currency translation on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
(2,682)
3,329
(71)
872
2,457
(19)
1,054
1,403
Cash and cash equivalents at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid, net of refunds
See Notes to Consolidated Financial Statements.
$
$
647
$ 3,329
$ 2,457
117
806
$
128
350
$
118
259
49
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 sensor
solutions that are essential in today’s increasingly connected world. We help our customers solve the
need for intelligent, efficient, and high-performing products and solutions.
We operate through three reportable segments:
(cid:127) Transportation Solutions. The Transportation Solutions segment is a leader in connectivity and
sensor technologies. Our products, which must withstand harsh conditions, are used in the
automotive, commercial transportation, and sensors markets.
(cid:127) Industrial Solutions. The Industrial Solutions segment is a leading supplier of products that
connect and distribute power, data, and signals. Our products are used in the industrial
equipment; aerospace, defense, oil, and gas; and energy markets.
(cid:127) Communications Solutions. The Communications Solutions segment is a leading supplier of
electronic components for the data and devices and appliances markets. We are also a leader in
developing, manufacturing, installing, and maintaining some of the world’s most advanced subsea
fiber optic communications systems.
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 benefit cost.
Actual results could differ materially from these estimates.
Fiscal Year
We have a 52 or 53-week fiscal year that ends on the last Friday of September. For fiscal years in
which there are 53 weeks, the fourth quarter reporting period includes 14 weeks. Fiscal 2016 was a
53 week year and ended on September 30, 2016. Fiscal 2015 and 2014 were 52 weeks in length and
ended on September 25, 2015 and September 26, 2014, respectively.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies
Principles of Consolidation
We consolidate entities in which we own or control more than 50% 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.
Contract revenues for construction related projects, which are generated in the Communications
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. Generally, 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 Communications 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.
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 an agreed upon fixed percentage of sales to distributors, 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.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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 Communications Solutions segment.
Property, Plant, and Equipment, Net
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
property, plant, and equipment and other long-lived 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 is recognized whenever anticipated future undiscounted
cash flow estimates are less than the carrying value of the asset. 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.
Goodwill and Other Intangible Assets
Intangible assets include both indeterminable-lived residual goodwill and determinable-lived
identifiable intangible assets. Intangible assets with a determinable life primarily include 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.
At fiscal year end 2016, we had six reporting units, five of which contained goodwill. There were
two reporting units in each of our three 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.
Goodwill impairment is evaluated 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 impairment analysis.
When testing for goodwill impairment, we perform a step I goodwill impairment test to identify
potential impairment by comparing 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
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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 on the Consolidated Statements of Operations. Research and
development expenses include salaries, direct costs incurred, and building and overhead expenses. The
amounts expensed in fiscal 2016, 2015, and 2014 were $566 million, $540 million, and $484 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.
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.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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 the 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 fiscal year end 2016, 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 and exchange cash collateral with the counterparties
to our cross-currency swap contracts. The likelihood of performance on the 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.
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.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
(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.
Financial assets and liabilities measured at fair value on a recurring basis are generally valued
using level 2 inputs.
Financial instruments other than derivative instruments include cash and cash equivalents, accounts
receivable, accounts payable, and debt. These instruments are recorded on the 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).
(cid:127) Debt. The fair value of 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
The funded status of our defined benefit pension plans is recognized on the Consolidated Balance
Sheets and is measured as the difference between the fair value of plan assets and the projected benefit
obligation at the measurement date. The projected benefit obligation represents the actuarial present
value of benefits projected to be paid upon retirement factoring in estimated future compensation
levels. 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 our defined benefit pension 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.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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 is computed by dividing net income by the basic weighted-average number
of common shares outstanding. Diluted earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding adjusted for the potentially dilutive impact of
share-based compensation arrangements.
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 2016, 2015, and 2014.
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.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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
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 March 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued an update to ASC 718,
Compensation—Stock Compensation, to simplify various aspects of accounting for share-based payments
to employees. This update is effective for us in the first quarter of fiscal 2018; however, we expect to
early adopt this update in the first quarter of fiscal 2017. We expect the impact of adoption of the
provision addressing accounting for excess tax benefits and deficiencies will increase noncurrent
deferred tax assets and retained earnings by approximately $170 million. Adoption of the remaining
provisions of the update will not have a material impact on our Consolidated Financial Statements.
In February 2016, the FASB issued ASC 842, Leases, requiring lessees to recognize a lease liability
and a right-of-use asset for most leases. This guidance is effective for us in the first quarter of fiscal
2020. We will adopt the new standard using a modified retrospective transition approach which requires
application of the new guidance for all periods presented. We are currently assessing the impact that
adoption will have on our financial position.
In May 2014, the 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. In August 2015,
the FASB deferred the effective date of ASC 606 by one year. ASC 606 is effective for us in the first
quarter of fiscal 2019 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.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
Recently Adopted Accounting Pronouncements
In November 2015, the FASB issued an update to ASC 740 requiring that deferred tax assets and
liabilities be classified as non-current in a classified statement of financial position. We elected to early
adopt this update on a prospective basis during fiscal 2016. Prior period amounts were not
retrospectively adjusted.
In April 2015, the FASB issued an update to ASC 835, Interest, requiring that debt issuance costs
related to a recognized debt liability be presented on the balance sheet as a direct deduction from the
carrying amount of that debt liability, consistent with debt discounts. We elected to early adopt this
update during fiscal 2016. The update was applied on a retrospective basis and did not have a material
impact on the Consolidated Financial Statements.
3. Restructuring and Other Charges, Net
Net restructuring and other charges consisted of the following:
Fiscal
2016
2015
2014
Restructuring charges, net
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other charges (credits), net
Restructuring Charges, Net
Net restructuring charges by segment were as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 125
(in millions)
$ 93
$23
(144) — —
(4)
59
21
$
2
$152
$19
Fiscal
2016
2015
2014
(in millions)
$
6
29
58
$ 39
28
58
$ 7
7
9
$23
Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . . . . . .
$125
$ 93
58
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
Items
(in millions)
Currency Balance at
Translation
and
Other(1)
End of
Fiscal
Year
Fiscal 2016 Activity:
Fiscal 2016 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
$ —
—
—
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2014 Actions:
Employee severance . . . . . . . . . . .
Pre-Fiscal Fiscal 2014 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
—
45
1
46
4
20
14
34
$ 86
3
41
130
$ —
—
—
—
$ (32)
(3)
—
(35)
$ —
—
(41)
(41)
3
—
3
—
—
2
2
(4)
—
(4)
—
(6)
—
(6)
(31)
(1)
(32)
(2)
(6)
(4)
(10)
—
—
—
—
—
—
—
$ —
—
—
$ 54
—
—
—
—
—
—
—
2
—
2
54
13
—
13
2
10
12
22
Total fiscal 2016 activity . . . . . . . . . . .
$ 84
$135
$(10)
$ (79)
$(41)
$ 2
$ 91
Fiscal 2015 Activity:
Fiscal 2015 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
$ —
—
—
$ 68
3
21
$ —
—
—
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2014 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2014 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
—
16
1
17
75
22
97
92
—
—
—
2
3
5
—
—
—
—
(4)
—
(4)
$ (23)
(2)
—
(25)
$ —
—
(21)
(21)
$ —
—
—
—
(7)
(1)
(8)
(47)
(12)
(59)
—
—
—
—
—
—
(5)
—
(5)
(6)
1
(5)
$ 45
1
—
46
4
—
4
20
14
34
Total fiscal 2015 activity . . . . . . . . . . .
$114
$ 97
$ (4)
$ (92)
$(21)
$(10)
$ 84
59
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
Items
(in millions)
Currency Balance at
Translation
and
Other(1)
End of
Fiscal
Year
Fiscal 2014 Activity:
Fiscal 2014 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2014 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
Total
. . . . . . . . . . . . . . . . . . . .
$ —
—
—
—
210
27
—
237
$ 10
—
9
19
10
6
7
23
$ —
—
—
—
(20)
1
—
(19)
$ (13)
—
—
(13)
(134)
(13)
—
(147)
$ —
—
(9)
(9)
—
—
(7)
(7)
$ 19
1
—
20
9
1
—
10
$ 16
1
—
17
75
22
—
97
Total fiscal 2014 activity . . . . . . . . . . .
$237
$ 42
$(19)
$(160)
$(16)
$ 30
$114
(1)
Includes net charges associated with discontinued operations of $36 million in fiscal 2014.
Fiscal 2016 Actions
During fiscal 2016, we initiated a restructuring program associated with headcount reductions
impacting all segments and product line closures in the Communications Solutions segment. In
connection with this program, during fiscal 2016, we recorded restructuring charges of $130 million. We
expect to complete all restructuring actions commenced during fiscal 2016 by the end of fiscal 2019 and
to incur total charges of approximately $171 million with remaining charges related primarily to
employee severance.
The following table summarizes expected, incurred, and remaining charges for the fiscal 2016
program by segment:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Expected
Charges
Charges
Incurred in
Fiscal 2016
Remaining
Expected
Charges
$ 45
30
96
$171
(in millions)
$ 38
28
64
$130
$ 7
2
32
$41
Fiscal 2015 Actions
During fiscal 2015, we initiated a restructuring program associated with headcount reductions and
product line closures, primarily impacting the Communications Solutions and Industrial Solutions
segments. In connection with this program, during fiscal 2016 and 2015, we recorded net restructuring
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges, Net (Continued)
credits of $1 million and charges of $92 million, respectively. We do not expect to incur any additional
charges related to restructuring programs commenced in fiscal 2015.
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 Communications Solutions segment.
In connection with this program, we recorded net restructuring charges of $19 million in fiscal 2014.
We do not expect to incur any additional charges related to restructuring programs commenced in
fiscal 2014.
Pre-Fiscal 2014 Actions
During fiscal 2016, 2015, and 2014, we recorded net restructuring credits of $4 million, charges of
$1 million, and charges of $4 million, respectively, related to pre-fiscal 2014 actions. We do not expect
to incur any additional charges related to pre-fiscal 2014 actions.
Total Restructuring Reserves
Restructuring reserves included on the Consolidated Balance Sheets were as follows:
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2016
2015
(in millions)
$64
27
$91
$60
24
$84
Gain on Divestiture
During fiscal 2016, we sold our Circuit Protection Devices (‘‘CPD’’) business for net cash proceeds
of $333 million. We recognized a pre-tax gain of $144 million on the transaction. The CPD business
was reported in our Communications Solutions segment.
Other Charges (Credits), Net
During fiscal 2016, we incurred costs of $21 million, associated primarily with the divestiture of
certain businesses.
During fiscal 2015, in connection with the sale our Broadband Network Solutions (‘‘BNS’’)
business, we incurred costs of $61 million, consisting primarily of $36 million of legal and professional
fees and $18 million of charges associated with the exit of a facility. These amounts are not directly
related to the business sold, and accordingly have been recorded in continuing operations. See Note 4
for additional information regarding the divestiture of BNS.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Discontinued Operations
The following table presents certain components of income from discontinued operations, net of
income taxes:
Fiscal
2016
2015
2014
(in millions)
Net sales from discontinued operations . . . . . . . . . . . . . . . .
$— $1,595
$1,939
Pre-tax income from discontinued operations . . . . . . . . . . . .
Pre-tax gain on sale of discontinued operations . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit
Income from discontinued operations, net of income taxes . .
$30
29
9
$68
$ 118
1,105
(41)
$ 224
—
(57)
$1,182
$ 167
During fiscal 2015, we sold our BNS business for $3.0 billion in cash and recognized a pre-tax gain
of $1.1 billion on the transaction. In the U.S., income taxes associated with the gain on the sale of
assets were largely offset by income tax benefits realized on the sale of several subsidiaries. In certain
non-U.S. jurisdictions, the sale was exempt from income taxes. During fiscal 2016, we recognized an
additional pre-tax gain of $29 million on the divestiture, related primarily to pension and net working
capital adjustments.
In fiscal 2006, the former shareholders of Com-Net initiated a lawsuit related to our fiscal 2001
acquisition of Com-Net. In October 2015, the Court of Common Pleas in Allegheny County,
Pennsylvania entered final judgment in favor of the sellers and against us for $127 million plus costs. In
July 2016, we entered into settlement agreements with the sellers pursuant to which we agreed to pay
the sellers an aggregate amount of $96 million, payment of which was made in fiscal 2016, settling all
matters in dispute.
In connection with the Com-Net case, we recorded a reserve and pre-tax charges of $127 million
during fiscal 2015. During fiscal 2016, in connection with the settlements, we recorded pre-tax credits of
$30 million, representing a release of excess reserves. These amounts are reflected in income from
discontinued operations on the Consolidated Statements of Operations as the Com-Net case was
associated with our former Wireless Systems business which was sold in 2009.
The BNS and Wireless Systems businesses met the discontinued operations criteria and were
reported as such in all periods presented on the Consolidated Financial Statements. Prior to
reclassification to discontinued operations, the BNS and Wireless Systems businesses were included in
the former Network Solutions and Wireless Systems segments, respectively.
5. Acquisitions
Fiscal 2016 Acquisitions
During fiscal 2016, we acquired four businesses, including the Creganna Medical group, for a
combined cash purchase price of $1.3 billion, net of cash acquired. The acquisitions have been reported
as part of our Industrial Solutions and Transportation Solutions segments from the date of acquisition.
We have preliminarily allocated the purchase price of acquired businesses to tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
are in the process of completing the valuation of identifiable intangible assets, fixed assets,
pre-acquisition contingencies, and income taxes. Accordingly, the fair values set forth below are subject
to adjustment upon finalization of the valuations. The amount of these potential adjustments could be
significant. We expect to complete the purchase price allocation for these acquisitions during fiscal
2017.
The following table summarizes the preliminary 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:
(in millions)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
75
88
836
530
39
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,568
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
107
15
157
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,411
(75)
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,336
The fair values assigned to intangible assets were preliminarily 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. 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.
Acquired intangible assets consisted of the following:
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names and trademarks . . . . . . . . . . . . . . . . . . . .
Customer order backlog . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in millions)
$300
170
45
15
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$530
Weighted-Average
Amortization
Period
(in years)
18
11
25
3
16
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
The acquired intangible assets are being amortized on a straight-line basis over their expected
useful lives.
Goodwill of $836 million was recognized in these transactions, 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 Industrial Solutions and Transportation Solutions
segments and is not deductible for tax purposes. However, prior to being acquired by us, one of the
fiscal 2016 acquisitions completed certain acquisitions that resulted in goodwill with an estimated value
of $15 million that is deductible primarily for U.S. tax purposes, which we will deduct through 2025.
Fiscal 2016 acquisitions contributed net sales of $167 million and operating income of $8 million to
our Consolidated Statement of Operations during fiscal 2016. The operating income included
$10 million of acquisition costs, $7 million associated with the amortization of acquisition-related fair
value adjustments related to acquired inventories and customer order backlog, and $2 million of
integration costs.
Fiscal 2015 Acquisitions
In October 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 $86.00 in cash per share. The total value paid was approximately $1.7 billion, net of cash
acquired, and included $225 million for the repayment of Measurement Specialties’ debt and accrued
interest. Measurement Specialties offers a broad portfolio of technologies including pressure, vibration,
force, temperature, humidity, ultrasonic, position, and fluid sensors, for a wide range of applications
and industries. This business has been reported as part of our Transportation Solutions segment from
the date of acquisition.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$
37
84
110
20
95
1,064
547
9
1,966
20
48
67
203
98
9
445
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,521
(37)
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,484
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. The
valuation of tangible assets was derived using a combination of the income, market, and cost
approaches. 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.
Acquired intangible assets consisted of the following:
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names and trademarks . . . . . . . . . . . . . . . . . . . .
Customer order backlog . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in millions)
$370
161
4
12
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$547
Weighted-Average
Amortization
Period
(in years)
18
9
1
< 1
15
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
The acquired intangible assets are being amortized on a straight-line basis over their expected
useful lives.
Goodwill of $1,064 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 segment and is not
deductible for tax purposes. However, prior to its merger with us, Measurement Specialties completed
certain acquisitions that resulted in goodwill with an estimated value of $23 million that is deductible
primarily for U.S. tax purposes, which we will deduct through 2030.
During fiscal 2015, Measurement Specialties contributed net sales of $548 million to our
Consolidated Statement of Operations. Due to the commingled nature of our operations, it is not
practicable to separately identify operating income of Measurement Specialties on a stand-alone basis.
During fiscal 2015, we acquired three additional businesses for $241 million in cash, net of cash
acquired.
Fiscal 2014 Acquisitions
During fiscal 2014, we acquired five businesses, including the SEACON Group (‘‘SEACON’’), a
leading provider of underwater connector technology and systems, for $522 million in cash, net of cash
acquired.
Pro Forma Financial Information
The following unaudited pro forma financial information reflects our consolidated results of
operations had the fiscal 2016 acquisitions occurred at the beginning of fiscal 2015 and the
Measurement Specialties acquisition occurred at the beginning of fiscal 2014:
Pro Forma for Fiscal
2016
2015
2014
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . .
(in millions, except per share
data)
$12,613
2,448
5.96
$12,471
2,038
5.52
$12,429
1,744
4.18
$
$
The pro forma financial information for the fiscal 2016 acquisitions was based on our preliminary
allocation of the purchase price and therefore is subject to adjustment upon finalization of the purchase
price allocation. The pro forma adjustments, which were not significant, included interest expense based
on pro forma changes in our combined capital structure, charges related to acquired customer order
backlog, charges related to the amortization of the fair value of acquired intangible assets, charges
related to the fair value adjustment to acquisition-date inventories, and acquisition and other costs, and
the related tax effects.
Pro forma results do not include any anticipated synergies or other anticipated benefits of these
acquisitions. 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 these acquisitions
occurred at the beginning of the preceding fiscal years.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
6. Inventories
Inventories consisted of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventoried costs on long-term contracts . . . . . . . . . . . . . . . . . . . .
$ 241
504
669
182
$ 261
535
773
46
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,596
$1,615
Fiscal Year End
2016
2015
(in millions)
7. Property, Plant, and Equipment, Net
Net property, plant, and equipment consisted of the following:
Fiscal Year End
2016
2015
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(in millions)
159
1,272
6,890
567
163
1,261
6,692
521
Gross property, plant, and equipment . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,888
(5,836)
8,637
(5,717)
Property, plant, and equipment, net
. . . . . . . . . . . . . . . . . . . .
$ 3,052
$ 2,920
Depreciation expense was $436 million, $463 million, and $467 million in fiscal 2016, 2015, and
2014, respectively.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
8. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
Fiscal year end 2014(1) . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . .
Fiscal year end 2015(1) . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Divestiture of business . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . .
Fiscal year end 2016(1) . . . . . . . . . . . . . . . . . . . . . . .
Transportation
Solutions
Industrial
Solutions
Communications
Solutions
Total
(in millions)
$ 834
1,066
(37)
1,863
60
—
(20)
$2,165
145
(57)
2,253
776
—
(24)
$ 727
—
(19)
708
—
(117)
(7)
$3,726
1,211
(113)
4,824
836
(117)
(51)
$1,903
$3,005
$ 584
$5,492
(1) At fiscal year end 2016, 2015, and 2014, accumulated impairment losses for the Transportation Solutions and
Industrial Solutions segments were $2,191 million and $669 million, respectively. Accumulated impairment
losses for the Communications Solutions segment were $1,514 million at fiscal year end 2016 and
$1,626 million at fiscal year end 2015 and 2014.
During fiscal 2016, we acquired four businesses and recognized goodwill of $836 million, which
benefited the Industrial Solutions and Transportation Solutions segments. During fiscal 2015, we
completed the acquisition of Measurement Specialties and recognized goodwill of $1,064 million, which
benefited the Transportation Solutions segment. See Note 5 for additional information regarding
acquisitions.
During fiscal 2016, net goodwill of $117 million was written-off in connection with the sale of our
CPD business. See Note 3 for additional information regarding the divestiture of CPD.
We completed our annual goodwill impairment test in the fourth quarter of fiscal 2016 and
determined that no impairment existed.
9. Intangible Assets, Net
Intangible assets consisted of the following:
2016
Gross
Carrying
Amount
Accumulated
Amortization
Customer relationships . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
$1,332
1,300
36
Total . . . . . . . . . . . . . . . . . . . . . . .
$2,668
$(212)
(563)
(14)
$(789)
Fiscal Year End
Net
Carrying
Amount
Gross
Carrying
Amount
(in millions)
$1,120
737
22
$1,053
1,150
37
$1,879
$2,240
2015
Accumulated
Amortization
$(148)
(524)
(13)
$(685)
Net
Carrying
Amount
$ 905
626
24
$1,555
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
9. Intangible Assets, Net (Continued)
During fiscal 2016, the gross carrying amount of intangible assets increased by $530 million as a
result of the acquisition of four businesses. See Note 5 for additional information regarding
acquisitions.
Intangible asset amortization expense was $149 million, $153 million, and $84 million for fiscal
2016, 2015, and 2014, respectively. The aggregate amortization expense on intangible assets is expected
to be as follows:
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 170
170
167
160
157
1,055
$1,879
10. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
Fiscal Year End
2016
2015
(in millions)
Accrued payroll and employee benefits . . . . . . . . . . . . . . . . . . . . .
Dividends payable to shareholders . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share repurchase program payable . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 431
263
149
—
64
56
—
474
$ 424
260
198
177
60
53
33
544
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . .
$1,437
$1,749
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Debt
Debt was as follows:
Commercial paper, at a weighted-average interest rate of 0.69% at
fiscal year end 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior floating rate notes due 2016(1)
. . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.100% euro-denominated senior notes due 2023 . . . . . . . . . . . . . .
3.45% senior notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.700% senior notes due 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.125% senior notes due 2037 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2016
2015
(in millions)
$ 330
—
708
325
250
250
500
618
250
350
477
3
$ —
500
708
325
250
250
500
614
250
—
477
—
Total principal debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized discounts and debt issuance costs . . . . . . . . . . . . . . .
Effects of fair value hedge-designated interest rate swaps . . . . . . . .
4,061
(26)
35
3,874
(27)
37
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,070
$3,884
(1) The senior floating rate notes due 2016 bore interest at a rate of three-month London interbank
offered rate (‘‘LIBOR’’) plus 0.20% per year.
During January 2016, Tyco Electronics Group S.A. (‘‘TEGSA’’), our 100%-owned subsidiary, issued
$350 million aggregate principal amount of 3.700% senior notes due February 15, 2026. The notes 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.
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 December 2015 primarily to extend
the maturity date from August 2018 to December 2020. TEGSA had no borrowings under the Credit
Facility at fiscal year end 2016 and 2015.
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) Bank of America, N.A.’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 5.0 to 12.5 basis points based upon the amount of
the lenders’ commitments under the Credit Facility and the applicable credit ratings of TEGSA.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Debt (Continued)
The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each
fiscal quarter, our ratio of Consolidated Total Debt to Consolidated EBITDA (as defined in the Credit
Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 to
1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our
other debt agreements contain other customary covenants.
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.
Principal payments required for debt are as follows:
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 331
708
576
1
250
2,195
$4,061
The fair value of our debt, based on indicative valuations, was approximately $4,424 million and
$4,115 million at fiscal year end 2016 and 2015, respectively.
12. Commitments and Contingencies
Legal Proceedings
In the normal course of business, we are subject to various legal proceedings and claims, including
patent infringement claims, product liability matters, employment disputes, disputes on agreements,
other commercial disputes, environmental matters, antitrust claims, and tax matters, including
non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax.
Although it is not feasible to predict the outcome of these proceedings, based upon our experience,
current information, and applicable law, we do not expect that the outcome of these proceedings, either
individually or in the aggregate, will have a material effect on our results of operations, financial
position, or cash flows.
Income Tax Matters
Tax Sharing Agreement
In fiscal 2007, we became an independent, publicly traded company owning the former electronics
businesses of Tyco International plc (‘‘Tyco International’’). On June 29, 2007, Tyco International
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
12. Commitments and Contingencies (Continued)
distributed all of our shares, as well as its shares of its former healthcare businesses (‘‘Covidien’’), to its
common shareholders (the ‘‘separation’’). As a result of subsequent transactions, Tyco International and
Covidien now operate as part of Johnson Controls International plc and Medtronic plc, respectively.
Upon separation, we entered into a Tax Sharing Agreement, under which we shared 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 shared 31%,
27%, and 42%, respectively, of U.S. income tax liabilities that arose from adjustments made by tax
authorities to our, Tyco International’s, and Covidien’s U.S. income tax returns. Pursuant to the Tax
Sharing Agreement, we entered into certain guarantee commitments and indemnifications with Tyco
International and Covidien.
1997-2000 Audit Years
In October 2012, the Internal Revenue Service (‘‘IRS’’) issued special agreement Forms 870-AD,
effectively settling its audit of all tax matters for the years 1997 through 2000, excluding one issue
involving the tax treatment of certain intercompany debt transactions. The IRS field examination
asserted that certain intercompany loans originated during the years 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 were ultimately successful in asserting its claim, it likely would have
disallowed an additional $6.6 billion of interest deductions reflected on U.S. income tax returns in years
subsequent to fiscal 2000. Tyco International disagreed with the IRS position and filed petitions in the
U.S. Tax Court contesting the IRS’s proposed adjustments.
In January 2016, Tyco International entered into Stipulations of Settled Issues (the ‘‘Stipulations’’)
with the IRS intended to resolve all disputes related to the intercompany debt matter discussed above.
The Stipulations were contingent upon the Appeals Division of the IRS applying the same settlement
or framework to all intercompany debt issues on appeal for subsequent audit cycles (years 2001 through
2007).
During the second quarter of fiscal 2016, we made a pre-payment to the IRS of $443 million, for
deficiencies for which we are the primary obligor, to stop the accretion of deficiency interest.
Concurrent with remitting this payment, we were reimbursed $305 million by Tyco International and
Covidien pursuant to their indemnifications for pre-separation tax matters. In addition, we paid
$2 million to Covidien for our share of deficiencies for which Covidien was the primary obligor. As a
result, our net cash payment in connection with the disputed debt matter was $140 million during the
second quarter of fiscal 2016.
In May 2016, the U.S. Tax Court entered orders consistent with the Stipulations and dismissed the
petitions as settled and the Appeals Division of the IRS issued special agreement Forms 870-AD that
effectively settled the matters on appeal on the same terms as those set forth in the Stipulations. As a
result, we have resolved all aspects of the disputed debt matter before the U.S. Tax Court (for the 1997
through 2000 audit cycle) and before the Appeals Division of the IRS for subsequent audit cycles (2001
through 2007). In addition, we expect the terms of the resolution for the disputed debt matter will be
consistently applied by the IRS to all of our U.S. income tax returns filed subsequent to fiscal 2007.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
12. Commitments and Contingencies (Continued)
As a result of these developments, in fiscal 2016, we recognized an income tax benefit of
$1,135 million, representing a reduction in tax reserves, and other expense of $604 million, representing
a reduction of associated indemnification receivables, pursuant to the Tax Sharing Agreement with Tyco
International and Covidien. The U.S. tax loss and credit carryforwards finalized as a result of the
settlement of the disputed debt matter were assessed for realizability in fiscal 2016 and included in our
valuation allowance analysis. See Note 15 for further information regarding the valuation allowance for
deferred tax assets.
2001-2007 Audit Years
In fiscal 2015, the IRS issued general agreement Forms 870, effectively settling its audits of tax
matters for the years 2001 through 2007, excluding the disputed debt matter which was subsequently
resolved during fiscal 2016. As a result of these developments, in fiscal 2015, we recognized an income
tax benefit of $201 million, representing a reduction in tax reserves for the matters that were effectively
settled, and other expense of $84 million, representing a reduction of associated indemnification
receivables, pursuant to the Tax Sharing Agreement with Tyco International and Covidien.
2008-2010 Audit Years
In fiscal 2015, the IRS issued general agreement Forms 870, effectively settling its audits of tax
matters for the years 2008 through 2010, excluding the disputed debt matter. As discussed above, we
expect the terms of the resolution for the disputed debt matter will be consistently applied by the IRS
to all of our U.S. income tax returns filed subsequent to fiscal 2007. As a result of these developments,
in fiscal 2015, we recognized an income tax benefit of $63 million, representing a reduction in tax
reserves for the matters that were effectively settled.
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 2016, we concluded that it was
probable that we would incur remedial costs in the range of $17 million to $42 million, and that the
best estimate within this range was $20 million. 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.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
12. Commitments and Contingencies (Continued)
Leases
We have facility, land, vehicle, and equipment leases that expire at various dates. Rental expense
under these leases was $143 million, $141 million, and $130 million for fiscal 2016, 2015, and 2014,
respectively. At fiscal year end 2016, the minimum lease payment obligations under non-cancelable
lease obligations were as follows:
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$106
86
66
47
41
98
$444
(in millions)
Guarantees
In disposing of assets or businesses, we often provide representations, warranties, and/or
indemnities to cover various risks including unknown damage to assets, environmental risks involved in
the sale of real estate, liability for investigation and remediation of environmental contamination at
waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to
periods prior to disposition. We do not expect that these uncertainties will have a material adverse
effect on our results of operations, financial position, or cash flows.
At fiscal year end 2016, we had outstanding letters of credit, letters of guarantee, and surety bonds
of $324 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 based primarily on historical experience and actual warranty
claims. Amounts accrued for warranty claims at fiscal year end 2016 and 2015 were $48 million and
$35 million, respectively.
13. 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 2016, 2015, and 2014.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Financial Instruments and Fair Value Measurements (Continued)
Foreign Exchange Risks and Hedges of Net Investment
As part of managing the exposure to changes in foreign currency exchange rates, we utilize cross-
currency swap contracts, foreign currency forward contracts, and foreign currency 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 Statement of
Operations within the next twelve months.
During fiscal 2015, we entered into cross-currency swap contracts with an aggregate notional value
of A1,000 million to reduce our exposure to foreign currency exchange risk associated with certain
intercompany loans. Under the terms of these contracts, which have been designated as cash flow
hedges, we make quarterly interest payments in euros at 3.50% per annum and receive interest in U.S.
dollars at a weighted-average rate of 5.33% per annum. Upon the maturities of these contracts in fiscal
2022, we will pay the principal amount of the loans in euros and receive U.S. dollars from our
counterparties.
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 $3,480 million and $3,880 million at fiscal year end 2016 and 2015, respectively. Foreign
exchange losses of $45 million and foreign exchange gains of $353 million and $156 million in fiscal
2016, 2015, and 2014, respectively, were recorded as currency translation, a component of accumulated
other comprehensive income (loss), offsetting foreign exchange gains and losses attributable to the
translation of the net investment. See Note 19 for additional information.
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.
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 fiscal year end 2016 and 2015, our commodity hedges had notional values of $232 million and
$260 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 Statement of Operations within the next twelve months.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements
Financial instruments recorded at fair value on a recurring basis, which consist of derivative
instruments and marketable securities, were immaterial at fiscal year end 2016 and 2015.
14. 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
2015
$
9
48
(67)
25
—
2016
$
9
50
(59)
40
—
Non-U.S. Plans
2014
2016
($ in millions)
$
7
50
(63)
25
—
$ 48
52
(68)
36
(6)
Fiscal
2015
$ 45
58
(72)
33
(5)
2014
$ 46
71
(67)
23
(3)
Net periodic pension benefit cost
. . . . . . . . . . .
$ 40
$ 15
$ 19
$ 62
$ 59
$ 70
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 . . . . . . . . . . . . . . .
4.38% 4.34% 4.84% 2.50% 2.77% 3.38%
6.97% 7.20% 7.16% 5.98% 6.46% 5.96%
—% —% —% 2.81% 2.86% 2.84%
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. 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 loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits and administrative expenses paid . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Plans
Fiscal
Non-U.S. Plans
Fiscal
2016
2015
2016
2015
($ in millions)
$1,170
9
50
102
(81)
—
—
$1,143
9
48
42
(74)
—
2
$ 2,188
48
52
368
(85)
(63)
27
$ 2,276
45
58
87
(71)
(213)
6
Benefit obligation at end of fiscal year . . . . . . . . . . . . . . . . .
1,250
1,170
2,535
2,188
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 . . . . . . . . . . . . .
879
130
1
(81)
—
—
929
978
(26)
1
(74)
—
—
879
1,167
261
66
(85)
(59)
21
1,371
1,177
72
65
(71)
(90)
14
1,167
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (321)
$ (291)
$(1,164)
$(1,021)
Amounts recognized on the Consolidated Balance Sheets:
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . . . . . . . . .
$
(5)
(316)
$
(5)
(286)
$
(20)
(1,144)
$
(19)
(1,002)
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (321)
$ (291)
$(1,164)
$(1,021)
Weighted-average assumptions used to determine pension benefit
obligation at fiscal year end:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . .
3.58% 4.38%
—%
—%
1.44%
2.52%
2.50%
2.81%
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. 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
2016
2015
2016
2015
(in millions)
$436
$325
$711
$748
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings . . . . . . . . . . . . . . . . . . . . . . . . .
32
(40)
136
(25)
164
(36)
18
(55)
Unrecognized net loss at end of fiscal year . . . . . . . . . . . . . . . . . . . . . .
$428
$436
$839
$711
Change in prior service credit:
Unrecognized prior service credit at beginning of fiscal year . . . . . . . . .
Current year change recorded in accumulated other comprehensive
$ — $ — $ (66)
$ (67)
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings(1)
—
—
—
—
(10)
6
(4)
5
Unrecognized prior service credit at end of fiscal year . . . . . . . . . . . . . .
$ — $ — $ (70)
$ (66)
(1) Amortization of prior service credit is included in other in the above table summarizing the components of
net periodic pension benefit cost.
In fiscal 2016, unrecognized actuarial losses recorded in accumulated other comprehensive income
(loss) were primarily the result of lower discount rates partially offset by favorable asset performance
for both U.S. and non-U.S. defined benefit pension plans as compared to fiscal 2015. In fiscal 2015,
unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) for U.S.
defined benefit pension plans were due primarily to a change in the mortality assumption and lower
than expected asset performance. Unrecognized actuarial losses recorded in accumulated other
comprehensive income (loss) for non-U.S. defined benefit pension plans in fiscal 2015 were principally
the result of lower discount rates as compared to fiscal 2014.
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 2017 is expected to be $40 million and $43 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 2017 is expected to be $7 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 strategies for U.S. and 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
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
primarily on pro forma asset allocation, expected long-term returns, and forward-looking estimates of
active portfolio and investment management.
The long-term target asset allocation in our U.S. plans’ master trust is 10% equity and 90% fixed
income. Asset re-allocation to meet that target is occurring 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 105%. Based on the Pension Act Funded Status as of fiscal year
end 2016, our target asset allocation is 45% equity and 55% 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
Non-U.S. Plans
Fiscal
Year End
2016
Fiscal
Year End
2015
Target
Fiscal
Year End
2016
Fiscal
Year End
2015
Target
Asset category:
Equity securities . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts and other investments . . . .
Real estate investments . . . . . . . . . . . . . . . . . .
45%
55
—
—
45%
55
—
—
45%
55
—
—
41%
38
19
2
41%
33
24
2
45%
29
24
2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100%
100% 100% 100%
100%
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 expect to make the minimum required contributions of $6 million and $48 million to
our U.S. and non-U.S. pension plans, respectively, in fiscal 2017. We may also make voluntary
contributions at our discretion.
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 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022-2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 73
70
71
72
74
373
$ 72
73
76
77
80
458
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
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
2016
2015
2016
2015
(in millions)
$1,250
$1,170
$2,389
$2,041
1,250
929
1,170
879
2,380
1,361
1,994
1,119
1,250
929
1,170
879
2,534
1,371
2,188
1,167
We value our pension assets based on the fair value hierarchy of ASC 820, Fair Value
Measurements and Disclosures. 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:
Fiscal Year End 2016
U.S. Plans
Non-U.S. Plans
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Total
(in millions)
Equity:
U.S. equity securities(1)
. . . . . . . . . . . . . . . . $248
Non-U.S. equity securities(1)
190
. . . . . . . . . . . .
Commingled equity funds(2) . . . . . . . . . . . . . —
$ — $— $248 $ 64 $ — $— $
— — 190
— —
62
— —
— —
456 —
Fixed income:
Government bonds(3)
Corporate bonds(4)
Commingled bond funds(5)
. . . . . . . . . . . . . —
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . —
67 —
. . . . . . . . . . . . . . . . . . . — 397 — 397 —
— —
11 —
— —
11 —
67 —
226 —
13 —
262 —
91
177
64
62
456
226
13
262
268
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . $438
$475
$— 913 $126 $1,134
$91
1,351
Items to reconcile to fair value of plan
assets(7) . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets
. . . . . . . . . . . . .
16
$929
20
$1,371
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
Fiscal Year End 2015
U.S. Plans
Non-U.S. Plans
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Total
(in millions)
Equity:
U.S. equity securities(1)
Non-U.S. equity securities(1) . . . . . . . . . . . . .
Commingled equity funds(2)
. . . . . . . . . . . . . . . . $245
149
. . . . . . . . . . . . . —
Fixed income:
$ — $— $245 $ 60
54
— — 149
— —
$ — $— $
— —
— — 421 —
Government bonds(3) . . . . . . . . . . . . . . . . . . —
Corporate bonds(4) . . . . . . . . . . . . . . . . . . . . — 404 — 404 —
Commingled bond funds(5) . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
64 — 202 —
13 —
— — 171 —
84
— —
3 —
3 — 142
64 —
Other(6)
60
54
421
202
13
171
226
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $394
$471
$— 865 $114
$949
$84
1,147
Items to reconcile to fair value of plan
assets(7) . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . .
14
$879
20
$1,167
(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.
(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), as 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 and are valued at 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.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
Changes in Level 3 assets in non-U.S. plans were primarily the result of purchases in fiscal 2016
and 2015.
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 $59 million, $60 million, and $61 million for fiscal
2016, 2015, and 2014, respectively.
Deferred Compensation Plans
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
$132 million and $118 million at fiscal year end 2016 and 2015, respectively. See Note 13 for additional
information regarding our risk management strategy related to deferred compensation liabilities.
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. The accumulated
postretirement benefit obligation was $45 million and $40 million at fiscal year end 2016 and 2015,
respectively, and the underfunded status of the postretirement benefit plans was included primarily in
long-term pension and postretirement liabilities on the Consolidated Balance Sheets. Activity during
fiscal 2016, 2015, and 2014 was not significant.
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes
Significant components of the income tax expense (benefit) were as follows:
Fiscal
2016
2015
2014
(in millions)
Current income tax expense (benefit):
U.S.:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
Deferred income tax expense (benefit):
U.S.:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
$(1,115) $ (67) $ 128
(3)
302
(163)
321
12
352
(957)
297
427
173
20
(15)
178
87
5
(52)
40
(311)
(3)
33
(281)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . .
$ (779) $337
$ 146
The U.S. and non-U.S. components of income from continuing operations before income taxes
were as follows:
U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
Fiscal
2015
2014
(in millions)
$ (115) $ (31) $ (133)
1,893
1,606
1,277
Income from continuing operations before income taxes
$1,162
$1,575
$1,760
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
The reconciliation between U.S. federal income taxes at the statutory rate and income tax expense
(benefit) was as follows:
Notional U.S. federal income tax expense at the statutory rate . . . . . . . . . . .
Adjustments to reconcile to the income tax expense (benefit):
U.S. state income tax expense (benefit), net . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense—Tax Sharing Agreement(1)
. . . . . . . . . . . . . . . . .
Tax law changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. net earnings(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in accrued income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal entity restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2015
2016
2014
(in millions)
$ 551
407
$
$ 616
(93)
221
(3)
(10)
(342)
2
(1,056)
97
39
(31)
(10)
11
18
10
(9)
(275)
2
(183)
(3)
211
—
4
(4)
(23)
(1)
(8)
(287)
3
112
(239)
—
—
(23)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (779) $ 337
$ 146
(1) Other income (expense), net pursuant to the Tax Sharing Agreement with Tyco International and Covidien is
not taxable or deductible.
(2) Excludes nondeductible charges and other items which are separately presented.
The income tax benefit for fiscal 2016 included a $1,135 million income tax benefit related to the
effective settlement of tax matters for the years 1997 through 2000 which resolved all aspects of the
disputed debt matter with the IRS through the year 2007, partially offset by a $91 million income tax
charge related to an increase to the valuation allowance for certain U.S. deferred tax assets.
Additionally, the tax benefit for fiscal 2016 included an $83 million net income tax benefit related to
tax settlements in certain other tax jurisdictions, partially offset by an income tax charge related to
certain legal entity restructurings. See Note 12 for additional information regarding settlements with the
IRS.
The increase to the valuation allowance for deferred tax assets primarily relates to certain U.S.
federal and state tax loss and credit carryforwards. Based on our forecast of taxable income for certain
U.S. tax reporting groups, U.S. tax loss and credit carryforwards finalized as a result of settlement of
the disputed debt matter with the IRS, and certain tax planning actions and strategies, we believed it
was more likely than not that a portion of our deferred tax assets would not be realized.
The income tax expense for fiscal 2015 included a $264 million income tax benefit related to the
effective settlement of all undisputed tax matters for the years 2001 through 2010, partially offset by a
$216 million income tax charge associated with the tax impacts of certain intercompany legal entity
restructurings made in connection with our integration of Measurement Specialties. Also, income tax
expense for fiscal 2015 included an income tax charge of $29 million associated with the tax impacts of
certain intercompany dividends related to the restructuring and sale of BNS.
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
The income tax expense for fiscal 2014 included an income tax benefit of $282 million recognized
in connection with a reduction in the valuation allowance associated with certain tax loss carryforwards
relating to ADC Telecommunications, Inc. (‘‘ADC’’), 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 on our forecast of taxable income of the reorganized combined tax group,
we believed it was more likely than not that a tax benefit would 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.
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
2016
2015
(in millions)
$
286
4,656
46
349
11
470
10
32
5,860
$
262
4,856
57
295
17
394
378
4
6,263
(761)
(15)
(84)
(860)
(809)
(1)
(89)
(899)
Net deferred tax asset before valuation allowance . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,000
(3,096)
5,364
(3,237)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,904
$ 2,127
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
Our tax loss and credit carryforwards (tax effected) at fiscal year end 2016 were as follows:
Expiration Period
Through
2021
Fiscal 2022
Through
2036
No
Expiration
Total
(in millions)
U.S. Federal:
Net operating loss carryforwards . . . . .
Tax credit carryforwards . . . . . . . . . . .
Capital loss carryforwards . . . . . . . . . .
$ —
15
36
$1,404
124
—
$ — $1,404
209
36
70
—
U.S. State:
Net operating loss carryforwards.
. . . .
Tax credit carryforwards . . . . . . . . . . .
Non-U.S.:
Net operating loss carryforwards . . . . .
Tax credit carryforwards . . . . . . . . . . .
Capital loss carryforwards . . . . . . . . . .
53
12
12
—
7
55
15
5
1
—
—
7
2,813
—
27
108
34
2,830
1
34
Total tax loss and credit carryforwards . . .
$135
$1,604
$2,917
$4,656
The valuation allowance for deferred tax assets of $3,096 million and $3,237 million at fiscal year
end 2016 and 2015, 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 the Consolidated Balance Sheet. At fiscal year end 2016,
approximately $169 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.
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 fiscal year end 2016, certain
subsidiaries had approximately $21 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 fiscal year end 2016, we had approximately $6.9 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 $1.5 billion of tax expense would be recognized on the
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
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.
Uncertain Tax Position Provisions of ASC 740
As of fiscal year end 2016, we had total unrecognized income tax benefits of $490 million. If
recognized in future years, $370 million of these currently unrecognized income tax benefits would
impact income tax expense (benefit) and the effective tax rate. As of fiscal year end 2015, we had total
unrecognized income tax benefits of $1,368 million. If recognized in future years, $1,291 million of
these unrecognized income tax benefits would impact income tax expense (benefit) and the 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
2016
Fiscal
2015
(in millions)
$1,595
24
(291)
97
—
(29)
$1,368
75
(817)
124
4
(205)
2014
$1,617
22
(57)
32
7
(14)
limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(59)
(28)
(12)
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . .
$ 490
$1,368
$1,595
We record accrued interest as well as penalties related to uncertain tax positions as part of income
tax expense (benefit). As of fiscal year end 2016 and 2015, we had $54 million and $1,076 million,
respectively, of accrued interest and penalties related to uncertain tax positions on the Consolidated
Balance Sheets, recorded primarily in income taxes. The decrease in the accrued interest and penalties
from fiscal year end 2015 was due primarily to the effective settlement of tax matters for the years 1997
through 2000 which resolved all aspects of the disputed debt matter with the IRS through the year
2007. During fiscal 2016, 2015, and 2014, we recognized income tax benefits of $765 million, expense of
$7 million, and expense of $99 million, respectively, related to interest and penalties on the
Consolidated Statements of Operations.
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.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
As of fiscal year end 2016, under applicable statutes, the following tax years remained subject to
examination in the major tax jurisdictions indicated:
Jurisdiction
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Luxembourg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.—federal and state and local . . . . . . . . . . . . . . . . . . . . . . .
Open Years
2006 through 2016
2013 through 2016
2013 through 2016
2010 through 2016
2011 through 2016
2010 through 2016
2010 through 2016
2011 through 2016
2011 through 2016
2012 through 2016
2011 through 2016
2012 through 2016
2011 through 2016
2015 through 2016
1998 through 2016
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 $90 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 fiscal year end
2016.
16. Other Income (Expense), Net
In fiscal 2016, 2015, and 2014, we recorded net other expense of $632 million, net other expense of
$55 million, and net other income of $63 million, respectively, primarily pursuant to the Tax Sharing
Agreement with Tyco International and Covidien. The net other expense in fiscal 2016 included
$604 million related to the effective settlement of tax matters for the years 1997 through 2000 which
resolved all aspects of the disputed debt matter with the IRS through the year 2007 and $46 million
related to a tax settlement in another jurisdiction. The net other expense in fiscal 2015 included
$84 million related to the effective settlement of undisputed tax matters for the years 2001 through
2007. See Note 12 for further information regarding the Tax Sharing Agreement and settlements with
the IRS. 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.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
17. Earnings Per Share
The weighted-average number of shares outstanding used in the computation of basic and diluted
earnings per share were as follows:
Fiscal
2016
2015
2014
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive impact of share-based compensation arrangements . . . .
(in millions)
405
6
410
7
366
3
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
369
411
417
There were three million and one million share options that were not included in the computation
of diluted earnings per share for fiscal 2016 and 2015, respectively, because the instruments’ underlying
exercise prices were greater than the average market prices of our common shares and inclusion would
be antidilutive.
18. 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 the Consolidated Financial Statements.
Subject to certain conditions specified in our articles of association, we are authorized to increase
our conditional share capital by issuing new shares in aggregate not exceeding 50% of our authorized
shares. In March 2016, our shareholders approved for a period of two years ending on March 2, 2018,
our board of directors’ authorization to issue additional new shares, subject to certain conditions
specified in the articles of association, in aggregate not exceeding 50% of the amount of our authorized
shares.
Common Shares Held in Treasury
At fiscal year end 2016, approximately 28 million common shares were held in treasury, of which
2 million were owned by one of our subsidiaries. At fiscal year end 2015, approximately 20 million
common shares were held in treasury, of which 6 million were owned by one of our subsidiaries. Shares
held both directly by us and by our subsidiary are presented as treasury shares on the Consolidated
Balance Sheets.
In fiscal 2016, 2015, and 2014, our shareholders approved the cancellation of 31 million, 5 million,
and 10 million shares, respectively, purchased under our share repurchase program. These capital
reductions by cancellation of shares were subject to a notice period and filing with the commercial
register in Switzerland.
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
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
18. Equity (Continued)
Contributed Surplus are free from withholding tax. As of fiscal year end 2016 and 2015, Swiss
Contributed Surplus was CHF 7,878 million and CHF 8,392 million, respectively (equivalent to
$6,992 million and $7,505 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. Distributions or dividends on our shares
must be approved by our shareholders.
Our shareholders approved the following dividends on our common shares:
Approval Date
Payment Type
Annual Payment Per Share
Payment Dates
March 2013 . . Dividend payment out of
contributed surplus
March 2014 . . Dividend payment out of
contributed surplus
March 2015 . . Dividend payment out of
contributed surplus
March 2016 . . Dividend payment out of
contributed surplus
CHF 0.96 (equivalent to $1.00),
payable in four quarterly
installments of $0.25
CHF 1.04 (equivalent to $1.16),
payable in four quarterly
installments of $0.29
$1.32 (equivalent to CHF 1.27),
payable in four quarterly
installments of $0.33
$1.48 (equivalent to CHF 1.48),
payable in four quarterly
installments of $0.37
Third quarter of fiscal 2013
Fourth quarter of fiscal 2013
First quarter of fiscal 2014
Second quarter of fiscal 2014
Third quarter of fiscal 2014
Fourth quarter of fiscal 2014
First quarter of fiscal 2015
Second quarter of fiscal 2015
Third quarter of fiscal 2015
Fourth quarter of fiscal 2015
First quarter of fiscal 2016
Second quarter of fiscal 2016
Third quarter of fiscal 2016
Fourth quarter of fiscal 2016
First quarter of fiscal 2017
Second quarter of fiscal 2017
Upon shareholders’ approval 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 fiscal year end 2016 and 2015, the unpaid portion of the dividends recorded in accrued and other
current liabilities on the Consolidated Balance Sheets totaled $263 million and $260 million,
respectively.
Share Repurchase Program
During fiscal 2016, our board of directors authorized an increase of $1.0 billion in the share
repurchase program. Common shares repurchased under the share repurchase program were as follows:
Number of common shares repurchased . . . . . . . . . . . . . . .
Amount repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
$2,610
(in millions)
18
$1,163
Fiscal
2015
2016
2014
11
$604
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
18. Equity (Continued)
At fiscal year end 2016, we had $1.1 billion of availability remaining under our share repurchase
authorization.
19. 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 fiscal year end 2013 . . . . . . . . . . .
$ 931
$(569)
$(59)
$ 303
Other comprehensive loss before
reclassifications . . . . . . . . . . . . . . . . . . .
(216)
(211)
(35)
(462)
Amounts reclassified from accumulated
other comprehensive income (loss) . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . .
Net other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . . .
Balance at fiscal year end 2014 . . . . . . . . . . .
Other comprehensive loss before
5
—
(211)
720
44
44
(123)
(692)
reclassifications . . . . . . . . . . . . . . . . . . .
(536)
(147)
Amounts reclassified from accumulated
other comprehensive income (loss) . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . .
Net other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . . .
Balance at fiscal year end 2015 . . . . . . . . . . .
Other comprehensive loss before
reclassifications . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated
other comprehensive income (loss) . . . . .
. . . . . . . . . .
Income tax (expense) benefit
Net other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . . .
224(2)
—
(312)
408
(69)
(23)
—
(92)
Balance at fiscal year end 2016 . . . . . . . . . . .
$ 316
75
26
(46)
(738)
(190)
70
32
49
—
14
(45)
(44)
45
1
2
(43)
(14)
32
(7)
98
44
(320)
(17)
(727)
344
27
(356)
(373)
(273)
79
25
(88)
$(826)
11
$(32)
(169)
$(542)
(1)
Includes hedges of net investment foreign exchange gains or losses which offset foreign exchange losses or
gains attributable to the translation of the net investments.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
19. Accumulated Other Comprehensive Income (Loss) (Continued)
(2) Represents net currency translation reclassified as a result of the sale of BNS. This net loss is included in
income from discontinued operations on the Consolidated Statement of Operations. See Note 4 for additional
information regarding the divestiture of BNS.
20. Share Plans
Our equity compensation 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, performance, and deferred
share 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 fiscal year end 2016, 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 16 million shares remained available for issuance under our
plans as of fiscal year end 2016.
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 as follows:
Fiscal
2016
2015
2014
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
$91
(in millions)
$89
$77
We recognized a related tax benefit associated with our share-based compensation arrangements of
$29 million, $29 million, and $24 million in fiscal 2016, 2015, and 2014, 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 share 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.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans (Continued)
A summary of restricted share award activity is presented below:
Nonvested at fiscal year end 2015 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
2,790,934
886,663
(1,116,283)
(274,310)
Nonvested at fiscal year end 2016 . . . . . . . . . . . . . . . .
2,287,004
Weighted-Average
Grant-Date
Fair Value
$51.01
64.88
45.46
54.53
$58.47
The weighted-average grant-date fair value of restricted share awards granted during fiscal 2016,
2015, and 2014 was $64.88, $62.45, and $52.21, respectively.
The total fair value of restricted share awards that vested during fiscal 2016, 2015, and 2014 was
$51 million, $58 million, and $52 million, respectively.
As of fiscal year end 2016, there was $74 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. 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 fiscal year end 2015 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
700,828
425,861
(444,429)
(55,635)
Outstanding at fiscal year end 2016 . . . . . . . . . . . . . . . .
626,625
Weighted-Average
Grant-Date
Fair Value
$47.32
55.15
34.46
56.98
$60.56
The weighted-average grant-date fair value of performance share awards granted during fiscal
2016, 2015, and 2014 was $55.15, $61.65, and $51.63, respectively.
The total fair value of performance share awards that vested during fiscal 2016 was $15 million.
The total fair value of performance share awards that vested in fiscal 2015 and 2014 was insignificant.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans (Continued)
As of fiscal year end 2016, there was $18 million of unrecognized compensation cost related to
nonvested performance share awards. The cost is expected to be recognized over a weighted-average
period of 1.2 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.
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 fiscal year end 2015 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
10,124,875
1,860,800
(2,480,662)
(61,592)
(339,041)
Outstanding at fiscal year end 2016 . . . . . . .
9,104,380
Vested and expected to vest at fiscal year
end 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at fiscal year end 2016 . . . . . . .
8,739,461
5,189,559
$40.05
65.70
35.68
44.20
57.18
$45.79
$45.26
$36.16
6.3
6.3
4.9
$172
$170
$147
The weighted-average exercise price of share option awards granted during fiscal 2016, 2015, and
2014 was $65.70, $61.70, and $51.78, respectively.
The total intrinsic value of options exercised during fiscal 2016, 2015, and 2014 was $67 million,
$107 million, and $136 million, respectively. We received cash related to the exercise of options of
$90 million, $103 million, and $156 million in fiscal 2016, 2015, and 2014, respectively. The related
excess cash tax benefit classified as a financing cash inflow on the Consolidated Statements of Cash
Flows for fiscal 2016, 2015, and 2014 was not material.
As of fiscal year end 2016, there was $36 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 1.6 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
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans (Continued)
respect to selected model inputs. We 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
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.
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:
2016
Fiscal
2015
2014
Weighted-average grant-date fair value . . . . . . . . . . . . . . .
$14.26
$18.77
$16.81
Assumptions:
Expected share price volatility . . . . . . . . . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected annual dividend per share . . . . . . . . . . . . . . . . .
Expected life of options (in years) . . . . . . . . . . . . . . . . . .
26%
39%
36%
2.0% 2.0% 1.8%
$ 1.32
5.7
$ 1.16
6.0
$ 1.00
6.0
21. Segment and Geographic Data
We operate through three reportable segments: Transportation Solutions, Industrial Solutions, and
Communications 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.
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
21. Segment and Geographic Data (Continued)
Net sales and operating income by segment were as follows:
Net Sales
Fiscal
2015
2016
Operating Income
2014
2016
(in millions)
Fiscal
2015
2014
Transportation Solutions . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . .
$ 6,503
3,215
2,520
$ 6,351
3,179
2,703
$ 6,090
3,302
2,581
$1,191
343
368(1)
$1,193
352
204
$1,245
431
129
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,238
$12,233
$11,973
$1,902
$1,749
$1,805
(1)
Includes pre-tax gain of $144 million on the sale of our CPD business during fiscal 2016.
No single customer accounted for a significant amount of our net sales in fiscal 2016, 2015, and
2014.
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
2016
Fiscal
2015
2014
2016
(in millions)
Fiscal
2015
2014
Transportation Solutions . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . .
$
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
337
131
117
585
$
$
347
123
146
616
$
$
285
102
164
551
$ 429
107
92
$ 400
104
96
$ 379
143
113
$ 628
$ 600
$ 635
Segment assets and a reconciliation of segment assets to total assets were as follows:
Segment Assets
Fiscal Year End
2016
2015
2014
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . .
$ 3,501
1,720
1,473
(in millions)
$ 3,310
1,720
1,625
Total segment assets(1)
. . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . .
6,694
1,133
9,781
6,655
4,150
9,784
$ 3,062
1,735
1,689
6,486
5,311
8,335
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,608
$20,589
$20,132
(1) Segment assets are composed of accounts receivable, inventories, and property, plant, and
equipment.
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
21. Segment and Geographic Data (Continued)
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
2016
2015
2014
2016
2015
2014
(in millions)
Americas:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Americas . . . . . . . . . . . . . . . . . . . . .
$ 3,901
298
$ 3,817
321
$ 3,119
396
$ 922
93
$ 887
87
$ 837
97
Total Americas . . . . . . . . . . . . . . . . . . . .
4,199
4,138
3,515
1,015
974
934
Europe/Middle East/Africa:
Switzerland . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe/Middle East/Africa . . . . . . . .
Total Europe/Middle East/Africa . . . . . . .
Asia–Pacific:
China . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia–Pacific . . . . . . . . . . . . . . . . . . .
Total Asia–Pacific . . . . . . . . . . . . . . . . . .
2,979
127
1,010
4,116
2,165
1,758
3,923
2,992
117
883
3,992
2,367
1,736
4,103
3,483
126
615
4,224
2,331
1,903
4,234
62
334
630
1,026
491
520
1,011
55
313
588
956
529
461
990
54
330
642
1,026
492
468
960
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,238
$12,233
$11,973
$3,052
$2,920
$2,920
(1) Net sales to external customers is attributed to individual countries based on the legal entity that records the
sale.
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
22. Quarterly Financial Data (unaudited)
Summarized quarterly financial data was as follows:
2016
2015
Fiscal
First
Second
Quarter Quarter(1) Quarter(2) Quarter(3) Quarter(4) Quarter
Second
Fourth
Third
First
Third
Quarter Quarter(5)
Fourth
Net sales . . . . . . . . . . . . . . . . . . $2,833
945
Gross margin . . . . . . . . . . . . . . .
Acquisition and integration costs
5
.
Restructuring and other charges
(credits), net . . . . . . . . . . . . . .
40
Income from continuing
operations . . . . . . . . . . . . . . .
324
Income (loss) from discontinued
(in millions, except per share data)
$2,952
962
3
$3,121
1,022
11
$3,332
1,104
3
$3,049
1,020
24
$3,082
1,051
14
$3,118
1,048
8
$2,984
968
9
(99)
389
31
791
30
437
25
435
38
316
19
351
70
136
operations, net of income taxes .
29
Net income . . . . . . . . . . . . . . . . $ 353
(9)
$ 380
48
$ 839
—
$ 437
37
$ 472
283
$ 599
(42)
$ 309
904
$1,040
Basic earnings per share:
Income from continuing
operations . . . . . . . . . . . . . . $ 0.84
0.92
Net income . . . . . . . . . . . . . .
$ 1.07
1.04
$ 2.22
2.35
$ 1.23
1.23
$ 1.07
1.16
$ 0.78
1.47
$ 0.86
0.76
$ 0.34
2.60
Diluted earnings per share:
Income from continuing
operations . . . . . . . . . . . . . . $ 0.83
0.91
Net income . . . . . . . . . . . . . .
$ 1.06
1.03
$ 2.19
2.32
$ 1.22
1.22
$ 1.05
1.14
$ 0.77
1.45
$ 0.85
0.75
$ 0.34
2.57
(1) Results for the second quarter of fiscal 2016 included a pre-tax gain of $146 million on the sale of our CPD
business.
(2) Results for the third quarter of fiscal 2016 included a $1,135 million income tax benefit associated with the
effective settlement of tax matters for the years 1997 through 2000 which resolved all aspects of the disputed
debt matter with the IRS through the year 2007 and the related impact of $604 million to other expense
pursuant to the Tax Sharing Agreement with Tyco International and Covidien. In addition, results for the
third quarter of fiscal 2016 included a $91 million income tax charge related to an increase to the valuation
allowance for certain U.S. deferred tax assets, and an $83 million net income tax benefit related to tax
settlements in certain other tax jurisdictions and the related impact of $46 million to other expense pursuant
to the Tax Sharing Agreement with Tyco International and Covidien.
(3) Results for the fourth quarter of fiscal 2016 included an additional week. See Note 1 for additional
information regarding our fiscal year end.
(4) Results for the first quarter of fiscal 2015 included $27 million of charges from the amortization of
acquisition-related fair value adjustments to acquired inventories and customer order backlog associated
primarily with Measurement Specialties. Results for the first quarter of fiscal 2015 also included a
$189 million income tax benefit associated with the effective settlement of all undisputed tax matters for the
years 2001 through 2007 and the related impact of $83 million to other expense pursuant to the Tax Sharing
Agreement with Tyco International and Covidien.
(5) Results for the fourth quarter of fiscal 2015 included a $216 million income tax charge associated with the tax
impacts of certain intercompany legal entity restructurings made in connection with our integration of
Measurement Specialties and a $63 million income tax benefit associated with the effective settlement of all
undisputed tax matters for the years 2008 through 2010. In addition, in the fourth quarter of fiscal 2015,
income (loss) from discontinued operations, net of income taxes included the gain on the sale of our BNS
business.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. 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.
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended September 30, 2016
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 (credits), net
Operating income (loss) . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . . . . . . .
Equity in net income of subsidiaries of
discontinued operations . . . . . . . . . . . . . .
Intercompany interest income (expense), net .
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . .
Income (loss) from discontinued operations,
net of income taxes(2)
. . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . .
$ — $ — $12,238
8,205
—
—
—
168
—
—
2
(170)
—
—
—
2,139
67
(28)
2,008
—
2,008
1
2,009
(169)
—
95
—
—
(1)
(94)
—
(126)
—
2,261
168
98
2,307
—
2,307
(101)
2,206
(169)
4,033
1,200
644
22
1
2,166
19
(1)
(632)
—
—
(70)
1,482
779
2,261
168
2,429
(143)
$ —
—
—
—
—
—
—
—
—
—
—
(4,400)
(235)
—
(4,635)
—
(4,635)
—
(4,635)
312
$12,238
8,205
4,033
1,463
644
22
2
1,902
19
(127)
(632)
—
—
—
1,162
779
1,941
68
2,009
(169)
Comprehensive income . . . . . . . . . . . . . . .
$1,840
$2,037
$ 2,286
$(4,323)
$ 1,840
(1) TEGSA selling, general, and administrative expenses include losses of $80 million related to intercompany
transactions. These losses are offset by corresponding gains recorded by other subsidiaries.
(2)
Includes the internal allocation of gains and losses associated with the divestiture of our BNS business.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended September 25, 2015
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 expense, net . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . . . . . . .
Equity in net income of subsidiaries of
discontinued operations . . . . . . . . . . . . . .
Intercompany interest income (expense), net .
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . .
Income from discontinued operations, net of
income taxes . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . .
$ — $ — $12,233
8,146
—
—
—
163
—
—
—
(163)
—
—
—
1,398
1,182
3
2,420
—
2,420
—
2,420
(356)
—
835
—
—
—
(835)
—
(135)
—
2,318
365
50
1,763
—
1,763
817
2,580
(356)
4,087
506
627
55
152
2,747
17
(1)
(55)
—
—
(53)
2,655
(337)
2,318
365
2,683
(368)
$ —
—
—
—
—
—
—
—
—
—
—
(3,716)
(1,547)
—
(5,263)
—
(5,263)
—
(5,263)
724
$12,233
8,146
4,087
1,504
627
55
152
1,749
17
(136)
(55)
—
—
—
1,575
(337)
1,238
1,182
2,420
(356)
Comprehensive income . . . . . . . . . . . . . . .
$2,064
$2,224
$ 2,315
$(4,539)
$ 2,064
(1) TEGSA selling, general, and administrative expenses include losses of $846 million related to intercompany
transactions. These losses are offset by corresponding gains recorded by other subsidiaries.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. 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 income of subsidiaries of
discontinued operations . . . . . . . . . . . . . .
Intercompany interest income (expense), net
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . .
Income from discontinued operations, net of
income taxes . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . .
$ — $ — $11,973
8,001
—
—
—
131
—
—
—
(131)
—
—
18
1,729
167
(2)
1,781
—
1,781
—
1,781
(320)
—
3,972
1,877
(474)
—
—
—
(1,877)
—
(126)
(3)
3,672
167
63
1,896
—
1,896
—
1,896
(320)
583
31
19
3,813
19
(1)
48
—
—
(61)
3,818
(146)
3,672
167
3,839
(328)
$ —
—
—
—
—
—
—
—
—
—
—
(5,401)
(334)
—
(5,735)
—
(5,735)
—
(5,735)
648
$11,973
8,001
3,972
1,534
583
31
19
1,805
19
(127)
63
—
—
—
1,760
(146)
1,614
167
1,781
(320)
Comprehensive income . . . . . . . . . . . . . .
$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.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet
As of September 30, 2016
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . .
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 plc and
Covidien plc . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$ — $ — $
—
—
37
3
40
—
—
—
—
10,053
22
—
—
—
—
1,314
17
1,331
—
—
—
—
19,425
3,739
—
14
647
2,046
1,596
48
466
4,803
3,052
5,492
1,879
2,111
—
10,313
12
273
$
— $
—
—
(1,399)
—
(1,399)
—
—
—
—
(29,478)
(14,074)
—
—
647
2,046
1,596
—
486
4,775
3,052
5,492
1,879
2,111
—
—
12
287
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
$10,115
$24,509
$27,935
$(44,951)
$17,608
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . .
Intercompany payables . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . .
Intercompany loans payable . . . . . . . . . . . . . .
Long-term pension and postretirement
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . .
$ — $
1
266
—
1,363
330
—
57
—
—
1,630
—
—
387
3,737
10,314
—
—
—
—
—
—
—
18
Total Liabilities . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . .
1,630
8,485
14,456
10,053
$
1
1,089
1,114
208
36
2,448
2
3,760
1,502
207
247
344
8,510
19,425
$
— $
—
—
—
(1,399)
(1,399)
—
(14,074)
—
—
—
—
(15,473)
(29,478)
331
1,090
1,437
208
—
3,066
3,739
—
1,502
207
247
362
9,123
8,485
Total Liabilities and Shareholders’ Equity . .
$10,115
$24,509
$27,935
$(44,951)
$17,608
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet
As of September 25, 2015
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
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 plc and
Covidien plc . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ 3,329
2,120
1,615
66
468
345
—
—
813
4
—
—
—
389
4
—
817
—
—
—
—
9,505
22
—
—
393
—
—
—
—
19,645
2,328
—
27
7,943
2,920
4,824
1,555
2,144
—
8,110
964
270
$
— $ 3,329
2,120
—
1,615
—
—
(1,268)
476
—
345
—
(1,268)
—
—
—
—
(29,150)
(10,460)
—
—
7,885
2,920
4,824
1,555
2,144
—
—
964
297
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
$10,344
$22,393
$28,730
$(40,878)
$20,589
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . .
Intercompany payables . . . . . . . . . . . . . . . .
$ — $
2
442
—
311
Total current liabilities . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . .
Intercompany loans payable . . . . . . . . . . . . . .
Long-term pension and postretirement
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . .
755
—
4
—
—
—
—
498
—
75
—
824
1,397
3,385
8,106
—
—
—
—
Total Liabilities . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . .
759
9,585
12,888
9,505
$ —
1,141
1,232
185
133
2,691
1
2,350
1,327
329
1,954
433
9,085
19,645
$
— $
—
—
—
(1,268)
(1,268)
—
(10,460)
—
—
—
—
498
1,143
1,749
185
—
3,575
3,386
—
1,327
329
1,954
433
(11,728)
(29,150)
11,004
9,585
Total Liabilities and Shareholders’ Equity . .
$10,344
$22,393
$28,730
$(40,878)
$20,589
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended September 30, 2016
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$
$
(37)
—
(37)
$ (336)
—
$ 2,019
(97)
(336)
1,922
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 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 business, net of cash
retained by sold business . . . . . . . . . . . . . . . . . . .
Proceeds from divestiture of discontinued operations,
net of cash retained by sold operations(2)
. . . . . . . .
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(3) . . . . . . . . . . . . .
Net increase in commercial paper . . . . . . . . . . . . . . .
Proceeds from issuance of debt
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Repayment of 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
Transfers to discontinued operations . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in continuing financing activities . . . .
Net cash provided by discontinued financing activities
Net cash used in financing activities . . . . . . . . . . . .
Effect of currency translation on cash . . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . .
Cash and cash equivalents at beginning of fiscal year .
211
—
211
—
—
—
199
(120)
1,729
(1,244)
—
$ 2,181
(97)
2,084
(628)
8
(1,336)
134
101
—
—
61
564
(1,660)
300
330
349
(500)
—
—
—
(1,250)
—
—
(4)
(775)
—
(775)
—
—
—
(710)
—
3
(1)
90
(7)
4
(1,897)
(594)
(97)
(1)
(3,210)
97
(3,113)
7
(2,682)
3,329
—
—
—
—
—
1,082
—
—
1,082
410
—
—
—
—
(2,780)
(513)
—
1,838
—
—
(1,045)
—
(1,045)
—
—
—
—
—
—
—
—
(2,811)
1,244
—
(1,567)
—
—
—
—
—
—
—
3,147
(1,244)
—
—
1,903
—
1,903
—
—
—
(628)
8
(1,336)
333
(19)
—
—
61
(1,581)
—
330
352
(501)
90
(2,787)
(509)
—
—
(97)
(5)
(3,127)
97
(3,030)
7
(2,682)
3,329
647
Cash and cash equivalents at end of fiscal year . . . . .
$ —
$ —
$
647
$ —
(1) During fiscal 2016, other subsidiaries made distributions to TEGSA in the amount of $1,897 million and TEGSA
made distributions to TE Connectivity Ltd. in the amount of $1,250 million. Cash flows are presented based upon
the nature of the distributions.
(2)
Includes the internal allocation of proceeds between TEGSA and other subsidiaries associated with the divestiture of
our BNS business.
(3) Changes in parent company equity includes cash flows related to certain intercompany equity and funding
transactions, and other intercompany activity.
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended September 25, 2015
Cash Flows From Operating Activities:
Net cash provided by continuing operating activities(1)
Net cash provided by 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 . . . . . . . . . .
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(2) . . . . . . . . . . . . .
Net decrease in commercial paper . . . . . . . . . . . . . .
Proceeds from issuance of debt
. . . . . . . . . . . . . . . .
Repayment of 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
. . . . . . . . . . . . . . . . . . . .
Transfers from discontinued operations . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in continuing financing activities . . . .
Net cash used in discontinued financing activities . . .
Net cash used in financing activities . . . . . . . . . . . .
Effect of currency translation on cash . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . .
Cash and cash equivalents at beginning of fiscal year .
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$ 1,186
$ 1,270
$ 1,824
$(2,661)
$ 1,619
—
1,186
—
—
—
—
—
—
—
—
—
80
—
—
—
—
(916)
(515)
—
165
—
—
(1,186)
—
(1,186)
—
—
—
—
1,270
—
—
—
709
(1,304)
—
(595)
—
(595)
624
(328)
617
(250)
—
—
—
(1,335)
—
—
(4)
(676)
—
(676)
—
(1)
1
294
2,118
(600)
17
(1,725)
2,248
—
12
(48)
(25)
(73)
(704)
—
—
(223)
103
(107)
13
(1,326)
1,139
269
4
(832)
(269)
(1,101)
(71)
873
2,456
—
(2,661)
—
—
—
—
1,304
—
1,304
—
1,304
—
—
—
—
—
—
—
2,661
(1,304)
—
—
1,357
—
1,357
—
—
—
294
1,913
(600)
17
(1,725)
2,957
—
12
661
(25)
636
—
(328)
617
(473)
103
(1,023)
(502)
—
—
269
—
(1,337)
(269)
(1,606)
(71)
872
2,457
Cash and cash equivalents at end of fiscal year . . . . .
$ —
$ —
$ 3,329
$ —
$ 3,329
(1) During fiscal 2015, other subsidiaries made distributions to TEGSA in the amount of $1,326 million and TEGSA
made distributions to TE Connectivity Ltd. in the amount of $1,335 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.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. 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 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 business, net of cash
retained by sold business . . . . . . . . . . . . . . . . . . .
Intercompany distribution receipts(1)
. . . . . . . . . . . . .
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(2) . . . . . . . . . . . . .
Net decrease in commercial paper . . . . . . . . . . . . . .
Proceeds from issuance of debt
. . . . . . . . . . . . . . . .
Repayment of 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
. . . . . . . . . . . . . . . . . . . .
Transfers from discontinued operations . . . . . . . . . . .
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 .
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$(296)
$ 1,829
$ 2,153
$(1,882)
$ 1,804
—
(296)
—
1,829
279
2,432
(635)
129
(522)
3
—
—
(13)
(1,038)
(37)
(1,075)
3,192
—
—
(57)
156
(451)
9
(1,981)
(1,155)
242
2
(43)
(242)
(285)
(19)
1,053
1,403
—
(1,882)
—
—
—
—
(99)
(347)
—
(446)
—
(446)
—
—
—
—
—
—
—
1,981
347
—
—
2,328
—
2,328
—
—
—
279
2,083
(635)
129
(522)
3
—
—
(13)
(1,038)
(37)
(1,075)
—
(23)
1,322
(360)
156
(578)
(443)
—
—
242
(9)
307
(242)
65
(19)
1,054
1,403
$ 2,456
$ —
$ 2,457
—
—
—
—
99
347
—
446
—
446
(3,259)
(23)
1,322
(303)
—
—
—
—
—
—
(11)
(2,274)
—
(2,274)
—
1
—
1
—
—
—
—
—
—
—
—
—
—
67
—
—
—
—
(127)
(452)
—
808
—
—
296
—
296
—
—
—
Cash and cash equivalents at end of fiscal year . . . . .
$ —
$
(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.
106
TE CONNECTIVITY LTD.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended September 30, 2016, September 25, 2015, and September 26, 2014
Description
Fiscal 2016:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . .
Fiscal 2014:
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
$
18
$ —
3,237
283
$
14
$
2
1,706
1,627
$
29
$
2
1,801
285
$ 1
1
$ 3
1
$—
—
$
(2)
$
17
(425)
3,096
$
(1)
$
18
(97)
3,237
$ (17)
$
14
(380)
1,706
107
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 30, 2016, and the consolidated statement of operations, statement of comprehensive income,
statement of shareholders’ equity, statement of cash flows and notes 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 30, 2016
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.
108
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 Code of Obligations (‘‘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 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/ Matthias Gschwend
Licensed Audit Expert
Auditor in charge
Zurich, November 15, 2016
/s/ Dominik Voegtli
Licensed Audit Expert
109
(This page has been left blank intentionally.)
110
TE CONNECTIVITY LTD.
INDEX TO SWISS STATUTORY FINANCIAL STATEMENTS
Statements of Operations for the Fiscal Years Ended September 30, 2016 and September 25,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheets as of September 30, 2016 and September 25, 2015 . . . . . . . . . . . . . . . . . . . . . .
Notes to Swiss Statutory Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposed Appropriation of Available Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of the Statutory Auditor on the Swiss Statutory Financial Statements of TE
Page
112
113
114
124
Connectivity Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125
111
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 2016 and September 25, 2015
Income
Income from distributions made by a subsidiary
(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-separation tax settlement income, net (Note 3) .
Insurance premiums charged to subsidiaries . . . . . .
Intercompany interest income . . . . . . . . . . . . . . . . .
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses
Salary and social costs . . . . . . . . . . . . . . . . . . . . . .
General and administrative costs . . . . . . . . . . . . . . .
Legal and consulting costs . . . . . . . . . . . . . . . . . . .
Insurance premiums . . . . . . . . . . . . . . . . . . . . . . . .
Expenses for services provided by subsidiaries . . . . .
Remeasurement loss (gain) on foreign currency
transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany interest expense . . . . . . . . . . . . . . . .
September 30, 2016
September 25, 2015
U.S. dollars
Swiss francs
U.S. dollars
Swiss francs
(in millions)
$1,250
317
10
—
1,577
CHF 1,209
311
10
—
1,530
$1,335
10
13
7
1,365
CHF 1,300
10
13
6
1,329
4
4
7
12
45
15
28
4
4
7
12
44
15
27
5
4
7
16
54
(13)
4
77
4
4
7
15
52
(12)
4
74
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
115
113
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,462
CHF 1,417
$1,288
CHF 1,255
See Notes to Swiss Statutory Financial Statements.
112
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
BALANCE SHEETS
As of September 30, 2016 and September 25, 2015
September 30, 2016
September 25, 2015
U.S. dollars
Swiss francs
U.S. dollars
Swiss francs
(in millions, except share data)
Assets
Current assets:
Accounts receivable from subsidiaries (Note 3) .
Prepaid expenses and other current assets . . . .
Total current assets . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries (Notes 2 and 8) . . . . .
$
41
4
45
9,644
CHF
$
40
3
43
10,439
817
5
822
9,649
CHF
798
5
803
10,443
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,689
CHF 10,482
$10,471
CHF 11,246
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . .
Accounts payable to subsidiaries (Note 3) . . . . .
Loans from subsidiaries (Note 3) . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . .
Approved but unpaid distributions to
shareholders (Note 4) . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . .
Unrealized translation gains (Note 2) . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .
Commitments, contingencies, and guarantees
(Note 3)
Shareholders’ equity (Note 4):
Share capital, 382,835,381 and 414,064,381
shares authorized and issued, CHF 0.57 par
value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statutory reserves:
General reserve from earnings . . . . . . . . . . .
Free reserves:
Reserves from capital contributions (Note 4) .
Allocated reserves for the acquisition of
treasury shares by a subsidiary (Note 2) . . .
Unappropriated accumulated earnings . . . . . . .
Own shares held in treasury . . . . . . . . . . . . . . .
Reserves for treasury shares (Note 2) . . . . . . . .
$
1
47
1,318
9
264
1,639
—
1,639
CHF
$
1
46
1,279
9
264
1,599
645
2,244
168
38
218
49
CHF
1
44
272
186
264
767
—
767
182
38
6,992
7,878
7,505
(111)
2,364
(1,512)
111
(110)
1,594
(1,501)
110
8,238
(175)
2,728
(915)
341
9,704
1
43
266
182
256
748
580
1,328
236
49
8,392
(166)
1,968
(875)
314
9,918
Total Shareholders’ Equity . . . . . . . . . . . . . .
8,050
Total Liabilities and Shareholders’ Equity . . .
$ 9,689
CHF 10,482
$10,471
CHF 11,246
See Notes to Swiss Statutory Financial Statements.
113
1. Basis of Presentation
TE Connectivity Ltd. (‘‘TE Connectivity’’ or the ‘‘Company,’’ which may be referred to as ‘‘we,’’
‘‘us,’’ or ‘‘our’’), incorporated in Schaffhausen, Switzerland, is the ultimate holding company of TE
Connectivity Ltd. and its subsidiaries (the ‘‘TE Group’’) with a listing on the New York Stock
Exchange. We employed less than 10 full time positions during the fiscal years ended September 30,
2016 and September 25, 2015. For additional information on the TE Group, see our annual report on
Form 10-K filed with the United States (‘‘U.S.’’) Securities and Exchange Commission (‘‘SEC’’) for the
fiscal year ended September 30, 2016.
The accompanying statements of operations reflect the results of operations for the fiscal years
ended September 30, 2016 and September 25, 2015, 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.
Fiscal Year
Unless otherwise indicated, references in the financial statements to fiscal 2016 and fiscal 2015 are
to our fiscal years ended September 30, 2016 and September 25, 2015. Our fiscal year is a
‘‘52-53 week’’ year ending on the last Friday of September. Fiscal 2016 was a 53 week year and fiscal
2015 was a 52 week year.
2. Summary of Significant Accounting Policies
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 (for investments in subsidiaries, shares
held in treasury, approved but unpaid distributions to shareholders payable, and equity accounts) and
current foreign exchange rates (for all other assets and liabilities; at fiscal year end 2016 and 2015,
exchange rates were CHF 0.9694:$1 and CHF 0.9768:$1, respectively). Revenue and expenses, excluding
income from distributions made by a subsidiary, are translated using the average exchange rates in
effect for the period presented (exchange rates were CHF 0.9823:$1 and CHF 0.9558:$1 for fiscal 2016
and 2015, respectively). 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 to be realized.
Own Shares Held in Treasury and Allocated Reserves for the Acquisition of Treasury Shares by a
Subsidiary
Shares held in treasury that are directly owned by us are recorded at historical cost and presented
as reductions to equity on our balance sheets. The reserves for treasury shares reflects all treasury
shares held by a subsidiary and is recorded at historical cost.
We established the reserves for treasury shares during fiscal 2016 and 2015 by charging, as
management deemed appropriate, either accumulated earnings or allocated reserves for the acquisition
of treasury shares by a subsidiary. As shares acquired by a subsidiary are re-issued for use in share-
based compensation arrangements, we credit the same account impacted by initial acquisition.
114
2. Summary of Significant Accounting Policies (Continued)
Investments in Subsidiaries and Income from Distributions Made by a Subsidiary
Investments in subsidiaries are equity interests held on a long-term basis for the purpose of our
business activities. Investments in subsidiaries are carried at a value no higher than cost less
adjustments for impairment. No impairments were recorded during fiscal 2016 or 2015.
During fiscal 2016 and 2015, a subsidiary distributed CHF 1,209 million (equivalent to
$1,250 million) and CHF 1,300 million (equivalent to $1,335 million), respectively, to us. The
distributions are included in income from distributions made by a subsidiary in our statements of
operations.
Salaries and Social Charges
Salaries and social charges include cash and equity compensation paid to our directors.
Reclassifications
Certain prior year balances have been reclassified to conform to current year presentation.
3. Commitments, Contingencies, and Guarantees
Affiliated Debt and Loans Receivable
We have two open lines of credit, the 2012 Line and the Schaffhausen Line, with wholly-owned
subsidiaries. Both lines bear interest at the 1-month London interbank offered rate (‘‘LIBOR’’) plus
0.40% (0.53% and 0.59% at fiscal year end 2016 and 2015, respectively). The 2012 Line has a
CHF 485 million limit (equivalent to $500 million) on the principal drawable and matures in September
2017. The Schaffhausen Line does not have a limit on the amount drawable and matures in April 2017.
At September 30, 2016 and September 25, 2015, there were no outstanding borrowings under either of
the open lines of credit.
We utilize a cash pooling relationship with a wholly-owned subsidiary (the ‘‘Cash Pool’’). The Cash
Pool does not have an expiration date and accrues interest based on LIBOR. At September 30, 2016,
we had a Cash Pool asset and Cash Pool liability of CHF 3 million (equivalent to $3 million) and
CHF 1,001 million (equivalent to $1,033 million), respectively, that were included in accounts receivable
from subsidiaries and loans from subsidiaries, respectively, on our balance sheet. At September 25,
2015, our Cash Pool position was an asset of CHF 779 million (equivalent to $797 million) and was
included in accounts receivable from subsidiaries on our balance sheet.
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 30, 2016 and September 25, 2015, the borrowing totaled CHF 278 million (equivalent to
$287 million) and CHF 266 million (equivalent to $272 million), respectively, and was reflected as loans
from subsidiaries on our balance sheets. At September 30, 2016 and September 25, 2015, the related
loan receivable, which approximates the borrowing, was included in the net Cash Pool liability reflected
in loans from subsidiaries and the Cash Pool asset reflected in accounts receivable from subsidiaries,
respectively, on our balance sheets.
We have fully and unconditionally guaranteed the debt of a subsidiary, Tyco Electronics
Group S.A., totaling approximately CHF 3,961 million (equivalent to $4,086 million) and
115
3. Commitments, Contingencies, and Guarantees (Continued)
CHF 3,812 million (equivalent to $3,902 million) at September 30, 2016 and September 25, 2015,
respectively. As of September 30, 2016, 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 plc (‘‘Tyco
International,’’ which now operates as part of Johnson Controls International plc) and Covidien plc
(‘‘Covidien,’’ which now operates as part of Medtronic plc), 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 arose from adjustments made by tax
authorities to our, Tyco International’s, and Covidien’s U.S. income tax returns.
During fiscal 2016 and 2015, we recorded net income of CHF 311 million (equivalent to
$317 million) and CHF 10 million (equivalent to $10 million), respectively, related to the TSA and tax
settlements involving Tyco International, Covidien, and us. These amounts are presented in
pre-separation tax settlement income, 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 30, 2016 and September 25, 2015, these performance guarantees totaled
CHF 81 million (equivalent to $84 million) and CHF 82 million (equivalent to $84 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.
116
4. Equity
Changes in Equity Accounts
The following table presents activity related to our equity accounts during fiscal 2016 and 2015 in
Swiss francs.
General
Reserve
from
Reserves
from
Capital
Share
Capital Earnings Contributions Subsidiary
Allocated
Reserves
for the
Acquisition
of Treasury
Shares
by a
Unappropriated Own Shares
Reserves
for
Treasury
Shares
Total
Accumulated
Earnings
Held in
Treasury
held by a Shareholders’
Subsidiary
Equity
September 26, 2014 . . . . . CHF 239 CHF 49
CHF 8,907
(in CHF millions)
CHF 659
CHF (45)
CHF — CHF 581
CHF 10,390
Adoption of Swiss
accounting rules(1) . . . .
Correction related to
appropriation of
general reserve(2)
. . . .
Approved dividends . . . .
Retirement of treasury
shares . . . . . . . . . . .
Acquisition of treasury
shares . . . . . . . . . . .
Transfer of reserves for
treasury shares and
other
. . . . . . . . . . .
Net income . . . . . . . . .
September 25, 2015 . . . . .
Approved dividends . . . .
Retirement of treasury
—
—
—
(3)
—
—
—
236
—
shares . . . . . . . . . . .
(18)
Acquisition of treasury
shares . . . . . . . . . . .
Transfer of reserves for
treasury shares and
other
. . . . . . . . . . .
Net income . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
49
—
—
—
—
—
—
—
(515)
—
—
—
—
8,392
(514)
—
—
—
—
—
—
—
—
—
(121)
—
(166)
—
—
—
56
—
150
(150)
(150)
(150)
(49)
—
(283)
—
—
286
—
(1,011)
236
1,255
1,968
—
—
—
(875)
—
(1,939)
1,957
—
(2,583)
—
—
—
—
(117)
—
314
—
—
—
(49)
(515)
—
(1,011)
(2)
1,255
9,918
(514)
—
(2,583)
148
1,417
—
—
(204)
—
—
1,417
September 30, 2016 . . . . . CHF 218 CHF 49
CHF 7,878
CHF (110)
CHF 1,594
CHF (1,501) CHF 110
CHF 8,238
(1) On the first day of fiscal 2015, we prospectively adopted new Swiss accounting rules. The most significant impact of adoption was
the manner in which we account for treasury shares that we directly hold. Adoption did not impact our accounting for treasury
shares held by a subsidiary. On adoption, shares held in treasury of CHF 150 million was reduced to zero with a corresponding
reduction in total shareholders’ equity via the creation of shares held in treasury and reserves for treasury shares was reduced by
CHF 150 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.
(2) Reflects a correction to the appropriation of the general reserve in fiscal 2014.
117
4. Equity (Continued)
The following table presents activity related to our equity accounts during fiscal 2016 and 2015 in
U.S. dollars.
General
Reserve
from
Reserves
from
Capital
Share
Capital Earnings Contributions Subsidiary
Allocated
Reserves
for the
Acquisition
of Treasury
Shares
by a
Unappropriated Own Shares
Reserves
for
Treasury
Shares
Total
Accumulated
Earnings
Held in
Treasury
held by a Shareholders’
Subsidiary
Equity
September 26, 2014 . . . . . .
$184
$38
$8,036
$ (51)
$ 1,315
$ —
$ 644
$10,166
(in USD millions)
Adoption of Swiss
accounting rules(1) . . . . .
Approved dividends . . . . .
Retirement of treasury
—
—
shares . . . . . . . . . . . .
(2)
Acquisition of treasury
shares . . . . . . . . . . . .
Transfer of reserves for
treasury shares and other
Net income . . . . . . . . . .
September 25, 2015 . . . . . .
Approved dividends . . . . .
Retirement of treasury
—
—
—
182
—
shares . . . . . . . . . . . .
(14)
Acquisition of treasury
shares . . . . . . . . . . . .
Transfer of reserves for
treasury shares and other
Net income . . . . . . . . . .
—
—
—
—
—
—
—
—
—
38
—
—
—
—
—
—
(531)
—
—
—
—
7,505
(513)
—
—
—
—
—
—
—
—
(124)
—
(175)
—
—
—
64
—
164
—
(303)
(164)
—
305
—
(1,056)
264
1,288
2,728
—
—
—
(915)
—
(1,992)
2,006
—
(2,603)
166
1,462
—
—
(164)
—
—
—
(139)
—
341
—
—
—
(230)
—
(164)
(531)
—
(1,056)
1
1,288
9,704
(513)
—
(2,603)
—
1,462
September 30, 2016 . . . . . .
$168
$38
$6,992
$(111)
$ 2,364
$(1,512)
$ 111
$ 8,050
(1) On the first day of fiscal 2015, we prospectively adopted new Swiss accounting rules. The most significant impact of adoption was
the manner in which we account for treasury shares that we directly hold. Adoption did not impact our accounting for treasury
shares held by a subsidiary. On adoption, shares held in treasury of $164 million was reduced to zero with a corresponding
reduction in total shareholders’ equity via the creation of shares held in treasury and reserves for treasury shares was 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.
Authorized Share Capital
In March 2016, our shareholders approved and extended through March 2, 2018 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 30, 2016, no
additional shares had been issued under this authorization.
Conditional Share Capital
Subject to certain conditions specified in our articles of association, we are authorized to increase
our conditional share capital by issuing new shares in aggregate not exceeding 50% of our authorized
shares. As of September 30, 2016, no conditional shares had been issued.
118
4. Equity (Continued)
Own Shares Held in Treasury and Treasury Shares held by a Subsidiary
During the fiscal years ended September 30, 2016 and September 25, 2015, activity related to
common shares held in treasury by us was as follows:
Common shares held as of September 26, 2014 .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder-approved retirements . . . . . . . . .
Common shares held as of September 25, 2015 .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder-approved retirements . . . . . . . . .
Common shares held as of September 30, 2016 .
Number of
Shares
(in millions)
Total Cost
(in CHF
millions)
Total Cost
(in USD
millions)
2
17
(5)
14
43
(31)
26
CHF 150
1,011
(286)
$
164
1,056
(305)
875
2,583
(1,957)
915
2,603
(2,006)
CHF 1,501
$ 1,512
In fiscal 2016 and 2015, our shareholders approved the cancellation of 31 million shares and
5 million shares, respectively, purchased under our share repurchase program. These capital reductions
by cancellation of shares were subject to a notice period and filing with the commercial register in
Switzerland.
We acquire treasury shares with the intent to retire them using a virtual secondary trading line
(‘‘Secondary Line’’). Pursuant to this Secondary Line, we acquired 43 million shares at a historical cost
of CHF 2,583 million (equivalent to $2,603 million) in fiscal 2016 and 17 million shares at a historical
cost of CHF 1,011 million (equivalent to $1,056 million) in fiscal 2015.
Treasury shares held by us and a subsidiary at September 30, 2016 totaled 26 million and 2 million,
respectively, with a combined historical cost of CHF 1,611 million (equivalent to $1,624 million).
Treasury shares held by us and a subsidiary at September 25, 2015 totaled 14 million and 6 million,
respectively, with a combined historical cost of CHF 1,189 million (equivalent to $1,256 million).
During fiscal 2016 and 2015, our board of directors authorized increases of $1 billion and
$3 billion, respectively, in the share repurchase program. We and our subsidiary repurchased
approximately 43 million of our common shares for CHF 2,589 million (equivalent to $2,610 million)
and approximately 18 million of our common shares for CHF 1,115 million (equivalent to $1,163)
during fiscal 2016 and 2015, respectively. At September 30, 2016, we had CHF 1,068 (equivalent to
$1,102 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 30, 2016 and September 25, 2015, reserves from capital contributions were
CHF 7,878 million (equivalent to $6,992 million) and CHF 8,392 million (equivalent to $7,505 million),
respectively.
General Reserve from Earnings
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.
119
4. Equity (Continued)
Our current appropriation of CHF 49 million (equivalent to $38 million) satisfies the requirements of
the Swiss Code of Obligations with respect to the general reserve.
Distributions to Shareholders
Under current Swiss tax 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.
During the quarters ended December 26, 2014 and March 27, 2015, we paid the third and fourth
installments of the dividend approved in March 2014 at a rate of $0.29 per installment.
In March 2015, our shareholders approved a dividend payment to shareholders of $1.32
(approximately CHF 1.27, based on the exchange rate on the date of approval) per share out of
reserves from capital contributions, payable in four quarterly installments of $0.33 per share beginning
in the third quarter of fiscal 2015 through the second quarter of fiscal 2016.
In March 2016, our shareholders approved a dividend payment to shareholders of $1.48
(approximately CHF 1.48, based on the exchange rate on the date of approval) per share out of
reserves from capital contributions, payable in four quarterly installments beginning in the third quarter
of fiscal 2016 through the second quarter of fiscal 2017. We paid the installments of the dividend at a
rate of $0.37 per share during each of the quarters ended June 24, 2016 and September 30, 2016. We
have reflected a liability related to the unpaid distributions in approved but unpaid distributions to
shareholders on our balance sheets.
5. Non-Employee Director and Executive Compensation
For information regarding non-employee director and executive compensation, see our Swiss
Statutory Compensation Report.
6. Security Ownership of Board of Directors and Executive Officers
Board of Directors
The following table sets forth the shares, options and share units held as of September 30, 2016
and September 25, 2015 by each member of our board of directors serving on our board at
September 30, 2016. The share ownership of Mr. Lynch, our Chairman and Chief Executive Officer,
120
6. Security Ownership of Board of Directors and Executive Officers (Continued)
and Mr. Curtin, our President and a member of the board of directors, is set forth in Executive
Management below.
Board of Directors:
Pierre R. Brondeau . . . . . . . . . . . . . . . . . . . . . . . .
Carol A. (‘‘John’’) Davidson(2) . . . . . . . . . . . . . . . . .
Juergen W. Gromer . . . . . . . . . . . . . . . . . . . . . . . .
William A. Jeffrey . . . . . . . . . . . . . . . . . . . . . . . . .
Yong Nam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daniel J. Phelan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paula A. Sneed . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark C. Trudeau(2) . . . . . . . . . . . . . . . . . . . . . . . . .
John C. Van Scoter(3)
. . . . . . . . . . . . . . . . . . . . . . .
Laura H. Wright . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year
Shares
Held
DSUs Held(1)
2016
2015
2016
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2016
2015
2016
2015
21,878
19,646
4,857
77,477
77,477
10,986
9,106
10,986
9,106
20,031
18,151
21,231
19,351
1,257
25,127
23,247
5,209
3,329
12,618
12,334
—
41,964
38,512
—
—
—
—
12,618
12,334
15,489
15,140
—
6,758
6,605
—
—
(1) Directors hold deferred share units (‘‘DSUs’’). 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.
(2) Messrs. Davidson and Trudeau were first elected to our board of directors on March 2, 2016.
(3)
Includes 22,627 shares as of September 30, 2016 and 16,355 shares as of September 25, 2015 held by
a limited liability company owned by Mr. Van Scoter and his spouse. Also includes 400 shares held
by Mr. Van Scoter’s spouse as of September 30, 2016 and September 25, 2015.
121
6. Security Ownership of Board of Directors and Executive Officers (Continued)
Executive Management
The following table sets forth the shares, options and share units held as of September 30, 2016
and September 25, 2015 by each member of our executive management serving in such position as of
September 30, 2016.
Shares Options
Year Held
Held
Options
PSUs
Fiscal Years
Exercise Price(1) of Expiration Held(2) Held(3)
RSUs
Executive Management:
Thomas J. Lynch(4)
Steven T. Merkt
John S. Jenkins, Jr.
Terrence R. Curtin(5)
. . . . . . . . . . . . . . 2016
2015
Joseph B. Donahue . . . . . . . . . . . . . . . 2016
2015
. . . . . . . . . . . . . . . 2016
2015
. . . . . . . . . . . . . . . . . 2016
2015
Heath A. Mitts(6)
. . . . . . . . . . . . . . . . 2016
Timothy J. Murphy(7) . . . . . . . . . . . . . . 2016
James O’Toole . . . . . . . . . . . . . . . . . . 2016
2015
Kevin N. Rock(8) . . . . . . . . . . . . . . . . . 2016
2015
Robert N. Shaddock . . . . . . . . . . . . . . 2016
2015
Joan E. Wainwright . . . . . . . . . . . . . . . 2016
2015
. . . . . . . . . . . . . . . 2016 384,179 2,852,765
2015 332,639 3,386,552
693,700
581,800
251,688
295,150
140,850
102,600
246,026
178,876
—
61,300
— 138,088
154,076
156,500
115,450
296,150
367,950
119,888
96,888
40,181
40,181
38,825
25,178
816
2,558
13,051
1,600
—
4,507
4,929
32,002
20,725
34,474
18,570
33,812
36,164
$24.60 - $65.95
$24.60 - $61.50
$33.73 - $72.13
$33.73 - $72.13
$34.05 - $65.95
$34.05 - $61.50
$34.05 - $65.95
$34.05 - $61.50
$34.05 - $65.95
$34.05 - $61.50
—
$33.88 - $65.95
$34.05 - $65.95
$34.05 - $61.50
$34.05 - $72.13
$34.05 - $72.13
$33.73 - $61.50
$29.15 - $61.50
$34.05 - $65.95
$34.05 - $61.50
2020 - 2026
2017 - 2025
2021 - 2026
2021 - 2025
2023 - 2026
2021 - 2025
2023 - 2026
2023 - 2025
2021 - 2026
2021 - 2025
2022 - 2026
2023 - 2026
2021 - 2025
2022 - 2026
2022 - 2025
2021 - 2025
2018 - 2025
2022 - 2026
2022 - 2025
49,993
91,484
16,643
29,817
29,239
41,281
10,344
16,709
39,827
46,134
— 76,650
3,541
24,112
31,137
4,346
15,662
36,564
40,096
5,766
10,880
152,312
157,417
54,439
51,828
44,228
48,106
25,649
23,716
34,621
34,158
—
5,961
28,160
31,364
16,885
12,687
20,233
34,194
16,814
18,815
(1) Each option provides the right to purchase one share at the exercise price. Subject to acceleration upon certain
events, the share options are exercisable in equal installments on anniversaries of the grant dates.
(2) Executive management holds restricted share units (‘‘RSUs’’). 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.
(3) The performance share unit (‘‘PSU’’) amounts in the table above assume achievement of target level of performance
including target dividend equivalent units through September 30, 2016 and September 25, 2015, respectively. 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 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. Annual PSU awards were granted on November 14, 2013,
November 10, 2014 and November 9, 2015. Certain members of executive management also received PSU awards on
February 2, 2015 and March 9, 2015. Year One certification results relating to the November 14, 2013 grant
occurred on December 8, 2014 and the following shares were reserved: (Mr. Lynch—24,281; Mr. Curtin—7,446;
Mr. Donahue—7,446; Mr. Jenkins—3,888; Mr. Merkt—5,503; Mr. O’Toole—4,857; Mr. Rock—1,620;
Mr. Shaddock—5,666; and Ms. Wainwright—2,912). Year Two certification results relating to the November 14, 2013
grant occurred on December 14, 2015 and the following shares were reserved: (Mr. Lynch—18,354; Mr. Curtin—
5,628; Mr. Donahue—5,628; Mr. Jenkins—2,939; Mr. Merkt—4,160; Mr. O’Toole—3,671; Mr. Rock—1,225;
Mr. Shaddock—4,283; and Ms. Wainwright—2,201). Year One certification results relating to the November 10, 2014
grant occurred on December 14, 2015 and the following shares were reserved: (Mr. Lynch—19,181; Mr. Curtin—
5,414; Mr. Curtin—1,353 (relating to a March 9, 2015 grant); Mr. Donahue—5,191; Mr. Jenkins—2,934;
Mr. Merkt—4,061; Mr. Murphy—167 (relating to a February 2, 2015 grant); Mr. O’Toole—3,383; Mr. Rock—1,353;
Mr. Rock—720 (relating to a March 9, 2015 grant); Mr. Shaddock—3,949; and Ms. Wainwright—2,030).
122
6. Security Ownership of Board of Directors and Executive Officers (Continued)
(4) Mr. Lynch is chairman of the board of directors and chief executive officer.
(5) Mr. Curtin is a member of the board of directors and president. On September 29, 2016, the board of directors
appointed Mr. Curtin to succeed Mr. Lynch as Chief Executive Officer of TE Connectivity Ltd. effective March 9,
2017.
(6) Mr. Mitts became a member of executive management in September 2016.
(7) Mr. Murphy became a member of executive management in March 2016.
(8)
Includes 18,676 shares held in a family trust over which Mr. Rock has dispositive power. Mr. Rock became a
member of executive management in March 2015.
For additional information regarding share-based compensation arrangements, see the TE Group’s
consolidated financial statements and our Swiss Statutory Compensation Report.
7. 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 30,
2016.
Name and Address of Beneficial Owner
Number
of Shares
Percentage
of Class
Dodge & Cox(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,300,732
9.9%
555 California Street, 40th Floor
San Francisco, CA 94104
Harris Associates L.P.(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,100,322
8.2%
111 S. Wacker Drive, Suite 4600
Chicago, IL 60606
The Vanguard Group(3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,635,356
6.1%
100 Vanguard Blvd.
Malvern, PA 19355
(1) This information is based on a Schedule 13G/A filed with the SEC on February 12, 2016 by
Dodge & Cox, which reported sole voting power and sole dispositive power as follows: sole voting
power—34,051,956 and sole dispositive power—35,300,732.
(2) This information is based on a Schedule 13G/A filed with the SEC on February 10, 2016 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—28,102,980 and sole dispositive power—
28,102,980. 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.
(3) This information is based on a Schedule 13G/A filed with the SEC on February 11, 2016 by The
Vanguard Group, which reported sole voting power, sole dispositive power and shared dispositive
power as follows: sole voting power—646,906, sole dispositive power—20,941,185, and shared
dispositive power—694,171.
123
8. Subsidiaries
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, were as
follows as of September 30, 2016:
Entity Name
Jurisdiction
Direct or
Indirect
Holding(1)
Nominal
Capital(2)
Purpose(3)
Tyco Electronics Group S.A.
Tyco Electronics Holdings (Bermuda) No. 7
. . . . . . . . . . . . . . .
Luxembourg
Direct
$1
Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bermuda
. . . . . . . . . . . . . . Hong Kong
TE Connectivity HK Limited.
Luxembourg
TE Connectivity Holding International II S.a r.l. .
Switzerland
TE Connectivity Solutions GmbH . . . . . . . . . . . .
China
Tyco Electronics (Shanghai) Co., Ltd.
. . . . . . . .
Germany
TE Connectivity Germany GmbH . . . . . . . . . . . .
Tyco Electronics AMP Korea Co., Ltd.
South Korea
. . . . . . .
Tyco Electronics Corporation . . . . . . . . . . . . . . . United States
Luxembourg
Tyco Electronics Holding S.a r.l.
Japan
Tyco Electronics Japan G.K.
Singapore
Tyco Electronics Singapore Pte Ltd.
Tyco Electronics Subsea Communications LLC . . United States
. . . . . . . . . . . .
. . . . . . . . . . . . . . .
. . . . . . . . . .
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
$—
$380
$—
CHF—
CNY 6
EUR 78
KRW 6,811
$625
$593
JPY 21,776
$183
$—
F
F
S
F
S
M
M
M
M
F
M
S
M
(1) All subsidiaries labelled as ‘‘direct’’ are wholly-owned by us. All subsidiaries labelled as ‘‘indirect’’ are wholly-
owned indirectly by us.
(2) Nominal capital is presented in millions for the currencies noted as of September 30, 2016. Nominal capital
denoted with a ‘‘—’’ is insignificant.
(3)
‘‘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.
9. Subsequent Events
We have evaluated subsequent events through November 15, 2016, the date the Swiss Statutory
Financial Statements were issued, and determined that no significant subsequent events have occurred
through this date requiring adjustment to the Swiss Statutory Financial Statements or disclosures.
Proposed Appropriation of Accumulated Earnings
Our board of directors will propose, in conjunction with our annual general meeting, that we carry
forward unappropriated accumulated earnings of CHF 1,594 million as included in our balance sheet as
of September 30, 2016.
124
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 30, 2016, and
the statement of operations and notes 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 30, 2016 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, Code of Obligations (‘‘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.
125
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/ Matthias Gschwend
Licensed Audit Expert
Auditor in charge
Zurich, November 15, 2016
/s/ Dominik Voegtli
Licensed Audit Expert
126
TE Connectivity Ltd.
Swiss Statutory Compensation Report
September 30, 2016
127
A General
Under the Swiss ordinance against excessive pay in stock exchange listed companies (the ‘‘Minder
Ordinance’’) we are required to prepare a separate Swiss Statutory Compensation Report each year
that contains specific items in a presentation format determined by these regulations. This report must
be included in the materials made available to our shareholders each year.
Our executive management (as defined under Swiss law) for fiscal 2016 consisted of Thomas
Lynch, Chairman and Chief Executive Officer; Terrence Curtin, President; Joseph Donahue, Executive
Vice President and Chief Operating Officer; John S. Jenkins, Jr., Executive Vice President and General
Counsel; Heath Mitts, Executive Vice President and Chief Financial Officer; Steven Merkt, President,
Transportation Solutions; Timothy Murphy, Senior Vice President and Chief Human Resource Officer;
James O’Toole, President, Communications Solutions; Kevin Rock, President, Industrial Solutions;
Robert Shaddock, Executive Vice President and Chief Technology Officer; and Joan Wainwright,
President, Channel and Customer Experience. Mario Calastri, served as Interim Chief Financial Officer
for part of fiscal 2016; Robert Hau, former Executive Vice President and Chief Financial Officer and
Jane Leipold, former Senior Vice President, Global Human Resources were considered part of
executive management during part of fiscal 2016 and full fiscal 2015 and are included in this report.
The following sets forth the compensation for the years ended September 30, 2016 and
September 25, 2015, of the members of the Board of Directors and Executive Management for all of
the functions that they have performed for TE Connectivity. This report contains all elements of
compensation paid, granted or promised to the Board of Directors and Executive Management.
For more detailed information about compensation for our Board of Directors and Executive
Management, please review our Definitive Proxy Statement for our 2017 Annual Meeting of
Shareholders. You may access this report on the Investor Relations section of our website at
http://investors.te.com/financial-reports/annual-reports/default.aspx.
B. Compensation of the Board of Directors
Compensation paid for fiscal 2016 and 2015 to each director who is not our salaried employee or
an employee of our subsidiaries was based on the following fee structures:
Annual retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional annual fees:
Fee Structure
Cash
Equity
$90,000
$160,000
Lead Independent Director . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating, Governance & Compliance Committee Chair . . .
Management, Development & Compensation Committee
$30,000
$25,000
$10,000
$15,000
Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,000
In addition to the compensation described above, 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.
TE Connectivity will also provide company matching gift contributions on behalf of certain directors
under TE Connectivity’s matching gift program up to a maximum of $10,000 per year.
Our board members also receive non-compensatory reimbursement for expenses incurred in
attending board and committee meetings or performing other services for us in their capacities as
128
B. Compensation of the Board of Directors (Continued)
directors. Such expenses include food, lodging and transportation. Directors who are employees of us
or our subsidiaries, including our current 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 equivalents or additional DSUs are credited to a non-employee director’s DSU account when
dividends or distributions are paid on our common shares.
The following table discloses the cash and equity awards paid to each of our non-employee
directors for fiscal 2016 and 2015.
Table 1
Name
Pierre Brondeau . . . . . . . . . . . . . . . . . . .
Carol (John) Davidson(4)
. . . . . . . . . . . . .
Juergen Gromer . . . . . . . . . . . . . . . . . . .
William Jeffrey . . . . . . . . . . . . . . . . . . . .
Yong Nam . . . . . . . . . . . . . . . . . . . . . . . .
Daniel Phelan . . . . . . . . . . . . . . . . . . . . .
Paula Sneed . . . . . . . . . . . . . . . . . . . . . .
David Steiner(5) . . . . . . . . . . . . . . . . . . . .
Mark Trudeau(4) . . . . . . . . . . . . . . . . . . . .
John Van Scoter . . . . . . . . . . . . . . . . . . .
Laura Wright . . . . . . . . . . . . . . . . . . . . . .
Fees Earned
or Paid in
Cash
($)(1)
Fiscal Year
2016
2015
2016
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2016
2015
2016
2015
$135,000
$120,417
$ 58,333
$100,000
$100,000
$ 90,000
$ 90,000
$ 90,000
$ 90,000
$110,000
$101,667
$ 90,000
$ 90,000
$ 41,667
$100,417
58,333
$ 90,000
$ 90,000
$115,000
$108,750
Dividend
Equivalent
Units and
Other
Compensation
($)(3)
$27,393
$25,135
$27,500
$57,869
$47,238
—
—
$64,651
—
$24,893
$31,008
$38,204
$28,595
$ 8,156
$25,135
$45,000
$ 9,620
$ 9,091
$10,000
$10,000
Stock
Awards
($)(2)
$196,333
$172,815
$ 99,353
$165,337
$172,815
$165,337
$172,815
$165,337
$172,815
$165,337
$172,815
$165,337
$172,815
$ 82,701
$172,815
99,353
$165,337
$172,815
$165,337
$172,815
Total
($)(6)
$358,726
$318,367
$185,186
$323,206
$320,053
$255,337
$262,815
$319,988
$262,815
$300,230
$305,490
$293,541
$291,410
$132,524
$298,367
$202,686
$264,957
$271,906
$290,337
$291,565
(1) The amounts shown represent the amount of cash compensation earned in fiscal 2016 and 2015 for Board and committee
services. Dr. Brondeau received additional fees for his work as lead independent director for fiscal year 2016 and 2015
(starting March 2015). For fiscal year 2016 and starting in March 2015, Dr. Brondeau, Mr. Phelan and Ms. Wright each
129
B. Compensation of the Board of Directors (Continued)
received additional fees for their roles as chairs of the nominating, governance and compliance committee, the management
development and compensation committee and the audit committee, respectively. For fiscal year 2016 Dr. Gromer received
for the full year an additional cash retainer for serving on the audit committee, Mr. Steiner received an additional audit
committee cash retainer for serving on the committee for quarter one and two months during quarter two. Mr. Davidson
and Mr. Trudeau each received an additional audit committee cash retainer for serving on the committee for one month
during quarter two and the last two full quarters of fiscal year 2016. For fiscal 2015, Dr. Brondeau and Ms. Wright each
received an additional audit committee cash retainer for serving on the committee until March 2015. Mr. Steiner received
an additional audit committee cash retainer for serving on the committee for two months during quarter three and
Dr. Gromer received an additional audit committee cash retainer for serving on the committee for fiscal year 2015.
(2) On November 9, 2015, Dr. Brondeau, Dr. Jeffrey, Mr. Nam, Mr. Phelan, Ms. Sneed, Mr. Van Scoter and Ms. Wright each
received a grant of 2,507 common shares. Dr. Brondeau received an additional 470 common shares in equity compensation
as a special one-time grant as a result of the Board’s assessment of the roles and responsibilities of the Lead Director in
fiscal 2016. Dr. Gromer received an award of 2,507 DSUs. 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 ($63.82 per share), the same
methodology used to determine employee equity awards. The grant date fair value of these awards, as shown above for
fiscal year 2016, was calculated by using the closing price of TE Connectivity Ltd. common shares on the date of grant
($65.95 per share). As of September 30, 2016, the aggregate number of DSUs outstanding for each non-employee director
was as follows: Dr. Brondeau—12,618; Dr. Gromer—41,964; Mr. Phelan—12,618; Ms. Sneed—15,489; Mr. Van Scoter—
6,758. On March 2, 2016, Mr. Davidson and Mr. Trudeau received a grant of 1,676 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 ($55.69 per share), the same methodology used to determine employee equity awards. The grant date fair
value of these awards, as shown above for fiscal 2016, was calculated by using the closing price of TE Connectivity Ltd.
common shares on the date of grant ($59.28 per share). On November 10, 2014, Dr. Brondeau, Dr. Jeffrey, Mr. Nam,
Mr. Phelan, Ms. Sneed, Mr. Steiner and Mr. Van Scoter each received a grant of 2,810 common shares. Dr. Gromer
received an award of 2,810 DSUs. In fiscal 2015, 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 ($56.94 per share), the same methodology
used to determine employee equity awards. The grant date fair value of these awards, as shown above for fiscal 2015, was
calculated by using the closing price of TE Connectivity Ltd. common shares on the date of grant ($61.50 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 Ms. Sneed in fiscal 2016 and Mr. Phelan in
fiscal 2015 for expenses incurred when attending continuing education courses. The $57,869 and $47,238 amounts reported
in fiscal 2016 and 2015, respectively, for Dr. Gromer are the dividend equivalent unit amount earned on his DSU awards.
For Mr. Nam, the $64,651 represents the payment by the Company of Mr. Nam’s Swiss social tax obligations for the period
2012–2015 (and additional amounts paid to Mr. Nam to cover income tax obligations on the Company’s social tax payment)
as a result of the Company’s failure to notify Mr. Nam of his Swiss social tax obligations and to withhold the Swiss social
tax amounts as required. Mr. Nam was responsible for his ongoing Swiss social tax obligations effective January 1, 2016. In
fiscal 2016 Messrs. Davidson and Trudeau received fees, in the amount of $22,500 and $45,000, respectively, for consulting
services performed prior to being elected to the board.
(4) On March 2, 2016, Messrs. Davidson and Trudeau were elected to our Board of Directors. Cash compensation for
Messrs. Davidson and Trudeau was pro-rated for service during fiscal year 2016.
(5) On November 9, 2015, Mr. Steiner received a grant of 1,254 common shares. Mr. Steiner left the board effective March 2,
2016. The number of common shares issued to Mr. Steiner was determined in the same manner applied to all grants on
November 9, 2015 and reflects a pro-ration of his service during fiscal 2016. Cash compensation for Mr. Steiner was also
pro-rated for his service during fiscal 2016.
(6) The company has not made any loans or extended credit to any current or former member of the Board of Directors.
130
c. Compensation of Executive Management
The following table presents information concerning Executive Management’s 2016 and 2015
compensation.
Table 2
Change in
Pension
Value and
Nonqualified
Deferred
Non-Equity
Name and Principal Position
Year
($)
($)
Salary(3) Bonus
Stock
Awards(4)
($)
Option
Awards(5) Compensation(6)
Incentive Plan Compensation
Earnings(7)
($)
All Other
Compensation(8)
($)
Total(9)
($)
($)
($)
Thomas J. Lynch, Chief .
.
.
Executive Officer
. 2016 $1,200,000 — $ 3,875,222 $4,020,726
2015 $1,200,000 — $ 4,590,360 $4,682,416
All Other Executive .
.
.
.
.
Management(1)
. 2016 $6,122,321 — $13,125,894 $8,241,510
2015(2)$6,014,607 — $14,921,633 $9,549,126
$1,722,600
$1,080,000
$4,345,074
$3,216,328
—
—
$245,958
$ 90,816
$ 557,736
$ 612,301
$1,477,961
$2,516,976
$11,376,284
$12,165,077
$33,558,718
$36,309,486
(1)
(2)
(3)
(5)
(6)
(7)
(8)
The executive management team for Swiss reporting purposes includes Mr. Curtin, Mr. Donahue, Mr. Jenkins, Ms. Leipold, Mr. Merkt,
Mr. Murphy, Mr. O’Toole, Mr. Rock, Mr. Shaddock, Ms. Wainwright and Mr. Hau until his last day of work in March 2016. Mr. Calastri was
interim Chief Financial Officer (‘‘CFO’’) from March 2016 until September 2016. Mr. Mitts became CFO on September 12, 2016.
2015 total compensation does not include Messrs. Murphy and Calastri as they were not members of the executive management team for
Swiss reporting purposes in fiscal 2015. Mr. Mitts was not an employee in fiscal 2015.
Amounts shown are not reduced to reflect the named executive officers’ elections, if any, to defer receipt of salary into the Supplemental
Savings and Retirement plan (‘‘SSRP), a nonqualified supplemental retirement plan for management and executive level employees.(4) 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 value of PSUs included in the table
assumes target performance. All dividend equivalent units earned on unvested RSUs and PSUs are reported in the All Other Compensation
column.
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 program. 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 four executives in 2016 and 2015 under the frozen
pension plan.
See the All Other Compensation table below for a breakdown of amounts which include perquisites, matching contributions associated with
the company’s 401(k) plan and nonqualified defined contribution plan, 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 values of the
benefits are not shown in the table.
(9)
The company has not made any loans or extended credit to any current or former member of Executive Management.
All Other Compensation
Insurance
Perquisites(a) Premiums(b)
Name
Thomas J. Lynch .
.
.
.
.
Year
($)
. 2016
2015
$119,631
$ 84,569
All Other Executive
.
Management
.
.
.
.
.
. 2016
2015
$143,940
$576,830
($)
—
—
$673
$620
Dollar
Value of
Dividends
not factored
into Grant Contributions
Date Fair
Value(c)
($)
to DC
plans(d)
($)
Company
Employee
Stock
Purchase Payment for
Plan
(‘‘ESPP’’)
Company
Match(e)
($)
unused
vacation/
personal
time(f)
($)
Total
All Other
Severance(g) Compensation
($)
($)
$301,305
$304,964
$136,800
$222,768
—
—
—
—
—
—
$ 557,736
$ 612,301
$707,434
$710,646
$623,964
$800,683
$1,950
$1,950
—
$17,371
—
$408,876
$1,477,961
$2,516,976
(a)
Perquisites consisting of the following:
(cid:127) Amounts in fiscal 2016 and 2015 include the incremental cost to us of Mr. Lynch’s non-business use of our aircraft. Mr. Lynch is
permitted to use the corporate aircraft for business and non-business purposes. The incremental cost to us during fiscal year 2016 and
2015 includes the direct variable cost and value of the lost corporate tax benefit associated with Mr. Lynch’s travel to attend Thermo
131
c. Compensation of Executive Management (Continued)
Fisher Scientific Inc. and Cummins Inc. board meetings, as Mr. Lynch is a member of the board of directors of both companies, and
occasional personal use. Amounts also include for one executive in fiscal 2015 the incremental cost to us of non-business travel after the
conclusion of a business trip. Executive officers have limited access to the use of the corporate aircraft for non-business purposes.
Amounts in fiscal 2016 for four executives reflect an attendance gift provided to all attendees at a certain business meeting. Amounts in
fiscal 2015 for Mr. Lynch and five other executives reflect an attendance gift provided to all attendees at a certain business meeting.
(cid:127) Amounts reflect a cash perquisite paid for all of fiscal 2016 for one executive and the first quarter of fiscal 2016 for one executive. For
fiscal 2015 amounts reflect a cash perquisite paid for the first two quarters for one executive. The executive perquisites allowance program
provides a cash allowance of 10% of base salary for executives whose employment is based in the United States.
(cid:127) Amounts for fiscal 2016 and fiscal 2015 include various miscellaneous fees and expenses, personal tax preparation assistance, international
tax payments and U.S. tax gross-up payments pertaining to expatriate assignments for three executives. Due to the timing of payments, the
following range of exchange rates, primarily as determined by TE Connectivity finance, were used to convert amounts reported or paid in
EUR to U.S. dollars: $1.06–$1.15:EUR in fiscal 2016 and $1.08–$1.27:EUR 1 in fiscal 2015 and CNY to U.S. dollars: $0.149–$0.158 in
fiscal 2016 and $0.159–$0.164 in fiscal 2015.
(cid:127) Fiscal 2016 amounts include relocation expenses for one executive.
Additional income reported for participation in a company paid split dollar life insurance program for one executive.
The value of dividend equivalent units credited in the fiscal year to each individual’s unvested RSUs and PSUs using the closing price on the
date of the crediting. The dividend equivalent unit value associated with the PSUs reflects target performance and will be adjusted based on
certified performance results following the close of the three-year performance period.
Contributions made on behalf of the named executive officers under TE Connectivity’s qualified defined contribution plan and accruals on
behalf of the named executive officers under the SSRP (a nonqualified defined contribution excess plan).
Name
Mr. Lynch .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
All Other Executive Management .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Company Matching
Contribution
(Qualified Plan)(*)
Company
Contribution
(Non-Qualified Plan)
$ 15,900
$ 15,900
$172,451
$170,353
$120,900
$206,868
$451,514
$630,330
Year
2016
2015
2016
2015
(*)
Included in the amount above is an additional matching contribution of $5,830 and $6,360 for fiscal 2016 and $5,720 and $6,240 for
fiscal 2015 for two executives as a result of a frozen defined benefit plan.
The company matching contribution made under the TE Connectivity employee stock purchase plan for one executive.
For fiscal 2015, amount includes the value of unused vacation and personal time paid to one executive as a result of local state law
requirements.
For fiscal 2015, amount includes the value of severance payments for one executive, as per the terms of an employment agreement entered
into before January 1, 2014.
(b)
(c)
(d)
(e)
(f)
(g)
132
BOARD OF DIRECTORS
Thomas J. Lynch
Chairman and
Chief Executive Officer,
TE Connectivity Ltd.
Dr. Pierre R. Brondeau*
President, Chairman, and
Chief Executive Officer,
FMC Corporation
Terrence R. Curtin
President and Director,
TE Connectivity Ltd.
Carol A. “John” Davidson
Retired Senior Vice President,
Controller and Chief Accounting
Officer,
Tyco International Ltd.
Dr. Juergen W. Gromer
Retired President,
Tyco Electronics
Dr. William A. Jeffrey
Chief Executive Officer
and President,
SRI International
Yong Nam
Advisor to the CEO,
Daelim Industrial Co. Ltd.
Former Chief Executive Officer,
LG Electronics Inc.
Daniel J. Phelan
Retired Chief of Staff,
GlaxoSmithKline plc
Mark C. Trudeau
President and Chief Executive
Officer,
Mallinckrodt plc
Paula A. Sneed
Chair and Chief Executive Officer,
Phelps Prescott Group, LLC
Retired Executive Vice President,
Kraft Foods Inc.
John C. Van Scoter
President, Chief Executive Officer,
and Director,
eSolar, Inc.
Laura H. Wright
Founder, GSB Advisors
Retired Chief Financial Officer,
Southwest Airlines Co.
*Lead Independant Director of the TE Connectivity Ltd. Board of Directors
LEADERSHIP TEAM AND OFFICERS
Thomas J. Lynch
Chairman and
Chief Executive Officer
John S. Jenkins, Jr.
Executive Vice President,
General Counsel
Robert J. Ott
Senior Vice President,
Corporate Controller
Terrence R. Curtin
President and Director
Steven T. Merkt
President,
Transportation Solutions
Jeanne Quirk
Senior Vice President,
Mergers and Acquisitions
Mario Calastri
Senior Vice President,
Treasurer
Heath A. Mitts
Executive Vice President,
Chief Financial Officer
Eric J. Resch
Senior Vice President,
Chief Tax Officer
Que Dallara
Senior Vice President,
Corporate Strategy
Timothy J. Murphy
Senior Vice President,
Chief Human Resources Officer
Kevin N. Rock
President,
Industrial Solutions
Joseph B. Donahue
Executive Vice President,
Chief Operating Officer
Minoru Okamoto
Senior Advisor to the CEO
Joseph F. Eckroth, Jr.
Senior Vice President,
Chief Information Officer
James O’Toole
President,
Communications Solutions
Amy (Shah) Summy
Senior Vice President,
Chief Marketing Officer
Joan E. Wainwright
President,
Channel and
Customer Experience
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2016 ANNUAL REPORT
ADVANCING CONNECTIVITY FOR
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
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 that ended
September 30, 2016 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.
www.te.com
© 2017 TE Connectivity Ltd. All Rights Reserved.
001-AR-FY2016
TE Connectivity, TE, TE connectivity (logo) are trademarks of the TE Connectivity family of companies.
Other logos, product, and/or company names may be trademarks of their respective owners.